<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
SCHEDULE 13D/A
(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. 2 )/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)
February 3, 1999
----------------
(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(e), 13d-1(f) or 13d-1(g), check the
following box. [_]
Note: Schedules filed in paper format shall include a signed original and
five copies of the schedule, including all exhibits. See Rule 13d-7(b) 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>
- ----------------------------
CUSIP No. 469 816 102 13D
- ----------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Edward L. Cahill
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [_]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
AF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 0 Shares
-----------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
3,810,296 Shares
OWNED BY See Item 5 below for additional information
-----------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 0
-----------------------------------------------------------
PERSON 10 SHARED DISPOSITIVE POWER
3,810,296 Shares
WITH See Item 5 below for additional information
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,810,296 Shares
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [X]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
87.4%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
- ----------------------------
CUSIP No. 469 816 102 13D
- ----------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
David L. Warnock
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [_]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
AF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 0 Shares
-----------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
3,810,296 Shares
OWNED BY See Item 5 below for additional information
-----------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 0 Shares
-----------------------------------------------------------
PERSON 10 SHARED DISPOSITIVE POWER
3,810,296 Shares
WITH See Item 5 below for additional information
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,810,296 Shares
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [X]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
87.4%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON *
IN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
- ----------------------------
CUSIP No. 469 816 102 13D
- ----------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Cahill, Warnock Strategic Partners, L.P.
IRSN: 52-1970604
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [_]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
AF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware Limited Partnership
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 0 Shares
-----------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
3,810,296 Shares
OWNED BY See Item 5 below for additional information
-----------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 0 Shares
-----------------------------------------------------------
PERSON 10 SHARED DISPOSITIVE POWER
3,810,296 Shares
WITH See Item 5 below for additional information
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,810,296 Shares
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [X]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
87.4%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON *
PN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
- ----------------------------
CUSIP No. 469 816 102 13D
- ----------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Cahill, Warnock Strategic Partners Fund, L.P.
IRSN: 52-1970619
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [_]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware Limited Partnership
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 0 Shares
-----------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
3,810,296 Shares
OWNED BY See Item 5 below for additional information
-----------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 0 Shares
-----------------------------------------------------------
PERSON 10 SHARED DISPOSITIVE POWER
3,810,296 Shares
WITH See Item 5 below for additional information
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,810,296 Shares
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [X]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
87.4%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON *
PN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
- ----------------------------
CUSIP No. 469 816 102 13D
- ----------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Cahill, Warnock & Company, LLC
IRSN: 52-1931617
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [_]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
AF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Maryland Limited Liability Company
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 0 Shares
-----------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
3,810,296 Shares
OWNED BY See Item 5 below for additional information
-----------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 0 Shares
-----------------------------------------------------------
PERSON 10 SHARED DISPOSITIVE POWER
3,810,296 Shares
WITH See Item 5 below for additional information
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,810,296 Shares
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [X]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
87.4%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON *
OO
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
- ----------------------------
CUSIP No. 469 816 102 13D
- ----------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Strategic Associates, L.P.
IRSN: 52-1991689
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [_]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware Limited Partnership
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 0 Shares
-----------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
3,810,296 Shares
OWNED BY See Item 5 below for additional information
-----------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 0 Shares
-----------------------------------------------------------
PERSON 10 SHARED DISPOSITIVE POWER
3,810,296 Shares
WITH See Item 5 below for additional information
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,810,296 Shares
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [X]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
87.4%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON *
PN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
This Schedule 13D Amendment No. 2 ("Amendment No. 2") is an amendment to the
Schedule 13D (the "Original 13D") (filed on December 6, 1997) that was filed
with the Securities and Exchange Commission ("SEC") and the Schedule 13D
Amendment No. 1 ("Amendment No. 1") (filed on March 11, 1998) that was filed
with the 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. 2
amends and supplements the information previously disclosed in the Original 13D
and the Amendment No. 1 filed on behalf of the Reporting Persons on March 11,
1998. Capitalized terms not defined in this Amendment No. 2 shall have their
respective meanings as set forth in the Original 13D (or the Amendment No. 1, as
appropriate) filed on behalf of the Reporting Persons on March 11, 1998.
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 "Fund Original Warrants"). 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
"Associates Original Warrants"). 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.
On February 3, 1999, pursuant to the terms of the Securities Purchase
Agreement dated by and among the Issuer, Strategic Partners Fund, Strategic
Associates, T. Rowe Price Recovery Fund II, L.P. ("Recovery II") dated as of
February 1, 1999 (the "Securities Purchase Agreement," attached hereto as
Exhibit 3), Strategic Partners Fund agreed to cancel the Fund Original Warrants
- ---------
and acquired warrants to purchase up to 1,341,693 shares of the issuer's Common
Stock ("Fund New Warrants") and Strategic Associates agreed to cancel the
<PAGE>
Associates Original Warrants and acquired warrants to purchase up to 74,906
shares of the Issuer's Common Stock ("Associates New Warrants"). The working
capital of Strategic Partners Fund and Strategic Associates was the source of
funds for each transaction respectively. No part of the purchase price for
either Strategic Partners Fund or Strategic Associates 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 Amendment No. 1 filed on
behalf of the Reporting Persons on March 11, 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 Shares") and warrants to
purchase up to 1,341,693 shares of the Issuer's Common Stock (the "New Fund
Warrants"). The Fund B Preferred Shares are currently convertible into
2,267,125 shares of the Issuer's Common Stock (the "Fund Series B Conversion
Shares"). The Fund B Preferred and the New Fund Warrants are currently
convertible into 3,608,818 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 Shares") and warrants to
purchase up to 74,906 shares of the Issuer's Common Stock (the "New Associates
Warrants"). The Associates B Preferred Shares are currently convertible into
126,572 shares of the Issuer's Common Stock (the "Associates Series B Conversion
Shares"). The Associates B Preferred Shares and the New Associates Warrants are
currently convertible into 201,478 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 6), 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 2,429,619 shares of the Issuer's Common Stock (the "Agreement
Shares").
<PAGE>
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 87.4% of the
Issuer's Common Stock, which percentage is calculated based upon (i) 549,220
shares of the Issuer's Common Stock reported as outstanding by the Issuer in
Securities Purchase Agreement and (ii) 3,810,296 shares of the Issuer's Common
Stock issuable upon conversion or exercise of the Fund B Preferred Shares, the
New Fund Warrants, Associates B Preferred Shares and the New Associates
Warrants. 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 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:
3,810,296* 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:
3,810,296 shares for each Reporting Person.
* Does not reflect potential deemed beneficial ownership of the Agreement
Shares.
<PAGE>
(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, Undertakings or Relationships with Respect to
Securities of the Issuer.
Pursuant to the terms of a Registration Rights Agreement dated as of February
1, 1999 and closing on February 3, 1999 by and among the Issuer, Strategic
Partners Fund, Strategic Associates and Recovery II, (the "Registration Rights
Agreement," attached hereto as Exhibit 4), Strategic Partners Fund, Strategic
---------
Associates and Recovery II are granted, subject to certain restrictions and
limitations, certain demand and "piggyback" registration rights with respect to
the shares of Common Stock issuable upon (i) conversion of the Series B
Preferred Shares or Series C Preferred Shares, (ii) exercise of warrants
received pursuant to the terms of the Securities Purchase Agreement.
Pursuant to the terms of the Securities Purchase Agreement dated February 1,
1999 and closing on February 3, 1999 by and among the Issuer, Strategic Partners
Fund, Strategic Associates and Recovery II (the "Securities Purchase Agreement,"
attached hereto as Exhibit 3), Strategic Partners (i) purchased 12,180 shares of
----------
Series D Preferred Stock of the Issuer (non-voting, non-convertible), (ii)
exchanged its 14% Subordinated Convertible Debentures issued on March 11, 1998
for new debentures and (iii) exchanged the Fund Original Warrants for warrants
to purchase up to 1,341,693 shares of the Issuer's Common Stock and Strategic
Associates (i) purchased 680 shares of Series D Preferred Stock of the Issuer
(non-voting, non-convertible), (ii) exchanged its 14% Subordinated Convertible
Debentures issued on March 11, 1998 for new debentures and (iii) exchanged the
Associates Original Warrants for warrants to purchase up to 74,906 shares of the
Issuer's Common Stock.
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 (filed as Exhibit 2 to the Original 13D filed with the SEC on
---------
December 16, 1997 and incorporated herein by reference).
Exhibit 3 Execution Copy of the Securities Purchase Agreement dated as of
---------
February 1, 1999 by and among the Issuer, Strategic Partners Fund, Strategic
Associates, and Recovery II .
<PAGE>
Exhibit 4 Registration Rights Agreement dated as of February 1, 1999 by and
----------
among the Issuer, Strategic Partners Fund, Strategic Associates, and
Recovery II.
Exhibit 5 Form of Common Stock Purchase Warrant issued to Strategic Partners
---------
Fund, Strategic Partners, and Recovery II by Issuer pursuant to the terms of the
Securities Purchase Agreement.
Exhibit 6 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
-----------
Issuer's Current Report on 8-K filed with the SEC on December 15, 1997 and
incorporated herein by reference).
<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: February 16, 1999
/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>
EXHIBIT 1
---------
AGREEMENT
Pursuant to Rule 13d-1(k)(1) under the Securities Exchange Act of 1934, the
undersigned hereby agree that only one statement containing the information
required by Schedule 13D/A 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 February 16, 1999.
/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>
Exhibit 3
SECURITIES PURCHASE AGREEMENT
DATED February __, 1999
BY AND AMONG
JAY JACOBS, INC.,
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 Definitions 2
1.1 Defined Terms 2
-------------
1.2 Other Defined Terms 4
-------------------
SECTION 2 Authorization and Sale of Series D Stock, Issuance of Warrants and Revised
Debentures and Exchange of Debentures 4
2.1 Authorization of Securities 4
2.2 Sale and Purchase of Preferred Stock and Closing Warrants. 4
2.3 Exchange of Debentures. 5
2.4 Issuance of Debenture Warrants at the First Closing. 5
2.5 Issuance of Additional Debenture Warrants. 5
SECTION 3 Closings; Delivery 6
3.1 Closing Dates 6
3.2 Delivery 6
3.3 Use of Proceeds. 6
SECTION 4 Representations and Warranties of the Company 7
4.1 Organization, Good Standing and Qualification 7
4.2 Capitalization 7
4.3 Subsidiaries 8
4.4 Partnerships, Joint Ventures 9
4.5 Authorization 9
4.6 Governmental Consents 9
4.7 Company SEC Reports and Financial Statements 9
4.8 Changes 10
4.9 Accuracy of Prior Representations and Warranties 11
4.10 Conformity with Law; Absence of Litigation. 11
4.11 Disclosure. 12
4.12 FINOVA Credit Facility. 12
4.13 IRS Dispute. 12
4.14 U.S. Real Property Holding Corporation. 12
SECTION 5 Representations and Warranties of the Purchasers 12
5.1 Accredited Investor; Experience; Risk 12
5.2 Authorization 13
5.3 Governmental Consents 13
5.4 Organization, Good Standing and Qualification 13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 6 Conditions to Closing of Purchasers 14
6.1 Representations and Warranties Correct 14
6.2 Covenants 14
6.3 Opinion of Company's Counsel 14
6.4 No Material Adverse Change 14
6.5 Statement of Rights and Preferences 14
6.6 State Securities Laws 14
6.7 Issuance of Shares , Warrants and Revised Debentures 14
6.8 Certificates 14
6.9 Registration Rights Agreement 15
6.10 Consents 15
6.11 Revised FINOVA Facility. 15
6.12 Delivery of Financial Information. 15
SECTION 7 Conditions to Closing of the Company 15
7.1 Representations 15
7.2 Purchase Price 15
7.3 Certificate 16
7.4 State Securities Laws 16
7.5 Registration Rights Agreement 16
SECTION 8 Covenants of the Company 16
8.1 Information. 16
8.2 Communication 18
8.3 Access 18
8.4 Directors' and Officers' Insurance 18
8.5 Confidentiality 18
8.6 Restrictive Covenant. 19
8.7 Foreign Corrupt Practices. 19
8.8 Payment of Expenses. 19
SECTION 9 Miscellaneous 19
9.1 Amendment; Waiver 19
9.2 Notices 19
9.3 Severability 21
9.4 Successors and Assigns 21
9.5 Survival of Representations, Warranties and Covenants 21
9.6 Entire Agreement 21
9.7 Choice of Law 21
9.8 Counterparts 21
9.9 Costs and Expenses 21
9.10 No Third-Party Beneficiaries 22
9.11 Indemnification 22
9.12 Dispute Resolution 23
</TABLE>
<PAGE>
JAY JACOBS, INC
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is dated as of
---------
February __, 1999, by and among JAY JACOBS, INC., a Washington corporation (the
"Company"), 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.").
- -----------
W I T N E S S E T H
WHEREAS, the Company has issued and outstanding the shares of capital stock
described in Section 4.2 hereof and the Company has reserved for issuance
additional shares of capital stock upon the exercise of the outstanding
convertible securities, including rights, options and warrants, identified in
Section 4.2; and
WHEREAS, the Company proposes to issue and sell, and the Purchasers desire
to purchase from the Company, severally and in the amounts set forth on Exhibit
-------
A hereto, shares of the Company's Series D Preferred Stock, par value $.01 per
- -
share, on the terms and subject to the conditions set forth herein; and
WHEREAS, in connection with the sale of such shares of Series D Stock, the
Company proposes to issue to the Purchasers, severally and in the amounts set
forth on Exhibit A hereto, certain warrants to purchase shares of Common Stock
---------
of the Company on the terms and subject to the conditions set forth herein; and
WHEREAS, the Company and the Purchasers desire to enter into a registration
rights agreement of even date herewith (which agreement shall restate and
supersede certain other registration rights agreements of the Company), pursuant
to which the Purchasers have, among other rights, certain registration rights;
and
WHEREAS, the Company and the Purchasers wish to amend certain terms of the
Company's 14% Subordinated Convertible Debentures issued on March 11, 1998 (the
"Original Debentures") and the Company will issue new debentures with revised
-------------------
terms (the "New Debentures") and the holders of the Original Debentures will
--------------
exchange the Original Debentures for New Debentures and additional warrants to
purchase shares of Common Stock of the Company on the terms and subject to the
conditions set forth herein; and
<PAGE>
WHEREAS, the Company and the Purchasers wish to amend certain terms of the
Company's outstanding warrants issued on March 11, 1998 (the "Original
--------
Warrants") and the Company will issue revised warrants and the holders of the
Original Warrants will exchange the Original Warrants for such revised Warrants;
and
WHEREAS, at the First Closing (as defined in Section 3.1), the Purchasers
shall cause to be paid to FINOVA Capital Corporation ("FINOVA") the sum of $
------
____________, such amount to reduce the indebtedness of the Company to FINOVA
and such payment to be deemed a payment of the purchase price for the Shares (as
defined in Section 1.1) to be purchased at the First Closing.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
SECTION 1
Definitions
-----------
1.1 Defined Terms. The following terms are defined as follows:
-------------
"Affiliate" means, with respect to any Person, (i) any Person that holds
---------
direct or indirect beneficial ownership (as defined in Rule 13d-3 under the
Exchange Act) of voting securities or other voting interests representing at
least 5% of the outstanding voting power of a Person or equity securities or
other equity interests representing at least 5% of the outstanding equity
securities or equity interests in a Person, (ii) any brother, sister, parent,
child or spouse of such Person or any Person described in clause (i), and (iii)
any Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such entity.
"Closing Warrants" means the warrants issued to the Purchasers as part of
----------------
the consideration for entering into this Agreement, which may be exercised to
purchase in the aggregate 1,918,743 shares of the Company's common Stock which
constitute on the Closing Date twenty-five percent (25%) of the Company's issued
and outstanding stock on a fully diluted basis.
"Debenture Warrants" means the Warrants that (i) are issued at the First
------------------
Closing in replacement of prior warrants as described in Section 2.4, (ii) are
issued at the First Closing to the Purchasers pursuant to Section 2.1(d)(ii) of
the Debenture Purchase Agreement, dated as of March 11, 1998 ("Debenture
---------
Purchase Agreement"), which in the aggregate may be exercised to purchase three
- ------------------
percent (3%) of the Common Stock on a fully diluted basis or (iii) are issuable
to the holders of New Debentures on January 1 of each year for so long as the
New Debentures remain outstanding.
<PAGE>
"Common Stock" means the Company's Common Stock, par value $.01 per share.
------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Knowledge" or derivations thereof shall mean information that is known or,
---------
in the exercise of reasonable diligence, should have been known by the officers
of the Company.
"Lien" means any lien, pledge, mortgage, deed of trust, security interest,
----
claim, lease, charge, option, right of first refusal, easement, servitude,
transfer restriction under any shareholder or similar agreement, encumbrance or
any other restriction or limitation whatsoever.
"Management Option Plan" means the Jay Jacobs, Inc. 1998 Stock Incentive
----------------------
Plan as adopted by the Board of Directors of the Company on December 3, 1997.
"Material Adverse Effect" means any materially adverse effect on the
-----------------------
business, assets, liabilities, condition (financial or otherwise), results of
operations or prospects of the Company.
"Permits" means any approvals, authorizations, consents, licenses, permits
-------
or certificates.
"Person" means an individual, partnership, limited liability company,
------
corporation, joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.
"Preferred Stock" means any of the Series A Stock, the Series B Stock, the
---------------
Series C Stock or the Series D Stock.
"Registration Rights Agreement" means the Registration Rights Agreement of
-----------------------------
even date herewith by and between the Company, the Purchasers and others in the
form attached hereto as Exhibit B.
---------
"SEC" means the United States Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Series A Stock" means the Series A Preferred stock of the Company, $.01
--------------
par value per share.
"Series B Stock" means the Series B Preferred Stock of the Company, $.01
--------------
par value per share.
<PAGE>
"Series C Stock" means the Series C Preferred Stock of the Company, $.01
--------------
par value per share.
"Series D Stock" means the Series D Preferred Stock of the Company, $.01
--------------
par value per share.
"Shares" means the Series D Stock to be sold to the Purchasers hereunder.
------
"Subsidiaries" means each corporation in which the Company owns or
------------
controls, directly or indirectly, capital stock or other equity interests
representing at least 50% of the outstanding voting stock or other equity
interests, and includes without limitation J.J. Distribution Company, a
Washington corporation.
"Warrants" means collectively, the Closing Warrants and the Debenture
--------
Warrants. The Warrants shall have the rights, preferences, privileges and
restrictions and be substantially in the form of Warrant Certificate attached
hereto as Exhibit D. All Warrants shall have a Termination Date (as defined
therein) five years from the date of their issuance, provided, however, that
-------- -------
Warrants issued in replacement of other warrants shall have a Termination Date
five years from the date of issuance of the original warrants.
1.2 Other Defined Terms. Additional capitalized terms shall have the
-------------------
meanings assigned to them in the text of this Agreement. Terms defined in the
singular shall have a comparable meaning when used in the plural and vice versa.
SECTION 2
Authorization and Sale of Series D Stock,
-----------------------------------------
Issuance of Warrants and Revised Debentures and Exchange of Debentures
-----------------------------------------------------------------------
2.1 Authorization of Securities. At the First Closing, the Company
---------------------------
will have authorized:
(a) the issuance and sale to each Purchaser of the number of shares of
Series D Stock set forth opposite its name in Exhibit A. The Series D
---------
Stock will have the rights, preferences, privileges and restrictions set
forth in the Statement of Rights and Preferences attached to this Agreement
as Exhibit C hereto (the "Statement of Rights and Preferences");
--------- -----------------------------------
(b) the issuance to each Purchaser of the number of Closing Warrants and
Debenture Warrants set forth opposite its name in Exhibit A; and
----------
<PAGE>
(c) the issuance to the holders of the Original Debentures (each of which
is a Purchaser) of an equal principal amount of the Company's New
Debentures substantially in the form set forth at Exhibit E.
---------
2.2 Sale and Purchase of Preferred Stock and Closing Warrants. In
---------------------------------------------------------
reliance on the representations and warranties of the Company contained herein
and subject to the terms and conditions hereof, at the First Closing, each
Purchaser agrees to purchase from the Company, severally, the number of Shares
of Series D Stock set forth opposite its name on Exhibit A hereto to be
---------
purchased at the First Closing, and the Company agrees to sell to each
Purchaser, such number of shares of Series D Stock and to issue to each
purchaser the number of Closing Warrants set forth opposite its name on
Exhibit A hereto. The Closing Warrants shall have an exercise price equal to the
- ------- -
Fair Market Value (as defined in the Warrant) for the 15 trading days prior to
the First Closing, subject to adjustment as provided in Exhibit D. If the
Company and the Purchasers so agree, the Purchasers may purchase from the
Company and the Company may issue and sell to the Purchasers additional Shares
(up to a maximum of 20,000 total Shares) at one or more Additional Closings. At
each Additional Closing, in reliance on the representations and warranties of
the Company contained herein and subject to the terms and conditions hereof,
each Purchaser will purchase from the Company, severally, its pro rata share,
based on its share of the Shares purchased at the First Closing, of the number
of Shares of Series D Stock to be purchased by the Purchasers at such Additional
Closing, and the Company agrees to sell to each Purchaser, such number of shares
of Series D Stock. The aggregate purchase price for all of the Series D Stock to
be sold to the Purchasers at the First Closing shall be Two Million Dollars
($2,000,000), reduced by the amount the expenses of Purchasers associated with
the transactions contemplated hereby, up to and including the First Closing. The
purchase price payable at any Additional Closings shall be based on the same
price per Share as the Shares purchased and sold at the First Closing and shall
be reduced by the amount of any further expenses of Purchasers associated with
the transactions contemplated hereby, up to and including such Closing.
2.3 Exchange of Debentures. At the First Closing, the Company agrees
----------------------
to issue to each holder of Original Debentures, and subject to and in reliance
upon the representations, warranties, terms and conditions of this Agreement,
each holder of Original Debentures agrees to exchange the Original Debentures
held by such person for an equal principal amount of New Debentures. At the
First Closing, each holder of Original Debentures will deliver to the Company,
severally and not jointly, the Original Debentures to be exchanged by it for New
Debentures.
2.4 Issuance of Debenture Warrants at the First Closing. At the First
---------------------------------------------------
Closing:
(a) The Company agrees to issue to each holder of Original Warrants, and
subject to and in reliance upon the representations, warranties, terms and
conditions of this Agreement, each holder of Original Warrants agrees to
exchange the Original Warrants held by such person for an equal number of
Debenture Warrants. The
<PAGE>
Debenture Warrants so issued will have an exercise price equal to $0.15 per
share, subject to adjustment as provided in Exhibit D. At the First
---------
Closing, each holder of Original Warrants will deliver to the Company,
severally and not jointly, certificates representing the Original Warrants
to be exchanged by it for Debenture Warrants; and
(b) Pursuant to the terms of the Debenture Agreement, the Company shall
also issue to each Purchaser the number of additional Debenture Warrants
set forth opposite its name on Exhibit A, which in the aggregate entitle
---------
the Purchasers to acquire three percent (3%) of the Common Stock on a fully
diluted basis and giving effect to the transactions contemplated hereby
(other than the issuance of those additional Debenture Warrants as provided
in Section 2.5). The Debenture Warrants so issued will have an exercise
price equal to $0.15 per share, subject to adjustment as provided in
Exhibit D.
---------
2.5 Issuance of Additional Debenture Warrants. Until the New
-----------------------------------------
Debentures are repaid in full, the holders of the New Debentures shall receive
additional Debenture Warrants on January 1 of each year to purchase two percent
(2%) of the shares of the Company's Common Stock then outstanding, on a fully
diluted basis. The Debenture Warrants so issued will have an exercise price
equal to the average Fair Market Value (as defined in the Debenture Warrant) for
the 15 days prior to the issuance of such Debenture Warrant, subject to
adjustment as provided in Exhibit D. Prior to each issuance, the Company will
---------
reserve a sufficient number of shares of Common Stock for issuance upon exercise
of these Debenture Warrants.
SECTION 3
Closings; Delivery
------------------
3.1 Closing Dates. The first closing of the purchase and sale of the
-------------
Series D Stock (the "First Closing") shall be held at the offices of Stoel
-------------
Rives, LLP, 600 University Street, Suite 3600, Seattle, Washington 98101 on
February 1, 1999, or on such other date or at such other place as the Purchasers
and the Company shall mutually agree. Any other closings that occur pursuant to
the terms hereof ("Additional Closings") shall be held on such dates and at such
-------------------
times as the parties shall mutually agree. Any of the date of the First Closing
and any Additional Closing is referred to herein as a "Closing Date."
------------
3.2 Delivery. At the First Closing and any Additional Closings, the
--------
Company shall: (a) deliver to each Purchaser a certificate or certificates
evidencing the Shares being purchased by such Purchaser, and, at the First
Closing, the Warrants being issued to such Purchaser, registered in such
Purchaser's name against delivery to the Company or FINOVA, as the case may be,
of payment in an amount equal to the full purchase price of the Shares being
purchased by such Purchaser by certified check or wire transfer to an
<PAGE>
account designated by the Company or, in the case of any payment to FINOVA, to
an account designated by FINOVA; (b) at the First Closing, deliver the Original
Debentures in exchange for the Revised Debentures and the Warrants and (c) make
such other deliveries as may be required under the terms of this Agreement.
3.3 Use of Proceeds. The Company agrees to use the full proceeds from
---------------
the First Closing solely to repay a portion of the existing borrowing under the
FINOVA line of credit and the Purchaser's expenses associated with the
transactions contemplated hereby. The proceeds of Additional Closings, if any,
shall be designated by the Purchasers, in their sole discretion, but shall not
exceed the scope or the amounts set forth below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Purpose Maximum Amount
- --------------------------------------------------------------------------------
<S> <C>
Bring certain obligations to $1,300,000
merchandise vendors that are
past due to current status
- --------------------------------------------------------------------------------
Payment of past due taxes $ 100,000
- --------------------------------------------------------------------------------
Payment of past due rents $ 100,000
- --------------------------------------------------------------------------------
TOTAL $1,500,000
- --------------------------------------------------------------------------------
</TABLE>
The proceeds of a subsequent Additional Closing, the maximum amount of
which shall be $500,000, shall be designated by the Purchasers in their sole
discretion.
SECTION 4
Representations and Warranties of the Company
---------------------------------------------
The Company hereby represents and warrants to, and agrees with, the
Purchasers as follows:
4.1 Organization, Good Standing and Qualification. Each of the
---------------------------------------------
Company and its Subsidiaries (i) is an entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization,
(ii) has all requisite power and authority to carry on its business, (iii) is
duly qualified to transact business and is in good standing in all jurisdictions
where its ownership, lease or operation of property or the conduct of its
business requires such qualification, except where the failure to do so would
not be material to the Company. The Company and each of the Subsidiaries has the
corporate power and authority and is in possession of all material franchises,
grants, authorizations, licenses, permits, easements, consents, certificates,
approvals and orders (i) to own, lease and operate its properties and to carry
on its business as now being conducted and (ii) in the case of the Company, to
execute and deliver this Agreement and the documents and instruments
contemplated hereby and to consummate the transactions contemplated hereby.
<PAGE>
4.2 Capitalization.
--------------
4.2.1 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 549,220 shares are issued and outstanding and
------------
no shares are held in treasury, and 5,000,000 shares of Preferred Stock.
Of the authorized shares of Preferred Stock, 46,000 shares have been
designated as Series A Preferred Stock, of which 46,000 shares are issued
and outstanding; 25,000 shares have been designated as Series B Preferred
Stock, of which 25,000 shares are issued and outstanding; and 20,000
shares have been designated as Series C Preferred Stock, none of which
shares are issued and outstanding. Upon the filing with the Secretary of
State of Washington of the Statement of Rights and Preferences, there
will have been designated a series of preferred stock, consisting of
40,000 shares of Series D Stock, none of which will have been issued or
outstanding. Subject to the terms and conditions hereof, the Company has
authorized the issuance at the First Closing of 20,000 shares of Series D
Stock. Schedule 4.2 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 1,146,774 shares of Common
Stock upon exercise or conversion of rights, options, warrants and other
convertible securities currently outstanding or issued under the
Management Option Plan. The Company has reserved or, prior to the
Closing, will reserve 2,203,112 shares of Common Stock for issuance upon
exercise of the Warrants other than those Debenture Warrants issuable
pursuant to Section 2.5. Except as set forth in this Section 4.2.1 or
----------- -------------
as listed on Schedule 4.2 or Schedule 4.3, there are outstanding (a) no
------------
shares of capital stock or other voting stock of the Company or any
Subsidiary, (b) 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, (c) no options,
warrants or other rights to acquire 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, (d)
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 (e) 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
<PAGE>
exercise of any options, rights or warrants or otherwise, upon issuance
pursuant to the instruments under which they are issuable, 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.
4.2.2 The issued and outstanding shares of capital stock of the Company are
duly authorized, validly issued, fully paid and non-assessable. The
shares of Series D Stock to be issued pursuant to this Agreement, upon
delivery to the Purchasers of certificates therefor against payment in
accordance with the terms of this Agreement, and the shares of Common
Stock to be issued upon exercise of the Warrants, (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 5 hereof are true and correct, will be issued in compliance with
all applicable federal and state securities laws.
4.3 Subsidiaries. Schedule 4.3 sets forth a complete and accurate
------------ ------------
list of all Subsidiaries of the Company, showing (as to each such Subsidiary)
the date of its incorporation, the jurisdiction of its incorporation, the number
of shares of its authorized capital stock, the number and class of shares
thereof duly issued and outstanding, the names of all stockholders of such
Subsidiaries and the number and percentage of the outstanding shares of each
such class owned, directly or indirectly, by all such stockholders, including
the Company. At Closing, all of the outstanding capital stock of, or other
ownership interests in, each Subsidiary, will be owned by the Company, directly
or indirectly, free and clear of any Lien or any other limitation or restriction
(including restrictions on the right to vote). All outstanding shares of the
capital stock of the Company and any Subsidiary have been duly authorized,
validly issued, fully paid and non-assessable and are free of any preemptive
rights. There are no outstanding securities of any Subsidiary convertible into
or evidencing the right to purchase or subscribe for any shares of capital stock
of any Subsidiary, there are no outstanding or authorized options, warrants,
calls, subscriptions, rights, commitments or any other agreements of any
character obligating any Subsidiary to issue any shares of its capital stock or
any securities convertible into or evidencing the right to purchase or subscribe
for any shares of such stock, and there are no agreements or understandings with
respect to the voting, sale, transfer or registration of any shares of capital
stock of any Subsidiary.
4.4 Partnerships, Joint Ventures. Neither the Company nor any
----------------------------
Subsidiary is a party to, or holds, any equity interests in any partnership,
limited partnership, limited liability company or other joint venture of any
kind.
4.5 Authorization. The Company has all requisite corporate power and
-------------
authority to execute and deliver this Agreement and each agreement, document or
instrument adopted, entered into or delivered by it as contemplated herewith
(the
<PAGE>
"Transaction Documents") and to perform its obligations hereunder and
---------------------
thereunder. The execution, delivery and performance of the Agreement and the
transactions contemplated hereby have been duly authorized by all necessary
corporate, including shareholder (if required), action on the part of the
Company. Each Transaction Document to which it is a party has been duly and
validly executed and delivered by the Company and constitutes the legal, valid
and binding obligation of the Company, enforceable against it in accordance with
its 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).
4.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, or local governmental authority on the part of
the Company is required in connection with the valid execution and delivery by
the Company of the Transaction Documents to which it is a party, or the
consummation by the Company of the transactions contemplated by the Transaction
Documents to which it is a party, except for (i) filings pursuant to federal or
state securities laws and (ii) the filing of registration statements with the
SEC and any applicable state securities commission.
4.7 Company SEC Reports and Financial Statements.
--------------------------------------------
4.7.1 The Company has made available to Purchasers true and complete copies of
all periodic reports, statements and other documents that the Company has
filed with the SEC under the Exchange Act for the past three years
(collectively, the "Company SEC Reports"), each in the form (including
-------------------
exhibits and any amendments thereto) required to be filed with the SEC.
As of their respective dates, each of the Company's SEC Reports (i)
complied in all respects with all applicable requirements of the
Securities Act and the Exchange Act, and the rules and regulations
promulgated thereunder, respectively, provided, however, that no
-------- -------
representation is made with respect to the timely filing of any such
reports prior to December 5, 1997, and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
None of the Subsidiaries is required to file any forms, reports or other
documents with the SEC.
4.7.2 Each of the audited consolidated financial statements of the Company
(including any related notes and schedules thereto) included (or
incorporated by reference) in its Annual Report on Form 10-K for the
fiscal year ended January 31, 1998, is accurate and complete and presents
fairly, in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved
----
(except as may be noted therein), and in conformity with the SEC's
Regulation S-X, the consolidated financial position of the Company and
its
<PAGE>
consolidated subsidiaries as of its date and the consolidated results of
operations and changes in financial position for the period then ended.
Each of the unaudited consolidated financial statements of the Company
(including any related notes and schedules thereto) included (or
incorporated by reference) in its Quarterly Report on Form 10-Q for the
quarter and nine-month period ended October 31, 1998, is accurate and
complete and fairly presents, in conformity with GAAP applied on a
consistent basis throughout the periods involved (except as may be noted
therein), and in conformity with the SEC's Regulation S-X, the
consolidated financial position of the Company and its consolidated
subsidiaries as of its date and the consolidated results of operations
and changes in financial position for the periods then ended.
4.7.3 Except as and to the extent set forth (or incorporated by reference) in
the Company's Quarterly Report on Form 10-Q for the quarter ended October
31, 1998 (the "Balance Sheet Date"), none of the Company or any of its
------------------
Subsidiaries has incurred any liability or obligation of any nature
whatsoever (whether due or to become due, accrued, fixed, contingent,
liquidated, unliquidated or otherwise) that would be required by GAAP to
be accrued on, reflected on, or reserved against it on, a consolidated
balance sheet (the "Balance Sheet") (or in the applicable notes thereto)
-------------
of the Company or any of its Subsidiaries prepared in accordance with
GAAP consistently applied as of the date and for the period required.
4.8 Changes. Except as set forth on Schedule 4.8, since the Balance
------- ------------
Sheet Date, there has not been:
4.8.1 any material change in the assets, liabilities, financial condition or
operating results of the Company or any of its Subsidiaries, except
changes in the ordinary course of business;
4.8.2 any material damage, destruction or loss to real or personal property,
whether or not covered by insurance;
4.8.3 any waiver by the Company or any of its Subsidiaries of a material legal
or contractual valuable right or of a debt owed to it outside of the
ordinary course of business;
4.8.4 any satisfaction or discharge of any Lien or payment of any obligation by
the Company or any of its Subsidiaries other than (i) in respect of
normal operating obligations in the ordinary course of business, and (ii)
payments to FINOVA under the FINOVA line of credit;
<PAGE>
4.8.5 any change or amendment to a contract or arrangement by which the Company
or any of its Subsidiaries or any of their respective assets or
properties is bound or subject;
4.8.6 other than in the ordinary course of business, any material increase in
excess of $15,000 annually in any compensation arrangement or agreement
with any employee of the Company or any of its Subsidiaries receiving
compensation;
4.8.7 any events or circumstances (other than losses from operations in the
ordinary course of business) that otherwise could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect; and
4.8.8 none of the Company or any of its Subsidiaries has (i) declared or paid
any dividends, or authorized or made any distribution upon or with
respect to any class or series of its capital stock or equity interests,
(ii) incurred any indebtedness for money borrowed in excess of $15,000,
(iii) made any loans or advances to any Person, other than ordinary
advances for travel expenses not exceeding $15,000, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights for
consideration in excess of $15,000 in any one transaction or series of
related transactions.
4.9 Accuracy of Prior Representations and Warranties. Each of the
------------------------------------------------
representations and Warranties regarding the Company set forth in (i) Section 4
of the Preferred Stock Purchase Agreement, dated as of December 5, 1997 (the
"Preferred Agreement"); and (ii) Section 5 of the Subordinated Debenture
Purchase Agreement, dated as of March 11, 1998, each by and between the parties
hereto and other parties named therein, was true, complete and accurate in all
material respects when made. Except as set forth on Schedule 4.9, or as is
------------
evident from the Company SEC Reports filed since December 5, 1997, since the
dates on which such representations and warranties were made, no event has
occurred that has had a Material Adverse Effect and that would cause any such
representation or warranty, if made as of the date of this Agreement, to be
materially false.
4.10 Conformity with Law; Absence of Litigation. The Company has not
------------------------------------------
violated any law or regulation or any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over it which would have a Material Adverse
Effect. Except as set forth in Schedule 4.10, there are no claims, actions,
-------------
suits, proceedings or investigations pending or, to its Knowledge, threatened,
nor, to its Knowledge, are there any facts which with the passage of time, the
giving of notice or both, would likely result in any such claims, actions,
suits, proceedings or investigations against the Company or any of its
Subsidiaries, or any properties or rights of the Company or its Subsidiaries,
before any court, arbitrator or administrative, governmental or regulatory
authority or body, domestic or foreign, which would have a Material Adverse
Effect.
<PAGE>
4.11 Disclosure. All written agreements, lists, schedules,
----------
instruments, exhibits, documents, certificates, reports, statements and other
writings furnished to the Purchasers pursuant hereto or in connection with this
Agreement or the transactions contemplated hereby, are and will be complete and
accurate in all material respects. No representation or warranty by the Company
contained in this Agreement, in the schedules attached hereto or in any
certificate furnished or to be furnished by the Company to the Purchasers in
connection herewith will omit to state any material fact necessary in order to
make any statement contained herein or therein not misleading. There is no fact
known to the officers and directors of the Company that has specific application
to the Company and that materially adversely affects or, as far as such officers
and directors can reasonably foresee, materially threatens, the assets,
business, prospects, financial condition, or results of operations of the
Company that is required to be and has not been set forth in this Agreement or
any schedule hereto.
4.12 FINOVA Credit Facility. Attached hereto at Schedule 4.12(a) is a
---------------------- ----------------
true, complete and accurate copy of the Loan and Security Agreement, dated as of
June 2, 1998, as amended, between FINOVA and the Company (the "FINOVA
Facility"). Upon giving effect to that certain Amendment No. 2 and Limited
Waiver and Consent to Loan and Security Agreement, substantially in the form
attached as Schedule 4.12(b), no event of default will exist under the FINOVA
----------------
Facility.
4.13 IRS Dispute. The Company SEC Reports, as updated by Schedule
-----------
4.13, attached hereto, fairly describe the status of the Company's dispute with
the Internal Revenue Service.
4.14 U.S. Real Property Holding Corporation. The Company is not now
--------------------------------------
and has never been a "United States real property holding corporation" as
defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the Internal Revenue Service, and the Company has
filed with the Internal Revenue Service all statements, if any, wit its United
States income tax returns which are required under Section 1.897(h) of such
Regulations.
SECTION 5
Representations and Warranties of the Purchasers
------------------------------------------------
Each of the Purchasers (severally and not jointly), hereby represents and
warrants to and agrees with the Company, as follows:
5.1 Accredited Investor; Experience; Risk.
-------------------------------------
5.1.1 Such Purchaser is an accredited investor and has been advised and
understands that the Series D Stock and the Warrants have not been
registered under the
<PAGE>
Securities Act, on the basis that no distribution or public offering of
the Series D Stock or Warrants is to be effected, except in compliance
with the applicable securities laws and regulations or pursuant to an
exemption therefrom; provided, however, that nothing in this
-------- -------
Section 5.1 shall limit the Purchaser's right to exercise the Warrants.
5.1.2 Such Purchaser is purchasing the Series D Stock and Warrants for
investment purposes, for its own account and not with a view to, or for
sale in connection with, any distribution thereof in violation of federal
or state securities laws.
5.1.3 Such Purchaser has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of
the purchase of the Series D Stock and Warrants pursuant to this
Agreement.
5.1.4 The certificates representing the Series D Stock, the Warrants and any
securities issuable on exercise of the Warrants shall bear a legend
evidencing such restriction on transfer substantially in the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
SOLD OR TRANSFERRED EXCEPT PURSUANT TO REGISTRATION UNDER THE ACT OR AN
EXEMPTION THEREFROM."
5.2 Authorization. Such Purchaser has all requisite power and
-------------
authority to execute and deliver this Agreement and each of the Transaction
Documents and to perform its obligations hereunder and thereunder. The
execution, delivery and performance of the Agreement and the transactions
contemplated hereby have been duly authorized by all necessary, action on the
part of such Purchaser. Each Transaction Document to which it is a party has
been duly and validly executed and delivered by such Purchaser and constitutes
the legal, valid and binding obligation of such Purchaser, enforceable against
it in accordance with its 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).
5.3 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, or local governmental authority on the part of
such Purchaser is required in connection with the valid execution and delivery
by such Purchaser of the Transaction Documents to which it is a party, or the
consummation by such Purchaser of the transactions contemplated by the
Transaction Documents to which it is a party, except for such filings as have
been made prior to the Closing.
<PAGE>
5.4 Organization, Good Standing and Qualification. Such Purchaser (i)
---------------------------------------------
is an entity duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, (ii) has all requisite power and
authority to carry on its business, (iii) is duly qualified to transact business
and is in good standing in all jurisdictions where its ownership, lease or
operation of property or the conduct of its business requires such
qualification, except where the failure to do so would not be material to the
Purchaser.
SECTION 6
Conditions to Closing of Purchasers
-----------------------------------
Each Purchaser's obligation to purchase Shares at the First Closing or any
Additional Closing is, at the option of such Purchaser, subject to the
fulfillment to such Purchaser's reasonable satisfaction on or prior to such
Closing of the following conditions:
6.1 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Company in Section 4 hereof shall be true and correct
when made, and shall be true and correct on the date of such Closing with the
same force and effect as if they had been made on and as of such date.
6.2 Covenants. All covenants, agreements and conditions contained in
---------
this Agreement to be performed by the Company on or prior to the date of such
Closing shall have been performed or complied with in all respects.
6.3 Opinion of Company's Counsel. The Purchasers shall have received
----------------------------
at the First Closing from Stoel Rives LLP, counsel to the Company, an opinion
addressed to the Purchasers, dated the Closing Date, in the form set forth on
Exhibit F.
- ---------
6.4 No Material Adverse Change. There shall not have occurred since
--------------------------
the date of this Agreement any events or circumstances that could reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect.
6.5 Statement of Rights and Preferences. The Company's Articles of
-----------------------------------
Incorporation shall have been duly amended by the Company to include the Series
D Stock Statement of Rights and Preferences and filed with the Washington
Secretary of State.
<PAGE>
6.6 State Securities Laws. All registrations, qualifications and
---------------------
Permits required under applicable state securities laws, if any, shall have been
obtained for the lawful execution, delivery and performance of this Agreement at
such Closing.
6.7 Issuance of Shares, Warrants and Revised Debentures. The Company
----------------------------------------------------
shall have issued and delivered to the Purchasers the Shares, Warrants and
Revised Debentures required to be so delivered at such Closing pursuant to this
Agreement.
6.8 Certificates. Each of the Purchasers shall have received a
------------
certificate of the Chief Executive Officer or Chief Financial Officer of the
Company, dated the date of such Closing, to the effect set forth in Sections
6.1, 6.2 and 6.4.
6.9 Registration Rights Agreement. The Company and all other parties
-----------------------------
thereto shall have executed and delivered the Registration Rights Agreement to
Purchasers.
6.10 Consents. The Company shall have obtained all written consents
--------
necessary for the Company to complete the transactions contemplated hereby,
including, without limitation, the consent of FINOVA.
6.11 Revised FINOVA Facility. The Company and FINOVA shall have
-----------------------
executed an Amendment and Waiver Agreement with respect to the FINOVA Facility,
substantially in the form of Schedule 4.12(b).
6.12 Delivery of Financial Information. The Company shall have
---------------------------------
delivered the following financial information (i) calculation of loan
covenant(s) in default on November 30, 1998 and December 31, 1998, (ii) Fiscal
Year 2000 financial projections on a monthly basis of Income Statement, Balance
Sheet, Cash Flows and Borrowing Capacity on the same format as previous internal
projections (which shall be based on the revised Fiscal Year 2000 projections
provided to FINOVA on December 23, 1998), (iii) monthly analysis for Fiscal Year
1999 of actual Income Statement, Balance Sheet, Cash Flows and Borrowing
Capacity on the same format as the Fiscal year 1999, 2000 and 2001 projections
(with the December 1998 and January 1999 amounts in projection form); (iv)
detailed aging of accounts payable as of the periods ended November and December
1998, (v) detailed analysis of sales delineated between men's and women's lines
and major category of goods, for the months of November 1998 and December 1998,
together with beginning and ending inventories for each such category, (vi)
updated summary of the estimated cost of new computer hardware and software
giving effect to new projected numbers of stores for Fiscal Year 2000, and (vii)
listing of cost saving measures, estimate amount saved and timetables for
implementation.
<PAGE>
SECTION 7
Conditions to Closing of the Company
------------------------------------
The Company's obligation to issue and sell Shares or Warrants at the First
Closing or any Additional Closing is, at the option of the Company, subject to
the fulfillment of the following conditions:
7.1 Representations. The representations and warranties made by the
---------------
Purchasers in Section 5 hereof shall be true and correct when made, and shall be
true and correct on the date of such Closing with the same force and effect as
if they had been made on and as of such date.
7.2 Purchase Price. The Purchasers shall have tendered the purchase
--------------
price for the shares to be purchased at such Closing.
7.3 Certificate. The Company shall have received a certificate from
-----------
the Purchasers to the effect set forth in Section 7.1.
7.4 State Securities Laws. All registrations, qualifications and Permits
---------------------
required under applicable state securities laws, if any, shall have been
obtained for the lawful execution, delivery and performance of this Agreement.
7.5 Registration Rights Agreement. The Purchasers and the Company
-----------------------------
shall have executed and delivered the Registration Rights Agreement to the
Company.
SECTION 8
Covenants of the Company
------------------------
Unless waived by the holders of not less than 75% of the Series D Stock
then outstanding:
8.1 Information. Following the First Closing and continuing so long as
-----------
any shares of Series D Stock remain outstanding (or such earlier time as
provided below), the Company shall deliver to each of the Purchasers the
information specified in this Section 8.1 unless any such Purchaser at any time
specifically requests that such information not be delivered to it:
8.1.1 Quarterly Financial Statements. As soon as available, but in any event
------------------------------
not later than forty-five (45) days after the end of each quarterly
fiscal period (other than the last quarterly fiscal period in any fiscal
year of the Company), the unaudited consolidated balance sheet of the
Company and its Subsidiaries as at the end of each such period and the
related unaudited consolidated statements of income and cash flows of the
Company and its Subsidiaries for such period and for the elapsed period
in such fiscal year, all in reasonable detail and stating in comparative
form (i) the figures as of the end of and for the comparable periods of
the preceding fiscal year and (ii) the figures reflected in the operating
budget (if
<PAGE>
any) for such period as specified in the financial plan of the Company.
All such financial statements shall be prepared in accordance with GAAP
applied on a consistent basis throughout the periods reflected therein
except as stated therein.
8.1.2 Annual Financial Statements. As soon as available, but in any event
---------------------------
within one hundred twenty (120) days after the end of each fiscal year of
the Company, a copy of the audited consolidated balance sheets of the
Company and its Subsidiaries as at the end of such fiscal year and the
related audited consolidated statements of operations, stockholders'
equity and cash flows of the Company and its Subsidiaries for such fiscal
year, all in reasonable detail and stating in comparative form the
figures as at the end of and for the immediately preceding fiscal year,
accompanied (in the case of the audited consolidated financial
statements) by an opinion of an accounting firm of recognized national
standing selected by the Company, which opinion shall state that such
accounting firm's audit was conducted in accordance with generally
accepted auditing standards. All such financial statements shall be
prepared in accordance with GAAP applied on a consistent basis throughout
the periods reflected therein except as stated therein.
8.1.3 Other Financial Information. Not less often than monthly, (i) financial
---------------------------
statements in the form internally generated by the Company, (ii) a roll-
forward activity report under the FINOVA line of credit, (iii) a detailed
aging of vendor payables, (iv) an "open to buy" report and (v) weekly or
monthly inventory status and sales reports by store;
8.1.4 Material Litigation. Within twenty (20) days after the Company learns of
-------------------
the commencement or written threat of commencement of any litigation or
proceeding against the Company, any of its Subsidiaries or any of the
Partnerships or any of their respective assets that could reasonably be
expected to have a Material Adverse Effect, written notice of the nature
and extent of such litigation or proceeding.
8.1.5 Material Agreements. Within five (5) days after the expiration of the
-------------------
applicable cure period, if any, or if no such cure period exists within
five (5) days after the receipt by the Company of written notice of a
default by the Company or any of its Subsidiaries under any material
contract, agreement or document to which it is a party or by which it is
bound, written notice of the nature and extent of such default.
8.1.6 Other Reports and Statements. Promptly upon (i) any distribution to its
----------------------------
stockholders generally, to its directors or to the financial community of
an annual report, quarterly report, proxy statement, registration
statement or other similar report or communication, (ii) filing by the
Company with the SEC or with The National Market System, Inc., the
National Association of Securities Dealers, Inc.
<PAGE>
or any national securities exchange or other market system of any and all
regular and other reports or applications, or (iii) the issuance of any
press release or other communication to the general public, a copy of
each such report, application release or other communication.
8.1.7 Accountants' Management Letters, Etc. Promptly after receipt by the
-------------------------------------
Company, copies of all accountants' management letters and all management
and board responses to such letters, and copies of all certificates as to
compliance, defaults, material adverse changes, material litigation or
similar matters relating to the Company and its Subsidiaries, which shall
be prepared by the Company or its officers and delivered to the third
parties.
8.1.8 Stockholders' Lists. Within sixty (60) days after the end of each fiscal
-------------------
year, a stockholders' list, showing the authorized and outstanding shares
by class (including the Common Stock equivalents of any convertible
security), the holders of all outstanding shares (both before giving
effect to dilution and on a fully diluted basis) and all outstanding
options, warrants and convertible securities, and detailing all options
and warrants granted, exercised or lapsed (including in each case,
without limitation, all option and warrant exercise prices, stock
issuance prices' and other terms) and all shares issued or sold (whether
to directors or managers, in connection with financing or otherwise).
8.1.9 Annual Budget. Promptly after management presents an annual budget to
-------------
the Board of Directors, a copy of such annual budget, but in no event
later than 30 days before year-end.
8.2 Communication. At the request of any Purchaser that continues to
-------------
hold Series D Stock, the Company shall hold weekly status meetings among the
Company's management group and such Purchasers to discuss items proposed by such
Purchasers.
8.3 Access. So long as the Purchasers hold at least fifteen percent
------
(15%) of the Series D Stock purchased hereunder, upon the written request of the
Purchasers, the Company shall afford the Purchasers and its accountants, counsel
and other representatives, full access during normal business hours to all of
its properties, books, contracts, commitments and records, permit them to copy
or make extracts therefrom and, the Company shall furnish promptly to Purchasers
all information concerning its business, properties and personnel as Purchasers
may reasonably request; provided, however, that no investigation pursuant to
-------- -------
this Section 8.3 shall affect any representations or warranties of either party
hereunder.
8.4 Directors' and Officers' Insurance. So long as the Purchasers
----------------------------------
hold at least fifteen percent (15%) of the Series D Stock purchased hereunder,
the Company shall maintain a directors' and officers' liability insurance policy
providing coverage in the amount of not less than One Million Dollars
($1,000,000) and having such other terms as are reasonably acceptable to
Purchasers.
<PAGE>
8.5 Confidentiality. From and after the date of this Agreement, each
---------------
of the Company and Purchasers agree to hold, and will cause its employees,
agents and representatives to hold, in confidence, unless compelled to disclose
by judicial or administrative process or, in the written opinion of their
counsel, by other requirements of law, information furnished by the Company, on
the one hand, to Purchasers and information furnished by Purchasers, on the
other hand, to the Company in connection with the transactions contemplated by
this Agreement, and each of such persons agree that they shall not release or
disclose such information to any other person, except their respective officers,
directors, partners, employees, auditors, attorneys, financial advisors and
other consultants, advisors and representatives who need to know such
information and who have been informed of the confidential nature of such
information and have been directed to treat such information as confidential.
The foregoing provisions of this Section 8.5 shall not apply to any such
information which (i) becomes generally available to the public other than as a
result of a disclosure by any person bound hereunder, (ii) was available to a
person bound hereunder on a non-confidential basis prior to its disclosure
hereunder, (iii) becomes available to any person bound hereunder on a non-
confidential basis by virtue of the disclosure thereof by a source other than
the party providing such information in reliance upon the protection of
confidentiality reposed hereby, or (iv) is required to be disclosed pursuant to
an order of a court of competent jurisdiction, provided that if disclosure is so
required, the disclosing party shall provide notice of the same to each other
party hereto.
Notwithstanding anything herein to the contrary, from and after the date of
this Agreement, if either party to this Agreement or any agreement contemplated
herein shall be required by law to file as part of any public record this
Agreement or the agreements relating to any transactions contemplated hereby,
both parties shall jointly identify those provisions, if any, of such agreements
that shall remain confidential and shall request and seek confidential treatment
of those provisions in accordance with the applicable provisions of any
applicable law, rule or regulation, and shall take all reasonable actions
necessary to secure such confidential treatment.
8.6 Restrictive Covenant. Without the consent of the holders of 75%
--------------------
of the Series D Stock then outstanding, the Company may not fail to use the
proceeds of the sale of any Shares as required under the terms of any agreement
that was a condition of any such sale.
8.7 Foreign Corrupt Practices. Neither the Company nor any Subsidiary
-------------------------
will offer or agree to offer anything of value to any governmental official,
political party or candidate for government office nor will it otherwise take
any action that would cause the Company to be in violation of the U.S. Foreign
Corrupt Practices Act or any law of similar effect.
<PAGE>
8.8 Payment of Expenses. At each Closing, the purchasers may deduct
-------------------
from the Purchase Price otherwise payable for the Shares being purchased at such
Closing, the amount of their reasonable expenses associated with the
transactions contemplated hereby and not earlier paid.
8.9 Additional Warrants. As long as the New Debentures remain
-------------------
outstanding, on each anniversary of January 1, the Company shall issue to the
holders of New Debentures additional Debenture Warrants to acquire two percent
(2%) of the then outstanding shares of Common Stock of the Company, on a fully
diluted basis. The Debenture Warrants so issued will have an exercise price
equal to the average Fair Market Value (as defined in the Debenture Warrant) for
the 15 days prior to the issuance of such Debenture Warrant. The Company will
reserve a sufficient number of additional shares of Common Stock prior to each
subsequent issuance of Debenture Warrants.
SECTION 9
Miscellaneous
-------------
9.1 Amendment; Waiver. Neither this Agreement nor any provision
-----------------
hereof may be amended, modified, supplemented or waived, except by a written
instrument executed by (i) the Company and (ii) the Purchasers.
9.2 Notices. Any notices or other communications required or
-------
permitted hereunder shall be sufficiently given if in writing and delivered in
Person, transmitted by facsimile transmission (fax) or sent by registered or
certified mail (return receipt requested) or recognized overnight delivery
service, postage pre-paid, addressed as follows, or to such other address has
such party may notify to the other parties in writing:
9.2.1 if to the Company:
Jay Jacobs, Inc.
1530 Fifth Avenue
Seattle, Washington 98101
Attn: William L. Lawrence, Jr.
Telephone No.: 206-622-5400
Facsimile No.: 206-621-9830
with a copy to:
Stoel Rives, LLP
600 University Street, Suite 3600
Seattle, Washington 98101
Attn: John J. Halle, Esq.
Telephone No.: 206-624-0900
Facsimile No.: 206-386-7500
<PAGE>
9.2.2 if to the Purchasers:
c/o Cahill, Warnock & Company, LLC
One South Street, Suite 2150
Baltimore, Maryland 21202
Attn: Edward L. Cahill
Telephone No.: 410-895-3800
Facsimile No.: 410-464-0484
with a copy to:
Wilmer, Cutler & Pickering
1445 M St. NW
Washington, D.C. 20037
Attn: George P. Stamas, Esq.
Telephone No.: 202-663-6000
Facsimile No.: 202-663-6363
and a copy to:
T. Rowe Price Associates
100 East Pratt Street, 7th Floor
Baltimore, MD 21202
Attn: Kim Golden
Telephone No.: 410-345-6703
Facsimile No.: 410-345-2304
and a copy to:
Testa Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
Attn: Michael Collins, Esq.
Facsimile No.: 617-248-7100
A notice or communication will be effective (i) if delivered in Person or by
overnight courier, on the business day it is delivered, (ii) if transmitted by
telecopier or EMail, on the business day of actual confirmed receipt by the
addressee thereof, and (iii) if sent by registered or certified mail, three (3)
business days after dispatch.
<PAGE>
9.3 Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
9.4 Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors and permitted assigns of the parties hereto. No party hereto may
assign its rights or delegate its obligations under this Agreement without the
prior written consent of the other parties hereto.
9.5 Survival of Representations, Warranties and Covenants. All
-----------------------------------------------------
representations and warranties made in, pursuant to or in connection with this
Agreement shall survive the execution and delivery of this Agreement, any
investigation at any time made by or on behalf of any Purchaser, and the sale
and purchase of the Series D Stock and payment therefor for a period of two (2)
years. All covenants shall survive as long as any of the Purchasers hold any
shares of Series D Stock.
9.6 Entire Agreement. This Agreement and the other documents
----------------
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subject matter hereof and
thereof and supersede and cancel all prior representations, alleged warranties,
statements, negotiations, undertakings, letters, acceptances, understandings,
contracts and communications, whether verbal or written, among the parties
hereto and thereto or their respective agents with respect to or in connection
with the subject matter hereof.
9.7 Choice of Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the laws of the State of Delaware, without regard to
principles of conflict of laws.
9.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
9.9 Costs and Expenses. The Company shall pay all reasonable fees
------------------
and expense of the Purchasers. The Purchasers shall have the right to reduce
the amount of the purchase price to offset any amounts payable for their costs
and expenses associated with the transactions contemplated hereby.
9.10 No Third-Party Beneficiaries. Nothing in this Agreement will
----------------------------
confer any third party beneficiary or other rights upon any Person (specifically
including any employees of the Company and its Subsidiaries) or entity that is
not a party to this Agreement.
<PAGE>
9.11 Indemnification.
---------------
9.11.1 The Company agrees to indemnify and hold harmless the Purchasers and
their Affiliates, and their respective partners, co-investors, officers,
directors, employees, agents, consultants, attorneys and advisers (each,
an "Indemnified Party"), from and against any and all actual losses,
-----------------
claims, damages, liabilities, costs and expenses (including, without
limitation, environmental liabilities, costs and expenses and all
reasonable fees, expenses and disbursements of counsel), joint or
several (hereinafter collectively referred to as a "Loss"), which may be
----
incurred by or asserted or awarded against any Indemnified Party in
connection with or in any manner arising out of or relating to any
investigation, litigation or proceeding or the preparation of any
defense with respect thereto, arising out of or in connection with or
relating to this Agreement, the other Transaction Documents or the
transactions contemplated hereby or thereby or any use made or proposal
to be made with the proceeds of the Purchasers' purchase of the Series D
Stock pursuant to this Agreement, whether or not such investigation,
litigation or proceeding is brought by the Company, any of its
Subsidiaries, shareholders or creditors, whether or not any of the
transactions contemplated by this Agreement or the other Transaction
Documents are consummated, except to the extent such Loss is found in a
final judgment by a court of competent jurisdiction to have resulted
from such Indemnified Party's gross negligence or willful misconduct.
9.11.2 An Indemnified Party shall give written notice to the Company of any
claim with respect to which it seeks indemnification within ten (10)
days after the discovery by such parties of any matters giving rise to a
claim for indemnification pursuant to Section 9.11(a); provided that the
--------
failure of any Indemnified Party to give notice as provided herein shall
not relieve the Company of its obligations under this Section 9.11,
except to the extent that the Company is actually prejudiced by such
failure to give notice. In case any such action or claim is brought
against any Indemnified Party, the Company shall be entitled to
participate in and, unless in the reasonable good faith judgment of the
Indemnified Party a conflict of interest between such Indemnified Party
and the Company may exist in respect of such action or claim, to assume
the defense thereof, with counsel satisfactory to the Indemnified Party
and after notice from the Company to the Indemnified Party of its
election so to assume the defense thereof, the Company shall not be
liable to such Indemnified Party for any legal or other expenses
subsequently incurred by the latter in connection with the defense
thereof other than reasonable costs of investigation. In any event,
unless and until the Company elects in writing to assume and does so
assume the defense of any such action or claim the Indemnified Party's
costs and expenses arising out of the defense, settlement or compromise
of any such action or claim shall be Losses subject to
<PAGE>
indemnification hereunder. If the Company elects to defend any such
action or claim, then the Indemnified Party shall be entitled to
participate in such defense with counsel of its choice at its sole cost
and expense. The Company shall not be liable for any settlement of any
action or claim effected without its written consent. Anything in this
Section 9.11 to the contrary notwithstanding, the Company shall not,
without the Indemnified Party's prior written consent, settle or
compromise any claim or consent to entry of any judgment in respect
thereof that imposes any future obligation on the Indemnified Party or
that does not include, as an unconditional term thereof, the giving by
the claimant or the plaintiff to the Indemnified Party, a release from
all liability in respect of such claim.
9.12 Dispute Resolution. Any dispute, controversy or claim arising
------------------
out of or relating to this Agreement, or the breach termination validity
thereof, shall be settled by arbitration in accordance with the American
Arbitration Association (AAA) Commercial Rules as at present in force. The
number of arbitrators shall be one. The arbitrator shall be neutral and
appointed by the AAA. The place of arbitration shall. commence no later than
thirty (30) days after the Arbitrator has been appointed. The losing party
shall be responsible for the costs and expenses incurred by both sides with
respect to the arbitration.
[The remainder of this page is intentionally blank.]
<PAGE>
SECURITIES PURCHASE AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the Company and the Purchasers have caused this
Agreement to be executed effective as of the date first above written.
JAY JACOBS, INC.
By:_____________________________________
Rex Loren Steffey
President and Chief Executive Officer
CAHILL, WARNOCK STRATEGIC
PARTNERS FUND, L.P.
By: Cahill, Warnock Strategic Partners, L.P., its
general partner
By:_____________________________________
Edward L. Cahill, a general partner
STRATEGIC ASSOCIATES, L.P.
By: Cahill, Warnock & Company, LLC, its general partner
By:_____________________________________
Edward L. Cahill, a managing member
T. ROWE PRICE RECOVERY FUND II, L.P.
By: T. Rowe Price Recovery Fund II Associates, LLC,
its general partner
By:_____________________________________
Kim Z. Golden, its managing director
<PAGE>
Exhibit A
---------
<TABLE>
<CAPTION>
Name
----
<S> <C> <C>
Cahill, Warnock Strategic Partners Fund, L.P. 12,180 $1,218,000
Strategic Associates, L.P. 680 68,000
T. Rowe Price Recovery Fund II, L.P. 7,140 714,000
Total 20,000 $2,000,000
</TABLE>
<TABLE>
<CAPTION>
Number of Shares of
Number of Shares of Common Stock Underlying
Common Stock Underlying Debenture Warrants
Closing Warrants to be Issued at Closing
- ------------------------------------------ ------------------------------- -----------------------------
<S> <C> <C>
Cahill, Warnock Strategic Partners Fund, L.P. 1,168,514 105,166
Strategic Associates, L.P. 65,237 5,872
T. Rowe Price Recovery Fund II, L.P. 684,991 61,649
Total 1,918,743 172,687
</TABLE>
<PAGE>
Exhibit B
---------
Registration Rights Agreement
<PAGE>
Exhibit C
---------
Statement of Rights and Preferences of Series D Stock
<PAGE>
Exhibit D
---------
Form of Warrant Certificate
<PAGE>
Exhibit E
Form of New Debentures
<PAGE>
Exhibit F
Form of Stoel Rives LLP Opinion
<PAGE>
SCHEDULE 4.2
OUTSTANDING SECURITIES AND RIGHTS
1. Attached hereto is current list of outstanding options to purchase Common
Stock.
2. The following warrants to acquire Common Stock are currently outstanding:
<TABLE>
<CAPTION>
Name Number of Warrant Shares
- ---------------------------------------------------- ------------------------
<S> <C>
Cahill, Warnock Strategic Partners Fund, L.P. 68,013
Strategic Associates, L.P. 3,797
T. Rowe Price Recovery Fund II, L.P. 39,870
</TABLE>
<PAGE>
SCHEDULE 4.3
SUBSIDIARIES
<TABLE>
<S> <C>
J.J. Distribution Company
Date of Incorporation: February 16, 1993
Jurisdiction: Washington
Shares of Authorized Capital Stock: 10,000
Shares of Issued and Outstanding Stock: 10,000
Stockholders: J.J. Distribution Company is a
wholly-owned subsidiary of the
Company
Liens: Pursuant to the FINOVA Facility,
all issued and outstanding capital
stock of J.J. Distribution Company
is pledged in favor of FINOVA.
</TABLE>
<PAGE>
SCHEDULE 4.8
RECENT CHANGES
None.
<PAGE>
SCHEDULE 4.9
UPDATE OF PRIOR REPRESENTATIONS AND WARRANTIES
1. To the extent the representations and warranties contained in Section 4 of
this Agreement are inconsistent with the representations and warranties
contained in Section 4 of the Preferred Agreement or Section 5 of the
Debenture Purchase Agreement, the representations and warranties contained
in Section 4 of the Purchase Agreement and Section 5 of the Debenture
Purchase Agreement are hereby qualified and are superseded by the
representations and warranties contained in Section 4 of this Agreement.
2. The disclosure of the Company with respect to Schedule 4.11 of the
Preferred Agreement is amended to read as follows:
1. J.J. Distribution Company is a wholly-owned subsidiary of the
Company.
2. ADP Prototype 401(k) Plan Administrative Services Agreement and
Trust Agreement dated February 2, 1996.
3. The Company's Insurance Summary (attached hereto).
4. The Preferred Agreement and all agreements associated therewith.
5. The Debenture Purchase Agreement and all agreements associated
therewith.
6. The FINOVA Facility.
7. Agreement with SPS Payment Systems, dated April __, 1998.
3. The disclosure of the Company with respect to Schedule 4.13 of the
Preferred Agreement is amended to include the Registration Rights
Agreement, dated as of March 11, 1998, between the Company and the
Purchasers.
4. The disclosure of the Company with respect to Schedule 4.15 of the
Preferred Agreement is amended to reflect the changes to the number and
composition of the Company's stores, a current listing of which is attached
hereto.
5. The disclosure of the Company with respect to Schedule 4.16(c) of the
Preferred Agreement is amended to (i) delete the security interests created
by the Revolving Credit Loan to the Company by General Electric Capital
Corporation, and (ii) include the security interests created by the FINOVA
Facility.
6. The disclosure of the Company with respect to Schedule 4.21 of the
Preferred Agreement and Schedule 5.8 of the Debenture Purchase Agreement is
amended by the attached disclosure relating to payments over 30 days past
due by the Company.
<PAGE>
SCHEDULE 4.10
LITIGATION
None, except as set forth at Schedule 4.13.
<PAGE>
SCHEDULE 4.12(a)
FINOVA FACILITY
Attached hereto.
<PAGE>
SCHEDULE 4.12(b)
FINOVA AMENDMENT AND WAIVER
Attached hereto.
<PAGE>
SCHEDULE 4.13
UPDATE OF IRS STATUS
At January 7, 1999, additional requests for information regarding the
Company's filings for the fiscal year ended January, 1996 had been received by
the Company from the IRS auditor. An audit conference is not expected until
late spring or summer of 1999.
<PAGE>
Exhibit 4
Execution Copy
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement"), dated as of
---------
February __, 1999, is by and among JAY JACOBS, INC., a Washington corporation
(the "Company"); 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 (Cahill, Warnock Strategic Partners Fund, L.P. and Strategic
Associates, L.P. are together known as "Cahill"); T. ROWE PRICE RECOVERY
------
FUND II, L.P., a limited partnership organized under the laws of the State of
Delaware ("T. Rowe" and together with Cahill, the "Purchasers"); and Michael D.
------- ----------
Sullivan (Michael D. Sullivan and the Purchasers, collectively, the
"Investors").
---------
WHEREAS, the Investors and the Company entered into a Stock Purchase
Agreement (the "Series B Purchase Agreement") dated as of December 3, 1997
---------------------------
pursuant to which the Company issued to the Investors, among other securities,
25,000 shares of Series B Convertible Preferred Stock, par value $.01 per share,
of the Company (the "Series B Preferred Shares"); and
-------------------------
WHEREAS, the Purchasers and the Company entered into a Debenture Purchase
Agreement (the "Debenture Purchase Agreement") dated as of March 11, 1998
----------------------------
pursuant to which the Company issued to the Purchasers (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");
------------
WHEREAS, upon the occurrence of certain events set forth in the Debenture
Purchase Agreement, each Debenture is convertible into (i) additional warrants
to acquire Common Stock (the "Additional Warrants"); or (ii) shares of the
-------------------
Company's Series C Convertible Preferred Stock (the "Series C Preferred
------------------
Shares"), which would be convertible into shares of Common Stock; and
WHEREAS, on February ___, 1999, the Company is entering into a Securities
Purchase Agreement (the "Series D Purchase Agreement") with the Purchasers
---------------------------
pursuant to which the Company is issuing to the Purchasers (i) shares of Series
D Preferred Stock of the Company (the "Series D Preferred Shares"); and (ii)
-------------------------
certain warrants to purchase shares of the Company's Common Stock (the "Series D
--------
Warrants"); and
- --------
WHEREAS, the Company granted to the Investors as an inducement to enter
into the Series B Purchase Agreement, certain rights with respect to the Series
B Preferred Shares;
<PAGE>
WHEREAS, the Company granted to the Purchasers as an inducement to enter
into the Debenture Purchase Agreement, certain rights with respect to the
Debentures, the Warrants, the Additional Warrants, and the Series C Preferred
Shares;
WHEREAS, the Company has agreed to grant to the Purchasers, as an
inducement to enter into the Series D Purchase Agreement, certain rights with
respect to the Series D Warrants;
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.
"Conversion Shares" shall mean shares of Common Stock issued or issuable
-----------------
upon (i) conversion of the Series B Preferred Shares or Series C Preferred
Shares; (ii) exercise of the warrants, the Additional Warrants, or the Series D
Warrants; and (iii) any shares of capital stock received in respect of clause
(i) 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.
<PAGE>
"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.
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, other equity holder, distributees or
assignees 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
<PAGE>
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 75% 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 (which may include a delayed and
continuous offering pursuant to Rule 415 promulgated under the Securities Act);
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 one hundred and eighty (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 thirty (30) days after the giving of such notice by the
Company). If 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
<PAGE>
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 Equivalents, 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
Equivalents 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 thirty (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 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
<PAGE>
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 Equivalents, 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 share 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 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.
<PAGE>
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, 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;
(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
<PAGE>
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
<PAGE>
accountants, the financial statements of the 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.
<PAGE>
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 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 Sections 4, 5 or 6. All Selling Expenses in
connection with each registration statement under Sections 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
<PAGE>
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 Sections 4,
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
<PAGE>
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 Sections 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 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
Sections 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
<PAGE>
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 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 judgement 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
<PAGE>
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 Common Stock, Series A Preferred Stock, Series B Preferred
---------------------------------------------------------------------
Stock, Series C Preferred Stock or Series D Preferred Stock. If, and as often
- -----------------------------------------------------------
as, there is any change in the Common Stock, Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock 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
Conversion 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:
(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;
(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
Sections 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:
<PAGE>
(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 of 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. 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.
<PAGE>
(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
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: John J. Halle, Esq.
If to the Purchasers or Investors:
c/o Cahill, Warnock & Company, LLC
One South Street, Suite 2150
Baltimore, Maryland 21202
Attn: Edward L. Cahill
Facsimile No.: (410) 895-3805
<PAGE>
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
and:
Michael D. Sullivan
9101G Yellow Brick Road
Rosedale, Maryland 21237
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 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 State 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
<PAGE>
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 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.
<PAGE>
(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 including, without limitation the Registration Rights Agreement
dated as of December 3, 1997 and the Registration Rights Agreement dated as of
March 11, 1998.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<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.
JAY JACOBS, INC.
By:
-------------------------------------------
Name: Rex L. Steffey
Title: President and Chief Executive Officer
CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.
By: CAHILL WARNOCK STRATEGIC PARTNERS, L.P.,
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
------------------------------------------------
Michael D. Sullivan
<PAGE>
Exhibit 5
THIS WARRANT AND THE SHARES OF COMMON STOCK UNDERLYING THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER APPLICABLE STATE SECURITIES LAWS. THIS WARRANT MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH
SECURITIES ARE REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT
SUCH REGISTRATION IS NOT REQUIRED.
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER
SET FORTH IN SECTION 5 OF THIS WARRANT
--------------------------------------
Warrant No. ________ Number of Shares:__________
(subject to adjustment)
Date of Issuance: ________ ____, ___
JAY JACOBS, INC.
----------------
Form of
Common Stock Purchase Warrant
-----------------------------
Jay Jacobs, Inc., a Washington corporation (the "Company"), for value
received, hereby certifies that [recipient], or his, her or its registered
-----------
assigns (the "Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company, at any time after the date of this Warrant and on or
before the Termination Date (as defined in Section 15 hereof) of this Warrant
(the "Exercise Period"), that number of shares (the "Warrant Shares") of common
stock, par value $.01 per share, of the Company (the "Common Stock") as set
forth in Section 2.a. hereof, and at an exercise price per share set forth in
Section 1. Capitalized words not defined herein shall have the meanings set
forth in the Securities Purchase Agreement, dated as of February __, 1999.
1. Exercise Price.
--------------
The exercise price at which this Warrant may be exercised shall be equal to
[$0.15 per share][$ _______ per share of Common Stock, which is equal to the
average Fair Market Value (as defined below) for the 15 trading days prior to
the Date of Issuance (the "Exercise Price")]. Upon a Change of Control or
Redemption Event (as defined in the Statement of rights and Preferences of
Series D Preferred Stock), the Exercise Price shall be reduced to $.01 and shall
remain as the Exercise Price throughout the Exercise Period.
<PAGE>
2. Exercise of Warrant.
-------------------
a. Number of Shares for Which Warrant is Exercisable. This Warrant shall
-------------------------------------------------
initially be exercisable to purchase [_________] shares of Common
Stock. The number of Warrant Shares issuable upon exercise of this
Warrant shall be subject to adjustment as set forth in Section 3
hereof.
b. Procedure for Exercise of Warrant. The Warrant may be exercised in
---------------------------------
whole or in part on any date during the Exercise Period (each an
"Exercise Date") 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 (i) in cash, bank cashier's check or certified check
payable to the order of the Company, or (ii) by cancellation by the
Holder of indebtedness or other obligations of the Company to the
Holder or (iii) by a combination of (i) and (ii), equal to the product
of (x) the Exercise Price multiplied by (y) the number of Warrant
Shares being purchased.
c. Conversion. In addition to and without limiting the rights of the
----------
Holder under the terms of this Warrant, the Holder shall have the
right to convert this Warrant or any portion thereof (the "Conversion
Right") into shares of Common Stock as provided in this subsection
1.c. The Holder may exercise this Conversion Right on any date during
the Exercise Period (the "Conversion Date") by surrendering this
Warrant as described in subsection 2.b. above, together with a notice
of conversion, the form of which is attached hereto as Exhibit II.
Upon exercise of the Conversion Right with respect to a particular
number of shares subject to this Warrant (the "Converted Warrant
Shares"), the Company shall deliver to the Holder (without payment by
the Holder of any exercise price or any cash or other consideration)
(x) that number of Warrant Shares equal to the quotient obtained by
dividing the value of this Warrant (or the specified portion hereof)
on the Conversion Date by (y) the Fair Market Value of one share of
Common Stock on the Conversion Date. The value of this Warrant shall
be determined by subtracting (A) the aggregate Exercise Price of the
Converted Warrant Shares on the Conversion Date from (B) the aggregate
Fair Market Value (as defined below) of the Converted Warrant Shares
on the Conversion Date.
Expressed as a formula, the number of Warrant Shares issuable upon such
conversion shall be computed as follows:
B-A
X = ---
Y
<PAGE>
Where: X = the number of shares of Common Stock that
may be issued to Holder
Y = the Fair Market Value of one share of Common Stock
A = the aggregate Exercise Price (i.e., Converted Warrant
Shares multiplied by the Exercise Price)
B = the aggregate Fair Market Value (i.e., Converted Warrant
Shares multiplied by the Fair Market Value)
The Fair Market Value per share of Common Stock shall be determined as
follows:
i. If the Common Stock is listed on a national securities exchange,
the Nasdaq National Market, the Nasdaq SmallCap Market, the
Nasdaq Bulletin Board, or another nationally recognized exchange
or trading system as of the Conversion Date, the Fair Market
Value per share of Common Stock shall be deemed to be the last
reported sale price per share of Common Stock thereon on the
Conversion Date; or, if no such price is reported on such date,
such price on the next preceding business day; or, if no such
price is reported on such date, the average of the mean of the
high closing bid and the low closing asked prices for the three
preceding business days (provided that if no such price is
reported for the three preceding business days, the Fair Market
Value per share of Common Stock shall be determined pursuant to
clause (ii)).
ii. If the Common Stock is not listed on a national securities
exchange, the Nasdaq National Market, the Nasdaq SmallCap Market,
the Nasdaq Bulletin Board or another nationally recognized
exchange or trading system as of the Conversion Date, the Fair
Market Value per share of Common Stock shall be deemed to be the
amount most recently determined by the Board of Directors to
represent the fair market value per share of the Common Stock
(including without limitation a determination for purposes of
granting Common Stock options or issuing Common Stock under an
employee benefit plan of the Company). Notwithstanding the
foregoing, if the Board of Directors has not made such a
determination within the three-month period prior to the
Conversion Date, then (A) the Fair Market Value per share of
Common Stock shall be the amount next determined by the Board of
Directors to represent the fair market value per share of the
<PAGE>
Common Stock (including without limitation a determination for
purposes of granting Common Stock options or issuing Common Stock
under an employee benefit plan of the Company), and (B) the
exercise of this Warrant pursuant to this subsection 2.c. shall
be delayed for a period of up to one month until such
determination is made.
d. Each exercise or conversion of this Warrant shall be deemed to have
been effected immediately prior to the close of business on each
Exercise Date or Conversion Date. At such time, the person or persons
in whose name or names any certificates for Warrant Shares shall be
issuable upon such exercise as provided in subsection 2.c. below shall
be deemed to have become the holder or holders of record of the
Warrant Shares represented by such certificates.
e. As soon as practicable after the exercise or conversion of this
Warrant in full or in part, and in any event within ten (10) days
thereafter, the Company, at its expense, will cause to be issued in
the name of, and delivered to, the Holder, or as such Holder (upon
payment by such Holder of any applicable transfer taxes) may direct:
i. a certificate or certificates for the number of full Warrant
Shares to which such Holder shall be entitled upon such exercise
or conversion plus, in lieu of any fractional share to which such
Holder would otherwise be entitled, cash in an amount determined
pursuant to Section 4 hereof; and
ii. in case such exercise or conversion is in part only, a new
warrant or warrants (dated the date hereof) of like tenor,
calling in the aggregate on the face or faces thereof for the
number of Warrant Shares equal (without giving effect to any
adjustment therein) to the number of such shares called for on
the face of this Warrant minus the sum of (a) the number of such
shares delivered to the Holder upon such exercise or conversion
plus (b) the number of Warrant Shares (if any) canceled in
payment of the Exercise Price or pursuant to the exercise of the
Conversion Right.
3. Adjustments.
-----------
a. If outstanding shares of the Company's Common Stock shall be
subdivided into a greater number of shares or a dividend in Common
Stock shall be paid in respect of Common Stock, the Exercise Price in
effect immediately prior to such subdivision or at the record date of
such dividend shall simultaneously with the effectiveness of such
subdivision or immediately after the record date of such dividend be
proportionately
<PAGE>
reduced. If outstanding shares of Common Stock shall be combined into
a smaller number of shares, the Exercise Price in effect immediately
prior to such combination shall, simultaneously with the effectiveness
of such combination, be proportionately increased. When any adjustment
is required to be made in the Exercise Price, the number of Warrant
Shares purchasable upon the exercise or conversion of this Warrant
shall be changed to the number determined by dividing (i) an amount
equal to the number of shares issuable upon the exercise of this
Warrant immediately prior to such adjustment, multiplied by the
Exercise Price in effect immediately prior to such adjustment, by
(ii) the Exercise Price in effect immediately after such adjustment.
b. If there shall occur any capital reorganization or reclassification of
the Company's Common Stock (other than a change in par value or a
subdivision or combination as provided for in subsection 3.a. above),
or any consolidation or merger of the Company with or into another
corporation, or a transfer of all or substantially all of the assets
of the Company, then, as part of any such reorganization,
reclassification, consolidation, merger or sale, as the case may be,
lawful provision shall be made so that the Holder of this Warrant
shall have the right thereafter to receive upon the exercise hereof
the kind and amount of shares of stock or other securities or property
which such Holder would have been entitled to receive if, immediately
prior to any such reorganization, reclassification, consolidation,
merger or sale, as the case may be, such Holder had held the number of
shares of Common Stock which were then purchasable upon the exercise
of this Warrant if exercised for full in the same manner as that in
which the Warrant is actually exercised. In any such case,
appropriate adjustment (as reasonably determined in good faith by the
Board of Directors of the Company) shall be made in the application of
the provisions set forth herein with respect to the rights and
interests thereafter of the Holder of this Warrant, such that the
provisions set forth in this Section 3 (including provisions with
respect to adjustment of the Exercise Price) shall thereafter be
applicable, as nearly as is reasonably practicable, in relation to any
shares of stock or other securities or property thereafter deliverable
upon the exercise of this Warrant.
c. If at any time while all or any portion of this Warrant remains
outstanding the Company (i) sells any shares of Common Stock of the
Company at a price per share less than the Exercise Price per share
then applicable to this Warrant, or (ii) issues any security
convertible into shares of Common Stock of the Company with a
conversion price per share less than the Exercise Price per share then
applicable to this Warrant, or (iii) issues any option, warrant or
other right to purchase shares of Common Stock of the Company at any
exercise price per share less than the Exercise Price per share then
applicable to this Warrant (except, in each case, pursuant to an
<PAGE>
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.
d. When any adjustment is required to be made pursuant to this Section 3,
the Company shall promptly mail to the Holder a certificate setting
forth the Exercise Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment. Such
certificate shall also set forth the kind and amount of stock or other
securities or property into which this Warrant shall be exercisable
following the occurrence of any of the events specified in subsection
2(a) or 2(b) above.
4. Fractional Shares. The Company shall not be required upon the exercise or
-----------------
conversion of this Warrant to issue any fractional shares. In lieu of any
fractional share to which the Holder would otherwise be entitled, the
Company shall make a cash payment to the Holder equal to the Fair Market
Value per share of Common Stock multiplied by such fraction.
5. Requirements for Transfer.
-------------------------
a. This Warrant and the Warrant Shares shall not be sold or transferred
unless either (i) they first shall have been registered under the Act
or (ii) the Company first shall have been furnished with an opinion of
legal counsel, reasonably satisfactory to the Company, to the effect
that such sale or transfer is exempt from the registration
requirements of the Act.
b. Notwithstanding the foregoing, no registration or opinion of counsel
shall be required for (i) a transfer by a Holder which is a
partnership to a partner of such partnership or a retired partner of
such partnership who retires after the date hereof, or to the estate
of any such partner or retired partner, if the transferee agrees in
writing to be subject to the terms of this Section 5, or (ii) a
transfer made in accordance with Rule 144 under the Act.
c. Each certificate representing Warrant Shares shall bear a legend
substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not
be offered, sold or otherwise transferred, pledged or hypothecated
unless and until such securities are registered under such Act or an
opinion of counsel satisfactory to the Company is obtained to the
effect that such registration is not required."
<PAGE>
The foregoing legend shall be removed from the certificates representing any
Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.
6. No Impairment. The Company will not, by amendment of its charter or through
-------------
reorganization, consolidation, merger, dissolution, sale of assets or any other
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 of this
Warrant against impairment.
7. Liquidating Dividends. If the Company pays a dividend or makes a
---------------------
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the Holder
of this Warrant, upon the exercise hereof, in addition to the Warrant Shares
purchased upon such exercise, the Liquidating Dividend which would have been
paid to such Holder if he had been the owner of record of such Warrant Shares
immediately prior to the date on which a record is taken for such Liquidating
Dividend or, if no record is taken, the date as of which the record holders of
Common Stock entitled to such dividends or distribution are to be determined.
8. Notices of Record Date, etc. In case:
----------------------------
a. the Company shall take a record of the holders of its Common Stock (or
other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive
any dividend or other distribution, or to receive any right to
subscribe for or purchase any shares of stock of any class or any
other securities, or to receive any other right; or
b. of any capital reorganization of the Company, any reclassification of
the capital stock of the Company, any consolidation or merger of the
Company with or into another corporation (other than a consolidation
or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company; or
c. of the voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Holder of this Warrant a notice specifying, as the case may be, (i) the date on
which a 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, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution/
<PAGE>
liquidation or winding-up is to take place, and the time, if any is to be fixed,
as of which the holders of record of Common Stock (or such other stock or
securities at the time deliverable upon the exercise of this Warrant) shall be
entitled to exchange their shares of Common Stock (or such other stock or
securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, transfer, dissolution,
liquidation or winding-up. Such notice shall be mailed at least ten (10) days
prior to the record date or effective date for the event specified in such
notice.
9. Reservation of Stock. The Company will at all times reserve and keep
--------------------
available, solely for issuance and delivery upon the exercise of this
Warrant, such number of Warrant Shares and other stock, securities and
property, as from time to time shall be issuable upon the exercise of this
Warrant.
10. Exchange of Warrants. Upon the surrender by the Holder of any Warrant or
--------------------
Warrants, properly endorsed, to the Company at the principal office of the
Company, the Company will, subject to the provisions of Section 5 hereof,
issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such
Holder or as such Holder (upon payment by such Holder of any applicable
transfer taxes) may direct, calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock called for on the face or
faces of the Warrant or Warrants so surrendered.
11. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory
-----------------------
to the Company of the loss, theft, destruction or mutilation of this
Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount
reasonably satisfactory to the Company, or (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will issue, in lieu
thereof, a new Warrant of like tenor.
12. Transfers, etc.
a. The Company will maintain a register containing the names and
addresses of the Holders of this Warrant and all comparable Warrants.
Any Holder may change his, her or its address as shown on the warrant
register by written notice to the Company requesting such change.
b. Subject to the provisions of Section 5 hereof, this Warrant and all
rights hereunder are transferable, in whole or in part, upon surrender
of this Warrant with a properly executed assignment (in the form of
Exhibit III hereto) at the principal office of the Company.
-----------
c. Until any transfer of this Warrant is made in the warrant register,
the Company may treat the Holder of this Warrant as the absolute owner
hereof for all purposes; provided, however, that if and when this
-------- -------
Warrant
<PAGE>
is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for
all purposes, notwithstanding any notice to the contrary.
13. Mailing of Notices, etc. All notices and other communications from the
------------------------
Company to the Holder of this Warrant shall be mailed by first-class
certified or registered mail, or overnight courier service, postage
prepaid, to the address set forth in the Preferred Stock Purchase
Agreement. All notices and other communications from the Holder of this
Warrant or in connection herewith to the Company shall be mailed by first-
class certified or registered mail or overnight courier service, postage
prepaid, to the Company at its principal office set forth below. The
principal office of the Company is as follows:
Jay Jacobs, Inc.
1530 Fifth Avenue
Seattle, Washington 98101
14. No Rights as Stockholder. Until the exercise of this Warrant, the Holder
------------------------
of this Warrant shall not have or exercise any rights by virtue hereof as a
stockholder of the Company.
15. Governing Law. This Warrant will be governed by and construed in
-------------
accordance with the laws of the State of Delaware.
16. Termination. Unless previously exercised pursuant to the terms of this
-----------
Warrant, the right to exercise this Warrant shall expire at 5:00 p.m.
(Pacific time) on ______ __, 2004 (the "Termination Date").
Notwithstanding the foregoing, if on the Termination Date, the Fair Market
Value per share of the Common Stock exceeds the Exercise Price per share of
the Warrant Shares, this Warrant shall automatically be deemed to be
exercised in full pursuant to the provisions of Section 2.c. hereof,
without any further action on behalf of the Registered Holder, immediately
prior to the time this Warrant would otherwise expire on the Termination
Date pursuant to the preceding sentence.
JAY JACOBS, INC.
By:
--------------------------------------
Title:
-----------------------------------
<PAGE>
EXHIBIT I
---------
PURCHASE FORM
-------------
To: Jay Jacobs, Inc. Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No.___), hereby irrevocably elects to purchase _______ shares of the
Common Stock covered by such Warrant. The undersigned herewith makes payment of
$____________, representing the full Exercise Price for such shares at the
Exercise Price per share provided for in such Warrant. Such payment takes the
form of (check applicable box or boxes):
$__________ in lawful money of the United States, and/or
the cancellation of such portion of the attached Warrant as is exercisable
for a total of _______ Warrant Shares (using a Fair Market Value
of $________ per share for purposes of this calculation).
Signature:
Address:
------------------------------------
------------------------------------
------------------------------------
<PAGE>
EXHIBIT II
----------
NOTICE OF CONVERSION
--------------------
To: Jay Jacobs, Inc. Dated:
The undersigned hereby elects to convert the attached Warrant into such
number of shares of Common Stock of Jay Jacobs, Inc. as is determined pursuant
to Section 1(c) of this Warrant, which conversion shall be effected pursuant to
the terms of the attached Warrant.
Signature:
Address:
------------------------------------
------------------------------------
------------------------------------
<PAGE>
EXHIBIT III
-----------
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, _____________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (No. ____) with respect to the number of shares of Common Stock covered
thereby set forth below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated: Signature:
Dated: Witness:
