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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
JG INDUSTRIES, INC.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(2) or Item 22(a)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
......................................................................
2) Aggregate number of securities to which transaction applies:
......................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
......................................................................
4) Proposed maximum aggregate value of transaction:
......................................................................
5) Total fee paid:
......................................................................
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
......................................................................
2) Form, Schedule or Registration Statement No.:
......................................................................
3) Filing Party:
......................................................................
4) Date Filed:
......................................................................
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
__________________________
JG INDUSTRIES, INC.
5630 WEST BELMONT
CHICAGO, ILLINOIS 60634
To the Shareholders of JG Industries, Inc.:
Notice is hereby given that the Annual Meeting of Shareholders of JG Industries,
Inc., an Illinois corporation (the "Company"), will be held at the Bank of
-------
America, Shareholders Room, 21st Floor, 231 South LaSalle Street, Chicago,
Illinois on Thursday, December 12, 1996 at 10:00 a.m., for the following
purposes:
Proposal 1: To approve the issuance in a private sale of 1,500 shares of
the Company's Series B Convertible Preferred Stock, for an
aggregate consideration of $1,500,000;
Proposal 2: To approve the purchase by the Company of 3,879,773 (prior to
giving effect to the proposed reverse stock split) shares of
the Company's Common Stock, and 445 shares of the Company's
Series A Preferred Stock, from Jupiter Industries, Inc.;
Proposal 3: To approve an amendment to the Company's 1988 Stock Option
Plan to increase the number of Shares of Common Stock issuable
under such plan from 320,000 shares to 620,000 shares;
Proposal 4: To approve the proposal to amend the Company's Articles of
Incorporation to effect a one-for-three reverse split of the
Company's issued and outstanding Common Stock;
Proposal 5: To elect seven persons to the Board of Directors;
Proposal 6: To approve appointment by the Board of Directors of Coopers &
Lybrand L.L.P. as auditors for the Company;
And to transact such other business as may properly come before the
meeting.
Shareholders are cordially invited to attend the meeting in person. Whether or
not you presently intend to attend the Annual Meeting in person, the Board of
Directors asks you to complete, date and sign the enclosed proxy and return it
promptly by mail in the envelope provided.
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Only shareholders of record on the books of the Company at the close of business
on November 15, 1996 will be entitled to notice of and to vote at the meeting or
any adjournment thereof. The stock transfer books will not be closed.
Accompanying this notice is a proxy statement, a form of proxy and a copy of our
(i) annual report on Form 10-K, and (ii) Amendment No. 1 to Annual Report on
Form 10-K/A, as filed with the Securities and Exchange Commission.
By order of the Board of Directors.
Evelyn P. Egan
Secretary
November 23, 1996
<PAGE>
JG INDUSTRIES, INC.
5630 WEST BELMONT
CHICAGO, ILLINOIS 60634
PROXY STATEMENT
INTRODUCTION
The enclosed proxy is solicited by and on behalf of the Board of Directors of JG
Industries, Inc. (the "Company"), to be used at the Annual Meeting of
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Shareholders to be held at the Bank of America, Shareholders Room, 21st Floor,
231 South LaSalle Street, Chicago, Illinois, on Thursday, December 12, 1996 at
10:00 a.m., and at any adjournments thereof. All shares represented by proxies
will be voted at the meeting in accordance with the specifications marked
thereon or, if no specifications are made, proxies will be voted in favor of all
matters for which proxies have been solicited. Any shareholder giving a proxy
may revoke it at any time prior to the voting of such proxy by giving written
notice of revocation to the Secretary of the Company, by submitting a later
dated proxy or by attending the meeting and voting in person. This Proxy
Statement and the accompanying proxy are first being mailed to shareholders on
or about November 23, 1996.
VOTING AT THE MEETING
The Board of Directors has fixed November 15, 1996 as the record date for the
determination of shareholders entitled to notice of and to vote at the Annual
Meeting. The Corporation has two classes of capital stock outstanding: common
stock, no par value (the "Common Stock"), and Series "A" 9% cumulative preferred
------------
stock, no par value (the "Series A Preferred Stock"). Pursuant to the Statement
------------------------
of Resolution Establishing Series setting forth the voting rights of the Series
A Preferred Stock, the holders of such stock have the right to vote only on
certain specified matters. The holders of the Series A Preferred Stock do not
have the right to vote on any of the proposals set forth in this Proxy
Statement.
As of November 15, 1996, there were 7,061,890 shares of the Company's Common
Stock issued and outstanding. The holders of outstanding shares of Common Stock
are entitled to one vote per share on any question voted on at the meeting. The
By-Laws of the Company provide for cumulative voting for directors; accordingly,
every shareholder shall have the right to vote, in person or by proxy, the
number of shares owned by such shareholder for as many persons as there are
directors to be elected, or to accumulate said votes and give one candidate as
many votes as the number of directors multiplied by the number of owned shares
shall equal, or to distribute them on the same principle among as many
candidates as such shareholder shall desire.
The Company has been advised by Jupiter Industries, Inc., a Tennessee
corporation ("Jupiter"), the holder of approximately 53.7% of the issued and
-------
outstanding shares of Common Stock of the Company, and certain of the Company's
directors and officers that such persons, having the aggregate power to vote
4,315,497 shares of Common Stock, or 61.10% of the outstanding shares of Common
Stock, intend to vote (i) for the approval of the issuance of 1,500 shares of
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the Company's Series B Convertible Preferred Stock; (ii) for the purchase by the
Company of the Common Stock and Series A Preferred Stock owned by Jupiter; (iii)
for the increase in the number of shares of Common Stock issuable under the
Company's 1988 Stock Option Plan; (iv) for the approval of the one-for-three
reverse stock split (the "Reverse Stock Split"); (v) for the election of all the
-------------------
nominees of the Board of Directors to be elected at the Annual Meeting; and (vi)
for the approval of the appointment by the Board of Directors of Coopers &
Lybrand L.L.P. as auditors for the Company.
The presence in person or by proxy of the holders of a majority of the Company's
outstanding shares of Common Stock will constitute a quorum. Abstentions and
broker non-votes are counted for determining the presence or absence of a quorum
for the transaction of business. Abstentions are counted as votes against a
proposal in tabulating the votes cast on proposals presented to shareholders,
whereas broker non-votes are not counted for purposes of determining whether a
proposal has been approved. The affirmative vote of a majority of the shares of
Common Stock outstanding will be necessary for the approval of the Reverse Stock
Split. The affirmative vote of a majority of the shares of Common Stock
represented at the meeting in person or by proxy will be necessary for the
election of directors and for the taking of all other actions at the meeting.
Nonetheless, the Board of Directors of the Company has determined that the
Company will not proceed with the issuance of the Company's Series B Convertible
Preferred Stock or the purchase by the Company of the Common Stock and Series A
Preferred Stock owned by Jupiter unless it receives affirmative votes for such
actions from a majority of the shares of the Common Stock represented at the
meeting, in person or by proxy, not including the shares of Common Stock owned
by Jupiter, William Hellman, Philip Rootberg and Sheldon Harris.
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PROPOSAL FOR PRIVATE PLACEMENT
OF SERIES B CONVERTIBLE PREFERRED SHARES
(ITEM 1 ON THE PROXY CARD)
Upon approval of the Company's shareholders at the Annual Meeting in the manner
described above and prior to consummation of the Reverse Stock Split, the
Company intends, pursuant to the terms of a certain Series B Convertible
Preferred Stock Purchase Agreement (the "Series B Preferred Stock Purchase
---------------------------------
Agreement"), by and among William Hellman, Philip Rootberg and Sheldon Harris
- ---------
(collectively, the "Purchasers") and the Company, to sell to the Purchasers,
----------
through a private placement, 1,500 shares of Series B Convertible Preferred
Stock, no par value per share (the "Series B Preferred Shares"), for an
-------------------------
aggregate purchase price of $1,500,000. In the event of any material change in
the terms of the Series B Preferred Stock Purchase Agreement or the Series B
Preferred Shares, or any change in the consideration to be paid by the
Purchasers, the Company will, unless the change is such that it cannot be
adverse to the Company or its shareholders, submit the changed terms to the
shareholders of the Company for their approval. The Board of Directors of the
Company will abandon its plan to issue the Series B Preferred Shares to the
Purchasers if the transactions contemplated by the Series B Preferred Stock
Purchase Agreement are not approved by the shareholders of the Company in the
manner described above. In addition, although the Board of Directors believes
as of the date of this Proxy Statement that consummation of the transactions
contemplated by the Series B Preferred Stock Purchase Agreement is advisable,
these transactions may be abandoned by the Company at any time before, during or
after the Annual Meeting and prior to the consummation of such transactions.
RELATIONSHIP OF PURCHASERS TO THE COMPANY
Each of Messrs. Hellman, Rootberg and Harris has agreed to purchase 500 Series B
Preferred Shares pursuant to the terms of the Series B Preferred Stock Purchase
Agreement for a purchase price to be paid by each of them to the Company of
$500,000. Mr. Hellman is a director of the Company, Chairman of the Board of
Directors and Chief Executive Officer of the Company, and President of
Goldblatt's Department Stores, Inc. ("Goldblatt's"). Mr. Rootberg is a director
-----------
of the Company and Vice President of the Company. Mr. Harris is a director of
the Company and a former employee of Goldblatt's. See also Proposal For
Purchase of All Common Stock and Series A Preferred Stock Held by Jupiter
Industries, Inc. - Change of Control - Actual and Pro Forma Condensed
Consolidated Balance Sheet of the Company.
The terms of the Series B Preferred Stock Purchase Agreement and the Series B
Preferred Shares were negotiated in good faith on an arm's length basis. The
Board of Directors of the Company has concluded that the terms of the Series B
Preferred Stock Purchase Agreement and the Series B Preferred Shares are as
favorable to the Company as if negotiated with a third party with no common
affiliations with the Company.
REASONS FOR PRIVATE PLACEMENT; NEGOTIATION OF TERMS
The Company will use the proceeds of the private placement to pay a portion of
the cost of acquiring certain securities from Jupiter. (See Proposal for
Purchase of All Common Stock and Series A Preferred Stock Held by Jupiter
Industries, Inc. for a description of the Jupiter purchase
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transaction.) The Company considered several alternatives to the proposed
private placement, including seeking financing from traditional lending sources
and a public offering of either debt or equity securities. The Board of
Directors did not pursue conventional debt financing because the Board did not
believe it could obtain financing upon terms as favorable as those proposed in
the Series B Preferred Stock Purchase Agreement. It rejected a public offering
because of the relatively thin market for the Company's Common Stock, the
current market price of the Company's issued and outstanding Common Stock and
after consideration of current economic, industry and market conditions.
After determining that a private placement of equity securities was the
appropriate vehicle for increasing the amount of cash available to the Company,
the Purchasers offered to invest $1,500,000 in the Company. The Purchasers and
representatives of the Company negotiated the Series B Preferred Stock Purchase
Agreement and other documentation relating to the transactions contemplated
thereby. There were extensive negotiations between representatives of the
Company and representatives of the Purchasers that focused primarily on the
number of Series B Preferred Shares to be issued and the conversion price
therefore.
The Board of Directors has approved the transactions contemplated by the Series
B Preferred Stock Purchase Agreement (with Messrs. Hellman, Harris and Rootberg
abstaining from such vote), and has submitted the proposal to the Company's
shareholders for their approval. The Board of Directors believes that the terms
of the proposed private placement are favorable to the Company and that the
private placement is in the best interests of the Company.
MARKET PRICE OF THE COMPANY'S COMMON STOCK
On November 19, 1996, the last trade in the Company's Common Stock was at a
price of $0.688 per share.
DESCRIPTION OF SERIES B PREFERRED STOCK PURCHASE AGREEMENT
On the terms and subject to the conditions of the Series B Preferred Stock
Purchase Agreement, the Company will issue and sell to the Purchasers the Series
B Preferred Shares for an aggregate purchase price of $1,500,000 in cash. The
closing of the transactions contemplated by the Series B Preferred Stock
Purchase Agreement is contingent on approval of such transactions by the
Company's shareholders at the Annual Meeting in the manner described herein.
The shares issued pursuant to the terms of the Series B Preferred Stock Purchase
Agreement have not been registered under the Securities Act of 1933 (the
"Securities Act"), and may not be sold or otherwise disposed of by the holders
--------------
thereof except in accordance with an effective registration statement under the
Securities Act or in a transaction exempt from such registration. Other than as
contemplated by the Registration Rights Agreement, see Description of
Registration Rights Agreement below, the Company has no plan or obligation to
register the securities issued pursuant to the terms of the Series B Preferred
Stock Purchase Agreement, or the securities into or for which these securities
may be converted or exercised.
A copy of the Series B Preferred Stock Purchase Agreement together with certain
of the exhibits thereto is attached hereto as Exhibit A, and this description of
the Series B Preferred Stock Purchase Agreement is qualified in its entirety by
reference to such exhibit.
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DESCRIPTION AND TERMS OF SERIES B PREFERRED SHARES
Under the terms of the Statement of Resolution as proposed to be filed with
respect to the Series B Preferred Shares, the Series B Preferred Shares shall
have the terms described below. A copy of the proposed Statement of Resolution
is attached as Exhibit A to the Series B Preferred Stock Purchase Agreement, and
this description of terms is qualified in its entirety by reference to such
exhibit.
Dividends. Dividends upon each Series B Preferred Share will accrue daily at a
rate equal to 9% per annum of the Liquidation Value per share. The "Liquidation
-----------
Value" is initially $1,000 per share. Dividends will accumulate until paid, and
- -----
will be paid when and as declared by the Board of Directors. If not earlier
paid, dividends on each Series B Preferred Share will be paid upon the date on
which the Liquidation Value of such Series B Preferred Share is paid upon any
liquidation, dissolution or winding up of the Company and upon any automatic
conversion by reason of the provision described in the first or last sentence of
the paragraph below entitled Automatic Conversion.
Restriction on Other Dividends. So long as any Series B Preferred Shares remain
outstanding, without the consent of holders of a majority of the Series B
Preferred Shares then outstanding, the Company is not permitted to pay or
declare any dividend or make any distribution upon any junior securities unless
and until all accumulated dividends on the Series B Preferred Shares are paid.
Liquidation. Upon any liquidation, dissolution or winding up of the Company,
each holder of Series B Preferred Shares will be entitled to be paid, before any
distribution or payment is made upon any of the Company's equity securities that
rank junior to the Series B Preferred Shares, an amount in cash equal to the
aggregate Liquidation Value per share plus all accrued and unpaid dividends.
After payment of the full preferential amount with respect to the Series B
Preferred Shares, the holders of Series B Preferred Shares will not share in any
remaining assets of the Company. The shares of Common Stock are junior
securities.
Voting Rights. The holders of Series B Preferred Shares will be entitled to
vote with the holders of Common Stock on all matters submitted to a vote of the
Company's shareholders as a single class, with each Series B Preferred Share
having the number of votes equal to the number of shares of Common Stock equal
to the quotient of (i) 1,000 divided by (ii) the Conversion Price (as defined
below) in effect as of the record date for determination of shareholders
entitled to vote on matters presented for a vote of shareholders.
Conversion at Election of Holders. The proposed Statement of Resolution
provides that at any time any holder of Series B Preferred Shares may convert
all or any portion of such shares into the number of shares of the Company's
Common Stock computed by dividing (i) the product of (A) the number of Series B
Preferred Shares to be converted, times (B) $1,000, by (ii) the Conversion
Price. The initial Conversion Price is $0.75, subject to adjustment as
discussed below.
Automatic Conversion. Upon consummation of a public offering of the Company's
Common Stock pursuant to which the Company receives gross proceeds of
$10,000,000 or more, the Series B Preferred Shares will automatically convert
into shares of the Company's Common Stock at the Conversion Price then in
effect. In addition, if at any time less than 450 Series B Preferred Shares
remain outstanding, all outstanding Series B Preferred Shares shall be
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converted automatically into shares of Common Stock at the Conversion Price then
in effect. Finally, on the fifth anniversary of issuance, all outstanding
Series B Preferred Shares will automatically convert into shares of the
Company's Common Stock at the Conversion Price then in effect.
Adjustments to Conversion Price. The Conversion Price will initially be $0.75,
and will be subject to adjustment from time to time under certain circumstances.
If the Company at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately prior to
such subdivision will be proportionately reduced, and if the Company at any time
combines (by reverse stock split, including the Reverse Stock Split, or
otherwise) its outstanding shares of Common Stock into a smaller number of
shares, the Conversion Price in effect immediately prior to such combination
will be proportionately increased.
Any recapitalization, reorganization, reclassification, consolidation, merger,
exchange or sale of more than 80% of the Company's assets to another person
which is effected in such a manner that holders of Common Stock are entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock is referred to as a "Corporate Change." Prior to the consummation of any
----------------
Corporate Change, the Company is obligated to make appropriate provisions (in
form and substance reasonably satisfactory to the holders of a majority of the
Series B Preferred Shares then outstanding) to insure that each of the holders
of Series B Preferred Shares will thereafter have the right to acquire and
receive, in lieu of or in addition to (as the case may be), the shares of Common
Stock immediately theretofore acquirable and receivable upon the conversion of
such holder's Series B Preferred Shares, such shares of stock, securities or
assets as such holder would have received in connection with such Corporate
Change if such holder had converted its Series B Preferred Shares immediately
prior to such Corporate Change. The Company will not effect any such
consolidation, merger or sale unless prior to the consummation thereof, the
successor entity (if other than the Company) resulting from consolidation or
merger, or the entity purchasing such assets, assumes by written instrument (in
form reasonably satisfactory to the holders of a majority of the Series B
Preferred Shares then outstanding), the obligation to deliver to each such
holder such securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT
In connection with the transactions contemplated by the Series B Preferred Stock
Purchase Agreement, the Company will enter into a registration rights agreement
(the "Registration Rights Agreement"). A copy of the Registration Rights
-----------------------------
Agreement is attached as Exhibit B to the Series B Preferred Stock Purchase
Agreement, and this description is qualified in its entirety by reference to
such Exhibit.
The Registration Rights Agreement requires the Company to effect, on demand of
holders of at least a majority of the Registrable Securities (as defined below)
at any time after the one year anniversary of the date of execution of the
Registration Rights Agreement, one registration under the Securities Act. In
addition, the holders of Registrable Securities would generally have the right
to include their shares of Common Stock in any registration through which the
Company or other holders sell shares of Common Stock. The Company would pay all
expenses in connection with one demand offering and an unlimited number of
offerings by the Company in which holders of Registrable Securities sell shares.
"Registrable Securities" include shares of
----------------------
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Common Stock issued upon conversion of the Series B Preferred Shares and any
additional shares of Common Stock issued as a stock dividend or a stock split
relating to these securities.
DISADVANTAGES OF PROPOSAL
The issuance of the Series B Preferred Shares and the issuance of the Common
Stock into which such securities are convertible or exchangeable would generally
cause the existing shareholders of the Company a significant loss of voting
power and potentially a significant loss of economic interest in the Company. In
this case, although the Purchasers will increase their respective shares of
voting power and economic interest in comparison to the other shareholders, the
consummation of the transactions contemplated by the Jupiter Purchase Agreement
(as defined in Proposal for Purchase of All Common Stock and Series A Preferred
Stock Held by Jupiter Industries, Inc.) will increase all holders' respective
shares of voting power and economic interest. The Company's contractual
obligation to register the Common Stock issuable upon conversion of the Series B
Preferred Shares may depress the current market price of outstanding shares of
Common Stock. In addition, the sale of securities convertible into a significant
number of shares of Common Stock subject to registration rights may limit the
Company's ability to raise additional capital in the private or public capital
markets, and may limit interest in the Company's securities in the public
capital markets. Under the terms of the proposed Statement of Resolution, in a
liquidation the holders of Series B Preferred Shares would receive the
liquidation value for these shares, plus all accrued but unpaid dividends on
such shares, prior to any distributions to holders of shares of Common Stock of
the Company. In the event the Company is liquidated, the holders of shares of
Common Stock of the Company would be subordinated to the holders of Series B
Preferred Shares. The Board of Directors believes the benefits of raising the
additional capital on the terms described herein outweigh the disadvantages.
SHAREHOLDER DERIVATIVE LITIGATION
If the proposal to enter into the transactions contemplated by the Series B
Preferred Stock Purchase Agreement is approved, the Company would assert this
approval as a defense to any shareholder derivative suit alleging issues related
to the Series B Preferred Stock Purchase Agreement and the Series B Preferred
Shares.
RECOMMENDATION
The Board of Directors has submitted the proposal to the Company's shareholders
for their approval. The Board of Directors has approved the Proposal for
Issuance of Series B Convertible Preferred Shares (with Messrs. Hellman, Harris
and Rootberg abstaining from such vote). The Board of Directors recommends a
vote FOR approval of Item 1 on the Proxy Card.
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PROPOSAL FOR PURCHASE OF ALL
COMMON STOCK AND SERIES A PREFERRED STOCK
HELD BY JUPITER INDUSTRIES, INC.
(ITEM 2 ON THE PROXY CARD)
Upon approval of the Company's shareholders at the Annual Meeting, the Company
intends, pursuant to the terms of a certain Stock Purchase Agreement (the
"Jupiter Purchase Agreement"), by and among Jupiter Industries, Inc. ("Jupiter")
- --------------------------- -------
and the Company, to purchase from Jupiter, (i) 3,879,773 shares of the Company's
Common Stock, and (ii) 445 shares of the Company's Series A Preferred Stock (the
Common Stock and Series A Preferred Stock to be purchased are referred to herein
as the "Jupiter Securities"), for an aggregate purchase price of $5,510,864, of
------------------
which $2,499,966 will be paid in cash, $1,265,000 will be paid by offset against
liabilities of Jupiter to the Company, and $1,745,898 will be paid by delivery
of a promissory note (the "Jupiter Note"). In the event of any material change
------------
in the terms of the Jupiter Purchase Agreement, or any change in the
consideration to be paid by the Company, the Company will, unless the change is
such that it cannot be adverse to the Company or its shareholders, submit the
changed terms to the shareholders of the Company for their approval. The Board
of Directors of the Company will abandon its plan to purchase the Jupiter
Securities if the transactions contemplated by the Jupiter Purchase Agreement
are not approved by the shareholders of the Company in the manner described
herein. In addition, although the Board of Directors believes as of the date of
this Proxy Statement that consummation of the transactions contemplated by the
Jupiter Purchase Agreement is advisable, these transactions may be abandoned by
the Company at any time before, during or after the Annual Meeting and prior to
the consummation of such transactions. The Company anticipates completion of
the repurchase of the Jupiter Securities prior to consummating the Reverse Stock
Split.
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Jupiter is the Company's largest stockholder, holding 3,897,773 shares of the
Company's Common Stock (approximately 55.2% of the issued and outstanding Common
Stock) and all of the Company's issued and outstanding Series A Preferred Stock.
After giving effect to the purchase of the Jupiter Securities and the
transactions contemplated in the Series B Preferred Stock Purchase Agreement,
Messrs. Hellman, Rootberg and Harris would control approximately 45.7% of the
Company's voting securities. See Change of Control below.
The terms of the Jupiter Purchase Agreement were negotiated in good faith on an
arm's length basis. The Board of Directors has concluded that the terms of the
Jupiter Purchase Agreement are as favorable to the Company as if negotiated with
a third party with no common affiliations with the Company.
REASONS FOR THE PURCHASE; NEGOTIATION OF TERMS
The Company believes the purchase of the Jupiter Securities is advisable for
several reasons. The terms of the Series A Preferred Stock provide for
mandatory redemption of the Series A Preferred Shares on January 30, 1999, and
for partial or complete redemption upon a number of different occurrences prior
to January 30, 1999. In order to facilitate redemption, Jupiter has agreed to
waive all accrued but unpaid dividends on the Series A Preferred Stock if the
Company consummates the transactions contemplated by the Jupiter Purchase
Agreement. Assuming a closing of the purchase of the Jupiter Securities on
December 13, 1996, the amount
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of the waived dividends will be $1,164,997. Jupiter has also agreed to deliver
a release of all claims Jupiter might have against the Company or its officers
and directors as a condition to the closing of the purchase of the Jupiter
Securities. In addition, the Board of Directors believes that the purchase
price for the Jupiter Securities is favorable to the Company. The Jupiter
Purchase Agreement provides for a purchase price for the Jupiter Common Stock of
$2,327,862, or approximately $.60 per share. On November 19, 1996, the last
trade in the Company's Common Stock was completed at a price of $0.688 per
share.
In May, 1996, Jupiter proposed that the Company purchase the Jupiter Securities.
Jupiter and representatives of the Company negotiated the Jupiter Purchase
Agreement and other documentation relating to the transactions contemplated
thereby. These negotiations focused primarily on the purchase price for the
Jupiter Securities, and the terms of the promissory note that will be used to
pay a portion of such purchase price.
The Board of Directors has approved the transactions contemplated by the Jupiter
Purchase Agreement (with Messrs. Hellman and Rootberg abstaining from such
vote), and has recommended the proposal to the Company's shareholders for their
approval. The Board of Directors believes that the terms of the proposed
purchase are favorable to the Company and that the purchase is in the best
interests of the Company.
DESCRIPTION OF JUPITER PURCHASE AGREEMENT
A copy of the Jupiter Purchase Agreement, together with certain of the exhibits
thereto, is attached hereto as Exhibit B, and this description of the Jupiter
Purchase Agreement is qualified in its entirety by reference to such exhibit.
Purchase Price. On the terms and subject to the conditions of the Jupiter
Purchase Agreement, the Company will purchase from Jupiter the Jupiter
Securities for an aggregate purchase price of $5,510,864, of which $2,499,966
will be paid in cash, $1,265,000 will be paid by offset against liabilities of
Jupiter to the Company and $1,745,898 will be paid by delivery of the Jupiter
Note. The closing of the transactions contemplated by the Jupiter Purchase
Agreement is contingent on approval of such transactions by the Company's
shareholders at the Annual Meeting, and upon approval and consummation of the
transactions contemplated by the Series B Preferred Stock Purchase Agreement.
(See Proposal for Private Placement of Series B Preferred Shares.)
Rescission of Purchase and Sale. Pursuant to the terms of the Jupiter Purchase
Agreement, if (i) a voluntary or involuntary petition is filed with respect to
the Company under Title 11 of the United States Code, 11 U.S.C. (S)(S)101 et
--
seq. (the "Bankruptcy Code") at any time prior to the first anniversary of the
- ---
closing of the transactions contemplated by the Jupiter Purchase Agreement and
(ii) a proceeding is commenced to require Jupiter to return all or any portion
of the purchase price of the Jupiter Securities, or all or any portion of any
payments made to Jupiter under the Jupiter Note, to the Company as a preference
under Sections 544, 547, 548 or any other section of the Bankruptcy Code,
Jupiter may elect to rescind the purchase and sale of the Jupiter Securities by
delivering notice of such election to the Company within thirty days of the
commencement of such proceeding. Within ten business days of the giving of the
rescission notice, Jupiter shall deliver to the Company all payments received by
Jupiter as the purchase price of the Jupiter Securities or as payments on the
Jupiter Note and deliver to the
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Company the Note for cancellation and, upon receipt thereof, the Company shall
reissue the Jupiter Securities to Jupiter.
Conversion of Note. Pursuant to the terms of the Jupiter Purchase Agreement,
upon the occurrence of and during the continuation of an Event of Default (as
defined in the Jupiter Note), Jupiter shall have the right, but not the
obligation, to convert the entire outstanding principal amount of the Jupiter
Note and all accrued and unpaid interest thereon into shares of Common Stock at
a conversion price per share of Common Stock equal to the Conversion Price. The
"Conversion Price" means the Market Price per share of Common Stock on the date
on which Jupiter gives the notice of conversion, provided that the Conversion
Price cannot be less than $.10. The "Market Price" per share of the Common
Stock means the average of the closing prices of sales of Common Stock on all
securities exchanges on which the Common Stock may at the time be listed, or, if
there has been no sale on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day the Common Stock is not so listed, the average of the
closing prices quoted in The Nasdaq Market as of 4:00 p.m., New York time, or,
if on any day the Common Stock is not quoted in The Nasdaq Market, the average
of the highest bid and the lowest asked prices on such day in the domestic over-
the-counter market as reported by the National Quotation Bureau, Incorporated,
or any similar successor organization, in each such case averaged over a period
of five days consisting of the day as of which "Market Price" is being
determined and the four (4) consecutive business days prior to such day, or if
at any time the Common Stock is not listed on any securities exchange or quoted
in The Nasdaq Market or the over-the-counter market, the "Market Price" will be
the fair value thereof reasonably determined in reasonable good faith by the
Board of Directors of the Company. The number of shares of Common Stock
issuable upon conversion of the Jupiter Note shall be the quotient of the
outstanding principal amount of the Jupiter Note and all accrued and unpaid
interest thereon divided by the Conversion Price.
DESCRIPTION OF JUPITER NOTE
In connection with the transactions contemplated by the Series B Preferred Stock
Purchase Agreement, the Company will deliver to Jupiter the Jupiter Note. A
copy of the Jupiter Note is attached as Exhibit A to the Jupiter Purchase
Agreement, and the following description is qualified in its entirety by
reference to such Exhibit.
Pursuant to the Jupiter Note, the Company is to pay to Jupiter the principal
amount of $1,745,897.85, payable in three equal annual installments of
$581,965.95 due on the first, second and third anniversary dates of the
execution and delivery of the Jupiter Note. The principal amount of the Jupiter
Note will bear interest at a rate of 6% per annum, with interest on the
outstanding principal balance of the Jupiter Note paid when and as principal
payments are paid.
DISADVANTAGES OF PROPOSAL
The purchase of the Jupiter Securities will significantly reduce the Company's
cash on hand. As of July 27, 1996, the Company had cash on hand of $3,869,000.
After giving effect to the issuance of the Series B Preferred Shares and the
transactions contemplated by the Jupiter Purchase Agreement, the Company will,
on a pro forma basis as of July 27, 1996, have cash
10
<PAGE>
on hand of $2,869,000. (See Actual and Pro Forma Condensed Consolidated Balance
Sheet of the Company below.)
The reduction in cash on hand may limit the Company's ability to enter into
strategic acquisitions and may limit the funds available for working capital
needs, although the Company's management believes that it will have sufficient
cash available for these purposes after the purchase of the Jupiter Securities.
In addition, the Jupiter Note may reduce commercial lenders' interest in
providing financing to the Company, and may make it more difficult for the
Company to raise funds in the public or private equity markets. To the extent
the Company is liquidated, the holders of shares of Common Stock of the Company
would be subordinate to payment of the Jupiter Note. The Board of Directors
believes the benefits of purchasing the Jupiter Securities on the terms
described herein outweigh the disadvantages.
CHANGE OF CONTROL
Jupiter currently owns a majority (3,879,773 shares - 53.7%) of the Company's
issued and outstanding Common Stock. If the Jupiter Securities are repurchased
by the Company, and after giving effect to the transactions contemplated by the
Series B Preferred Stock Purchase Agreement, on a fully diluted basis Mr.
Hellman would beneficially own 941,666 shares (18.2%) of the Company's Common
Stock, Mr. Rootberg would beneficially own 706,381 shares (13.6%) of the
Company's Common Stock, and Mr. Harris would beneficially own 722,013 shares
(13.9%) of the Company's Common Stock. Currently Mr. Hellman beneficially owns
3.8% of the Company's Common Stock, Mr. Rootberg and Mr. Harris each
beneficially owns less than one percent of the Company's Common Stock.
11
<PAGE>
ACTUAL AND PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET OF THE COMPANY
The following reflects the actual and pro forma condensed consolidated balance
sheet of the Company and its subsidiaries as of July 27, 1996, assuming a
closing of the transactions contemplated by the Series B Preferred Stock
Purchase Agreement and the purchase of the Jupiter Securities as of such date.
CONDENSED CONSOLIDATED BALANCE SHEET
------------------------------------
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
ASSETS
- ------
(Actual) (Pro Forma)
JULY 27, 1996 JULY 27, 1996
-------------- --------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents 3,869 2,869
Receivables, net 485 485
Merchandise inventories 7,481 7,481
Other current assets 546 546
Total current assets 12,381 11,381
Land, buildings and equipment, at cost
14,116 14,116
Less accumulated depreciation
and amortization 8,844 8,844
Leasehold rights, net 35 35
Due from Jupiter 1,265 0
Other assets 1,475 1,475
20,428 18,163
====== ======
LIABILITIES, COMMON STOCK AND
OTHER SHAREHOLDERS' EQUITY
- -----------------------------
Current liabilities:
Notes payable 0 0
Current portion of long-term debt 0 582
Accounts payable 3,321 3,321
Accrued liabilities 2,879 2,879
Total current liabilities 6,200 6,782
Long-term debt, less current position 131 1,295
Other long-term liabilities 821 821
Minority interest 1,219 1,219
Redeemable preferred stock, including accrued
dividends of $980 4,163 0
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
(Actual) (Pro Forma)
July 27, 1996 July 27, 1996
------------- -------------
<S> <C> <C>
Common stock and other shareholders' equity:
Common shares; no par value;
authorized 10,000,000 shares
issued 7,061,890 shares (actual)
3,182,117 (pro forma); 11,246 11,246
preferred stock authorized 10,000,000 shares
(pro forma); issued
1,500 Convertible shares (pro forma) 0 1,500
Paid-in capital 4,775 (5,755)
Accumulated deficit (6,842) (6,842)
Treasury shares - 155,421 shares at cost (1,285) (3,613)
7,894 8,046
------ ------
20,428 18,163
====== ======
</TABLE>
SHAREHOLDER DERIVATIVE LITIGATION
If the proposal to enter into the transactions contemplated by the Jupiter
Purchase Agreement is approved by holders of a majority of the Common Stock held
by holders other than Jupiter, the Company would assert this approval as a
defense to any shareholder derivative suit alleging issues related to the
Jupiter Purchase Agreement.
RECOMMENDATION
The Board of Directors has approved the Proposal for Purchase of All Common
Stock and Series A Preferred Stock Held by Jupiter Industries, Inc. (with
Messrs. Hellman, Harris and Rootberg abstaining from such vote) and submitted
the proposal to the Company's shareholders for their approval. The Board of
Directors recommends a vote FOR approval of Item 2 on the Proxy Card.
13
<PAGE>
PROPOSAL TO INCREASE THE NUMBER OF SHARES AUTHORIZED FOR
ISSUANCE UNDER THE COMPANY'S 1988 STOCK OPTION PLAN
(ITEM 3 ON THE PROXY CARD)
PROPOSED AMENDMENT
On October 31, 1996, the Company's Board of Directors adopted, subject to
shareholder approval, an amendment to the Company's 1988 Stock Option Plan (the
"1988 Plan") increasing the number of shares of Common Stock authorized for
---------
issuance under the 1988 Plan by 300,000. The Board of Directors believes that
stock options and restricted stock awards have been, and will continue to be, an
important compensation element in attracting and retaining key employees. As of
November 15, 1996, only 182,000 shares of Common Stock remained available for
future grants of stock options under the 1988 Plan. After giving effect to the
amendment to the 1988 Plan, a total of 482,000 shares of Common Stock will be
available for future grants of stock options under the 1988 Plan. The Board of
Directors believes that the increase in authorized shares is necessary because
of the need to continue to make awards under the 1988 Plan to attract and retain
key employees.
SUMMARY OF 1988 PLAN
The purpose of the 1988 Plan is to aid the Company in maintaining and
developing management personnel capable of assuring the future success of the
Company, to offer such personnel incentives to put forth maximum efforts for the
success of the Company's business and to afford such personnel an opportunity to
acquire a proprietary interest in the Company. All key employees of the Company
and its subsidiaries and affiliates in which the Company has a significant
equity interest are eligible to receive awards under the 1988 Plan. The 1988
Plan terminates on April 5, 1998, and no awards may be made after such date.
However, unless otherwise expressly provided in the 1988 Plan or an applicable
award agreement, any award granted may extend beyond the termination date of the
1988 Plan.
The 1988 Plan permits the granting of stock options, including "incentive
stock options" ("Incentive Stock Options") meeting the requirements of Section
-----------------------
422 of the Internal Revenue Code of 1986, as amended (the "Code") and stock
----
options that do not meet such requirements ("Nonqualified Stock Options"). The
--------------------------
1988 Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee"). The Committee has the authority to establish rules
---------
for the administration of the 1988 Plan; to select the key employees to whom
awards are granted; to determine the types of awards to be granted and the
number of shares of Common Stock covered by such awards; and to set the terms
and conditions of such awards. Determinations and interpretations with respect
to the 1988 Plan are in sole discretion of the Committee, whose determinations
and interpretations are binding.
The exercise price per share under any stock options cannot be less than 100%
of the fair market value of the Company's Common Stock on the date of the grant
of such option. Options must be exercised by payment in full of the exercise
price, in cash, on the date the option is exercised. Determinations of fair
market value under the incentive Plan are made in accordance with methods and
procedures established by the Committee. For purposes of the 1988 Plan, the
fair market value of shares of Common Stock on a given date is (i) the last
sales price of the shares as reported on the NASDAQ National Market, if the
shares are then being quoted on the NASDAQ National Market, (ii) the difference
between the highest ask and lowest bid price of
14
<PAGE>
the stock if not quoted on the NASDAQ National Market, (iii) the closing price
of the shares on such date on a national securities exchange, if the shares are
then being traded on a national securities exchange, or (iv) the amount
determined in good faith by the Board if no trade occurred on such date.
No award granted under the 1988 Plan may be assigned, transferred, pledged or
otherwise encumbered by the individual to whom it is granted, otherwise than by
will, by designation of a beneficiary, or by laws of descent and distribution.
Each award is exercisable, during such individual's lifetime, only by such
individual, or, if permissible under applicable law, by such individual's
guardian or legal representative.
If any shares of Common Stock subject to any award or to which an award
relates are not purchased or are forfeited, or if any such award terminates
without the delivery of shares or other consideration, the shares previously
used for such awards become available for future awards under the 1988 Plan.
Except as otherwise provided under procedures adopted by the Committee to avoid
double counting with respect to awards granted in tandem with or in substitution
for other awards, all shares relating to awards granted are counted against the
aggregate number of shares available for granting awards under the 1988 Plan.
If any dividend or other distribution, recapitalization, stock split, reverse
stock split (including the Reverse Stock Split), reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, or exchange of
shares of Common Stock or other securities of the Company, issuance of warrants
or other rights to purchase shares of Common Stock or other securities of the
Company, or other similar corporate transaction event affects the shares of
Common Stock so that an adjustment is appropriate in order to prevent dilution
or enlargement of the benefits or potential benefits intended to be made
available under the 1988 Plan, the Committee may, in such manner as it deems
equitable, adjust (a) the number and type of shares (or other securities or
property) which thereafter may be made the subject of awards, (b) the number and
type of shares (or other securities or property) subject to outstanding awards,
and (c) the exercise price with respect to any award. The Committee may correct
any defect, supply any omission, or reconcile any inconsistency in the 1988 Plan
or any award agreement in the manner and to the extent it shall deem desirable
to carry the 1988 Plan into effect.
The Board of Directors may amend, alter or discontinue the 1988 Plan at any
time, provided that shareholder approval must be obtained for any change that
(i) absent such shareholder approval would cause Rule 16b-3 as promulgated by
the Securities and Exchange Commission under the Securities Act of 1934, as
amended, to become unavailable with respect to the 1988 Plan; (ii) requires the
approval of the Company's shareholders under any rules or regulations of the
National Association of Securities Dealers, Inc. or any securities exchange
regulating the Company; or (iii) requires the approval of the Company's
shareholders under the Code in order to permit Incentive Stock Options to be
granted under the 1988 Plan.
The following is a summary of the principal federal income tax consequences
generally applicable to awards under the 1988 Plan. The grant of an option is
not expected to result in any taxable income for the recipient. The holder of
an Incentive Stock Option generally will have no taxable income upon exercising
the Incentive Stock Option (except that a liability may arise pursuant to the
alternative minimum tax), and the Company will not be entitled to a tax
deduction when an Incentive Stock Option is exercised. Upon exercising a
Nonqualified Stock Option, the optionee must recognize ordinary income equal to
the excess of the fair market value of the shares of Common Stock acquired on
the date of exercise over the exercise price, and the
15
<PAGE>
Company will be entitled at that time to a tax deduction for the same amount.
The tax consequences to an optionee upon a disposition of shares acquired
through the exercise of an option will depend on how long the shares have been
held and whether such shares were acquired by exercising an Incentive Stock
Option or a Nonqualified Stock Option. Generally, there will be no tax
consequences to the Company in connection with disposition of shares acquired
under an option, except that the Company may be entitled to a tax deduction in
the case of a disposition of shares acquired under an Incentive Stock Option
before the applicable Incentive Stock Option holding periods set forth in the
Code have been satisfied.
BOARD RECOMMENDATION AND SHAREHOLDER VOTE REQUIRED
The Board of Directors recommends a vote FOR Item 3 on the Proxy Card. The
affirmative vote of a majority of the shares of Common Stock present and
entitled to vote is necessary to approve the proposal.
16
<PAGE>
PROPOSAL FOR REVERSE STOCK SPLIT
(ITEM 4 ON THE PROXY CARD)
The Board of Directors has voted to recommend to the shareholders that the
Company amend the Company's Articles of Incorporation to effect a one-for-three
reverse stock split (the "Reverse Stock Split") of the Company's issued and
-------------------
outstanding shares of Common Stock. The proposed Amendment to the Articles of
Incorporation is attached hereto as Exhibit C, and the following discussion is
qualified in its entirety by reference to Exhibit C.
If the Reverse Stock Split is approved by the holders of the Common Stock at
the Annual Meeting, the Reverse Stock Split will be effected unless there is a
subsequent determination by the Board of Directors that the Reverse Stock Split
is not in the best interests of the Company and its shareholders. Although the
Board of Directors believes as of the date of this Proxy Statement that the
Reverse Stock Split is advisable, the Reverse Stock Split may be abandoned by
the Board at any time before, during or after the Annual Meeting and prior to
filing the proposed amendment to the Articles of Incorporation.
PURPOSES OF THE REVERSE STOCK SPLIT
The principal purpose of the Reverse Stock Split is to increase the market
price of the Company's Common Stock by reducing the number of shares of Common
Stock outstanding. The Board of Directors believes that the Reverse Stock Split
is necessary in order to maintain the Nasdaq SmallCap Market listing for the
Company's Common Stock. The Nasdaq Stock Market, Inc. ("Nasdaq") has formally
------
advised the Company that the Company is not in compliance with the Nasdaq
SmallCap Market listing requirements because of the low trading price of the
Company's Common Stock, and has further advised the Company that the Company's
Common Stock will cease to be listed on the Nasdaq SmallCap Market if the
trading price does not increase. The Board of Directors believes that a
decrease in the number of outstanding shares of Common Stock, without any
material alteration of the proportionate economic interest in the Company held
by individual shareholders, may increase the trading price of the outstanding
shares to a price acceptable to Nasdaq and more appropriate for an exchange-
listed security, although no assurance can be given that the market price of the
Common Stock will rise in proportion to the reduction in the number of
outstanding shares resulting from the Reverse Stock Split.
Additionally, the Board of Directors believes that the current per share price
of the Common Stock may limit the effective marketability of the Common Stock
because of the reluctance of many brokerage firms and institutional investors to
recommend lower-priced stocks to their clients or to hold them in their own
portfolios. Certain policies and practices of the securities industry may tend
to discourage individual brokers within those firms from dealing in lower-priced
stocks. Some of those policies and practices involve time-consuming procedures
that make the handling of lower-priced stocks economically unattractive. The
brokerage commission on a sale of lower-priced stock may also represent a higher
percentage of the sale price than the brokerage commission on a higher-priced
issue. Any reduction in brokerage commissions resulting from the Reverse Stock
Split may be offset, however, in whole or in part, by increased
17
<PAGE>
brokerage commissions required to be paid by shareholders selling "odd lots"
created by the Reverse Stock Split.
The Board believes that the decrease in the number of shares of Common Stock
outstanding as a consequence of the proposed Reverse Stock Split and the
resulting anticipated increased price level will encourage greater interest in
the Common Stock by the financial community and the investment public and
possibly promote greater liquidity for the holders of the Common Stock. It is
possible, however, that liquidity could be affected adversely by the reduced
number of shares outstanding after the Reverse Stock Split. Although any
increase in the market price of the Common Stock resulting from the Reverse
Stock Split may be proportionately less than the decrease in the number of
shares outstanding, the proposed Reverse Stock Split could result in a market
price for the shares that would be high enough to overcome the reluctance,
policies and practices of brokerage houses and investors referred to above and
to diminish the adverse impact of correspondingly high trading commissions on
the market for the shares.
There can be no assurances, however, that the foregoing effects will occur or
that the market price of the Common Stock immediately after implementation of
the proposed Reverse Stock Split will be maintained for any period of time, or
that such market price will approximate three times the market price before the
proposed Reverse Stock Split.
EFFECT OF THE REVERSE STOCK SPLIT
If the Reverse Stock Split is approved by the holders of Common Stock at the
Annual Meeting, and unless there is a subsequent determination by the Board of
Directors that the Reverse Stock Split is not in the best interests of the
Company and its shareholders, an amendment to Article 5 of the Articles of
Incorporation, in the form set forth in Exhibit C hereto, would be filed with
the Secretary of State of the State of Illinois on any date (the "Reverse Split
-------------
Date") selected by the Board of Directors on or prior to the Company's next
- ----
annual meeting of shareholders. The Reverse Stock Split would become effective
as of 5:00 p.m. on the date of such filing. Without any further action on the
part of the Company or the holders of the Common Stock, the shares of Common
Stock held by shareholders of record as of the Reverse Split Date would be
converted at 5:00 p.m. on the Reverse Split Date into the right to receive an
amount of whole shares of new Common Stock equal to the number of their shares
divided by three. The number of authorized shares of Common Stock would not be
reduced.
No fractional shares would be issued, and no such fractional share interest
would entitle the holder thereof to vote or to any rights of a shareholder of
the Company. In lieu of any such fractional shares, a certificate or
certificates evidencing the aggregate of all fractional shares otherwise
issuable (rounded, if necessary, to the next higher whole share) will be issued
to the Company's transfer agent, First National Bank of Chicago (the "Exchange
--------
Agent"), or its nominee, as agent for the accounts of all holders of shares of
- -----
Common Stock otherwise entitled to have a fraction of a share issued to them in
connection with the Reverse Stock Split. Sales of fractional interests will be
effected by the Exchange Agent as soon as practicable on the basis of prevailing
market prices of the Common Stock on the Nasdaq SmallCap Market at the time of
sale. After the Reverse Split Date, the Exchange Agent will pay to such
shareholders their pro rata share of the net proceeds derived from the sale of
their fractional interests upon
18
<PAGE>
surrender of their stock certificates. The interest in the Company of any
holder of fewer than three shares of Common Stock prior to the Reverse Split
Date would thereby the terminated.
Approval of the Reverse Stock Split would not affect any continuing
shareholder's percentage ownership interest in the Company or proportional
voting power, except for minor differences resulting from the payment in cash of
fractional shares. The shares of Common Stock which would be issued upon
approval of the Reverse Stock Split would be fully paid and nonassessable. The
voting rights and other privileges of the continuing holders of Common Stock
would not be affected substantially by adoption of the Reverse Stock Split or
subsequent implementation thereof.
The Common Stock is listed on the Nasdaq SmallCap Market. The number of
holders of the Common Stock on the Record Date was approximately 2,465. The
Company does not currently anticipate that the Reverse Stock Split would result
in a reduction in the number of holders large enough to jeopardize continued
listing of the Common Stock on the Nasdaq SmallCap Market.
Pursuant to the terms of the Company's 1983 Stock Option Plan and the
Company's 1988 Stock Option Plan, the total number of shares reserved for grants
and all options granted under the plans would be reduced proportionately, and
the cash consideration payable per share upon exercise of the options pursuant
to these plans would be increased proportionately.
The following table illustrates the principal effects of the proposed Reverse
Stock Split, assuming approval and consummation of (i) the issuance of Series B
Preferred Stock, (ii) the repurchase of the Jupiter Securities; and (iii) the
increase in shares authorized under the 1988 Stock Option Plan:
<TABLE>
<CAPTION>
PRIOR TO REVERSE AFTER REVERSE
NUMBER OF SHARES OF COMMON STOCK: STOCK SPLIT STOCK SPLIT
- ---------------------------------------------------------- --------------- ------------
<S> <C> <C>
Authorized................................................. 10,000,000 10,000,000
Outstanding................................................ 3,182,117 1,060,705
Reserved for issuance upon conversion of Series B
Preferred Stock........................................... 2,000,000 666,666
Reserved for issuance upon exercise of options granted or
to be granted under the 1983 Stock Option Plan............ 27,000 9,000
Reserved for issuance upon exercise of options granted or
to be granted under the 1988 Stock Option Plan............ 607,000 202,333
Reserved for issuance at rescission of the Jupiter
Purchase Agreement........................................ 3,879,773 1,293,257
Available for future issuance.............................. 304,110 6,768,039
</TABLE>
EXCHANGE OF STOCK CERTIFICATES
If the Reverse Stock Split is consummated, as soon as practicable after the
Reverse Split Date the Company will send a letter of transmittal to each
shareholder of record on the Reverse Split Date for
19
<PAGE>
use in transmitting certificates representing shares of Common Stock ("Old
---
Certificates") to the Exchange Agent. The letter of transmittal will contain
- ------------
instructions for the surrender of Old Certificates to the Exchange Agent in
exchange for certificates representing the appropriate number of whole shares of
new Common Stock. No new certificates will be issued to a shareholder until
such shareholder has surrendered all Old Certificates together with a properly
completed and executed letter of transmittal to the Exchange Agent.
Upon proper completion and execution of the letter of transmittal and return
thereof to the Exchange Agent, together with all Old Certificates, each
shareholder will receive a new certificate or certificates representing the
number of whole shares of new Common Stock into which such shareholder's shares
of Common Stock represented by the Old Certificates have been converted as a
result of the Reverse Stock Split. Until surrendered, outstanding Old
Certificates held by shareholders will be deemed for all purposes to represent
the number of whole shares of Common Stock to which such shareholders are
entitled as a result of the Reverse Stock Split. Shareholders should not send
their Old Certificates to the Exchange Agent until receipt of the letter of
transmittal. Shares not presented for surrender after the letter of transmittal
is sent shall be exchanged at the first time such shares are presented for
transfer.
No service charge will be payable by holders of shares of Common Stock in
connection with the exchange of certificates, all expenses of which will be
borne by the Company.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material anticipated Federal income tax
consequences of the Reverse Stock Split to shareholders of the Company. This
summary is based on the Federal income tax laws now in effect and as currently
interpreted. It does not take into account possible changes in such laws or
interpretations, including amendments to applicable statutes, regulations and
proposed regulations or changes in judicial or administrative rulings, some of
which may have retroactive effect. This summary is provided for general
information only and does not purport to address all aspects of the possible
Federal income tax consequences of the Reverse Stock Split and is not intended
as tax advice to any person or entity. In particular, and without limiting the
foregoing, this summary does not consider the Federal income tax consequences to
shareholders of the Company in light of individual investment circumstances or
to holders subject to special treatment under the Federal income tax laws (for
example, life insurance companies, regulated investment companies and foreign
taxpayers). The summary does not discuss any consequence of the Reverse Stock
Split under any state, local or foreign tax laws.
No ruling from the Internal Revenue Service or opinion of counsel will be
obtained regarding the Federal income tax consequences to the shareholders of
the Company as a result of the Reverse Stock Split. ACCORDINGLY, EACH
SHAREHOLDER IS ENCOURAGED TO CONSULT HIS OR HER TAX ADVISER REGARDING THE
SPECIFIC TAX CONSEQUENCES OF THE PROPOSED REVERSE STOCK SPLIT TO SUCH
SHAREHOLDER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN
INCOME AND OTHER TAX LAWS.
The Company believes that the Reverse Stock Split would be a tax-free
recapitalization to the Company and its shareholders. If the Reverse Stock
Split qualifies as a recapitalization described in Section 366(a)(1)(I) of the
Code, (i) no gain or loss will be recognized by holders of Common Stock
20
<PAGE>
who exchange Common Stock for new Common Stock, except that holders of Common
Stock who receive cash proceeds from the sale of fractional shares of Common
Stock will recognize gain or loss equal to the difference, if any, between such
proceeds and the basis allocated to such fractional share interests, and such
gain or loss, if any, will constitute capital gain or loss if the fractional
share interests are held as capital assets at the time of their sale, (ii) the
tax basis of the new Common Stock received by holders of Common Stock will be
the same as the tax basis of the Common Stock exchanged therefor, less the tax
basis allocated to fractional share interests and (iii) the holding period of
the new Common Stock in the hands of holders of new Common Stock will include
the holding period of the Common Stock exchanged therefor, provided that such
Common Stock was held as a capital asset immediately prior to the exchange.
BOARD OF DIRECTORS RECOMMENDATION
The approval of the Reverse Stock Split requires the affirmative vote of a
majority of the outstanding shares of Common Stock. The Board of Directors
recommends a vote FOR approval of Item 4 on the Proxy Card.
21
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information, as of November 15, regarding
the beneficial ownership of the Company's Common Stock by (i) all persons who
owned of record or, to the knowledge of the Company, beneficially, 5% or more of
the outstanding shares of Common Stock, (ii) each director and nominee for
director, (iii) the Chief Executive Officer and the other executive officers
named in the Summary Compensation Table on page 23, and (iv) all directors and
executive officers as a group. All shares of Series A Preferred Stock are owned
by Jupiter.
<TABLE>
<CAPTION>
Number of Shares/1/ Approximate Percentage/1/
Name of Beneficial Owner Beneficially Owned of Class
- ------------------------------------------------ --------------------- --------------------------
<S> <C> <C>
Jupiter Industries, Inc. 3,879,773/2/ 53.7%
919 North Michigan Avenue
Chicago, Illinois 60611
Sheldon Collen/3/ 0 **
Sheldon Harris/3/ 199,912 /7/ 2.8
Lionel Goldblatt/3/ /4/ 182,489 /5/ 2.5
William Hellman/3/ /4/ 275,000 /6/ /7/ 3.8
Philip Rootberg/3/ /4/ 39,715 /7/ **
Wallace W. Schroeder/3/ 1,000 **
Clarence Farrar/3/ /4/ 21,000 /8/ **
------------ ----
All directors, nominees and executive officers 719,116 /9/ 9.1
------------ ----
as a group (seven persons)
</TABLE>
_________________________
/1/Number and percentage calculated without giving effect to (i) proposed
issuance of Series B Preferred Stock, (ii) the purchase of the Jupiter
Securities, and (iii) the Reverse Stock Split.
/2/Without giving effect to the transactions contemplated by the Jupiter
Purchase Agreement.
/3/Director. Mr. Harris and Mr. Goldblatt are brothers-in-law.
/4/Executive Officer.
/5/Includes 25,000 shares issuable upon exercise of currently exercisable
employee stock options.
/6/Includes 100,000 shares issuable upon exercise of currently exercisable
employee stock options.
/7/Without giving effect to the issuance of Series B Preferred Stock. With
respect to Mr. Harris, includes 55,347 shares of Common Stock held by Mr.
Harris, and 144,465 shares held in trust for the benefit of members of Mr.
Harris' family, for which Mr. Harris disclaims beneficial ownership. With
respect to Mr. Rootberg, includes 33,500 shares of Common Stock owned by Mr.
Rootberg, and 6,215 shares held by an investment club in which Mr. Rootberg
holds a one-seventh interest.
/8/Includes 13,000 shares issuable upon exercise of currently exercisable
employee stock options.
/9/Includes 138,000 shares issuable upon exercise of currently exercisable
employee stock options.
22
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation paid
or accrued with respect to fiscal 1996, 1995 and 1994 by the Company and its
subsidiaries to the Chief Executive Officer and each of the other highest
compensated executive officers whose aggregate compensation for fiscal 1995
exceeded $100,000 (the "Named Executive Officers").
------------------------
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and All Other
Principal Position Year Salary ($) Bonus ($) Compensation ($)/(1)/
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William Hellman/(2)/ 1996 $340,000 $ 0 $ 724
Chairman and Chief 1995 324,616 54,190 819
Executive Officer of 1994 290,002 0 1,441
the Company and President
of Goldblatt's
Lionel Goldblatt/(3)/ 1996 $143,269 $ 0 $1,048
Vice President of the 1995 135,000 11,600 1,298
Company and Chairman 1994 135,000 0 1,509
of the Board of Goldblatt's
Clarence Farrar/(4)/ 1996 $212,768/(5)/ $ 0 $1,048
President and Chief 1995 168,615 11,396 2,608
Operating Officer of the 1994 156,462 0 2,362
Company, and Vice President
of Goldblatt's
</TABLE>
___________________________
/(1)/ The amounts shown represent Company contributions to the account of the
named executive officer pursuant to the Company's 401(k) plan, the cost of
group term life insurance and reimbursement for medical expenses in excess
of that allowable to other employees pursuant to an executive officer
health insurance plan.
/(2)/ Mr. Hellman has entered into an Amended and Restated Employment Agreement
with the Company, effective as of June 1, 1983 and as subsequently
amended, providing for his employment as the President and Chief Executive
Officer of the Company and as Chairman of the Executive Committee to serve
through November 30, 1996. In addition, under the terms of his Employment
Agreement, Mr. Hellman receives a bonus equal to 5% of the pre-tax profit
of Goldblatt's, as adjusted for certain items, and reimbursement for
business expenses of up to $3,500 per month. Mr. Hellman deferred $137,500
of compensation in 1983 which accrued interest as of August 1, 1986 (but
not prior thereto) at the prime rate of interest. Such deferred
compensation, including accrued interest, in the amount of $237,000 was
paid to Mr. Hellman on August 1, 1992. As the interest earned on this
deferred compensation was not above market rates, it is not included in
the above table. Mr. Hellman has also entered into a Consulting Agreement
pursuant to which he has agreed to provide certain services to the Company
following the termination of his employment, and he (or his estate) will
be paid $189,000 per year for ten years. The obligations of the Company
pursuant to the Consulting Agreement are secured by an annuity which has
been purchased by the Company, pursuant
23
<PAGE>
to a Pledge and Security Agreement dated as of January 25, 1991. Mr.
Hellman and the Compensation Committee are currently negotiating an
extension of his Employment Agreement beyond November 30, 1996.
/(3)/ Mr. Goldblatt has entered into an Employment Agreement with the Company,
effective as of June 1, 1983 and as subsequently amended, providing for
his employment as a Vice President of the Company and as Chairman of
Goldblatt's through July 31, 1997, with his then effective salary and
other employee benefits to continue, as payment for certain consulting
services, for one year thereafter upon expiration of the Agreement or
termination thereof prior to expiration in certain events.
/(4)/ Mr. Farrar has entered into an Employment Agreement with the Company,
dated as of November 30, 1990 and as subsequently amended, providing for
his employment as President and Chief Operating Officer until January 31,
1997. Mr. Farrar and the Compensation Committee are currently negotiating
an extension of his Employment Agreement beyond January 31, 1997.
/(5)/ Includes $34,500 paid to Mr. Farrar by Huffman Koos in consideration for
cancellation of an option to purchase shares.
STOCK OPTION PLANS
The Company's 1983 Stock Option and Stock Appreciation Rights Plan, as amended
and restated (the "1983 Plan"), authorized the issuance to salaried officers and
---------
other key employees of incentive stock options, non-incentive stock options and
stock appreciation rights to acquire a maximum of 27,000 shares of the Company's
Common Stock (subject to adjustment as provided in the 1983 Plan). As of
November 15, 1996, 23,500 shares of the Company's Common Stock were subject to
outstanding options, and there were five participants under the 1983 Plan. The
average per share exercise price of all such options was $.50. As of November
15, 1996, 3,500 shares remained available for grants.
The Company's 1988 Stock Option Plan, as amended and restated (the "1988 Plan"),
---------
approved by the shareholders at the annual meeting on June 14, 1988, and amended
by the shareholders at the annual meeting on July 20, 1993, authorizes the
issuance of 320,000 shares of the Company's Common Stock to salaried officers
and other key employees of the Company and its subsidiaries. As of April 12,
1996, 125,000 shares of the Company's Common Stock were subject to outstanding
options, and there were four participants under the 1988 Plan. The average per
share exercise price of all such options was $.96. As of November 15, 1996,
182,000 shares under the 1988 Plan remained available for grants. If the
Proposal to Increase the Number of Shares Authorized for Issuance under the 1988
Stock Option Plan is approved, the Company would have 482,000 shares available
for grant under the 1988 Plan.
There were no individual grants made under the 1988 plan during the fiscal year
ended January 27, 1996. See Proposal to Increase the Number of Shares
Authorized for Issuance under the 1988 Stock Option Plan for a description of
the 1988 Plan.
The following table provides certain information concerning each exercise of
stock options under the Company's 1983 and 1988 Stock Option Plans during the
fiscal year ended January 27, 1996 by each
24
<PAGE>
of the Named Executive Officers and the fiscal year-end value of unexercised
options held by such persons under the Company's Stock Option Plans:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of In-the-Money
Shares Value Unexercised Options of Options at Fiscal
Acquired on Realized Fiscal Year-End (#) Year-End ($)/1/
------------------------------------------------
Name Exercise # $ Exercisable Unexercisable Exercisable Unexercisable
- ------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William Hellman
1983 Plan 0 -- 0 0 -- --
1988 Plan 0 -- 100,000 0 $25,000 --
Lionel Goldblatt
1983 Plan 0 -- 15,000 0 7,500 --
1988 Plan 0 -- 10,000 0 5,000 --
Clarence Farrar
1983 Plan 0 -- 0 0 -- --
1988 Plan 0 -- 13,000 0 4,000 --
</TABLE>
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee is charged by the Board of Directors with determining
salary and bonus arrangements for all executive officers of the Company. During
fiscal 1996, the Company's Compensation Committee was composed of Mr. Jamison
(Chairman), Mr. Dressler and Mr. Kurzman, all non-employee directors. Mr.
Jamison resigned from the Board of Directors on July 10, 1996, and Messrs.
Dressler and Kurzman resigned from the Board of Directors on October 31, 1996.
The Company's Compensation Committee met once in fiscal year 1996. The
Compensation Committee was reconstituted on October 31, 1996 to include Messrs.
Harris, Collen, and Rootberg.
_________________________
/1/ Dollar values were calculated by determining the difference between the
fair market value of the underlying securities at year-end and the exercise
price of the options.
25
<PAGE>
Compensation consists of a base salary and a bonus. The base salary level is
established using experience, longevity and degree of responsibility as a
guideline. The Compensation Committee has not retained a consultant or
commissioned any surveys.
All bonuses are earned based on a pre-determined formula related to the profit
performance of the Company or its subsidiaries. The bonus of Mr. Hellman, the
Chief Executive Officer of the Company, is equal to 5% of the pre-tax profit of
Goldblatt's. The Committee feels that this contractual arrangement fairly
provides a productivity clause to the performance of Goldblatt's which is of
utmost importance to the stability of the Company. Mr. Hellman does not and has
not drawn a salary or bonus from any other division. Mr. Hellman was the
President of Goldblatt's through most of the 1980's, and reassumed that position
in 1993. Other than Mr. Hellman, the executive officers participate in a bonus
pool which is equal to 5% of the pre-tax profits. No bonuses were paid for 1996.
Management of the Company continues the process of turnaround and rebuilding.
These efforts have resulted in the Company reporting a profit for the current
fiscal year. The changes made to achieve this improvement have required
significant efforts on the part of current management. Therefore, the
Compensation Committee believes that during this period of restructuring, it is
inappropriate to compare the Company's current year operating results and stock
price performance to changes in compensation of the CEO and other officers.
The Committee also reviews and administers policies and programs with respect to
employment and other agreements with executives. The Committee believes these
arrangements with executives serve the important purpose of assuring continuing
loyalty and concentration.
Overall, the Company has maintained employee compensation programs designed to
compensate its officers, managers and other key employees in relationship to the
profitability of the Company as well as individual job performance. In addition,
stock options for officers, managers and other key employees are awarded at the
discretion of this committee after consultation with the CEO and approval by the
Board. The stock option program is designed to give additional incentive to key
employees, which in turn enhances the value of the Company to all shareholders.
The Compensation Committee
Philip Rootberg Sheldon Harris Sheldon Collen
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Exchange
Act that might incorporate future filings, including this Proxy Statement, in
whole or in part, the Report of the Compensation Committee on Executive
Compensation and the Shareholder Return Performance Graph shall not be
incorporated by reference into any such filings.
26
<PAGE>
SHAREHOLDER RETURN
PERFORMANCE GRAPH
Comparison of Five Year Cumulative
Total Return Among the Company, the NASDAQ --
National Market System-United States Issuers,
and the NASDAQ -- Retail Stocks
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
JG Industries, Inc. $ 100 $160.00 $240.00 $225.00 $300.80 $190.00
NASDAQ Stock Market $ 100 161.95 181.69 204.91 199.17 286.80
NASDAQ Retail Stocks $ 100 180.24 161.18 170.94 154.22 173.82
</TABLE>
The total return assumes that dividends were re-invested quarterly, and is based
on a $100 investment on January 27, 1991. The measurement point for each year
beginning 1992 is the end of the Company's fiscal year, which varied from
January 25 to January 30.
[GRAPH APPEARS HERE]
27
<PAGE>
INFORMATION CONCERNING NOMINEES
FOR ELECTION AS DIRECTORS
(ITEM 5 ON THE PROXY CARD)
The following table sets forth the name and age of each member of the Board of
Directors and nominee, the position or positions held with the Company by each
director or nominee, each director's or nominee's principal occupation or
employment, other directorships held by each director or nominee, the year in
which each such person became a director, and the number of shares of Common
Stock beneficially owned, directly or indirectly, by each director or nominee or
in which such director or nominee had a beneficial interest as of November 15,
1996. Unless otherwise indicated in the table or a footnote thereto, each
director's principal occupation has been held since at least January 1, 1991.
<TABLE>
<CAPTION>
Approximate
Name, Principal Shares of Common Stock Percent of
Occupation and Director of the Beneficially Owned On Class (if more
Other Directorships/(1)/ Age Company Since November 15, 1996/(2)/ than 1%)/(2)/
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLARENCE FARRAR 64 1996 21,000 ---
President and Chief
Operating Officer of
the Company; Vice President
of Goldblatt's
SHELDON HARRIS 73 1996 55,347 ---
President of
Evanston Property
Management
SHELDON COLLEN 74 1993 None ---
Consultant and Attorney
at Law
LIONEL GOLDBLATT 67 1959 182,489 2.5
Vice President of the
Company; Chairman of
Goldblatt's since
February 1986.
WILLIAM HELLMAN 75 1983 275,000 3.8
Chairman and Chief
Executive Officer of
the Company; President
of Goldblatt's since May
1993 and from February
1986 to October 1990;
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Approximate
Name, Principal Shares of Common Stock Percent of
Occupation and Director of the Beneficially Owned On Class (if more
Other Directorships/(1)/ Age Company Since November 15, 1996 than 1%)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Chairman and Chief
Executive Officer of
Sussex; Chairman of HKI
since February 1988;
Director of HKI from
September 1986 to October 1995.
PHILIP ROOTBERG/(2)/ 79 1983 39,715 ---
Vice President of the
Company; Director of HKI
from September 1986 to October 1995.
Senior Partner
of Philip Rootberg &
Company L.L.P., a public
accounting firm.
WALLACE W. SCHROEDER 70 1992 1,000 ---
Director of HKI since June
1988; outside consultant
to HKI from September
1987 to May 1988; Vice
President-Chief Financial
Officer of HKI from July
1986 to September 1987.
</TABLE>
/(1)/ Only directorships of issuers with a class of securities registered
pursuant to Section 12 of the Securities Act of 1934, as amended, or
subject to the requirements of Section 15(d) of that Act, or directorships
of issuers registered as investment companies under the Investment Company
Act of 1940 are listed in the above table.
/(2)/ Number and percentage calculated without giving effect to (i) the proposed
issuance of Series B Preferred Stock, (ii) the purchase of the Jupiter
Securities; and (iii) the Reverse Stock Split.
/(3)/ Mr. Rootberg is the beneficial owner of 10,401 shares (approximately 3.9%)
of the outstanding shares of common stock of Jupiter.
29
<PAGE>
INFORMATION CONCERNING THE BOARD OF DIRECTORS
AND CERTAIN COMMITTEES THEREOF
The Board of Directors has designated an Audit Committee, an Executive Committee
and a Compensation Committee, but not a Nominating Committee. Currently, the
members of the Audit Committee are Messrs. Rootberg, Farrar and Schroeder; the
members of the Executive Committee are Messrs. Hellman (Chairman), Rootberg and
Goldblatt; and the members of the Compensation Committee are Messrs. Harris,
Rootberg and Collen.
The functions of the Audit Committee include reviewing the independent auditors,
recommending to the Board of Directors the engagement and discharge of
independent auditors, reviewing with the independent auditors the plan and
results of auditing engagements, approving or ratifying each professional
service provided by independent auditors and estimated by management to cost
more than 10% of the previous year's audit fee, considering the range of audit
and non-audit fees, reviewing the scope and results of the Company's procedures
for internal auditing and the adequacy of internal accounting controls and
directing and supervising special investigations. The Audit Committee met once
in fiscal 1996.
The Executive Committee is authorized to exercise the powers of the Board of
Directors in certain business transactions and affairs of the Company during the
intervals between meetings of the Board.
The Board of Directors held a total of five meetings in fiscal 1996. All
directors attended at least 80% of all Board meetings, and at least 80% of all
meetings of any committee of which such director was a member.
Each director who is not an officer of the Company or its subsidiaries has
received an annual fee of $5,000 plus $500 for each Board meeting attended, and
is also compensated for all committee meetings at a rate equal to one-half of
that set from time to time for Board meetings. Outside directors may also be
compensated for attendance at meetings with the executives of the Company and
for related services on behalf of the Company, in the discretion of the
Executive Committee. The Company's policy regarding payments to outside
directors is currently under review by the Company's Executive Committee.
30
<PAGE>
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
(ITEM 6 ON THE PROXY CARD)
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed Coopers & Lybrand L.L.P. as independent accountants for the Company to
audit its consolidated financial statements for the fiscal year ending January
25, 1997 and to perform audit-related services. Such services include review of
periodic reports and registration statements filed by the Company with the
Securities and Exchange Commission and consultation in connection with various
accounting and financial reporting matters. Coopers & Lybrand L.L.P. also
performs certain limited non-audit services for the Company.
The Board has directed that the appointment of Coopers & Lybrand L.L.P. be
submitted to the shareholders for approval. If the shareholders should not
approve such appointment, the Audit Committee and the Board would reconsider the
appointment.
The Company has been advised by Coopers & Lybrand L.L.P. that it expects to have
a representative present at the Meeting and that such representative will be
available to respond to appropriate questions. Such representative will also
have the opportunity to make a statement if he or she desires to do so.
The Board of Directors unanimously recommends a vote FOR the approval of Item 6
on the Proxy Card.
FINANCIAL STATEMENTS
The Company's Annual Report on Form 10-K for fiscal 1996, including audited
financial statements, accompanies this Proxy Statement and shareholders are
urged to read such report in its entirety.
1997 ANNUAL MEETING OF SHAREHOLDERS
The 1997 Annual Meeting of Shareholders is presently scheduled to be held on
June 3, 1997. Any proposals of shareholders intended to be personally presented
at such meeting must be received by the Secretary of the Company no later than
February 3, 1997 for inclusion in the Company's Proxy Statement for such
meeting.
EXPENSES OF SOLICITATION
The cost of preparing and mailing the notice of meeting, proxy statement and
forms of proxy will be paid by the Company. In addition to the cost of mailing
copies of this material to shareholders, the Company will request banks and
brokers to forward copies of such materials to persons for whom they hold stock
of the Company and to request authority for execution of
31
<PAGE>
the proxies. The Company will reimburse such banks and brokers for their
reasonable out-of-pocket expenses incurred in connection therewith, which
expenses are estimated not to exceed $5,000.
OTHER MATTERS
If any other matters are properly presented at the meeting for action, it is
intended that the shares represented by proxies will be voted on such matters in
the discretion of the persons named therein.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Under Section 16(a) of the Securities Exchange Act of 1934, as amended, and the
regulations promulgated thereunder by the Securities and Exchange Commission
(the "SEC"), directors, officers and beneficial owners of more than 10% of the
---
Company's equity securities (each a "Reporting Person") must file certain
----------------
reports, known as Forms 3, 4 and 5, with the SEC upon the occurrence of certain
events, primarily the acquisition or disposition of shares of Common Stock (or
options to acquire Common Stock) by such persons.
Based solely on a review of the Forms 3, 4 and 5 filed with the Company and on
certain representations made to the Company, the Company does not know of any
failures to file a required form or of any late filings under Section 16(a) of
the Securities Exchange Act.
32
<PAGE>
EXHIBIT A
TO PROXY STATEMENT
JG INDUSTRIES, INC.
SERIES B CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
THIS SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this
"Agreement") is made as of November _____, 1996, among JG Industries, Inc., an
Illinois corporation (the "Company"), and the persons listed on Schedule 1
----------
attached hereto (each, an "Investor" and collectively, the "Investors").
RECITAL
The Investors desire to purchase from the Company, and the Company desires
to issue and sell to the Investors, in the aggregate, 1,500 shares of Series B
Convertible Preferred Stock of the Company, no par value per share (the "Series
B Preferred Stock"), at a purchase price of $1,000 per share, for an aggregate
purchase price of $1,500,000, all upon the terms and satisfaction of the
conditions set forth herein.
AGREEMENTS
In consideration of the recital and the mutual promises, covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. PURCHASE AND SALE OF SECURITIES
1.1 Authorization and Issuance of Securities.
----------------------------------------
(a) Prior to the Closing, the Company shall have (i) adopted
resolutions and filed with the Secretary of State of the State of Illinois the
Statement of Resolution Establishing Series relating to the Series B Convertible
Preferred Stock (the "Statement of Resolution") in the form attached hereto as
Exhibit A, (ii) duly authorized the issuance of the Series B Preferred Stock to
- ---------
the Investors and (iii) duly authorized and reserved such number of shares of
Common Stock of the Corporation, no par value per share (the "Common Stock") as
may be required for issuance upon conversion of the Series B Preferred Stock
outstanding from time to time.
(b) Subject to the terms and conditions of this Agreement, the Company
agrees to issue and sell to the Investors, and the Investors agree to purchase
EXHIBIT A TO PROXY STATEMENT
<PAGE>
from the Company, individually and not jointly, in the aggregate, 1,500 shares
of Series B Preferred Stock for a purchase price of $1,000 per share. Each
Investor agrees to purchase shares of Series B Preferred Stock in the amounts
set forth opposite such Investor's name on Schedule 1 hereto.
----------
1.2 Closing. The purchase, sale and delivery of the Series B
-------
Preferred Stock shall take place at the office of Hopkins & Sutter, Three First
National Plaza, Suite 4100, Chicago, Illinois 60602, on the first business day
after the 1996 Annual Meeting of Shareholders of the Company, scheduled to be
held on or about December 12, 1996, at 10:00 a.m. Chicago time, or at such other
time, date or place as the Company and the Investors may mutually agree upon in
writing (which time, date and place are designated as the "Closing"). At the
Closing, the Company shall deliver to each Investor a certificate representing
the number of shares of Series B Preferred Stock to be purchased by such
Investor hereunder. The Series B Preferred Stock shall be delivered against
payment of the purchase price therefor by wire transfer payable to the Company
to one or more accounts designated by the Company prior to the Closing.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each Investor that,
except as set forth on the Disclosure Schedule delivered to the Investors
simultaneously with the execution of this Agreement (the "Disclosure Schedule"):
2.1 Organization; Good Standing; Qualification. The Company is a
------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the State of Illinois, has all requisite corporate power and authority
to own and operate its properties and assets and to carry on its business as now
conducted and, assuming stockholder approval and the filing of the Statement of
Resolution, to execute and deliver this Agreement and the Registration Rights
Agreement, to issue and sell the Series B Preferred Stock and the Common Stock
issuable upon conversion thereof, and to carry out the provisions of this
Agreement, the Registration Rights Agreement and the Statement of Resolution.
The Company is duly qualified to transact business and is in good standing in
each jurisdiction in which the failure to so qualify would have a material
adverse effect on the condition (financial or other), results of operations or
assets or properties of the Company and the Subsidiaries taken as a whole (a
"Material Adverse Effect").
2.2 Authorization. All corporate action on the part of the Company
-------------
(other than stockholder approval and the filing of the Statement of Resolution)
necessary for the authorization, execution and delivery of this Agreement and
the Registration Rights Agreement, the performance of all obligations of the
Company hereunder and thereunder and the authorization, issuance (or reservation
for issuance), sale and delivery of the Series B Preferred Stock and the Common
Stock issuable upon conversion thereof has been taken, and this Agreement and
the Registration Rights
EXHIBIT A TO PROXY STATEMENT
-2-
<PAGE>
Agreement have been, or at the Closing will have been, duly executed and
delivered by the Company and constitute, or at the Closing will constitute,
valid and legally binding obligations of the Company, enforceable in accordance
with their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency or other laws affecting creditors' rights
generally or by the availability of equitable remedies. Prior to the Closing,
the Statement of Resolution will have been filed with the Secretary of State of
the State of Illinois in accordance with the Illinois Business Corporation Act.
2.3 Valid Issuance of Preferred and Common Stock. The Series B
--------------------------------------------
Preferred Stock that is being acquired by the Investors hereunder, when issued
and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free and clear of all liens, pledges, security
interests, options, rights of first refusal, encumbrances, claims, preemptive
rights and other third party rights (the "Liens"), other than restrictions on
transfer under this Agreement, the Registration Rights Agreement and applicable
state and federal securities law. The Common Stock issuable upon conversion of
the Series B Preferred Stock will be duly and validly reserved for issuance and,
when issued in compliance with the provisions of the Statement of Resolution,
will be duly and validly issued, fully paid and nonassessable and will be free
and clear of all Liens other than restrictions on transfer under this Agreement,
the Registration Rights Agreement and applicable state and federal securities
laws.
2.4 Governmental Consents. No consents, approval, qualification,
---------------------
order or authorization of, or declaration or filing with, any local, state, or
federal governmental authority (the "Consents") is required on the part of the
Company in connection with the Company's valid execution, delivery or
performance of this Agreement, the Registration Rights Agreement (other than
Consents required in connection with the Company's performance of its
obligations under the Registration Rights Agreement), and the sale, issuance and
delivery of the Series B Preferred Stock by the Company pursuant to the terms
hereof or the Common Stock issuable upon conversion thereof, except for (i) the
filing of the Statement of Resolution with the Secretary of State of the State
of Illinois, (ii) such Consents as will have been made or obtained prior to the
Closing, except any notices required to be filed with the Securities and
Exchange Commission (the "Commission") under Regulation D of the Securities Act
of 1933, as amended (the "Securities Act"), or such postclosing filings as may
be required under applicable state securities laws and (iii) other Consents, the
failure of which to obtain or make would not result in a Material Adverse
Effect.
2.5. Capitalization and Voting Rights. Immediately after the
--------------------------------
consummation of (a) the transactions contemplated by this Agreement and (b) the
repurchase by the Company of all of the capital stock of the Company held by
Jupiter Industries, Inc. (the "Jupiter Repurchase"), the authorized capital
stock of the Company will consist of:
EXHIBIT A TO PROXY STATEMENT
-3-
<PAGE>
(i) Preferred Stock. 500,000 shares of Preferred Stock, of which (i)
---------------
2,000 shares are designated Series A 9% Cumulative Preferred Stock, no par value
per share (the "Series A Preferred Stock") and (ii) 1,500 shares shall be
designated Series B Preferred Stock, no par value per share. No shares of
Series A Preferred Stock will be issued and outstanding and 1,500 shares of
Series B Preferred Stock will be issued and outstanding.
(ii) Common Stock. 14,000,000 shares of Common Stock, of which
-------------
7,217,311 shares are issued and outstanding.
Except for currently outstanding options to purchase 148,500 shares of Common
Stock pursuant to the Company Option Plans (as defined below), there are no
outstanding options, warrants, rights (including conversion or preemptive rights
and rights of first refusal), or agreements for the purchase or acquisition from
the Company of any shares of its capital stock. In addition to the
aforementioned options, the Company has reserved an additional 37,000 shares of
its Common Stock for purchase upon exercise of options to be granted in the
future under the Company Option Plans. "Company Option Plans" shall mean (i)
the JG Industries 1983 Stock Option Plan, (ii) the JG Industries 1988 Stock
Option Plan and (iii) such other plans and agreements pursuant to which the
Company has heretofore granted options or other rights to purchase capital stock
of the Company. The Company is not a party to any agreement which restricts its
ability to pay dividends, contingently or otherwise. The number of shares of
Common Stock set forth in this Section 2.5 does not reflect the 1-for-3 reverse
split of the Common Stock to be effected by the Company on or about December 13,
1996.
2.6 Compliance With Other Instruments. Neither the execution,
---------------------------------
delivery or performance of this Agreement and the Registration Rights Agreement,
nor the execution and filing of the Statement of Resolution, nor the issuance of
the Series B Preferred Stock hereunder, nor the issuance of the Common Stock
upon conversion thereof, nor fulfillment of nor compliance with the terms and
provisions hereof or thereof, will conflict with or result in a breach of the
terms, conditions or provisions of, or give rise to a right of termination
under, or constitute a default under, or result in any violation of, the Charter
or By-laws of the Company or any of the Subsidiaries, or any mortgage,
agreement, instrument, order, judgment, decree, statute, rule or regulation to
which the Company or any of the Subsidiaries or any of their respective property
is subject, other than conflicts, breaches, defaults, terminations or violations
which, individually or in the aggregate, do not result in a Material Adverse
Effect or materially adversely affect the ability of the Company to perform its
obligations under this Agreement, the Registration Rights Agreement or the
Statement of Resolution. "Charter" shall mean the articles of incorporation or
similar incorporation document of the Company or any of its Subsidiaries, as the
case may be.
2.7 Offering of the Shares. Based in part on the accuracy of the
----------------------
representations and warranties of the Investors contained herein, neither the
Company nor any Person acting on its behalf has taken or will take any action
which might
EXHIBIT A TO PROXY STATEMENT
-4-
<PAGE>
subject the offering, issuance or exchange of the Series B Preferred Stock to
the registration requirements of Section 5 of the Securities Act. The Company
will offer and exchange the Series B Preferred Stock in compliance with all
applicable state securities laws and will make all necessary filings and
qualifications required by such laws. "Person" shall mean an individual or a
corporation, partnership, limited liability company, trust, incorporated or
unincorporated association, joint venture, joint stock company or any other
entity or organization, including a governmental or political subdivision or any
agency or instrumentality thereof.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each Investor hereby severally represents and warrants to the Company
that:
3.1 Authorization. This Agreement has been duly executed and
-------------
delivered by such Investor. This Agreement constitutes a valid and legally
binding obligation of such Investor, enforceable in accordance with its terms.
3.2 Governmental Consents. No Consent is required on the part of
---------------------
such Investor in connection with the execution and delivery of this Agreement or
the performance by such Investor of the transactions contemplated hereby.
3.3 Acquire Entirely for Own Account. This Agreement is made with
--------------------------------
such Investor in reliance upon such Investor's representation to the Company,
which by its execution of this Agreement it hereby confirms, that the Series B
Preferred Stock to be acquired by such Investor and the Common Stock issuable
upon conversion thereof will be acquired for investment for such Investor's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that such Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, such Investor further represents that it
does not have any contract, undertaking, agreement or arrangement with any
Person to sell, transfer or grant participation to such Person or to any third
person, with respect to the Series B Preferred Stock or the Common Stock
issuable upon conversion thereof, except for a transfer by such Investor to
voting trustees under a shareholders agreement dated the date hereof.
3.4 Reliance Upon Investor's Representations. Such Investor
----------------------------------------
understands that the Series B Preferred Stock is not, and any Common Stock
acquired upon conversion thereof at the time of issuance may not be, registered
under the Securities Act on the ground that the acquisition provided for in this
Agreement and the issuance of securities hereunder is exempt from registration
under the Securities Act pursuant to Section 4(2) thereof, and that the
Company's reliance on such exemption is predicated on the Investor's
representations set forth herein.
EXHIBIT A TO PROXY STATEMENT
-5-
<PAGE>
3.5 Sophisticated Investor. Such Investor is an "accredited
----------------------
investor" as defined in Rule 501(a) under the Securities Act. Such Investor is
a sophisticated purchaser with respect to the Series B Preferred Stock, has been
given the opportunity to access the records of the Company and its Subsidiaries
and has made its own independent analysis and investigation into the business,
operations, financial condition and general creditworthiness of the Company and
the Subsidiaries and has made its own independent decision to acquire the Series
B Preferred Stock pursuant to the terms and conditions set forth in this
Agreement.
3.6 Restricted Securities. Such Investor understands that the Series
---------------------
B Preferred Stock may not be sold, transferred, or otherwise disposed of without
registration under the Securities Act or an exemption therefrom, and that in the
absence of an effective registration statement covering the Series B Preferred
Stock or an available exemption from registration under the Securities Act, the
Series B Preferred Stock must be held indefinitely to redemption in accordance
with its terms. In particular, such Investor is aware that the Series B
Preferred Stock may not be sold pursuant to Rule 144 promulgated under the
Securities Act unless all of the conditions of such Rule are met.
3.7 Legend. Each certificate or other document evidencing any of the
------
securities of the Company being acquired hereunder shall be endorsed with the
legend set forth below, and such Investor covenants that, except to the extent
such restrictions are waived by the Company, such Investor shall not transfer
the shares represented by any such certificate without complying with the
restrictions on transfer described in the legend endorsed on such certificate:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND
MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED IN
THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH
SHARES UNDER SUCH ACT OR LAWS OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
4. CONDITIONS OF INVESTORS' OBLIGATIONS AT CLOSING
The obligations of each Investor under Section 1.1(b) of this
Agreement are subject to the fulfillment on or before the Closing of each of the
following conditions, the waiver of which shall only be effective against such
Investor if it consents in writing thereto:
EXHIBIT A TO PROXY STATEMENT
-6-
<PAGE>
4.1 Stockholder Approval. The issuance and sale of the Series B
--------------------
Preferred Stock shall have been duly authorized and approved by the shareholders
of the Company.
4.2 Qualifications. All authorizations, approvals, or permits, if
--------------
any, of any governmental authority or regulatory body that are required to be
obtained prior to the Closing in connection with the lawful issuance and sale of
the Series B Preferred Stock pursuant to this Agreement shall be duly obtained
and effective as of the Closing.
4.3 Registration Rights Agreement. The Company shall have executed
-----------------------------
and delivered to the Investors that certain Registration Rights Agreement dated
as of the date hereof (the "Registration Rights Agreement") attached hereto as
Exhibit B, setting forth certain rights, privileges and obligations of the
- ---------
Company and the Investors with respect to the Series B Preferred Stock.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING
The obligations of the Company to the Investors under this Agreement
are subject to the fulfillment on or before the Closing of each of the following
conditions:
5.1 Stockholder Approval. The issuance and sale of the Series B
--------------------
Preferred Stock shall have been duly authorized and approved by the shareholders
of the Company.
5.2 Statement of Resolution. The Statement of Resolution shall have
-----------------------
been accepted for filing by the Secretary of State of Illinois.
5.3 Qualifications. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body that are required to be
obtained prior to the Closing in connection with the lawful issuance and sale of
the Series B Preferred Stock pursuant to this Agreement shall be duly obtained
and effective as of the Closing.
6. MISCELLANEOUS
6.1 Entire Agreement. This Agreement and the documents referred to
----------------
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein or therein.
Matters disclosed in any paragraph of the Disclosure Schedule shall be deemed to
be disclosed with respect to all paragraphs of the Disclosure Schedule. The
Company's Form 10-K filed May 8, 1996 (and delivered to the Investors prior to
the date hereof), as amended, the exhibits thereto, including all information
and exhibits incorporated therein shall be deemed incorporated in the Disclosure
Schedule.
EXHIBIT A TO PROXY STATEMENT
-7-
<PAGE>
6.2 Expiration of Warranties. The warranties and representations of
------------------------
the Company and the Investors contained in or made pursuant to this Agreement
shall in no way be affected by an investigation of the subject matter thereof
made by or on behalf of the Company or the Investor and shall survive the
Closing until the first anniversary of the Closing.
6.3 Successors and Assigns. 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. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
6.4 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
AND ENFORCED UNDER THE LAWS OF THE STATE OF ILLINOIS WITHOUT REFERENCE TO THE
PRINCIPLES OF THE CONFLICTS OF LAWS THEREOF.
6.5 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.6 Titles and Subtitles. The title and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.7 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified by hand or
professional courier service, upon confirmation of telex or telecopy, five (5)
days after deposit with the United States Post Office, by registered or
certified mail, postage prepaid or upon the next day following deposit with a
nationally recognized overnight air courier, addressed as follows:
(a) if to an Investor, to its address set forth on Schedule 1 hereto.
----------
(b) If to the Company, to:
JG Industries, Inc.
5630 West Belmont Avenue
Chicago, Illinois 60634
Attention: Clarence Farrar
Facsimile: 773-481-5417
EXHIBIT A TO PROXY STATEMENT
-8-
<PAGE>
With a copy to:
Stanford J. Goldblatt, Esq.
Hopkins & Sutter
Three First National Plaza
Suite 4100
Chicago, IL 60602
Facsimile: 312-558-6538
Any party may by notice given in accordance with this Section 6.7 to the other
party to this Agreement designate another address or person for receipt of
notice hereunder.
6.8 Finder's Fees. Each party represents that it neither is nor will
-------------
be obligated for any finder's fee or commission in connection with this
transaction.
6.9 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investors
holding, or prior to the Closing obligated to purchase, a majority of the Series
B Preferred Stock.
6.10 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
6.11 Lost, Stolen, Destroyed or Mutilated Stock Certificates. Upon
-------------------------------------------------------
receipt of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of any certificate representing the Series B Preferred Stock, in
the case of loss, theft or destruction, upon delivery of an indemnity reasonably
satisfactory to the Company, or, in the case of mutilation, upon surrender and
cancellation thereof, the Company will issue a new certificate of like tenor for
a number of shares of the Series B Preferred Stock equal to the number of shares
of such stock represented by the certificate lost, stolen, destroyed or
mutilated.
6.12 Shareholders Agreement. Upon the request of the Investors and
----------------------
receipt by the Company of a copy of a shareholders agreement among the
Investors, the Company shall maintain a copy of such shareholders agreement at
its principal executive offices and make it available for inspection at
reasonable times and on reasonable notice upon the request of any Investor.
6.13 Termination. This Agreement and all rights and obligations of
-----------
the parties hereto may be terminated at any time on or after January 31, 1997
(so long as the Closing has not occurred) by the written consent of the Company
or the Investors
EXHIBIT A TO PROXY STATEMENT
-9-
<PAGE>
obligated to purchase, in the aggregate, a majority of the Series B Preferred
Stock pursuant hereto.
[Remainder of page intentionally left blank.
Signature page follows.]
EXHIBIT A TO PROXY STATEMENT
-10-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
JG INDUSTRIES, INC.
By:______________________________________
Name:____________________________________
Title:___________________________________
_________________________________________
William Hellman
_________________________________________
Philip Rootberg
_________________________________________
Sheldon Harris
[Signature Page to Preferred Stock Purchase Agreement]
<PAGE>
SCHEDULE 1
----------
================================================================================
<TABLE>
<CAPTION>
SHARES OF SERIES B AGGREGATE
------------------ ----------
INVESTOR PREFERRED STOCK PURCHASE
- -------- ------------------ ----------
PRICE
-----
- --------------------------------------------------------------------------------
<S> <C> <C>
William Hellman 500 $500,000
JG Industries, Inc.
5630 West Belmont Avenue
Chicago, Illinois 60634
- --------------------------------------------------------------------------------
Philip Rootberg 500 $500,000
Philip Rootberg & Company, LLP
250 South Wacker Drive
Suite 800
Chicago, Illinois 60606-5891
- --------------------------------------------------------------------------------
Sheldon Harris 500 $500,000
JG Industries, Inc.
5630 West Belmont Avenue
Chicago, Illinois 60634
- --------------------------------------------------------------------------------
TOTAL 1,500 $1,500,000
================================================================================
</TABLE>
EXHIBIT A TO PROXY STATEMENT
<PAGE>
EXHIBIT A TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
JG INDUSTRIES, INC.
STATEMENT OF RESOLUTION ESTABLISHING SERIES
RELATING TO THE SERIES B CONVERTIBLE PREFERRED STOCK,
WITH NO PAR VALUE PER SHARE, OF JG INDUSTRIES, INC.
Pursuant to Section 6.10 of the
Illinois Business Corporation Act of 1983
RESOLVED, that there is hereby created a series of the Preferred Stock
of the Corporation designated Series B Convertible Preferred Stock, no par value
per share (the "Series B Preferred Stock"), consisting of 1,500 shares and
having the voting powers, preferences and relative, participating, optional,
conversion and other special rights, and the qualifications, limitations or
restrictions, hereinafter set forth:
Section 1. Dividends.
---------
1A. General Obligation. When and as declared by the Corporation's
------------------
Board of Directors and to the extent permitted under the Illinois Business
Corporation Act of 1983 (the "Act"), the Corporation will pay preferential
cumulative dividends to the holders of Series B Preferred Stock as provided in
this Section 1. Except as otherwise provided herein, dividends on each share of
---------
Series B Preferred Stock will accrue on a daily basis at the rate of 9% per
annum of the Liquidation Value thereof from and including the date of issuance
of such share of Series B Preferred Stock to and including the earlier of (i)
the date on which the Liquidation Value of such share of Series B Preferred
Stock plus any accrued and unpaid dividends thereon is paid upon any
liquidation, dissolution or winding up of the Corporation or (ii) the date on
which such share of Series B Preferred Stock is converted into Common Stock.
Such dividends will accrue whether or not they have been declared and whether or
not there are profits, surplus or other funds of the Corporation legally
available for the payment of dividends. The date on which the Corporation
initially issues any share of Series B Preferred Stock will be deemed to be its
"date of issuance" regardless of the number of times transfer of such share of
----------------
Series B Preferred Stock is made on the stock records
EXHIBIT A TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
maintained by or for the Corporation and regardless of the number of
certificates which may be issued to evidence such share of Series B Preferred
Stock.
1B. Distribution of Partial Dividend Payments. If at any time the
-----------------------------------------
Corporation pays less than the total amount of dividends then accrued with
respect to Series B Preferred Stock, such payment will be distributed ratably
among the holders of Series B Preferred Stock on the basis of the amount of
accrued and unpaid dividends with respect to the shares of Series B Preferred
Stock owned by each such holder.
1C. Preference. The holders of Series B Preferred Stock shall be
----------
entitled to dividends and distributions in preference and priority to holders of
Junior Securities. The Corporation shall not, without the prior written consent
of the holders of a majority of the shares of Series B Preferred Stock then
outstanding, pay any dividend or distribution (other than dividends payable
solely in Junior Securities) on any Junior Securities at any time when accrued
dividends on Series B Preferred Stock have not been paid in full.
Section 2. Liquidation.
-----------
Upon any liquidation, dissolution or winding up of the Corporation (a
"Liquidation"), each holder of Series B Preferred Stock will be entitled to be
-----------
paid, before any distribution or payment is made upon any Junior Securities (as
defined herein), an amount in cash equal to the aggregate Liquidation Value of
all of such holder's shares of Series B Preferred Stock plus all accrued but
----
unpaid dividends thereon. If upon a Liquidation, the Corporation's assets
available for distribution to its stockholders after payments of the entire
preferential amount payable with respect to any Senior Securities (as defined
herein) are insufficient to permit payment to the holders of Series B Preferred
Stock of the aggregate Liquidation Value of Series B Preferred Stock plus all
----
accrued but unpaid dividends thereon and to the holders of Pari Passu Securities
(as defined herein) the entire preferential amount payable with respect to any
Pari Passu Securities, then the entire assets available for distribution will be
distributed, pro rata based upon the aggregate liquidation value of the
--- ----
securities held by each holder thereof, among the holders of (i) Series B
Preferred Stock (pro rata based upon the aggregate Liquidation Value of Series B
--- ----
Preferred Stock held by each such holder plus all accrued but unpaid dividends
----
thereon) and (ii) Pari Passu Securities. After payment in full shall have been
made to the holders of Series B Preferred Stock of the aggregate Liquidation
Value of Series B Preferred Stock plus all accrued but unpaid dividends thereon,
----
the holders of the Series B Preferred Stock shall not share in any remaining
assets of the Corporation available for distribution. Neither the consolidation
or merger of the Corporation into or with any other corporation or corporations,
nor the sale or transfer by the Corporation of all or any part of its assets,
nor the reduction of the capital stock of the Corporation, will be deemed to be
a Liquidation within the meaning of this Section 2.
---------
EXHIBIT A TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
-2-
<PAGE>
Section 3. Voting Rights.
--------------
Except as otherwise required by law, the Restated Articles of
Incorporation of the Corporation, as amended, or any statement of resolution
establishing a series, the holders of Series B Preferred Stock will be entitled
to vote with the holders of Common Stock on each matter submitted to a vote of
the Corporation's stockholders as a single class, with each share of Series B
Preferred Stock having a number of votes equal to the quotient of (i) 1,000
divided by (ii) the Conversion Price (as defined in Section 4B below) in effect
----------
as of the record date for the determination of stockholders entitled to vote on
such matter and shall be entitled to notice of any stockholders' meeting in
accordance with the By-laws of the Corporation. Fractional votes shall not be
permitted.
Section 4. Conversion.
----------
4A. Conversion Procedure.
--------------------
(i) At any time and from time to time, any holder of shares of
Series B Preferred Stock may convert all or any portion of such shares
(including any fraction of a share) into the number of shares of Common Stock
computed by dividing (a) the number of shares of Series B Preferred Stock to be
converted times $1,000 per share, by (b) the Conversion Price (as defined in
Section 4B below).
- ----------
(ii) Each conversion of Series B Preferred Stock will be deemed
to have been effected as of the close of business on the date on which the
certificate or certificates representing Series B Preferred Stock to be
converted have been surrendered at the principal office of the Corporation. At
such time as such conversion has been effected, the rights of the holder of such
Series B Preferred Stock as such holder will cease and the Person or Persons in
whose name or names any certificate or certificates for shares of Common Stock
are to be issued upon such conversion will be deemed to have become the holder
or holders of record of the shares of Common Stock represented thereby.
(iii) As soon as possible after a conversion has been effected
and in no event later than ten (10) business days after delivery of the
certificate representing the shares converted, the Corporation will deliver to
the converting holder:
(a) a certificate or certificates representing the number
of shares of Common Stock issuable by reason of such conversion in such
name or names and such denomination or denominations as the converting
holder has specified;
(b) the amount payable under Section 4A(vi) below with
--------------
respect to such conversion;
EXHIBIT A TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
-3-
<PAGE>
(c) a certificate representing any shares of Series B
Preferred Stock which were represented by the certificate or certificates
delivered to the Corporation in connection with such conversion but which
were not converted; and
(d) in the event such conversion is occurring pursuant to
clause (a) of Section 4D(i) below, a payment in an amount equal to the accrued
-------------
but unpaid dividends on the shares of Series B Preferred Stock held by such
holder through the date of such conversion (the "Accrued Dividends"); provided,
-----------------
however, that if funds are not legally available for the payment of any portion
of Accrued Dividends, the portion of the Accrued Dividends not paid on or prior
to the tenth business day after conversion of such shares of Series B Preferred
Stock shall be converted into the number of shares of Common Stock equal to the
quotient of (A) such unpaid portion of the Accrued Dividends divided by (B) the
Conversion Price.
(iv) The issuance of certificates for shares of Common Stock
upon conversion of Series B Preferred Stock will be made without charge to the
holders of such Series B Preferred Stock for any issuance tax in respect thereof
or other cost incurred by the Corporation in connection with such conversion and
the related issuance of shares of Common Stock. Upon conversion of any share of
Series B Preferred Stock, the Corporation will take all such actions as are
necessary in order to insure that the Common Stock issued as a result of such
conversion is validly issued, fully paid and nonassessable.
(v) The Corporation will not close its books against the
transfer of Series B Preferred Stock or of Common Stock issued or issuable upon
conversion of Series B Preferred Stock in any manner which interferes with the
timely conversion of Series B Preferred Stock.
(vi) If any fractional interest in a share of Common Stock
would, except for the provisions of this Section 4A(vi), be deliverable upon any
--------------
conversion of Series B Preferred Stock, the Corporation, in lieu of delivering
the fractional share therefor, shall pay an amount to the holder thereof equal
to the market price of such fractional interest as of the date of conversion, as
determined in good faith by the Board of Directors of the Corporation.
4B. Conversion Price. The initial "Conversion Price" will be $2.25
---------------- ----------------
per share, which reflects the 1-for-3 reverse stock split of the Common Stock to
be effected by the Corporation on or about December 13, 1996 (the "1996 Reverse
Split"). If the Corporation at any time subdivides (by any stock split, stock
dividend, recapitalization or otherwise) its outstanding shares of Common Stock
into a greater number of shares, the Conversion Price in effect immediately
prior to such subdivision will be proportionately reduced, and if the
Corporation at any time combines (by combination, reverse stock split or
otherwise (other than the 1996 Reverse Split)) its outstanding
EXHIBIT A TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
-4-
<PAGE>
shares of Common Stock into a smaller number of shares, the Conversion Price in
effect immediately prior to such combination will be proportionately increased.
4C. Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
Any capital reorganization, reclassification, consolidation, merger, exchange of
shares or sale or transfer of more than 80% of the Corporation's assets to
another Person (in one transaction or a series of related transactions) which is
effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for Common Stock is referred to herein as a
"Corporate Change." Prior to the consummation of any Corporate Change, the
Corporation will make appropriate provisions to insure that each of the holders
of Series B Preferred Stock will thereafter have the right to acquire and
receive, in lieu of or (if additional consideration is received) in addition to
the shares of Common Stock immediately theretofore acquirable and receivable
upon the conversion of such holder's Series B Preferred Stock, such shares of
stock, securities or assets as such holder would have received in connection
with such Corporate Change if such holder had converted its Series B Preferred
Stock immediately prior to such Corporate Change. The Corporation will not
effect any such consolidation, merger or sale, unless prior to the consummation
thereof, the successor corporation (if other than the Corporation) resulting
from such consolidation or merger or the corporation purchasing such assets
assumes by written instrument the obligation to deliver to each such holder such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
4D. Automatic Conversion.
--------------------
(i) Upon the earlier of (a) [the fifth anniversary of the date
of issuance] _______________________, 2001 and (b) the consummation of a
Qualified Public Offering, each outstanding share of Series B Preferred Stock
shall convert automatically into the number of shares of Common Stock determined
by dividing (x) the sum of $1000, by (y) the Conversion Price then in effect,
without further action by the Corporation or the holders of such shares.
(ii) If there are less than 450 shares of Series B Preferred
Stock outstanding, each of the remaining shares of Series B Preferred Stock then
outstanding shall convert automatically into the number of shares of Common
Stock determined by dividing (x) the sum of $1000, by (y) the Conversion Price
then in effect, without further action by the Corporation or the holders of such
shares.
(iii) Upon any such conversion pursuant to this Section 4D, the
----------
rights of each holder of such Series B Preferred Stock as such holder shall
cease and the Person or Persons in whose name or names any certificate or
certificates for shares of Series B Preferred Stock shall be deemed to have
become the holder or holders of record of the shares of Common Stock represented
thereby. Promptly following delivery of
EXHIBIT A TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
-5-
<PAGE>
written notice from the Corporation to each holder of Series B Preferred Stock
that such a conversion has occurred, each such holder shall deliver certificates
representing the shares of Series B Preferred Stock held by such holder to the
Corporation for cancellation.
Section 5. Registration of Transfer.
------------------------
The Corporation will keep at its principal office a register for the
registration of Series B Preferred Stock. Upon the surrender of any certificate
representing Series B Preferred Stock at such place, the Corporation will, at
the request of the record holder of such certificate, execute and deliver a new
certificate or certificates in exchange therefor representing in the aggregate
the number of shares of Series B Preferred Stock represented by the surrendered
certificate. Each such new certificate will be registered in such name and will
represent such number of shares of Series B Preferred Stock as is requested by
the holder of the surrendered certificate and will be substantially identical in
form to the surrendered certificate; provided, however, that any transfer shall
-------- -------
be subject to any applicable restrictions on the transfer of such shares and the
payment of any applicable transfer taxes, if any, by the holder thereof.
Section 6. Replacement.
-----------
Upon receipt of evidence reasonably satisfactory to the Corporation of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of Series B Preferred Stock, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation, or, in the case of any such mutilation, upon surrender of such
certificate, the Corporation will execute and deliver in lieu of such
certificate a new certificate of like kind representing the number of shares of
Series B Preferred Stock represented by such lost, stolen, destroyed or
mutilated certificate and dated the date of such lost, stolen, destroyed or
mutilated certificate.
Section 7. Definitions.
-----------
"Junior Securities" means the Corporation's equity securities other
-----------------
than Series B Preferred Stock, Senior Securities or Pari Passu Securities.
"Liquidation Value" means $1,000 per share, such amount to be adjusted
-----------------
proportionately in the event the shares of Series B Preferred Stock are
subdivided by any means into a greater number or combined by any means into a
lesser number.
"Pari Passu Securities" means any securities of the Corporation that
---------------------
rank on a parity with the Series B Preferred Stock with respect to dividends or
upon a Liquidation.
EXHIBIT A TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
-6-
<PAGE>
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a joint venture, an
unincorporated organization or a governmental entity or any department, agency
or political subdivision thereof.
"Qualified Public Offering" means the sale of Common Stock in an
-------------------------
underwritten public offering pursuant to a registration statement declared
effective under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock in which the aggregate gross proceeds received by the
Corporation in such public offering equals or exceeds $10,000,000.
"Senior Securities" means any securities of the Corporation that rank
-----------------
senior to the Series B Preferred Stock with respect to dividends or upon a
Liquidation.
"Subsidiary" means any Corporation of which the shares of stock having
----------
a majority of the general voting power in electing the board of directors are,
at the time as of which any determination is being made, owned by the
Corporation either directly or indirectly through Subsidiaries.
Section 8. Amendment and Waiver.
--------------------
No amendment, modification or waiver will be binding or effective with
respect to any provision of this Statement of Resolution without the prior
written consent of the holders of a majority of the shares of Series B Preferred
Stock outstanding at the time such action is taken. No change in the terms
hereof may be accomplished by merger or consolidation of the Corporation with
another Corporation unless the Corporation has obtained the prior affirmative
vote or written consent of the holders of a majority of the shares of Series B
Preferred Stock then outstanding.
Section 9. Notices.
-------
Except as otherwise expressly provided, all notices referred to herein
shall be in writing and shall be delivered by via overnight courier, return
receipt requested, postage prepaid and shall be deemed to have been delivered
when so mailed (i) to the Corporation, at its principal executive offices and
(ii) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated in writing by any such
holder).
EXHIBIT A TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
-7-
<PAGE>
IN WITNESS WHEREOF, JG INDUSTRIES, INC. has caused this Statement of
Resolution to be duly executed this ______ day of _____________________, 1996.
JG INDUSTRIES, INC.
By: __________________________
Its: __________________________
EXHIBIT A TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
-8-
<PAGE>
SCHEDULE 1
----------
<TABLE>
<CAPTION>
===============================================================================
SHARES OF SERIES B AGGREGATE
------------------ ----------
INVESTOR PREFERRED STOCK PURCHASE
- -------- --------------- --------
PRICE
-----
- -------------------------------------------------------------------------------
<S> <C> <C>
William Hellman 500 $500,000
JG Industries, Inc.
5630 West Belmont Avenue
Chicago, Illinois 60634
- -------------------------------------------------------------------------------
Philip Rootberg 500 $500,000
Philip Rootberg & Company, LLP
250 South Wacker Drive
Suite 800
Chicago, Illinois 60606-5891
- -------------------------------------------------------------------------------
Sheldon Harris 500 $500,000
JG Industries, Inc.
5630 West Belmont Avenue
Chicago, Illinois 60634
- -------------------------------------------------------------------------------
TOTAL 1,500 $1,500,000
===============================================================================
</TABLE>
EXHIBIT A TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
EXHIBIT B TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of
__________________, 1996 between JG INDUSTRIES, INC., an Illinois corporation
(the "Company"), and the persons listed on Schedule 1 hereto (each, a
----------
"Purchaser", and collectively, the "Purchasers"). Certain capitalized terms
used in this Agreement are defined in Section 1 of this Agreement.
RECITALS
A. The Company and the Purchasers have entered into that certain Series B
Convertible Preferred Stock Purchase Agreement (the "Stock Purchase Agreement")
dated as of November _____, 1996 providing for the issuance and sale of the
Series B Preferred Stock (as defined herein) by the Company to the Purchasers.
B. The execution and delivery of this Agreement is a condition precedent
to the closing of the transactions contemplated by the Stock Purchase Agreement.
AGREEMENTS
In consideration of the mutual covenants herein contained and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Definitions. As used herein, the following terms have the following
-----------
respective meanings:
"Commission" means the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act or the Exchange Act
"Common Stock" means the common stock, no par value per share, of the
Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, 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. Reference to a
particular section of the Securities Exchange Act of 1934, as amended, shall
include a reference to the comparable section, if any, of any such similar
Federal statute.
EXHIBIT B TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
"Initiating Holder" is defined in Section 2.1.
"Person" means an individual or a corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company or any other entity or organization, including a
governmental or political subdivision or any agency or instrumentality thereof.
"Registrable Securities" means (i) shares of Common Stock issued or
issuable upon conversion of the Series B Preferred Stock and (ii) shares of
Common Stock issued or issuable upon any stock split, stock dividend,
recapitalization, or similar transaction relating to the Series B Preferred
Stock; provided, that Registrable Securities shall not include any shares which
--------
may be sold to the public pursuant to Rule 144 promulgated by the Commission
under the Securities Act or pursuant to an effective registration statement
under the Securities Act. For purposes of this Agreement, a Person will be
deemed to be a holder of Registrable Securities whenever such Person holds a
security exercisable for or convertible into such Registrable Securities,
whether or not such exercise or conversion has actually been effected.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with Section 2, including, without limitation, all
registration, filing and NASD fees, all fees and expenses of complying with
securities or blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees and disbursement of counsel
for the Company and of its independent public accountants, including the
expenses of "cold comfort" letters required by or incident to such performance
and compliance and any disbursement of underwriters customarily paid by issuers
or sellers of securities.
"Requesting Holder" is defined in Section 2.2.
"Securities Act" means the Securities Act of 1933, as amended, 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. References to a
particular section of the Securities Act of 1933, as amended, shall include a
reference to the comparable section, if any, of such similar Federal statute.
"Selling Holder" is defined in Section 2.1.
"Series B Preferred Stock" means the Series B Convertible Preferred Stock
of the Company, no par value per share, issued and sold pursuant to the Stock
Purchase Agreement.
2. Registration Under Securities Act.
---------------------------------
EXHIBIT B TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
-2-
<PAGE>
2.1. Registration on Request. (a) Request. At any time on or after the
----------------------- -------
one year anniversary of the date hereof and upon the written request of one (1)
or more holders (the "Initiating Holders") of Registrable Securities holding at
least a majority of the Registrable Securities then held by the holders of
Registrable Securities that the Company effect the registration under the
Securities Act of all or part of such Initiating Holders' Registrable
Securities, the Company will promptly give written notice of such requested
registration to all registered holders of Registrable Securities, and thereupon
the Company will use its best efforts to effect the registration under the
Securities Act, including by means of a shelf registration pursuant to Rule 415
under the Securities Act if so requested in such request and if the Company is
then eligible to use such a registration (a "Shelf Registration"), of
(i) the Registrable Securities which the Company has been requested to
register by such Initiating Holders, and
(ii) all other Registrable Securities which the Company has been requested
to register by the holders thereof (such holders together with the Initiating
Holders are hereinafter referred to as the "Selling Holders") by written request
given to the Company within fifteen (15) days after the giving of such written
notice by the Company,
all to the extent required to permit the disposition of the Registrable
Securities to be registered; provided, however, the Company shall not be
-------- -------
required to file a registration statement under this Section 2.1 if (i)
Registrable Securities with a market value of less than $750,000 (which market
value shall be reasonably estimated in good faith by the Holders of Registrable
Securities requested to be included in such registration) are to be included in
such registration, (ii) any registration statement (other than on Form S-4 or S-
8 or any successor or similar forms filed in connection with an exchange offer
or any offering of securities solely to the Company's existing stockholders)
covering securities to be sold by the Company has been filed and not withdrawn
or has been declared effective within the preceding one hundred eighty (180)
days, if the preceding registration was on Form S-3, or two hundred seventy
(270) days, if the preceding registration was on Form S-1 or S-2, or (iii) the
Company shall furnish to the Selling Holders a certificate signed by the Chief
Executive Officer of the Company stating that in the good faith judgment of the
Board of Directors it would be materially detrimental to the Company or its
stockholders for a registration statement to be filed at such time, in which
event, with respect to (iii) above, 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 one hundred and eighty (180) days, such right to
delay a request not to be exercised by the Company more than once in any twelve-
month period.
(b) Registration Statement Form. Registrations under this Section 2.1
---------------------------
shall be on such appropriate registration form of the Commission as shall be
selected by the Company. The Company agrees to include in any such registration
statement all
EXHIBIT B TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
-3-
<PAGE>
information which, in the opinion of counsel to the Company, is required to be
included.
(c) Expenses. The Company will pay the Registration Expenses in connection
--------
with any registration requested pursuant to this Section 2.1; provided, the
--------
Company shall not be required to pay the Registration Expenses of any
registration proceeding begun pursuant to this Section 2.1, the request of which
has been subsequently withdrawn by the Selling Holders, unless the holders of a
majority of the Registrable Securities agree that such request will constitute a
demand registration pursuant to Section 2.1.
(d) Effective Registration Statement. A registration requested pursuant to
--------------------------------
this Section 2.1 shall not be deemed to have been effected (i) unless a
registration statement with respect thereto has become effective, (ii) if after
it has become effective, such registration is interfered with by any stop order,
injunction or other order or requirement of the Commission or other governmental
agency or court for any reason not attributable to the Selling Holders and has
not promptly thereafter become effective, or (iii) if the conditions to closing
specified in the underwriting agreement, if any, entered into in connection with
such registration are not satisfied or waived, other than by reason of a failure
on the part of the Selling Holders.
(e) Selection of Underwriters. The underwriter or underwriters of each
-------------------------
underwritten offering of the Registrable Securities to be registered shall be
selected by the Company.
(f) Priority in Requested Registration. If the managing underwriter of any
----------------------------------
underwritten offering requested pursuant to Section 2.1(a) shall advise the
Company that, in its opinion, the number of securities requested to be included
in such registration exceeds the number which can be sold in such offering
within a price range acceptable to the Selling Holders holding not less than a
majority of the Registrable Securities requested to be included in such
registration, the Company will include in such registration, to the extent of
the number which the Company is so advised can be sold in such offering,
Registrable Securities requested to be included in such registration and other
securities requested to be included in such registration pursuant to
registration rights contained in agreements existing as of the date hereof and
registration rights granted after the date hereof in accordance with Section 5
("Pari Passu Rights"), pro rata among the Selling Holders and other holders
--------
requesting such registration according to the total number of Registrable
Securities and other securities requested to be registered by each Selling
Holder or other holder, as the case may be.
(g) Limitations on Registration on Request. Notwithstanding anything in
--------------------------------------
this Section 2.1 to the contrary, in no event will the Company be required to
effect, in the aggregate, without regard to the holder of Registrable Securities
making such request, more than one (1) registration (a "Requested Offering")
pursuant to this Section 2.1;
EXHIBIT B TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
-4-
<PAGE>
provided, however, in the event the Company exercises its pre-emptive right
- -------- -------
pursuant to Section 2.2(h), any such registration shall not be treated as a
Requested Offering for purposes of the limitations set forth in this Section
2.1(g).
(h) Pre-emption. The Company will have the right to pre-empt any Requested
-----------
Offering pursuant to this Section 2.1 with a primary registration by delivering
written notice of such intention to the Initiating Holders within five (5)
business days after the Company has received a request for such Requested
Offering; provided, however, such primary registration shall take effect no
-------- -------
later than one hundred and eighty (180) days after such Requested Offering was
requested. In the ensuing primary registration, the holders of Registrable
Securities will have such piggyback rights as are set forth in Section 2.2.
2.2. Incidental Registration. (a) Right to Include Registrable
----------------------- ----------------------------
Securities. If the Company at any time proposes to register any of its
securities under the Securities Act by registration on Forms S-1, S-2 or S-3 or
any successor or similar form(s), whether or not for sale or for its own
account, it will each such time give prompt written notice to all registered
holders of Registrable Securities of its intention to do so and of such holders'
rights under this Section 2.2. Upon the written request of any such holder (a
"Requesting Holder") made as promptly as practicable and in any event within
fifteen (15) days after the receipt of any such notice (which request shall
specify the Registrable Securities intended to be disposed of by such Requesting
Holder), the Company will use its 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 Requesting Holders thereof; provided, however, that
-------- -------
if, at any time after giving written notice of its intention to register any
securities and prior to the effective date of the registration statement filed
in connection with such registration, the Company shall determine for any reason
not to register or to delay registration of such securities, the Company may, at
its election, give written notice of such determination to each Requesting
Holder of Registrable Securities and (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from any obligation of
the Company to pay the Registration Expenses in connection therewith), without
prejudice, however, to the rights of any holder or holders of Registrable
Securities entitled to do so to request that such registration be effected as a
registration under Section 2.1, subject to Section 2.1(g), and (ii) in the case
of a determination to delay registering, shall be permitted to delay registering
any Registrable Securities, for the same period as the delay in registering such
other securities. No registration effected under this Section 2.2 shall relieve
the Company of its obligation to effect any registration upon request under
Section 2.1. The Company will pay all Registration Expenses in connection with
registration of Registrable Securities requested pursuant to this Section 2.2.
(b) Priority in Incidental Registrations. If the managing underwriter of
------------------------------------
any
EXHIBIT B TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
-5-
<PAGE>
underwritten offering pursuant to this Section 2.2 shall advise the Company of
its belief that the number of Registrable Securities requested to be included in
such registration would materially adversely affect such offering, then the
Company will include in such registration, to the extent of the number which the
Company is so advised can be sold in such offering, first, all securities
proposed by the Company to be sold for its own account in a primary offering or
by the holder requesting such registration in a secondary offering, and second,
such Registrable Securities and other securities with Pari Passu Rights
requested to be included in such registration, such Registrable Securities and
other securities to be included in such registration pro rata among the
--- ----
Requesting Holders and other holders according to the total number of
Registrable Securities requested to be included in such registration by each
such Requesting Holder or other holder, as the case may be, and third, all other
securities requested to be included in such registration.
(c) Selection of Underwriters. If a registration pursuant to this
-------------------------
Section 2.2 involves an underwritten offering, the underwriter or underwriters
thereof shall be selected by the Company. Each Requesting Holder agrees that it
will sell all of its Registrable Securities to be included in such registration
to the underwriter or underwriters selected by the Company pursuant to this
Section 2.2(c) on the same terms and conditions as are applicable to the Company
or other sellers of the same securities thereunder, and at the same price as any
Registrable Securities to be sold by the Company or any such other sellers
thereunder.
2.3. Registration Procedures. If and whenever the Company is required to
-----------------------
use its best efforts to effect the registration of any Registrable Securities
under the Securities Act as provided in Sections 2.1 and 2.2, the Company will
as expeditiously as practicable:
(i) prepare and file with the Commission the requisite registration
statement to effect such registration and thereafter use its best efforts to
cause such registration statement to become effective; provided, however, that
-------- -------
the Company may discontinue any registration of its securities which are not
Registrable Securities (and, under the circumstances specified in Section
2.2(a), its securities which are Registrable Securities), at any time prior to
the effective date of the registration statement relating thereto;
(ii) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by such registration statement for such period as
shall be required for the disposition of all of such Registrable Securities;
provided, however, that, such period need not exceed six (6) months with respect
- -------- -------
to any Shelf Registration and ninety (90) days with respect to any other
registration statement;
EXHIBIT B TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
-6-
<PAGE>
(iii) furnish to each seller of Registrable Securities covered by such
registration statement, such number of conformed copies of such registration
statement and of each amendment and supplement thereto (in each case including
all exhibits), such number of copies of the prospectus contained in such
registration statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 under the Securities
Act, in conformity with the requirements of the Securities Act, and such other
documents, as such seller may reasonably request;
(iv) use its best efforts (A) to register or qualify all Registrable
Securities and other securities covered by such registration statement under
such other securities or blue sky laws of such States of the United State of
America where an exemption is not available as the sellers of Registrable
Securities covered by such registration statement shall reasonably request, (B)
to keep such registration or qualification in effect for so long as such
registration statement remains in effect, and (C) to take any other action which
may be reasonably necessary or advisable to enable such sellers to consummate
the disposition in such jurisdictions of the securities to be sold by such
sellers, except that the Company shall not for any such purpose be required to
qualify generally to do business as a foreign corporation in any jurisdiction
where it would not but for the requirements of this subdivision (iv) be
obligated to be so qualified, to consent to general service of process in any
such jurisdiction or subject itself to taxation in any such jurisdiction;
(v) use its best efforts to cause all Registrable Securities covered by
such registration statement to be registered with or approved by such other
Federal or state governmental agencies or authorities as may be necessary in the
opinion of counsel to the Company to enable the sellers thereof to consummate
the disposition of such Registrable Securities;
(vi) furnish to each seller of Registrable Securities a signed
counterpart, addressed to each such seller, of:
(A) an opinion of counsel for the Company, and
(B) a "comfort" letter signed by the independent public accountants who
have certified the Company's financial statements included or incorporated by
reference in such registration statement,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' comfort letter, with respect to events subsequent to the date of
such financial statements as are customarily covered in opinions of issuer's
counsel and in accountants' comfort letters delivered to the underwriters in
underwritten public offerings of securities (and dated the dates such opinions
and comfort letters are customarily dated);
EXHIBIT B TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
-7-
<PAGE>
(vii) 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, upon discovery that, or upon
the happening of any event as a result of which, the prospectus included in such
registration statement, as then in effect, includes a misstatement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, in the light of the
circumstances under which they were made, and at the request of any such seller
promptly prepare and furnish to it 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 purchasers of such securities, such prospectus shall not
include an untrue statement of 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 under which they were made;
(viii) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security holders,
as soon as reasonably practicable, an earnings statement covering the period of
at least twelve (12) months, but not more than eighteen (18) months, beginning
with the first full calendar month after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act (and Rule 158 thereunder), and promptly furnish to
each such seller of Registrable Securities a copy of any amendment or supplement
to such registration statement or prospectus;
(ix) provide and cause to be maintained a transfer agent and registrar for
all Registrable Securities covered by such registration statement from and after
a date not later than the effective date of such registration; and
(x) use its best efforts to list all Registrable Securities covered by such
registration statement on any national securities exchange (including the NASDAQ
National Market) on which Registrable Securities covered by such registration
statement are then listed.
The Company may require each seller of Registrable Securities as to which any
registration is being affected to furnish the Company such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (vii) of this
Section 2.3, such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (vii) of this
Section 2.3 and, if so directed by the Company, will deliver to the Company
EXHIBIT B TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
-8-
<PAGE>
(at the Company's expense) all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable
Securities at the time of receipt of such notice.
2.4. Underwritten Offerings. (a) Requested Offerings. If requested by the
---------------------- -------------------
underwriters for any underwritten offering by holders of Registrable Securities
pursuant to a registration requested under Section 2.1, the Company will use
reasonable efforts to enter into an underwriting agreement with such
underwriters for such offering, such agreement to be reasonably satisfactory in
substance and form to the Company, the holders of not less than a majority of
the Registrable Securities to be included in such registration and the
underwriters and to contain such representations and warranties by the Company
and such other terms as are generally prevailing in agreements of that type,
including, without limitation, indemnities to the effect and to the extent
provided in Section 2.5. The holders of the Registrable Securities proposed to
be distributed by such underwriters will cooperate with the Company in the
negotiation of the underwriting agreement. Such holders of Registrable
Securities shall be parties to such underwriting agreement.
(b) If the Company proposes to register any of its securities under the
Securities Act as contemplated by Section 2.2 and such securities are to be
distributed by or through one or more underwriters, subject to Section 2.2, the
Company will, if requested by any Requesting Holder of Registrable Securities,
use its best efforts to arrange for such underwriters to include all the
Registrable Securities to be offered and sold by such Requesting Holder among
the securities of the Company to be distributed by such underwriters. The
holders of Registrable Securities to be distributed by such underwriters shall
be parties to the underwriting agreement between the Company and such
underwriters.
(c) No Person may participate in any registration hereunder which is
underwritten unless such Person (A) agrees to sell such Person's securities on
the basis provided in any underwriting arrangements approved by the Person or
Persons entitled hereunder to approve such arrangements and (B) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
2.5. Indemnification. (a) Indemnification by the Company. In the event
--------------- ------------------------------
of any registration of any securities of the Company under the Securities Act,
the Company will, and hereby does, indemnify and hold harmless, in the case of
any registration statement filed pursuant to Section 2.1 or 2.2, each seller of
any Registrable Securities covered by such registration statement, each such
seller's stockholders, directors, officers, partners, agents and affiliates and
each other Person who participates as an underwriter in the offering or sale of
such securities and each other Person, if any, who controls such seller or any
such underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint and several, to which such seller
EXHIBIT B TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
-9-
<PAGE>
or any such stockholder, director, officer, partner, agent or affiliate or
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon 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 prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, 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 light of the circumstances in which they were made not misleading,
and the Company will reimburse such seller and each such stockholder, director,
officer, partner, agent or affiliate, underwriter and controlling person for any
legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; provided, however, that the Company shall not be liable in any such
-------- -------
case to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such seller or underwriter, as the case may be, specifically for use in the
preparation thereof and provided further that the Company shall not be liable to
-------- -------
any Person who participates as an underwriter in the offering or sale of
Registrable Securities or any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such Person's failure to send or give
a copy of the final prospectus, as the same may be then supplemented or amended,
to the Person asserting an untrue statement or alleged untrue statement or
omission or alleged omission at or prior to the written confirmation of the sale
of Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such seller
or any such stockholder, director, officer, partner, agent or affiliate or
controlling person or underwriter and shall survive the transfer of such
securities by such seller.
(b) Indemnification by the Sellers. As a condition to including any
------------------------------
Registrable Securities in any registration statement, the Company shall have
received an undertaking reasonably satisfactory to it from the prospective
seller of such Registrable Securities, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in subdivision (a) of this
Section 2.5) the Company and each director of the Company, each officer of the
Company and each other Person, if any, who controls the Company within the
meaning of the Securities Act, with respect to any statement or alleged
statement in or omission or alleged omission from such registration statement,
EXHIBIT B TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
-10-
<PAGE>
any preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such statement or alleged
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company specifically for
use in the preparation of such registration statement, preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement. Such indemnity
shall remain in full force and effect, regardless of any investigation made by
or on behalf of the Company or any such director, officer or controlling person
and shall survive the transfer of such securities by such seller.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
----------------------
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section 2.5, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
-------- -------
give notice as provided herein shall not relieve the indemnifying party of its
obligations under the preceding subdivisions of this Section 2.5, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. If any such action is brought against an indemnified party, the
indemnifying party shall be entitled to participate in and, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, to
assume the defense thereof, 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 shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof. No indemnifying party shall be liable for any settlement of any
action or proceeding effected without its written consent (which consent shall
not be unreasonably withheld).
(d) Contribution. If the indemnification provided for in this Section 2.5
------------
shall for any reason be held by a court to be unavailable to an indemnified
party under subdivision (a) or (b) hereof in respect of any loss, claim, damage
or liability, or any action in respect thereof, then, in lieu of the amount paid
or payable under subdivision (a) or (b) hereof, the indemnified party and the
indemnifying party under subdivision (a) or (b) hereof shall contribute to the
aggregate losses, claims, damages and liabilities (including legal or other
expenses as they are reasonably incurred in connection with investigating or
defending the same), (i) in such proportion as is appropriate to reflect the
relative fault of the Company and the prospective sellers of Registrable
Securities covered by the registration statement which resulted in such loss,
claims, damage or liability, or action in respect thereof, with respect to the
statements or omissions which resulted in such loss, claims, damage or
liability, or action in respect thereof, as well as any other relevant equitable
considerations or (ii) if the allocation provided by
EXHIBIT B TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
-11-
<PAGE>
clause (i) above is not permitted by applicable law, in such proportion as shall
be appropriate to reflect the relative benefits received by the Company and such
prospective sellers from the offering of the securities covered by such
registration statement. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 1.1(f) of the Securities Act) shall be entitled
to contribution from any Person who was not guilty of such fraudulent
misrepresentation. Such prospective sellers' obligations to contribute as
provided in this subdivision (d) are several in such proportion as is
appropriate to reflect the relative fault of each of the prospective sellers, as
well as any other relevant equitable consideration, and not joint; provided,
--------
however, that if such allocation is not permitted by applicable law, the
- -------
prospective sellers' obligations to contribute shall be in proportion to the
relative value of their respective Registrable Securities covered by such
registration statement. In addition, no Person shall be obligated to contribute
hereunder any amounts in payment for any settlement of any action or claim
effected without such Person's consent, which consent shall not be unreasonably
withheld.
(e) Advances. The indemnification and contribution required by this
--------
Section 2.5 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred, provided the indemnified party
--------
agrees to repay such payments if it is ultimately determined that the
indemnified party was not entitled to indemnification.
2.6. Adjustments Affecting Registrable Securities. The Company will not
--------------------------------------------
effect or permit to occur any combination or subdivision of Registrable
Securities which would materially adversely affect the ability of the holders of
Registrable Securities to include such Registrable Securities in any
registration of its securities contemplated by this Section 2 or the
marketability of such Registrable Securities under any such registration.
2.7. Conversion of Series B Preferred Stock. The Series B Preferred Stock
--------------------------------------
must be converted into Common Stock prior to the sale of such Common Stock
pursuant to a registration under this Agreement.
3. Holdback Agreements. Each holder of Registrable Securities agrees not
-------------------
to effect any public sale of equity securities of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, including a
sale to the public pursuant to Rule 144 of the Commission, during the period
commencing fifteen (15) days prior to and ending ninety (90) days after the
effective date of any underwritten registration of the Company's securities
(except as part of such underwritten registration), if and to the extent
requested by the underwriter or underwriters managing the registered public
offering, unless such underwriter or underwriters otherwise agree.
EXHIBIT B TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
-12-
<PAGE>
4. Restrictions on Dispositions. In connection with the disposition of
----------------------------
the Registrable Securities under a registration statement pursuant to this
Agreement, in order for any holder of Registrable Securities to dispose of
Registrable Securities pursuant to a prospectus that is a part of such
registration statement (other than an underwritten offering), such holder must
give the Company written notice of its intention to sell any of the Registrable
Securities at least two (2), but not more than twenty (20), business days prior
to the date of the proposed sale(s), which notice shall include the number of
shares proposed to be disposed, and the time period during which the shares may
be disposed (the "Sale Period"), and the holder agrees that, during the Sale
Period, it shall not deliver any prospectus that is a part of such registration
statement in connection with any disposition of the Registrable Securities
during any period of time when, but only so long as, the Company, after receipt
of the notice set forth above, notifies such holder that the Company is in
possession of material non-public information that would be required to be
disclosed in the registration statement (or any amendment, or post-effective
amendment thereto); provided that the Company shall advise such holder in
--------
writing as soon as any such delay is no longer applicable.
5. Limitations. From and after the date of this Agreement, the Company
-----------
shall not, without the prior consent of the Board of Directors of the Company,
enter into any agreement with any holder or prospective holder of any securities
of the Company giving such holder or prospective holder any registration rights
the terms of which are more favorable than the registration rights granted
hereunder.
6. Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the Company to register securities granted to a holder of Registrable Securities
by the Company in this Agreement may be transferred or assigned by such a holder
in connection with the transfer of the Registrable Securities; provided, the
--------
Company is given written notice at the time of or within a reasonable time after
said transfer or assignment, stating the name and address of the transferee or
assignee and identifying the Series B Preferred Stock with respect to which such
registration rights are being transferred or assigned, and, provided further,
-------- -------
that the transferee or assignee of such rights assumes in writing the
obligations of such holder under this Agreement.
7. Amendment and Waivers. This Agreement may be amended with the consent
---------------------
of the Company and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company shall
have obtained the written consent to such amendment, action or omission to act,
of the holders of a majority of the Registrable Securities. Each holder of any
Registrable Securities at the time or thereafter outstanding shall be bound by
any consent authorized by this Section 7, whether or not such Registrable
Securities shall have been marked to indicate such consent.
EXHIBIT B TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
-13-
<PAGE>
8. Nominees for Beneficial Owners. In the event that any Registrable
------------------------------
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the holder of such Registrable Securities for purposes of
any request or other action by any holder or holders of Registrable Securities
pursuant to this Agreement or any determination of any number or percentage of
shares of Registrable Securities contemplated by this Agreement. If the
beneficial owner of any Registrable Securities so elects, the Company may
require assurances reasonably satisfactory to it of such owner's beneficial
ownership of such Registrable Securities.
9. Notices. All communications provided for hereunder shall be sent via
-------
overnight courier, shall be deemed to be received two (2) days after being sent,
or, if earlier, the date of actual receipt, and shall be addressed as follows:
(a) if to the Purchasers, addressed to the Purchasers in the manner set
forth in the Stock Purchase Agreement, or at such other address as any Purchaser
shall have furnished to the Company in writing;
(b) if to any other holder of Registrable Securities, at the address that
such holder shall have furnished to the Company in writing, or, until any such
other holder so furnishes to the Company an address, then to and at the address
of the last holder of such Registrable Securities who has furnished an address
to the Company; or
(c) if to the Company, addressed to it in the manner set forth in the
Stock Purchase Agreement, or at such other address as the Company shall have
furnished to each holder of Registrable Securities at the time outstanding.
10. (a) This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and, with respect to the Company, its
respective successors and assigns.
(b) For purposes of this Agreement, all references to a percentage of the
Registrable Securities shall be calculated based upon the number of shares of
Registrable Securities outstanding at the time such calculation is made.
11. Descriptive Headings. The descriptive headings of the several
--------------------
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
12. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
-------------
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF
THE STATE OF ILLINOIS.
EXHIBIT B TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
-14-
<PAGE>
13. Severability. If any term or other provision of this Agreement is
------------
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party.
14. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE FOLLOWS.]
EXHIBIT B TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
-15-
<PAGE>
The parties have executed this Agreement as of the date first above
written.
JG INDUSTRIES, INC.
By: _______________________________________
Name: _______________________________________
Title: _______________________________________
______________________________________________
William Hellman
______________________________________________
Philip Rootberg
______________________________________________
Sheldon Harris
[Signature Page to Registration Rights Agreement]
-16-
<PAGE>
SCHEDULE 1
----------
Names and Addresses of Purchasers
---------------------------------
William Hellman
JG Industries, Inc.
5630 West Belmont Avenue
Chicago, Illinois 60634
Philip Rootberg
Philip Rootberg & Company, LLP
250 South Wacker Drive
Suite 800
Chicago, Illinois 60606-5891
Sheldon Harris
JG Industries, Inc.
5630 West Belmont Avenue
Chicago, Illinois 60634
EXHIBIT B TO SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
-17-
<PAGE>
EXHIBIT B
TO PROXY STATEMENT
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of November ____, 1996 by and between JG Industries, Inc. an Illinois
corporation (the "Company"), and Jupiter Industries, Inc., a Tennessee
corporation ("Jupiter").
RECITALS
A. Jupiter owns (i) 445 shares of Series A 9% Cumulative Preferred Stock
of the Company, no par value per share (the "Series A Preferred Stock"), and
(ii) 3,879,773 shares of Common Stock of the Company, no par value per share
(the "Common Stock").
B. Jupiter desires to sell to the Company, and the Company desires to
purchase from Jupiter, all of the Series A Preferred Stock and Common Stock
owned by it, on the terms hereinafter set forth.
AGREEMENTS
In consideration of the mutual representations, warranties and covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1.0 PURCHASE AND SALE OF THE JUPITER PREFERRED SHARES AND JUPITER COMMON SHARES
1.1 PURCHASE AND SALE. Jupiter agrees to sell, transfer, assign and
deliver to the Company at the Closing (as defined below), and the Company agrees
to purchase and accept from Jupiter, subject to the satisfaction of the
conditions and on the terms set forth in this Agreement and for the
consideration set forth in Section 1.2 below, 445 shares of Series A Preferred
Stock (the "Jupiter Preferred Shares") and 3,879,773 shares of Common Stock (the
"Jupiter Common Shares"). The Jupiter Preferred Shares and the Jupiter Common
Shares may from time to time hereafter be referred to collectively as the
"Jupiter Shares". References in this Agreement to numbers of shares of Common
Stock and Jupiter Common Shares shall refer to such number of shares prior to
the effectiveness of a 1-for-3 reverse stock split of the Company's Common Stock
to be consummated by the Company on or about December 13, 1996.
EXHIBIT B TO PROXY STATEMENT
<PAGE>
1.2 PURCHASE PRICE. (a) As the consideration for the Jupiter Preferred
Shares, the Company agrees to pay to or for the account of Jupiter at the
Closing an amount in cash equal to $3,183,000.00.
(b) As the consideration for the Jupiter Common Shares, the Company
agrees to (i) pay to or for the account of Jupiter at the Closing an amount in
cash equal to $581,965.95 and (ii) deliver to Jupiter a secured promissory note
of the Company, in the form of EXHIBIT A hereto (the "Note"), in the original
principal amount of $1,745,897.85, payable in three equal annual installments of
$581,965.95 on each the first three anniversaries of the Closing. The Note
shall bear interest at a rate of 6% per annum, payable annually.
2.0 CLOSING
2.1 THE CLOSING. The closing of the purchase and sale of the Jupiter
Shares (the "Closing") shall take place at the law offices of Hopkins & Sutter,
Suite 4100, Three First National Plaza, Chicago, Illinois 60602, at 10:00 a.m.,
Chicago time, on the first business day after the 1996 Annual Meeting of
Shareholders of the Company, scheduled to be held on or about December 12, 1996,
or at such other time or place as the parties may mutually agree.
2.2 JUPITER CLOSING DOCUMENTS. At the Closing, Jupiter will deliver to
the Company the following:
(a) Stock certificates evidencing the Jupiter Preferred Shares,
accompanied by one or more stock powers duly executed in blank;
(b) Stock certificates evidencing the Jupiter Common Shares, accompanied
by one or more stock powers duly executed in blank;
(c) Resolutions of the Board of Directors and, as necessary, the
stockholders of Jupiter authorizing the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, certified as of the date of the Closing by its
secretary or assistant secretary; and
(d) Such other documents as the Company shall reasonably request in
connection with the consummation of the transactions contemplated
hereby.
2.3 COMPANY CLOSING DOCUMENTS. At the Closing, the Company will deliver
to Jupiter the following:
EXHIBIT B TO PROXY STATEMENT
-2-
<PAGE>
(a) An amount equal to the sum of (i) $3,183,000.00 (representing payment
for the Jupiter Preferred Shares) and (ii) $581,965.95 (representing
the cash portion of the payment for the Jupiter Common Shares), by
wire transfer of immediately available funds to an account designated
in writing by Jupiter prior to the Closing or by certified or bank
cashier's check;
(b) The Note, duly executed by an officer of the Company;
(c) Resolutions of the Board of Directors of the Company authorizing the
execution, delivery and performance of this Agreement and the Note and
the consummation of the transactions contemplated hereby and thereby,
certified as of the date of the Closing by its secretary or assistant
secretary; and
(d) Such other documents as Jupiter shall reasonably request in connection
with the consummation of the transactions contemplated hereby.
3.0 CONDITIONS TO CLOSING BY THE COMPANY
The obligation of the Company to purchase the Jupiter Shares at the Closing
is subject to the fulfillment to its satisfaction of the following conditions:
3.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by Jupiter in Section 5 of this Agreement shall be true and
correct when made and shall be true and correct as of the Closing as if made at
the Closing, except where the failure to be true and correct would not have a
material adverse effect on (a) Jupiter's ability to consummate the transactions
contemplated hereby, (b) the Company's ownership of the Jupiter Shares after the
Closing or its rights with respect to the Jupiter Shares or (c) the Company's
rights under this Agreement.
3.2 STOCKHOLDER APPROVAL. Prior to the Closing, the purchase by the
Company of the Jupiter Shares and the consummation of the Preferred Stock
Financing (as hereinafter defined) shall have been approved by (a) a majority of
the combined voting power of the then outstanding voting shares held by all
stockholders of the Company and (b) a majority of the combined voting power of
the then outstanding voting shares held by the Disinterested Stockholders. For
purposes of this Agreement, "Disinterested Stockholders" shall mean all of the
stockholders of the Company except Jupiter, William Hellman, Philip Rootberg,
Sheldon Harris, Ed Ross and each of their affiliates.
3.3 CONSUMMATION OF SALE OF SERIES B PREFERRED STOCK. Prior to or
simultaneously with to the Closing, the Company shall have consummated the sale
of
EXHIBIT B TO PROXY STATEMENT
-2-
<PAGE>
1,500 shares of Series B Convertible Preferred Stock of the Company, no par
value per share, for an aggregate purchase price of $1,500,000 (the "Preferred
Stock Financing").
3.4 CONSENTS. At or prior to the Closing, the Company shall have received
in writing all consents required of third parties for the consummation of the
transactions contemplated hereby pursuant to any law, contract, agreement or
instrument by which the Company is bound or to which it is subject, as set forth
on SCHEDULE 3.4 hereto.
3.5 WAIVER OF ACCRUED DIVIDENDS. Prior to the Closing, Jupiter shall have
waived payment by the Company of all accrued and unpaid dividends on the Jupiter
Preferred Shares, subject to the consummation of the transactions contemplated
hereby.
3.6 PAYMENT OF OUTSTANDING AMOUNTS. At the Closing, Jupiter shall have
paid to the Company all amounts owed to the Company by Jupiter as of the
Closing, which amount is, and as of the Closing will be, $1,264,858. At the
election of Jupiter, the payment of such amount may be offset against the total
amount to be paid in cash by the Company at the Closing.
3.7 MUTUAL GENERAL RELEASE. At or prior to the Closing, Jupiter shall
have executed and delivered to the Company the Mutual General Release (the
"Mutual General Release"), in the form attached hereto as EXHIBIT B, pursuant to
which Jupiter shall release all claims and actions of Jupiter against the
Company and its officers and directors arising out of any and all events
occurring prior to the date of the Closing.
3.8 DELIVERY OF JUPITER CLOSING DOCUMENTS. At or prior to the Closing,
Jupiter shall have delivered to the Company all of the documents required to be
delivered by Jupiter pursuant to Section 2.2.
4.0 CONDITIONS TO CLOSING BY JUPITER
4.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Company in Section 6 of this Agreement shall be true and
correct when made and shall be true and correct as of the Closing as if made at
the Closing, except where the failure to be true and correct would not have a
material adverse effect on (a) the Company's ability to consummate the
transactions contemplated hereby or (b) Jupiter's rights under this Agreement or
the Note.
4.2 CONSENTS. At or prior to the Closing, Jupiter shall have received in
writing all consents required of third parties for the consummation of the
transactions contemplated hereby pursuant to any law, contract, agreement or
instrument by which Jupiter is bound or to which it is subject, as set forth on
SCHEDULE 4.2 HERETO.
EXHIBIT B TO PROXY STATEMENT
-4-
<PAGE>
4.3 AMENDMENT OF CERTIFICATE OF DESIGNATION. Prior to the Closing, the
Certificate of the Voting Powers, Designations, Preferences and Relative,
Participating, Optional or Other Rights with respect to the Series A Preferred
Stock (the "Certificate of Designation") shall have been amended by inserting a
period after the word "thereof" in the seventh line of the last paragraph of
Section 6(c) thereof and deleting the balance of such paragraph.
4.4 DELIVERY OF COMPANY CLOSING DOCUMENTS. At or prior to the Closing,
the Company shall have delivered to Jupiter all of the documents required to be
delivered by the Company pursuant to Section 2.3.
4.5 STOCKHOLDER APPROVAL. Prior to the Closing, the purchase by the
Company of the Jupiter Shares shall have been approved by (a) a majority of the
combined voting power of the then outstanding voting shares held by all
stockholders of the Company and (b) a majority of the combined voting power of
the then outstanding voting shares held by the Disinterested Stockholders.
4.6 MUTUAL GENERAL RELEASE. At or prior to the Closing, the Company shall
have executed and delivered to Jupiter the Mutual General Release, pursuant to
which the Company shall release all claims and actions of the Company against
Jupiter and its officers and directors arising out of any and all events
occurring prior to the date of the Closing.
5.0 REPRESENTATIONS AND WARRANTIES OF JUPITER
In order to induce the Company to enter into this Agreement and to
consummate the transactions contemplated hereby, Jupiter hereby represents and
warrants to the Company as follows:
5.1 ORGANIZATION, POWER AND AUTHORITY OF JUPITER. Jupiter is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Tennessee, with full corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby.
5.2 DUE AUTHORIZATION; BINDING OBLIGATION. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
of Jupiter. This Agreement has been duly executed and delivered by Jupiter and
is a valid and binding obligation of Jupiter, enforceable against Jupiter in
accordance with its terms. Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will: (i) conflict
with or violate any provision of the certificate of incorporation or bylaws of
Jupiter, or of any decree or order of any court or administrative or other
governmental body which is either applicable to, binding upon or enforceable
against Jupiter, (ii) result in any breach or default under any mortgage,
EXHIBIT B TO PROXY STATEMENT
-5-
<PAGE>
contract, agreement, indenture, trust or other instrument which is either
binding upon or enforceable against Jupiter or any of its assets, which breach
or default would have a material adverse effect on (a) Jupiter's ability to
consummate the transactions contemplated hereby, (b) the Company's ownership of
the Jupiter Shares after the Closing or its rights with respect to the Jupiter
Shares or (c) the Company's rights under this Agreement or (iii) violate any
law, judgment, order, writ, injunction, decree, statute, rule or regulation of
any court, administrative agency, bureau, board, commission, office, authority,
department or other governmental entity applicable to Jupiter or any of its
assets, which violation would have a material adverse effect on (a) Jupiter's
ability to consummate the transactions contemplated hereby, (b) the Company's
ownership of the Jupiter Shares after the Closing or its rights with respect to
the Jupiter Shares or (c) the Company's rights under this Agreement.
5.3 STATUS AND EFFECT OF DELIVERY OF JUPITER SHARES. Jupiter is the
lawful owner of all of the Jupiter Shares and has valid and marketable title
thereto, free and clear of all liens, pledges, encumbrances and claims of every
kind. There are no outstanding warrants, options or rights of any kind to
acquire from Jupiter any of the Jupiter Shares or any portion thereof, there are
no restrictions on the transfer of any of the Jupiter Shares (other than those
arising from federal and state securities laws), and there are no agreements
relating to the transfer or voting of any of the Jupiter Shares. Delivery of
the Jupiter Shares to the Company in accordance with the terms of this Agreement
will vest title to all of the Jupiter Shares in the Company, free and clear of
all liens, pledges, encumbrances and claims of every kind.
6.0 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce Jupiter to enter into this Agreement and to consummate
the transactions contemplated hereunder, the Company hereby represents and
warrants to Jupiter as follows:
6.1 ORGANIZATION, POWER AND AUTHORITY OF THE COMPANY. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Illinois, with full corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby.
6.2 DUE AUTHORIZATION; BINDING OBLIGATION. The execution, delivery and
performance of this Agreement and the Note and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action of the Company, other than the approval of its
shareholders. This Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms. Upon execution
and delivery thereof, the Note will constitute the valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms.
Neither the execution and delivery of this Agreement or the Note, nor
EXHIBIT B TO PROXY STATEMENT
-6-
<PAGE>
the consummation of the transactions contemplated hereby or thereby, will: (i)
conflict with or violate any provisions of the articles of incorporation or
bylaws of the Company or any decree or order of any court or administrative or
other governmental body which is either applicable to, binding upon or
enforceable against the Company, (ii) result in any breach of or default under
any mortgage, contract, agreement, indenture, trust or other instrument which is
either binding upon or enforceable against the Company or any of its assets,
which breach or default would have a material adverse effect on (a) the
Company's ability to consummate the transactions contemplated hereby, or (b)
Jupiter's rights under this Agreement or the Note or (iii) violate any law,
judgment, order, writ, injunction, decree, statute, rule or regulation of any
court, administrative agency, bureau, board, commission, office, authority,
department or other governmental entity applicable to the Company or its assets,
which violation would have a material adverse effect on (a) the Company's
ability to consummate the transactions contemplated hereby, or (b) Jupiter's
rights under this Agreement or the Note.
7.0 COVENANTS OF JUPITER AND THE COMPANY.
Jupiter agrees to vote all of the voting securities of the Company owned by
it to approve the Preferred Stock Financing and the purchase of the Jupiter
Shares pursuant to this Agreement and the transactions effected in connection
therewith at any meeting of the stockholders of the Company at which any such
vote is taken and to take all other actions necessary to carry out the
transactions contemplated hereby. The Company agrees to seek the approval of
its stockholders and to take all other actions necessary to consummate the
transactions contemplated hereby.
8.0 RESCISSION OF PURCHASE AND SALE.
If (i) a voluntary or involuntary petition is filed with respect to the
Company under Title 11 of the United States Code, 11 U.S.C. (S)(S)101 et seq.
-- ---
(the "Bankruptcy Code") at any time prior to the first anniversary of the
Closing and (ii) a proceeding is commenced to require Jupiter to return all or
any portion of the purchase price of the Jupiter Shares, or all or any portion
of payments made to Jupiter under the Note, to the Company under Sections 544,
547, 548 or any other section of the Bankruptcy Code, Jupiter may elect to
rescind the purchase and sale of the Jupiter Shares under this Agreement by
delivering notice of such election to the Company within thirty days of the
commencement of such proceeding (the "Rescission Notice"). Within ten business
days of the giving of the Rescission Notice, Jupiter shall deliver to the
Company all payments received by Jupiter as the purchase price of the Jupiter
Shares or as payments on the Note and deliver to the Company the Note for
cancellation and, upon receipt thereof, the Company shall reissue the Jupiter
Shares to Jupiter; provided, however, that if at any time after the repurchase
-------- -------
of the Jupiter Shares but prior to the time the Company receives the Rescission
Notice, the Common Stock is subdivided into a greater number of shares (by stock
dividend, stock split or otherwise) or combined
EXHIBIT B TO PROXY STATEMENT
-7-
<PAGE>
into a lesser number of shares (by reverse stock split or otherwise, including,
but not limited to, the 1-for-3 reverse stock split of the Company's Common
Stock to be effected by the Company on or about December 13, 1996), the Common
Stock included in the Jupiter Shares shall be subdivided or combined, as the
case may be. The Company shall take all actions necessary to carry out its
obligations hereunder.
9.0 CONVERSION OF NOTE.
9.1 RIGHT OF CONVERSION. Upon the occurrence of and during the
continuation of an Event of Default (as defined in the Note), Jupiter shall have
the right, but not the obligation, to convert the entire outstanding principal
amount of the Note and all accrued and unpaid interest thereon into shares of
Common Stock at a conversion price per share of Common Stock equal to the
Conversion Price. The "Conversion Price" means the Market Price per share of
Common Stock on the date on which Jupiter gives the notice required under
Section 9.2 hereof; provided, however, that the Conversion Price shall not be
-------- -------
less than $.10. The "Market Price" per share of the Common Stock means the
average of the closing prices of sales of Common Stock on all securities
exchanges on which the Common Stock may at the time be listed, or, if there has
been no sale on any such exchange on any day, the average of the highest bid and
lowest asked prices on all such exchanges at the end of such day, or, if on any
day the Common Stock is not so listed, the average of the closing prices quoted
in The Nasdaq Market as of 4:00 p.m., New York time, or, if on any day the
Common Stock is not quoted in The Nasdaq Market, the average of the highest bid
and the lowest asked prices on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of five days
consisting of the day as of which "Market Price" is being determined and the
four (4) consecutive business days prior to such day, or if at any time the
Common Stock is not listed on any securities exchange or quoted in The Nasdaq
Market or the over-the-counter market, the "Market Price" will be the fair value
thereof reasonably determined in reasonable good faith by the Board of Directors
of the Company. The number of shares of Common Stock issuable upon conversion
of the Note shall be the quotient of the outstanding principal amount of the
Note and all accrued and unpaid interest thereon divided by the Conversion
Price. Unless and until Jupiter elects to convert the Note pursuant to this
Section 9.1, the right of conversion provided for in this section shall not
limit any other remedies otherwise available to Jupiter under this Agreement or
the Note.
9.2 METHOD OF CONVERSION. The Note may be converted, in whole but not in
part, at any time after it becomes convertible pursuant to Section 9.1 by the
surrender of the Note to the Company (with the Form of Election to Convert in
the form of EXHIBIT C duly executed) at the principal office of the Company.
Any conversion pursuant to this Agreement will be deemed to have been effected
as of the close of business on the date on which the Note is surrendered at the
principal office of the Company. At such time as such conversion has been
effected, the rights of Jupiter as
EXHIBIT B TO PROXY STATEMENT
-8-
<PAGE>
the holder of the Note will cease and the Company will be deemed to have become
the holder of record of the shares of Common Stock to be issued on such
conversion. As soon as possible after a conversion has been effected, the
Company will deliver to Jupiter a certificate representing the number of shares
of Common Stock issuable by reason of such conversion in the name of Jupiter.
9.3 RESERVATION OF COMMON STOCK. The Company covenants and agrees that,
until the principal amount of the Note, and all accrued interest thereon, has
been paid in full, the Company will at all times have authorized, and in
reserve, a sufficient number of shares of Common Stock to provide for the
conversion of the Note or the reissuance of the Jupiter Shares as set forth in
Section 8.0 hereof.
9.4 FULLY PAID STOCK. The Company covenants and agrees that the shares of
stock represented by each and every certificate for its Common Stock to be
delivered on the exercise of the conversion rights or reissuance rights herein
provided for will, at the time of such delivery, be validly issued and
outstanding and be fully paid and non-assessable, and free from all taxes,
liens, charges and security interests with respect to the issuance thereof.
9.5 NO RIGHTS AS SHAREHOLDER. The Note does not confer upon Jupiter any
right to vote or to consent or to receive notice as a shareholder of the Company
as such in respect of any matters whatsoever, or any other rights or liabilities
as a shareholder, prior to the exercise of the conversion rights or reissuance
rights with respect thereto as hereinbefore provided.
10.0 MISCELLANEOUS
10.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The respective
representations, warranties, covenants and agreements of the parties hereto
shall survive the consummation of the transactions contemplated hereby.
10.2 AMENDMENT AND MODIFICATION. The parties hereto may amend, modify and
supplement this Agreement in such manner as may be agreed upon by them in
writing.
10.3 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
10.4 ENTIRE AGREEMENT. This instrument and the exhibits attached hereto
contain the entire agreement of the parties hereto with respect to the purchase
and sale of the Jupiter Shares and supersede all prior understandings and
agreements of the parties with respect to the subject matter hereof.
EXHIBIT B TO PROXY STATEMENT
-9-
<PAGE>
10.5 HEADINGS. The descriptive headings in this Agreement are inserted for
convenience only and do no constitute a part of this Agreement.
10.6 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute one
instrument.
10.7 EXPENSES. Each of the parties to this Agreement shall pay all of the
expenses incurred by it in connection with this Agreement, including without
limitation, its respective legal and accounting fees.
10.8 NOTICES. Any notice, request, information or other document to be
given hereunder to any of the parties by any other party shall be in writing and
delivered personally or sent by overnight courier service or sent registered or
certified mail, postage prepaid, as follows:
If to Jupiter, addressed to:
Jupiter Industries, Inc.
919 North Michigan Avenue
Suite 550
Chicago, Illinois 60611
with a copy to:
James E. Dahl & Associates
225 West Washington Street
Suite 1125
Chicago, Illinois 60606
Attention: James E. Dahl
and
Schiff, Hardin & Waite
7200 Sears Tower
Chicago, Illinois 60606
Attention: Scott Bieber
EXHIBIT B TO PROXY STATEMENT
-10-
<PAGE>
If to the Company, addressed to:
JG Industries, Inc.
5630 West Belmont
Chicago, Illinois 60634
Attention: President
with a copy to:
Hopkins & Sutter
Three First National Plaza
Suite 4100
Chicago, Illinois 60602
Attention: Stanford J. Goldblatt
Any party may change the address to which notices hereunder are to be sent to it
by giving written notice of such change of address in the manner herein provided
for giving notice. Any notice delivered personally shall be deemed to have been
given on the day it is so delivered, and any notice delivered by the other means
referred to above shall be deemed to have been given on the date it is received.
10.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois applicable to contracts made
and to be performed therein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE FOLLOWS.]
EXHIBIT B TO PROXY STATEMENT
-11-
<PAGE>
The parties hereto have caused this Stock Purchase Agreement to be duly
executed as of the day and year first set forth above.
JG INDUSTRIES, INC.
By:_____________________________________
Its:____________________________________
JUPITER INDUSTRIES, INC.
By:_____________________________________
Its:____________________________________
EXHIBIT B TO PROXY STATEMENT
<PAGE>
EXHIBIT A TO
JUPITER PURCHASE AGREEMENT
PROMISSORY NOTE
$1,745,897.85 _____________, 1996
FOR VALUE RECEIVED, the undersigned, JG INDUSTRIES, INC., an Illinois
corporation ("Maker"), hereby promises to pay to the order of Jupiter
Industries, Inc., a Tennessee corporation ("Holder"), in accordance with the
terms set forth herein, the principal sum of ONE MILLION SEVEN HUNDRED FORTY-
FIVE THOUSAND EIGHT HUNDRED NINETY-SEVEN and 85/100 Dollars ($1,745,897.85), and
interest on the unpaid principal balance hereof at a rate of six percent (6%)
per annum from the date hereof through the date on which the outstanding
principal sum of this Note is paid in full. Interest shall be calculated on the
basis of a 365-day year and charged for the actual number of days elapsed, and
shall be payable annually on __________________ of each year, commencing
_________________, 1997, until the principal sum hereof is paid in full. The
principal sum of this Note shall be payable in three annual installments of
$581,965.95 on ________________ in each year, commencing ___________________,
1997. The entire outstanding principal balance hereof, and all accrued but
unpaid interest hereon, shall be due and payable in full on _______________,
1999 (or on such earlier date as this Note shall become due as hereinafter
provided).
All payments hereunder shall be made at ____________________________, or at
such other place or places as the holder hereof may designate from time to time
in writing, in such coin or currency of the United States which shall be legal
tender in payment of all debts and dues, public and private, at the time of
payment.
Payments made hereunder shall be applied first to the payment of accrued
interest and then to the payment of principal. This Note may be prepaid, in
whole or in part, from time to time, without premium or penalty.
The occurrence of any one of the following events shall constitute a
default by Maker (an "Event of Default") under this Note: (a) the failure of
Maker to pay any of its liabilities to Holder under this Note when due and
payable and such failure continues for at least 20 days after such liabilities
become due and payable; (b) the failure of Maker to perform or observe any
covenant of Maker contained in this Note or the Purchase Agreement (as
hereinafter defined) and such failure continues for at least 30 days after
notice of such failure is given to Maker; (c) Maker admits in writing its
inability to pay its debts as they mature or is adjudicated as bankrupt or
insolvent; (d)
EXHIBIT A TO
JUPITER PURCHASE AGREEMENT
<PAGE>
Maker or any of its material subsidiaries pursuant to or within the meaning of
bankruptcy law (i) commences a voluntary case, (ii) consents to the entry of an
order for relief against it in an involuntary case, (iii) consents to the
appointment of a trustee or receiver of it or for all or substantially all of
its property, or (iv) makes a general assignment for the benefit of its
creditors; (e) a court of competent jurisdiction enters an order or decree under
any bankruptcy law that (i) is for relief against Maker or any of its material
subsidiaries in an involuntary case, (ii) appoints a trustee or receiver of
Maker or any of its material subsidiaries or for all or substantially all of the
property of Maker or any of its material subsidiaries, or (iii) orders the
liquidation of Maker or any of its material subsidiaries, and the order or
decree remains unstayed and in effect for 30 consecutive days; or (f) a default
occurs under any mortgage, indenture or instrument under which there may be
secured or evidenced any debt for money borrowed by Maker or any of its material
subsidiaries, which default is (i) caused by a failure to pay principal or
interest on such debt or (ii) results in the acceleration of such debt prior to
its express maturity and, in each case, the principal amount of any such debt
aggregates $200,000 or more.
Upon an Event of Default, at the option of the Holder, the entire unpaid
balance of the principal sum of this Note and all accrued but unpaid interest
hereon shall, upon notice to the Maker, become immediately due and payable. All
sums due and payable hereunder after an Event of Default, whether by
acceleration or otherwise, shall bear interest at a rate equal to nine percent
(9%) per annum computed on the basis of a 365-day year for actual days elapsed,
until such Event of Default is cured.
Under certain circumstances provided in the Stock Purchase Agreement, at
the option of the Holder, the outstanding principal amount hereof, and all
accrued but unpaid interest hereon, shall be converted into shares of Common
Stock of Maker, without par value (the "Common Stock"), in accordance with the
terms of Section 9.0 of that certain Stock Purchase Agreement dated ___________,
1996 between Maker and Holder (the "Purchase Agreement").
Holder, by acceptance of this Note, agrees that this Note shall be
expressly subordinated to obligations of Maker under any lease of equipment or
under any loan agreement with each and every bank, institutional lender or
institutional lessor from which Maker leases equipment or borrows funds to
purchase equipment or for other general corporate purposes (all of such
obligations being hereinafter referred to as "Senior Debt"). Holder further
agrees that it will execute and deliver, upon demand of Maker, an appropriate
completed form of subordination agreement on the standard form of any bank,
institutional lender or institutional lessor lending funds or leasing equipment
to Maker subordinating payment and other enforcement of this Note to Senior
Debt.
EXHIBIT A TO
JUPITER PURCHASE AGREEMENT
-2-
<PAGE>
This Note shall be payable in full upon the consummation of a Sale of
Maker. For purposes of this Note, "Sale of Maker" means (i) a merger or
consolidation of Maker with an entity pursuant to which, after giving effect
thereto, capital stock of the surviving or resulting entity possessing a
majority of the voting power (under ordinary circumstances) to elect members of
the board of directors of such surviving or resulting entity (ignoring, for
purposes hereof, any voting trust, proxies, voting agreements or similar
arrangements to which the capital stock or holders thereof may be subject) is
owned by persons not owning Common Stock as of the date of the closing of such
merger or consolidation (the "Sale Closing Date"), (ii) the acquisition by a
person or entity (other than the Holder) of more than 50% of the Common Stock or
(iii) any sale or transfer or series of related sales or transfers (other than
to one or more wholly-owned subsidiaries and other than sales of inventory in
the ordinary course of business) of all or substantially all of the assets of
Maker on a consolidated basis.
Without the prior approval of the holders of a majority of the outstanding
principal amount of this Note, Maker shall not:
(a) directly or indirectly declare or pay any dividends or any other
distribution of any nature (whether in cash, securities, property or
otherwise, other than dividends or other distributions payable solely
in Common Stock) on the Common Stock;
(b) directly or indirectly redeem, purchase or otherwise acquire any of
the Common Stock; provided, however, that shares of Common Stock may
-------- -------
be redeemed, purchased or otherwise acquired by Maker for the same per
share consideration as set forth in the Purchase Agreement;
(c) make, or permit any of its subsidiaries to make, any loans or advances
to, or guarantees for the benefit of, any person or entity, other than
to direct and indirect subsidiaries of Maker or employees of Maker or
such subsidiaries; or
(d) enter into, or permit any of its subsidiaries to enter into, any
transaction with any of its Affiliates, except for (i) transactions
entered into on an arms'-length basis and (ii) customary employment
arrangements consistent with the past practices of Maker. For
purposes of this subparagraph (d), "Affiliate" as applied to any
person or entity means any other person or entity, directly or
indirectly, controlling, controlled by, or under common control with,
that person or entity, including, but not limited to, directors,
executive officers and 10% shareholders of such entity.
EXHIBIT A TO
JUPITER PURCHASE AGREEMENT
-3-
<PAGE>
To the extent permitted under applicable law and except as expressly
provided otherwise herein, Maker, for itself and its legal representatives,
successors and assigns, waives presentment for payment, demand, notice of non-
payment, notice of dishonor, protest of any dishonor, notice of protest, and
protest of this Note and all other notices whatsoever in connection with the
delivery, acceptance, performance, default or enforcement of the payment of this
Note, and waives any other defense, counterclaim or right of offset it may have
with respect to its obligations under this Note.
Whenever possible, each provision of this Note shall be interpreted in such
a manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited or invalid under such law, such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions of this Note.
This Note shall be binding upon Maker and its successors and assigns. This
Note shall be governed and controlled as to validity, enforcement,
interpretation, construction, effect and in all other respects, by the statutes,
laws and decisions of the State of Illinois.
IN WITNESS WHEREOF, this Note has been duly executed by Maker as of the
date first set forth above.
JG INDUSTRIES, INC.
By:_________________________
Its:________________________
EXHIBIT A TO
JUPITER PURCHASE AGREEMENT
-4-
<PAGE>
EXHIBIT C
TO PROXY STATEMENT
ARTICLES OF AMENDMENT
TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
JG INDUSTRIES, INC.
(Amendment for Reverse Stock Split)
RESOLVED: That the following paragraph (2A) be added in its entirety
between paragraph (2) and paragraph (3) of Article 5 of the Amended and
Restated Articles of Incorporation of the Corporation:
(2A) As of 5:00 p.m., Chicago time, on ________________, 1996 [date of
filing the Articles of Amendment] (the "Reverse Split Date"),
each outstanding share of Common Stock shall be reclassified and
changed into one-third of one share of Common Stock having the
terms specified in this Article 5 (the "1996 Reverse Stock
Split"). Each outstanding stock certificate which immediately
prior to the Reverse Split Date represented a number of shares of
Common Stock shall, without any action on the part of the holder,
hereupon and hereafter, until surrendered as hereinafter
provided, represent one-third of the number of shares of the
Common Stock represented by such certificate immediately prior to
the Reverse Split Date. The registered holder of each such
certificate may, on or after the date hereof, surrender such
certificate to the Corporation for cancellation and, upon such
surrender, shall receive in exchange therefor, without charge, a
new certificate registered in the name of such holder
representing one-third of the number of shares of the Common
Stock which, prior to the Reverse Split Date, was represented by
the certificate(s) representing shares of Common Stock. In
connection with the reclassification contemplated by this
paragraph, no fractional shares shall be issued. In lieu of
fractional shares, a certificate or certificates evidencing the
aggregate of all fractional shares otherwise issuable (rounded,
if necessary, to the next higher whole share) will be issued to
the Corporation's transfer agent, First National Bank of Chicago
(the "Exchange Agent"), or its nominee, as agent for the accounts
of all holders of shares of Common Stock otherwise entitled to
have a fraction of a share issued to them in connection with the
1996 Reverse Stock Split. Sales of fractional shares shall be
effected by the Exchange Agent as soon as practicable on the
basis of prevailing market prices of the Common Stock on the
Nasdaq SmallCap Market at the time of sale. After the Reverse
Split Date, the Exchange Agent will pay to such shareholders
their pro rata share of the net proceeds derived from the sale of
their fractional shares upon surrender of their stock
certificates. The interest in the Corporation of any holder of
fewer than three shares of Common Stock prior to the Reverse
Split Date shall thereby be terminated.
<PAGE>
FRONT
- -----
JG INDUSTRIES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Evelyn P. Egan and Irwin S. Selin, or either of them, are hereby appointed
attorneys and proxies of the undersigned, with the power of substitution, to
attend, vote and act for the undersigned at the annual meeting of shareholders
of JG Industries, Inc. (the "Company") to be held on December 12, 1996 in
Chicago, Illinois, and at any adjournment thereof, and in connection therewith
to vote and present all of the shares of Common Stock of the Company which the
undersigned would be entitled to vote as follows:
1 To approve the issuance in a private sale of 1,500 shares of the Company's
Series B Convertible Preferred Stock, for an aggregate consideration of
$1,500,000.
For[_] Against[_] Abstain[_]
2 To approve the purchase by the Company of 3,879,773 shares of the Company's
Common Stock, and 445 shares of the Company's Series A Preferred Stock,
from Jupiter Industries, Inc.
For[_] Against[_] Abstain[_]
3 To approve an amendment to the Company's 1988 Stock Option Plan to increase
the number of shares of Common Stock issuable under such plan from 320,000
shares to 620,000 shares.
For[_] Against[_] Abstain[_]
4 To approve the proposal to amend the Company's Articles of Incorporation to
effect a one-for-three reverse split of the Company's issued and
outstanding Common Stock.
For[_] Against[_] Abstain[_]
5 [_] FOR all of the following nominees, except those whose names are entered
on the line below: Sheldon Collen, Lionel Goldblatt, William Hellman,
Philip Rootberg, Sheldon Harris, Clarence Farrar and Wallace Schroeder.
__________________________________________________________________________
[_] Withhold authority to vote for all of the above nominees.
6 To approve appointment of Coopers & Lybrand L.L.P. as auditors for the
Company.
For[_] Against[_] Abstain[_]
7 In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
IF THIS PROXY IS DULY EXECUTED AND RETURNED, THIS PROXY WILL BE VOTED, AND WILL
BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS SPECIFIED ABOVE. IF NO INSTRUCTION
IS SPECIFIED THE PROXY WILL BE VOTED FOR ITEMS 1, 2, 3, 4, 5 AND 6.
<PAGE>
BACK
- ----
Account No. of Shares Proxy No.
The undersigned hereby revokes any other proxy or proxies heretofore given to
vote or act with respect to such Common Stock, and hereby ratifies and confirms
all action that said attorneys and proxies, their substitutes, or any of them,
may lawfully take by virtue hereof.
Dated:________________________________
______________________________________
______________________________________
Signature(s) of Stockholder
This proxy should be signed exactly as
your name appears. Joint owners should
both sign. If signed by an attorney,
executor, guardian of or in some other
capacity or as officer of a
corporation, please add title as such.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT IN THE ENCLOSED
ENVELOPE.
