exv10w1



 








EXHIBIT
 10.1



 





HOMESTORE, INC.



STOCKHOLDERS AGREEMENT




Dated as
of November 29, 2005




 












 



 




TABLE OF CONTENTS




	 	 	 	 	 
	 	 	Page	 
	ARTICLE I	 	 	 	 
	 
	 	 	 	 
	DEFINITIONS	 	 	 	 
	 
	 	 	 	 
	SECTION 1.1. Certain Defined Terms
	 	 	1	 
	SECTION 1.2. Other Capitalized Terms
	 	 	8	 
	 
	 	 	 	 
	ARTICLE II	 	 	 	 
	 
	 	 	 	 
	CORPORATE GOVERNANCE AND INFORMATION RIGHTS
	 
	 	 	 	 
	SECTION 2.1. Board Representation
	 	 	8	 
	SECTION 2.2. Board Committees
	 	 	11	 
	SECTION 2.3. Consent Rights
	 	 	11	 
	SECTION 2.4. Information Rights
	 	 	13	 
	SECTION 2.5. Confidentiality
	 	 	14	 
	SECTION 2.6. Investor Director Expenses
	 	 	15	 
	SECTION 2.7. D&O Insurance
	 	 	15	 
	SECTION 2.8. Election of Directors; Quorum
	 	 	15	 
	 
	 	 	 	 
	ARTICLE III
	 
	 	 	 	 
	TRANSFERS
	 
	 	 	 	 
	SECTION 3.1. Transfer Restrictions
	 	 	15	 
	SECTION 3.2. Legends
	 	 	16	 
	 
	 	 	 	 
	ARTICLE IV
	 
	 	 	 	 
	REGISTRATION RIGHTS
	 
	 	 	 	 
	SECTION 4.1. Piggyback Registrations
	 	 	17	 
	SECTION 4.2. Demand Registration
	 	 	18	 
	SECTION 4.3. Registration Procedures
	 	 	22	 
	SECTION 4.4. Information Supplied
	 	 	25	 
	SECTION 4.5. Restrictions on Disposition
	 	 	25	 
	SECTION 4.6. Indemnification
	 	 	25	 
	SECTION 4.7. Required Reports
	 	 	28	 
	SECTION 4.8. Selection of Counsel
	 	 	28	 
	SECTION 4.9. Participation in Underwritten Registrations; Holdback Agreement
	 	 	28	 
	SECTION 4.10. No Inconsistent Agreements
	 	 	29	 
	SECTION 4.11. Termination of Registration Rights
	 	 	29	 





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	 	 	Page	 
	ARTICLE V	 	 	 	 
	 
	 	 	 	 
	CERTAIN COVENANTS	 	 	 	 
	 
	 	 	 	 
	SECTION 5.1. Pre-Emptive Rights
	 	 	29	 
	SECTION 5.2. Regulatory Matters
	 	 	30	 
	SECTION 5.3. Common Stock Repurchases
	 	 	31	 
	SECTION 5.4. Further Assurances
	 	 	31	 
	SECTION 5.5. Standstill
	 	 	31	 
	 
	 	 	 	 
	ARTICLE VI	 	 	 	 
	 
	 	 	 	 
	MISCELLANEOUS	 	 	 	 
	 
	 	 	 	 
	SECTION 6.1. No Recourse
	 	 	32	 
	SECTION 6.2. Termination
	 	 	32	 
	SECTION 6.3. Expenses
	 	 	33	 
	SECTION 6.4. Successors and Assigns; Assignment
	 	 	33	 
	SECTION 6.5. No Third Party Beneficiaries
	 	 	33	 
	SECTION 6.6. Entire Agreement
	 	 	33	 
	SECTION 6.7. Severability
	 	 	33	 
	SECTION 6.8. Amendment and Waiver
	 	 	33	 
	SECTION 6.9. Delays or Omissions
	 	 	34	 
	SECTION 6.10. Notices
	 	 	34	 
	SECTION 6.11. Intepretation
	 	 	34	 
	SECTION 6.12. Governing Law; Jurisdiction; Waiver of Jury Trial
	 	 	34	 
	SECTION 6.13. Specific Performance; No Special Damages
	 	 	35	 
	SECTION 6.14. Counterparts
	 	 	35	 





ii









 



 


  1




STOCKHOLDERS AGREEMENT




          THIS
STOCKHOLDERS AGREEMENT (this “Agreement”) is entered
as of November 29, 2005,
among Homestore, Inc. a Delaware corporation (the “Company”), Elevation Partners, L.P., a
Delaware partnership (“Elevation”), and Elevation Employee Side Fund, LLC, a Delaware limited
liability company (“Side Fund” and,
together with Elevation, the “Investor Stockholders”).




RECITALS




          WHEREAS, the Company and the Investor Stockholders have entered into a Preferred Stock
Purchase Agreement, dated as of November 6, 2005 (the “Preferred Stock Purchase
Agreement”), pursuant to which the Investor Stockholders purchased an aggregate of 100,000
shares (the “Purchased Shares”) of the Company’s Series B Preferred Stock (as defined
below) for an aggregate purchase price of $100 million on the date hereof; and




          WHEREAS, the parties hereto desire to enter into certain arrangements relating to the Company,
the Purchased Shares, the other Subject Shares (as defined below) and the Conversion Shares (as
defined below).




          NOW, THEREFORE, in consideration of the foregoing recitals and of the mutual promises
hereinafter set forth, the parties hereto agree as follows:




ARTICLE I




DEFINITIONS




          SECTION 1.1.   Certain Defined Terms. As used herein, the following terms shall have
the following meanings:




          “Acquisition” means any acquisition (whether by merger, consolidation, tender offer,
exchange offer, asset purchase or otherwise) of any security, asset or business of another Person.




          “Agreement” has the meaning assigned to such term in the preamble.




          “Affiliate” means, with respect to any Person, any other Person that directly, or
indirectly through one or more intermediaries, controls, is controlled by or is under common
control with, such specified Person, for so long as such Person remains so associated to the
specified Person. For the avoidance of doubt, the National Association of Realtors, the Realtors
Information Network and their respective Affiliates are not Affiliates of the Company or any of its
Subsidiaries.




          “Approved Transaction” means an acquisition of the stock, assets or business of
another Person by the Company or any of its Subsidiaries or a strategic alliance or commercial
transaction entered into by the Company or any of its Subsidiaries with another Person, which has
been approved by a majority of the disinterested Directors of the Board.










 



2




          “Approved Stock Plan” means any stock option plan, agreement or arrangement
outstanding on the date hereof or any other stock option plan or other equity-based compensation
plan of the Company, agreement or other arrangement that has been approved by the Board, which
provides for the issuance of Equity Securities to the directors, officers, employees and
consultants of the Company or its Subsidiaries for an exercise or purchase price of not less than
85% of the fair market value (as determined in such plan, agreement or arrangement) of the Common
Stock on the date of grant or purchase, as the case may be.




          “as converted” means, with respect to any Equity Securities owned by any Investor
Stockholder and its Affiliates that are convertible into, or exchangeable or exercisable for Common
Stock, such Equity Securities on an as converted, exchanged or exercised basis.




          “beneficial owner” or “beneficially own” has the meaning given to such term in
Rule 13d-3 under the Exchange Act, and a Person’s beneficial ownership of Common Stock or Preferred
Stock or other Voting Securities of the Company shall be calculated in accordance with the
provisions of such Rule; provided, however, that for purposes of determining
beneficial ownership, a Person shall be deemed to be the beneficial owner of any security which may
be acquired by such Person whether within 60 days or thereafter, upon the conversion, exchange or
exercise of any warrants, options, rights or other securities.




          “Board” means the Board of Directors of the Company.




          “Business Day” means any day that is not a Saturday, a Sunday or other day on which
banks are required or authorized by law to be closed in California.




          “Bylaws” means the Bylaws of the Company, as in effect on the date hereof and as the
same may be amended, supplemented or otherwise modified from time to time in accordance with the
terms thereof and the terms of the Restated Certificate.




          “Capital Stock” means any and all shares of capital stock of the Company, including
without limitation, any and all shares of Common Stock and Preferred Stock.




          “CALSTRS Agreement” means the Stipulation and Agreement of Settlement between
California State Teachers’ Retirement System and the Company, dated as of August 12, 2003.




          “Certificate of Designation” means the Certificate of Designation with respect to the
Series B Preferred Stock.




          “Claims” has the meaning assigned to such term in Section 4.6(a).




          “Confidentiality Agreement” means the Confidentiality Agreement, dated April 19, 2005,
between the Company and Elevation Associates, L.P.




          “Committee Qualification Requirements” has the meaning assigned to such term in
Section 2.2.










 



3




          “Common Stock” means the Common Stock, par value $0.001 per share, of the Company and
any securities issued in respect thereof, or in substitution therefor, in connection with any stock
split, dividend or combination, or any reclassification, recapitalization, merger, consolidation,
exchange or other similar reorganization.




          “control” (including the terms “controlled by” and “under common control
with”), with respect to the relationship between or among two or more Persons, means the
possession, directly or indirectly, of the power to direct or cause the direction of the affairs or
management of a Person, whether through the ownership of voting securities, as trustee or executor,
by contract or otherwise.




          “controlling person” has the meaning assigned to such term in Section 4.6(a).




          “Conversion Shares” means the shares of Common Stock that may be issued upon the
conversion of the Subject Shares as provided for in the Certificate of Designation.




          “Demand Party” has the meaning assigned to such term in Section 4.2(a).




          “Designated Stockholder” means Elevation.




          “Director” means any member of the Board.




          “Dispute” has the meaning assigned to such term in Section 6.12(a).




          “Divestiture” means any sale, lease, license, assignment, encumbrance, transfer or
disposition of any securities, assets (including any intellectual property) or business of the
Company or any of its Subsidiaries (including but not limited to any spin-off or in-kind
distribution).




          “EBITDA” means, with respect to the Company, on a consolidated basis, consolidated net
income (as calculated in accordance with GAAP and using accounting policies, procedures and
principles consistent with past practice) plus, to the extent deducted in determining consolidated
net income, (a) income tax expense, (b) interest expense, (c) depreciation and amortization expense
and (d) amortization of intangibles and organization costs, minus to the extent included in
determining such consolidated net income, (i) interest income, (ii) extraordinary income, (iii)
other non-cash income, for the trailing twelve months as of the date hereof, and (iv) unusual or
non-recurring revenues or expenses that are calculated in a manner consistent with past practice
and are reasonably demonstrable to be non-recurring in nature, based on the most recent quarterly,
or if more recent, monthly financial statements provided pursuant to Section 2.4, for the trailing
twelve months as of a specified date for the calculation thereof.




          “Elevation Entity” means any of: (i) Elevation, (ii) Elevation Employee Side Fund,
LLC, (iii) Elevation Associates, L.P., the sole general partner of Elevation, (iv) Elevation
Associates, LLC, the sole general partner of Elevation Associates, L.P. and of Elevation GP
Participants, LP, (v) Elevation GP Participants, LP, a limited partner of Elevation Associates,
L.P. and (vi) Elevation Management, LLC, the sole management company to Elevation, in each











 



4



case so long as, with respect to such entity, such entity is under common control with the
other Elevation Entities.




          “Equity Securities” means any and all shares of Capital Stock of the Company,
securities of the Company convertible into, or exchangeable or exercisable for, such shares, and
options, warrants or other rights to acquire such shares (including the Subject Shares and the
Conversion Shares).




          “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder.




          “GAAP” means generally accepted accounting principles, as in effect in the United
States of America from time to time.




          “Holder” means the Investor Stockholders (including any Transferees that have become
Investor Stockholders) entitled to the rights of Article IV.




          “HSR Act” has the meaning assigned to such term in Section 5.2.




          “incur” means, directly or indirectly, to incur, refinance, create, assume, guarantee
or otherwise become liable.




          “Indebtedness” means, with respect to any Person, any indebtedness of that Person in
respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof) or banker’s acceptances or
representing capital lease obligations or the balance deferred and unpaid of the purchase price of
any property or representing any hedging obligations, except any such balance that constitutes an
accrued expense or trade payables and, to the extent not otherwise included, the guarantee by that
Person of any Indebtedness of any other Person.




          “Indemnified Parties” has the meaning assigned to such term in Section 4.6(c).




          “Investor Director” means any Director designated or nominated for election to the
Board by an Investor Stockholder pursuant to Section 2.1 of this Agreement.




          “Investor Stockholder” has the meaning assigned to such term in the preamble and
includes each other Person that becomes an Investor Stockholder pursuant to Section 3.1(c).




          “Junior Securities” has the meaning assigned to such term in the Certificate of
Designation.




          “Junior Securities Basket” has the meaning assigned to such term in Section 2.3(e).




          “Law” has the same meaning assigned to such term in the Preferred Stock Agreement.










 



5




          “Maximum Number of Directors” has the meaning assigned to such term in Section 2.1(a).




          “NASDAQ” means The NASDAQ National Market.




          “NASD” means the National Association of Securities Dealers, Inc.




          “Permitted Representatives” has the meaning assigned to such term in Section 2.5.




          “Permitted Transferee” means (i) an Elevation Entity’s directors and officers, (ii)
any Elevation Entity, (iii) any corporation, partnership or limited liability company which is and
continues to be a controlled Affiliate of any Elevation Entity, and (iv) after the 18-month
anniversary of the Closing Date, any partner or member of an Elevation Entity in connection with a
pro rata distribution or similar Transfer to, as the case may be, its partners or members. In the
event that such a corporation, partnership or limited liability company subsequent to a Transfer
hereunder ceases to be such a controlled Affiliate, or in the event that any Elevation Entity
ceases to meet the definition thereof as described in clause (ii) above, such event shall be
considered a Transfer and shall be subject to the terms hereof with respect thereto, including
Section 3.1.




          “Person” means any natural person, corporation, limited liability company, trust,
joint venture, association, company, partnership, governmental authority or other entity.




          “Pre-Emptive Amount” has the meaning assigned to such term in Section 5.1(c).




          “Pre-Emptive Right” has the meaning assigned to such term in Section 5.1(a).




          “Pre-Emptive Rights Notice” has the meaning assigned to such term in Section 5.1(b).




          “Preferred Stock” means the shares of preferred stock, par value $0.001 per share, of
the Company and any securities issued in respect thereof, or in substitution therefor, in
connection with any stock split, dividend or combination, or any reclassification,
recapitalization, merger, consolidation, exchange or other similar reorganization.




          “Preferred Stock Purchase Agreement” has the meaning assigned to such term in the
recitals.




          “Pro Forma Debt and Preferred Stock Ratio” means, after giving effect to a transaction
or a series of related transactions, the ratio of (x) the pro forma aggregate principal and accrued
interest of indebtedness of the Company and its Subsidiaries, plus the pro forma aggregate
liquidation preference and accrued dividends of Preferred Stock of the Company and its Subsidiaries
(including the Series A Preferred Stock and Series B Preferred Stock), to (y) the pro forma EBITDA
as of the consummation of such transaction or such series of related transactions, with only those
adjustments permitted or required by Regulation S-X promulgated by the SEC.










 



6




          “Public Offering” means a public offering of shares of Common Stock pursuant to an
effective registration statement (other than on Form S-4, Form S-8 or their equivalent) under the
Securities Act.




          “Purchased Shares” has the meaning assigned to such term in the recitals.




          “Registrable Securities” means the Conversion Shares held by any Holder and any Common
Stock which may be issued in respect thereof, or in substitution therefor, in connection with any
stock split, dividend or combination, or any recapitalization, reclassification, merger,
consolidation, exchange or other similar reorganization with respect to the Conversion Shares. As
to any particular Registrable Securities, once issued, such Registrable Securities shall cease to
be Registrable Securities when (i) a registration statement with respect to the sale by the Holder
of such securities shall have become effective under the Securities Act and such securities shall
have been disposed of in accordance with such registration statement, (ii) such securities shall
have been distributed to the public pursuant to Rule 144 (or any successor provision) under the
Securities Act, or (iii) such securities shall have ceased to be outstanding. For purposes of this
Agreement, any required calculation of the amount of, or percentage of, Registrable Securities
shall be based on the number of shares of Common Stock which are Registrable Securities, including
shares issuable upon the conversion, exchange or exercise of any security convertible, exchangeable
or exercisable into Common Stock.




          “Registration Expenses” means any and all expenses incident to performance of or
compliance with Article IV of this Agreement, including (i) all SEC and securities exchange or NASD
registration and filing fees (including, if applicable, the fees and expenses of any “qualified
independent underwriter,” as such term is defined in Section 2720 of the bylaws of the NASD, and of
its counsel), (ii) all fees and expenses of complying with securities or blue sky laws (including
fees and disbursements of counsel for the underwriters in connection with blue sky qualifications
of the Registrable Securities and any escrow fees), (iii) all printing, messenger and delivery
expenses, (iv) all fees and expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange or NASD pursuant to Section 4.3(g)(i) and all rating agency
fees, (v) the fees and disbursements of counsel for the Company and of its independent public
accountants, including the expenses of any special audits and/or “cold comfort” letters required by
or incident to such performance and compliance, (vi) the reasonable fees and disbursements of
counsel for the Company, (vii) the reasonable fees and disbursements of counsel selected pursuant
to Section 4.8 not to exceed $60,000 in connection with any registration statement, (viii) any fees
and disbursements of underwriters customarily paid by the issuers, including liability insurance if
the Company so desires, but excluding fees and disbursements customarily paid by sellers of
securities who are not issuers of such securities, underwriting discounts, commissions and transfer
taxes, if any, and (ix) the expenses incurred in connection with any road show undertaken pursuant
to Section 4.3(q) (including the reasonable out-of-pocket expenses of any Holder).




          “Representatives” has the meaning assigned to such term in Section 5.5.




          “Restated Certificate” means the Restated Certificate of Incorporation (including the
Certificate of Designation) of the Company, as in effect on the date hereof and as the same







 



7




may be amended, supplemented or otherwise modified from time to time in accordance with the
terms thereof and the terms of this Agreement.




          “SEC” means the U.S. Securities and Exchange Commission or any other federal agency
then administering the Securities Act or the Exchange Act and other federal securities laws.




          “Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.




          “Seller Indemnified Parties” has the meaning assigned to such term in Section 4.6(a).




          “Series A Preferred Stock” means the Preferred Stock of the Company that is designated
as Series A Preferred Stock and any securities issued in respect thereof, or in substitution
therefor, in connection with any stock split, dividend or combination, or any reclassification,
recapitalization, merger, consolidation, exchange or other similar reorganization (other than the
Common Stock upon conversion thereof as contemplated by the Restated Certificate).




          “Series B Preferred Stock” means the Preferred Stock of the Company that is designated
as Series B Convertible Participating Preferred Stock and any securities issued in respect thereof,
or in substitution therefor, in connection with any stock split, dividend or combination, or any
reclassification, recapitalization, merger, consolidation, exchange or other similar reorganization
(other than the Conversion Shares upon conversion thereof as contemplated by the Certificate of
Designation).




          “Significant Subsidiary” has the meaning given to that term in Rule 1-02 of Regulation
S-X promulgated by the SEC.




          “Subject Shares” means (i) the Purchased Shares and (ii) the shares of Series B
Preferred Stock issued for the payment of in-kind dividends on the Purchased Shares as provided for
in the Certificate of Designation with respect to the Series B Preferred Stock.




          “Subsidiary” means, with respect to a party, any corporation, partnership, trust,
limited liability company or other entity in which such party (or another Subsidiary of such party)
holds stock or other ownership interests representing (A) more that 50% of the voting power of all
outstanding stock or ownership interests of such entity, (B) the right to receive more than 50% of
the net assets of such entity available for distribution to the holders of outstanding stock or
ownership interests upon a liquidation or dissolution of such entity or (C) a general or managing
partnership interest or similar position in such entity.




          “Transfer” means, directly or indirectly, to sell, transfer, assign, pledge, encumber,
hypothecate or similarly dispose of, either voluntarily or involuntarily, or to enter into any
contract, option or other arrangement or understanding with respect to the sale, transfer,
assignment, pledge, encumbrance, hypothecation or similar disposition of, any shares of Equity
Securities beneficially owned by a Person or any interest in any shares of Equity Securities
beneficially owned by a Person and an event described in the last sentence of the definition of







 



8




Permitted Transferee. For purposes of clarity, a conversion of the Subject Shares into
Conversion Shares is not a Transfer.




          “Transferee” means any Person to whom any Investor Stockholder or any Transferee
thereof Transfers Equity Securities of the Company in accordance with the terms hereof.




          “Voting Securities” means, at any time, shares of any class of Equity Securities of
the Company which are then entitled to vote in the election of Directors.




          SECTION 1.2.   Other Capitalized Terms. Capitalized terms used but not defined herein
shall have the meanings given to them in the Preferred Stock Purchase Agreement.




ARTICLE II




CORPORATE GOVERNANCE AND INFORMATION RIGHTS




          SECTION 2.1.   Board Representation.




          (a) Effective as of the Closing, the Board shall be comprised of no more than eleven (11)
Directors; provided that the size of the Board may be decreased to the extent that the
Designated Stockholder’s right to designate the maximum number of Directors pursuant to this
Section 2.1(a) is not prejudiced by application of the first proviso at the end of this Section
2.1(a); provided further that the size of the Board may be increased pursuant to
Section 2.1(d). The Designated Stockholder shall have the right to designate or nominate (as
applicable) a maximum of either two (2) Directors or one (1) Director to the Board as follows:





     (i) For so long as the Investor Stockholders hold at least two-thirds of the Purchased
Shares issued on the Closing Date (as adjusted for stock splits, combinations,
reclassifications and similar transactions but not conversion), the Designated Stockholder
shall have the right to designate no more than two (2) Directors to the Board that the
holders of Series B Preferred Stock are entitled to elect pursuant to Section 4(c) of the
Certificate of Designation;




     (ii) For so long as the Investor Stockholders hold at least one-third, but less than
two-thirds, of the Purchased Shares issued on the Closing Date (as adjusted for stock
splits, combinations, reclassifications and similar transactions but not conversion), the
Designated Stockholder shall have the right to designate no more than one (1) Director to
the Board that the holders of Series B Preferred Stock are entitled to elect pursuant to
Section 4(c) of the Certificate of Designation;




     (iii) Following the conversion of any Purchased Shares into Conversion Shares (and
without duplication of the Board seats provided in clause (i) or (ii) above), for so long as
the Investor Stockholders hold at least a number of Conversion Shares equal to
two-thirds of the Purchased Shares issued on the Closing Date on an as-converted basis
(as adjusted for stock splits, combinations, reclassifications and similar transactions),
the Designated Stockholder shall have the right to nominate two (2) Directors for election
to









 



9



the Board (and no more than a maximum of two (2) Directors giving effect to any rights
exercised under clause (i) or (ii) above); and




     (iv) Following the conversion of any Purchased Shares into Conversion Shares (and
without duplication of the Board seats provided in clauses (i) and (ii) above), for so long
as the Investor Stockholders hold a number of Conversion Shares equal to less than
two-thirds but at least one-third of the Purchased Shares issued on the Closing Date (as
adjusted for stock splits, combinations, reclassifications and similar transactions) on an
as-converted basis, the Designated Stockholder shall have the right to nominate one (1)
Director for election to the Board (and no more than a maximum of two (2) Directors giving
effect to any rights exercised under clause (i) or (ii) above);


provided that notwithstanding the foregoing, the rights of the Designated Stockholder in
this Section 2.1(a) shall be subject to applicable NASDAQ rules to the extent required such that
the Common Stock shall continue to be listed on NASDAQ; provided, further, that in
connection with an Approved Transaction pursuant to which the Company issues shares of Common Stock
as consideration in the transaction, the maximum number of Investor Directors that the Designated
Stockholder is entitled to designate or nominate immediately prior to such transaction (the
“Maximum Number of Directors”) may be reduced following the consummation of such
transaction, at the election of the Company, to a number of Investor Directors (rounded to the
nearest whole number) equal to (x) the Maximum Number of Directors multiplied by (y) the aggregate
percentage ownership of the Company following the consummation of such transaction owned on a fully
diluted basis by the holders of Capital Stock of the Company immediately prior to such transaction
(provided that in no event may the Maximum Number of Directors be reduced to below one (1)
Investor Director by application of this proviso although it shall remain subject to reduction
pursuant to clauses (i) through (iv) of Section 2.1(a)); and provided, further,
that in any event such rights shall terminate on the seventh (7th) anniversary of the
date hereof.




          (b) For so long as the Designated Stockholder has the right to designate or nominate at least
one (1) director pursuant to Section 2.1(a), the Company at all times shall take such action as may
be required under applicable Law, NASDAQ rules, the Restated Certificate and the Bylaws to cause
the Board to consist of the number of Directors specified in clause (a) and, subject to the
Designated Stockholder’s compliance with Section 2.1(e) to include on the Board or in the slate of
nominees recommended by the Board such persons designated or nominated, as the case may be, by the
Designated Stockholder pursuant to this Section 2.1.




          (c) For so long as the Designated Stockholder has the right to designate or nominate at least
one (1) director pursuant to Section 2.1(a), in the event that a vacancy is created at any time by
the death, disability, retirement, resignation or removal (with or without cause) of any Investor
Director, the Designated Stockholder may designate or nominate, as applicable, another individual
to be elected to fill the vacancy created thereby, and the Company hereby agrees to take, at any
time and from time to time, all actions necessary to accomplish the same.




          (d) For so long as the Designated Stockholder has the right to designate or nominate at least
one (1) director pursuant to Section 2.1(a), without the prior written consent of











 



10



the Designated
Stockholder, the Company agrees not to take any action that would cause the number of Directors
constituting the entire Board to be greater than 11; provided that the entire Board may be
increased to the extent the Company is obligated to designate or nominate one or more Directors to
the Board pursuant to an Approved Transaction. Thereafter, the number of Directors may be
established by the Board in accordance with the Restated Certificate, By-Laws and applicable Law.




          (e) Any Director designated or nominated by the Designated Stockholder shall be, at all times
during which such Person serves as a Director, a present or former full-time general partner,
managing director or principal of Elevation Management, LLC, shall not be (or be a representative
of or otherwise Affiliated with) a competitor of the Company as determined in good faith by the
Board, and shall otherwise be reasonably acceptable to the Company’s Governance and Nominating
Committee as determined in good faith. The initial Investor Directors shall be Roger McNamee (as a
Class I Director until the declassification of the Board in 2008) and Fred Anderson (as a Class II
Director until the declassification of the Board in 2008) and shall be required to stand for
re-election at the Company’s 2006 or 2007 annual general meeting of stockholders, as the case may
be. The Designated Stockholder shall notify the Company of each proposed Investor Director, in
writing, a reasonable time in advance of the mailing of any proxy statement, information statement
or registration statement in which any Board nominee or Board member of the Company would be named
(which in the event of any proxy statement relating to an annual meeting of stockholders of the
Company shall be no later than 30 days prior to the first anniversary of the mailing of the proxy
statement related to the previous year’s annual meeting of stockholders), together with all
information concerning such nominee reasonably requested by the Company, so that the Company may
determine whether such nominee complies with the above qualifications and so that the Company can
comply with applicable disclosure rules; provided that in the absence of such notice, the
Designated Stockholder shall be deemed to have designated or nominated the same Investor Directors
as set forth in the most recent notice delivered to the Company pursuant to this Section 2.1(e).




          (f) All obligations of the Company pursuant to Section 2.1 shall terminate, and, unless
otherwise requested by the Board (which request shall not be deemed to affect the termination of
the right to nominate or designate Investor Directors pursuant to Section 2.1(a)), the Designated
Stockholder shall cause all of the Investor Directors to resign promptly from the Board,
immediately when the Designated Stockholder no longer has the right to designate or nominate at
least one (1) director pursuant to Section 2.1(a). In addition, the Designated Stockholder shall
cause any excess Investor Directors to resign promptly at any time that there exist more Investor
Directors than the Designated Stockholder is entitled to nominate or designate pursuant to Section
2.1(a), unless otherwise requested by the Board (which request shall not be deemed to affect the
termination of the right to nominate or designate Investor Directors pursuant to Section 2.1(a)).
Without prejudice to the foregoing, at any such time, no Investor Directors shall vote or exercise
any other rights or powers of office during the period pending resignation. Any vacancy created by
such resignation may be filled by the Board of Directors or the stockholders of the Company in
accordance with the Restated Certificate, the By-Laws and applicable Law. The Company may
implement this provision by requiring the
execution and delivery of resignation letters subject to termination of designation or
nomination rights.





 









 




11





          SECTION 2.2.   Board Committees. Subject to the requirements of applicable Law, NASDAQ
rules, the CALSTRS Agreement and Committee Qualification Requirements, for as long as the
Designated Stockholder is entitled to designate or nominate at least one (1) Investor Director
pursuant to Section 2.1(a): (a) at least one (1) Investor Director shall be entitled to serve on
each regular committee of the Board, and (b) where the requirements of applicable Law, NASDAQ
rules, the CALSTRS Agreement or Committee Qualification Requirements prohibit such service on a
regular committee of the Board, the Designated Stockholder shall be entitled to have at least one
(1) Investor Director be a Board observer on such Board committee. Notwithstanding any such
observer status, any committee may hold executive sessions at which the observer is not permitted
to be present and may withhold information from the observer in order to avoid any conflict of
interest or in light of corporate governance concerns, or to comply with applicable Laws, NASDAQ
rules and the CALSTRS Agreement, in each case as reasonably determined by such committee. For
purposes of this Section 2.2, “Committee Qualification Requirements” shall mean that the
Investor Director shall, in the good faith judgment of the Board, meet at all times during the
Investor Director’s service on a particular committee: (i) all independence requirements
applicable to companies listed for quotation on the NASDAQ National Market (or stock exchange if
the Company’s shares are listed on a stock exchange) for members of the particular committee, (ii)
be free of any relationship that, in the opinion of the Board, would interfere with the exercise of
independent judgment as a member of the particular committee, and (iii) in the case of the
Management Development and Compensation Committee, be a “non-employee director” (within the meaning
of Rule 16b-3 promulgated under the Exchange Act) and an “outside director” (within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder).




          SECTION 2.3.   Consent Rights. For as long as the Designated Stockholder is entitled to
designate or nominate at least one (1) Investor Director pursuant to Section 2.1(a)(i) or
2.1(a)(ii), in addition to any vote or consent of the stockholders of the Company required by Law,
NASDAQ rules, the Restated Certificate or the Bylaws, the consent in writing of the Designated
Stockholder shall be necessary for authorizing, effecting or validating the following actions by
the Company:




          (a) the incurrence of additional Indebtedness by the Company or any of its Subsidiaries in
excess of an amount equal to 2 times EBITDA as of such incurrence; provided,
however, that in connection with an Acquisition that is an Approved Transaction, the
Company or any of its Subsidiaries may incur Indebtedness of up to 3 times EBITDA as of the
consummation of such Acquisition that is an Approved Transaction; and provided,
further, that notwithstanding the foregoing, the Company may incur (i) Indebtedness to
refinance, replace or restructure existing Indebtedness in an amount not in excess of the
principal, plus premium, if any, and accrued interest on such existing Indebtedness and (ii) up to
$25,000,000 in Indebtedness, in the aggregate, for corporate purposes (provided that the
Indebtedness incurred pursuant to the foregoing clause (ii) will be included in the calculations of
this clause (a));




          (b) any Acquisition, Divestiture, recapitalization, reclassification of the securities of, or
reorganization of the Company or any of its Subsidiaries, if such Acquisition, Divestiture,
recapitalization, reclassification, or reorganization, after giving effect to such transaction or
series of related transactions, would result in the greater of (i) a Pro Forma Debt












 



12



and Preferred
Stock Ratio in excess of 5:1 and (ii) a Pro Forma Debt and Preferred Stock Ratio that is in excess
of 5:1 and is greater than the Pro Forma Debt and Preferred Stock Ratio immediately prior to such
transaction or series of related transactions; provided that such consent shall not apply
in the event that in connection with such transaction or transactions, the Company is required to
make a “Change in Control Offer,” as defined in Section 7(a) of the Certificate of Designation;




          (c) unless the Board determines, after consultation with outside counsel, that an action is
reasonably required in order for the Board to comply with its fiduciary duties under applicable Law
taking into account, to the extent required, the Company’s creditors (including the holders of
Preferred Stock), (A) any voluntary filing, or voluntary consent by answer or otherwise to the
filing against the Company or any of its Subsidiaries of, a petition for relief or reorganization
or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any
bankruptcy, insolvency, reorganization, moratorium or other similar Law of any jurisdiction, (B)
any assignment for the benefit of the creditors of the Company or any of its Subsidiaries, (C) any
consent to the appointment of a custodian, receiver, trustee or liquidator with similar powers with
respect to it or with respect to any substantial part of its property, or (D) any corporate action
for the purpose of any of the foregoing;




          (d) enter into any direct or indirect transaction or series of related transactions in excess
of $100,000 other than on arms-length terms by the Company or any of its Subsidiaries with an
Affiliate of the Company or a family member or an Affiliate thereof or any entity in which an
Affiliate has an interest as a director, officer, or greater than 5% stockholder (including without
limitation, the purchase, sale, lease or exchange of any property, or rendering of any service or
modification or amendment of any existing agreement or arrangement), but excluding transactions
that (i) are available to the employees or stockholders generally, (ii) involve employee benefit
plans, executive compensation, director compensation, indemnification agreements, or similar
transactions, (iii) reimbursement and advancement of business expenses, relocation expenses and
similar expenses incurred by directors or employees in the ordinary course of business, and (iv)
the reimbursement of expenses and similar payments pursuant to agreements or arrangements with
employees to the extent disclosed in the Company’s proxy statement on Schedule 14A filed on May 24,
2005 (including renewals and extensions thereof on substantially similar terms);




          (e) any (A) declaration, setting side or payment of any dividends on, or making any other
distributions (whether in cash, securities or other property) in respect of, any Junior Securities
or (B) repurchase, redemption or other acquisition of any Junior Securities, except that clauses
(A) and (B) shall not apply until the sum of such declarations, settings aside, payments,
repurchases, redemptions or acquisitions, since the date hereof, equals at least $10 million (the
“Junior Securities Basket”); provided that clause (A) and the Junior Securities
Basket shall not apply to a dividend of solely Common Stock or Junior Securities of the Company;
provided, further, that clause (B) and the Junior Securities Basket shall not apply
to (i) repurchases of the Company’s Common Stock pursuant to any publicly announced share
repurchase program approved by the Board, in the aggregate, of up to $20 million, (ii)
repurchases of the Company’s Common Stock pursuant to any Approved Stock Plan and (iii) the
issuance of rights pursuant to a shareholder rights plan adopted by the Board (provided that any












 



13



Common Stock issuable upon conversion of the Series B Preferred Stock would be entitled to such
rights) or the redemption of rights issued pursuant to such a shareholder rights plan;




          (f) unless the Board determines, after consultation with outside counsel, that an action is
reasonably required in order for the Board to comply with its fiduciary duties under applicable
Law, taking into account, to the extent required, the Company’s creditors (including the holders of
Preferred Stock), any dissolution, liquidation or winding-up of the Company; and




          (g) any authorization of, entering into an agreement for, or the commitment to agree to take
any of, any of the foregoing actions.



Notwithstanding the foregoing, the rights of the Designated Stockholder in this Section 2.3 shall
be subject to applicable NASDAQ rules to the extent required such that the Common Stock shall
continue to be listed on NASDAQ.




          SECTION 2.4.   Information Rights. (a) For so long as the Designated Stockholder is
entitled to designate or nominate at least one (1) Investor Director pursuant to Section 2.1(a) or
the Investor Stockholders hold at least one-sixth of the Purchased Shares issued on the Closing
Date (as adjusted for stock dividends, splits, combinations and similar events, but not for
conversion), the Company will deliver to such Investor Directors (or if none, the Designated
Stockholder) the following information for distribution by such Investor Directors to the
Designated Stockholder, in such manner and form as customarily provided to the Board:





     (i) on an annual basis and as soon as available (but no later than the Company’s
December Board meeting or, if such meeting is not held or scheduled in December, at least 20
days before the beginning of each fiscal year), (A) an annual budget of the Company, (B) a
business plan of the Company, and (C) financial forecasts for the next fiscal year of the
Company, in each case in such manner and form customarily provided to the Board;




     (ii) on an annual basis and as soon as available (but no later than 60 days after the
end of each fiscal year), annual financial and operating reports of the Company, in such
manner and form customarily provided to the Board;




     (iii) on a quarterly basis and as soon as available (but in no event later than 35 days
after the end of each quarter), quarterly financial and operating reports of the Company, in
such manner and form customarily provided to the Board;




     (iv) on a monthly basis and as soon as available (but in no event later than 30 days
after each month), monthly management and operating reports of the Company, in such manner
and form customarily provided to the Board or, if not provided to the Board, in such manner
and form customarily provided to the Company’s senior management; and




     (v) such other financial, management and operating reports reasonably requested by the
Designated Stockholder.









 



14


          (b) In the event that the Company is no longer obligated to file an annual report on Form 10-K
or quarterly report on Form 10-Q with the SEC but the Investor Directors are at such time entitled
to receive information pursuant to Section 2.4(a), the Company shall deliver the following to the
Investor Directors in such manner and form as customarily provided to the Board:





     (i) as soon as practicable after the end of each fiscal year of the Company, and in any
event within ninety (90) days thereafter, (A) a consolidated balance sheet of the Company
and its Subsidiaries as of the end of such fiscal year and consolidated statements of income
and cash flows of the Company and its Subsidiaries for such year, prepared in accordance
with GAAP and setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and followed promptly thereafter (to the extent not
available) such financial statements shall be accompanied by the opinion of independent
public accountants of recognized national standing selected by the Company’s Audit
Committee, and (B) the Company’s business plan for the upcoming fiscal year and, if not
previously provided, the prior fiscal year, in each case as approved by the Board; and




     (ii) as soon as practicable after the end of the first, second and third quarterly
accounting periods in each fiscal year of the Company, and in any event within forty-five
(45) days thereafter, an unaudited consolidated balance sheet of the Company and its
Subsidiaries as of the end of each such quarterly period, and unaudited consolidated
statements of income and cash flows of the Company and its Subsidiaries for such period and
for the current fiscal year to date, prepared in accordance with GAAP and setting forth in
comparative form the figures for the corresponding periods of the previous fiscal year,
subject to changes resulting from normal year-end audit adjustments, all in reasonable
detail and certified by the principal financial or accounting officer of the Company, except
that such financial statements need not contain the notes required by GAAP.



          SECTION 2.5.   Confidentiality. Each Investor Stockholder agrees to (i) keep
confidential all proprietary and non-public information regarding the Company and its Subsidiaries
received pursuant to Section 2.4 and all Evaluation Material (as defined in the Confidentiality
Agreement), whether through the Investor Directors or otherwise, and not to disclose or reveal any
such information to any person other than those of its directors, general partner and officers
(“Permitted Representatives”) who need to know such information for the purpose of
evaluating, monitoring or taking any other action with respect to the investment by the Investor
Stockholder in the Subject Shares or Conversion Shares and to cause those Permitted Representatives
to observe the terms of this Section 2.5, (ii) not to use such proprietary and non-public
information for any purpose other than in connection with evaluating, monitoring or taking any
other action with respect to the investment by the Investor Stockholder in the Subject Shares or
Conversion Shares, and (iii) not to use such proprietary and non-public information in a manner
that is
competitive against or otherwise harmful to the Company; provided that nothing herein
shall prevent such Investor Stockholder from disclosing any such information that (a) is or becomes
generally available to the public in accordance with Law other than as a result of a disclosure by
such Investor Stockholder or its Permitted Representatives or its Affiliates or subsidiaries or in
violation of this Section 2.5 or any other confidentiality












 



15



agreement between the Company and such
Person or any other legal or fiduciary duty of such Person, (b) was within the Investor
Stockholder’s possession or developed by it prior to being furnished with such information
(provided that the source of such information was not known after reasonable inquiry by the
Investor Stockholder to be bound by a confidentiality agreement with, or other contractual, legal
or fiduciary obligation of confidentiality to, the Company with respect to such information); (c)
becomes available to the Investor Stockholder on a non-confidential basis from a source other than
the Company (provided that such source is not known after reasonable inquiry by the
Investor Stockholder to be bound by a confidentiality agreement with, or other contractual, legal
or fiduciary obligation of confidentiality to, the Company with respect to such information); or
(d) is required to be disclosed by Law or Order (provided that prior to such disclosure,
such Investor Stockholder shall, unless prohibited by Law or Order, promptly notify the Company of
any such disclosure). To the extent that this Section 2.5 conflicts with the Confidentiality
Agreement, this Section 2.5 shall govern, and the Confidentiality Agreement shall not apply.




          SECTION 2.6.   Investor Director Expenses. The Company shall reimburse each Investor
Director for their reasonable out-of-pocket expenses incurred for the purpose of attending meetings
of the Board or committees thereof in accordance with the Company’s current reimbursement policy.




          SECTION 2.7.   D&O Insurance. During the period that an Investor Director is a Director of
the Board, such Investor Director shall be entitled to benefits under any director and officer
insurance policy maintained by the Company to the same extent as any similarly situated Directors.




          SECTION 2.8.   Election of Directors; Quorum.




          (a) At every meeting of the stockholders of the Company, called, and at every postponement or
adjournment thereof, each Investor Stockholder agrees to vote any and all Subject Shares or
Conversion Shares entitled to be voted thereat, or to cause any such shares to be voted, in the
manner recommended by the Board with respect to the election or removal of each Director other than
an Investor Director. This Section 2.8 shall terminate when the Designated Stockholder is no
longer entitled to designate or nominate any Investor Director pursuant to Section 2.1(a).




          (b) At every meeting of the stockholders of the Company called, and at every postponement or
adjournment thereof, each Investor Stockholder agrees to cause any and all Subject Shares or
Conversion Shares entitled to be voted thereat to be present in person or
represented by proxy so that all such shares shall be counted as present for determining the
presence of a quorum at such meetings.




ARTICLE III




TRANSFERS




          SECTION 3.1.   Transfer Restrictions.











 



16




          (a) No Investor Stockholder shall Transfer any Subject Shares or Conversion Shares, other than
as expressly permitted by, and in compliance with, the other provisions of this Section 3.1.




          (b) On and after the 18 month anniversary of the Closing Date, an Investor Stockholder may
transfer any or all of the Conversion Shares: (i) in a Transfer made in compliance with Rule 144
(or any successor provision) of the Securities Act, (ii) in a Public Offering, whether pursuant to
Article IV or otherwise, or (iii) with the prior written consent of the Company.




          (c) Notwithstanding anything to the contrary herein, an Investor Stockholder may at any time
Transfer any or all of its Subject Shares or Conversion Shares to any Permitted Transferee;
provided that such Permitted Transferee (i) agrees to be bound jointly and severally with
the assignor hereunder, (ii) agrees that the representations, warranties, covenants and other
agreements made by the assignor herein shall be deemed to have been made by such Permitted
Transferee, (iii) shall execute a counterpart to this Agreement, the execution of which shall
constitute such Permitted Transferee’s agreement to the terms of this Section 3.1(c), and (iv)
shall agree that such Permitted Transferee’s interests hereunder shall be represented by the
Designated Stockholder with full authority to act on behalf of such Permitted Transferee. Subject
to the foregoing, the Permitted Transferee shall be deemed an Investor Stockholder hereunder and
shall be entitled to the rights, and subject to the obligations, contained herein.




          (d) Notwithstanding anything to the contrary herein, an Investor Stockholder may at any time
Transfer any or all of its Conversion Shares pursuant to the Company’s stock repurchase program or
any tender offer, exchange offer, merger, sale of the Company, reclassification, reorganization,
recapitalization or other transaction, in each case if approved by the Board, in which all
stockholders of the Company are offered, permitted or required to participate as holders of any of
the Company’s Capital Stock.




          SECTION 3.2.   Legends.




          (a) Each certificate representing shares of Subject Shares and Conversion Shares will bear a
legend conspicuously thereon to the following effect:





“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER STATE SECURITIES LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS REGISTERED OR EXEMPT FROM
REGISTRATION UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS. IN ADDITION, THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF A
STOCKHOLDERS AGREEMENT AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN ACCORDANCE WITH
SUCH AGREEMENT.”



          (b) In the event that any Conversion Shares are Transferred in a Public Offering, the Company
shall promptly, upon request, but in any event not later than is necessary












 



17



in order to consummate
the sale of such securities pursuant to such Public Offering, remove the legends set forth above in
connection with such Transfer. In the event that any Conversion Shares are Transferred pursuant to
Rule 144, the Company shall upon request and receipt of such representations and warranties with
respect to such Transfer as the Company may reasonably request, promptly but in any event not later
than is necessary in order to consummate the sale of such securities pursuant to Rule 144, remove
the third sentence of the legends set forth above in connection with such Transfer.




          (c) Upon the termination of this Agreement, the Company shall promptly, upon request, deliver
a replacement certificate not containing the third sentence of the legend set forth above.




ARTICLE IV




REGISTRATION RIGHTS




          SECTION 4.1.   Piggyback Registrations.




          (a) On or after the 18-month anniversary of the Closing Date, if the Company proposes to
register Equity Securities under the Securities Act (other than a registration on Form S-4 or S-8,
or any successor or other forms promulgated for similar purposes, and other than demand
registrations pursuant to Section 4.2), whether or not for sale for its own account, in a manner
which would permit registration of Registrable Securities of the same class of such Equity
Securities for sale to the public under the Securities Act, it will, at each such time, give prompt
written notice to the Designated Stockholder of its intention to do so and of the Holders’ rights
under this Article IV. Upon the written request of the Designated Stockholder, on the behalf of
all of the Holders, made within 15 days after the receipt of any such notice but in no event later
than two (2) Business Days prior to the effectiveness of the registration statement as indicated in
such notice (which request shall specify the Registrable Securities intended to be disposed of by
each Holder), the Company will use its reasonable best efforts to effect the registration under the
Securities Act of all Registrable Securities which the Company has been so requested to register by
the Holders thereof; provided that (i) if, at any time after giving written notice of its
intention to register any Equity Securities, the Company shall determine for any
reason not to proceed with the proposed registration of the securities to be sold by it, the
Company may, at its election, give written notice of such determination to the Designated
Stockholder and, thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation to pay the
Registration Expenses in connection therewith), and (ii) if such registration involves an
underwritten offering, all Holders requesting to be included in the Company’s registration must
sell their Registrable Securities to the underwriters selected by the Company on the same terms and
conditions as apply to the Company, with such differences, including any with respect to
indemnification and liability insurance, as may be customary or appropriate in combined primary and
secondary offerings. If a registration requested pursuant to this Section 4.1 involves an
underwritten offering, any Holder requesting to be included in such registration may elect, in
writing prior to the effective date of the registration statement filed in connection with such
registration, not to register all or any part of such securities in connection with such
registration. Nothing in this Section 4.1 shall limit the right of any Holder to request the
registration of the Registrable











 



18



Securities issuable upon conversion of the Subject Shares held by
such Holder notwithstanding the fact that at the time of the request such Holder holds Preferred
Stock and not Registrable Securities. The registration rights provided for in this Section 4.1 are
in addition to, and not in lieu of, registrations made upon the demand of any Investor Stockholder
in accordance with Section 4.2.




          (b) Expenses. The Company will pay all Registration Expenses in connection with each
registration of Registrable Securities requested pursuant to this Section 4.1.




          (c) Priority in Piggyback Registrations. If a registration pursuant to this Section
4.1 involves an underwritten offering and the managing underwriter advises the Company in writing
that, in its opinion, the number of Registrable Securities requested to be included in such
registration would be likely to have an adverse effect on the success of such offering (including,
without limitation, any impact on the selling price or the number of Equity Securities of the
Company that any participant may sell) as contemplated by the Company (including the Registrable
Securities), then the Company shall include in such registration (a) first, 100% of the
securities the Company proposes to sell, and (b) second, to the extent of the amount of
Registrable Securities requested to be included in such registration which, in the opinion of such
managing underwriter, can be sold without having the adverse effect referred to above, the amount
of Registrable Securities which the Holders have requested to be included in such registration,
such amount to be allocated pro rata among all requesting Holders and other Persons entitled to
piggyback registration rights on the basis of the relative amount of registrable securities then
held by each such Person (provided that any such amount thereby allocated to any such
Person that exceeds such Person’s request shall be reallocated among the remaining requesting
Persons in a like manner).




          (d) Selection of Underwriters. If (i) a request for registration under this Section
4.1 involves an underwritten offering and (ii) 25% or more of the securities to be offered in such
offering consists of Registrable Securities which the Company has been requested to register
pursuant to this Section 4.1, then the holders of a majority of the Registrable Securities which
the Company has been requested to register shall be entitled to select an investment
banker, underwriter or manager to be a co-manager for such offering that is reasonably
acceptable to the Company.




          SECTION 4.2.   Demand Registration.




          (a) On or after the 18-month anniversary of the Closing Date, upon the written request of the
holders of at least 40% of the then outstanding Registrable Securities held by the Investor
Stockholders (the “Demand Party”) requesting that the Company effect the registration under
the Securities Act of all or part of such Demand Party’s Registrable Securities and specifying the
amount and intended method of disposition thereof, including without limitation, if requested on or
after the 24-month anniversary of the Closing Date, pursuant to a shelf registration statement
utilizing Rule 415 of the Securities Act (or its successor provision), and thereupon will, as
expeditiously as reasonably practicable, use its reasonable best efforts to effect the registration
under the Securities Act of the Registrable Securities which the Company has been so requested to
register by the Demand Party; provided that in no event shall the Company be required to
effect more than three (3) registrations pursuant to this Section 4.2;











 



19



provided,
further, that in no event shall the Company be obligated to prepare and file any such
registration statement or any supplemental prospectus with respect to a sale of Registrable
Securities that would not obtain a minimum sales price of $25 million; provided,
further, that the Company shall not be obligated to file a registration statement under
this Section 4.2 within a period of 90 days after the effective date of any other registration
statement for which the Holders exercised their rights under Section 4.1 or for which the Company
filed pursuant to this Section 4.2; provided, further, that if all of the
Registrable Securities held by a Holder (together with those of its Affiliates) can be sold without
restriction under SEC Rule 144(k), the Company shall not be required to effect any registrations
for such Holder pursuant to this Section 4.2 (but shall be required to maintain the effectiveness
of any shelf registration statement as required by Section 4.3(b)). Nothing in this Section 4.2
shall limit the right of any Holder to request the registration of the Registrable Securities
issuable upon conversion of the Subject Shares held by such Holder notwithstanding the fact that at
the time of the request such Holder holds Series B Preferred Stock and not the Registrable
Securities.




          (b) Registration Statement Form. Any registration requested pursuant to this Section
4.2 shall be effected by the filing of a registration statement on Form S-3 (or any successor or
similar short-form registration statement), unless not permitted by the Securities Act at such
time, in which case the Company shall select the registration statement form, subject to the Demand
Party’s reasonable consent.




          (c) Expenses. The Company will pay all Registration Expenses in connection with
registrations of Registrable Securities requested pursuant to this Section 4.2.




          (d) Effective Registration Statement. A registration requested pursuant to this
Section 4.2 will not be deemed to have been effected unless: (i) it has become effective, (ii) if a
registration statement has been filed but abandoned or withdrawn at the request of the Demand Party
prior to effectiveness, other than an abandonment or withdrawal requested because of: (A) the stock
price of the Company’s Common Stock falling 15% or more since the delivery of a
request for registration pursuant to this Section 4.2 (provided that such registration
shall be deemed to have been effected, unless (x) the Holders participating in the registration
reimburse the Company for Registration Expenses incurred or payable by the Company up until the
receipt of notice of an abandonment or withdrawal pursuant to this clause (A) and for the
withdrawal of the registration statement, and (y) a Demand Party has not previously requested
abandonment or withdrawal of a registration pursuant to this clause (A) (it being understood that
an abandonment or withdrawal pursuant to this clause (A) may be made only once)), (B) the delivery
of a postponement notice pursuant to Section 4.2(g), (C) a material adverse change in the Company’s
and its Subsidiaries’ prospects, business, operations, properties, assets, liabilities, financial
condition or results of operations, or (D) the discovery of materially adverse or undisclosed
information concerning the Company or its Subsidiaries, or (iii) with respect to only a shelf
registration statement that the SEC determines is not in compliance with Rule 415(a)(2), at least
one share of Registrable Securities registered thereunder has been sold.




          (e) Selection of Underwriters. If a requested registration pursuant to this Section
4.2 involves an underwritten offering, the investment bankers, underwriters and managers for such
registration shall be selected by the Holders of a majority of the Registrable Securities which the
Company has been requested to register; provided, however, that such











 



20



selection of
investment bankers, underwriters and managers shall be subject to the reasonable approval by the
Company.




          (f) Priority in Demand Registrations; Right to Abandon or Withdraw. If a requested
registration pursuant to this Section 4.2 involves an underwritten offering and the managing
underwriter advises the Company in writing that, in its opinion, the number of securities to be
included in such registration (including securities of the Company which are not Registrable
Securities) would be likely to have an adverse effect on the success of such offering (including,
without limitation, any impact on the selling price or the number of Equity Securities of the
Company that any participant may sell) as contemplated by the Holders, then the Company shall
include in such registration (i) first, 100% of the Registrable Securities requested to be
included in such registration by the Demand Party, but only to the extent that the managing
underwriter believes that all such Registrable Securities can be sold in such offering without
having the adverse effect referred to above (or, if the managing underwriter believes that all such
Registrable Securities cannot be sold in such offering without having such an adverse effect and
the Demand Party does not exercise its right set forth in the final sentence of this clause (f),
such lesser number of Registrable Securities as specified by the Demand Party) and (ii)
second, to the extent the managing underwriter believes additional securities can be sold
in the offering without having the adverse effect referred to above, the securities the Company
proposes to sell up to the number of securities that, in the opinion of such managing underwriter,
can be sold without having such an adverse effect. If the managing underwriter of any underwritten
offering shall advise the Holders participating in a registration pursuant to this Section 4.2 that
the Registrable Securities covered by the registration statement cannot be sold in such offering
within a price range acceptable to the Demand Party or that all of the Registrable Securities
requested to be included in a registration by a Demand Party pursuant to this Section 4.2 cannot be
sold in the manner requested, then the Demand Party shall have the right to notify the Company that
it has determined that the registration statement be abandoned or withdrawn, in which event the
Company shall abandon or withdraw such registration statement; provided that the Company
shall remain liable for any expenses pursuant to Section 4.2(c).




          (g) Postponement in Requested Registrations or Sales.





     (i) Notwithstanding Section 4.2(a), if the Company receives a request for registration
pursuant to this Section 4.2, at a time when (A) the Company has commenced, or has a bona
fide intention to commence, a public or Rule 144A securities offering transaction, (B)
registration of the Registrable Securities would, in the good faith judgment of the
executive officers of the Company (after consultation with counsel), impede, delay or
otherwise interfere with any pending or contemplated material acquisition, corporate
reorganization or similar material transaction, or (C) non-public material information not
otherwise then required by Law to be publicly disclosed regarding the Company exists, the
immediate disclosure of which would in the good faith judgment of the executive officers of
the Company (after consultation with counsel) be disadvantageous in any material respect to
the Company, then the Company may postpone the filing (but not the preparation) of a
registration statement required by this Section 4.2 for up to ninety (90) days;
provided that the Company shall at all times in good faith use its reasonable best
efforts to cause any registration statement required by this Section 4.2 to be filed as soon
as possible thereafter; provided, further, that the









 



21



Company shall not be
permitted to postpone registration pursuant to this Section 4.2(g) for more than 180 days in
any 360-day period; and provided, further, that the Company shall make
prompt and adequate disclosure of any material information required to be disclosed from
time to time in accordance with Law and NASDAQ rules.




     (ii) Notwithstanding Section 4.2(a), the Company may suspend sales under a shelf
registration statement or a registration statement pursuant to which Registrable Securities
are not immediately sold after the effectiveness thereof at a time when (A) the Company has
commenced, or has a bona fide intention to commence, a public or Rule 144A securities
offering transaction, (B) sale of the Registrable Securities would, in the good faith
judgment of the executive officers of the Company (after consultation with counsel), impede,
delay or otherwise interfere with any pending or contemplated material acquisition,
corporate reorganization or similar material transaction or (C) non-public material
information not otherwise then required by Law to be publicly disclosed regarding the
Company exists, the immediate disclosure of which would in the good faith judgment of the
executive officers of the Company (after consultation with counsel) be disadvantageous in
any material respect to the Company, for up to sixty (60) days in any 90-day period, but no
more than a total of 180 days in any 360-day period and no more than three (3) times in any
360-day period; provided that the Company shall make prompt and adequate disclosure
of any material information required to be disclosed from time to time in accordance with
Law and NASDAQ rules.




     (iii) Prior to the sale of any shares pursuant to a shelf registration statement, the
Holders shall give reasonable prior written notice of such sale to the Company, but in any
event at least two (2) Business Days prior notice, which notice may contemplate possible
sales by the Holder over a period of time not to exceed one (1) week but need not specify
the number of Registrable Securities to be sold, the method of distribution or proposed
purchaser or underwriter. Delivery of such notice shall not obligate the Holders to
consummate such sale. Any sale pursuant to a shelf registration statement must be for an
amount of Registrable Securities which, based on the good faith determination of the
Holders, will result in gross proceeds of at least $25 million. Notwithstanding
anything to the contrary, once all of the Registrable Securities of a Holder (together with
those of its Affiliates) can be sold under SEC Rule 144(k), all of the Holders may only
effect, in the aggregate, two (2) sales pursuant to a then existing shelf registration
statement (provided that the Holders agree to only make a request for such a sale
with the prior consent of the Designated Stockholder), and thereafter the Company shall not
be obligated to keep such shelf registration statement effective or to renew such self
registration statement.




     (iv) The Company shall promptly give the Holders requesting registration thereof
pursuant to this Section 4.2 prior written notice of any postponement made in accordance
with clauses (i) or (ii). If the Company gives the Holders such a notice pursuant to clause
(i), the Holders shall have the right, within 15 days after receipt thereof, to withdraw
their request, in which case such request will not be counted for purposes of this Section
4.2.









 



22


          (h) Additional Rights. If the Company at any time grants to any other holders of
Capital Stock any rights to request the Company to effect the registration under the Securities Act
of any such shares of Capital Stock on terms materially more favorable to such holders than the
terms set forth in this Article IV, the terms of this Article IV shall, with the consent of the
Holders, be deemed amended or supplemented to the extent necessary to provide the Holders hereunder
such more favorable rights and benefits. The Company shall provide the Holders prior written
notice of any such deemed amendment or supplement to the terms of this Article IV.




          SECTION 4.3.   Registration Procedures. If and whenever the Company is required to effect
a registration of any Registrable Securities as provided in this Agreement, the Company will
promptly:




          (a) prepare and file with the SEC a registration statement with respect to such Registrable
Securities and use its reasonable best efforts to cause a registration statement with respect to a
demand registration pursuant to Section 4.2 to become effective within ninety (90) days of the
initial filing;




          (b) prepare and file with the SEC such amendments and supplements to such registration
statement (including Exchange Act documents incorporated by reference into the registration
statement) and the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period not in excess of 90 days (or such longer period as
may be requested by the Holders in the event of a shelf registration statement) and to comply with
the provisions of the Securities Act and the Exchange Act with respect to the disposition of all
securities covered by such registration statement during such period in accordance with the
intended methods of disposition by the seller or sellers thereof set forth in such registration
statement; provided that before filing a registration statement or prospectus or any
amendments or supplements thereto in accordance with Sections 4.3(a) or this Section 4.3(b), the
Company will furnish to counsel selected pursuant to Section 4.8 hereof copies of all documents
proposed to be filed, which documents will be subject to the review of such counsel
reasonably in advance of any filing to permit a reasonable opportunity to review and comment
in light of the circumstances;




          (c) furnish to each seller of such Registrable Securities such number of copies of such
registration statement and of each amendment and supplement thereto (in each case including all
exhibits filed therewith, including any documents incorporated by reference), such number of copies
of the prospectus included in such registration statement (including each preliminary prospectus
and summary prospectus), in conformity with the requirements of the Securities Act, and such other
similar documents as such seller may reasonably request necessary to facilitate the disposition of
the Registrable Securities by such seller;




          (d) use its reasonable best efforts to comply with all applicable securities laws in the
United States and register or qualify such Registrable Securities covered by such registration in
such jurisdictions in the United States as each seller shall reasonably request, and do any and all
other acts and things which may be reasonably necessary to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such seller, except that
the Company shall not for any such purpose be required to qualify generally to












 



23



do business as a
foreign corporation in any jurisdiction where, but for the requirements of this subsection (d), it
would not be obligated to, subject itself to taxation in any such jurisdiction or to consent to
general service of process in any such jurisdiction;




          (e) notify each seller of any such Registrable Securities covered by such registration
statement promptly if the Company becomes aware that the prospectus included in such registration
statement, as then in effect, or the registration statement includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances then existing, and, subject
to Section 4.2(g), at the request of any such seller, prepare and furnish to such seller a
reasonable number of copies of an amended or supplemental prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the light of the
circumstances then existing;




          (f) otherwise use its best efforts to comply with all applicable rules and regulations of the
SEC, and make available to its security holders, as soon as reasonably practicable (but not more
than 18 months) after the effective date of the registration statement, an earnings statement which
shall satisfy the provisions of Section 11(a) of the Securities Act;




          (g) (i) use its reasonable best efforts to list such Registrable Securities on NASDAQ (or any
securities exchange on which the Common Stock is then listed if such Registrable Securities are not
already so listed and if such listing is then permitted under the rules of such exchange); and (ii)
use its best efforts to provide for a transfer agent and registrar for such Registrable Securities
covered by such registration statement not later than the effective date of such registration
statement;




          (h) in connection with an underwritten offering pursuant to a demand registration pursuant to
Section 4.2, enter into an underwriting agreement in customary form,
which may include indemnification provisions in favor of underwriters and other Persons in
addition to, or in substitution for, the provisions of Section 4.6 hereof, and take such other
actions as the managing underwriters reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities;




          (i) in connection with an underwritten offering pursuant to a demand registration pursuant to
Section 4.2, obtain a “cold comfort” letter or letters from the Company’s independent public
accounts in customary form and covering matters of the type customarily covered by “cold comfort”
letters provided to sellers of securities as the seller or sellers of a majority of shares of such
Registrable Securities shall reasonably request;




          (j) make available for inspection by any seller of such Registrable Securities covered by such
registration statement, by any underwriter participating in any disposition to be effected pursuant
to such registration statement and by any attorney, accountant or other agent retained by any such
seller or any such underwriter, all pertinent financial and other records, pertinent corporate
documents and properties of the Company, and cause all of the Company’s officers, directors and
employees to supply all information reasonably requested by any such










 



24



seller, underwriter, attorney,
accountant or agent in connection with the “due diligence” of such seller or such underwriter with
respect to such registration statement, subject to the execution of a mutually acceptable
confidentiality agreement;




          (k) promptly notify counsel (selected pursuant to Section 4.8 hereof) for the Holders of
Registrable Securities included in such registration statement and the managing underwriter or
agent and confirm such notice in writing (i) when the registration statement, or any post-effective
amendment to the registration statement, shall have become effective, or any supplement to the
prospectus or any amendment to the prospectus shall have been filed, (ii) of the receipt of any
comments from the SEC, (iii) of any request by the SEC to amend the registration statement or amend
or supplement the prospectus or for additional information, and (iv) of the issuance by the SEC of
any stop order suspending the effectiveness of the registration statement or of any order
preventing or suspending the use of any preliminary prospectus, or of the suspension of the
qualification of the registration statement for offering or sale in any jurisdiction, or of the
institution or threatening of any proceedings for any of such purposes;




          (l) make reasonable best efforts to prevent the issuance of any stop order suspending the
effectiveness of the registration statement or of any order preventing or suspending the use of any
preliminary prospectus and, if any such order is issued, to obtain the withdrawal of any such order
as soon as practicable;




          (m) (i) if requested by the managing underwriter or agent or any Holder of Registrable
Securities covered by the registration statement, promptly incorporate in a prospectus supplement
or post-effective amendment such information as the managing underwriter or agent or such Holder
reasonably requests to be included therein, including, with respect to the number of Registrable
Securities being sold by such Holder to such underwriter or agent, the purchase price being paid
therefor by such underwriter or agent; and (ii) make all required filings of such prospectus
supplement or post-effective amendment as soon as practicable after being notified of the matters
incorporated in such prospectus supplement or post-effective amendment;




          (n) cooperate with the Holders of Registrable Securities covered by the registration statement
and the managing underwriter or agent, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing securities to be sold under the
registration statement, and enable such securities to be in such denominations and registered in
such names as the managing underwriter or agent, if any, or such Holders may reasonably request;




          (o) in connection with an underwritten offering pursuant to a demand registration pursuant to
Section 4.2, obtain for delivery to the Holders of Registrable Securities being registered and to
the underwriter or agent an opinion or opinions from counsel for the Company in customary form and
scope for sellers of securities;




          (p) cooperate with each seller of Registrable Securities and each underwriter or agent
participating in the disposition of such Registrable Securities and their respective counsel in
connection with any filings required to be made with the NASD; and















 








25




          (q) use its reasonable best efforts to make available the executive officers of the Company
for a seven (7) Business Day period, to participate and to cooperate with the Holders of
Registrable Securities and any underwriters in any “road shows” or other selling efforts, in each
case in the United States, that may be reasonably requested upon reasonable notice thereof by the
Holders in connection with a firm commitment underwritten offering for the Registrable Securities
with a minimum sales price of $75 million with respect to a registration statement effected
pursuant to Section 4.2 other than a shelf registration statement.




          SECTION 4.4.   Information Supplied. It shall be a condition precedent to the obligations
of the Company to take any action to register the Registrable Securities held by any seller of
Registrable Securities as to which any registration is being effected that such seller shall
furnish the Company with such information regarding such seller that is pertinent to the disclosure
requirements relating to the registration and the distribution of such securities as the Company
may from time to time reasonably request. Each Holder agrees to promptly furnish to the Company
all information required to be disclosed in order to make the information previously furnished to
the Company by such Holder not misleading.




          SECTION 4.5.   Restrictions on Disposition. Each Holder agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in Section 4.3(e), such
Holder will forthwith discontinue disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until such Holder’s receipt of the
copies of the supplemented or amended prospectus contemplated by Section 4.3(e). In the event the
Company shall give any such notice, the period mentioned in Section 4.3(b) shall be extended by the
number of days during the period from and including the date of the giving of such notice pursuant
to Section 4.3(e) and to and including the date when each seller of Registrable Securities covered
by such registration statement shall have received the copies of the supplemented or amended
prospectus contemplated by Section 4.3(e).




          SECTION 4.6.   Indemnification.




          (a) In the event of any registration of any securities of the Company pursuant to Section 4.1
or 4.2, the Company shall, and it hereby does, indemnify and hold harmless, to the extent permitted
by law, any Holder who is selling Registrable Securities covered by such registration statement,
each Person who controls such Holder (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) (hereinafter referred to as a “controlling person”) and
their respective directors, officers, members or general and limited partners, each Person who
participates as an underwriter in the offering or sale of such securities and each controlling
person of the underwriter (collectively, the “Seller Indemnified Parties”), against any and
all losses, claims, damages or liabilities, joint or several, actions or proceedings (whether
commenced or threatened) in respect thereof (“Claims”) and expenses (including reasonable
attorney’s fees and reasonable expenses of investigation) to which such Seller Indemnified Party
may become subject under the Securities Act, Law, Order or otherwise, insofar as such Claims or
expenses arise out of, relate to or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under which such securities
were registered under the Securities Act, any preliminary, final or summary prospectus contained
therein, or any amendment or supplement thereto, or (ii) any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the statements










 



26



therein
(in the case of a prospectus, in light of the circumstances under which they were made) not
misleading; provided that the Company shall not be liable to any Seller Indemnified Party in any
such case to the extent that any such Claim or expense arises out of, relates to or is based upon
(i) any untrue statement or alleged untrue statement or omission or alleged omission made in such
registration statement or amendment or supplement thereto or in any such preliminary, final or
summary prospectus in reliance upon and in conformity with written information furnished to the
Company by or behalf of such seller specifically stating that it is for use in the preparation
thereof or (ii) any Claims where the Company had previously furnished copies of a prospectus,
amendment or supplement to the sellers or the underwriter prior to the written confirmation of sale
that corrected such untrue statement, alleged untrue statement, omission or alleged omission made
in such registration statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of any Seller Indemnified Party and shall survive the
transfer of Registrable Securities by any seller.




          (b) In the event of any registration of any Holder’s securities of the Company pursuant to
Section 4.1 or 4.2, each such Holder shall, and it hereby does, indemnify and hold harmless, to the
extent permitted by law, the Company, each controlling person of the Company, and their respective
directors, officers, members or general and limited partners and each underwriter and their
controlling persons to the same extent as the foregoing indemnity from the Company to the Seller
Indemnified Parties, but only with respect to Claims to which such indemnified party may become
subject under the Securities Act, Law, Order or otherwise, insofar as such Claims or expenses arise
out of, relate to or are based upon any untrue statement or alleged untrue statement of any
material fact contained, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein (in the case of a
prospectus, in light of the circumstances under which they were made) not misleading, in any
registration statement under which such securities were registered under
the Securities Act, any preliminary, final or summary prospectus contained therein, or any
amendment or supplement thereto to the extent such statement or omission is contained in any
information relating to such Holder furnished in writing by such Holder expressly for use in
preparation of the registration statement or amendment or supplement thereto or in any such
preliminary, final or summary prospectus. The Company may require, as a condition to including any
Registrable Securities in any registration statement filed in accordance with Section 4.1 or 4.2
herein, that the Company shall have received an undertaking reasonably satisfactory to it from any
underwriter to indemnify and hold harmless in the same manner and to the same extent as set forth
above with respect to information so furnished in writing such Persons specifically for inclusion.
Such indemnity shall remain in full force and effect regardless of any investigation made by or on
behalf of the Company or any of the prospective sellers, or any of their respective Affiliates,
directors, officers or controlling Persons and shall survive the transfer of securities by any
seller. In no event shall the liability of any selling Holder of Registrable Securities hereunder
be greater in amount than the dollar amount of the proceeds received by such Holder upon the sale
of the Registrable Securities giving rise to such indemnification obligation.




          (c) Promptly after receipt by a Person entitled to indemnification pursuant to Section 4.6 (an
“Indemnified Party”) hereunder of written notice of the commencement of any action or
proceeding with respect to which a claim for indemnification may be made pursuant to this Section
4.6, such Indemnified Party will, if a claim in respect thereof is to be made against










 



27



an
indemnifying party, give written notice to the latter of the commencement of such action or
proceeding; provided that the failure of the Indemnified Party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under this Section 4.6, except
to the extent that the indemnifying party is prejudiced in any material respect by such failure to
give notice. In case any such action or proceeding is brought against an Indemnified Party, unless
in such Indemnified Party’s reasonable judgment, based upon advice of counsel, a conflict of
interest between such indemnified and indemnifying parties may exist in respect of such action or
proceeding (in which case the Indemnified Party shall have the right to assume or continue its own
defense and the indemnifying party shall be liable for any reasonable expenses therefor (but in no
event will bear the expenses for more than one firm of counsel for all Indemnified Parties in each
jurisdiction who shall, with respect to Seller Indemnified Parties, be approved by the majority of
the participating Holders in the registration in respect of which such indemnification is sought),
the indemnifying party will be entitled to participate in and to assume the defense thereof (at its
expense), jointly with any other indemnifying party similarly notified to the extent that it may
wish, with counsel reasonably satisfactory to such Indemnified Party, and after notice from the
indemnifying party to such Indemnified Party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such Indemnified Party for any legal or other expenses
subsequently incurred by the latter in connection with the defense thereof other than reasonable
costs of investigation and shall have no liability for any settlement made by the Indemnified Party
without the consent of the indemnifying party, such consent not to be unreasonably withheld. No
indemnifying party will settle any action or proceeding or consent to the entry of any judgment
without the prior written consent of the Indemnified Party, unless such settlement or judgment (i)
includes as an unconditional term thereof the giving by the claimant or plaintiff of a release to
such Indemnified Party from all liability in respect of such action or proceeding and (ii) does not
involve the imposition of equitable remedies or the imposition of any obligations on such
Indemnified Party and does not otherwise adversely affect such
Indemnified Party, other than as a result of the imposition of financial obligations for which
such Indemnified Party will be indemnified hereunder. An Indemnified Party may not settle any
action or proceeding or the entry of any judgment without the prior written consent of the
indemnifying party.




          (d) (i) If the indemnification provided for in this Section 4.6 from the indemnifying party
is unavailable to an Indemnified Party hereunder in respect of any Claim or expenses referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such Indemnified Party as a result of such Claim or
expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying
party and Indemnified Party in connection with the actions which resulted in such Claim or
expenses, as well as any other relevant equitable considerations. The relative fault of such
indemnifying party and Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact, has been made by, or relates to
information supplied by, such indemnifying party or Indemnified Party, and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent such action. The
amount paid or payable by a party under this











 



28



Section 4.6(d) as a result of the Claim and expenses
referred to above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with any action or proceeding; and (ii) the parties hereto
agree that it would not be just and equitable if contribution pursuant to this Section 4.6(d) were
determined by pro rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in Section 4.6(d)(i). No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent misrepresentation.




          (e) Indemnification similar to that specified in this Section 4.6 (with appropriate
modifications) shall be given by the Company and each seller of Registrable Securities with respect
to any required registration or other qualification of securities under any Law or with any
governmental authority other than as required by the Securities Act.




          (f) The obligations of the parties under this Section 4.6 shall be in addition to any
liability which any party may otherwise have to any other party.




          SECTION 4.7.   Required Reports. The Company covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act (or, if the Company is not
required to file such reports, it will, upon the request of any Holder, make available such
information), and it will take such further action as any Holder may reasonably request, all to the
extent required from time to time to enable such Holder to sell shares of Registrable Securities
without registration under the Securities Act within the limitation of the exemptions provided by
(i) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (ii) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of any Holder, the
Company will deliver to such Holder a written statement as to whether it has complied with such
requirements.




          SECTION 4.8.   Selection of Counsel. In connection with any registration of Registrable
Securities pursuant to Sections 4.1 and 4.2 hereof, the Holders of a majority of the Registrable
Securities covered by any such registration may select one counsel to represent all Holders of
Registrable Securities covered by such registration; provided, however, that in the
event that the counsel selected as provided above is also acting as counsel to the Company in
connection with such registration, a majority of the remaining Holders shall be entitled to select
one additional counsel to represent all such remaining Holders.




          SECTION 4.9.   Participation in Underwritten Registrations; Holdback Agreement. No Holder
may participate in any registration in connection with an underwritten public offering hereunder
unless such Holder agrees to sell its Registrable Securities on the basis provided in any
underwriting arrangements approved by the Persons entitled to approve such arrangements and
completes and executes all reasonable questionnaires, powers of attorney, underwriting agreements,
hold-back agreement letters and other documents customarily required under the terms of such
underwriting arrangements. In connection with any underwritten public offering, each Holder
(whether or not such Holder’s shares are to be included in the registration statement) agrees not
to effect any public sale or distribution, including any sale pursuant to Rule 144 under the
Securities Act, of any Equity Security of the Company during the 14-day period prior to, and for
the ninety (90) days after, the effective date of the registration statement for such offering (or
such lesser period as the managing underwriters may require or permit), except for such Equity
Securities to be included in such offering. The Company hereby also agrees to use











 



29



its reasonable
best efforts to have each of its Affiliates who purchased an Equity Security from the Company (at
any time other than in a public offering) to so agree.




          SECTION 4.10.   No Inconsistent Agreements. The Company represents and warrants that it is
not a party to a Contract which conflicts with or limits or prohibits the exercise of the rights
granted to the Holders of Registrable Securities in this Article IV.




          SECTION 4.11.   Termination of Registration Rights. The rights of any Investor Stockholder
under this Article IV shall terminate at such time as such Investor Stockholder ceases to hold any
Registrable Securities.




ARTICLE V




CERTAIN COVENANTS




          SECTION 5.1.   Pre-Emptive Rights.




          (a) Until such time as the Designated Stockholder is no longer entitled to designate or
nominate at least one (1) Investor Director pursuant to Section 2.1(a), the Company shall not issue
any Equity Securities to any Person, unless the Company first offers the right (the
“Pre-Emptive Right”) to each Investor Stockholder to purchase such Equity Securities at the
same price per security (payable in cash) and otherwise upon the same terms and conditions as those
offered to such Person in accordance with the procedures set forth in this Section 5.1; provided
that Pre-Emptive Rights shall not be applicable to the issuance of Equity Securities: (i) in a
Public Offering, (ii) as consideration pursuant to the terms of an Approved Transaction, (iii)
pursuant to the terms of an Approved Stock Plan, (iv) pursuant to a stock split, stock dividend or
similar transaction in which all holders of Common Stock are treated equally on a pro rata basis,
or (v) pursuant to the conversion, exchange or exercise of an Equity Security that is either (x)
outstanding on the date hereof substantially in accordance with the terms in effect on the date
hereof or (y) outstanding after the date hereof as long as, in the case of clause (y), the Investor
Stockholders have had an opportunity to exercise their Pre-Emptive Rights with respect to the
underlying Equity Security or such Equity Security was issued pursuant to clause (i), (ii), (iii)
or (iv) of this sentence. For purposes of clarity, the parties agree that the issuance of shares
of Common Stock upon conversion of the Series A Preferred Stock and the Series B Preferred Stock
shall not be subject to the Pre-Emptive Rights.




          (b) The Company shall send a written notice (the “Pre-Emptive Rights Notice”) to the
Designated Stockholder, on behalf of each Investor Stockholder, stating the number of Equity
Securities to be offered, a description of such Equity Securities if not Common Stock, the price
and terms on which it proposes to offer such Equity Securities (including a description of any
non-cash consideration sufficiently detailed to permit a valuation thereof), and a reference to the
Investor Stockholders’ Pre-Emptive Rights hereunder.




          (c) Within fifteen (15) days after the delivery of the Pre-Emptive Rights Notice, the
Designated Stockholder may elect, on behalf of the Investor Stockholders, by written notice to the
Company, to purchase such Equity Securities, at the price and on the terms











 



30



specified in the
Pre-Emptive Rights Notice (or, if such price includes non-cash consideration, an amount of cash
equal to the fair market value of such non-cash consideration), up to an amount (such amount, the
“Pre-Emptive Amount”) equal to the product of the number of Equity Securities of each class
offered for sale by the Company multiplied by a fraction, the numerator of which is the number of
shares of Common Stock held by the Investor Stockholders and the denominator of which is the number
of shares of Common Stock held by all of the holders of outstanding Equity Securities after giving
effect to full exercise and conversion thereof on the date of the Pre-Emptive Rights Notice. Such
exercise notice will set forth the number of Equity Securities of each class being purchased by
each Investor Stockholder, which, for the avoidance of doubt, in the aggregate for all Investor
Stockholders may not exceed the Pre-Emptive Amount.




          (d) The Company may offer the Equity Securities specified in the Pre-Emptive Rights Notice in
excess of the Pre-Emptive Amount, if any, to any Person or Persons at a price not less than, and on
terms no more favorable to such offerees than, those set forth such Pre-Emptive Rights Notice, at
any time after the Pre-Emptive Rights Notice is sent but on or before the 105th day
after the Pre-Emptive Rights Notice was sent. In addition, during the 90-day period beginning
fifteen (15) days after the Pre-Emptive Rights Notice was sent, the Company may offer any Equity
Securities of the Pre-Emptive Amount that are not elected to be
purchased by the Investor Stockholders to any Person or Persons at a price not less than, and
on terms no more favorable to such offerees than, those specified in the Pre-Emptive Rights Notice.




          (e) The closing of the purchase of Equity Securities by the Investor Stockholders pursuant to
this Section 5.1 shall occur as promptly as practicable following the notice of the Designated
Stockholder on behalf of the Investor Stockholders to exercise their Pre-Emptive Right;
provided that such closing shall be subject to and shall occur not later than concurrently
with the closing of the purchase of Equity Securities by such offeree. The closing of the purchase
of Equity Securities by the Investor Stockholders pursuant to this Section 5.1 shall be also
subject to the receipt of any necessary regulatory approvals, the expiration of any required
waiting periods and applicable Law. Unless otherwise set forth in writing by the Company, the
Company shall have no obligation to consummate the issuance to such third-party offerees giving
rise to the Pre-Emptive Rights.




          SECTION 5.2.   Regulatory Matters.




     (a) If necessary, the Company shall promptly make any
and all filings which it is required to make under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the “HSR Act”), for the conversion of the Subject Shares into the
Conversion Shares, and the Company agrees to furnish the Designated Stockholder, on behalf of the
Investor Stockholders, with such necessary information and reasonable assistance as the Investor
Stockholders may reasonably request in connection with its preparation of any necessary filings or
submissions to the Federal Trade Commission or the Antitrust Division of the U.S. Department of
Justice, including, without limitation, any filings or notices necessary under the HSR Act. Any
such actions, if necessary, shall be taken by the Company three months prior to the first date on
which the Investor Stockholders are first able to convert the Subject Shares into the Conversion
Shares and at such times thereafter as the Designated Stockholder shall reasonably request.









 



31


          (b) Without limitation of the foregoing, each of the parties hereto shall use their
commercially reasonable efforts to give such notices and obtain all other authorizations, consents,
orders and approvals of all governmental authorities and other third parties, including the NASD or
NASDAQ, that may be or become necessary for the performance of its obligations pursuant to this
Agreement or the Certificate of Designation and will cooperate fully with the other parties hereto
in promptly seeking to obtain all such authorizations, consents, orders and approvals.




          (c) The Company shall pay all expenses and fees payable to governmental authorities or other
third parties, including the NASD or NASDAQ, in connection with the filings made pursuant to this
Section 5.2.




          SECTION 5.3.   Common Stock Repurchases. The Company hereby agrees not to effect any
repurchases or redemptions of shares of Common Stock at any time at which the result of such
repurchases or redemptions would be to cause the Subject Shares or the Conversion Shares held by
the Investor Stockholders on an as converted basis to trigger a change of control provision
pursuant to any material contract of the Company.




          SECTION 5.4.   Further Assurances. At any time or from time to time after the date hereof,
the parties agree to cooperate with each other, and at the request of any other party, to execute
and deliver any further instruments or documents and to take all such further action as the other
party may reasonably request in order to evidence or effectuate the consummation of the
transactions contemplated hereby and to otherwise carry out the intent of the parties hereunder.
Without limitation to the foregoing, the Company shall use its reasonable best efforts to comply
with NASDAQ rules without causing an adjustment to the rights of the Designated Stockholder or
Investor Stockholders hereunder or under the Certificate of Designation.




          SECTION 5.5.   Standstill. Until the date is one year following the earlier to occur of
the time that (x) the Designated Stockholder irrevocably waives the rights set forth in Section 2.4
and is no longer entitled to designate or nominate at least one (1) Investor Director pursuant to
Section 2.1(a) or (y) the Designated Stockholder is no longer entitled to the rights set forth in
Section 2.4, unless specifically invited in writing by the Company, neither any Investor
Stockholder, any current or former Elevation Entity, nor any Investor Stockholder’s (1) current or
former members, officers, directors or partners or (2) current employees, agents, advisors or
controlled Affiliates (collectively “Representatives”) will in any manner, directly or
indirectly: (a) effect or seek, offer or propose (whether publicly or otherwise) to effect, or
announce any intention to effect or cause or participate in or in any way assist, facilitate or
encourage any other Person to effect or seek, offer or propose (whether publicly or otherwise) to
effect or participate in, (i) any acquisition of any securities (or beneficial ownership thereof),
or rights or options to acquire any securities (or beneficial ownership thereof), or any assets,
indebtedness or businesses of the Company or any of its Subsidiaries or controlled Affiliates, (ii)
any tender or exchange offer, merger or other business combination involving the Company, any of
its Subsidiaries or controlled Affiliates or assets of the Company or its Subsidiaries or
controlled Affiliates constituting a significant portion of the consolidated assets of the Company,
its Subsidiaries or controlled Affiliates, (iii) any recapitalization, restructuring, liquidation,
dissolution or other











 



32



extraordinary transaction with respect to the Company or any of its
Subsidiaries or controlled Affiliates, or (iv) any “solicitation” of “proxies” (as such terms are
used in the proxy rules of the SEC) or consents to vote any voting securities of the Company or any
of its controlled Affiliates (provided that this clause (a) shall not affect or limit a
Transfer made in accordance with Section 3.1(d)); (b) form, join or in any way participate in a
“group” (as defined under the Exchange Act) with respect to the Company or otherwise act in concert
with any Person in respect of any such securities; (c) otherwise act, alone or in concert with
others, to seek representation on or to control or influence the management, Board or policies of
the Company or to obtain representation on the Board (provided that this clause (c) shall
not affect or limit (x) an Investor Director’s actions in the exercise of such Investor Director’s
fiduciary duties as a Director in and of itself or (y) the exercise in and of itself of the
Designated Stockholder’s or Investor Stockholders’ rights or obligations set forth in this
Agreement); (d) take any action which would or would reasonably be expected to force the Company to
make a public announcement regarding any of the types of matters set forth in (a) above; or (e)
enter into any discussions or arrangements with any third party with respect to any of the
foregoing. Each Investor Stockholder also agrees during such period not to request that the
Company or any of its
Representatives, directly or indirectly, amend or waive any provision of this paragraph (including
this sentence). To the extent that this Section 5.5 conflicts with the Confidentiality Agreement
(as defined in the Purchase Agreement), this Section 5.5 shall govern, and the Confidentiality
Agreement shall not apply.




ARTICLE VI




MISCELLANEOUS




          SECTION 6.1.   No Recourse. Notwithstanding anything that may be expressed or implied in
this Agreement, the Company and each Investor Stockholder covenant, agree and acknowledge that no
recourse under this Agreement, other than the matters set forth Sections 2.5 and 5.5, or any
documents or instruments delivered in connection with this Agreement shall be had against any
current or future director, officer, employee, stockholder, partner or member of the Investor
Stockholders or of any of their Affiliates, assignees or Transferees, whether by the enforcement of
any assessment or by any legal or equitable proceeding, or by virtue of any applicable Law or
Order, it being further expressly agreed and acknowledged that no personal liability whatsoever
shall attach to, be imposed on or otherwise be incurred by any current or future director, officer,
employee, stockholder, partner or member of the Investor Stockholders or of any of their
Affiliates, assignees or Transferees as for any obligation of the Investor Stockholders under this
Agreement, other than the matters set forth Sections 2.5 and 5.5, or any documents or instruments
delivered in connection with this Agreement for any claim based on, in respect of, or by reason of,
such obligations or their creation; provided that, for purposes of clarity, if any of the
foregoing Persons is a party hereto as an Investor Stockholder, such Person shall be bound by the
agreements and obligations of this Agreement as, and to the extent such Person is, an Investor
Stockholder.




          SECTION 6.2.   Termination.




          (a) Except to the extent provided with respect to specific provisions hereof, this Agreement
shall terminate, except for this Article VI and Sections 2.5 and 4.6 which shall










 



33



survive such
termination and Section 5.5 which shall survive in accordance with its terms, as follows: (i) with
respect to a particular Investor Stockholder, on the date that such Investor Stockholder no longer
beneficially owns any Subject Shares or Conversion Shares, (ii) when there is no longer any
Investor Stockholder that is a party to this Agreement, and (iii) upon the written consent of the
parties hereto in such number and manner required for amendments hereto as provided in Section 6.8.




          (b) The termination of this Agreement will not relieve any party for any liability arising
from a breach of representation, warranty, covenant or other agreement occurring prior to such
termination.




          SECTION 6.3.   Expenses. Except as otherwise provided herein (and except as provided in the Preferred Stock Purchase
Agreement), all expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses; provided,
however, that the Company shall reimburse each Elevation Entity and its Representatives for
reasonable out-of-pocket expenses incurred by them in connection with monitoring their investment
in the Subject Shares and Conversion Shares that have been pre-approved by the Company and in an
amount not to exceed $50,000 in the aggregate in any year.




          SECTION 6.4.   Successors and Assigns; Assignment. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors,
permitted assigns, heirs, executors and administrators of the parties hereto. This Agreement may
not be assigned without the prior written consent of the other parties, except that the Investor
Stockholders may assign their rights and obligations without such consent if made in accordance
with Section 3.1(c).




          SECTION 6.5.   No Third Party Beneficiaries. Except as specifically provided in Sections
2.6, 2.7, 4.6 and 6.1 (with respect to which the Investor Directors, Indemnified Parties and
Investor Indemnitees named therein shall be third party beneficiaries of such provisions), this
Agreement is not intended, and shall not be deemed, to confer any rights or remedies upon any
person other than the parties hereto or otherwise create any third-party beneficiary hereto.




          SECTION 6.6.   Entire Agreement. This Agreement (including any schedules or exhibits
hereto), together with the Preferred Stock Purchase Agreement and the Certificate of Designation,
constitutes the full and entire understanding and agreement among the parties with respect to the
subject matter hereof and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, that may have related to the subject
matter hereof in any way.




          SECTION 6.7.   Severability. In case any provision of this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the remaining provisions
shall not in any way be affected or impaired thereby.




          SECTION 6.8.   Amendment and Waiver. No amendment, waiver or other modification of, or
consent under, any provision of this Agreement shall be effective against the









 



34

Company or any
Investor Stockholder unless such amendment, waiver, modification or consent is approved in writing
by the Company and the Designated Stockholder; provided that an Investor Stockholder may
waive any rights or provide consent with respect to itself; provided that notwithstanding the
foregoing, the addition of a Transferee as a party hereto in accordance with the terms of Section
3.1(c) shall not constitute an amendment hereto and need be signed only by such Transferee. No
waiver of any breach of any
agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding
breach thereof nor of any other agreement or provision herein contained.




          SECTION 6.9.   Delays or Omissions. It is agreed that no delay or omission to exercise any
right, power or remedy accruing to any party, upon any breach, default or noncompliance by another
party under this Agreement, shall impair any such right, power or remedy, nor shall it be construed
to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or
in any similar breach, default or noncompliance thereafter occurring. It is further agreed that
any waiver, permit, consent or approval of any kind or character on the Investor Stockholders’ part
of any breach, default or noncompliance under this Agreement or any waiver on such party’s part of
any provisions or conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under this Agreement, by
law, or otherwise afforded to any party, shall be cumulative and not alternative.




          SECTION 6.10.   Notices. All notices required or permitted hereunder shall be in writing
and shall be deemed effectively given and received: (a) upon personal delivery to the party to be
notified; (b) when sent by confirmed facsimile or e-mail if sent during normal business hours of
the recipient, if not, then on the next business day; or (c) one (1) business day after deposit
with a nationally recognized overnight courier, specifying next day delivery, with written
verification of receipt. All communications shall be sent, with respect to the Company and the
Investor Stockholders, to their respective addresses specified in the Preferred Stock Purchase
Agreement (or at such other address as any such party may specify by like notice).




          SECTION 6.11.   Intepretation. The words “hereof”, “herein” and “hereunder” and words of
like import used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. When reference is made in this Agreement to an Article or
a Section, such reference shall be to an Article or Section of this Agreement, unless otherwise
indicated. The table of contents, table of defined terms and headings contained in this Agreement
are for convenience of reference only and shall not affect in any way the meaning or interpretation
of this Agreement. The language used in this Agreement shall be deemed to be the language chosen
by the parties hereto to express their mutual intent, and no rule of strict construction shall be
applied against any party. Whenever the context may require, any pronouns used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns
and pronouns shall include the plural, and vice versa. Any reference to any federal, state, local
or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise, and shall include all amendments of the same and
any successor or replacement statutes and regulations as of the date hereof. All references to
agreements shall mean such agreement as may be amended or otherwise modified from time to time.
Whenever the words “include,” “includes” or











 



35



“including” are used in this Agreement, they shall be
deemed to be followed by the words “without limitation.”




          SECTION 6.12.   Governing Law; Jurisdiction; Waiver of Jury Trial.




          (a) This Agreement shall be governed in all respects by the Laws of the State of New York.
Any disagreement, issue, dispute, claim, demand or controversy arising out of or relating to this
Agreement (each, a “Dispute”) shall be brought in the United States District Court for the
Southern District of New York in New York, New York or any New York State court sitting in New
York, New York, so long as one of such courts shall have subject matter jurisdiction over such
Dispute. Each of the parties hereby irrevocably consents to the jurisdiction of such courts (and
of the appropriate appellate courts therefrom) in any such Dispute and irrevocably waives, to the
fullest extent permitted by Law, any objection that it may now or hereafter have to the laying of
the venue of any such Dispute in any such court and that any such Dispute which is brought in any
such court has been brought in an inconvenient forum. Process in any such Dispute may be served on
any party anywhere in the world, whether within or without the jurisdiction of any such court.
Without limiting the foregoing, each party agrees that service of process on such party as provided
in Section 6.10 shall be deemed effective service of process on such party.




          (b) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.




          SECTION
6.13.   Specific Performance; No Special
Damages. (a) The parties hereto
agree that the obligations imposed on them in this Agreement are special, unique and of an
extraordinary character, and that, in the event of breach by any party, damages would not be an
adequate remedy and each of the other parties shall be entitled to specific performance and
injunctive and other equitable relief in addition to any other remedy to which it may be entitled,
at law or in equity; and the parties hereto further agree to waive any requirement for the securing
or posting of any bond in connection with the obtaining of any such injunctive or other equitable
relief.




          (b) Each party agrees that there shall be no special, exemplary, punitive or multiple damages
connected with or resulting from any breach of this Agreement, or actions undertaken in connection
with or related hereto, including any such damages which are based upon breach of contract, tort,
breach of warranty, strict liability, statute, operation of law or any other theory of recovery,
except to the extent such damages are actually paid by a party hereunder to a third party, and
hereby waives any rights to claim such damages. For purposes of clarity, the foregoing does not
exclude consequential, indirect or incidental damages. Notwithstanding anything to the contrary in
the foregoing, no damages (including lost profits) based on potential appreciation of the value of
the Common Stock, of hypothetical investment returns or of potential alternative investments shall
be taken into account in determining the amount of damages.











 



36




          SECTION 6.14.   Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an
original, but all of which together shall constitute one instrument.




[Remainder of Page Intentionally Left Blank.]












 








          IN WITNESS WHEREOF, the parties hereto have executed this Stockholders Agreement as of the
date first set forth above.




	 	 	 	 	 	 	 
	 	 	HOMESTORE, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Allan P. Merrill	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Allan P. Merrill	 	 
	 

	 	 	 	Title:   EVP	 	 
	 
	 	 	 	 	 	 
	 	 	ELEVATION PARTNERS, L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Elevation Associates, L.P.,	 	 
	 

	 	 	 	As General Partner	 	 
	 
	 	 	 	 	 	 
	 	 	By: Elevation Associates, LLC,	 	 
	 

	 	 	 	As General Partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Fred Anderson	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Fred Anderson	 	 
	 

	 	 	 	Title:   Manager	 	 
	 
	 	 	 	 	 	 
	 	 	ELEVATION EMPLOYEE SIDE FUND, LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Fred Anderson	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Fred Anderson	 	 
	 

	 	 	 	Title:   Manager	 	 






[Stockholders Agreement]