STOCKHOLDERS AGREEMENT

Exhibit 10.7

 

STOCKHOLDERS AGREEMENT

 

among

 

LCI Holding Company, Inc.

 

LCI Intermediate Holdco, Inc.

 

LCI Holdco, LLC

 

Rainier Acquisition Corp.

 

and

 

Certain Stockholders of LCI Holding Company, Inc.

 

Dated as of August 11, 2005

 

TABLE OF CONTENTS

 

 

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STOCKHOLDERS AGREEMENT

 

This Stockholders Agreement (the “ Agreement ”) is made as of August 11, 2005 by and among:

 

(i)

LCI Holding Company, Inc., a Delaware corporation (together with its successors and permitted assigns, the “ Company ”);

 

(ii)

LCI Intermediate Holdings, Inc., a Delaware corporation (together with its successors and permitted assigns, “ Midco ”);

 

(iii)

LCI Holdco LLC, a Delaware limited liability company (together with its successors and permitted assigns, “ Holdco ”);

 

(iv)

Rainier Acquisition Corp., a Delaware corporation (together with its successors and permitted assigns, “ Merger Sub .”);

 

(v)

each Person executing this Agreement and listed as an Investor on the signature pages hereto (collectively with their Permitted Transferees, the “ Investors ”);

 

(vi)

each Person executing this Agreement and listed as a manager on the signature pages hereto (collectively with their Permitted Transferees, the “ Managers ”);

 

(vii)

such other Persons, if any, that from time to time become party hereto as transferees of Shares pursuant to Section 3.2 (collectively, together with the Investors and the Managers, the “ Stockholders ”) in accordance with the terms hereof.

 

RECITALS

 

1. The Company has been formed for the purpose of acquiring (the “ Acquisition ”), indirectly through one or more subsidiaries, pursuant to an Agreement and Plan of Merger, dated as of July 19, 2005 (the “ Merger Agreement ”), among Holdco, Merger Sub., LifeCare Holdings, Inc. (“ LifeCare ”) and Golder, Thoma, Cressey, Rauner, Inc., in its capacity as Representative for the security holders of LifeCare, all of the outstanding shares of LifeCare. Immediately after the Closing (as defined below), Merger Sub. will merge with and into LifeCare.

 

2. Upon the Closing (as defined below), the Common Stock (as defined below) of the Company will be held as set forth on Schedule I hereto.

 

3. The parties believe that it is in the best interests of the Company, Midco, Holdco, Merger Sub. and the Stockholders to set forth their agreements on certain matters.

AGREEMENT

 

Therefore, the parties hereto hereby agree as follows:

 

1. EFFECTIVENESS; DEFINITIONS.

 

1.1. Closing . This Agreement shall become effective upon consummation of the closing under the Acquisition Agreement (the “ Closing ”).

 

1.2. Definitions . Certain terms are used in this Agreement as specifically defined herein. These definitions are set forth or referred to in Section 10 hereof.

 

2. VOTING AGREEMENT.

 

2.1. Certain Actions . In addition to any other approval required by the certificate of incorporation of the Company, Midco, or LifeCare or by applicable law, the approval of Carlyle Partners IV shall be required to do any of the following, and the Company, Midco, Holdco and Merger Sub. shall not, and shall cause their respective subsidiaries not to, take any of the following actions without the approval of Carlyle Partners IV, who shall have the right to substantially participate in and substantially influence the conduct of the management of the Company and its subsidiaries:

 

2.1.1. Annual Budget . Approve the annual operating budget of the Company and its subsidiaries, modify in any material respect any such budget or take any action that is or would be reasonably likely to be in material variance therefrom.

 

2.1.2. Merger, Consolidation, Change of Control . Enter into or effect any transaction or series of related transactions involving the merger or consolidation of the Company or any of its subsidiaries with or into any Person, other than a merger or consolidation of a direct or indirect wholly-owned subsidiary of the Company with or into the Company or another direct or indirect wholly-owned subsidiary of the Company; or enter into or effect a Change of Control transaction.

 

2.1.3. Indebtedness, etc . Other than a draw down in the ordinary course of business under a debt agreement entered into prior to the date of such draw down the execution of which was previously approved by the Majority Carlyle Investors, incur any indebtedness (including refinancings), assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other Person (provided that the Company or any of its direct or indirect subsidiaries may provide cross-guarantees for any indebtedness that has been approved under this Section 2.1.3), enter into any agreement under which it may incur indebtedness in the future, make any voluntary prepayment of indebtedness of the Company or any of its subsidiaries outside the ordinary course of business, in each case in an aggregate amount in excess of $1,000,000 in any transaction or series of related transactions, or make an amendment to the maturity date, aggregate principal amount or interest rate of existing indebtedness, or make any loan, advance or capital contribution to any Person (other than the Company or any of its wholly-owned subsidiaries),.

 

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2.1.4. Sale of Assets . Enter into or effect any transaction or series of related transactions, involving the sale, lease, exchange or other disposal by the Company or any of its subsidiaries of any assets for consideration having a fair market value (as reasonably determined by the Board) in excess of $1,000,000, other than transactions between and among any of the Company and its direct or indirect wholly-owned subsidiaries.

 

2.1.5. Acquisition of Assets . Enter into or effect any transaction or series of related transactions, involving the purchase, rent, license, exchange or other acquisition by the Company or any of its subsidiaries of any assets for consideration having a fair market value (as reasonably determined by the Board) in excess of $1,000,000.

 

2.1.6. Repurchase of Securities . Enter into or effect any transaction or series of related transactions in connection with or involving the repurchase, redemption or other acquisition of securities of the Company or any of its subsidiaries or in connection with any management incentive program other than (i) repurchases from Investors and (ii) repurchases from, or payments to, managers up to an aggregate of $100,000 with respect to any single manager.

 

2.1.7. Charter and By-laws . Amend or waive any material provisions of the certificate of incorporation or by-laws of the Company or any of its subsidiaries.

 

2.1.8. Acquisition Documents . Amend or waive any material provisions of or otherwise terminate the Acquisition Agreement and any ancillary documents entered into in connection with the Acquisition, including the Credit Agreements and the Indenture (including, in each case, any amendments, restatements or refinancings or replacements thereof). For purposes of this Section 2.1.8, the term “ Credit Agreements ” means the Credit Agreement dated as of August 11, 2005 among LifeCare, Holdco, each lender from time to time party thereto, JPMorgan Chase Bank, N.A., J.P. Morgan Securities, Inc., GECC Capital Markets Group, Inc., General Electric Capital Corporation and Banc of America Securities LLC; and the term “ Indenture ” means the Indenture dated as of August 11, 2005 between Merger Subsidiary and U.S. Bank, National Association, as Trustee.

 

2.1.9. Executive Officers . Hire or remove, with or without cause, the chief executive officer, the chief financial officer, the chief operating officer or any other member of senior management of the Company, Midco, Holdco or Merger Sub., from time to time.

 

2.1.10. Management Transactions . Enter into or effect directly or indirectly any transaction between the Company or one of its subsidiaries, on the one hand, and a member of senior management or any Affiliate thereof, on the other.

 

2.1.11. Equity Issuances . Issue or sell, exchange or otherwise transfer any of its equity securities other than issuances or transfers of equity securities of a subsidiary to the Company or to a wholly-owned subsidiary of the Company.

 

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2.1.12. Acquisition of Securities . Purchase, exchange or otherwise acquire any equity securities of any other Person, other than the acquisition of equity of a direct or indirect wholly-owned subsidiary of the Company.

 

2.1.13. Reorganization . Dissolve, liquidate or engage in any recapitalization or reorganization of the Company or any subsidiary (other than a wholly-owned subsidiary other than LifeCare) or the filing for bankruptcy by the Company or any of its subsidiaries.

 

2.1.14. Dividends . Declare or pay any cash or other dividend or make any other distribution on the capital stock of the Company or on the capital stock of any subsidiary other than dividends or other distributions by a direct or indirect wholly-owned subsidiary of the Company to its equity holder.

 

2.1.15. Material Contracts Outside the Ordinary Course of Business . Enter into any contract involving payments to or from the Company and/or its subsidiaries in excess of $1,000,000 other than any such contract that is in accordance with the annual budget approved under Section 2.1.1 and entered into in the ordinary course of business.

 

2.1.16. Recapitalization . Recapitalize or reclassify existing securities or enter into, or effect, any exchange or tender offer.

 

2.1.17. Litigation . Settle any claim or litigation for an amount in excess of $1,000,000.

 

2.1.18. Nature of Business . Materially change the nature of the business of the Company or its subsidiaries.

 

2.1.19. Financial Auditors . Hire or remove, with or without cause, the independent auditors of the Company.

 

2.1.20. Establishment of Subsidiary . Create or permit to exist any subsidiary of the Company, other than a wholly-owned subsidiary.

 

2.1.21. Management Equity or Severance Programs . Adopt or make a material amendment to any severance or management equity program.

 

2.1.22. Joint Ventures and Alliances . Enter into any joint venture or business alliance other than in the ordinary course of business that has an aggregate value in excess of $1,000,000 in one transaction or series of transactions.

 

2.1.23. Agreement . Agree to do any of the foregoing in Sections 2.1.1 through 2.1.22.

 

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2.2. Directors of the Company and its Subsidiaries .

 

2.2.1. Board of Directors . Each Stockholder agrees to cast all votes to which such Stockholder is entitled in respect of the Shares, whether at any annual or special meeting, by written consent or otherwise, to establish and maintain a Board consisting of the numbers of directors (not less than three) designated from time to time by the Majority Carlyle Investors.

 

2.2.2. Carlyle Partners IV Director . Each Stockholder agrees to cast all votes to which such Stockholder is entitled in respect of the Shares, whether at any annual or special meeting, by written consent or otherwise, (a) to elect one or more designees of Carlyle Partners IV to the Board of the Company pursuant to the Company’s certificate of incorporation (the “ Carlyle Director ”) and (b) to remove any such Carlyle Director if at any time requested to do so by Carlyle Partners IV.

 

2.2.3. CEO Director . Each Stockholder agrees to cast all votes to which such Stockholder is entitled in respect of the Shares, whether at any annual or special meeting, by written consent or otherwise, (a) to elect the Chief Executive Officer of Merger Sub. to the Board of the Company pursuant to the Company’s certificate of incorporation (the “ CEO Director ”) and (b) to remove the CEO Director if at any time the person serving as CEO Director ceases to be the Chief Executive Officer of Merger Sub.

 

2.2.4. Directors of Subsidiaries . The Company will cause the board of directors of Midco and Merger Sub. and the board of managers of Holdco to consist at all times of the same members as the Board of the Company at such time. The boards of directors (or similar managing authority) of all other subsidiaries of the Company will consist of such persons as the Company shall direct.

 

2.3. Significant Transactions . Each Stockholder agrees to cast all votes to which such Stockholder is entitled in respect of the Shares, whether at any annual or special meeting, by written consent or otherwise, in such manner as the Majority Carlyle Investors may instruct by written notice to approve any sale, recapitalization, merger, consolidation, reorganization or any other transaction or series of transactions involving the Company or its subsidiaries (or all or any portion of their respective assets) in connection with, or in furtherance of, the exercise by the Majority Carlyle Investors of their rights under Section 4.2. Each Stockholder hereby grants to Carlyle Partners IV an irrevocable proxy coupled with an interest to vote, including in any action by written consent, such Stockholder’s Shares in accordance with such Stockholder’s agreements contained in this Section 2.3, which proxy shall be valid and remain in effect until the provisions of this Section 2.3 expire pursuant to Section 2.5.

 

2.4. The Company . The Company will not give effect to any action by any Stockholder or any other Person which is in contravention of this Section 2.

 

2.5. Period . Each of the foregoing provisions of this Section 2 shall expire upon a Change of Control.

 

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3. TRANSFER RESTRICTIONS.

 

3.1. Transfers Allowed . No Stockholder shall Transfer any of such Stockholder’s Shares to any other Person except as follows:

 

3.1.1. Permitted Transferees . Subject to Section 3.4, but without regard to any other restrictions on transfer contained elsewhere in this Agreement, any Stockholder may Transfer any or all of such Shares to such Stockholder’s Permitted Transferees.

 

3.1.2. Distributions and Charitable Contributions . At or after the closing of the Initial Public Offering, any Stockholder may Transfer any or all of such Shares in a pro rata Transfer to its partners, members or stockholders without regard to any other restrictions on transfer contained elsewhere in this Agreement. Any Shares so Transferred shall conclusively be deemed thereafter not to be Shares under this Agreement.

 

3.1.3. Public Transfers . Any Stockholder may Transfer any or all of such Shares: (a) in a Public Offering or (b) after the closing of the Initial Public Offering, pursuant to Rule 144 or a block sale to a financial institution in the ordinary course of its trading business, in each case in compliance with Section 3.3 and Section 3.4, but without regard to any other restrictions on transfer contained elsewhere in this Agreement. Shares Transferred in accordance with this Section 3.1.3 shall conclusively be deemed thereafter not to be Shares under this Agreement.

 

3.1.4. Tag Along and Drag Along .

 

(i) Any Stockholder may Transfer any or all of such Shares pursuant to Section 4.2, without regard to any other restrictions on transfer contained elsewhere in this Agreement. Any Shares so Transferred shall conclusively be deemed thereafter not to be Shares under this Agreement.

 

(ii) A Participating Seller may Transfer Shares pursuant to and in accordance with the provisions of Section 4.1 without regard to any other restrictions on transfer contained elsewhere in this Agreement provided that each transferee agrees to be bound by the terms of this Agreement in accordance with Section 3.2 (if not already bound hereby).

 

3.1.5. Other Private Transfers . In addition to any Transfers made in accordance with Sections 3.1.1, 3.1.2, 3.1.3 and 3.1.4, any Stockholder may Transfer any or all of such Shares subject to compliance with all of the following conditions in respect of each Transfer:

 

(i) if such Transfer is prior to the seven year anniversary of the date of the Closing, with the consent of the Majority Carlyle Investors and in compliance with Sections 3.2, 3.4 and 4.1, and if such Transfer is before the closing of the Initial Public Offering and by a Stockholder other than an Investor, Section 4.4; and

 

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(ii) if such Transfer is after the seven year anniversary of the date of the Closing, in compliance with Sections 3.2, 3.4 and 4.1 and, if such Transfer is before the closing of the Initial Public Offering, and by a Stockholder other than an Investor, Section 4.4.

 

Any Shares so Transferred shall conclusively be deemed thereafter to be Shares under this Agreement and each transferee shall be bound by the terms of this Agreement in accordance with Section 3.2.

 

3.2. Certain Transferees to Become Parties . Any transferee receiving Shares in a Transfer pursuant to Section 3.1.1, 3.1.4(ii) or 3.1.5 shall become a Stockholder, party to this Agreement and subject to the terms and conditions of, and be entitled to enforce, this Agreement to the same extent, and in the same capacity, as the Person that Transfers such Shares to such transferee; provided , however , that only a Permitted Transferee of an Investor will be deemed to be an Investor for purposes of this Agreement and provided , further , that any transferee receiving Shares in a Transfer pursuant to Section 3.1.4(ii) or 3.1.5 that is neither a Permitted Transferee nor an Investor will become party to this Agreement as Stockholder without the benefit of the rights of: (a) Tag Along Holders (Section 4.1.1); (b) First Offer Holders (Section 4.4), or (c) Participation Offerees (Section 5). Prior to the Transfer of any Shares to any transferee pursuant to Section 3.1.1, 3.1.4(ii) or 3.1.5, and as a condition thereto, each Stockholder effecting such Transfer shall (x) cause such transferee to deliver to the Company and each of the Investors (other than the transferor) its written agreement, in form and substance reasonably satisfactory to the Company, to be bound by the terms and conditions of this Agreement to the extent described in the preceding sentence and (y) if such Transfer is to a Permitted Transferee, remain directly liable for the performance by such Permitted Transferee of all obligations of such transferee under this Agreement.

 

3.3. Restrictions on Public Transfers under Rule 144 . After the Initial Public Offering, each Specified Holder promptly shall notify each Related Holder (a) when it has commenced a measurement period for purposes of the Rule 144 group volume limit in connection with a Sale that is subject to such limit and (b) what the volume limit for that measurement period, determined as of its commencement, will be. Each Related Holder shall be entitled to effect Sales that are subject to the Rule 144 group volume limit pro rata during the applicable measurement period based on its percentage ownership of Shares held by all holders of Shares at the start of such measurement period. In the event any Related Holder agrees to forego its full pro rata share of the Rule 144 group volume limit by written notice to the Specified Holder and all other Related Holders, the remainder shall be re-allocated pro rata among the Specified Holder and all other Related Holders in like manner (except that the Shares held by such forfeiting Related Holder at the start of such measurement period shall be excluded from such calculation). The provisions of this Section 3.3 shall not apply to any Transfer of Shares (x) in a Public Offering or (y) not subject to volume limitation under Rule 144. For purposes of this Section 3.3, a “ Specified Holder ” means a Stockholder whose sale of Shares pursuant to Rule 144 would be subject to aggregation with another Stockholder (such other Stockholder being a “ Related Holder ”).

 

3.4. Restrictions on Transfers to Strategic Investors . In addition to any other provision of this Agreement, no Stockholder shall Transfer any Shares pursuant to Sections 3.1.1, 3.1.3 or

 

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3.1.5 of this Agreement to a Strategic Investor without the approval of the Majority Carlyle Investors; provided , however , that the restrictions in this Section 3.4 shall not apply to any Transfers (v) to the Company or any of its subsidiaries, (w) to any Investor, (x) to any Affiliated Fund of any Investor, (y) pursuant to Rule 144 effected as “ brokers’ transactions ” (as defined in Rule 144); or (z) pursuant to an underwritten Public Offering or, following the Initial Public Offering, in any transaction in which, to the knowledge of the Stockholder (after reasonable due inquiry), none of the purchaser(s), underwriter(s), if any, nor market maker(s), if any, are acquiring such Shares for the intended purpose of reselling such Shares to any Person that, after giving effect to such resale (if applicable), would own, directly or indirectly, more than five percent (5%) of then outstanding shares of the applicable class of Shares.

 

3.5. Impermissible Transfer . Any attempted Transfer of Shares not permitted under the terms of this Section 3 shall be null and void, and the Company shall not in any way give effect to any such impermissible Transfer.

 

3.6. Notice of Transfer . To the extent any Stockholder or Permitted Transferee shall Transfer any Shares, such Stockholder or Permitted Transferee shall, within three Business Days following consummation of such Transfer, deliver notice thereof to the Company and each Investor.

 

3.7. Period . Each of the foregoing provisions of this Section 3 shall expire upon a Change of Control.

 

4. “TAG ALONG” AND “DRAG ALONG” RIGHTS AND RIGHT OF FIRST OFFER.

 

4.1. Tag Along . Subject to prior compliance with Section 4.4, if applicable, if any Prospective Selling Stockholder proposes to Sell any Shares to any Prospective Buyer(s) that is not a Permitted Transferee (including a First Offer Purchaser pursuant to Section 4.4) in a Transfer that is subject to Section 3.1.5:

 

4.1.1. Notice . The Prospective Selling Stockholder shall, prior to any such proposed Transfer, deliver a written notice (the “ Tag Along Notice ”) to each Stockholder (each, a “ Tag Along Holder ”). The Tag Along Notice shall include:

 

(i) the principal terms and conditions of the proposed Sale, including (i) the number and class of the Shares to be purchased from the Prospective Selling Stockholder, (ii) the fraction(s) expressed as a percentage, determined by dividing the number of Shares of each class to be purchased from the Prospective Selling Stockholder by the total number of Equivalent Shares of each such class held by the Prospective Selling Stockholder (for each class, the “ Tag Along Sale Percentage ”) (it being understood that the Company shall reasonably cooperate with the Prospective Selling Stockholder in respect of the determination of each applicable Tag Along Sale Percentage), (iii) the per share purchase price or the formula by which such price is to be determined and the payment terms, including a description of any non-cash consideration sufficiently detailed to permit valuation thereof, (iv) the name and address of each Prospective Buyer and (v) the proposed Transfer date; and

 

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(ii) an invitation to each Tag Along Holder to make an offer to include in the proposed Sale to the applicable Prospective Buyer(s) Equivalent Shares of the same class(es) being sold by the Prospective Selling Stockholder held by such Tag Along Holder (not in any event to exceed the Tag Along Sale Percentage of the total number of Equivalent Shares of the applicable class held by such Tag Along Holder), on the same terms and conditions (subject to Section 4.3.4 in the case of Options, Warrants and Convertible Securities and subject to Section 4.3.1 under all circumstances), with respect to each Share Sold, as the Prospective Selling Stockholder shall Sell each of its Shares.

 

4.1.2. Exercise . Within ten (or five, if the proposed Transfer is also the subject of a currently effective Sale Notice under Section 4.4) Business Days after the date of delivery of the Tag Along Notice (such date the “ Tag Along Deadline ”), each Tag Along Holder desiring to make an offer to include Shares in the proposed Sale (each a “ Participating Seller ” and, together with the Prospective Selling Stockholder, collectively, the “ Tag Along Sellers ”) shall deliver a written notice (the “ Tag Along Offer ”) to the Prospective Selling Stockholder indicating the number of Shares which such Participating Seller desires to have included in the proposed Sale (subject to the limitation set forth in Section 4.1.1(ii) ). Each Tag Along Holder who does not make a Tag Along Offer in compliance with the above requirements, including the time period, shall be deemed to have waived all of such holder’s rights to participate in such Sale, and the Tag Along Sellers shall thereafter be free to Sell to the Prospective Buyer, at a per share price no greater than the per share price set forth in the Tag Along Notice and on other principal terms and conditions which are not materially more favorable to the Tag Along Sellers than those set forth in the Tag Along Notice, without any further obligation to such non-accepting Tag Along Holder pursuant to this Section 4.1.

 

4.1.3. Irrevocable Offer . The offer of each Participating Seller contained in such holder’s Tag Along Offer shall be irrevocable, and, to the extent such offer is accepted, such Participating Seller shall be bound and obligated to Sell in the proposed Sale on the same terms and conditions, with respect to each Share Sold (subject to Section 4.3.4 in the case of Options, Warrants and Convertible Securities), as the Prospective Selling Stockholder, up to such number of Shares as such Participating Seller shall have specified in such holder’s Tag Along Offer; provided , however , that if the principal terms of the proposed Sale change with the result that the per share price shall be less than the per share price set forth in the Tag Along Notice or the other principal terms and conditions shall be materially less favorable to the Tag Along Sellers than those set forth in the Tag Along Notice, the Prospective Seller shall provide written notice thereof to each Participating Seller and each Participating Seller shall be permitted to withdraw the offer contained in such holder’s Tag Along Offer by written notice to the Prospective Selling Stockholder within three Business Days of delivery of such written notice from the Prospective Selling Stockholder and upon such withdrawal shall be released from such holder’s obligations thereunder.

 

4.1.4. Reduction of Shares Sold . The Prospective Selling Stockholder shall attempt to obtain the inclusion in the proposed Sale of the entire number of Shares which each of the Tag Along Sellers requested to have included in the Sale (as evidenced in the

 

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case of the Prospective Selling Stockholder by the Tag Along Notice and in the case of each Participating Seller by such Participating Seller’s Tag Along Offer). In the event the Prospective Selling Stockholder shall be unable to obtain the inclusion of such entire number of Shares in the proposed Sale, the number of Shares to be sold in the proposed Sale shall be allocated among the Tag Along Sellers in proportion, as nearly as practicable, as follows:

 

(i) there shall be first allocated to each Tag Along Seller a number of Shares equal to the lesser of (i) the number of Shares offered (or proposed, in the case of the Prospective Selling Stockholder) to be included by such Tag Along Seller in the proposed Sale pursuant to this Section 4.1, and (ii) a number of Shares equal to such Tag Along Seller’s Pro Rata Portion; and

 

(ii) the balance, if any, not allocated pursuant to clause (a) above shall be allocated to the Prospective Selling Stockholder, or in such other manner as the Prospective Selling Stockholder may otherwise agree (it being understood that no Tag Along Seller will be obligated to sell more Shares than it offered to sell in the proposed Sale).

 

4.1.5. Additional Compliance . If, prior to consummation, the terms of the proposed Sale shall change with the result that the per share price to be paid in such proposed Sale shall be greater than the per share price set forth in the Tag Along Notice or the other principal terms of such proposed Sale shall be materially more favorable to the Tag Along Sellers than those set forth in the Tag Along Notice, the Tag Along Notice shall be null and void, and it shall be necessary for a separate Tag Along Notice to be delivered, and the terms and provisions of this Section 4.1 separately complied with, in order to consummate such proposed Sale pursuant to this Section 4.1; provided , however , that in the case of such a separate Tag Along Notice, the applicable period to which reference is made in Section 4.1.2 shall be three Business Days and two Business Days, respectively. In addition, if the Prospective Selling Stockholders have not completed the proposed Sale by the end of the 180th day after the date of delivery of (a) if the proposed Transfer is also the subject of a currently effective Sale Notice under Section 4.4, such Sale Notice, and (b) otherwise, the Tag Along Notice, each Participating Seller shall be released from such holder’s obligations under such holder’s Tag Along Offer, the Tag Along Notice shall be null and void, and it shall be necessary for a separate Tag Along Notice to be delivered, and the terms and provisions of this Section 4.1 separately complied with, in order to consummate such proposed Sale pursuant to this Section 4.1, unless the failure to complete such proposed Sale resulted from any failure by any Participating Seller to comply with the terms of this Section 4.

 

4.2. Drag Along . Each Stockholder hereby agrees, if requested by the Majority Carlyle Investors, to Sell the same percentage (the “ Drag Along Sale Percentage ”) of the total number of Equivalent Shares of each class of such Shares that is proposed to be sold by the Prospective Selling Stockholders to a Prospective Buyer (in one transaction or a series of related transactions), in the manner and on the terms set forth in this Section 4.2.

 

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4.2.1. Exercise . The Prospective Selling Stockholders shall deliver a written notice (the “ Drag Along Notice ”) to each other Stockholder at least ten Business Days prior to the consummation of the Change of Control transaction. The Drag Along Notice shall set forth the principal terms and conditions of the proposed Sale, including (a) the number and class of Shares to be acquired from the Prospective Selling Stockholders, (b) the Drag Along Sale Percentage for each class, (c) the per share consideration to be received in the proposed Sale for each class, (d) the name and address of the Prospective Buyer and (e) if known, the proposed Transfer date. If the Prospective Selling Stockholders consummate the proposed Sale to which reference is made in the Drag Along Notice, each other Stockholder (each, a “ Participating Seller ,” and, together with the Prospective Selling Stockholders, collectively, the “ Drag Along Sellers ”) shall: (i) be bound and obligated to Sell the Drag Along Sale Percentage of such holder’s Shares of each class in the proposed Sale on the same terms and conditions, with respect to each Share Sold (subject to Section 4.3.4 in the case of Options, Warrants and Convertible Securities) as the Prospective Selling Stockholders shall Sell each Share in the Sale (subject to Section 4.3.4 in the case of Options, Warrants and Convertible Securities and subject to Section 4.3.1 under all circumstances); and (ii) except as provided in Section 4.3.1, shall receive the same form and amount of consideration per Share to be received by the Prospective Selling Stockholders for the corresponding class of Shares (on an as converted basis, in the case of Convertible Securities). Except as provided in Section 4.3.1, if any holders of Shares of any class are given an option as to the form and amount of consideration to be received, all holders of Shares of such class will be given the same option. Unless otherwise agreed by each Drag Along Seller, any non-cash consideration shall be allocated among the Drag Along Sellers pro rata based upon the aggregate amount of consideration to be received by such Drag Along Sellers. If at the end of the 180th day after the date of delivery of the Drag Along Notice the Prospective Selling Stockholders have not completed the proposed Sale, the Drag Along Notice shall be null and void, each Participating Seller shall be released from such holder’s obligation under the Drag Along Notice and it shall be necessary for a separate Drag Along Notice to be delivered and the terms and provisions of this Section 4.2 separately complied with, in order to consummate such proposed Sale pursuant to this Section 4.2.

 

4.3. Miscellaneous . The following provisions shall be applied to any proposed Sale to which Sections 4.1, 4.2 or 4.4 applies:

 

4.3.1. Certain Legal Requirements . In the event the consideration to be paid in exchange for Shares in a proposed Sale pursuant to Section 4.1 or Section 4.2 includes any securities, and the receipt thereof by a Participating Seller would require under applicable law (a) the registration or qualification of such securities or of any Person as a broker or dealer or agent with respect to such securities where such registration or qualification is not otherwise required for the Sale by the Prospective Selling Stockholder(s) or (b) the provision to any Tag Along Seller or Drag Along Seller of any specified information regarding such securities or the issuer thereof that is not otherwise required to be provided for the Sale by the Prospective Selling Stockholder(s), then such Participating Seller shall not have the right without the consent of the Prospective Selling Stockholder(s) to Sell Shares in such proposed Sale. In such event, absent such

 

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consent, the Prospective Selling Stockholder(s) shall (i) in the case of a Sale pursuant to Section 4.1, have the right, but not the obligation, and (ii) in the case of a Sale pursuant to Section 4.2, have the obligation to cause to be paid to such Participating Seller in lieu thereof, against surrender of the Shares (in accordance with Section 4.3.6 hereof) which would have otherwise been Sold by such Participating Seller to the Prospective Buyer in the proposed Sale, an amount in cash equal to the Fair Market Value of such Shares as of the date such securities would have been issued in exchange for such Shares.

 

4.3.2. Further Assurances . Each Participating Seller and First Offer Purchaser shall take or cause to be taken all such actions as may be necessary or reasonably desirable in order expeditiously to consummate each Sale pursuant to Section 4.1, Section 4.2 or Section 4.4 and any related transactions, including executing, acknowledging and delivering consents, assignments, waivers and other documents or instruments; furnishing information and copies of documents; filing applications, reports, returns, filings and other documents or instruments with governmental authorities; and otherwise cooperating with the Prospective Selling Stockholder(s) and the Prospective Buyer; provided , however , that Participating Sellers shall be obligated to become liable in respect of any representations, warranties, covenants, indemnities or otherwise to the Prospective Buyer solely to the extent provided in the immediately following sentence. Without limiting the generality of the foregoing, each Participating Seller agrees to execute and deliver such agreements as may be reasonably specified by the Prospective Selling Stockholder(s) to which such Prospective Selling Stockholder(s) will also be party, including agreements to (a) (i) make individual representations, warranties, covenants and other agreements as to the unencumbered title to its Shares and the power, authority and legal right to Transfer such Shares, the absence of any Adverse Claim with respect to such Shares and the non-contravention of other agreements and (ii) be liable as to such representations, warranties, covenants and other agreements, in each case to the same extent (but with respect to its own Shares) as the Prospective Selling Stockholder(s), and (b) in the case of a Sale pursuant to Sections 4.1 or 4.2, be liable (whether by purchase price adjustment, indemnity payments or otherwise) in respect of representations, warranties, covenants and agreements in respect of the Company and its subsidiaries; provided , however , that the aggregate amount of liability referred to in this clause (b) in connection with any Sale of Shares shall not exceed such Participating Seller’s pro rata portion of any such liability, to be determined in accordance with such Participating Seller’s portion of the aggregate proceeds to all Participating Sellers and Prospective Selling Stockholder(s) in connection with such Sale; and provided further that the aggregate amount of liability referred to in this sentence shall not exceed the proceeds to such Participating Seller in connection with such Sale.

 

4.3.3. Sale Process . The Majority Carlyle Investors, in the case of a proposed Sale pursuant to Section 4.2, or the Prospective Selling Stockholder, in the case of a proposed Sale pursuant to Section 4.1 shall, in their sole discretion, decide whether or not to pursue, consummate, postpone or abandon any proposed Sale and the terms and conditions thereof. No Stockholder nor any Affiliate of any such holder shall have any liability to any other Stockholder or the Company arising from, relating to or in connection with the pursuit, consummation, postponement, abandonment or terms and

 

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conditions of any proposed Sale except to the extent such holder shall have failed to comply with the provisions of this Section 4 and such failure shall have had a materially adverse effect on such Stockholders’ ability to exercise its rights pursuant to Section 4.1 or 4.2, as applicable.

 

4.3.4. Treatment of Options, Warrants and Convertible Securities . If any Participating Seller shall Sell Options, Warrants or Convertible Securities in any Sale pursuant to Section 4, such Participating Seller shall receive in exchange for such Options, Warrants or Convertible Securities consideration in the amount (if greater than zero) equal to the purchase price received by the Prospective Selling Stockholder(s) in such Sale for the number of shares of each class of Stock that would be issued upon exercise, conversion or exchange of such Options, Warrants or Convertible Securities less the exercise price, if any, of such Options, Warrants or Convertible Securities (to the extent exercisable, convertible or exchangeable at the time of such Sale), subject to reduction for any tax or other amounts required to be withheld under applicable law.

 

4.3.5. Expenses . All reasonable costs and expenses incurred by the Company in connection with any proposed Sale pursuant to Section 4.1, Section 4.2 or Section 4.4 (whether or not consummated), including all attorneys fees and charges, all accounting fees and charges and all finders, brokerage or investment banking fees, charges or commissions, shall be paid by the Company. The Majority Carlyle Investors may retain, and the Company will pay the reasonable fees and expenses of, a single legal counsel (and such local counsel as may be appropriate) to represent all Participating Sellers in connection with any proposed Sale pursuant to this Section 4 (whether or not consummated). Any other costs and expenses incurred by or on behalf of any or all of the Participating Sellers in connection with any proposed Sale pursuant to this Section 4 (whether or not consummated) shall be borne by such Participating Seller(s).

 

4.3.6. Closing . The closing of a Sale to which Section 4.1, 4.2 or 4.4 applies shall take place (i) on the proposed Transfer date, if any, specified in the Tag Along Notice, Drag Along Notice or Sale Notice, as applicable (provided that consummation of any Transfer may be extended beyond such date to the extent necessary to obtain any applicable governmental approval or other required approval or to satisfy other conditions), (ii) if no proposed Transfer date was required to be specified in the Drag Along Notice, at such time as the Prospective Selling Stockholders shall specify by notice to each Participating Seller and (iii) at such place as the Prospective Selling Stockholder(s) shall specify by notice to each Participating Seller in the case of a Sale to which Section 4.2 applies. At the closing of such Sale, each Participating Seller shall deliver the certificates evidencing the Shares to be Sold by such Participating Seller, duly endorsed, or with stock (or equivalent) powers duly endorsed, for tr