Document:

<PAGE>

                                                                    EXHIBIT 10.1

                                                               EXECUTION VERSION

                                VOTING AGREEMENT

                  This VOTING AGREEMENT (this "Agreement"), is made and entered
into this 25th day of September 2003 by and among LI Acquisition Company, LLC, a
Maryland limited liability company ("Buyer"), FTI Consulting, Inc., a Maryland
corporation ("FTI"), Knowledge Universe, Inc., a Delaware corporation
("Knowledge Universe") and Nextera Enterprises Holdings, Inc., a Delaware
corporation ("Nextera Holdings", together with Knowledge Universe, collectively,
the "Stockholders").

                  WHEREAS, pursuant to the terms and subject to the conditions
of that certain Asset Purchase Agreement, dated as of September 25, 2003 (the
"Purchase Agreement"), by and among FTI, Buyer, Nextera Enterprises, Inc.
("Nextera"), Lexecon Inc. ("Lexecon"), CE Acquisition Corp. ("CE") and ERG
Acquisition Corp. ("ERG" and, together with Lexecon and CE, the "Sellers"),
Buyer shall purchase substantially all the assets of the Sellers (the
"Transaction");

                  WHEREAS, Nextera owns one hundred percent (100%) of the issued
and outstanding capital stock of Lexecon, and Lexecon owns one hundred percent
(100%) of the issued and outstanding capital stock of each of CE and ERG;

                  WHEREAS, the Stockholders are the holders of record or
beneficial owners (for all purposes in this Agreement, as such term is defined
in Rule 13d-3 of the Rules and Regulations promulgated by the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) of 8,810,000 shares of the outstanding class A common
stock, par value $0.001 per share of Nextera (the "Class A Common Stock"),
3,844,200 shares of the outstanding class B common stock, par value $0.001 per
share of Nextera (the "Class B Common Stock," and together with the Class A
Common Stock, the "Common Stock"), and 40,375 shares of the outstanding series A
cumulative convertible preferred stock, par value $0.001 per share of Nextera
(the "Preferred Stock" and together with the Common Stock and taking into
account the considerations set forth in Section 4, below, the "Shares");

                  WHEREAS, the Shares represent approximately 71.45% of the
voting power of the issued and outstanding voting securities of Nextera; and

                  WHEREAS, to induce the execution of the Purchase Agreement by
Buyer, the Stockholders agree to vote the Shares so as to facilitate
consummation of the Transaction to the extent more fully described below.

                  NOW, THEREFORE, in consideration of the mutual promises and
the mutual covenants and agreements contained herein, the parties agree as
follows:

1.       Agreement to Vote Shares.

         1.1      At any meeting of the stockholders of Nextera called with
respect to the Transaction, the Purchase Agreement and the other transactions
contemplated thereby, and at any

<PAGE>

adjournment thereof, and with respect to any consent solicited with respect to
the Transaction, the Purchase Agreement and any of the other transactions
contemplated thereby, the Stockholders shall vote the Shares (a) in favor of
approval of the Transaction, the Purchase Agreement, the other transactions
contemplated thereby and any matter which could reasonably be expected to
facilitate the Transaction and such other transactions and (b) against (i)
approval of any Acquisition Proposal (as such term is defined in the Purchase
Agreement), (ii) approval of any proposal made in opposition to or in
competition with the consummation of the Transaction and against any merger,
consolidation, sale of assets, reorganization or recapitalization, with any
party other than Buyer and/or its affiliates, (iii) any amendment of the
Certificate of Incorporation or By-Laws of any of the Sellers or other proposal
or transaction involving any of the Sellers which amendment or other proposal or
transaction would in any manner impede, frustrate, prevent or nullify the
Transaction, the Purchase Agreement or any of the other transactions
contemplated by the Purchase Agreement, or (iv) any action or agreement which
would result in a breach of any representation, warranty or covenant of the
Sellers or Nextera set forth in the Purchase Agreement. The Stockholders may
vote on all other matters in a manner determined in their sole discretion ((i),
(ii) or (iii) and/or (iv), a "Counter Proposal").

         1.2      The Stockholders, as the holders of record or beneficial
owners of voting stock of Nextera, shall be present, in person or by proxy, at
all meetings of stockholders of Nextera and at any adjournment thereof so that
all Shares are counted for the purpose of determining the presence of a quorum
at such meetings. The Stockholders shall not enter into any agreement or
understanding with any person or entity to vote or give instructions in any
manner inconsistent with the terms of this Section 1. This Agreement is intended
to bind each Stockholder only with respect to the voting of the Shares as
Stockholders herein, and shall not prohibit the applicable Stockholders from
acting in accordance with his or her fiduciary duties as an officer or director
of Nextera or Sellers.

2.       Irrevocable Proxy. Concurrently with the execution of this Agreement,
the Stockholders agree to deliver to Buyer an irrevocable proxy in the form
attached hereto as Exhibit A (the "Proxy"), provided that the Proxy shall be
revoked only upon the Expiration Date (as defined below). The Proxy is
irrevocable and coupled with an interest in the obligations of the Stockholder.

3.       No Solicitation of Proxies. Each Stockholder agrees (solely in its
capacity as such) that neither it nor any of its subsidiaries nor any of the
officers and directors and representatives (including any investment banker,
attorney or accountant retained by it or any of its subsidiaries) of it or its
subsidiaries shall, and that it shall use its reasonable best efforts to cause
its and its subsidiaries' employees and other agents not to (and shall not
authorize any of them to) directly or indirectly, engage in any solicitation (as
defined in Regulation 14A of the Rules and Regulations promulgated by the
Securities and Exchange Commission pursuant to the Exchange Act) of other
stockholders of Nextera (a) against the Transaction, the Purchase Agreement, the
other transactions contemplated thereby or any matter that could reasonably be
expected to facilitate the Transaction and such other transactions or (b) in
favor of any Counter Proposal.

4.       Definition of Shares. For purposes of this Agreement, the term "Shares"
shall include: (i) all securities of Nextera (including, without limitation, all
shares of Common Stock and all Options) owned of record by the Stockholders as
of the date of this Agreement, as indicated on

                                        2

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the signature page of this Agreement; and (ii) all additional securities of
Nextera of which the Stockholder acquires record ownership during the period
from the date of this Agreement through the Expiration Date, including, without
limitation, through the exercise or conversion of any options, warrants or other
rights to purchase shares of Common Stock and other securities convertible into,
or exercisable for shares of Common Stock. In the event of a stock dividend or
distribution, or any change in the Shares by reason of any stock dividend,
split-up, recapitalization, combination, exchange of shares or the like, the
term "Shares" shall be deemed to refer to and include the Shares as well as all
such stock dividends and distributions and any shares into which or for which
any or all of the Shares may be changed or exchanged.

5.       Transfers of Shares. Each Stockholder hereby agrees that, at all times
during the period commencing with the execution and delivery of this Agreement
until the Expiration Date, such Stockholder (a) shall not cause or permit the
Transfer (as defined below) of any Shares, or any interest in the Shares, to be
effected, and (b) shall not deposit (or permit the deposit of) any Shares in a
voting trust or grant any proxy, or enter into any voting agreement or similar
agreement or arrangement in contravention of the obligations of the Stockholders
under this Agreement with respect to the Shares. Each Stockholder further agrees
with, and covenants to, Buyer that such Stockholder shall not request that
Nextera register the Transfer of any certificate or uncertificated interest
representing any of the Shares, unless such Transfer is made in compliance with
this Agreement. For purposes of this Agreement, a person or entity shall be
deemed to have effected a "Transfer" of a security if such person or entity,
directly or indirectly: (i) sells, offers to sell, makes any short sales of,
pledges, encumbers, lends, hypothecates, enters into any type of equity swap or
hedging of, grants an option with respect to, transfers or disposes of such
security, any interest therein, or the economic consequences of ownership of
such security or (ii) enters into an agreement, contract or commitment providing
for the sale of, making any short sales of, pledge of, lending of, encumbrance
of, equity swap or hedging of, grant of an option with respect to, transfer of
or disposition of such security, any interest therein or the economic
consequences of ownership of such security, other than any such actions pursuant
to which such person or entity maintains all voting rights with respect to such
security.

6.       Representations and Warranties of the Stockholders. The Stockholders
hereby jointly and severally represent and warrant to Buyer as follows:

         6.1      Authority.

                  (a)      Each Stockholder is duly incorporated, validly
existing and in good standing under the laws of the State of Delaware.

                  (b)      Each Stockholder has all requisite power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by each
Stockholder, and the consummation of the transactions contemplated hereby, has
been duly authorized by all necessary action on the part of each Stockholder.

                  (c)      This Agreement has been duly executed and delivered
by each Stockholder and constitutes a valid and binding obligation of each
Stockholder enforceable in accordance with its terms, subject to its
enforceability against Buyer and FTI and the effect of

                                        3

<PAGE>

applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors' rights generally and subject to the effect of general
principles of equity, including, without limitation, the possible unavailability
of specific performance or injunctive relief, regardless of whether considered
in a proceeding in equity or at law. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated hereby
and compliance with the terms hereof will not, conflict with, or result in any
violation of or default (with or without notice or lapse of time or both) under
or the acceleration of any provision of any trust agreement, partnership
agreement, loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise, license, judgment,
order, notice, decree, statute, law, ordinance, rule or regulation applicable to
any of the Stockholders or to any of the property or assets of any of the
Stockholders.

                  (d)      No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality, domestic, foreign
or supranational, is required by or with respect to any Stockholder in
connection with the execution and delivery of this Agreement or the consummation
by any Stockholder of the transactions contemplated hereby.

         6.2      The Shares. The Shares have not been pledged by the
Stockholders. The Stockholders own no capital stock of Nextera other than the
Shares. Except for this Agreement, no proxies or powers of attorney have been
granted with respect to the Shares that will remain in effect after the
execution of this Agreement. Except for this Agreement and the Proxy, no voting
arrangement (including voting agreement or voting trust) affecting the Shares
shall remain in effect after the execution of this Agreement.

7.       Effectiveness. The effectiveness of this Agreement is conditioned upon
the Purchase Agreement having been duly executed and delivered by all of the
parties thereto and the Purchase Agreement being in full force and effect.

8.       Termination. Notwithstanding anything else in this Agreement, this
Agreement, the Proxy and all obligations of each Stockholder under either this
Agreement or the Proxy shall automatically terminate as of the earlier to occur
of the following (such date, the "Expiration Date"): (i) such date and time as
the Purchase Agreement shall have been terminated in accordance with its terms,
(ii) such date and time as the Transaction shall become effective in accordance
with the terms and conditions of the Purchase Agreement or (iii) upon the
execution of a written agreement by all parties hereto.

9.       Additional Documents. Buyer and the Stockholders hereby covenant and
agree to execute and deliver any additional documents necessary, in the
reasonable determination of Buyer's legal counsel, to carry out the intent of
this Agreement.

10.      Legal Opinion. The Stockholders shall cause Buyer and FTI to receive an
opinion of Maron & Sandler in the form attached hereto as Exhibit B.

11.      Miscellaneous.

         11.1     Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of

                                        4

<PAGE>

the terms, provisions, covenants and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated.

         11.2     Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by any of
the parties without the prior written consent of all of the other parties
hereto.

         11.3     Amendments and Modifications. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto.

         11.4     Specific Performance; Injunctive Relief. The parties hereto
acknowledge that each of the parties will be irreparably harmed and that there
will be no adequate remedy at law for a violation of any of the covenants or
agreements of the parties set forth herein. Therefore, it is agreed that, in
addition to any other remedies which may be available to any party upon a
violation by one or more other parties, such non-violating party shall have the
right to enforce such covenants and agreements by specific performance,
injunctive relief or by any other means available to it at law or in equity.

         11.5     Notices.

                  All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered in
person, by commercial overnight courier service, by confirmed fax or sent by
mail (registered or certified mail, postage prepaid, return receipt requested)
to the respective parties as follows:

                  (a)      if to Buyer, to:

                           FTI Consulting, Inc.
                           2021 Research Drive
                           Annapolis, MD 21401
                           Attention: Theodore I. Pincus
                           Fax: 410-224-2809

                           with a copy to:

                           Paul, Hastings, Janofsky & Walker LLP
                           75 East 55th Street
                           New York, NY 10022-3205
                           Attention: Charles H. Baker, Esq.
                           Fax: (212) 319-4090

                                        5

<PAGE>

                  (b)      if to the Stockholders, to:

                           Maron & Sandler
                           1250 Fourth Street, Suite 550
                           Santa Monica, CA 90401
                           Attention: James Banks, Esq.
                           Fax: (310) 570-4901

or to such other address as any party hereto may have furnished to the other
parties in writing in accordance herewith, except that notices of change of
address shall only be effective upon receipt.

         11.6     Governing Law. This Agreement shall be governed by, construed
and enforced in accordance with the laws of the State of New York applicable to
contracts to be executed and performed entirely within such State.

         11.7     Entire Agreement. This Agreement and the other agreements
referred to herein contain the entire understanding of the parties in respect of
the subject matter hereof and supersede all prior negotiations and
understandings between the parties with respect to such subject matter.

         11.8     Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.

         11.9     Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction or interpretation of this
Agreement.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                        6

<PAGE>

                  IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed on the day and year first above written.

                                          FTI CONSULTING, INC.

                                          By: /s/ Theodore I. Pincus
                                              ----------------------------------
                                              Name: Theodore I. Pincus
                                              Title: Executive Vice President
                                              and Chief Financial Officer

                                          LI ACQUISITION COMPANY, LLC

                                          By: /s/ Theodore I. Pincus
                                              ----------------------------------
                                              Name: Theodore I. Pincus
                                              Title: Executive Vice President
                                              and Chief Financial Officer

                                          NEXTERA ENTERPRISES HOLDINGS, INC.

                                          By: /s/ Stanley E. Maron
                                              ----------------------------------
                                              Name: Stanley E. Maron
                                              Title: Secretary

                                          KNOWLEDGE UNIVERSE, INC.

                                          By: /s/ Steven B. Fink
                                              ----------------------------------
                                              Name: Steven B. Fink
                                              Title: Treasurer and Vice Chairman

<PAGE>
                                   EXHIBIT A

                           FORM OF IRREVOCABLE PROXY
<PAGE>

                                    EXHIBIT B

                         FORM OF MARON & SANDLER OPINIONAMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

 

EXHIBIT 10.4

EXECUTION COPY

PARTY CITY CORPORATION

AMENDED AND RESTATED

INVESTOR RIGHTS AGREEMENT

Dated as of August 18, 2003

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page
	 	 	 	 	 	 	

	1.	 	Certain Definitions	 	 	2	 
	2.	 	Registration Rights	 	 	3	 
	 	 	
2.1
	 	Requested Registration
	 	 	3	 
	 	 	
2.2
	 	Company Registration
	 	 	5	 
	 	 	
2.3
	 	Registration on Form S-3
	 	 	6	 
	 	 	
2.4
	 	Limitations on Subsequent Registration Rights
	 	 	7	 
	 	 	
2.5
	 	Expenses of Registration
	 	 	7	 
	 	 	
2.6
	 	Registration Procedures
	 	 	7	 
	 	 	
2.7
	 	Indemnification
	 	 	8	 
	 	 	
2.8
	 	Information by Holder
	 	 	10	 
	 	 	
2.9
	 	Rule 144 Reporting
	 	 	10	 
	 	 	
2.10
	 	Transfer of Registration Rights
	 	 	10	 
	 	 	
2.11
	 	Termination of Rights
	 	 	10	 
	3.	 	Miscellaneous	 	 	10	 
	 	 	
3.1
	 	Liability Insurance
	 	 	10	 
	 	 	
3.2
	 	Assignment
	 	 	11	 
	 	 	
3.3
	 	Third Parties
	 	 	11	 
	 	 	
3.4
	 	Future Investors
	 	 	11	 
	 	 	
3.5
	 	Governing Law
	 	 	11	 
	 	 	
3.6
	 	Counterparts
	 	 	11	 
	 	 	
3.7
	 	Notices
	 	 	11	 
	 	 	
3.8
	 	Severability
	 	 	11	 
	 	 	
3.9
	 	Amendment and Waiver
	 	 	12	 
	 	 	
3.10
	 	Effect of Amendment or Waiver
	 	 	12	 
	 	 	
3.11
	 	Rights of Holders
	 	 	12	 
	 	 	
3.12
	 	Delays or Omissions
	 	 	12	 

i

 

AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

     THIS AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the “Agreement”) is
made as of August 18, 2003 by and among Party City Corporation, a Delaware
corporation (the “Company”), and the persons set forth on the Schedule of
Investors attached hereto as Annex I, as such Annex I shall be amended pursuant
to the terms of this Agreement (the “Investors”).

RECITALS

     WHEREAS, the Company issued (i) certain warrants (the “Warrants”) to
purchase shares of its common stock, par value $.01 per share (“Common Stock”),
to Tennenbaum & Co., LLC (“TC LLC”), Goldman, Sachs & Co. (“GS”), Enhanced
Retail Funding, LLC (“ERF”) and Richmond Associates, L.P. (“Richmond”) and (ii)
certain notes (“Notes”) of the Company to TC LLC, ERF, Richmond, TCO/Party
City, LLC (“TCO/PC”) and Goldman Sachs Credit Partners, L.P. (“GSCP”; together
with TC LLC, GS, ERF, Richmond and TCO/PC, the “Original Investors”) pursuant
to one or more Securities Purchase Agreements dated as of August 16, 1999 by
and among the Company and the Original Investors (each such agreement being of
the same form and referred to herein as the “Purchase Agreement”);

     WHEREAS, in conjunction with the Purchase Agreement, on August 16, 1999,
the Company entered into an Investor Rights Agreement (the “Original
Agreement”) with the Original Investors and Jack Futterman (“Futterman”);

     WHEREAS, on September 1, 1999, TC LLC sold all of its Warrants and Notes
to Special Value Bond Fund, LLC (“SVBF”);

     WHEREAS, on October 25, 1999, ERF sold a Warrant for 229,333 shares of
Common Stock to Clyde Street Investment, LLC (“Clyde Street”) and ERF kept a
Warrant for 458,667 shares of Common Stock;

     WHEREAS, on January 14, 2000, the Company issued (i) additional notes of
the Company to SVBF, GSCP and ERF and (ii) restated Warrants to ERF, GS,
Richmond, SVBF and Clyde Street, pursuant to First Amendment to Securities
Purchase Agreement dated as of January 14, 2000 by and among the Company, GS,
ERF, Richmond, TCO/PC, GSCP, SVBF and Clyde Street;

     WHEREAS, the Company, Futterman, SVBF, Special Value Bond Fund II, LLC,
Special Value Investment Management, LLC (now known as Tennenbaum Capital
Partners, LLC), GSCP, GS, ERF, Clyde Street and Richmond amended the Original
Agreement pursuant to the First Amendment to Investor Rights Agreement, dated
as of October 11, 2000, and pursuant to the Second Amendment to Investor Rights
Agreement, dated as of November 20, 2000 (as amended, the “IR Agreement”);

     WHEREAS, in September 2001, upon the partial exercise by SVBF of its
Warrant to purchase 600,000 shares of Common Stock, SVBF received 499,687
shares of Common Stock and SVBF immediately distributed (i) 114,061 shares of
Common Stock to TC LLC and (ii) 385,626 shares of Common Stock to third party
direct and indirect investors in SVBF;

     WHEREAS, in May 2002, upon the exercise by Richmond of its Warrant to
purchase 229,000 shares of Common Stock, Richmond received 229,000 shares of
Common Stock;

 

 

     WHEREAS, in June 2002, upon the exercise by GS of its Warrant to purchase
2,867,000 shares of Common Stock, GS received 2,669,720 shares of Common Stock
and GS immediately sold the 2,669,720 shares of Common Stock to Special Value
Absolute Return Fund, LLC;

     WHEREAS, in July 2002, upon the exercise by ERF of its Warrant to purchase
458,667 shares of Common Stock, ERF received 458,667 shares of Common Stock;

     WHEREAS, in August 2002, upon the exercise by Clyde Street of its Warrant
to purchase 229,333 shares of Common Stock, Clyde Street received 213,792
shares of Common Stock and then sold 18,792 shares of Common Stock in the
public market;

     WHEREAS, prior to the date hereof the Company has repaid all of the Notes
and no Notes remain outstanding;

     WHEREAS, pursuant to Section 7.8 of the IR Agreement, the IR Agreement may
be amended with the written consent of the Company, a Supermajority in Interest
of the Investors (as defined in the IR Agreement) and a Supermajority in
Interest of the Warrantholders (as defined in the IR Agreement); and

     WHEREAS, the Company, a Supermajority in Interest of the Investors and a
Supermajority in Interest of the Warrantholders, now desire to amend and
restate the IR Agreement.

     NOW, THEREFORE, the Company and the Investors agree as follows:

     1.          Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:

     “Commission” shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.

     “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended,
or any similar successor federal statute, and the rules and regulations
thereunder, all as the same shall be in effect from time to time.

     “Fully-Diluted Common Stock” shall mean all of the issued and outstanding
Common Stock of the Company, assuming conversion, exercise or exchange of all
outstanding convertible, exercisable or exchangeable securities, options,
warrants and similar instruments into or for Common Stock (regardless of
whether such convertibles securities are at such time convertible, exercisable
or exchangeable). All such calculations shall be appropriately adjusted for
stock splits, stock dividends and other similar events.

     “Holder” shall mean (a) any Investor holding Registrable Securities and
(b) any person holding Registrable Securities to whom the rights under this
Agreement have been transferred in accordance with Section 2.10 hereof.

     “Initiating Holders” shall mean any Investors or transferees of Investors
under Section 2.10 hereof who in the aggregate are Holders of not less than
twenty percent (20%) of the Registrable Securities and who propose to register
securities, the aggregate offering price of which, net of underwriting
discounts and commissions, exceeds $2,500,000.

     “Majority in Interest” shall mean, in the case of Investors,
Warrantholders or Initiating Holders, at least fifty-one percent (51.0%) in
aggregate amount of Registrable Securities (as listed on Annex I hereto).

2

 

     “Person” shall mean a corporation, an association, a partnership, an
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.

     “Public Event” shall mean the earlier to occur of (a) the first public
offering of the Common Stock of the Company after the date hereof to the
general public which is effected pursuant to a registration statement filed
with, and declared effective by, the Commission under the Securities Act or (b)
the first listing (or relisting) of the Common Stock with the Nasdaq National
Market or any national securities exchange after the date hereof.

     The terms “register,” “registered” and “registration” refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.

     “Registration Expenses” shall mean all expenses incurred by the Company in
complying with Sections 2.1, 2.2 and 2.3 hereof, including, without limitation,
all registration, qualification, listing and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the and the Holders, blue
sky fees and expenses, and the expense of any special audits incident to or
required by any such registration.

     “Registrable Securities” shall mean (a) the shares of Common Stock
issuable to any Investor upon exercise of the Warrants, (b) any other shares of
Common Stock held by any Investor from time to time after the date hereof, and
(c) any Common Stock of the Company issued or issuable in respect of the shares
of Common Stock described in clauses (a) and (b) above, or other securities
issued or issuable with respect to such shares of Common Stock upon any stock
split, stock dividend, recapitalization or similar event, provided, however,
that shares of Common Stock or other securities shall only be treated as
Registrable Securities if and so long as they have not been (i) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, (ii) sold in a transaction exempt from the registration
and prospectus delivery requirements of the Securities Act under Section 4(1)
thereof so that all transfer restrictions and restrictive legends with respect
thereto are removed upon the consummation of such sale, or (iii) transferred in
a transaction pursuant to which the registration rights are not also assigned
in accordance with Section 2.10 hereof. As used herein, the term “Registrable
Securities” shall also include the Warrants; provided that only the shares of
Common Stock issuable upon exercise of the Warrants need be registered by the
Company pursuant to Section 2 hereof.

     “Securities Act” shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder or any similar federal statute
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the time.

     “Selling Expenses” shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders.

     “TCO Director” shall mean any director on the Company’s Board of Directors
who has been designated by TC LLC or its affiliates (or their transferees) for
election to the Board of Directors.

     “Warrantholder” shall mean the holder of any Warrant.

2.        Registration Rights.

     2.1   Requested Registration.

3

 

               (a)     Request for Registration. If the Company shall receive from
Initiating Holders a written request that the Company effect any registration,
qualification or compliance, the Company will:

		
	 	       
     (i)       promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
	 
	 	       
     (ii)      promptly use its best efforts to effect such
registration, qualification or compliance (including, without
limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable blue sky or
other state securities laws and appropriate compliance with
applicable regulations issued under the Securities Act and any
other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities
as are specified in such request, together with all or such portion
of the Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request received by the
Company within fifteen (15) days after receipt of such written
notice from the Company; provided, however, that the Company shall
not be obligated to take any action to effect any such
registration, qualification or compliance pursuant to this Section
2.1:

		
	 	     (1)     In any particular jurisdiction in which the Company
would be required to execute a general consent to service of
process in effecting such registration, qualification or
compliance unless the Company is already subject to service
in such jurisdiction and except as may be required by the
Securities Act;
	 
	 	     (2)     Prior to the date which is six (6) months following
the effective date of the Public Event;
	 
	 	     (3)     After (A) the Company has effected one (or more)
registrations pursuant to this Section 2.1(a) which have
included the Registrable Securities of each and every
Investor who holds or has held at any time at least
twenty-five percent (25%) of the aggregate number of
Registrable Securities subject to this Agreement as set forth
on Annex I hereto, (B) such registrations have been declared
or ordered effective and (C) the securities offered pursuant
to such registrations have been sold; or
	 
	 	     (4)     If the Company shall furnish to such Holders a
certificate, signed by the President or Chief Executive
Officer of the Company, stating that in the good faith
judgment of the Board of Directors the filing of a
registration statement in the near future with respect to the
proposed registration would have a material adverse effect on
the Company, then the Company’s obligation to use its best
efforts to register, qualify or comply under this Section 2.1
shall be deferred for a period not to exceed sixty (60) days
from the date of receipt of written request from the
Initiating Holders; provided, however, that the Company may
not utilize this right more than once in any twelve (12)
month period.

     Subject to the foregoing clauses (1) through (4), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Initiating Holders.

4

 

               (b)     Underwriting. The Initiating Holders shall have the right to
determine whether any registration under Section 2.1 shall be underwritten or
not, and shall so specify in their initial notice to the Company. In the event
that a registration pursuant to Section 2.1 is for a registered public offering
involving an underwriting, the Company shall so advise the Holders as part of
the notice given pursuant to Section 2.1(a)(i). The right of any Holder to
registration pursuant to Section 2.1 shall be conditioned upon such Holder’s
participation in the underwriting arrangements required by this Section 2.1 and
the inclusion of such Holder’s Registrable Securities in the underwriting, to
the extent requested, to the extent provided herein.

     The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into and perform its obligations
under an underwriting agreement in customary form with the managing underwriter
selected for such underwriting selected by a Majority in Interest of the
Initiating Holders (which managing underwriter shall be reasonably acceptable
to the Company). Notwithstanding any other provision of this Section 2.1, if
the managing underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company shall so advise all Holders of Registrable
Securities and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated among all
Holders thereof in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by such Holders at the time of filing
the registration statement. No Registrable Securities excluded from the
underwriting by reason of the underwriter’s marketing limitation shall be
included in such registration. To facilitate the allocation of shares in
accordance with the above provisions, the Company or the underwriters may round
the number of shares allocated to any Holder to the nearest one hundred (100)
shares.

          2.2     Company Registration.

               (a)     Notice of Registration. If at any time or from time to time the
Company shall determine to register any of its equity securities, either for
its own account or the account of a security holder or holders other than (i) a
registration relating solely to employee benefit plans, (ii) a registration
relating solely to a Commission Rule 145 transaction, or (iii) a registration
on any registration form that does not permit secondary sales, the Company
will:

		
	 	     (i)     promptly give to each Holder written notice thereof; and
	 
	 	     (ii)     include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all of the Registrable Securities
specified in a written request or requests made within fifteen (15)
days after receipt of such written notice from the Company by any
Holder, but only to the extent that such inclusion will not
diminish the number of securities included by the Company or by
holders of the Company’s securities who have demanded such
registration.

               (b)     Underwriting. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company
shall so advise the Holders as a part of the written notice given pursuant to
Section 2.2(a)(i). In such event, the right of any Holder to registration
pursuant to Section 2.2 shall be conditioned upon such Holder’s participation
in such underwriting and the inclusion of Registrable Securities in the
underwriting to the extent provided herein.
All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into and perform
their obligations under an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this

5

 

Section 2.2, if the managing
underwriter determines that marketing factors require a limitation of the
number of shares to be underwritten, the managing underwriter may exclude all
Registrable Securities from, or limit the number of Registrable Securities to
be included in the registration and underwriting, on a pro rata basis based on
the total number of securities (including, without limitation, Registrable
Securities) entitled to registration pursuant to registration rights granted to
the participating Holders by the Company. To facilitate the allocation of
shares in accordance with the above provisions, the Company or the underwriters
may round the number of shares allocated to any Holder or other holder to the
nearest one hundred (100) shares.

               (c)     Right to Terminate Registration. The Company shall have the right to
terminate or withdraw any registration initiated by it under this Section 2.2
prior to the effectiveness of such registration, whether or not any Holder has
elected to include securities in such registration.

          2.3     Registration on Form S-3.

               (a)     The Company shall use its best efforts to qualify for registration on
Form S-3 or any comparable or successor form. To that end the Company shall
register (whether or not required by law to do so) its Common Stock under the
Exchange Act in accordance with the provisions of the Exchange Act.

               (b)     If any Holder or Holders of not less than twenty percent (20%) of the
Registrable Securities then outstanding requests that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities, the reasonably
anticipated aggregate price to the public of which, net of underwriting
discounts and commissions, would exceed $2,500,000, and the Company is a
registrant entitled to use Form S-3 to register the Registrable Securities for
such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form. The
Company will (i) promptly give written notice of the proposed registration to
all other Holders, and (ii) promptly use its best efforts to effect such
registration (including, without limitation, the execution of an undertaking to
file post-effective amendments, appropriate qualification under applicable blue
sky or other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request received by the Company within fifteen
(15) days after receipt of the written notice from the Company referred to in
the preceding clause (i). The substantive provisions of Section 2.1(b) shall be
applicable to each registration initiated under this Section 2.3.

               (c)     Notwithstanding the foregoing, the Company shall not be obligated to
take any action pursuant to this Section 2.3: (i) in any particular
jurisdiction in which the Company would be required to execute a general
consent to service of process in effecting such registration, qualification or
compliance unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act; or (ii) if
the Company shall furnish to such Holder a certificate signed by the President
or Chief Executive Officer of the Company stating that, in the good faith
judgment of the Board of Directors the filing of a registration statement in
the near future with respect to the proposed registration would have a material
adverse effect on the Company, then the Company’s obligation to use its best
efforts to register, qualify or comply under this Section 2.3 shall be deferred
for a period not to
exceed sixty (60) days from the receipt of the request to file such
registration by such Holder or Holders; provided, however, that the Company may
not utilize this right more than once in any twelve (12) month period.

6

 

          2.4     Limitations on Subsequent Registration Rights. From and after the
date hereof, the Company shall not enter into any agreement granting any holder
or prospective holder of any securities of the Company registration rights with
respect to such securities unless such new registration rights, including
standoff obligations, are subordinate to the registration rights granted to the
Holders hereunder.

          2.5     Expenses of Registration. All Registration Expenses incurred in
connection with any registration pursuant to Sections 2.1, 2.2 or 2.3 shall be
borne by the Company. Unless otherwise stated, all other Selling Expenses
relating to securities registered on behalf of the Holders shall be borne by
the Holders of the registered securities included in such registration pro rata
on the basis of the number of shares so registered.

          2.6     Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 2,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof and, at its expense, the Company will:

               (a)     Prepare and file with the Commission a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for at least ninety (90) days or until
the distribution described in the registration statement has been completed;
provided, however, that in the case of any registration of Registrable
Securities on Form S-3 which are intended to be offered on a continuous or
delayed basis, such period shall be extended, if necessary, to keep the
registration statement effective until all such Registrable Securities are
sold, provided that if Rule 415, or any successor rule under the Securities
Act, permits an offering on a continuous or delayed basis, and provided further
that if applicable rules under the Securities Act governing the obligation to
file a post-effective amendment permit, in lieu of filing a post-effective
amendment which (i) includes any prospectus required by Section 10(a)(3) of the
Securities Act or (ii) reflects facts or events representing a material or
fundamental change in the information set forth in the registration statement,
the incorporation by reference of information required to be included in (i)
and (ii) above shall be contained in periodic reports filed pursuant to Section
13 or 15(d) of the Exchange Act in the registration statement;

               (b)     Furnish to the Holders participating in such registration and to the
underwriters of the securities being registered such number of copies of the
registration statement, preliminary prospectus, final prospectus and such other
documents as such Holders and underwriters may reasonably request in order to
facilitate the public offering of such securities;

               (c)     Prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such registration statement;

               (d)     Notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, 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 or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchaser of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein

7

 

or necessary to make the statements therein not misleading
or incomplete in the light of the circumstances then existing;

               (e)     Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or blue sky laws of
such jurisdictions as shall be reasonably requested by the Holders, provided
that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions;

               (f)     Cause all such Registrable Securities to be listed on each securities
exchange on which similar securities issued by the Company are then listed;

               (g)     Provide a transfer agent and registrar for all Registrable Securities
and a CUSIP number for all such Registrable Securities, in each case not later
than the effective date of such registration; and

               (h)     Make available for inspection by any Holder participating in such
registration, any underwriter participating in any disposition pursuant to such
registration, and any attorney or accountant retained by any such Holder or
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company’s officers and directors to
supply all information requested by any such Holder, underwriter, attorney or
accountant in connection with such registration statement; provided, however,
that such Holder, underwriter, attorney or accountant shall agree to hold in
confidence and trust all information so provided.

          2.7     Indemnification.

               (a)     The Company will indemnify each Holder, each of its officers,
principals, members, directors and partners, and each person controlling such
Holder within the meaning of Section 15 of the Securities Act, with respect to
which registration, qualification or compliance has been effected pursuant to
this Section 2, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereto, incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, or any
violation by the Company of any rule or regulation promulgated under the
Securities Act applicable to the Company in connection with any such
registration, qualification or compliance, and the Company will reimburse each
such Holder, each of its officers and directors, and each person controlling
such Holder, each such underwriter and each person who controls
any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, as such expenses are incurred,
provided that the Company will not be liable in any such case to the extent
that any such claim, loss, damage, liability or expense arises out of or is
based on any untrue statement or omission or alleged untrue statement or
omission, made in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder,
controlling person or underwriter and stated to be specifically for use
therein.

               (b)     Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company’s

8

 

securities covered by such
registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, as such expenses are incurred, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by an
instrument duly executed by such Holder and stated to be specifically for use
therein; provided that in no event shall any indemnity under this Section
2.7(b) exceed the net proceeds received by such Holder in such registration.

               (c)     Each party entitled to indemnification under this Section 2.7 (the
“Indemnified Party”) shall give notice to the party required to provide
indemnification (the “Indemnifying Party”) promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such claim
or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party’s expense; provided, however, that an Indemnified Party
(together with all other Indemnified Parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the Indemnifying Party, if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between such Indemnified Party and any other party represented by
such counsel in such proceeding. The failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 2 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party’s ability to defend such
action. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.

               (d)     If the indemnification provided for in this Section 2.7 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any claim, loss, damage, liability or action referred to therein,
then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such claim, loss, damage,
liability or action in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party on the one hand and the Indemnified
Party on the other in connection with the actions that resulted in such claim,
loss, damage, liability or action, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact related to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the Holders agree that it would not
be just and equitable if contribution pursuant to this Section 2.7(d) were
based solely upon the number of entities from whom contribution was requested
or by any other method

9

 

of allocation which does not take account of the
equitable considerations referred to above in this Section 2.7(d).

               (e)     The amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages and liabilities referred to above in this Section 2.7
shall be deemed to include any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim, subject to the provisions of Section 2.7 hereof.
Notwithstanding the provisions of this Section 2.7, no Holder shall be required
to contribute any amount or make any other payments under this Agreement which
in the aggregate exceed the net proceeds (after selling expenses) received by
such Holder. No person guilty of fraudulent misrepresentation (within the
meaning of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.

          2.8     Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held
by them and the distribution proposed by such Holder or Holders as the Company
may reasonably request in writing and as shall be required in connection with
any registration, qualification or compliance referred to in this Section 2.

          2.9     Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration,
after such time as a public market exists for the Common Stock of the Company,
the Company agrees, promptly following the completion of the Company’s audit
for the 18-month period ended July 3, 1999, to use its best efforts to:

               (a)     Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act; and

               (b)     File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements).

          2.10     Transfer of Registration Rights. The rights to cause the Company to register securities granted to any
party hereto under Sections 2.1, 2.2 and 2.3 may be assigned to a transferee or
assignee in connection with any transfer or assignment of Registrable
Securities by such party (together with any affiliate); provided that (a) such
transfer may otherwise be effected in accordance with applicable securities
laws and (b) notice of such assignment is given to the Company.

          2.11     Termination of Rights. The rights of any particular Holder to cause
the Company to register securities under Sections 2.1, 2.2 and 2.3 shall
terminate with respect to such Holder on the date that is seven (7) years after
the date hereof or on the date on which all Registrable Securities held by such
Holder can be sold in any 90-day period under Rule 144 (without regard to Rule
144(k)).

     3.          Miscellaneous.

          3.1     Liability Insurance. Unless the TCO Directors have otherwise
consented, for so long as the TCO Directors serve as directors of the Company,
the Company shall maintain in effect the current policies of directors’ and
officers’ liability insurance maintained by the Company and to the extent any
claims are made against such insurance, shall increase the coverage amounts
thereunder so as to maintain the same amount of insurance protection for the
TCO Directors as existed immediately prior 

10

 

to any such claims assuming such
claims are paid in full; provided that the Company may substitute therefor
policies of the same or higher standard of coverage and amounts containing
terms and conditions which are no less advantageous. In addition, from and
after the Closing (as such term is defined in the Purchase Agreement), the
Company shall keep in effect provisions in its charter and bylaws providing for
exculpation of director liability and indemnification of directors, officers,
employees and agents at the Company to the extent that such persons are
entitled thereto thereunder on the date hereof, which provisions shall not be
amended, repealed or otherwise modified for so long as the TCO Directors serve
as directors of the Company in any manner that would adversely affect the
rights thereunder of any such individuals unless such modification is required
by law.

          3.2     Assignment. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties hereto.

          3.3     Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.

          3.4     Future Investors. Subject to Section 2.10, any person who acquires
the Securities (as such term is defined in the Purchase Agreement) may become a
party to this Agreement by execution and delivery to the Company of a
counterpart of this Agreement. Upon delivery of such counterpart, (a) the
signature pages and Annex I hereto shall be deemed automatically amended
(without any action on the part of the Investors) to reflect
the addition of such new party, (b) the Company shall revise the signature
pages and Annex I hereto to include such new party (together with all other
information regarding such new party as required for Annex I) and shall deliver
such revised signature pages and Annex I to all Investors as soon as reasonably
practicable thereafter and (c) such new party shall thereafter be deemed an
“Investor” for purposes of this Agreement.

          3.5     Governing Law. This Agreement shall be governed by and construed
under the laws of the State of New York without regard to choice of laws or
conflict of laws provisions thereof.

          3.6     Counterparts. This Agreement may be executed in two or more
counterparts and signature pages may be delivered by facsimile, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.

          3.7     Notices. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed to have been duly given if delivered personally,
or if mailed by certified mail, return receipt requested, postage prepaid, or
if sent by overnight courier, or if sent by written telecommunication,
addressed to the other party at (a) if to an Investor, at the address set forth
in Annex I hereto, or (b) if to the Company, at 400 Commons Way, Rockaway, New
Jersey 07866, to the attention of Corporate Secretary. Any notice so addressed
and delivered by facsimile transmission, hand or courier shall be deemed to be
given when received, and any notice so addressed and mailed by registered or
certified mail shall be deemed to be given three business days after being so
mailed.

          3.8     Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Agreement, and the balance of this Agreement shall be enforceable in
accordance with its terms.

11

 

          3.9     Amendment and Waiver. Any provision of this Agreement may be amended
with the written consent of the Company and a Majority in Interest of the
Investors; provided that (a) no such amendment shall impose or increase any
liability or obligation on a Holder without the consent of such Holder and (b)
no such amendment having a disproportionately adverse effect on any Holder in
relation to the other Holders may be made without consent of such Holder. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each Holder of Registrable Securities and the Company. In addition, the
Company may waive performance of any obligation owing to it, as to some or all
of the Holders of Registrable Securities, or agree to accept alternatives to
such performance, without obtaining the consent of any Holder of Registrable
Securities. In the event that an underwriting agreement is entered into between
the Company and any Holder, and such underwriting agreement contains terms
differing from this Agreement, as to any such Holder the terms of such
underwriting agreement shall govern.

          3.10     Effect of Amendment or Waiver. The Investors and their successors and assigns acknowledge that by the
operation of Section 3.9 hereof a Majority in Interest of the Investors, acting
in conjunction with the Company, will have the right and power to diminish or
eliminate any or all rights pursuant to this Agreement.

          3.11     Rights of Holders. Each party to this Agreement shall have the
absolute right to exercise or refrain from exercising any right or rights that
such party may have by reason of this Agreement, including, without limitation,
the right to consent to the waiver or modification of any obligation under this
Agreement, and such party shall not incur any liability to any other party or
other Holder of any securities of the Company as a result of exercising or
refraining from exercising any such right or rights.

          3.12     Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of
such non-breaching party nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach
or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies, either
under this Agreement, or by law or otherwise afforded to any Holder, shall be
cumulative and not alternative.

[SIGNATURES APPEAR ON THE FOLLOWING PAGES]

12

 

     IN WITNESS WHEREOF, the undersigned, who represent a Supermajority in
Interest of the Investors and a Supermajority in Interest of the
Warrantholders, have executed and delivered this Agreement as of the date first
above written.

	 	 	 	 	 	 	 
	 	 	PARTY CITY CORPORATION
	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Linda M. Siluk
	 	 	 	 	

	 	 	 	 	Name:
	 	Linda M. Siluk
	 	 	 	 	Title:
	 	Chief Financial Officer
	 	 	 	 	 	 	 
	 	 	Investors:
	 	 	 	 	 	 	 
	 	 	SPECIAL VALUE BOND FUND, LLC
	 	 	 	 	 	 	 
	 	 	By:	 	SVIM/MSM, LLC
	 	 	 	 	its Managing Member
	 	 	 	 	 	 	 
	 	 	By:	 	TENNENBAUM & CO., LLC
	 	 	 	 	its Managing Member
	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Michael E. Tennenbaum
	 	 	 	 	

	 	 	 	 	Name:
	 	Michael E. Tennenbaum
	 	 	 	 	Title:
	 	Managing Member
	 	 	 	 	 	 	 
	 	 	SPECIAL ABSOLUTE RETURN FUND, LLC
	 	 	 	 	 	 	 
	 	 	By:	 	SVAR/MM, LLC
	 	 	 	 	its Managing Member
	 	 	 	 	 	 	 
	 	 	By:	 	TENNENBAUM & CO., LLC
	 	 	 	 	its Managing Member
	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Michael E. Tennenbaum
	 	 	 	 	

	 	 	 	 	Name:
	 	Michael E. Tennenbaum
	 	 	 	 	Title:
	 	Managing Member
	 	 	 	 	 	 	 
	 	 	TENNENBAUM & CO., LLC
	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Michael E. Tennenbaum
	 	 	 	 	

	 	 	 	 	Name:
	 	Michael E. Tennenbaum
	 	 	 	 	Title:
	 	Managing Member

 

 

ANNEX I

SCHEDULE OF INVESTORS

	 	 	 	 	 
	Investor	 	Shares of Common Stock	 	Promissory Notes
	
	 	
	 	

	Special Value Bond Fund,
LLC

	 	2,496,000	 	none
	11100 Santa Monica Blvd.

Suite 210	 	
(subject to Warrants)	 	 
	Los Angeles, CA 90025	 	
 
	 	
 
	 	 	 	 	 
	Special Absolute Return Fund, LLC 

	 	

2,594,720
	 	
none
	11100 Santa Monica Blvd.
Suite 210	 	 	 	 
	Los Angeles, CA 90025	 	

 
	 	
 
	 	 	 	 	 
	Tennenbaum & Co., LLC

	 	

114, 061
	 	
none
	11100 Santa Monica Blvd.
Suite 210	 	 	 	 
	Los Angeles, CA 90025	 	

 
	 	
 
	 	 	 	 	 
	Enhanced Retail Funding,
LLC

	 	

458,667
	 	
none
	c/o Gordon Brothers Equity

Partners, LLC	 	 	 	 
	40 Broad Street	 	 	 	 
	Boston, MA 02109	 	

 
	 	
 
	 	 	 	 	 
	Richmond Associates, L.P.

	 	

229,000
	 	
none
	c/o Rubie’s Costume Company,
Inc.	 	 	 	 
	One Rubie’s Plaza	 	 	 	 
	Richmond Hill, NY 11418	 	

 
	 	
 
	 	 	 	 	 
	Clyde Street Investment,
LLC

	 	

195,000
	 	
none
	5015 Wenlock Rose Court	 	 	 	 
	Middleton, WI 53562-2374	 	

 
	 	
 

Annex I – Page 1

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