Exhibit 10.5

 

INSURANCE AND STOCK REDEMPTION AGREEMENT

 

This INSURANCE AND STOCK REDEMPTION AGREEMENT (this “Agreement”), dated as of
August 4, 2005, is made by and among Gaiam, Inc., a Colorado corporation
(“Gaiam”) and Jirka Rysavy, on behalf of himself, his heirs and anyone claiming
any interest in his estate (“Rysavy”).

 

WHEREAS, as of the date of this Agreement, Rysavy owns approximately 18% of the
outstanding shares of Gaiam’s Class A common stock, par value $.0001 per share
(the “Class A Shares”) and 100% of the outstanding shares of Gaiam’s Class B
common stock, par value $.0001 per share (the “Class B Shares”), which are
convertible into Class A Shares; and

 

WHEREAS, the Class A Shares are publicly traded, and Gaiam believes that the
interests of Gaiam’s shareholders would be protected and shareholder valuation
would be preserved and enhanced if Rysavy and Gaiam agree to an orderly
mechanism for Gaiam to redeem certain of the Class A Shares and Class B Shares
owned by Rysavy so as to provide liquidity to any personal representative of
Rysavy’s estate to fund debts and expenses and to pay federal and state taxes of
any such future estate; and

 

WHEREAS, the parties desire that any purchase of shares by Gaiam pursuant to
this Agreement be treated as a redemption under Section 303 of the Internal
Revenue Code of 1986, as amended (the “Code”).

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and certain other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:

 

1.             Insurance Policies.  Following execution and delivery of this
Agreement, Gaiam may purchase one or more term life insurance policies on the
life of Rysavy in an aggregate amount as Gaiam shall determine (the
“Policies”).  The proceeds of the Policies paid to Gaiam upon Rysavy’s death
shall be for the benefit of Gaiam and for no other person.  Gaiam shall be the
sole owner of the Policies, and neither Rysavy nor any of his successors,
transferees, assignees, or personal representatives shall have any collateral
interest in the Policies. Rysavy agrees to cooperate with Gaiam in connection
with Gaiam’s purchase and maintenance of the Policies, including, but not
limited to, providing Gaiam or its designees any records or information and
submitting to any required medical or other examinations that are necessary or
desirable in connection with the purchase of the Policies.  Rysavy shall not be
obligated to contribute to Gaiam all or any portion of the premiums or related
costs associated with the purchase of the Policies.  Gaiam shall not be
obligated to maintain the Policies and may terminate the Policies at any time.

 

2.             Purchase of Shares.  So long as the Policies are in effect at
Rysavy’s death, Gaiam agrees to purchase from Rysavy’s estate, and Rysavy’s
estate shall sell to Gaiam, a number of Class A Shares, up to the number of
Class A Shares acquired by Rysavy’s estate upon Rysavy’s death (including any
Class A Shares acquired by Rysavy’s estate upon the exercise of derivative
securities including stock options acquired by Rysavy’s estate upon Rysavy’s
death), equal to (a) the proceeds of the Policies paid to Gaiam upon Rysavy’s
death, net of any taxes, expenses or other costs incurred by Gaiam, including,
without limitation, any alternative minimum taxes, which Gaiam may be subject to
or incur as a consequence of receiving insurance proceeds upon the death of
Rysavy (the “Net Proceeds”), divided by (b) the Purchase Price (as defined in
Section 5), rounded to the nearest whole share.  If the Net Proceeds remain
following such purchase, then Gaiam agrees to purchase from Rysavy’s estate, and
Rysavy’s

 

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estate shall sell to Gaiam, a number of Class B Shares, up to the number of
Class B Shares acquired by Rysavy’s estate upon Rysavy’s death (including any
Class B Shares acquired by Rysavy’s estate upon the exercise of derivative
securities including stock options acquired by Rysavy’s estate upon Rysavy’s
death), equal to (a) the remaining Net Proceeds divided by (b) the Purchase
Price, rounded to the nearest whole share; provided, however, that this
Section 2 shall only require Rysavy’s estate to sell Class B Shares acquired by
Rysavy’s estate that exceed 3,000,000 Class B Shares (as such number is
appropriately adjusted to reflect any stock splits, stock dividends or similar
transactions after the date of this Agreement). Promptly after Gaiam’s receipt
of the Net Proceeds or Gaiam’s determination that no Net Proceeds will be
received, and in any event within thirty (30) days following such receipt or
determination, Gaiam shall give the executor or other personal representative of
Rysavy’s estate (the “Executor”) a written notice (the “Purchase Notice”)
indicating (a) the aggregate amount of Net Proceeds, (b) the closing date of any
purchase, which shall be within 10 business days of the date of the Purchase
Notice, and (c) an estimate of the applicable Purchase Price and the number of
Class A Shares and the number of Class B Shares being purchased by Gaiam under
this Section 2.

 

Notwithstanding anything to the contrary contained in this Agreement, Gaiam
shall have no obligation to purchase any securities under this Section 2 if in
the reasonable opinion of Gaiam or its counsel, such purchase (i) would be
prohibited by the Colorado Business Corporation Act or would violate any other
law applicable federal or state laws or regulations, or (ii) would violate or
result in an event of default and/or acceleration of payment of indebtedness
under the provisions of any loan agreements or material contract to which Gaiam
or any of its subsidiaries are a party or their assets are subject.

 

3.             Option.  Rysavy hereby grants to Gaiam an option (the “Option”),
at Gaiam’s sole discretion, to purchase from Rysavy’s estate, at a price equal
to the Purchase Price, all or any portion of the Class A Shares or Class B
Shares held by Rysavy’s estate that will not be purchased by Gaiam pursuant to
Section 2 (including any Class A Shares or Class B Shares acquired by Rysavy’s
estate upon the exercise of derivative securities, including stock options);
provided, however, that this Section 3 shall only require Rysavy’s estate to
sell Class B Shares acquired by Rysavy’s estate that exceed 3,000,000 Class B
Shares (as such number is appropriately adjusted to reflect any stock splits,
stock dividends or similar transactions after the date of this Agreement). If
Gaiam elects to exercise the Option, Gaiam shall include in the Purchase Notice
delivered pursuant to Section 2 notification (a) that Gaiam has elected to
exercise the Option, and (b) an estimate of the applicable Purchase Price and
the number of Class A Shares and the number of Class B Shares being purchased by
Gaiam pursuant to the Option. Gaiam shall first purchase all Class A Shares
available for purchase pursuant to this Section 3 prior to purchasing any
Class B Shares.

 

4.             Closing.  On the closing date as set forth in the Purchase
Notice, Rysavy’s estate shall sell to Gaiam, and Gaiam shall purchase from
Rysavy’s estate, the number of Class A Shares and Class B Shares determined
pursuant to Section 2 and Section 3, and the Executor shall deliver, or cause to
be delivered, to Gaiam any applicable stock certificates, together with such
stock powers or other similar documents as are necessary or advisable to fully
and unconditionally transfer such Class A Shares and Class B Shares to Gaiam,
and Gaiam shall deliver to the Executor or the Executor’s designee(s) the
applicable Purchase Price, by check or by wire transfer. The securities acquired
by Gaiam pursuant to Section 2 and Section 3 shall be free and clear of any
liens or encumbrances of any kind, and the Executor shall so represent and
warrant in writing to Gaiam at the time of such closing.

 

5.             Purchase Price.  For purposes of this Agreement the “Purchase
Price” means the fair market value of the Class A Shares being acquired by the
Company pursuant to this Agreement, as of the date of the acquisition, as
determined by a nationally recognized valuation expert that has not been

 

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employed by the Company, Rysavy or Rysavy’s estate during the previous five
years and that was selected in good faith by the Board of Directors of Gaiam.

 

6.             Transfer Restriction.  Rysavy’s estate shall not sell, pledge or
otherwise transfer any Class A Shares or Class B Shares or any derivative
securities permitting the acquisition or disposition of any Class A Shares or
Class B Shares until it is conclusively determined that such securities will not
be purchased by Gaiam pursuant to Section 2 or Section 3; provided, however,
that such restriction shall not prohibit Rysavy’s estate from exercising or
converting any derivative securities.

 

7.             Representations and Warranties of Gaiam.  Gaiam represents and
warrants to Rysavy that:

 

(a)           Organization and Qualification.  Gaiam is a Colorado corporation,
duly organized, validly existing, and in good standing under the laws of
Colorado.  Gaiam is duly authorized to conduct business and is in good standing
under the laws of each jurisdiction where such qualification is required.

 

(b)           Authorization of Transaction.  Gaiam has the corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder and all corporate action necessary for such execution, delivery and
performance has been taken.  This Agreement constitutes the valid and legally
binding obligation of Gaiam, enforceable in accordance with its terms and
conditions.

 

(c)           Noncontravention.  Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(a) violate any valid constitutional provision, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Gaiam is subject or any
provision of its charter or bylaws; or (b) conflict with, result in a material
breach of, constitute a material default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any material agreement, contract, lease, license,
instrument, or other arrangement to which Gaiam is a party or by which it is
bound or to which any of its material assets is subject (or result in the
imposition of any security interest upon any of its material assets). Gaiam does
not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order to execute and deliver this Agreement or consummate the transactions
contemplated hereby.

 

8.             Representations and Warranties of Rysavy.  Rysavy represents and
warrants to Gaiam that:

 

(a)           Authorization of Transaction.  Rysavy has the power and authority
to execute and deliver this Agreement and to perform his obligations hereunder
and all action necessary for such execution, delivery and performance has been
taken.  This Agreement constitutes the valid and legally binding obligation of
Rysavy, enforceable in accordance with its terms and conditions.

 

(b)           Noncontravention.  Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(a) violate any valid constitutional provision, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Rysavy is subject; or
(b) conflict with, result in a material breach of, constitute a material default
under,

 

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result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any material
agreement, contract, lease, license, instrument, or other arrangement to which
Rysavy is a party or by which he is bound or to which any of his material assets
is subject (or result in the imposition of any security interest upon any of his
material assets).  Rysavy does not need to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order to execute and deliver this Agreement or consummate
the transactions contemplated hereby.

 

9.             Binding Effect; Third Party Beneficiaries.  This Agreement shall
be binding upon and inure to the benefit of Rysavy and Gaiam and their
respective heirs, representatives and successors, and shall not confer any
rights or remedies upon any person other than Rysavy and Gaiam and their
respective heirs, representatives and successors. Executive, in furtherance of
this Agreement, shall execute a will directing his Executor to act pursuant to
this Agreement and to execute such documents as may be necessary to effectuate
the purposes of this Agreement, but failure to execute such a will shall not
affect any rights or obligations of either the Executive or his Executor.

 

10.           Entire Agreement.  This Agreement constitutes the entire agreement
between the parties and supersedes any prior understandings, agreements, or
representations by or between the parties, written or oral, to the extent they
related in any way to the subject matter hereof. This Agreement may be altered,
amended or revoked only by subsequent written instrument executed by Gaiam and
Rysavy, or, following Rysavy’s death, the Executor.

 

11.           Choice of Law.  To the extent not superseded by federal law, the
laws of the state of Colorado shall control in all matters relating to this
Agreement and any action relating to this Agreement must be brought in Denver,
Colorado.

 

12.           Notices.  All notices, requests, demands, claims, and other
communications under this Agreement shall be in writing.  Any notice, request,
demand, claim, or other communication under this Agreement shall be deemed duly
given if (and then two business days after) it is sent by registered or
certified mail, return receipt requested, postage prepaid, and addressed to the
intended recipient at the address set forth below the recipient’s signature to
this Agreement.  Either party to this Agreement may send any notice, request,
demand, claim, or other communication under this Agreement to the intended
recipient at such address using any other means (including personal delivery,
expedited courier, messenger service, telecopy, ordinary mail, or electronic
mail), but no such notice, request, demand, claim, or other communication shall
be deemed to have been duly given unless and until it actually is received by
the intended recipient. Either party to this Agreement may change the address to
which notices, requests, demands, claims, and other communications hereunder are
to be delivered by giving the other party notice in the manner set forth in this
section.

 

13.           Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

 

14.           Specific Performance. The parties acknowledge that it would be
impossible to fix the amount of money damages caused by a breach of this
Agreement by the other party, and, therefore, this Agreement may be enforced by
specific performance.  The parties hereby waive any defense that an action to
enforce this Agreement by specific performance is inappropriate because of an
adequate remedy at law, provided, however, that nothing in this Section 14 is
intended to prohibit any party from bringing an action for money damages for
breach of this Agreement (either in lieu of or in addition to an action for
specific performance).

 

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15.           Further Assurances.  Each party shall cooperate and take such
action as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement and the transactions contemplated
hereby.

 

16.           Termination.  This Agreement shall terminate and be of no further
force and effect if the Class A Shares are no longer listed on a securities
exchange, quoted in the NASDAQ System, or quoted in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization.

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

 

 

 

GAIAM, INC.

 

 

 

/s/ Lynn Powers

 

 

By: Lynn Powers

 

Its: President

 

 

 

 

 

JIRKA RYSAVY

 

 

 

/s/ Jirka Rysavy

 

 

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