STOCK PURCHASE AGREEMENT

Exhibit 4.2

 

STOCK PURCHASE AGREEMENT

 

STOCK PURCHASE AGREEMENT (the “ Agreement ”), dated as of March 1, 2005 by and among drugstore.com, inc., a Delaware corporation (the “ Company ”), and Ziff Asset Management, L.P. (the “ Investor ”).

 

WHEREAS , the Company and the Investor are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the “ Securities Act ”), and Rule 506 of Regulation D (“ Regulation D ”) as promulgated by the United States Securities and Exchange Commission (the “ Commission ”) under the Securities Act; and

 

WHEREAS , the Investor wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, 10,000,000 shares of the common stock, par value $0.0001 per share, of the Company (the “ Common Stock ”). The shares of Common Stock to be purchased by the Investor pursuant to this Agreement are referred to herein as the “ Securities ”.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Investor agree as follows:

 

ARTICLE I

DEFINITIONS

 

1.1 Definitions . In addition to the terms defined elsewhere in this Agreement, the following terms have the meanings indicated:

 

“ 13D Group ” means any “group” (within the meaning of Section 13(d) of the Exchange Act) formed for the purpose of acquiring, holding, voting or disposing of Voting Securities of the Company.

 

“ 2004 10-K ” has the meaning set forth in Section 3.2(i) .

 

“ Advice ” has the meaning set forth in Section 6.5 .

 

“ Affiliate ” means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, “controls” or is “controlled” by or is under common control with, such Person, as such terms are used in and construed under Rule 144 under the Securities Act.

 

“ Agreement ” has the meaning set forth in the Preamble.

 

“ Business Day ” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

 

“ Closing ” means the closing of the purchase and sale of the Securities pursuant to Section 2.1 .

 

“ Closing Date ” means the date and time of the Closing and shall be 10:00 a.m., New York City Time, on March 2, 2005 (or such other date and time as is mutually agreed to by the Company and the Investor).

 

“ Closing Price ” means, for any date, the closing price per share of the Common Stock for such date (or the nearest preceding date) on the primary Eligible Market or exchange on which the Common Stock is then listed or quoted.

 

“ Commission ” has the meaning set forth in the Recitals.

 

“ Common Stock ” has the meaning set forth in the Recitals.

 

“ Company ” has the meaning set forth in the Preamble.

“ Company Counsel ” means Alesia L. Pinney, Vice President, General Counsel and Secretary of the Company.

 

“ Disclosure Materials ” has the meaning set forth in Section 3.1(g) .

 

“ Effective Date ” means the date that the Registration Statement is first declared effective by the Commission.

 

“ Effectiveness Period ” has the meaning set forth in Section 6.1(b) .

 

“ Election Period ” has the meaning set forth in Section 4.1(c)(ii) .

 

“ Eligible Market ” means any of the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap Market.

 

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

 

“ Fair Market Value ” means (i) with respect to cash consideration, the total amount of such cash consideration in United States dollars, (ii) with respect to non-cash consideration consisting of publicly-traded securities, the average daily closing sales price of such securities for the ten consecutive trading days preceding the date the Fair Market Value of such securities is required to be determined hereunder (with the closing price for each day being the last reported sales price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the principal national securities exchange on which such securities are listed and admitted to trading, or, if not listed and admitted to trading on any such exchange, on the Nasdaq National Market System, or if not quoted on the Nasdaq National Market System, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose) and (iii) with respect to non-cash consideration not consisting of publicly-traded securities, such amount as is determined to be the fair market value of the non-cash consideration as of the date such Fair Market Value is required to be determined hereunder as determined in good faith by the Investor.

 

For the purposes of Section 4.1(c), if the Company disputes in good faith the determination by the Investor pursuant to the above clause (iii) of the Fair Market Value of the non-cash consideration to be paid for the Restricted Securities, then the Company may require that an investment bank selected by the Company and reasonably acceptable to the Investor determine such Fair Market Value for the purposes of clause (iii).

 

The Company shall pay the fees and expenses of the investment bank in making any Fair Market Value determination.

 

“ Indemnified Party ” has the meaning set forth in Section 6.4(c) .

 

“ Indemnifying Party ” has the meaning set forth in Section 6.4(c) .

 

“ Investor ” has the meaning set forth in the Preamble.

 

“ Investor Counsel ” means Fried, Frank, Harris, Shriver & Jacobson LLP, counsel to the Investor.

 

“ Lien ” means any lien, charge, claim, security interest, encumbrance, right of first refusal or other restriction.

 

“ Losses ” means any and all losses, claims, damages, liabilities, settlement costs and expenses, including, without limitation, costs of preparation and reasonable attorneys’ fees.

 

“ Market Adjustment ” has the meaning set forth in Section 4.1(c)(iii) .

 

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“ Material Adverse Effect ” has the meaning set forth in Section 3.1(b) .

 

“ Offer Notice ” has the meaning set forth in Section 4.1(c)(i) .

 

“ Offer Price ” has the meaning set forth in Section 4.1(c)(i) .

 

“ Person ” means any individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, or joint stock company.

 

“ Proceeding ” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened in writing.

 

“ Prospectus ” means the prospectus included in the Registration Statement at the time of effectiveness (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to such prospectus including post effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such prospectus.

 

“ Purchase Price ” means the Fair Market Value of the Transfer Consideration paid by the Company or any of its Subsidiaries.

 

“ Regulation D ” has the meaning set forth in the Recitals.

 

“ Registrable Securities ” means any Securities issued pursuant to this Agreement, together with any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing.

 

“ Registration Statement ” means each registration statement required to be filed under Article VI, as amended at the time and on the date it became effective, including the information (if any) contained in the form of final prospectus filed with the Commission pursuant to Rule 424(b) or deemed to be part thereof at the time of effectiveness pursuant to Rule 430A, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

 

“ Repurchase Notice ” has the meaning set forth in Section 4.1(c)(ii) .

 

“ Required Effectiveness Date ” means the date on which the Restricted Period ends.

 

“ Resale Price ” has the meaning set forth in Section 4.1(c)(iii) .

 

“ Restricted Period ” has the meaning set forth in Section 4.1(a) .

 

“ Restricted Securities ” has the meaning set forth in Section 4.1(c)(i) .

 

“ Rule 144 ,” “ Rule 415 ,” “ Rule 424 ” and “ Rule 430A ” means Rule 144, Rule 415, Rule 424 and Rule 430A, respectively, promulgated by the Commission pursuant to the Securities Act, as such Rules may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

 

“ SEC Reports ” has the meaning set forth in Section 3.1(g) .

 

“ Securities ” has the meaning set forth in the Recitals.

 

“ Securities Act ” has the meaning set forth in the Recitals.

 

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“ Shares ” means shares of the Company’s Common Stock.

 

“ Subsidiary ” means any Person in which the Company, directly or indirectly, owns Voting Securities having the power to elect a majority of the directors (or similar members of such corporation’s or other entity’s governing body), or otherwise direct the management and polices of such corporation or other entity.

 

“ Tender Offer ” shall mean a bona fide public offer subject to the provisions of Regulation 13D or 14D under the Exchange Act, by a Person (which is not made by and does not include the Investor, any Affiliates of the Investor or any 13D Group that includes the Investor or any of its Affiliates) to purchase or exchange for cash or other consideration any Voting Securities of the Company; provided that, for the purposes of this definition, in no event shall the Company be considered an Affiliate of the Investor.

 

“ Trading Day ” means (a) any day on which the Common Stock is listed or quoted and traded on its primary Trading Market, (b) if the Common Stock is not then listed or quoted and traded on any Eligible Market, then a day on which trading occurs on the Nasdaq National Market (or any successor thereto), or (c) if trading ceases to occur on the Nasdaq National Market (or any successor thereto), any Business Day.

 

“ Trading Market ” means the Nasdaq National Market or any other Eligible Market, or any national securities exchange, market or trading or quotation facility on which the Common Stock is then listed or quoted.

 

“ Transfer ” shall have the meaning set forth in Section 4.1(a) .

 

“ Transfer Agent ” means Mellon Investor Services LLC or any successor transfer agent for the Company.

 

“ Transfer Consideration ” shall have the meaning set forth in Section 4.1(c)(i) .

 

“ Transfer Offer ” shall have the meaning set forth in Section 4.1(c)(i) .

 

“ Voting Securities ” shall mean stock or other equity securities of an entity with the power to vote with respect to the election of directors (or similar members of an entity’s governing body) generally and shall include, in the case of a partnership or limited liability company, a general partner, manager or managing member interest, as applicable.

 

ARTICLE II

PURCHASE AND SALE

 

2.1 Closing . Subject to the terms and conditions set forth in this Agreement, at the Closing the Company shall issue and sell to the Investor, and the Investor shall purchase from the Company, the Securities. The date and time of the Closing and shall be 10:00 a.m., New York City Time, on the Closing Date. The Closing shall take place at the offices of Investor Counsel.

 

2.2 Closing Deliveries .

 

(a) At the Closing, the Company shall deliver or cause to be delivered to the Investor the following:

 

(i) one or more stock certificates, containing only the legends expressly provided in Section 4.1(d) hereof, evidencing 10,000,000 Shares registered in the name of the Investor; and

 

(ii) a legal opinion of Company Counsel, in the form of Exhibit A , executed by such counsel and delivered to the Investor.

 

(b) At the Closing, the Investor shall deliver or cause to be delivered to the Company the aggregate purchase price for the Securities, calculated by multiplying the number of Securities

 

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(10,000,000) by the greater of $2.60 or the Closing Price on the date of this Agreement, in United States dollars and in immediately available funds, by wire transfer to an account designated in writing to the Investor by the Company for such purpose.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES

 

3.1 Representations and Warranties of the Company . The Company hereby represents and warrants to the Investor as follows (which representations and warranties shall be deemed to apply, where appropriate, to each subsidiary of the Company):

 

(a) Subsidiaries . The Company has no Subsidiaries or any other equity interests in any other Person other than those listed in Schedule 3.1(a) hereto. Except as disclosed in Schedule 3.1(a) hereto, the Company owns, directly or indirectly, all of the capital stock or comparable equity interests of each Subsidiary free and clear of any Lien and all the issued and outstanding shares of capital stock or comparable equity interests of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights.

 

(b) Organization and Qualification . Each of the Company and the Subsidiaries is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to do business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, have a material adverse effect on (i) the results of operations, assets, business or financial condition of the Company and the Subsidiaries, taken as a whole on a consolidated basis, or (ii) the Company’s ability to consummate the transactions contemplated by this Agreement on a timely basis (either of (i) or (ii), a “ Material Adverse Effect ”).

 

(c) Authorization; Enforcement . The Company has the requisite corporate authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder. The execution and delivery of this Agreement and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Company and no further consent or action is required by the Company, its board of directors or its stockholders. This Agreement has been (or upon delivery will be) duly executed by the Company and is, or when delivered in accordance with the terms hereof, will constitute, the valid and legally binding obligation of the Company enforceable against the Company in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors rights generally, or by general principles of equity.

 

(d) No Conflicts . The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby and thereby do not, and will not, (i) conflict with or violate any provision of the Company’s Amended and Restated Certificate of Incorporation or its bylaws, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound, or affected, except to the extent that such conflict, default, termination, amendment, acceleration or cancellation right could not reasonably be expected to have a Material Adverse Effect, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree

 

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or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations and the rules and regulations of any self-regulatory organization to which the Company or its securities are subject), or by which any property or asset of the Company or a Subsidiary is bound or affected, except to the extent that such violation could not reasonably be expected to have a Material Adverse Effect.

 

(e) Issuance of the Securities . The Securities have been duly authorized and, when issued and paid for in accordance with this Agreement, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens and shall not be subject to preemptive or similar rights of stockholders.

 

(f) Capitalization . The aggregate number of shares and type of all authorized, issued and outstanding classes of capital stock, options and other securities of the Company (whether or not presently convertible into or exercisable or exchangeable for shares of capital stock of the Company) as of the date of this Agreement is set forth in Schedule 3.1(f) hereto. All outstanding shares of capital stock are duly authorized, validly issued, fully paid and nonassessable and have been issued in compliance with all applicable securities laws. Except as disclosed in Schedule 3.1(f) hereto, the Company has not issued any other options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or entered into any agreement giving any Person any right to subscribe for or acquire, any shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock. Except as set forth on Schedule 3.1(f) hereto, and except for customary adjustments as a result of stock dividends, stock splits, combinations of shares, reorganizations, recapitalizations, reclassifications or other similar events, there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) and the issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Investor) and will not result in a right of any holder of securities to adjust the exercise, conversion, exchange or reset price under such securities.

 

(g) SEC Reports; Financial Statements . The Company has filed all reports required to be filed by it under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the twelve months preceding the date hereof (the foregoing materials (together with any materials filed by the Company under the Exchange Act, whether or not required) being collectively referred to herein as the “ SEC Reports ” and, together with this Agreement and the Schedules to this Agreement, the “ Disclosure Materials ”) on a timely basis. The Company has made available to the Investor or its representatives true, correct and complete copies of the SEC Reports not available on the EDGAR system. Except as disclosed on Schedule 3.1(g) , as of the respective dates on which they were filed, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Except as disclosed on Schedule 3.1(g) , the audited consolidated balance sheets and audited consolidated statements of income and cash flows of the Company as at December 28, 2003 and December 29, 2002 and for the three years ended December 28, 2003 and the unaudited consolidated balance sheets and unaudited consolidated statements of income and cash flows of the Company as at and for the periods ended March 28, 2004, June 27, 2004 and September 26, 2004 (including in each case any related notes and schedules thereto) included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Except as disclosed on Schedule 3.1(g) , such financial statements have been prepared in accordance with United States generally accepted accounting principles (“ GAAP ”) applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto, and fairly present in all material respects the consolidated

 

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financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, year-end audit adjustments. The Company has filed with the Commission all material agreements required to be filed by the Company, pursuant to Item 601 of Regulation S-K promulgated under the Securities Act.

 

(h) Material Changes . Since the date of the latest audited financial statements included within the SEC Reports, and except as specifically disclosed in the SEC Reports or in Schedule 3.1(h) hereto, (i) there has been no event, occurrence or development that, individually or in the aggregate, has had or that could result in a Material Adverse Effect and (ii) the Company has not incurred any material liabilities other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission.

 

(i) Absence of Litigation . Except as disclosed in the Company’s SEC Reports, there is no action, suit, claim, or proceeding, or, to the Company’s knowledge, inquiry or investigation, before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries that would be reasonably expected to, individually or in the aggregate, have a Material Adverse Effect.

 

(j) Compliance . Neither the Company nor any Subsidiary, except in each case as could not, individually or in the aggregate, reasonably be expected to have or result in a Material Adverse Effect, (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received written notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority.

 

(k) No General Solicitation; No Placement Agent . Neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Securities. The Company has not engaged any placement agent or other agent in connection with the sale of the Securities.

 

(l) Private Placement . Neither the Company, nor any of its Affiliates, nor any Person acting on the Company’s behalf, has, directly or indirectly, at any time within the past six months, made any offer or sale of any security or solicitation of any offer to buy any security under circumstances that would (i) eliminate the availability of the exemption from registration under Regulation D under the Securities Act in connection with the offer and sale by the Company of the Securities as contemplated hereby or (ii) cause the offering of the Securities pursuant to this Agreement to be integrated with prior offerings by the Company for purposes of any applicable law, regulation or stockholder approval provisions, including, without limitation, under the rules and regulations of any Trading Market.

 

(m) Investment Company . The Company is not, and is not an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

 

(n) Real Property Holding Company . The Company is not “a United States real property holding corporation” within the meaning of the Foreign Investment in Real Property Tax Act of 1980.

 

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(o) Form S-3 Eligibility . The Company is eligible to register the Securities for resale by the Investor using Form S-3 promulgated under the Securities Act.

 

(p) Listing and Maintenance Requirements . The Company has not, in the twelve months preceding the date hereof, received notice (written or oral) from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is in compliance with all such listing and maintenance requirements.

 

(q) Registration Rights . Except as described in Schedule 3.1(q) , the Company has not granted or agreed to grant to any Person any rights (including “piggy-back” registration rights) to have any securities of the Company registered with the Commission or any other governmental authority that have not been satisfied or waived.

 

(r) Application of Takeover Protections . There is no control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s charter documents or the laws of its state of incorporation that is or could become applicable to the Investor as a result of the Investor and the Company fulfilling their obligations or exercising their rights under this Agreement, including, without limitation, as a result of the Company’s issuance of the Securities and the Investor’s ownership of the Securities.

 

(s) Disclosure . The Company confirms that neither it nor any officers, directors or Affiliates, has provided the Investor or its agents or counsel with any information that constitutes or might constitute material, nonpublic information with respect to the Company (other than the existence and terms of the issuance of Securities, as contemplated by this Agreement, and the information disclosed on Schedule 3.1(g) ). The Company understands and confirms that the Investor will rely on the foregoing representations in effecting transactions in securities of the Company.

 

(t) Internal Accounting Controls . Except as disclosed on Schedule 3.1(g) , the Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

 

(u) Sarbanes-Oxley Act . The Company is in compliance with applicable, effective requirements of the Sarbanes-Oxley Act of 2002 and applicable, effective rules and regulations promulgated by the Commission thereunder, except where noncompliance therewith would not, individually or in the aggregate, have a Material Adverse Effect.

 

3.2 Representations and Warranties of the Investor . The Investor hereby represents and warrants to the Company as follows:

 

(a) Organization; Authority . The Investor is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite partnership power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder. The purchase by the Investor of the Securities hereunder has been duly authorized by all necessary action on the part of the Investor. This Agreement has been duly executed and delivered by the Investor and constitutes the valid and legally binding obligation of the Investor, enforceable against it in accordance with its terms, except as may be limited by applicable bankruptcy,

 

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insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors rights generally, or by general principles of equity.

 

(b) No Public Sale or Distribution; Investment Intent . The Investor is acquiring the Securities in the ordinary course of business for investment, for its own account, and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities laws, and the Investor does not have a present intention or arrangement to effect any sale or distribution of the Securities to or through any person or entity, including, without limitation, entering into any arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Securities, whether any such transaction is to be settled by delivery of Common Stock or other securities, in cash or otherwise; provided , however , that by making the representations herein, the Investor does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act, subject, in each case, to the provisions of Section 4.1 hereof.

 

(c) Investor Status . At the time the Investor was offered the Securities, it was, and at the date hereof it is, and at the Closing Date it will be, an “accredited investor” as defined in Rule 501(a) under the Securities Act.

 

(d) Experience of the Investor . The Investor, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. The Investor is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

 

(e) Access to Information . The Investor acknowledges that it has reviewed the Disclosure Materials and has been afforded: (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information (other than material non-public information) about the Company and the Subsidiaries and their respective financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment. Neither such inquiries nor any other investigation conducted by or on behalf of the Investor or its representatives or counsel shall modify, amend or affect the Investor’s right to rely on the truth, accuracy and completeness of the Disclosure Materials and the Company’s representations and warranties contained in this Agreement.

 

(f) No Governmental Review . The Investor understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.

 

(g) No Conflicts . The execution, delivery and performance by the Investor of this Agreement and the consummation by the Investor of the transactions contemplated hereby will not (i) conflict with or violate the organizational documents of the Investor, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time, or both) of, any agreement, credit facility, debt, indenture or other instrument to which the Investor is a party or by which any of its property is bound, or

 

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(iii) result in a violation of any law, rule, regulation, order, judgment, decree or other restriction of any court or governmental authority to which the Investor is subject (including federal and state securities laws) or by which any of its property or assets is bound or affected, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults or violations that are not material and do not otherwise affect the ability of the Investor to consummate the transactions contemplated hereby.

 

(h) No Legal, Tax or Investment Advice . The Investor understands that nothing in this Agreement or any other materials presented by or on behalf of the Company to the Investor in connection with the purchase of the Securities constitutes legal, tax or investment advice. The Investor has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of the Securities.

 

(i) Disclosure . The Investor confirms that, to the Investor’s knowledge, none of the Company and its officers, directors and Affiliates has provided the Investor or its agents or counsel with any information that constitutes or might constitute material, nonpublic information with respect to the Company (other than the existence and terms of the issuance of Securities, as contemplated by this Agreement, and the information disclosed on Schedule 3.1(g) , which information the Investor agrees to keep confidential until such time as the Company’s annual report on Form 10-K for the fiscal year ended January 2, 2005 (the “ 2004 10-K ”) is filed with the Commission).

 

ARTICLE IV

OTHER AGREEMENTS OF THE PARTIES

 

4.1 Transfer Restrictions .

 

(a) The Investor covenants that it will not, directly or indirectly sell, transfer or otherwise dispose (including, without limitation, entering into any arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership) (collectively, “ Transfer ”) of any Securities during the period beginning on the Closing Date and ending on the one year anniversary of the Closing Date (the “ Restricted Period ”), except for any Transfer of Securities: (i) to its Affiliates, provided that such Affiliates deliver a written instrument to the Company, in form and substance reasonably satisfactory to the Company, confirming that they are subject to the obligations of the transferor under this Agreement, (ii) which have been consented to in writing by the Company, (iii) pursuant to a Tender Offer that, in the case of a third party Tender Offer, is recommended by the board of directors of the Company or (iv) to its equity holders, as part of a plan of distribution to such equity holders, provided that such equity holders deliver a written instrument to the Company, in form and substance reasonably satisfactory to the Company, confirming that they are subject to the obligations of this Agreement, and, in each case, in accordance with the provisions of Section 4.1(c).

 

(b) Following the end of the Restricted Period, the Investor covenants that the Securities will only be disposed of pursuant to an effective registration statement under, and in compliance with the requirements of, the Securities Act or pursuant to an available exemption from the registration requirements of the Securities Act, and in compliance with any applicable state securities laws, and, in each case, in accordance with the provisions of Section 4.1(c). In connection with any Transfer of Securities other than pursuant to an effective registration statement or to the Company or pursuant to Rule 144(k), the Company requires the transferor to provide to the Company an opinion of counsel selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration under the Securities Act.

 

(c) (i) If, following the end of the Restricted Period, the Investor desires to Transfer any portion of the Securities constituting 6% or more of the Voting Securities of the Company outstanding on the date of such Transfer (the “ Restricted Securities ”) in a single transaction or series of related transactions to a Person or 13D Group for their own account (but excluding any

 

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sale to a broker-dealer or market maker, provided that such broker-dealer or market maker sells such shares in substantially concurrent transactions to one or more Persons and no such Person or Persons individually, together with its or their Affiliates as applicable or as part of a 13D Group, purchases in such transactions Securities constituting 6% or more of the Voting Securities of the Company outstanding on the date of such transactions), the Investor shall provide the Company with a written notice (the “ Offer Notice ”) setting forth: (i) the number of shares of Common Stock proposed to be Transferred and (ii) the material terms and conditions of the proposed Transfer including the minimum price (the “ Offer Price ”) at which the Investor proposes to Transfer such shares (the “ Transfer Offer ”). The Offer Notice shall also constitute an irrevocable offer to sell the Restricted Securities to the Company (x) at the Offer Price and on the same terms and conditions as the Transfer Offer or (y) if the Transfer Offer includes any consideration other than cash, at the option of the Company, at a cash price equal to the Fair Market Value of such non-cash consideration (the “ Transfer Consideration ”).

 

(ii) If the Company wishes to accept the offer set forth in the Offer Notice, the Company shall deliver within three (3) Business Days of receipt of the Offer Notice (such period, the “ Election Period ”) an irrevocable notice of acceptance to the Investor (the “ Repurchase Notice ”), which Repurchase Notice shall indicate that the Company agrees to purchase all of the Restricted Securities specified in the Offer Notice and the form of Transfer Consideration chosen (to the extent that the Transfer Offer includes any consideration other than cash).

 

(iii) If the option to purchase the Restricted Securities represented by the Offer Notice is accepted on a timely basis by