<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
SCHEDULE 13D
(RULE 13D-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO 13D-1(A)
AND AMENDMENTS THERETO FILED PURSUANT TO 13D-2(A)
(Amendment No. 1)/1/
Jay Jacobs, Inc.
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, $.01 par value
- --------------------------------------------------------------------------------
(Title of Class of Securities)
469 816 102
- --------------------------------------------------------------------------------
(CUSIP Number)
Victor I. Chang, Esq. (617) 248-7000
c/o Testa, Hurwitz & Thibeault, LLP,
High Street Tower, 125 High Street, Boston, MA 02110
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
March 11, 1998
- --------------------------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following
box [ ].
Note: Six copies of this statement, including all exhibits, should be
filed with the Commission. See Rule 13d-1(a) for other parties to whom copies
are to be sent.
- -------------
/1/ The remainder of this cover page shall be filled out for a
reporting person's initial filing on this form with respect to the subject class
of securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
<PAGE>
SCHEDULE 13D
- -----------------------
CUSIP NO. 469 816 102
- -----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Edward L. Cahill
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [X]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
AF
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
5 PURSUANT TO ITEMS 2(d) or 2(e) [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
USA
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
36,974,302
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING -0-
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
36,974,302
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
36,974,302
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [X]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
81.8%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
SCHEDULE 13D
- -----------------------
CUSIP NO. 469 816 102
- -----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
David L. Warnock
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [X]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
AF
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
5 PURSUANT TO ITEMS 2(d) or 2(e) [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
USA
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
36,974,302
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING -0-
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
36,974,302
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
36,974,302
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [X]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
81.8%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
SCHEDULE 13D
- -----------------------
CUSIP NO. 469 816 102
- -----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Cahill, Warnock Strategic Partners, L.P.
IRSN: 52-1970604
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [X]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
AF
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
5 PURSUANT TO ITEMS 2(d) or 2(e) [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware Limited Partnership
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
36,974,302
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING -0-
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
36,974,302
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
36,974,302
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [X]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
81.8%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
PN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
SCHEDULE 13D
- -----------------------
CUSIP NO. 469 816 102
- -----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Cahill, Warnock Strategic Partners Fund, L.P.
IRSN: 52-1970619
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
WC
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
5 PURSUANT TO ITEMS 2(d) or 2(e) [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware Limited Partnership
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
36,974,302
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING -0-
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
36,974,302
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
36,974,302
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [X]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
81.8%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
PN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
SCHEDULE 13D
- -----------------------
CUSIP NO. 469 816 102
- -----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Cahill, Warnock & Company, LLC
IRSN: 52-1931617
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [X]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
AF
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
5 PURSUANT TO ITEMS 2(d) or 2(e) [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware Limited Partnership
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
36,974,302
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING -0-
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
36,974,302
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
36,974,302
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [X]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
81.8%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
OO
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
SCHEDULE 13D
- -----------------------
CUSIP NO. 469 816 102
- -----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Strategic Associates, L.P.
IRSN: 52-1991689
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
WC
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
5 PURSUANT TO ITEMS 2(d) or 2(e) [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware Limited Partnership
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
36,974,302
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING -0-
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
36,974,302
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
36,974,302
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [X]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
81.8%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
PN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
This Schedule 13D Amendment No. 1 ("Amendment No. 1") is an amendment to the
Schedule 13D (filed on December 16, 1997) that was filed with the Securities and
Exchange Commission ("SEC") on behalf of Cahill, Warnock Strategic Partners
Fund, L.P. ("Strategic Partners Fund"), Cahill, Warnock Strategic Partners, L.P.
("Strategic Partners"), Strategic Associates, L.P. ("Strategic Associates"),
Cahill, Warnock & Company, LLC ("Cahill, Warnock & Co."), Edward L. Cahill
("Cahill") and David L. Warnock ("Warnock").
Strategic Partners Fund, Strategic Partners, Strategic Associates, Cahill,
Warnock & Co., Cahill and Warnock are sometimes referred to collectively herein
as the "Reporting Persons."
Jay Jacobs, Inc., a Washington corporation, is referred to herein as the
"Issuer."
Unless otherwise noted, the information contained in this Amendment No. 1
amends and supplements the information previously disclosed in the Schedule 13D
filed on behalf of the Reporting Persons on December 16, 1997. Capitalized
terms not defined in this Amendment No. 1 shall have their respective meanings
as set forth in the Schedule 13D filed on behalf of the Reporting Persons on
December 16, 1997.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION:
--------------------------------------------------
On March 11, 1998 Strategic Partners Fund acquired a warrant to purchase
1,020,200 shares of the Issuer's Common Stock in partial consideration for the
purchase of a subordinated debenture of the Issuer in the principal amount of
$1,218,000. The working capital of Strategic Partners Fund was the source of
funds for the purchase. No part of the purchase price was financed by funds or
other consideration borrowed or otherwise obtained for the purpose of acquiring,
holding, trading, or voting the securities.
On March 11, 1998 Strategic Associates acquired a warrant to purchase
56,957 shares of the Issuer's Common Stock in partial consideration for the
purchase of a subordinated debenture of the Issuer in the principal amount of
$68,000. The working capital of Strategic Associates was the source of funds
for the purchase. No part of the purchase price was financed by funds or other
consideration borrowed or otherwise obtained for the purpose of acquiring,
holding, trading, or voting the securities.
ITEM 5. INTEREST IN THE SECURITIES OF THE ISSUER:
----------------------------------------
The information contained in this Item 5 amends and restates, in its
entirety, the information previously disclosed in the Schedule 13D filed on
behalf of the Reporting Persons on December 16, 1997.
(a) Strategic Partners Fund is the record owner of 15,014 shares of Series B
Preferred Stock of the Issuer (the "Fund B Preferred") and a warrant to purchase
1,020,200 shares of the Issuer's Common Stock (the "Fund Warrant"). The Fund B
Preferred and the Fund Warrant are
<PAGE>
currently convertible into 35,034,699 shares of the Issuer's Common Stock (the
"Fund Conversion Shares").
Strategic Associates is the record owner of 831 shares of Series B Preferred
Stock of the Issuer (the "Associates B Preferred") and a warrant to purchase
56,957 shares of the Issuer's Common Stock (the "Associates Warrant"). The
Associates B Preferred and the Associates Warrant are currently convertible into
1,939,603 shares of the Issuer's Common Stock (the "Associates Conversion
Shares").
The Fund Conversion Shares and the Associates Conversion Shares are sometimes
referred to herein collectively as the "Jay Jacobs Shares."
Because of their relationship as affiliated entities, both Strategic Partners
Fund and Strategic Associates may be deemed to own beneficially the Jay Jacobs
Shares. As general partners of Strategic Partners Fund and Strategic
Associates, respectively, Strategic Partners and Cahill, Warnock & Co. may be
deemed to own beneficially the Jay Jacobs Shares. As the individual general
partners of Strategic Partners and as the members of Cahill, Warnock & Co., both
Cahill and Warnock may be deemed to own beneficially the Jay Jacobs Shares.
By virtue of the Voting Agreement (attached hereto as Exhibit 3), each of the
---------
Reporting Persons may be deemed to share voting power with respect to each share
of the Issuer's stock subject to the agreement. Consequently, the Reporting
Persons may be deemed to beneficially own, in addition to the Jay Jacobs Shares,
an additional 23,221,663 shares of the Issuer's Common Stock (the "Agreement
Shares").
Strategic Partners Fund disclaims beneficial ownership of the Associates
Conversion Shares and the Agreement Shares. Strategic Associates disclaims
beneficial ownership of the Fund Conversion Shares and Agreement Shares.
Strategic Partners, Cahill, Warnock & Co., Cahill, and Warnock each disclaim
beneficial ownership of the Jay Jacobs Shares and the Agreement Shares, except
with respect to their pecuniary interest therein, if any.
Each of the Reporting Persons may be deemed to own beneficially 81.8% of the
Issuer's Common Stock, which percentage is calculated based upon (i) 8,216,576
shares of the Issuer's Common Stock reported as outstanding by the Issuer in the
Issuer's Form S-3 Registration Statement as filed with the SEC on February 11,
1998, and (ii) 36,974,302 shares of the Issuer's Common Stock issuable upon
conversion or exercise of the Fund B Preferred, the Fund Warrant, Associates B
Preferred and the Associates Warrant. The calculation of beneficial ownership
percentage does not reflect potential deemed beneficial ownership of the
Agreement Shares.
In Amendment No. 1 to the Limited Partnership Agreement of Strategic Partners
Fund, dated July 26, 1996 (attached hereto as Exhibit 2), Strategic Partners and
---------
the limited partners of Strategic Partners Fund agreed that any securities of a
particular issuer that are acquired by both Strategic Partners Fund and
Strategic Associates shall be sold or otherwise disposed of at substantially the
same time, on substantially the same terms and in amounts proportionate to the
size of each of their investments. As a consequence, Strategic Associates and
Strategic Partners
<PAGE>
Fund may be deemed to be members of a group pursuant to Rule 13d-5(b)(1) of the
Securities Exchange Act of 1934. Strategic Partners, Cahill, Warnock & Co.,
Cahill and Warnock each disclaim membership in the aforementioned group.
(b) Number of Shares as to which each such person has
(i) Sole power to vote or direct the vote:
0 shares for each Reporting Person;
(ii) Shared power to vote or direct the vote:
36,974,302* shares for each Reporting Person;
(iii) Sole power to dispose or to direct the disposition:
0 shares for each Reporting Person;
(iv) Shared power to dispose or to direct the disposition:
36,974,302* shares for each Reporting Person.
* Does not reflect potential deemed beneficial ownership of the Agreement
Shares.
(c) Except as set forth above, none of the Reporting Persons has effected any
transaction in the Shares during the last 60 days.
(d) No other person is known to have the right to receive or the power to
direct the receipt of dividends from, or any proceeds from the sale of, the
Shares beneficially owned by any of the Reporting Persons.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER:
Pursuant to the terms of a Subordinated Debenture Purchase Agreement dated
March 11, 1998 by and among the Issuer, Strategic Partners Fund, Strategic
Associates, and T. Rowe Price (the "Purchase Agreement," attached hereto as
Exhibit 4), Strategic Partners Fund acquired a warrant to purchase 1,020,200
- ---------
shares of the Issuer's Common Stock as partial consideration for the purchase of
a subordinated debenture of the Issuer in the principal amount of $1,218,000.
Pursuant to the Purchase Agreement, Strategic Associates acquired a warrant to
purchase 56,957 shares of the Issuer's Common Stock as partial consideration for
the purchase of a subordinated debenture of the Issuer in the principal amount
of $68,000. In addition, pursuant to the terms of the Purchase Agreement,
Strategic Partners Fund, Strategic Associates and/or T. Rowe Price
<PAGE>
may, upon an event of default by the Issuer, (i) demand immediate payment, (ii)
extend the term of their respective portions of the subordinated debenture and
receive additional warrants to purchase the Issuer's Common Stock or Common
Stock equivalents up to an aggregate amount of 3% (three percent) of the Common
Stock or Common Stock equivalents on a fully diluted basis, (iii) convert the
principal amount of their respective portions of the subordinated debenture into
the Issuer's Series C Preferred Stock (non-voting, non-convertible), or (iv)
enter into any other written agreement with the Issuer.
Pursuant to the terms of a Registration Rights Agreement dated March 11, 1998
by and among the Issuer, Strategic Partners Fund, Strategic Associates and T.
Rowe Price (attached hereto as Exhibit 5), Strategic Partners Fund, Strategic
---------
Associates, and T. Rowe Price are granted, subject to certain restrictions and
limitations, certain demand and "piggyback" registration rights with respect to
the shares of Common Stock issuable upon the exercise of their respective
warrants.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS:
Exhibit 1 - Agreement regarding joint filing of Schedule 13D.
Exhibit 2 - Amendment No. 1 to the Limited Partnership Agreement of
Strategic Partners Fund.*
Exhibit 3 - Voting Agreement dated December 5, 1997, by and among Strategic
Partners Fund, Strategic Associates, T. Rowe Price, Michael D.
Sullivan, Rex Loren Steffey, and William L. Lawrence, Jr.
(filed as Exhibit 4.2 to the Company's Current Report on
-----------
Form 8-K filed December 15, 1997 and incorporated herein by
reference).
Exhibit 4 - Execution Copy of the Subordinated Debenture Purchase Agreement
dated March 11, 1998 by and among the Issuer, Strategic
Partners Fund, Strategic Associates and T. Rowe Price.
Exhibit 5 - Registration Rights Agreement dated March 11, 1998 by and among
the Issuer, Strategic Partners Fund, Strategic Associates and
T. Rowe Price.
Exhibit 6 - Form of Warrant to Acquire 1,020,200 shares of Common Stock or
Common Stock Equivalent Shares of Jay Jacobs, Inc. dated March
11, 1998 issued by the Issuer to Strategic Partners Fund.
Exhibit 7 - Form of Warrant to acquire 56,957 shares of Common Stock or
Common Stock Equivalent Shares of Jay Jacobs, Inc. dated March
11, 1998 issued by the Issuer to Strategic Associates.
* Previously filed as Exhibit 2 to the Schedule 13D filed on behalf of the
Reporting Persons on December 16, 1997.
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of our knowledge and belief, we
certify that the information set forth in this statement is true, complete and
correct.
Dated: March 23, 1998.
/s/ Edward L. Cahill
--------------------
Edward L. Cahill
/s/ David L. Warnock
--------------------
David L. Warnock
CAHILL, WARNOCK STRATEGIC PARTNERS
FUND, L.P.
By: Cahill, Warnock Strategic Partners,
L.P., its Sole General Partner
By: /s/ Edward L. Cahill
--------------------
Edward L. Cahill, General Partner
By: /s/ David L. Warnock
--------------------
David L. Warnock, General Partner
CAHILL, WARNOCK STRATEGIC PARTNERS, L.P.
By: /s/ Edward L. Cahill
--------------------
Edward L. Cahill, General Partner
By: /s/ David L. Warnock
---------------------
David L. Warnock, General Partner
<PAGE>
STRATEGIC ASSOCIATES, L.P.
By: Cahill, Warnock & Co., LLC, its sole
General Partner
By: /s/ Edward L. Cahill
--------------------
Edward L. Cahill, Member
By: /s/ David L. Warnock
--------------------
David L. Warnock, Member
CAHILL, WARNOCK & CO., LLC
By: /s/ Edward L. Cahill
--------------------
Edward L. Cahill, Member
By: /s/ David L. Warnock
--------------------
David L. Warnock, Member
<PAGE>
AGREEMENT
Pursuant to Rule 13d-1(f)(1) under the Securities Exchange Act of 1934, the
undersigned hereby agree that only one statement containing the information
required by Schedule 13D need be filed with respect to the ownership by each of
the undersigned of shares of stock of Jay Jacobs, Inc.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original.
Executed this March 23, 1998.
/s/ Edward L. Cahill
--------------------
Edward L. Cahill
/s/ David L. Warnock
--------------------
David L. Warnock
CAHILL, WARNOCK STRATEGIC PARTNERS FUND,
L.P.
By: Cahill, Warnock Strategic Partners,
L.P., its Sole General Partner
By: /s/ Edward L. Cahill
--------------------
Edward L. Cahill, General Partner
By: /s/ David L. Warnock
--------------------
David L. Warnock, General Partner
CAHILL, WARNOCK STRATEGIC PARTNERS, L.P.
By: /s/ Edward L. Cahill
--------------------
Edward L. Cahill, General Partner
By: /s/ David L. Warnock
--------------------
David L. Warnock, General Partner
STRATEGIC ASSOCIATES, L.P.
By: Cahill, Warnock & Co., LLC, its sole
General Partner
By: /s/ Edward L. Cahill
--------------------
Edward L. Cahill, Member
By: /s/ David L. Warnock
--------------------
David L. Warnock, Member
CAHILL, WARNOCK & CO., LLC
By: /s/ Edward L. Cahill
--------------------
Edward L. Cahill, Member
By: /s/ David L. Warnock
--------------------
David L. Warnock, Member
<PAGE>
Exhibit 4
---------
EXECUTION COPY
- --------------------------------------------------------------------------------
SUBORDINATED DEBENTURE
PURCHASE AGREEMENT
DATED AS OF MARCH 11, 1998
BY AND BETWEEN
JAY JACOBS, INC.
AND
CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.,
STRATEGIC ASSOCIATES, L.P.,
AND
T. ROWE PRICE RECOVERY FUND II, L.P.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1 Authorization, Purchase and Sale of Debentures; Issuance of Warrants....... - 1 -
1.1 Authorization of the Debentures..................................... - 1 -
1.2 Authorization of the Warrants....................................... - 1 -
1.3 Purchase and Sale of Debentures..................................... - 2 -
(a) The Closing.................................................... - 2 -
(b) Use of Proceeds................................................ - 2 -
1.4 Issuance of Warrants................................................ - 2 -
SECTION 2 Certain Terms of the Debentures and Warrants............................... - 2 -
2.1 Certain Terms of the Debentures..................................... - 2 -
(a) General........................................................ - 2 -
(b) Voluntary Prepayment........................................... - 3 -
(c) Mandatory Prepayment........................................... - 3 -
(d) Rights of Holder upon an Event of Default...................... - 4 -
(e) Manner of Conversion........................................... - 4 -
2.2 Certain Terms of the Warrants....................................... - 5 -
2.3 Replacement of Debenture or Warrant................................. - 5 -
2.4 Registration, etc................................................... - 5 -
SECTION 3 Conditions to Purchaser's Obligation....................................... - 6 -
3.1 Certificate that Representations True at Closing.................... - 6 -
3.2 Covenants of the Company............................................ - 6 -
3.3 No Injunction....................................................... - 6 -
3.4 Approvals........................................................... - 6 -
3.5 Opinion of Seller's Counsel......................................... - 6 -
3.6 Delivery of Warrants and Debentures................................. - 6 -
3.7 Other Deliveries.................................................... - 7 -
3.8 Director Approval................................................... - 7 -
3.9 Lender's Consent.................................................... - 7 -
3.10 Preferred Stock Shareholder Approval................................ - 7 -
SECTION 4 Conditions to Company's Obligations........................................ - 7 -
4.1 Certificate That Representations True at Closing.................... - 7 -
4.2 Covenants of Purchaser.............................................. - 8 -
4.3 No Injunction....................................................... - 8 -
4.4 Director Approval................................................... - 8 -
4.5 Lender's Consent.................................................... - 8 -
SECTION 5 Representations and Warranties of the Company.............................. - 8 -
5.1 Authority; Validity................................................. - 8 -
5.2 No Conflicts or Defaults............................................ - 8 -
5.3 Consents and Approvals.............................................. - 9 -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
5.4 Representations and Warranties Regarding the Company................ - 9 -
5.5 No Material Changes................................................. - 9 -
5.6 Accuracy of Information............................................. - 9 -
5.7 Capitalization...................................................... - 9 -
5.8 Payment of Indebtedness............................................. - 10 -
SECTION 6 Representations and Warranties of Purchasers............................... - 11 -
6.1 Authority........................................................... - 11 -
6.2 No Conflicts........................................................ - 11 -
6.3 Investment Representations.......................................... - 11 -
SECTION 7 Events of Default......................................................... - 11 -
7.1 Events of Default................................................... - 11 -
7.2 Annulment of Defaults............................................... - 13 -
SECTION 8 Covenants of the Company................................................... - 14 -
8.1 General Covenants of the Company.................................... - 14 -
(a) Punctual Payment............................................... - 14 -
(b) Payment of Taxes and Other Obligations......................... - 14 -
(c) Maintenance of Insurance....................................... - 14 -
(d) Preservation of Corporate Existence............................ - 14 -
(e) Compliance with Laws........................................... - 15 -
(f) Access to Information.......................................... - 15 -
(g) Keeping of Records and Books of Account........................ - 15 -
(h) Maintenance of Properties, etc................................. - 15 -
(i) Compliance with ERISA.......................................... - 15 -
(j) Dealings with Affiliates....................................... - 15 -
(k) SEC Reports.................................................... - 16 -
(l) Debt........................................................... - 16 -
(m) Proceeds from Public Offering.................................. - 16 -
(n) Use of Proceeds................................................ - 17 -
(o) Additional Warrants and/or Conversion Shares................... - 17 -
(p) Designation of Series C Convertible Preferred Stock and
Common Stock Equivalent Shares................................. - 17 -
(q) Notice to Purchasers Upon an Event of Default.................. - 17 -
SECTION 9 Subordination of Debentures................................................ - 17 -
9.1 Subordinate to Senior Indebtedness.................................. - 17 -
9.2 Ranking with respect to other Subordinated Indebtedness............. - 18 -
SECTION 10 Miscellaneous.............................................................. - 18 -
10.1 Indemnification..................................................... - 18 -
10.2 No Waiver; Cumulative Remedies...................................... - 18 -
10.3 Amendments, Waiver and Consents..................................... - 19 -
10.4 Notices............................................................. - 19 -
</TABLE>
- ii -
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.5 Costs and Expenses.................................................. - 20 -
10.6 Binding Effect; Assignment.......................................... - 20 -
10.7 Survival of Representations and Warranties.......................... - 21 -
10.8 Prior Agreements.................................................... - 21 -
10.9 Governing Law....................................................... - 21 -
10.10 Headings............................................................ - 21 -
10.11 Counterparts........................................................ - 21 -
10.12 Further Assurances.................................................. - 21 -
</TABLE>
- iii -
<PAGE>
SUBORDINATED DEBENTURE PURCHASE AGREEMENT
THIS SUBORDINATED DEBENTURE PURCHASE AGREEMENT (the "Debenture Agreement"
-------------------
or this "Agreement") is made as of March 11, 1998, by and between JAY JACOBS,
INC., a Washington corporation (the "Company") and CAHILL, WARNOCK STRATEGIC
-------
PARTNERS FUND, L.P., a limited partnership organized under the laws of the State
of Delaware, STRATEGIC ASSOCIATES, L.P., a limited partnership organized under
the laws of the State of Delaware, and T. ROWE PRICE RECOVERY FUND II, L.P., a
limited partnership organized under the laws of the State of Delaware (each a
"Purchaser" and collectively, the "Purchasers").
- ---------- ----------
WHEREAS, the Company wishes to sell Purchasers the Company's Debentures (as
defined below) in an aggregate principal amount of Two Million Dollars
($2,000,000);
WHEREAS, to induce the Purchasers to acquire the Company's Debentures and
as consideration hereunder, the Company has agreed to grant Purchasers warrants
(the "Warrants"), as set forth on Exhibit A hereto, to acquire two percent (2%),
-------- ---------
on a fully diluted basis, of the Company's common stock, par value $.01 (the
"Common Stock") or such other stock with rights and privileges set forth on
- -------------
Exhibit B hereto (the "Common Stock Equivalent Shares" or the "Common Stock
- --------- ------------------------------ ------------
Equivalents"); and
- -----------
WHEREAS, each Purchaser wishes to purchase from the Company, severally and
not jointly, the Company's Debentures in the principal amount set forth next to
such Purchaser's name on Exhibit A hereto.
---------
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, the parties hereby agree as follows:
SECTION 1
Authorization, Purchase and Sale
of Debentures; Issuance of Warrants
-----------------------------------
1.1 Authorization of the Debentures. The Company has authorized the
-------------------------------
issuance and sale to Purchasers of the Company's subordinated convertible
debentures in the aggregate original principal amount of Two Million Dollars
($2,000,000). Such debentures shall be substantially in the form set forth as
Exhibit C (each a "Debenture" and collectively the "Debentures"). The Debentures
--------- ----------
shall be repayable at the times and under the terms and conditions specified
therein.
1.2 Authorization of the Warrants. The Company has authorized the
-----------------------------
issuance of Warrants as part of the consideration for the loan evidenced by the
Debentures. The Warrants initially entitle Purchasers to purchase an aggregate
of 1,675,205 shares of the Company's
<PAGE>
Common Stock, or Common Stock Equivalents, at an exercise price of $.01 per
share of Common Stock or $1.00 per Common Stock Equivalent Share, subject to any
adjustment as set forth in Section 3.3 of the Warrant. The Warrant shall be
substantially in the form set forth as Exhibit D (each a "Warrant" and
-------
collectively the "Warrants"). The Company has reserved a sufficient number of
--------
shares of Common Stock or Common Stock Equivalents for issuance upon exercise of
the Warrant. (The shares of Common Stock or Common Stock Equivalents issuable
upon exercise of each Warrant are referred to as the "Warrant Shares.")
--------------
1.3 Purchase and Sale of Debentures.
-------------------------------
(a) The Closing. The Company agrees to issue and sell to each
-----------
Purchaser, and subject to and in reliance upon the representations, warranties,
terms and conditions of this Agreement, each Purchaser agrees to purchase,
severally and not jointly, a Debenture for the purchase price (the "Purchase
Price") and in the principal amount of: (i) One Million Two Hundred Eighteen
Thousand Dollars ($1,218,000) with respect to Cahill, Warnock Strategic Partners
Fund, L.P.; (ii) Sixty-eight Thousand Dollars ($68,000) with respect to
Strategic Associates, L.P.; and (iii) Seven Hundred Fourteen Thousand Dollars
($714,000) with respect to T. Rowe Price Recovery Fund II, L.P. Such purchase
and sale shall take place at a closing (the "Closing") to be held by exchange of
-------
documents on March 11, 1998, or on such other date as may be mutually agreed, at
the offices of Wilmer, Cutler & Pickering at 100 Light Street, 13th Floor,
Baltimore, Maryland 21202 (the date of such Closing is the "Closing Date"). At
------------
the Closing, the Company will issue and deliver to each Purchaser a duly
executed Debenture and Warrant each in the amounts set forth on Exhibit A
---------
hereto. At the Closing, each Purchaser will deliver to the Company severally and
not jointly, by wire transfer of immediately available funds to an account
designated by the Company by written notice to Purchasers, the Purchase Price.
(b) Use of Proceeds. The Company agrees to use the full proceeds, to
---------------
the extent required, from the sale of the Debentures to finance working capital
requirements.
1.4 Issuance of Warrants. At the Closing, the Company agrees to issue to
--------------------
each Purchaser, as part of the consideration for the loan evidenced by the
Debenture, a Warrant substantially in the form as set forth in Exhibit C.
---------
SECTION 2
Certain Terms of the Debentures and Warrants
--------------------------------------------
2.1 Certain Terms of the Debentures.
-------------------------------
(a) General. All principal, interest and amounts outstanding under
the Debentures shall be due and payable in full on December 31, 1998 (the
"Maturity Date"). The Debentures shall bear interest at an annual rate of
-------------
fourteen percent (14%). Accrued and unpaid interest shall be due and payable
semiannually in arrears on June 30 and December 31 of each year until maturity.
Payments of principal and interest on the Debentures shall be made in
<PAGE>
immediately available funds in lawful currency of the United States by wire
transfer directly to an account designated by Purchaser, or its registered
assignee(s) (the Purchaser and any registered assignee(s) of the Debenture is
sometimes referred to as the "Holder") by written notice to the Company or by
------
certified check duly mailed or delivered to Purchaser at its address set forth
in Section 10.4 of the Agreement. The Debenture (and any rights of the Purchaser
hereunder or related thereto) is non-transferable except to a person or entity
controlled by, or under common control with, Purchaser. No sinking fund or
similar provision shall be required to fund payment of principal or interest
under the Debenture. Payment of principal and interest on the Debenture is
unsecured.
(b) Voluntary Prepayment. Except as set forth herein, the Debenture
--------------------
may not be prepaid or redeemed, in whole or in part, by the Company prior to
maturity without the prior written consent of the Holder of the Debenture.
(c) Mandatory Prepayment. Unless agreed to in writing by the Holder,
--------------------
the Company shall be required to prepay:
(i) In the event that the Company consummates a registered
underwritten public offering covering the offer and sale of Common
Stock or Common Stock Equivalents for the account of the Company in
which net proceeds to the Company of the public offering equals or
exceeds $5 million (a "Public Offering"), then the Company must apply,
---------------
at the request of the Holder, the proceeds of such Public Offering (to
the extent available after payment of all Senior Indebtedness (as
defined in Section 9.5 herein) to prepay the unpaid principal amount
and outstanding interest of this Debenture;
(ii) Upon an Event of Default, subject to the provisions of
Section 2.1(d);
(iii) Upon a Change of Control (as defined below) of the
Company, in which case the Holder shall have the right, at is sole
discretion, to require the Company to repurchase the Debenture upon
ten (10) business days' prior written notice at a price equal to 105%
of the principal amount of the Debenture plus any unpaid interest
thereon. The Company shall provide the Holder with written notice
within two (2) business days of a Change of Control. For purposes of
this Section only, "Change of Control" means any event or series of
-----------------
events by which (A) any Person or group obtains a majority (by voting
or otherwise) of the securities of the Company ordinarily having the
right to vote in the election of directors; (B) during any two year
period, individuals who at the beginning of any such two year period
constituted the Board of Directors of the Company (together with any
new directors whose election by such Board or whose nomination for
election by the stockholders of the Company was approved by a vote of
the majority of the directors then still in office who were either
directors at the beginning of such period or whose election,
recommendation, or nomination for election was previously so approved)
cease for any reason to constitute a majority
<PAGE>
of the Board of Directors of the Company then in office; (C) the
merger, consolidation, reorganization, recapitalization, dissolution
or liquidation of the Company if as a result the current stockholders
no longer own more than 50% of the voting securities of the Company;
(D) any sale, lease, exchange or other transfer of all, or
substantially all, of the assets of the Company; or (E) the adoption
of a plan leading to the liquidation or dissolution of the Company; or
(iv) Upon the issuance of any subordinated indebtedness by the
Company, other than the Debentures ("New Subordinated Debt").
--------------------
(d) Rights of Holder upon an Event of Default. Upon an Event of
-----------------------------------------
Default (including without limitation failure to pay principal and interest),
the Holder, at its discretion, shall have the right to:
(i) demand payment in full of the principal amount of the
Debenture and all unpaid interest thereon;
(ii) extend the term of the Debenture, for an additional term of
up to a maximum of one year, subject to receiving additional warrants
(the "Additional Warrants") to purchase Common Stock or Common Stock
-------------------
Equivalents equal to such Holder's Pro Rata Interest (as set forth on
Exhibit A hereto) in an aggregate of three percent (3%) of the Common
---------
Stock or Common Stock Equivalents on a fully diluted basis; in such
case the terms of the Additional Warrants shall be substantially
similar to those of the Warrants, including without limitation a term
of five years and an exercise price of $.01 per share of Common Stock
or $1.00 per Common Stock Equivalent Share;
(iii) convert the principal amount of this Debenture, or any
portion thereof, into the number of fully paid and non-assessable
shares of Series C Convertible Preferred Stock, par value $.01 per
share, with the rights and preferences set forth in Exhibit E, of the
---------
Company determined by dividing the principal amount so converted by
the purchase price of $100 per share (the "Conversion Shares"); or
-----------------
(iv) enter into such other written agreement with the Company
upon terms and conditions mutually agreeable to the parties thereto.
(e) Manner of Conversion. The manner of conversion shall be set
--------------------
forth in the Debenture.
2.2 Certain Terms of the Warrants. The Warrants initially shall be
exercisable into an aggregate of 1,675,205 shares of Common Stock or Common
Stock Equivalents, as set forth on Exhibit A hereto, subject to adjustment
---------
pursuant to Section 3.3 of the Warrant. The Warrants shall be exercisable at any
time between the Closing Date and the fifth anniversary of the Closing Date (the
"Exercise Period"), regardless of whether any or all of the Debentures have been
---------------
<PAGE>
redeemed. The Warrant entitles the holder (the Purchaser and any registered
assignee(s) of the Warrant is sometimes referred to as the "Holder") to purchase
------
the Warrant Shares at an exercise price ("Exercise Price") of $.01 per share.
--------------
During the Exercise Period, at the option of the Holder, the Warrant may be
exercised in whole or in part by payment in cash, bank cashier's check or
certified check.
2.3 Replacement of Debenture or Warrant. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Debenture or Warrant and, if requested in the case of any such loss, theft or
destruction, upon delivery of an indemnity bond or other agreement or security
reasonably satisfactory to the Company, or, in the case of any such mutilation,
upon surrender and cancellation of such Debenture or Warrant, the Company will
issue a new Debenture or Warrant, of like tenor and amount, in lieu of such
lost, stolen, destroyed or mutilated Debenture or Warrant; provided, however, if
-------- -------
any Debenture or Warrant of which Purchaser, its nominee, or any of its
partners, officers or principals is the registered Holder is lost, stolen or
destroyed, the affidavit of such principal or general partner or any principal
or corporate officer of such Holder setting forth the circumstances with respect
to such loss, theft or destruction, together with an agreement to indemnify the
Company with respect thereto shall be delivered to the Company and shall be
accepted as satisfactory evidence thereof, and no bond or other security shall
be required as a condition to the execution and delivery by the Company of a new
Debenture or Warrant in replacement of such lost, stolen or destroyed Debenture
or Warrant.
2.4 Registration, etc. The Company shall maintain at its principal office
-----------------
a register with respect to the Debentures and the Warrants and shall record
therein the names and addresses of the respective registered Holders thereof, to
which notices are to be sent and the addresses to which payments (in the case of
the Debentures) are to be made as designated by the registered Holder if other
than the address of such Holder, and the particulars of all permitted transfers,
exchanges and replacements of the Debentures and Warrants. Provided that such
transfer is permitted herein, the Company shall record on such register any and
all transfers of the Debentures and Warrants by or for the registered Holder or
such Holder's executors or administrators or their duly appointed attorney, in
form reasonably satisfactory to the Company, in order to maintain an accurate
record of the Holder(s) thereof. Each Debenture and Warrant issued hereunder,
whether originally or upon transfer, exchange or replacement, shall be
registered on the date of execution thereof by the Company. The registered
Holder of a Debenture or Warrant issued hereunder shall be that individual,
corporation, partnership, joint venture, trust or unincorporated organization or
other entity (a "Person") in whose name the Debenture or Warrant has been so
------
registered by the Company. A registered Holder shall be deemed the owner of a
Debenture or Warrant for all purposes of this Agreement and, subject to the
provisions hereof, shall be entitled to all of the benefits thereof and rights
thereunder free from all equities or rights of set off or counterclaim between
the Company and the transferor of such registered Holder or any previous
registered Holder of such Debenture or Warrant.
<PAGE>
SECTION 3
Conditions to Purchaser's Obligation
------------------------------------
The obligation of each Purchaser to purchase and pay for the Debenture at
the Closing is subject to the following conditions, which may be waived by each
Purchaser at its sole discretion:
3.1 Certificate that Representations True at Closing. Purchasers shall
------------------------------------------------
have received the executed certificate of an executive officer of the Company to
the effect that each of the Company's representations and warranties herein,
including without limitation those incorporated by reference herein, and in any
document or instrument delivered to Purchasers hereunder shall be true and
correct on the Closing Date with the same force and effect as though such
representations and warranties had been made again on and as of such time.
3.2 Covenants of the Company. The Company shall have duly performed all
------------------------
of the covenants, acts and undertakings to be performed by it on or prior to the
Closing Date, including but not limited to the closing deliveries required of it
and shall deliver to Purchasers an executed certificate of an executive officer
of the Company to such effect.
3.3 No Injunction. No action, proceeding, investigation, regulation or
-------------
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain, prohibit, or obtain
substantial damages in respect of, or that is related to, or arises out of, this
Agreement or the consummation of the transactions contemplated hereby, or which
is related to or arises out of the business of the Company, if such action,
proceeding, investigation, regulation or legislation, in the reasonable judgment
of Purchaser, would make it inadvisable to consummate such transactions.
3.4 Approvals. The execution and the delivery of this Agreement and the
---------
consummation of the transactions contemplated hereby shall have been approved by
all regulatory authorities whose approvals are required by law and by all third
parties whose approvals are required by an agreement binding upon the Company.
3.5 Opinion of Seller's Counsel. Purchasers shall have received from
---------------------------
Stoel Rives, LLP, counsel to the Company, an opinion addressed to Purchasers,
dated the Closing Date, in form and substance reasonably satisfactory to
Purchasers and their counsel.
3.6 Delivery of Warrants and Debentures. Purchasers shall have received
-----------------------------------
from the Company the Debentures, in substantially the form of Exhibit C hereto,
---------
and Warrants, in substantially the form of Exhibit D hereto, all duly authorized
---------
and executed by an officer of the Company in the amounts set forth on Exhibit A
---------
hereto.
3.7 Other Deliveries. Purchasers shall have received from the Company (i)
a letter executed by a duly authorized executive officer of the Company, which
is attached hereto as Exhibit G, confirming that, except as set forth therein,
---------
the Company has not undergone any material change since December 5, 1997 (the
"Bring-down Letter"); (ii) a Registration Rights Agreement substantially in the
-----------------
form of Exhibit H granting each Purchaser registration rights described therein
---------
with respect to the Warrant Shares and any shares of Common Stock or
<PAGE>
Common Stock Equivalents obtained, directly or indirectly, upon conversion of a
Debenture pursuant to Section 2.1(d); (iii) an incumbency certificate; (iv) a
certificate executed by the Company's Secretary stating that the articles of
incorporation and bylaws attached thereto are true, complete and accurate as of
the Closing Date; and (v) a short form Certificate of Good Standing, or
equivalent certificate, from the State of Washington.
3.8 Director Approval. The transactions described in this Agreement shall
-----------------
have been approved by the three directors of the Company who have no interest in
those transactions.
3.9 Lender's Consent. General Electric Capital Corporation ("GECC" or
----
the "Lender") shall have (i) consented in writing to the transactions hereunder,
------
and (ii) executed and delivered to the Company and the Purchasers an amendment,
in form and content satisfactory to the Company and the Purchasers, to the Loan
and Security Agreement, dated as of August 29, 1997 (as amended, the "GECC Loan
---------
Agreement") between the Company and GECC.
- ---------
3.10 Preferred Stock Shareholder. The Series A Preferred Stock
---------------------------
shareholders and the Series B Convertible Preferred Stock shareholders shall
have approved the designation of 20,000 shares of preferred stock as Series C
Convertible Preferred Stock with the rights and preferences set forth in
Exhibit E.
- ---------
SECTION 4
Conditions to Company's Obligations
-----------------------------------
The obligation of the Company to issue and sell the Debentures at the
Closing is subject to the following conditions, which may be waived by the
Company at its sole discretion:
4.1 Certificate That Representations True at Closing. The Company shall
------------------------------------------------
have received an executed certificate of each Purchaser to the effect that
Purchaser's representations and warranties herein and in any document or
instrument delivered to the Company hereunder shall be true and correct on the
Closing Date with the same force and effect as though such representations and
warranties had been made again on and as of such time.
4.2 Covenants of Purchaser. Purchasers shall have duly performed all of
----------------------
the covenants, acts and undertakings to be performed by it on or prior to the
Closing Date, including but not limited to the closing deliveries required of
them and shall deliver to the Company an executed certificate of each Purchaser
to such effect.
4.3 No Injunction. No action, proceeding, investigation, regulation or
-------------
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain, prohibit, or obtain
substantial damages in respect of, or that is related to, or arises out of, this
Agreement or the consummation of the transactions contemplated hereby, or which
is related to or arises out of the business of Purchasers, if such action,
proceeding, investigation, regulation or legislation, in the reasonable judgment
of Company,
<PAGE>
would make it inadvisable to consummate such transactions.
4.4 Director Approval. The transactions described in this Agreement shall
-----------------
have been approved by the three directors of the Company who have no interest in
those transactions.
4.5 Lender's Consent. GECC shall have (i) consented in writing to the
----------------
transactions hereunder, and (ii) executed and delivered to the Company and the
Purchasers an amendment, in form and content satisfactory to the Company and the
Purchasers, to the GECC Loan Agreement.
SECTION 5
Representations and Warranties of the Company
---------------------------------------------
The Company hereby represents and warrants to and agrees with each
Purchaser as follows:
5.1 Authority; Validity. The Company has the full legal right, power and
-------------------
authority to enter into this Agreement and to issue the Debentures and Warrants
in accordance with the terms of this Agreement. This Agreement has been duly and
validly executed by the Company and this Agreement, the Debentures and Warrants
constitute legal, valid and binding obligations of the Company, enforceable in
accordance with their terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity) and except to the extent that rights to
indemnification and contribution under this Agreement may be limited by federal
or state securities laws or public policy thereto.
5.2 No Conflicts or Defaults. Except as set forth in Schedule 5.2, the
------------------------
execution, delivery and performance of this Agreement, the Debentures and the
Warrants and the consummation of the transactions by the Company contemplated
hereby and thereby will not conflict with, violate or result in a breach or
constitute a default under any mortgage, indenture, loan agreement (including
without limitation the GECC Loan Agreement) or other agreement or instrument
binding upon the Company (including without limitation the Company's articles of
incorporation and/or bylaws), or any order, decree, statute, ordinance,
regulation or other law applicable to the Company; and the Company is not in
default under any such agreement. Except as disclosed in the Preferred
Agreement, the Company is not currently in default under any such agreement,
instrument or law.
5.3 Consents and Approvals. Except for (i) the consent of the Company's
Common Stock shareholders with respect to authorizing the proposed one-for-
fifteen reverse stock split and/or the issuance of additional shares of Common
Stock and (ii) the filing of the articles of amendment with respect to the
designation of the Series C Convertible Preferred Stock, with the rights and
preferences set forth in Exhibit E, and Common Stock Equivalent Shares, no
---------
consent,
<PAGE>
approval, order or authorization of, or registration, declaration or filing
with, any governmental authority or any third party (including without
limitation GECC or any other lender) is required in connection with the
execution, delivery and performance of this Agreement, the Debentures and the
Warrants by the Company and the consummation of the transactions by the Company
hereunder.
5.4 Representations and Warranties Regarding the Company. In order to
----------------------------------------------------
induce the Purchasers to enter into this Agreement, the Company hereby
represents and warrants that except as set forth on Schedule 5.4, each of the
------------
representations and Warranties regarding the Company set forth in Section 4 of
the Preferred Stock Purchase Agreement, dated as of December 5, 1997, by and
between the parties hereto and other parties named therein (the "Preferred
---------
Agreement"), attached hereto as Exhibit F, is true, complete and accurate in all
- --------- ---------
respects as if such representations and warranties had been made on the date
hereof.
5.5 No Material Changes. Except as set forth in the Bring-down Letter,
-------------------
attached hereto as Exhibit F, there have been no material changes with respect
---------
to the Company (including without limitation the Company's capital stock) since
December 5, 1997.
5.6 Accuracy of Information. None of this Agreement, the Debentures, the
-----------------------
Warrants nor any certificate, instrument or other agreement furnished or to be
furnished by or on behalf of the Company (including without limitation the
Preferred Agreement), contains or will contain any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein and therein not misleading.
5.7 Capitalization.
--------------
(a) The authorized capital stock of the Company is 25,000,000 shares,
consisting of 20,000,000 shares of common stock, par value $.01 per share
("Common Stock") of which 8,216,546 shares are issued and outstanding and no
- --------------
shares are held in treasury, and 5,000,000 shares of preferred stock, consisting
of 46,000 shares of Series A Stock and 25,000 shares of Series B Stock, all of
which is issued and outstanding. Schedule 5.7 lists all options, warrants or
------------
other rights of any kind granted by the Company to purchase or otherwise acquire
capital stock of the Company issued and outstanding prior to Closing. The
Company has duly and validly reserved for issuance 74,896,731 shares of Common
Stock upon exercise or conversion of currently outstanding rights, options,
warrants and other convertible securities. The Company has reserved and
designated or, prior to the Closing, will reserve and designate 20,000 shares of
Series C Convertible Preferred Stock and 1,675,520 shares of Common Stock for
issuance upon conversion of the Warrants, and has reserved a sufficient number
of shares of Common Stock Equivalents for issuance upon conversion of the
Warrants, and will, concurrent with the termination of all currently outstanding
options, reserve 17,342,761 shares of Common Stock for issuance upon exercise of
options authorized under the Management Option Plan. Except as listed on
Schedule 5.7, there are outstanding (i) no shares of capital stock or other
- ------------
voting stock of the Company or any Subsidiary, (ii) no securities of the
Company, any Subsidiary or any Person convertible into or exchangeable for
shares of capital stock or voting securities of the Company or any Subsidiary,
(iii) no options, warrants or other rights to acquire
<PAGE>
from the Company or any Subsidiary (including any rights issuable or issued
under any shareholder rights plan or similar arrangement), and no obligations,
contingent or otherwise, of the Company or any Subsidiary to issue any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or voting securities of the Company or any Subsidiary, (iv) no
equity equivalent in the earnings or ownership of the Company, any Subsidiary or
any Person or any similar rights to share earnings or ownership, and (v) no
outstanding obligations of the Company to repurchase, redeem or otherwise
acquire any of its securities or to make any investment (by loan, capital
contribution or otherwise) in any entity or Person. All outstanding options,
rights and warrants have been duly and validly issued and are in full force and
effect. All shares of capital stock subject to issuance upon exercise of any
options, rights or warrants or otherwise, upon issuance pursuant to the
instruments under which they are issuable, assuming approval of the fifteen-for-
one reverse stock split, shall be duly authorized, validly issued, fully paid
for and non-assessable and free of all preemptive rights. No outstanding
options, warrants or other securities exercisable for or convertible into shares
of capital stock of the Company require anti-dilution adjustments by reason of
the consummation of the transactions contemplated hereby.
(b) The issued and outstanding shares of capital stock of the Company
are duly authorized, validly issued, fully paid and non-assessable. Upon
delivery to the Purchasers of certificates therefor against payment in
accordance with the terms of this Agreement, the Debentures, the Warrants, and
the Warrant Shares (i) will be validly issued, fully paid and non-assessable,
(ii) will be free and clear of all Liens, and (iii) assuming that the
representations of the Purchasers in Section 6 hereof are true and correct, will
be issued in compliance with all applicable federal and state securities laws.
5.8 Payment of Indebtedness. Except as set forth on Schedule 5.8 hereto,
----------------------- ------------
the Company has satisfied in full all obligations (including without limitation
payments due with respect to leases, taxes and payables) owed by the Company
where payment of such obligation is at least thirty (30) days past the date on
which payment was initially due.
SECTION 6
Representations and Warranties of Purchasers
--------------------------------------------
Each Purchaser (severally and not jointly) hereby represents and warrants
to and agrees with the Company as follows:
6.1 Authority. Purchaser is duly organized and validly existing and has
---------
the full legal right, power and authority to enter into this Agreement. This
Agreement has been duly and validly authorized, executed and delivered by
Purchaser and constitutes a valid and binding obligation of Purchaser,
enforceable in accordance with its terms.
6.2 No Conflicts. The execution, delivery and performance of this
------------
Agreement and the consummation of the transactions by Purchaser contemplated
hereby will not conflict with, violate or result in a breach or constitute a
default under, any mortgage, indenture, loan
<PAGE>
agreement or other agreement or instrument, or any order, decree, statute,
ordinance, regulation or other law applicable to the Purchaser.
6.3 Investment Representations.
--------------------------
(a) Purchaser is acquiring the Debenture and the Warrant for its own
account for investment, and not with a view to the distribution thereof within
the meaning of the Securities Act of 1933, as amended (the "Securities Act");
--------------
(b) Purchaser is an "Accredited Investor" as defined under the
-------------------
Securities Act; and
(c) Purchaser is aware and it acknowledges that neither the Debenture
nor the Warrant is registered under the Securities Act or any state securities
laws, and that the Debenture and the Warrant are each subject to certain
restrictions on the subsequent transfer and/or sale thereof.
SECTION 7
Events of Default
------------------
7.1 Events of Default. For so long as any indebtedness under the
-----------------
Debentures shall be outstanding, the following events shall constitute an event
of default hereunder (each an "Event of Default" and collectively the "Events of
---------------- ---------
Default"):
- -------
(a) The Company shall fail to pay any installment of principal of or
interest on the Debentures when due (including without limitation payment in
full of all principal and unpaid interest on the Maturity Date) and any such
failure shall not be cured by full performance thereof within five (5) business
days after written notice thereof shall have been given to the Company by any
registered Holder of the Debentures; or
(b) The Company shall default in the performance of any covenant
contained in Section 8 of this Agreement, any financing or loan agreement
(including without limitation the GECC Loan Agreement), and any such failure
shall not be cured by full performance thereof within five (5) business days
after written notice thereof shall have been given to the Company by any
registered Holder of the Debentures; or
(c) Any representation or warranty made by the Company or any
Subsidiary in this Agreement (including without limitation those incorporated
herein from the Preferred Agreement) or by the Company or any Subsidiary (or any
officers of the Company or any Subsidiary) in any certificate, instrument or
written statement contemplated by or made or delivered pursuant to or in
connection with this Agreement, any financing or loan agreement (including
without limitation the GECC Loan Agreement), shall prove to have been incorrect
when made in any material respect; or
<PAGE>
(d) The Company or any Subsidiary shall fail to perform or observe any
other material term, covenant or agreement contained in the Debentures, or the
Warrants on its part to be performed or observed and any such failure shall not
be cured or by full performance thereof within five (5) days after written
notice thereof shall have been given to the Company by any registered Holder of
the Debenture or Warrant; or
(e) The Company or any Subsidiary shall (i) admit in writing its
inability to pay its debts generally as they become due; (ii) commence a
voluntary case under Title 11 of the United States Code as from time to time in
effect, or authorize, by appropriate proceedings of its Board of Directors or
other governing body, the commencement of such a voluntary case; (iii) file an
answer or other pleading omitting or failing to deny the material allegations of
a petition filed against it commencing an involuntary case under such Title 11,
or seek, consent to or acquiesce in the relief therein provided, or fail to
controvert timely the material allegations of any such petition; (iv) suffer the
entry of an order for relief in any involuntary case commenced under said Title
11; (v) seek relief as a debtor under any applicable law, other than said Title
11, of any jurisdiction relating to the liquidation or reorganization of debtors
or to the modification or alteration of the rights of creditors, or consent to
or acquiesce in such relief; (vi) suffer the entry of an order by a court of
competent jurisdiction (A) finding it to be bankrupt or insolvent, (B) ordering
or approving its liquidation, reorganization or any modification or alteration
of the rights of its creditors, or (C) assuming custody of, or appointing a
receiver or other custodian for, all or a substantial part of its property (not
otherwise covered by subsection (f) below); or (vii) make an assignment for the
benefit of, or enter into a composition with, its creditors, or appoint or
consent to the appointment of a receiver or other custodian or all or a
substantial part of its property; or
(f) Any judgment, writ, warrant of attachment or execution or similar
process shall be issued or levied against the property of the Company or any
Subsidiary in an aggregate amount which exceeds $250,000 and such judgment,
writ, or similar process shall not be released, vacated or fully bonded or
stayed pending appeal within sixty (60) days after its issue or levy; or
(g) The Company fails to prepay the unpaid principal amount of the
Debenture and outstanding interest thereon, to the extent available after
payment of all Senior Indebtedness, in the event of (i) a Public Offering, (ii)
a Change of Control, or (iii) an issuance of New Subordinated Debt.
Upon the occurrence of any Event of Default, and in any such event, Purchaser or
any other Holder of any Debenture may, by notice to the Company, declare the
entire unpaid principal amount of such Debenture, all interest accrued and
unpaid thereon and all other amounts payable to such Holder under such Debenture
or this Agreement to be forthwith due and payable, whereupon such Debenture, all
such accrued interest and all such amounts shall become and be forthwith due and
payable (unless there shall have occurred an Event of Default under Section
6.1(e) in which case all such accounts shall automatically become due and
payable without such declaration), without presentment, demand, protest or
further notice of any kind, all of which are
<PAGE>
hereby expressly waived by the Company with respect to itself and its
Subsidiaries.
Upon the occurrence of any Event of Default, the Holder shall have the rights
set forth in Section 2.1(d).
7.2 Annulment of Defaults. Section 7.1 is subject to the condition that,
---------------------
if at any time after the principal of any Debenture shall have become due and
payable, and before any judgment or decree for the payment of the moneys so due
shall have been entered, all arrears of interest upon such Debenture and all
other sums payable to the Holder under such Debenture and under this Agreement
(except the principal amount which by such declaration shall have become
payable) shall have been duly paid, and every other default and Event of Default
shall have been made good or cured, then and in every such case the Holder of
such Debenture, by written instrument delivered to the Company, may rescind and
annul such declaration and its consequences; but no such rescission or annulment
shall extend to or affect any other or subsequent default or Event of Default or
impair any right of the holders of any other Debentures consequent thereon.
SECTION 8
Covenants of the Company
------------------------
8.1 General Covenants of the Company. Without limiting any other
--------------------------------
covenants and provisions hereof, the Company covenants and agrees that, as long
as any Debenture or Warrant is outstanding, it will perform and observe the
following covenants and provisions and will cause each Subsidiary to perform
and observe such of the following covenants and provisions as are applicable to
such Subsidiary:
(a) Punctual Payment. The Company shall pay the principal of and interest
----------------
on the Debentures at the times and place and in the manner provided in the
Debentures and herein.
(b) Payment of Taxes and Other Obligations. The Company shall pay and
--------------------------------------
discharge, and cause each Subsidiary to pay and discharge, all material taxes,
assessments and governmental charges or levies imposed on it or upon its income
or profits or business, or upon any properties belonging to it, prior to the
date on which penalties attach thereto, and all lawful claims which, if unpaid,
might likely become a lien or charge upon any properties of the Company or any
Subsidiary, provided that neither the Company nor the Subsidiary shall be
required to pay any such tax, assessment, charge, levy or claim which is being
contested and/or negotiated in good faith and by appropriate proceedings if the
Company or Subsidiary concerned shall have set aside on its books adequate
reserves with respect thereto. The Company shall pay, when due, or in conformity
with customary trade terms, all material lease obligations, all material trade
debt, and all other material indebtedness incident to the operations of the
Company, except such as are being contested in good faith and by appropriate
proceedings if the Company shall have set aside on its books adequate reserves
with respect thereto.
<PAGE>
(c) Maintenance of Insurance. The Company shall maintain, and cause each
------------------------
Subsidiary to maintain, insurance with responsible and reputable insurance
companies or associations in such amounts and covering such risks as is usually
carried by companies engaged in similar businesses and owning similar properties
in the same general areas in which the Company or such Subsidiary operates.
(d) Preservation of Corporate Existence. Except with the prior written
-----------------------------------
consent of the Purchasers, the Company shall preserve and maintain, and cause
each Subsidiary to preserve and maintain, its corporate existence, rights,
franchises and privileges in the jurisdiction of its incorporation, and qualify
and remain qualified, and cause each Subsidiary to qualify and remain qualified,
as a foreign corporation in each jurisdiction in which such qualification is
necessary or desirable in view of its business and operations or the ownership
of its properties; the Company shall preserve and maintain, and cause each
Subsidiary to preserve and maintain, all licenses and other rights to use
patents, processes, licenses, trademarks, trade names, inventions, intellectual
property rights or copyrights owned or used by and necessary to the conduct of
its business; provided, however, that the Company shall not be required to
-------- -------
preserve any such Subsidiary, license or right if the Board of Directors shall
determine that the preservation is no longer desirable in the conduct of the
Company's business and that the loss thereof is not, and will not be, adverse in
any material respect to the Holders of the Debentures and/or Warrants.
(e) Compliance with Laws. The Company shall comply, and cause each
--------------------
Subsidiary to comply, with all applicable laws, rules, regulations and orders of
any governmental authority, noncompliance with which could materially adversely
affect its business or condition, financial or otherwise.
(f) Access to Information. In the Event of a Default (as defined in
---------------------
Section 7.1 above), the Company shall permit Purchaser or any representatives
thereof, at any reasonable time and from time to time, to receive, to examine
and make copies of and extract from the records and books of account of
(including without limitation unaudited balance sheets of the Company as at the
end of each month and unaudited statements of income and of cash flows of the
Company for each month and for the current fiscal year to the end of each month,
setting forth in comparative form the Company's budget for the corresponding
periods for the current fiscal year, all in reasonable detail and duly certified
by the chief financial officer of the Company as having been prepared in
accordance with generally accepted accounting principles consistently applied),
and visit and inspect the properties of, the Company and any Subsidiary, and to
discuss the affairs, finances and accounts of the Company and any Subsidiary
with any of their officers or directors and independent accountants.
(g) Keeping of Records and Books of Account. The Company shall keep, and
---------------------------------------
cause each Subsidiary to keep, adequate records and books of account, in which
complete entries shall be made in accordance with generally accepted accounting
principles consistently applied, reflecting all financial transactions of the
Company and such Subsidiary, and in which, for each fiscal year, all proper
reserves for depreciation, depletion, obsolescence, inventory realization,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
<PAGE>
(h) Maintenance of Properties, etc. The Company shall maintain and
------------------------------
preserve, and cause each Subsidiary to maintain and preserve, all of its
properties, necessary or useful in the proper conduct of its business, in good
repair, working order and condition, ordinary wear and tear excepted, except as
otherwise determined by the Board of Directors.
(i) Compliance with ERISA. The Company shall use its best efforts to
---------------------
comply, and cause each Subsidiary to comply, with the provisions of ERISA and
the Code, and the rules and regulations thereunder, which are applicable to any
Plan. Neither the Company nor any Subsidiary shall permit any event or condition
it knows to exist which would likely permit any such plan to be terminated under
circumstances which would cause the lien provided for in Section 4068 of ERISA
to attach to the assets of the Company or any Subsidiary.
(j) Dealings with Affiliates. Except for employee or director
------------------------
compensation, stock bonus, stock option or similar plans or arrangements
approved by the Board of Directors, the Company will not enter or permit any
Subsidiary to enter into any transaction with any holder of five percent (5%) or
more of any class of capital stock of the Company, or any member of their
families or any corporation or other entity in which any one or more of such
stockholders or members of their immediate families directly or indirectly holds
five percent (5%) or more of any class of capital stock except in the ordinary
course of business and on terms not less favorable to the Company or the
Subsidiary than it would obtain in a transaction between unrelated parties.
(k) SEC Reports. The Company shall file all reports and other information
-----------
and documents which it is required to file with the Securities and Exchange
Commission ("SEC") pursuant to Section 13 or 15(d) of the Securities and
---
Exchange Act of 1934, as amended (the "Exchange Act"). The Company will cause
------------
any quarterly and annual reports, proxy statements and any other documents which
it mails to its stockholders to be mailed to the registered Holder of the
Debenture.
If the Company is not subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act, the Company will prepare, for the first three
quarters of each fiscal year, quarterly financial statements substantially
equivalent to the financial statements required to be included in a report on
Form 10-Q under the Exchange Act. The Company will also prepare, on an annual
basis, complete audited consolidated financial statements, including, but not
limited to, a balance sheet, a statement of income and retained earnings, a
statement of changes in financial position and all appropriate notes. All such
financial statements will be prepared in accordance with generally accepted
accounting principles consistently applied, except for changes with which the
Company's independent accountants concur, and except that quarterly statements
may be subject to year-end adjustments. The Company will cause a copy of such
financial statements to be mailed to the registered Holders of the Debentures
and Warrants as soon as available within sixty (60) days after the close of each
of the first three quarters of each fiscal year and within one hundred twenty
(120) days after the close of each fiscal year.
The Holders of the Debentures and Warrants and prospective purchasers
designated by such Holder will have the right to obtain from the Company upon
request by such Holder or
<PAGE>
prospective purchasers, during any period in which the Company is not subject to
Section 13 or 15(d) of the Exchange Act, the information required by Rule
144A(d)(4)(i) of the Securities Act.
(l) Debt. The Company shall not and shall not permit any Subsidiary to
----
create, incur, assume, guaranty or suffer to exist any secured debt in excess of
an aggregate of $14 million outstanding principal amount, excluding purchase
money indebtedness for office equipment or fixtures; or issue any New
Subordinated Indebtedness without first repurchasing the Debentures pursuant to
Section 2.1(c)(iv) hereof.
(m) Proceeds from Public Offering. The Company shall apply, at the
-----------------------------
request of a Purchaser, the proceeds of a Public Offering to prepay the unpaid
principal amount and outstanding interest on the Debentures, to the extent that
proceeds are available after payment in full of any Senior Indebtedness (as
defined in Section 9.1).
(n) Use of Proceeds. The Company shall apply the proceeds received as a
---------------
result of the transactions contemplated hereunder as set forth in Section
1.3(b), or as otherwise agreed to by the parties in writing.
(o) Additional Warrants and/or Conversion Shares. The Company shall fully
--------------------------------------------
and unconditionally comply with a Holder's election to receive Additional
Warrants or Conversion Shares pursuant to Section 2.1(d) within ten (10) days
from the date on which the Company receives notice of such Holder's
determination or such longer period as may reasonably be required; provided
--------
however that the Company shall diligently take all actions necessary to comply
- -------
with such request as promptly as possible after the ten day period. The
Conversion Shares, the Additional Warrants, and the shares of Common Stock or
Common Stock Equivalent Shares issuable upon conversion of the Conversion Shares
and/or Additional Warrants shall be duly authorized, validly issued, fully paid
and non-assessable; will be free and clear of all Liens; and assuming that the
representations of the Purchasers in Section 6 hereof are true and correct, will
be issued in compliance with all applicable federal and state securities laws.
(p) Designation of Series C Convertible Preferred Stock and Common Stock
--------------------------------------------------------------------
Equivalent Shares. By no later than May 1, 1998, the board of directors of the
- -----------------
Company shall designate and reserve: (i) 20,000 shares of the Company's
preferred stock as Series C Convertible Preferred Stock for issuance as
Conversion Shares; and (ii) a sufficient number of shares of the Company's
preferred stock as Common Stock Equivalent Stock for issuance upon conversion of
the Warrants, Additional Warrants and/or Conversion Shares if the Company does
not have a sufficient number of shares of its Common Stock to issue upon such
conversions.
(q) Notice to Purchasers Upon an Event of Default. Upon the occurrence
---------------------------------------------
of an Event of Default (including without limitation an event of default under
any loan agreement with senior debt creditors) and prior to the expiration of
any applicable cure period, the Company shall provide prompt notice of such
Event of Default to each Purchaser pursuant to Section 10.4 hereof.
<PAGE>
SECTION 9
Subordination of Debentures
---------------------------
9.1 Subordinate to Senior Indebtedness. The Company agrees, and each
----------------------------------
Purchaser by its acceptance hereof likewise agrees, that the payment of the
principal of and interest on these Debentures is hereby expressly made subject
to the terms and conditions contained in that certain Subordination Agreement,
which is attached hereto as Exhibit I, dated as of March 11, 1998, by and
---------
between each of the Purchasers and GECC (the "Subordination Agreement").
-----------------------
9.2 Ranking with respect to other Subordinated Indebtedness. The
-------------------------------------------------------
Debentures shall rank pari passu with all other Subordinated Indebtedness of the
Company. "Subordinated Indebtedness" means any indebtedness of the Company,
-------------------------
whether outstanding on the date hereof or incurred, assumed or guaranteed by the
Company, which is subordinated in right of payment or in rights upon liquidation
to Senior Indebtedness.
9.3 Miscellaneous. The Company agrees that no provision of the
-------------
Subordination Agreement, by its own terms, shall impair as between each
Purchaser and the Company, the Company's obligations to pay each Purchaser the
principal, interest, and other charges due under this Agreement as and when the
same shall become due in accordance with the terms of this Agreement, the
Debentures, and the Warrants; and no provision of the Subordination Agreement,
by its own terms, shall prevent any Purchaser from exercising all rights and
remedies otherwise permitted by applicable law upon default.
SECTION 10
Miscellaneous
-------------
10.1 Indemnification. The Company hereby agrees to indemnify, exonerate
---------------
and hold each Purchaser and each of its partners, and their stockholders,
officers, directors, employees and agents free and harmless from and against any
and all actions, causes of action, suits, litigation, losses, liabilities and
damages, investigations or proceedings instituted by any governmental agency or
any other Person, and expenses in connection therewith, including without
limitation reasonable attorneys' fees and disbursements, incurred by the
indemnitee or any of them as a result of, or arising out of, or relating to (a)
any transaction financed or to be financed in whole or in part directly or
indirectly with proceeds from the sale by the Company of any securities
hereunder, or (b) the execution, delivery, performance or enforcement of this
Agreement or any instrument contemplated hereby by any of the indemnitees,
except in each such case to the extent any such indemnified liabilities arise on
account of such indemnitee's gross negligence, willful misconduct or bad faith.
Purchasers hereby agree to indemnify, exonerate and hold the Company and its
stockholders, officers, directors, employees and agents free and harmless from
and against any and all actions, causes of action, suits, litigation, losses,
liabilities and damages, investigations or proceedings instituted by any
governmental agency or any other Person, and expenses in connection therewith,
including without limitation reasonable attorneys' fees and
<PAGE>
disbursements, incurred by the indemnitee or any of them as a result of, or
arising out of, or relating to the execution, delivery, performance or
enforcement of this Agreement or any instrument contemplated hereby by any of
the indemnitees, except in each such case to the extent any such indemnified
liabilities arise on account of such indemnitee's gross negligence, willful
misconduct or bad faith.
10.2 No Waiver; Cumulative Remedies. No failure or delay on the part of
------------------------------
any party in exercising any right, power or remedy hereunder or thereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder or thereunder. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
10.3 Amendments, Waiver and Consents. No amendment, modification or
-------------------------------
addition to this Agreement, and no waiver of or consent to noncompliance with
any covenant or other provision of this Agreement, the Debentures or the
Warrants shall be effective unless in writing and duly executed by the party
against whom enforcement of such amendment, modification, addition, waiver or
consent is sought. Any waiver or consent may be given subject to satisfaction of
conditions stated therein and any waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
10.4 Notices. All notices, demands, requests, or other communications
-------
which may be or are required to be given, served, or sent by any party to any
other party pursuant to this Agreement shall be in writing and shall be mailed
by first-class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by hand delivery (including delivery by courier), or
facsimile transmission, addressed as follows:
(a) if to the Company:
Jay Jacobs, Inc.
1530 Fifth Avenue
Seattle, Washington 98101
Facsimile No.: (206) 621-9830
Attn.: Rex L. Steffey
with a copy to:
Stoel Rives, LLP
One Union Square
600 University Street, Suite 3600
Seattle, Washington 98101-3197
Facsimile No.: (206) 386-7500
Attn: Lee J. Brunz, Esq.
<PAGE>
(b) if to the Purchasers:
c/o Cahill, Warnock & Company, LLC
One South Street, Suite 2150
Baltimore, Maryland 21202
Attn: Edward L. Cahill
Facsimile No.: (410) 895-3805
with a copy to:
Wilmer, Cutler & Pickering
100 Light Street
Baltimore, Maryland 21202
Attn: George P. Stamas, Esq.
Facsimile No.: (410) 986-2828
and:
T. Rowe Price Recovery Fund II, L.P.
100 East Pratt Street, 7th Floor
Baltimore, Maryland 21202
Attn: Kim Golden
Facsimile No.: (410) 345-2304
with a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, Massachusetts 02110
Attn: Michael Collins, Esq.
Facsimile No.: (617) 248-7100
Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Each notice, demand, request, or communication which shall be mailed, delivered
or transmitted in the manner described above shall be deemed sufficiently given,
served, sent and received for all purposes at such time as it is delivered to
the addressee (with the return receipt, the delivery receipt, the affidavit of
messenger being deemed conclusive (but not exclusive) evidence of such delivery)
or at such time as delivery is refused by the addressee upon presentation.
10.5 Costs and Expenses. The Company agrees to pay all of the Purchasers'
------------------
reasonable legal fees and expenses (incurred by Wilmer, Cutler & Pickering and
Testa, Hurwitz & Thibeault, LLP) in connection with the preparation, execution
and delivery of this Agreement, the Debenture, the Warrant and other instruments
and documents to be delivered hereunder.
<PAGE>
10.6 Binding Effect; Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the Company and each Purchaser and their respective
successors and assigns and in addition shall inure to the benefit of and be
enforceable by each Person who shall become from time to time a Holder of any
Debenture and/or Warrant; provided, however, that the Company shall not have the
-------- -------
right to assign its rights hereunder or any interest herein without the prior
written consent of each Purchaser. The parties hereto agree that the Warrants
are not attached to the Debentures and the Warrants may be assigned separately
from the Debentures.
10.7 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties made in this Agreement, the Debentures or any other instrument or
document delivered in connection herewith or therewith, shall survive the
execution and delivery hereof or thereof until the payment in full of the
outstanding principal and accrued interest of the Debentures, except for those
representations and warranties of the Company made in the Preferred Agreement
and incorporated herein, which shall survive as provided in the Preferred
Agreement.
10.8 Prior Agreements. This Agreement, the Debentures, the Warrants, and
----------------
the instruments in documents referred to herein constitutes the entire agreement
between the parties and supersedes any prior understandings or agreements
concerning the subject matter hereof.
10.9 Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the State of Delaware (excluding the choice of laws
provisions thereof).
10.10 Headings. Article, Section and subsection headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
10.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and each of the parties hereto may execute this Agreement by signing
any such counterpart.
10.12 Further Assurances. From and after the date of this Agreement, upon
------------------
the request of Purchaser, the Company and each Subsidiary shall execute and
deliver such instruments, documents and other writings as may be necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement, the Debentures, the Warrants, the Warrant Shares,
the Conversion Shares, the Additional Warrants and the other agreements and
instruments contemplated hereby.
[Balance of Page Left Blank Intentionally -- Signature Page Follows]
<PAGE>
DEBENTURE PURCHASE AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed on its behalf as of the date first above written.
THE COMPANY: JAY JACOBS, INC.
By:
______________________________
Name: Rex L. Steffey
Title: President and Chief Executive Officer
THE PURCHASERS: CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.
By: CAHILL WARNOCK STRATEGIC PARTNERS, L.P.,
its General Partner
By:
______________________________
Name: Edward L. Cahill
Title: a General Partner
STRATEGIC ASSOCIATES, L.P.
By: CAHILL, WARNOCK & COMPANY, LLC
its General Partner
By:
______________________________
Name: Edward L. Cahill
Title: Managing Member
T. ROWE PRICE RECOVERY FUND II, L.P.
By: T. ROWE PRICE RECOVERY FUND II ASSOCIATES,
L.L.C., its General Partner
By: T. ROWE PRICE ASSOCIATES, INC., its Manager
By:
______________________________
Name: Kim Z. Golden
Title: Managing Director
<PAGE>
Exhibit 5
---------
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement"), dated as of March 11,
---------
1998, is by and among Jay Jacobs, Inc. (the "Company") and the parties listed
under the heading of Investors on signature page attached hereto (the
"Investors").
---------
WHEREAS, the Investors and the Company are, on the date hereof, entering
into a Debenture Purchase Agreement (the "Purchase Agreement") pursuant to which
------------------
the Company is issuing to the Investors (i) convertible subordinated debentures
in an aggregate principal amount of $2,000,000 (the "Debentures") and (ii)
----------
warrants (the "Warrants") to acquire shares of the Company's common stock, par
--------
value $.01 per share ("Common Stock") or shares of preferred stock designated as
------------
having rights and preferences substantially similar to the Common Stock (the
"Common Stock Equivalent Shares");
- -------------------------------
WHEREAS, upon the occurrence of certain events set forth in the Debentures
and in the Purchase Agreement, each Debenture is convertible into (i) additional
warrants (the "Additional Warrants") to acquire Common Stock or Common Stock
-------------------
Equivalents or (ii) shares of Series C Convertible Preferred Stock (the "Series
------
C Preferred Shares"), which would be convertible into shares of Common Stock or
- ------------------
Common Stock equivalents; and
WHEREAS, the Company has agreed to grant to the Investors, as an inducement
to enter into the Purchase Agreement, certain rights with respect to the
Debentures, the Warrants, the Additional Warrants, the Series C Preferred
Shares, and the Conversion Shares;
NOW, THEREFORE, in consideration of the premises set forth herein, the
parties hereto hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission, or any
----------
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, $.01 par value, of the
------------
Company, as constituted as of the date of this Agreement.
"Common Stock Equivalents or Common Stock Equivalent Shares" shall
----------------------------------------------------------
mean shares of preferred stock of the Company designated as Series D Preferred
Stock, which shall have all of the rights and preferences of Common Stock and
shall be convertible into Common Stock on a 1 to 100 basis.
<PAGE>
"Conversion Shares" shall mean shares of Common Stock or Common Stock
-----------------
Equivalents issued or issuable upon (i) conversion of the Series C Preferred
Shares, (ii) exercise of the Warrants or Additional Warrants, and (iii) any
shares of capital stock received in respect of the shares described in clause
(i) and/or clause (ii).
"Exchange Act" shall mean 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.
"Holder" shall mean the person who is the then record owner of
------
Restricted Stock.
"Registrable Shares" shall mean the shares of Restricted Stock.
------------------
"Registration Expenses" shall mean the expenses so described in
---------------------
Section 8.
"Restricted Stock" shall mean the Conversion Shares, excluding shares
----------------
which have been (a) registered under the Securities Act pursuant to an effective
registration statement filed thereunder and disposed of in accordance with the
registration statement covering them or (b) publicly sold pursuant to Rule 144
under the Securities Act.
"Securities Act" shall mean 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.
2. Restrictive Legend.
------------------
Each certificate representing the Restricted Stock shall bear a legend
stating in substance:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED [FOR NON
U.S. PERSONS ADD: IN THE UNITED STATES OR TO U.S. PERSONS] WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE
SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS, OR THE
AVAILABILITY OF AN EXEMPTION FROM THE REGISTRATION PROVISIONS OF THE
SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS.
A certificate shall not be required to bear such legend if, in the opinion
of counsel satisfactory to the Company, the securities represented thereby may
be publicly sold without registration under the Securities Act.
2
<PAGE>
3. Notice of Proposed Transfer.
---------------------------
Prior to any proposed transfer of any Restricted Stock (other than under
the circumstances described in Section 4, 5 or 6), the Holder thereof shall give
written notice to the Company of its intention to effect such transfer. Each
such notice shall describe the manner of the proposed transfer and, if requested
by the Company, shall be accompanied by an opinion of counsel satisfactory to
the Company to the effect that the proposed transfer may be effected without
registration under the Securities Act, whereupon the Holder of such stock shall
be entitled to transfer such stock in accordance with the terms of its notice;
provided, however, that no such opinion of counsel shall be required for a
- -------- -------
distribution by a corporation, partnership, limited partnership, limited
liability company or other entity formed to hold investments in other businesses
to its shareholders, partners, members or other equity holders of such stock in
respect of such interest. Each certificate for shares of Restricted Stock
transferred as above provided shall bear the legend set forth in Section 2,
except that such certificate shall not bear such legend if (i) such transfer is
in accordance with the provisions of Rule 144 (or any other rule permitting
public sale without registration under the Securities Act) or (ii) the opinion
of counsel referred to above is to the further effect that the transferee and
any subsequent transferee (other than an affiliate of the Company) would be
entitled to transfer such securities in a public sale without registration under
the Securities Act. The restrictions provided for in this Section 3 shall not
apply to securities which are not required to bear the legend prescribed by
Section 2 in accordance with the provisions of that Section.
4. Required Registration.
---------------------
(a) At any time prior to December 31, 2007, the Holders of Registrable
Shares constituting at least 51% of the total shares of Registrable Shares then
outstanding may request the Company to register under the Securities Act all or
any portion of the Registrable Shares held by such requesting Holder or Holders
for sale in the manner specified in such notice, provided that the Registrable
--------
Shares for which registration has been requested shall constitute at least 25%
of the total Registrable Shares originally issued if such Holder or Holders
shall request the registration of less than all Registrable Shares then held by
such Holder or Holders. Notwithstanding anything to the contrary contained
herein, no request may be made under this Section 4 within 180 days after the
effective date of a registration statement filed by the Company covering a firm
commitment underwritten public offering in which the Holders of Registrable
Shares shall have been entitled to join pursuant to Section 5 or 6 and in which
there shall have been effectively registered all Registrable Shares to which
registration shall have been requested.
(b) Following receipt of any notice under this Section 4, the Company
shall immediately notify all Holders of Registrable Shares from whom notice has
not been received and shall use its reasonable best efforts to register under
the Securities Act, for public sale in accordance with the method of disposition
specified in such notice from requesting Holders, the number of Registrable
Shares specified in such notice (and in all notices received by the Company from
other Holders within 30 days after the giving of such notice by the Company).
If
3
<PAGE>
such method of disposition shall be an underwritten public offering, the
Holders of a majority of the Registrable Shares to be sold in such offering may
designate the managing underwriter of such offering, subject to the approval of
the Company, which approval shall not be unreasonably withheld or delayed. The
Company shall be obligated to register Registrable Shares pursuant to this
Section 4 on two occasions only, provided, however, that such obligation shall
-------- -------
be deemed satisfied only when a registration statement, which covers all
Registrable Shares specified in notices received as aforesaid and with respect
to which the request for registration has not been withdrawn and provides for
sale of such shares in accordance with the method of disposition specified by
the requesting Holders, shall have become effective and, if such method of
disposition is a firm commitment underwritten public offering, all such shares
shall have been sold pursuant thereto.
(c) The Company shall be entitled to include in any registration
statement referred to in this Section 4, for sale in accordance with the method
of disposition specified by the requesting Holders, shares of Common Stock to be
sold by the Company for its own account, except as and to the extent that, in
the opinion of the managing underwriter (if such method of disposition shall be
an underwritten public offering), such inclusion would adversely affect the
marketing of the Registrable Shares to be sold. Except for registration
statements on Form S-4, S-8 or any successor thereto, the Company will not file
with the Commission any other registration statement with respect to its Common
Stock or Common Stock Equivalent Shares, whether for its own account or that of
other stockholders, from the date of receipt of a notice from requesting Holders
pursuant to this Section 4 (the "Demand Holders") until the first to occur of
--------------
(i) withdrawal of such registration statement or (ii) the effectiveness of such
registration statement unless such registration statement relates to a firm
commitment underwritten public offering, then the completion of the period of
distribution of the registration contemplated thereby; provided, however, that
-------- -------
following receipt of any notice under this Section 4, the Company shall
immediately notify all holders of the Company's Common Stock or Common Stock
Equivalent Shares who have contractual rights to demand registrations pursuant
to the terms of any other registration rights agreement to which the Company is
a party. Upon the written request of such demand rights holders constituting
the requisite percentages of shares to initiate a demand under such other
registration rights agreement specifying the number of shares to be registered,
which request shall be deemed to be an exercise of a demand right under the
terms of the registration rights agreement to which they are parties, such
demand rights holders shall be deemed to be Demand Holders and the shares
requested to be registered by such Demand Holders shall be deemed to be
Registrable Shares, in each case, for purposes of Section 4(d), provided that
--------
such written request is received by the Company within 30 days of the giving of
notice by the Company.
(d) If, in the opinion of the managing underwriter, the inclusion in a
registration statement to be filed under this Section of any shares other than
the Registrable Shares requested to be registered under this Section by Demand
Holders would adversely affect the marketing of such shares, then, in such event
(a) such other shares may be included in such registration only if all of the
Registrable Shares requested to be registered by Demand Holders hereunder are
included, and (b) such other shares shall be subject to the provisions of
Section 5 and the first sentence of Section 4(c) as to priority of inclusion.
If, in the opinion of the
4
<PAGE>
managing underwriter, the inclusion of the Registrable Shares requested to be
registered under this Section by Demand Holders would adversely affect the
marketing of such Registrable Shares, Registrable Shares to be sold by the
Demand Holders shall be excluded in such manner that the Registrable Shares to
be excluded shall first be the Registrable Shares of Demand Holders who are not
affiliates (as defined in Rule 144 of the Securities Act) of the Company (the
"Affiliate Holders") and whose Registrable Shares are then saleable under
- -----------------
Rule 144(e) or Rule 144(k) under the Securities Act and then pro rata among
them, and if further reduction is necessary, shall next be pro rata among the
remaining Registrable Shares of the Demand Holders who are Affiliate Holders or
whose Registrable Shares are not then saleable under Rule 144(e) or Rule 144(k);
provided, however, that, notwithstanding anything in this Agreement to the
- -------- -------
contrary, in respect of the first underwritten public offering following the
date of this Agreement, no reduction shall reduce the number of shares which may
be sold by requesting Holders to less than 25% of the shares to be sold in such
offering.
5. Incidental Registration.
-----------------------
If the Company at any time (other than pursuant to Section 4 or Section 6)
proposes to register any of its securities under the Securities Act for sale to
the public, whether for its own account or for the account of other
securityholders or both (except with respect to registration statements on Forms
S-4, S-8 or another form not available for registering the Restricted Stock for
sale to the public), each such time the Company will give written notice to all
Holders of outstanding Restricted Stock of its intention to do so. Upon the
written request of any such Holder received by the Company within 30 days of the
giving of any such notice by the Company to register any of such Holder's
Restricted Stock (which request shall state the intended method of disposition
thereof), the Company will use its reasonable best efforts to cause the
Restricted Stock as to which registration shall have been so requested to be
included in the securities to be covered by the registration statement proposed
to be filed by the Company, all to the extent requisite to permit the sale or
other disposition by the Holder (in accordance with such Holder's written
request) of such Restricted Stock so registered. In the event that any
registration pursuant to this Section 5 shall be, in whole or in part, an
underwritten public offering of Common Stock or Common Stock Equivalent Shares,
the number of shares of Restricted Stock to be included in such an underwriting
may be reduced if and to the extent that the managing underwriter shall be of
the opinion that such inclusion would adversely affect the marketing of the
securities to be sold by the Company or the requesting party therein or that
such reduction is otherwise advisable; provided, however, that after any shares
-------- -------
to be sold by holders that do not have contractual rights to have shares
included in such registration have been excluded, shares to be sold by the
Holders shall be excluded in such manner that the shares to be excluded shall
first be the shares of selling Holders and other requesting holders who, in each
case, are not Affiliate Holders and whose shares are then saleable under Rule
144(e) or Rule 144(k) under the Securities Act and then pro rata among them, and
if further reduction is necessary, shall next be pro rata among the remaining
shares of the selling Holders and other requesting holders who are Affiliate
Holders or whose shares are not then saleable under Rule 144(e) or Rule 144(k),
unless such registration is pursuant to the exercise of a demand right of
another securityholder, in which event such securityholder shall be entitled to
include all shares it desires to have so included before any shares of
Restricted Stock or shares of any other holder
5
<PAGE>
are included therein and provided, however, that, notwithstanding anything in
-------- -------
this Agreement to the contrary, in respect of the first underwritten public
offering following the date of this Agreement, no reduction shall reduce the
number of shares which may be sold by requesting Holders to less than 25% of the
shares to be sold in such offering.
6. Registration on Form S-3.
------------------------
If at any time prior to December 31, 2007 (i) a Holder or Holders of
Registrable Shares request that the Company file a registration statement on
Form S-3 or any successor thereto for a public offering of all or any portion of
the Registrable Shares held by such requesting Holder or Holders, with a
reasonably anticipated aggregate price to the public of at least $500,000, and
(ii) the Company is a registrant entitled to use Form S-3 or any successor
thereto to register such shares, then the Company shall use its reasonable best
efforts to register under the Securities Act on Form S-3 or any successor
thereto, for public sale in accordance with the method of disposition specified
in such notice, the number of Registrable Shares specified in such notice.
Whenever the Company is required by this Section 6 to use its reasonable best
efforts to effect the registration of Registrable Shares, each of the procedures
and requirements of Section 4 (including but not limited to the requirement that
the Company notify all Holders of Registrable Shares from whom notice has not
been received and provide them with the opportunity to participate in the
offering) shall apply to such registration, provided, however, that there shall
-------- -------
be up to five (5) registrations on Form S-3 which may be requested and obtained
under this Section 6, and the Company shall not be obligated to register
Registrable Shares pursuant to this Section 6 on more than one occasion per
twelve (12) month period, and provided, further, however, that the requirements
-------- ------- -------
contained in the first sentence of Section 4(a) shall not apply to any
registration on Form S-3 which may be requested and obtained under this Section
6.
7. Registration Procedures.
-----------------------
If and whenever the Company is required by the provisions of Section 4, 5
or 6 to use its reasonable best efforts to effect the registration of any shares
of Restricted Stock under the Securities Act, the Company will, as expeditiously
as possible:
(a) prepare and file with the Commission a registration statement
(which, in the case of an underwritten public offering pursuant to Section 4,
shall be on Form S-1 or other form of general applicability satisfactory to the
managing underwriter selected as therein provided) with respect to such
securities and use its reasonable best efforts to cause such registration
statement to become and remain effective for the period of the distribution
contemplated thereby (determined as hereinafter provided);
(b) 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 for
the period specified in paragraph (a) above and comply with the provisions of
the Securities Act with respect to the disposition of all Restricted Stock
covered by such registration statement in accordance with the sellers' intended
method of disposition set forth in such registration statement for such period;
6
<PAGE>
(c) furnish to each seller of Restricted Stock and to each underwriter
such number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or other disposition of the
Restricted Stock covered by such registration statement;
(d) use its reasonable best efforts to register or qualify the
Restricted Stock covered by such registration statement under the securities or
"blue sky" laws of such jurisdictions as the sellers of Restricted Stock or, in
the case of an underwritten public offering, the managing underwriter reasonably
shall request, provided, however, that the Company shall not for any such
-------- -------
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(e) use its reasonable best efforts to list the Restricted Stock
covered by such registration statement with any securities exchange on which the
Common Stock is then listed;
(f) immediately notify each seller of Restricted Stock and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing, and promptly prepare
and furnish to such seller a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to the purchasers of
such Restricted Stock, such prospectus shall not include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing;
(g) if the offering is underwritten and at the request of any seller
of Restricted Stock as provided herein, use its reasonable best efforts to
furnish on the date that Restricted Stock is delivered to the underwriters for
sale pursuant to such registration: (i) an opinion dated such date of counsel
representing the Company for the purposes of such registration, addressed to the
underwriters and to such seller, stating that such registration statement has
become effective under the Securities Act and that (A) to the knowledge of such
counsel, no stop order suspending the effectiveness thereof has been issued and
no proceedings for that purpose have been instituted or are pending or
threatened under the Securities Act, (B) the registration statement, the related
prospectus and each amendment or supplement thereof comply as to form in all
material respects with the requirements of the Securities Act (except that such
counsel need not express any opinion as to financial statements, schedules and
other financial or statistical information contained therein) and (C) to such
other effects as reasonably may be requested by counsel for the underwriters or
by such seller or its counsel; and (ii) a letter dated such date from the
independent public accountants retained by the Company, addressed to the
underwriters and to such seller, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the
7
<PAGE>
Company included in the registration statement or the prospectus, or any
amendment or supplement thereof, comply as to form in all material respects with
the applicable accounting requirements of the Securities Act, and such letter
shall additionally cover such other financial matters (including information as
to the period ending no more than five business days prior to the date of such
letter) with respect to such registration as such underwriters reasonably may
request;
(h) make available for inspection by each seller of Restricted Stock,
any underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement;
(i) cooperate with the selling holders of Restricted Stock and the
managing underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing Restricted Stock to be sold, such certificates to
be in such denominations and registered in such names as such holders or the
managing underwriters may request at least two business days prior to any sale
of Restricted Stock; and
(j) permit any holder of Restricted Stock which holder, in the sole
and exclusive judgment, exercised in good faith, of such holder, might be deemed
to be a controlling person of the Company, to participate in good faith in the
preparation of such registration or comparable statement and to require the
insertion therein of material, furnished to the Company in writing, which in the
reasonable judgment of such holder and its counsel should be included.
For purposes of Section 7(a) and 7(b) and of Section 4(c), the period of
distribution of Restricted Stock included therein shall be deemed to extend
until the first to occur of (i) each underwriter's completion of the
distribution of all securities purchased by it, and (ii) one hundred and twenty
(120) days.
In connection with each registration hereunder, the sellers of Restricted
Stock will furnish to the Company in writing such information with respect to
themselves and the proposed distribution by them as reasonably shall be
necessary in order to assure compliance with federal and applicable state
securities laws.
In connection with each registration pursuant to Section 4, 5 or 6 covering
an underwritten public offering, the Company and each seller agree to enter into
a written agreement with the managing underwriter selected in the manner herein
provided in such form and containing such provisions as are customary in the
securities business for such an arrangement between such underwriter and
companies of the Company's size and investment stature.
No Holder of shares of Restricted Stock included in a registration
statement shall (until further notice) effect sales thereof after receipt of
telegraphic or written notice from the Company to suspend sales to permit the
Company to correct or update a registration statement or
8
<PAGE>
prospectus; but the obligations of the Company with respect to maintaining any
registration statement current and effective shall be extended by a period of
days equal to the period such suspension is in effect unless (i) such extension
would result in the Company's inability to use the financial statements in the
registration statement as initially filed and (ii) such correction or update did
not result from the Company's acts or failures to act.
At the end of the period during which the Company is obligated to keep the
registration statement current and effective as described above (and any
extensions thereof required by the preceding sentence), the Holders of shares of
Restricted Stock included in the registration statement shall discontinue sales
of shares pursuant to such registration statement upon receipt of notice from
the Company of its intention to remove from registration the shares covered by
such registration statement which remain unsold, and such Holders shall notify
the Company of the number of shares registered which remain unsold immediately
upon receipt of such notice from the Company.
8. Expenses.
--------
All expenses incurred by the Company in complying with Section 4, 5 and 6,
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel and independent public accountants
for the Company, fees and expenses (including counsel fees) incurred in
connection with complying with state securities or "blue sky" laws, fees of the
National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars, costs of insurance, and fees and disbursements
of one counsel for the sellers of Restricted Stock, but excluding any Selling
Expenses, are called "Registration Expenses." All underwriting discounts and
selling commissions applicable to the sale of Restricted Stock are called
"Selling Expenses."
The Company will pay all Registration Expenses in connection with each
registration statement under Section 4, 5 or 6. All Selling Expenses in
connection with each registration statement under Section 4, 5 or 6 shall be
borne by the participating sellers in proportion to the number of shares sold by
each, or by such participating sellers other than the Company (except to the
extent the Company shall be a seller) as they may agree.
9. Indemnification and Contribution.
--------------------------------
(a) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Section 4, 5 or 6, the Company will
indemnify and hold harmless each seller of such Restricted Stock thereunder, its
officers and directors, each underwriter of such Restricted Stock thereunder and
each other person, if any, who controls such seller or underwriter within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such seller, officer, director,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such Restricted Stock was registered under the Securities
Act pursuant to Section 4,
9
<PAGE>
5 or 6, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, (ii) any blue sky application or other document
executed by the Company specifically for that purpose or based upon written
information furnished by the Company filed in any state or other jurisdiction in
order to qualify any or all of the Restricted Stock under the securities laws
thereof (any such application, document or information herein called a "Blue Sky
Application"), (iii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (iv) any violation by the Company or its agents of any
rule or regulation promulgated under the Securities Act applicable to the
Company or its agents and relating to action or inaction required of the Company
in connection with such registration, or (v) any failure to register or qualify
the Restricted Stock in any state where the Company or its agents has
affirmatively undertaken or agreed in writing that the Company (the undertaking
of any underwriter chosen by the Company being attributed to the Company) will
undertake such registration or qualification on the seller's behalf (provided
that in such instance the Company shall not be so liable if it has undertaken
its best efforts to so register or qualify the Restricted Stock) and will
reimburse each such seller, and such officer and director, each such underwriter
and each such controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will
-------- -------
not be liable in any such case if and to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by any such seller, any such underwriter or any such
controlling person in writing specifically for use in such registration
statement or prospectus, and except that the foregoing indemnity agreement is
subject to the condition that, insofar as it relates to any such untrue
statement or alleged untrue statement or omission or alleged omission made in
the preliminary prospectus but eliminated or remedied in the amended prospectus
on file with the Commission at the time the registration statement becomes
effective or in the amended prospectus filed with the Commission pursuant to
Rule 424(b) or in the prospectus subject to completion and term sheet under Rule
434 of the Securities Act, which together meet the requirements of Section 10(a)
of the Securities Act (the "Final Prospectus"), such indemnity agreement shall
----------------
not inure to the benefit of any such seller, any such underwriter or any such
controlling person, if such seller, underwriter or controlling person was
obligated under law to provide a copy of the Final Prospectus to the person or
entity asserting the loss, liability, claim or damage and failed to do so after
sufficient copies of the Final Prospectus were delivered by the Company to such
seller, underwriter or controlling person in sufficient time to deliver the
Final Prospectus within the period required by the Securities Act; provided,
--------
further, that this indemnity shall not be deemed to relieve any underwriter
- -------
of any of its due diligence obligations.
(b) To the extent permitted by law, in the event of a registration of
any of the Restricted Stock under the Securities Act pursuant to Section 4, 5 or
6, each seller of such Restricted Stock thereunder, severally and not jointly,
will indemnify and hold harmless the Company, each person, if any, who controls
the Company within the meaning of the Securities Act, each officer of the
Company who signs the registration statement, each director of the Company, each
underwriter and each person who controls any underwriter within the meaning of
the Securities Act, against all losses, claims, damages or liabilities, joint or
several, to which the
10
<PAGE>
Company or such officer, director, underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions 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 Restricted Stock was
registered under the Securities Act pursuant to Section 4, 5 or 6, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances in which they were made, and will reimburse the Company and each
such officer, director, underwriter or controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
-------- -------
that such seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in reliance upon and in conformity with information pertaining
to such seller furnished in writing to the Company by such seller specifically
for use in such registration statement or prospectus, and provided, further,
-------- -------
that the foregoing indemnity agreement is subject to the condition
that, insofar as it relates to any such untrue statement or alleged untrue
statement or omission or alleged omission made in the preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the Commission at
the time the registration statement becomes effective or in the Final
Prospectus, such indemnity agreement shall not inure to the benefit of the
Company, any controlling person or any underwriter, if the Company, underwriter
or controlling person was obligated under law to provide a copy of the Final
Prospectus to the person or entity asserting the loss, liability, claim or
damage and failed to do so within the period required by the Securities Act;
provided, further, that this indemnity shall not be deemed to relieve any
- -------- -------
underwriter of any of its due diligence obligations; and provided, further, that
-------- -------
in no event shall any indemnity by a seller under this Section 9(b) exceed the
gross proceeds from the offering received by such seller.
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 9 and shall only relieve it
from any liability which it may have to such indemnified party under this
Section 9 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
--------
however, that, if the defendants in any such action include both the indemnified
- -------
party and the indemnifying party and counsel to the indemnified party shall have
reasonably concluded that there are reasonable
11
<PAGE>
defenses available to the indemnified party which are different from or
additional to those available to the indemnifying party or if the interests of
the indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, the indemnified party shall have the right to select a
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred. No indemnifying party, in the defense of any
such claim or litigation, shall, except with the consent of each indemnified
party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any Holder of
Restricted Stock exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for Indemnification pursuant to this
Section 9 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 9 provides for
indemnification in such case, or (ii) contribution under the Securities Act may
be required on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided under this Section
9; then, and in each such case, the Company and such Holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that such Holder
is responsible for the portion represented by the percentage that the public
offering price of its Restricted Stock offered by the registration statement
bears to the public offering price of all securities offered by such
registration statement, and the Company is responsible for the remaining
portion; provided, however, that, in any such case, (A) no such Holder will be
-------- -------
required to contribute any amount in excess of the public offering price of all
such Restricted Stock offered by it pursuant to such registration statement; and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation.
10. Changes in Stock. If, and as often as, there is any change in the
----------------
Common Stock, Common Stock Equivalents, Series A Preferred Stock, Series B
Convertible Preferred Stock, or Series C Preferred Shares by way of a stock
split, stock dividend, combination or reclassification, or through a merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions hereof so that the rights
and privileges granted hereby shall continue with respect to the Common Stock,
Common Stock Equivalents, Series A Preferred Stock, Series B Convertible
Preferred Stock or Series C Preferred Shares as so changed.
11. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Stock to the public without registration, the Company
agrees to:
12
<PAGE>
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) use its reasonable best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each Holder of Restricted Stock forthwith upon request
a written statement by the Company as to its compliance with the reporting
requirements of such Rule 144 and of the Securities Act and the Exchange Act, a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed by the Company as such Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such Holder to sell any Restricted Stock without
registration.
The Company shall not be required to effect a registration pursuant to
Section 4, 5 or 6 hereof for any Holder desiring to participate in such
registration who (a) may then dispose of all of its shares of Restricted Stock
pursuant to Rule 144 within the three-month period following such proposed
registration; and (b) holds less than 1% of the outstanding capital stock of the
Company (on a common stock-equivalent basis) at the time of such registration.
12. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to you as follows:
(a) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and will not
violate any provision of law, any order of any court or other agency of
government, the Charter or By-laws of the Company or any provision of any
indenture, agreement or other instrument to which it or any or its properties or
assets is bound, conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture, agreement
or other instrument or result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the properties or assets of
the Company.
(b) This Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms (subject, as to enforcement of
remedies, to applicable bankruptcy, reorganization, insolvency, moratorium and
similar laws affecting the rights of creditors generally), except to the extent
the indemnification provisions herein may be deemed not enforceable.
(c) The Company has not granted any registration rights, and no such
registration rights exist, that conflict with the registrations rights set forth
herein or contemplated hereby. All registration rights agreements relating to
the capital stock of the Company permit, or have been amended to permit, the
transactions and rights set forth herein and contemplated hereby.
13
<PAGE>
13. Miscellaneous.
-------------
(a) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto (including without
limitation transferees of any of the shares of Restricted Stock), whether so
expressed or not, provided, however, that registration rights conferred herein
-------- -------
on the Holders of shares of Restricted Stock shall only inure to the benefit of
a transferee of shares of Restricted Stock if such transferee, in the Company's
reasonable judgment, is not a competitor of the Company, and (i) there is
transferred to such transferee at least 20% of the total shares of Restricted
Stock originally issued to the direct or indirect transferor of such transferee
by the Company or (ii) such transfer is made in connection with the distribution
by a Holder to such Holders beneficial owners (including, without limitation, to
partners of a general or limited partnership, shareholders of a corporation and
beneficiaries of a trust) of securities of the Holder or to the partners or
employees of the Holder, provided that at the Company's request, one person
shall be designated by such transferees as their agent for purposes of their
rights hereunder and the provision of a notice by the Company to such agent in
accordance with the provisions hereof shall be deemed compliance with such
provisions for all such beneficial owners, partners and employees, and following
such request by the Company, the Company shall have no obligation under said
provisions with respect to such transferees until it shall have been notified of
the name and address of such agent.
(b) Each Holder agrees that it will provide notice to the Company of
any transfer or assignment of its rights or interests hereunder. Any failure by
the Company to fulfill a covenant or obligation hereunder which is the direct
result of a failure by a Holder to provide such notice shall not be deemed to be
a breach of any covenant or obligation hereunder.
Nothing in this Agreement shall be construed to create any rights or
obligations except among the parties hereto and their respective and permitted
successors and assigns, and no person or entity shall be regarded as a third-
party beneficiary of this Agreement.
Except as provided in Section 13(a) above, all notices, requests, consents
and other communications hereunder shall be in writing, shall be addressed to
the receiving party's address set forth below or to such other address as a
party may designate by notice hereunder, and shall be either (i) delivered by
hand, (ii) sent by overnight courier, with a receipt obtained or (iii) sent by
registered or certified mail, return receipt requested, postage prepaid.
If to the Company:
Jay Jacobs, Inc.
1530 Fifth Avenue
Seattle, Washington 98101
Facsimile No.: (206) 621-9830
Attn.: Rex L. Steffey
14
<PAGE>
with a copy to:
Stoel Rives, LLP
One Union Square
600 University Street, Suite 3600
Seattle, Washington 98101-3197
Facsimile No.: (206) 386-7500
Attn: Lee J. Brunz, Esq.
If to the Purchasers:
c/o Cahill, Warnock & Company, LLC
One South Street, Suite 2150
Baltimore, Maryland 21202
Attn: Edward L. Cahill
Facsimile No.: (410) 895-3805
with a copy to:
Wilmer, Cutler & Pickering
100 Light Street
Baltimore, Maryland 21202
Attn: George P. Stamas, Esq.
Facsimile No.: (410) 986-2828
and:
T. Rowe Price Recovery Fund II, L.P.
100 East Pratt Street, 7th Floor
Baltimore, Maryland 21202
Attn: Kim Golden
Facsimile No.: (410) 345-2304
with a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, Massachusetts 02110
Attn: Michael Collins, Esq.
Facsimile No.: (617) 248-7100
All notices, requests, consents and other communications hereunder shall be
deemed to have been given (i) if by hand, at the time of the delivery thereof to
the receiving party at the address of such party set forth above, (ii) if sent
by overnight courier, on the next business day
15
<PAGE>
following the day such notice is delivered to the courier service, or (iii) if
sent by registered or certified mail, on the 5th business day following the day
such mailing is made.
(c) This Agreement shall be governed and construed in accordance with
the law of the Sate of Delaware, without giving effect to the conflict of laws
principles thereof.
(d) This Agreement may be amended or modified, and any provision
hereof may be waived in whole or in part, but only by the written consent of the
Company and the holders of a majority of the aggregate number of outstanding
shares of Restricted Stock held of record by the Holders or their permitted
successors and assigns. This Agreement may be terminated by written agreement
of the Company and the holders of at least a majority of the aggregate number of
outstanding shares of Restricted Stock held of record by the Holders or their
permitted successors and assigns.
(e) 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.
(f) Except as otherwise expressly provided herein, the obligations of
the Company to register shares of Restricted Stock under Section 4, 5 or 6 as
provided herein shall terminate on December 31, 2007.
(g) If requested by the underwriter or underwriters for an
underwritten public offering of securities of the Company which offering is by
the Company, each Holder of Restricted Stock who is a party to this Agreement
(including, without limitation, a successor or permitted assignee of a party)
shall agree not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any shares of Restricted Stock or any other
shares of Common Stock or Common Stock Equivalents (other than shares being
registered in such offering), without the consent of such underwriter or
underwriters, for a period of not more than 90 days following the effective date
of the registration statement relating to such offering (unless in any event
such underwriter or underwriters shall, based on then current market conditions,
agree to a shorter period), provided, with respect to each such offering, that
--------
all persons entitled to registration rights in such offering who are not parties
to this Agreement, all other persons selling shares of Common Stock or Common
Stock Equivalents in such offering and all executive officers of the Company
shall also have agreed to be bound by provisions pertaining to the sale of their
shares of Common Stock or Common Stock Equivalents following such offering which
provisions are substantially similar to the provisions binding upon the Holders
of Restricted Stock obligated under this Agreement with respect to the sale of
their shares following such offering.
(h) The Company shall be permitted to require any Holders requesting
registration under Section 4, 5 or 6 to delay any request for registration or to
cease sales under any effective registration statement if the Company is then
contemplating a transaction that could reasonably be expected to be adversely
affected or the Company would be required to make
16
<PAGE>
public disclosure of information, the disclosure of which at such time could
reasonably be expected to cause a material adverse effect upon the Company's
business.
In addition, if at the time of any request to register Registrable Shares
pursuant to Section 4 or Section 6 hereof, the Company is engaged or has fixed
plans to engage within ninety (90) days of the time of the request in a
registered public offering as to which such Holders may include Registrable
Shares pursuant to Section 5 hereof, then the Company may at its option direct
that such request be delayed.
(i) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement, and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.
In the event that any court of competent jurisdiction shall determine that
any provision, or any portion thereof, contained in this Agreement shall be
unreasonable or unenforceable in any respect, then such provision shall be
deemed limited to the extent that such court deems it reasonable and
enforceable, and as so limited shall remain in full force and effect.
(j) The headings and captions of the various subdivisions of this
Agreement are for convenience of reference only and shall in no way modify, or
affect the meaning or construction of any of the terms or provisions hereof.
14. Entire Agreement.
----------------
This Agreement embodies the entire agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersedes all
prior oral or written agreements and understandings related to the subject
matter hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as a sealed instrument as of the day and year first written above.
THE COMPANY: JAY JACOBS, INC.
By:
---------------------------------
Name: Rex L. Steffey
Title: President and Chief Executive Officer
THE INVESTORS: CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.
By: CAHILL WARNOCK STRATEGIC PARTNERS, L.P.,
its General Partner
By:
---------------------------------
Name: Edward L. Cahill
Title: a General Partner
STRATEGIC ASSOCIATES, L.P.
By: CAHILL, WARNOCK & COMPANY, LLC
its General Partner
By:
---------------------------------
Name: Edward L. Cahill
Title: Managing Member
T. ROWE PRICE RECOVERY FUND II, L.P.
By: T. ROWE PRICE RECOVERY FUND II ASSOCIATES,
L.L.C., its General Partner
By: T. ROWE PRICE ASSOCIATES, INC.,
its Manager
By:
---------------------------------
Name: Kim Z. Golden
Title: Managing Director
<PAGE>
Exhibit 6
---------
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER APPLICABLE STATE SECURITIES LAWS. THIS WARRANT
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO JAY
JACOBS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO
THE PROVISIONS OF RULE 144 OF THE ACT.
WARRANT TO ACQUIRE
1,020,200 SHARES OF COMMON STOCK OR
10,202 COMMON STOCK EQUIVALENT SHARES OF
JAY JACOBS, INC.
March 11, 1998
THIS CERTIFIES THAT CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P., a
limited partnership organized under the laws of the State of Delaware (the
"Purchaser") or its registered assigns (the Purchaser or its registered
- ----------
assign(s), as applicable, is referred to herein as the "Holder") is entitled to
------
purchase, on the terms and subject to the conditions hereinafter set forth, from
JAY JACOBS, INC., a Washington corporation (the "Company"), at any time after
-------
the date hereof and on or before 5:00 p.m., Seattle time, on the date that is
five (5) years after the date hereof (the "Exercise Period"), that number of
---------------
shares (the "Warrant Shares") of common stock, par value $.01 per share, of the
--------------
Company (the "Common Stock") or the number of shares of preferred stock
------------
designated as common stock equivalent shares (the "Common Stock Equivalent
-----------------------
Shares" or the "Common Stock Equivalents"), as set forth in Section 2.1 hereof.
- ------ ------------------------
The Company issued this Warrant and a Debenture to the Purchaser pursuant to the
Debenture Purchase Agreement, dated as of March 11, 1998, by and between the
Company and the Purchaser and other parties identified therein (the "Debenture
---------
Purchase Agreement"). This Warrant and the Debenture are not attached and each
- ------------------
may be assigned or transferred separately. Capitalized words not defined herein
shall have the meaning set forth in the Debenture Purchase Agreement.
SECTION 1
Exercise Price
--------------
The exercise price at which this Warrant may be exercised shall be $.01 per
share of Common Stock or $1.00 per Common Stock Equivalent Share (the "Exercise
--------
Price"), subject to any adjustment pursuant to Section 3.3.
- -----
-1-
<PAGE>
SECTION 2
Exercise of Warrant, Etc.
-------------------------
2.1 Number of Shares for Which Warrant is Exercisable. This Warrant
-------------------------------------------------
initially shall be exercisable for 1,020,200 shares of Common Stock or 10,202
Common Stock Equivalent Shares, subject to any adjustment pursuant to Section
3.3.
2.2 Procedure for Exercise of Warrant. The Warrant may be exercised in
---------------------------------
whole or in part during the Exercise Period by surrendering this Warrant, with
the purchase form provided for herein duly executed by the Holder or by the
Holder's duly authorized attorney-in-fact, at the principal office of the
Company or at such other office or agency in the United States as the Company
may designate by notice in writing to the Holder accompanied by payment in full,
in cash, bank cashier's check or certified check payable to the order of the
Company, of the Exercise Price payable in respect of the Warrant Shares being
exercised.
2.3 Conversion. This Warrant is exercisable at any time during the
----------
Exercise Period at the option of the Holder.
2.4 Transfer Restriction Legend. Each certificate for Warrant Shares
---------------------------
initially issued upon exercise of this Warrant, unless at the time of exercise
such Warrant Shares are registered under the Act, shall bear the following
legend (and any additional legend required by any securities exchange upon which
such Warrant Shares may, at the time of such exercise, be listed) on the face
thereof:
"These securities have not been registered under the Securities Act of
1933, as amended, or under any state securities laws and may be offered,
sold or transferred only if registered pursuant to the provisions of such
laws, or if in the opinion of counsel satisfactory to the Company, an
exemption from such registration is available."
2.5 Acknowledgment of Continuing Obligation. The Company will, if the
---------------------------------------
Holder exercises this Warrant in part, upon request of the Holder, acknowledge
in writing the Company's continuing obligation to the Holder in respect of any
rights to which the Holder shall continue to be entitled after such exercise in
accordance with this Warrant; provided, that the failure of the Holder to make
--------
any such request shall not affect the continuing obligation of the Company to
the Holder in respect of such rights.
2.6 Termination of Warrant. If the Holder fails to exercise this Warrant
----------------------
during the Exercise Period, then this Warrant shall terminate and thereafter be
null and void. Notwithstanding the preceding sentence, in the event that the
Company repays and redeems the Debenture in full at any time during the Exercise
Period, this Warrant shall remain in full force and effect until expiration of
the Exercise Period, when it shall expire.
-2-
<PAGE>
SECTION 3
Ownership of this Warrant.
-------------------------
3.1 Deemed Holder. The Company may deem and treat the person in whose
-------------
name this Warrant is registered as the Holder and owner hereof (notwithstanding
any notations of ownership or writing hereon made by anyone other than the
Company) for all purposes and shall not be affected by any notice to the
contrary, until presentation of this Warrant for registration of transfer as
provided in this Section 3.
3.2 Exchange, Transfer and Replacement. Subject to applicable federal and
----------------------------------
state securities laws, this Warrant and all rights hereunder are transferable in
whole or in part upon the books of the Company by the Holder in person or by
duly authorized attorney, and a new Warrant shall be made and delivered by the
Company, of the same tenor as this Warrant but registered in the name of the
transferee, upon surrender of this Warrant duly endorsed at said office or
agency of the Company. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and, in case of loss, theft or destruction, an indemnity or security
reasonably satisfactory to it, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will make and deliver a new Warrant of like
tenor, in lieu of this Warrant; provided, however, that if the Holder of this
-------- -------
Warrant is the original Holder, an affidavit of lost Warrant shall be sufficient
for all purposes of this Section 3.2. This Warrant shall be promptly canceled
by the Company upon the surrender hereof in connection with any exchange,
transfer or replacement. The Company shall pay all reasonable expenses, taxes
(other than stock transfer taxes and income taxes) and other charges payable by
it in connection with the preparation, execution and delivery of Warrant Shares
pursuant to this Section 3.2.
3.3 Antidilution.
------------
(a) If at any time while all or any portion of this Warrant remains
outstanding all or any portion of this Warrant shall be exercised subsequent to
(i) any sales of shares of Common Stock or Common Stock Equivalent Shares of the
Company at a price per share less than the Exercise Price per share then
applicable to this Warrant, or (ii) any issuance of any security convertible
into shares of Common Stock or Common Stock Equivalent Shares of the Company
with a conversion price per share less than the Exercise Price per share then
applicable to this Warrant, or (iii) any issuance of any option, warrant or
other right to purchase shares of Common Stock or Common Stock Equivalent Shares
of the Company at any Exercise Price per share less than the Exercise Price per
share then applicable to this Warrant (except pursuant to an employee or
director stock option plan or similar compensation plan approved by the Board of
Directors); then in any and every such event the Exercise Price per share for
this Warrant shall be reduced and shall be equal to such lower sales, conversion
or Exercise Price per share.
(b) If all or any portion of this Warrant shall be exercised subsequent to
any stock dividend, split-up, recapitalization, merger, consolidation,
combination or exchange of shares, reorganization or liquidation of the Company
occurring after the date hereof, as a result of which
-3-
<PAGE>
such shares of any class shall be issued in respect of outstanding shares of
Common Stock or Common Stock Equivalent Shares of the Company (or shall be
issuable in respect of securities convertible into shares of Common Stock or
Common Stock Equivalent) or upon exercise of rights (other than this Warrant) to
purchase shares of Common Stock or Common Stock Equivalent Shares or shares of
such Common Stock or Common Stock Equivalents shall be changed into the same or
a different number of shares of the same or another class or classes, the Holder
exercising this Warrant shall receive the aggregate number and class of shares
which such Holder would have received if this Warrant had been exercised
immediately before such stock dividend, split-up, recapitalization, merger,
consolidation, combination or exchange of shares, reorganization or liquidation.
SECTION 4
Special Agreements of the Company
---------------------------------
The Company covenants and agrees that:
4.1 Reservation of Shares. The Company will reserve and set apart and
----------------------
have at all times, free from preemptive rights, a number of shares of authorized
but unissued Common Stock or Common Stock Equivalent Shares deliverable upon the
exercise of this Warrant or of any other rights or privileges provided for
therein sufficient to enable the Company at any time to fulfill all its
obligations thereunder.
4.2 No Impairment. The Company will not, by amendment of its Articles of
-------------
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, or any other similar voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder against impairment due to such event. Without
limiting the generality of the foregoing, the Company (a) will not increase the
par value of any shares of stock receivable on exercise of this Warrant above
the Exercise Price then in effect, (b) will take all action that may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of stock, free from all taxes, liens and
charges with respect to the issue thereof, on the exercise of this Warrant from
time to time, and (c) will not consolidate with or merge into any other person
or permit any such person to consolidate with or merge into the Company, unless
such other person (or, in the case of a merger or consolidation in which the
Company is the surviving entity, the person issuing the securities involved in
such merger or consolidation) shall expressly assume in writing and will be
bound by all the terms of this Warrant.
4.3 CFO's Certificate as to Adjustments. In each case of any adjustment
-----------------------------------
or readjustment in the shares of Common Stock or Common Stock Equivalent Shares
issuable on the exercise of this Warrant, the Chief Financial Officer of the
Company will promptly compute such adjustment or readjustment in accordance with
the terms of this Warrant and prepare a
-4-
<PAGE>
Exhibit 6
---------
certificate setting forth such adjustment or readjustment, the Exercise Price
resulting therefrom, and the increase or decrease, if any, of the number of
shares purchasable at such price upon exercise of this Warrant showing in detail
the facts and computation upon which such adjustment or readjustment is based.
The Company will forthwith mail a copy of each such certificate to each
registered Holder of this Warrant, and will, on the written request at any time
of the Holder of this Warrant, furnish to such Holder a like certificate setting
forth the Exercise Price of the Warrant at the time in effect and showing how it
was calculated.
4.4 Notices of Record Date. In the event the Company (a) takes a record
----------------------
of the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend on, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or (b)
consolidates or merges into, or transfers all or substantially all of its assets
to, another corporation, or (c) dissolves or liquidates (the events described in
the foregoing clauses (b) and (c) being hereinafter referred to as a
"Fundamental Change"), then and in each such event the Company will mail or
- -------------------
cause to be mailed to the registered Holder of this Warrant a notice specifying
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right, (ii) the date on which any such Fundamental
Change is to be effected, and the time, if any to be fixed, as of which the
holders of record of Common Stock or Common Stock Equivalent Shares shall be
entitled to exchange their shares of Common Stock or Common Stock Equivalents
for securities or other property, if any, deliverable on any Fundamental Change
and (iii) the amount and character of any stock or other securities, or rights
or options with respect thereto, proposed to be issued or granted, the date of
such proposed issue or grant and the persons or class of persons to whom such
proposed issue or grant is to be offered or made. Such notice shall also state
that the action in question or the record date is subject to the effectiveness
of a registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or a favorable vote of stockholders, if either is required.
- ---------------
Such notice shall be mailed at least 20 days prior to the date specified in such
notice on which any such action is to be taken or 20 days prior to the record
date therefor, whichever is earlier.
SECTION 5
Notices
-------
Any notice or other document required or permitted to be given or delivered
to the Holder or the Company shall be delivered, or sent by certified or
registered mail, to the Holder or the Company at the address as set forth in
Section 10.4 of the Debenture Purchase Agreement.
-5-
<PAGE>
SECTION 6
Governing Law
-------------
This Warrant shall be governed by, and construed and enforced in accordance
with, the internal laws of the State of Delaware, without giving effect to its
conflicts of laws provisions.
SECTION 7
Binding Effect on the Company's Successor
-----------------------------------------
This Warrant shall be binding upon any corporation or entity succeeding to
the Company by merger, consolidation or acquisition of all or substantially all
of the Company's assets.
[Balance of Page Left Blank Intentionally -- Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer under its corporate seal, attested by its duly
authorized officer, and to be dated as of the date first hereinabove set forth.
Dated: March 11, 1998
ATTEST: JAY JACOBS, INC.
___________________________________ By: _____________________________________
William L. Lawrence, Jr., Secretary Name: Rex L. Steffey
Title: President and Chief Executive
Officer
<PAGE>
ASSIGNMENT
(TO BE EXECUTED BY THE REGISTERED HOLDER IF IT DESIRES
AND IS PERMITTED TO TRANSFER THE WARRANT OF)
JAY JACOBS, INC.
FOR VALUE RECEIVED ___________________________________ hereby sells,
assigns and transfers unto __________________________ the right to purchase
[______%] of the number of shares of Common Stock or Common Stock Equivalent
Shares covered by the within Warrant, and does hereby irrevocably constitute
and appoint ________________________________________ Attorney to transfer the
said Warrant on the books of the Company (as defined in said Warrant) with full
power of substitution.
The undersigned represents and warrants to the Company that this assignment
has been effected in compliance with all applicable provisions of said Warrant
and any applicable provisions of the Debenture Purchase Agreement referred to in
such Warrant.
Signature: __________________________(SEAL)
Address: ________________________________
________________________________
Dated: ___________________
In the presence of
___________________________ _____________________________________
(Witness) (Signature of Witness)
NOTICE: The signature to the foregoing Assignment must correspond to the name
as written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE>
PURCHASE FORM
(TO BE EXECUTED ONLY UPON EXERCISE OF WARRANT)
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for and purchases Common Stock or Common Stock Equivalent Shares, par
value $.01 per share, of Jay Jacobs, Inc., a Washington corporation, purchasable
with this Warrant, and herewith makes payment therefor: (circle the following
as applicable)
1. By cash in the amount of $________.
2. By bank cashier's check in the amount of $_________.
3. By certified check in the amount of $_________.
all at the price and on the terms and conditions specified in this Warrant and
requests that certificates for the shares of Common Stock or Common Stock
Equivalent Shares hereby purchased (and any securities or other property
issuable upon such exercise) be issued in the name of and delivered
to___________________________, whose address is
_____________________________________ and, if such shares shall not include all
of the shares issuable as provided in this Warrant that a new Warrant of like
tenor and date for the balance of the shares issuable thereunder be delivered to
the undersigned.
Dated:
___________________________________
(Signature of Registered Owner)
___________________________________
(Street Address)
___________________________________
(City) (State) (Zip Code)
<PAGE>
Exhibit 7
---------
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER APPLICABLE STATE SECURITIES LAWS. THIS WARRANT
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO JAY
JACOBS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO
THE PROVISIONS OF RULE 144 OF THE ACT.
WARRANT TO ACQUIRE
56,957 SHARES OF COMMON STOCK OR
570 COMMON STOCK EQUIVALENT SHARES OF
JAY JACOBS, INC.
March 11, 1998
THIS CERTIFIES THAT STRATEGIC ASSOCIATES, L.P., a limited partnership
organized under the laws of the State of Delaware (the "Purchaser") or its
---------
registered assigns (the Purchaser or its registered assign(s), as applicable, is
referred to herein as the "Holder") is entitled to purchase, on the terms and
------
subject to the conditions hereinafter set forth, from JAY JACOBS, INC., a
Washington corporation (the "Company"), at any time after the date hereof and on
-------
or before 5:00 p.m., Seattle time, on the date that is five (5) years after the
date hereof (the "Exercise Period"), that number of shares (the "Warrant
--------------- -------
Shares") of common stock, par value $.01 per share, of the Company (the "Common
------
Stock") or the number of shares of preferred stock designated as common stock
- -----
equivalent shares (the "Common Stock Equivalent Shares" or the "Common Stock
------------------------------ ------------
Equivalents"), as set forth in Section 2.1 hereof. The Company issued this
- -----------
Warrant and a Debenture to the Purchaser pursuant to the Debenture Purchase
Agreement, dated as of March 11, 1998, by and between the Company and the
Purchaser and other parties identified therein (the "Debenture Purchase
------------------
Agreement"). This Warrant and the Debenture are not attached and each may be
- ---------
assigned or transferred separately. Capitalized words not defined herein shall
have the meaning set forth in the Debenture Purchase Agreement.
SECTION 1
Exercise Price
--------------
The exercise price at which this Warrant may be exercised shall be $.01 per
share of Common Stock or $1.00 per Common Stock Equivalent Share (the "Exercise
--------
Price"), subject to any adjustment pursuant to Section 3.3.
- -----
-1-
<PAGE>
SECTION 2
Exercise of Warrant, Etc.
-------------------------
2.1 Number of Shares for Which Warrant is Exercisable. This Warrant
-------------------------------------------------
initially shall be exercisable for 56,957 shares of Common Stock or 570 Common
Stock Equivalent Shares, subject to any adjustment pursuant to Section 3.3.
2.2 Procedure for Exercise of Warrant. The Warrant may be exercised in
---------------------------------
whole or in part during the Exercise Period by surrendering this Warrant, with
the purchase form provided for herein duly executed by the Holder or by the
Holder's duly authorized attorney-in-fact, at the principal office of the
Company or at such other office or agency in the United States as the Company
may designate by notice in writing to the Holder accompanied by payment in full,
in cash, bank cashier's check or certified check payable to the order of the
Company, of the Exercise Price payable in respect of the Warrant Shares being
exercised.
2.3 Conversion. This Warrant is exercisable at any time during the
----------
Exercise Period at the option of the Holder.
2.4 Transfer Restriction Legend. Each certificate for Warrant Shares
---------------------------
initially issued upon exercise of this Warrant, unless at the time of exercise
such Warrant Shares are registered under the Act, shall bear the following
legend (and any additional legend required by any securities exchange upon which
such Warrant Shares may, at the time of such exercise, be listed) on the face
thereof:
"These securities have not been registered under the Securities Act of
1933, as amended, or under any state securities laws and may be offered,
sold or transferred only if registered pursuant to the provisions of such
laws, or if in the opinion of counsel satisfactory to the Company, an
exemption from such registration is available."
2.5 Acknowledgment of Continuing Obligation. The Company will, if the
---------------------------------------
Holder exercises this Warrant in part, upon request of the Holder, acknowledge
in writing the Company's continuing obligation to the Holder in respect of any
rights to which the Holder shall continue to be entitled after such exercise in
accordance with this Warrant; provided, that the failure of the Holder to make
--------
any such request shall not affect the continuing obligation of the Company to
the Holder in respect of such rights.
2.6 Termination of Warrant. If the Holder fails to exercise this Warrant
----------------------
during the Exercise Period, then this Warrant shall terminate and thereafter be
null and void. Notwithstanding the preceding sentence, in the event that the
Company repays and redeems the Debenture in full at any time during the Exercise
Period, this Warrant shall remain in full force and effect until expiration of
the Exercise Period, when it shall expire.
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<PAGE>
SECTION 3
Ownership of this Warrant.
-------------------------
3.1 Deemed Holder. The Company may deem and treat the person in whose
-------------
name this Warrant is registered as the Holder and owner hereof (notwithstanding
any notations of ownership or writing hereon made by anyone other than the
Company) for all purposes and shall not be affected by any notice to the
contrary, until presentation of this Warrant for registration of transfer as
provided in this Section 3.
3.2 Exchange, Transfer and Replacement. Subject to applicable federal and
----------------------------------
state securities laws, this Warrant and all rights hereunder are transferable in
whole or in part upon the books of the Company by the Holder in person or by
duly authorized attorney, and a new Warrant shall be made and delivered by the
Company, of the same tenor as this Warrant but registered in the name of the
transferee, upon surrender of this Warrant duly endorsed at said office or
agency of the Company. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and, in case of loss, theft or destruction, an indemnity or security
reasonably satisfactory to it, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will make and deliver a new Warrant of like
tenor, in lieu of this Warrant; provided, however, that if the Holder of this
-------- -------
Warrant is the original Holder, an affidavit of lost Warrant shall be sufficient
for all purposes of this Section 3.2. This Warrant shall be promptly canceled
by the Company upon the surrender hereof in connection with any exchange,
transfer or replacement. The Company shall pay all reasonable expenses, taxes
(other than stock transfer taxes and income taxes) and other charges payable by
it in connection with the preparation, execution and delivery of Warrant Shares
pursuant to this Section 3.2.
3.3 Antidilution.
------------
(a) If at any time while all or any portion of this Warrant remains
outstanding all or any portion of this Warrant shall be exercised subsequent to
(i) any sales of shares of Common Stock or Common Stock Equivalent Shares of the
Company at a price per share less than the Exercise Price per share then
applicable to this Warrant, or (ii) any issuance of any security convertible
into shares of Common Stock or Common Stock Equivalent Shares of the Company
with a conversion price per share less than the Exercise Price per share then
applicable to this Warrant, or (iii) any issuance of any option, warrant or
other right to purchase shares of Common Stock or Common Stock Equivalent Shares
of the Company at any Exercise Price per share less than the Exercise Price per
share then applicable to this Warrant (except pursuant to an employee or
director stock option plan or similar compensation plan approved by the Board of
Directors); then in any and every such event the Exercise Price per share for
this Warrant shall be reduced and shall be equal to such lower sales, conversion
or Exercise Price per share.
(b) If all or any portion of this Warrant shall be exercised subsequent to
any stock dividend, split-up, recapitalization, merger, consolidation,
combination or exchange of shares, reorganization or liquidation of the Company
occurring after the date hereof, as a result of which
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<PAGE>
such shares of any class shall be issued in respect of outstanding shares of
Common Stock or Common Stock Equivalent Shares of the Company (or shall be
issuable in respect of securities convertible into shares of Common Stock or
Common Stock Equivalent) or upon exercise of rights (other than this Warrant) to
purchase shares of Common Stock or Common Stock Equivalent Shares or shares of
such Common Stock or Common Stock Equivalents shall be changed into the same or
a different number of shares of the same or another class or classes, the Holder
exercising this Warrant shall receive the aggregate number and class of shares
which such Holder would have received if this Warrant had been exercised
immediately before such stock dividend, split-up, recapitalization, merger,
consolidation, combination or exchange of shares, reorganization or liquidation.
SECTION 4
Special Agreements of the Company
---------------------------------
The Company covenants and agrees that:
4.1 Reservation of Shares. The Company will reserve and set apart and
----------------------
have at all times, free from preemptive rights, a number of shares of authorized
but unissued Common Stock or Common Stock Equivalent Shares deliverable upon the
exercise of this Warrant or of any other rights or privileges provided for
therein sufficient to enable the Company at any time to fulfill all its
obligations thereunder.
4.2 No Impairment. The Company will not, by amendment of its Articles of
-------------
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, or any other similar voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder against impairment due to such event. Without
limiting the generality of the foregoing, the Company (a) will not increase the
par value of any shares of stock receivable on exercise of this Warrant above
the Exercise Price then in effect, (b) will take all action that may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of stock, free from all taxes, liens and
charges with respect to the issue thereof, on the exercise of this Warrant from
time to time, and (c) will not consolidate with or merge into any other person
or permit any such person to consolidate with or merge into the Company, unless
such other person (or, in the case of a merger or consolidation in which the
Company is the surviving entity, the person issuing the securities involved in
such merger or consolidation) shall expressly assume in writing and will be
bound by all the terms of this Warrant.
4.3 CFO's Certificate as to Adjustments. In each case of any adjustment
-----------------------------------
or readjustment in the shares of Common Stock or Common Stock Equivalent Shares
issuable on the exercise of this Warrant, the Chief Financial Officer of the
Company will promptly compute such adjustment or readjustment in accordance with
the terms of this Warrant and prepare a
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<PAGE>
certificate setting forth such adjustment or readjustment, the Exercise Price
resulting therefrom, and the increase or decrease, if any, of the number of
shares purchasable at such price upon exercise of this Warrant showing in detail
the facts and computation upon which such adjustment or readjustment is based.
The Company will forthwith mail a copy of each such certificate to each
registered Holder of this Warrant, and will, on the written request at any time
of the Holder of this Warrant, furnish to such Holder a like certificate setting
forth the Exercise Price of the Warrant at the time in effect and showing how it
was calculated.
4.4 Notices of Record Date. In the event the Company (a) takes a record
----------------------
of the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend on, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or (b)
consolidates or merges into, or transfers all or substantially all of its assets
to, another corporation, or (c) dissolves or liquidates (the events described in
the foregoing clauses (b) and (c) being hereinafter referred to as a
"Fundamental Change"), then and in each such event the Company will mail or
- -------------------
cause to be mailed to the registered Holder of this Warrant a notice specifying
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right, (ii) the date on which any such Fundamental
Change is to be effected, and the time, if any to be fixed, as of which the
holders of record of Common Stock or Common Stock Equivalent Shares shall be
entitled to exchange their shares of Common Stock or Common Stock Equivalents
for securities or other property, if any, deliverable on any Fundamental Change
and (iii) the amount and character of any stock or other securities, or rights
or options with respect thereto, proposed to be issued or granted, the date of
such proposed issue or grant and the persons or class of persons to whom such
proposed issue or grant is to be offered or made. Such notice shall also state
that the action in question or the record date is subject to the effectiveness
of a registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or a favorable vote of stockholders, if either is required.
- ---------------
Such notice shall be mailed at least 20 days prior to the date specified in such
notice on which any such action is to be taken or 20 days prior to the record
date therefor, whichever is earlier.
SECTION 5
Notices
-------
Any notice or other document required or permitted to be given or delivered
to the Holder or the Company shall be delivered, or sent by certified or
registered mail, to the Holder or the Company at the address as set forth in
Section 10.4 of the Debenture Purchase Agreement.
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<PAGE>
SECTION 6
Governing Law
-------------
This Warrant shall be governed by, and construed and enforced in accordance
with, the internal laws of the State of Delaware, without giving effect to its
conflicts of laws provisions.
SECTION 7
Binding Effect on the Company's Successor
-----------------------------------------
This Warrant shall be binding upon any corporation or entity succeeding to
the Company by merger, consolidation or acquisition of all or substantially all
of the Company's assets.
[Balance of Page Left Blank Intentionally -- Signature Page Follows]
-6-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer under its corporate seal, attested by its duly
authorized officer, and to be dated as of the date first hereinabove set forth.
Dated: March 11, 1998
ATTEST: JAY JACOBS, INC.
___________________________________ By: _____________________________________
William L. Lawrence, Jr., Secretary Name: Rex L. Steffey
Title: President and Chief Executive
Officer
<PAGE>
ASSIGNMENT
(TO BE EXECUTED BY THE REGISTERED HOLDER IF IT DESIRES
AND IS PERMITTED TO TRANSFER THE WARRANT OF)
JAY JACOBS, INC.
FOR VALUE RECEIVED ___________________________________ hereby sells,
assigns and transfers unto __________________________ the right to purchase
[______%] of the number of shares of Common Stock or Common Stock Equivalent
Shares covered by the within Warrant, and does hereby irrevocably constitute
and appoint ________________________________________ Attorney to transfer the
said Warrant on the books of the Company (as defined in said Warrant) with full
power of substitution.
The undersigned represents and warrants to the Company that this assignment
has been effected in compliance with all applicable provisions of said Warrant
and any applicable provisions of the Debenture Purchase Agreement referred to in
such Warrant.
Signature: __________________________(SEAL)
Address: ________________________________
________________________________
Dated: ___________________
In the presence of
___________________________ _____________________________________
(Witness) (Signature of Witness)
NOTICE: The signature to the foregoing Assignment must correspond to the name
as written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE>
PURCHASE FORM
(TO BE EXECUTED ONLY UPON EXERCISE OF WARRANT)
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for and purchases Common Stock or Common Stock Equivalent Shares, par
value $.01 per share, of Jay Jacobs, Inc., a Washington corporation, purchasable
with this Warrant, and herewith makes payment therefor: (circle the following
as applicable)
1. By cash in the amount of $________.
2. By bank cashier's check in the amount of $_________.
3. By certified check in the amount of $_________.
all at the price and on the terms and conditions specified in this Warrant and
requests that certificates for the shares of Common Stock or Common Stock
Equivalent Shares hereby purchased (and any securities or other property
issuable upon such exercise) be issued in the name of and delivered
to_____________________________________, whose address is
_____________________________________ and, if such shares shall not include all
of the shares issuable as provided in this Warrant that a new Warrant of like
tenor and date for the balance of the shares issuable thereunder be delivered to
the undersigned.
Dated:
___________________________________
(Signature of Registered Owner)
___________________________________
(Street Address)
___________________________________
(City) (State) (Zip Code)
