SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 1, 1999
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JAY JACOBS, INC.
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(Exact name of registrant as specified in its charter)
Washington 0-15934 91-0698077
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(State or other (Commission (IRS Employer
jurisdiction of File Number Identification No.)
incorporation)
1530 Fifth Avenue
Seattle, Washington 98101
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(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (206) 622-5400
Registrant's facsimile number, including area code: (206) 621-9830
None
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(Former name or former address, if changed since last report)
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Item 5. Other Events
On February 1, 1999, the Company entered into a Securities Purchase
Agreement (the "Agreement") with Cahill, Warnock Strategic Partners, L.P.,
Strategic Associates, L.P., and T. Rowe Price Recovery Fund II, L.P.
(collectively, the "Investors"), pursuant to which the Company issued 35,000
shares of its Series D Preferred Stock (the "Series D Stock") and warrants to
acquire 1,918,743 shares of its common stock (the "Warrants") to the Investors.
The total purchase price paid by the Investors for the Series D Stock and the
Warrants was $3.5 million in cash, of which $1.95 million was used to reduce
indebtedness to the Company's primary lender. The Agreement also contemplates
the sale of 5,000 additional shares of Series D Stock to the Investors, for
additional consideration of $500,000. The terms of the Agreement were determined
in negotiations between the Company and the Investors, who, since December 1997,
have invested approximately $13.0 million in the Company through the purchase of
debt and equity securities.
The Warrants issued are exercisable at a price of $0.88 per share, subject
to adjustment in certain conditions. The Company and the Investors also entered
into a registration rights agreement on February 1, 1999, pursuant to which the
Company agreed, under certain conditions, to file a registration statement
covering the shares of common stock underlying the Warrants.
Concurrently with the financing described above, the Company reissued
certain of its outstanding warrants with minor conforming and clarifying changes
and amended certain provisions of its agreement with its primary lender. The
amendments do not materially alter the maximum amount of credit available under
such agreement or the interest rate applicable to borrowings thereunder.
Item 7. Financial Statements and Exhibits
(a) Financial Statements.
None
(b) Proforma Financial Data
None
(c) Exhibits.
The following are filed as exhibits to this Current Report:
3.1 Restated Articles of Incorporation of Jay Jacobs, Inc.<F1>
<F1>Incorporated by reference to Exhibit 3.1 to the Company's registration
statement on Form S-1, Registration No. 33-13112, declared effective May 19,
1987.
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3.2 Articles of Amendment to the Articles of Incorporation of
Jay Jacobs, Inc.<F2>
3.3 Articles of Amendment of Articles of Incorporation
containing the Statement of Rights and Preferences of the
Series D Preferred Stock of Jay Jacobs, Inc., dated January
29, 1999.
4.1 Form of specimen certificate for the Series D Preferred
Stock.
4.2 Form of Warrant.
4.3 Amended and Restated Registration Rights Agreement, dated
February 1, 1999 by and between Jay Jacobs, Inc., a
Washington corporation, 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, T. Rowe Price Recovery Fund II, L.P., a limited
partnership organized under the laws of the State of
Delaware, and Michael D. Sullivan.
10.1 Securities Purchase Agreement dated February 1, 1999 by and
between Jay Jacobs, Inc., a Washington corporation, 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.
10.2 Amendment No. 2 to Loan and Security Agreement and Limited
Waiver and Consent dated February 1, 1999, by and between
Jay Jacobs, Inc. a Washington corporation and FINOVA Capital
Corporation, a Delaware corporation.
<F2> Incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report
on Form 10-Q filed June 16, 1998.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
JAY JACOBS, INC.
By: /s/ WILLIAM L. LAWRENCE, JR.
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William L. Lawrence, Jr.
Executive Vice President and
Chief Financial Officer
Date: February 21, 1999
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EXHIBIT INDEX
Exhibit
Number Description
3.1 Amended and Restated Articles of Incorporation of Jay Jacobs,
Inc.<F1>
3.2 Articles of Amendment to the Articles of Incorporation of Jay
Jacobs, Inc.<F2>
3.3 Articles of Amendment of Articles of Incorporation containing the
Statement of Rights and Preferences of the Series D Preferred
Stock of Jay Jacobs, Inc., dated January 29, 1999.
4.1 Form of specimen certificate for the Series D Preferred Stock.
4.2 Form of Warrant.
4.3 Amended and Restated Registration Rights Agreement, dated
February 1, 1999 by and between Jay Jacobs, Inc., a Washington
corporation, 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, T. Rowe Price
Recovery Fund II, L.P., a limited partnership organized under the
laws of the State of Delaware, and Michael D. Sullivan.
10.1 Securities Purchase Agreement dated February 1, 1999 by and
between Jay Jacobs, Inc., a Washington corporation, 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.
10.2 Amendment No. 2 to Loan and Security Agreement and Limited Waiver
and Consent dated February 1, 1999, by and between Jay Jacobs,
Inc. a Washington corporation and FINOVA Capital Corporation, a
Delaware corporation.
<F1> Incorporated by reference to Exhibit 3.1 to the Company's registration
statement on Form S-1, Registration No. 33-13112, declared effective May 19,
1987.
<F2> Incorporated by reference to Exhibit 3.2 to the Company's Quarterly
Report on Form 10-Q filed June 16, 1998.
ARTICLES OF AMENDMENT
OF ARTICLES OF INCORPORATION
CONTAINING THE
STATEMENT OF RIGHTS AND PREFERENCES OF THE
SERIES D PREFERRED STOCK OF
JAY JACOBS, INC.
These Articles of Amendment containing the Statement of Rights and
Preferences of the Series D Preferred Stock of Jay Jacobs, Inc., a Washington
corporation (the "Corporation") are herein executed by the Corporation, pursuant
to the provisions of RCW 23B.06.020 and RCW 23B.10.060 as follows:
1. The name of the Corporation is Jay Jacobs, Inc.
2. A copy of the resolution of the Board of Directors of the Corporation
amending the Articles of Incorporation of the Corporation to establish and
designate the rights and preferences of the Series D Preferred Stock of the
Corporation is attached hereto as Attachment A and is incorporated herein by
this reference.
3. The date of the adoption of this amendment by the Board of Directors of
the Corporation was January 29, 1999.
4. The amendment to the Articles of Incorporati duly approved by the Board
of Directors of the Corporation in accordance with the provisions of RCW
23B.06.020 and shareholder action was not required.
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Amendment in an official and authorized capacity under penalty of perjury this
29th day of January, 1999.
JAY JACOBS, INC.
By: /s/ WILLIAM L. LAWRENCE, JR.
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William L. Lawrence, Jr.
Executive Vice President and
Chief Financial Officer
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ATTACHMENT A
RESOLVED, that, pursuant to Article II of the Corporation's Articles of
Incorporation, the Board of Directors hereby establishes a series of the
Corporation's Preferred Stock consisting of 40,000 shares, $0.01 par value,
to be designated as Series D Preferred Stock, and approves and adopts the
Statement of Rights and Preferences of Series D Preferred Stock of Jay
Jacobs, Inc., attached as Exhibit C;
RESOLVED, that the officers of the Corporation are, and each of them is,
hereby authorized to prepare, execute and deliver to the Secretary of State
of the State of Washington for filing, Articles of Amendment to the
Articles of Incorporation of the Corporation effecting the adoption of the
Statement of Rights and Preferences of the Series D Preferred Stock; and
RESOLVED, that the officers of the Corporation be and each hereby is
authorized and directed to take any and all action and do any and all
things as may be deemed by any of them to be necessary or advisable to
effectuate the establishment and designation of the Series D Preferred
Stock, such determination to be conclusively evidenced by such officer's
carrying out of such action.
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Statement of Rights and Preferences
of
Series D Preferred Stock
of
Jay Jacobs, Inc.
An aggregate of 40,000 shares of Preferred Stock are hereby designated as
Series D Preferred Stock, $.01 par value (the "Series D Preferred Stock"). The
rights, preferences, privileges and limitations granted to and imposed on the
Series D Preferred Stock are as set forth below:
1. Cumulative Dividends. Dividends on the Series D Preferred Stock
shall be cumulative and shall cumulate and accrue on a daily basis, without
interest, at the rate of $9.00 per share per annum commencing February 1, 1999
and until the Series D Preferred Stock shall have been redeemed. The cumulation
and accrual of dividends on the Series D Preferred Stock shall occur regardless
of whether or not the Corporation shall have funds legally available for the
payment of dividends. The holders of the Series D Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors, out of
funds legally available for such purpose, cumulative dividends at the rates
specified above and no more.
In no event, so long as any Series D Preferred Stock shall remain
outstanding, and without the written consent of the holders of 75% of the then
outstanding shares of Series D Pre ferred Stock, (i) shall any dividend
whatsoever be declared or paid upon, nor shall any distribution be made upon,
any Common Stock, Series B Preferred Stock or Series C Preferred Stock
(collectively, the "Other Stock"), other than a dividend or distribution payable
in shares of Other Stock, nor (ii) shall any shares of Other Stock be purchased
or redeemed by the Corpora tion, nor (iii) shall any moneys be paid to or made
available for a sinking fund for the purchase or redemption of any Other Stock.
2. Redemption.
2.1. Right or Obligation to Redeem Series D Preferred Stock.
(a) At any time or from time to time the Corporation may
redeem (in the manner and with the effect provided in this Section 3.2) all or
any of the outstanding shares of Series D Preferred Stock at the redemption
price of $105.00 per share, plus any accrued but unpaid dividends to the date
fixed for redemption. Any redemption of less than all the outstanding shares of
Series D Preferred Stock shall be made pro rata among all holders of Series D
Preferred Stock according to the respective numbers of shares of Series D
Preferred Stock held by them.
(b) If a Redemption Event (defined below) occurs, the
Corporation shall, not later than 30 days prior to the effective date of such
Redemption Event, give notice thereof to the holders of Series D Preferred Stock
and, in the event that within 20
<PAGE>
days after receipt of such notice, any holder or holders of Series D Preferred
Stock shall elect, by written notice to the Corporation, to have any or all of
its or their Series D Preferred Stock redeemed, the Corporation shall redeem the
same (in the manner and with the effect provided in this Section 3.2) not later
than the day prior to the effective date of such Redemption Event, at the
redemption price equal to cash in the amount of $100.00 per share, plus any
accrued but unpaid dividends to the date fixed for redemption; provided,
however, that, if such redemption occurs as a result of a Redemption Event
described in subsection 3.2a.(b)(v), the redemption price shall be equal to cash
in the amount of $200.00 per share, plus any accrued but unpaid dividends to the
date fixed for redemption. As used herein, a Redemption Event shall have
occurred if any of the following occur:
(i) a material breach by the Corporation of any representation, warranty,
covenant or other agreement made to the purchasers of the Series D
Preferred Stock in the Preferred Stock Purchase Agreement executed in
connection with such purchase (the "Stock Purchase Agreement") and the
failure to cure such breach within a reasonable time following notice
thereof, provided that, if it appears from the nature of the breach that
the breach cannot be cured within a reasonable time following notice
thereof, a Redemption Event shall be deemed to have occurred upon such
notice;
(ii) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Corporation in an involuntary
case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization, or other similar law or (B) a decree or order
adjudging the Corporation bankrupt or insolvent or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Corporation under any applicable
Federal or State law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the
Corporation or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and the continuance of any such
decree or order for relief or any such other decree or order unstayed and
in effect for a period of sixty consecutive days;
(iii) a final judgment or judgments are entered by a court or courts of
competent jurisdiction against the Corporation which remains undischarged
for a period (during which execution shall not be effectively stayed)
ending on the later of (A) sixty days after the entry of such judgment, as
extended by any such effective stay of its execution or (B) the date on
which any payment is or becomes due and payable pursuant to such judgment
in accordance with its terms, provided that the aggregate of all such
outstanding judgments rendered against the Corporation that are not covered
by applicable insurance exceeds $1 million; or
(iv) removal (other than by death, disability or voluntary resignation) of
any member of the Board of Directors appointed pursuant to any right
(individually or with others) of any person who is a holder of Series D
Preferred Stock if such person is not afforded the
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right (together with the persons having had the right to appoint such
removed director) to appoint a replacement director.
(v) a "Change of Control" which is defined as (i) any merger,
consolidation, reorganization, combination or similar transaction, or a
series of related such transactions, pursuant to which a person or group
(as used in Regulation 13d-1 under the Securities Exchange Act of 1934, as
amended), excluding an original holder of the Series D Preferred Stock or a
group including one or more such holders, acquires securities of the
Corporation having the right to elect or appoint a majority of the
directors of the Corporation; or (ii) the sale to a person other than an
Affiliate of the Corporation of all or substantially all of the assets of
the Corporation.
(c) At any time on or after December 31, 2001, any holder or
holders of Series D Preferred Stock may elect, by written notice to the
Corporation, to have any or all of its or their Series D Preferred Stock
redeemed, in which event the Corporation shall redeem the same (in the manner
and with the effect provided in this Section 3.2) on such date, not later than
60 days following receipt of such notice, as the Corporation may determine by
written notice to the holder or holders electing redemption, at the redemption
price of $100.00 per share, plus any accrued but unpaid dividends to the date
fixed for redemption.
(d) Any date on which the Corporation is required or elects
to redeem Series D Preferred Stock hereunder is herein called a "Series D
Redemption Date".
2.2. Redemption Procedure. If notice of election to redeem shall
have been duly given by any holder or holders of Series D Preferred Stock
pursuant to paragraph (c) above or if the Corporation shall have duly given
notice of redemption pursuant to paragraphs (a) or (b) above to holders of
Series D Preferred Stock at their addresses as shown on the records of the
Corporation, specifying the number of shares to be redeemed and the paragraph
pursuant to which the redemption is to be made and if on or before such Series D
Redemption Date the funds necessary for redemption shall have been set aside so
as to be and continue to be available therefor, then, notwithstanding that any
certificate for shares of Series D Preferred Stock to be redeemed shall not have
been surrendered for cancellation, after the close of business on such Series D
Redemption Date, such shares shall no longer be deemed outstanding, the
dividends thereon shall cease to accrue, and all rights with respect to such
shares shall forthwith after the close of business on the Series D Redemption
Date, cease, except only the right of the holders thereof to receive the
redemption price for such shares, plus any accrued but unpaid dividends to such
Series D Redemption Date, without interest.
2.3. Shares to Be Redeemed. In case of the redemption, for any
reason, of only a part of the outstanding shares of Series D Preferred Stock
required to be redeemed on a Series D Redemption Date, all shares of Series D
Preferred Stock to be redeemed shall be selected pro rata, and there shall be
redeemed from each registered holder a number of shares, as nearly as
practicable to the nearest share, equal to the total number of shares of Series
D Pre ferred Stock held of record by such holder multiplied by a fraction, of
which the numerator shall
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be the aggregate number of shares of Series D Preferred Stock actually being
redeemed on such Series D Redemption Date, and the denominator shall be the
aggregate number of shares of Series D Preferred Stock required to be redeemed
on such Series D Redemption Date.
2.4. Redeemed or Otherwise Acquired Shares to Be Retired. Any
shares of the Series D Preferred Stock redeemed pursuant to this Section 3.2 or
otherwise acquired by the Corporation in any manner whatsoever shall be
permanently retired and shall not under any circumstances be reissued; and the
Corporation may from time to time take such appropriate corporate action as may
be necessary to reduce the authorized Series D Preferred Stock accordingly.
3. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of
Series D Preferred Stock shall be entitled, before any distribution or payment
is made upon any shares of Other Stock, to be paid an amount equal to $100.00
per share, plus any accrued but unpaid dividends to the date of such payment,
and the holders of the Series D Preferred Stock shall not be entitled to any
further payment, such amounts being herein sometimes referred to as the
"Liquidation Payments". If upon such liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the assets to be distributed
among the holders of Series D Preferred Stock shall be insufficient to permit
payment to the holders of Series D Preferred Stock of the amount distributable
to them as provided herein, then the entire assets of the Corporation legally
permitted to be distributed shall be distributed ratably among the holders of
Series D Preferred Stock. Upon any such liquidation, dissolution or winding up
of the Corporation, after the holders of the Series D Preferred Stock shall have
been paid in full the amounts to which they shall be entitled, the remaining net
assets of the Corporation may be distributed to the holders of Other Stock as
provided elsewhere the Articles of Incorporation, as amended, of the
Corporation. Written notice of such liquidation, dissolution or winding up,
stating a payment date, the amount of the Liquidation Payments and the place
where said sums shall be payable shall be given by mail, postage prepaid, not
less than 30 days prior to the payment date stated therein, to the holders of
record of the Series D Preferred Stock, such notice to be addressed to each
stockhold er at his or its post office address as shown by the records of the
Corporation. Neither the consolidation or merger of the Corporation into or with
any other corporation or corporations, nor the sale or transfer by the
Corporation of all or any part of its assets, nor the reduction of the capital
stock of the Corporation, shall be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of any of the provisions of
this Section 3.3.
4. Voting Rights. Each holder of Series D Preferred Stock shall be
entitled to vote on such matters and in the manner provided herein and by law.
4.1. Right to Vote. Each holder of Series D Preferred Stock shall
be entitled to vote with respect to all matters presented to stockholders of the
Corporation for their action or consideration, other than votes as to which a
specific class or series of stock other than the Series D Preferred Stock is
entitled to vote as a class. Except as set forth in Section 4.2 herein the
holders of Series D Preferred Stock shall vote together with the holders of
Common
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Stock as a single class, the holders of Series D Preferred Stock being entitled
to one hundred votes per share thereof.
4.2. Special Voting Rights. The Corporation shall not, without
the prior approval of the holders of 75% of the shares of Series D Preferred
Stock, given in writing or by vote at a meeting, consenting or voting (as the
case may be), together as a single class separate from the other capital stock
of the Corporation:
(a) amend, repeal or add any provision to the Articles of
Incorporation or By-Laws;
(b) issue any class or series of securities of the
Corporation having rights senior to or pari passu with the Series D Preferred
Stock as to dividend or liquidation preference or as to redemption preference in
the event that funds are not legally available to satisfy such redemption
preference as to all classes of stock entitled to the benefit thereof, or any
other security convertible into or exchangeable for shares of such class or
series;
(c) enter into any transaction that, to the actual knowledge
of the Corporation, following reasonable inquiry of its legal counsel, will
result in a deemed dividend to the holders of the Series D Preferred Stock
pursuant to section 305 of the Internal Revenue Code of 1986, as amended, or any
rule or regulation adopted thereunder or any equivalent provision of federal
law;
(d) enter into any agreement regarding:
(i) any consolidation or merger of the Company with or
into any other corporation or other entity or
person, or any other corporate reorganization, in
which the stockholders of the Company immediately
prior to such consolidation, merger or
reorganization, own less than 50% of the Company's
voting power immediately after such consolidation,
merger or reorganization, or any transaction or
series of related transaction to which the Company
is a party in which in excess of 50% of the
Company's voting power is transferred;
(ii) any sale, lease or other disposition of all or
substantially all of the assets of the Company; or
(iii) the voluntary liquidation or dissolution of the
Company.
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(e) issue or guarantee any indebtedness; provided,
however, that the borrowing of money pursuant to
the terms of a credit facility (i) in existence as
of the date hereof or (ii) duly approved by the
the holders of the Series D Preferred Stock as
required by this Section 4.2 shall not require
such approval; or
(f) enter into any transaction with its officers,
directors, employees or affiliates, other than any
transaction relating to compensation and related
matters in accordance with policies approved by
the Board of Directors.
5. Preemptive Rights. The Corporation grants to each holder of Series
D Preferred Stock the right of first refusal to purchase its pro-rata share (as
defined below) of any equity securities of the Corporation, including shares of
capital stock or securities of any type convertible into, or entitling the
holder thereof to purchase shares of, capital stock, proposed to be issued by
the Corporation subsequent to the date hereof (such securities being hereafter
referred to in this Section 5 only as the "Proposed Securities"). For these
purposes, a holder's "pro-rata share" shall be that portion of the Proposed
Securities proposed to be issued which bears the same relation to all of the
Proposed Securities proposed to be issued as the shares of capital stock held by
such person bear to all the outstanding shares of the capital stock (assuming
the conversion of all outstanding securities which are convertible into capital
stock), all determined immediately prior to the offering of the Proposed
Securities.
5.1 Notice. In the event that the Corporation proposes to
undertake an issue of Proposed Securities, it shall deliver to each holder of
Series D Preferred Stock written notice of its intention, describing such,
Proposed Securities, specifying such holder's pro-rata share and stating the
purchase price and other terms upon which it proposes to issue the same (the
"Option Notice"). For a period of 15 days from the receipt of the Option Notice,
each holder of Series D Preferred Stock (or any affiliate, of such holder to
whom such holder has assigned such right) shall have the right to elect, by
written notice to the Corporation, to purchase (i) all or any portion of such
holder's pro-rata share of the Proposed Securities described in the Option
Notice and (ii) all or any part of the pro-rata share of any other holder to the
extent that such other holder of Series D Preferred Stock (and its assignee
affiliates) do not elect to purchase such holder's full pro-rata share, upon the
terms and conditions specified in the Option Notice. If the holders (and such
affiliates) who elect to purchase their full pro-rata shares also elect to
purchase in the aggregate more than 100% of the Proposed Securities referred to
in clause (ii) of the preceding sentence, the Proposed Securities referred to in
clause (ii) of the preceding sentence will be sold to such holders (and such
affiliates) in accordance with such holders' respective pro-rata shares;
provided, however, that no such holder (or affiliate) may purchase a greater
number of such Proposed Securities than the amount which such holder (or
affiliate) elects to purchase pursuant to clause (ii) of the preceding sentence.
In the event the holders of Series D Preferred Stock (and such affiliates) fail
to exercise their rights of first refusal within the specified period, or the
holders (and such affiliates) elect to acquire less than
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their aggregate pro-rata shares pursuant to the exercise of such right, then,
during the 180 day period following the expiration of such 15 day period, the
Corporation may sell, free of any right of first refusal on the holders' part,
the portion of the holders' pro-rata shares not purchased pursuant to such right
of first refusal, upon the same terms specified in the Option Notice.
5.2. Exceptions. The right of first refusal granted under this
Section 5 shall not apply to (i) the issuance of capital stock pursuant to an
employee benefit plan approved by the Corporation's Board of Directors; (ii) any
Proposed Securities issued pursuant to the acquisition by the Corporation of
another corporation, business entity or assets thereof or other property which
has been approved by the Board of Directors; (iii) the issuance of Proposed
Securities upon a stock split or stock dividend with respect to the capital
stock; and (iv) any Proposed Securities issued pursuant to employment agreements
with executive officers of the Corporation.
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D-0 -0-
JAY JACOBS, INC.
Organized under the Laws of the State of Washington
This Certifies that JOHN DOE is the registered holder of zero (0) Shares of
the Series D Preferred Stock, $.01 Par Value, of JAY JACOBS, INC. transferable
only on the books of the Corporation by the holder hereof in person or by
Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seat to be hereunto
affixed.
this _______ day of ____________________ A.D. 1999
- ----------------------------------- -----------------------------------
President Secretary
See Restrictions on Reverse Side
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. AS
AMENDED , THE WASHINGTON STATE SECURITIES ACT OR ANY OTHER APPLICABLE SECURITIES
ACT (THE "ACTS") AND NEITHER THE OFFERING OF THE SECURITIES NOR ANY OFFERING
MATERIALS HAVE BEEN REVIEWED BY ANY ADMINISTRATOR UNDER THE ACTS. THE
SECURITIES WERE ACQUIRED BY THE REGISTERED HOLDER PURSUANT TO A REPRESENTATION
THAT THE HOLDER WAS ACQUIRING THE SECURITIES FOR THE HOLDER'S OWN ACCOUNT. FOR
INVESTMENT, THESE SECURITIES MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO
THE SECURITIES UNDER THE ACTS OR AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENT.
THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER, UPON REQUEST AND WITHOUT
CHARGE, A FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS, AND
RELATIVE RIGHTS OF THE SHARES OF EACH CLASS AUTHORIZED TO BE ISSUED BY THE
CORPORATION, AND OF THE VARIATIONS IN THE RELATIVE RIGHTS AND PREFERENCES
BETWEEN THE SHARES OF EACH SERIES OF EACH CLASS SO AUTHORIZED. SO FAR AS THE
SAME HAVE BEEN FIXED AND DETERMINED AND THE AUTHORITY OF THE BOARD OF DIRECTORS
OF THE CORPORATION TO FIX AND DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF
SUBSEQUENT SERIES.
For Value Received, __________ hereby sell, assign and transfer unto
_______________________________________________________________________________
________________________________________________ Shares represented by the
within Certificate, and do hereby irrevocably constitute and appoint
_____________________________________________________________________ Attorney
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated ____________________________________
In presence of _______________________________________________
NOTICE. THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
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
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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.
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:
X = B-A
---
Y
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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 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
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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 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
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<PAGE>
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 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
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<PAGE>
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."
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.
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<PAGE>
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/ 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.
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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 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:
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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:__________________________________
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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):
o $__________ in lawful money of the United States, and/or
o 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:________________________________
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement"), dated as of February
1, 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 1, 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;
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;
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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.
"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.
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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 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.
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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 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
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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 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
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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.
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
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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 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;
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(f) immediately notify each seller of Restricted Stock and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing, and promptly prepare
and furnish to such seller a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to the purchasers of
such Restricted Stock, such prospectus shall not include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing;
(g) if the offering is underwritten and at the request of any seller
of Restricted Stock as provided herein, use its reasonable best efforts to
furnish on the date that Restricted Stock is delivered to the underwriters for
sale pursuant to such registration: (i) an opinion dated such date of counsel
representing the Company for the purposes of such registration, addressed to the
underwriters and to such seller, stating that such registration statement has
become effective under the Securities Act and that (A) to the knowledge of such
counsel, no stop order suspending the effectiveness thereof has been issued and
no proceedings for that purpose have been instituted or are pending or
threatened under the Securities Act; (B) the registration statement, the related
prospectus and each amendment or supplement thereof comply as to form in all
material respects with the requirements of the Securities Act (except that such
counsel need not express any opinion as to financial statements, schedules and
other financial or statistical information contained therein); and (C) to such
other effects as reasonably may be requested by counsel for the underwriters or
by such seller or its counsel; and (ii) a letter dated such date from the
independent public accountants retained by the Company, addressed to the
underwriters and to such seller, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the 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;
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(i) cooperate with the selling holders of Restricted Stock and the
managing underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing Restricted Stock to be sold, such certificates to
be in such denominations and registered in such names as such holders or the
managing underwriters may request at least two business days prior to any sale
of Restricted Stock; and
(j) permit any holder of Restricted Stock which holder, in the sole
and exclusive judgment, exercised in good faith, of such holder, might be deemed
to be a controlling person of the Company, to participate in good faith in the
preparation of such registration or comparable statement and to require the
insertion therein of material, furnished to the Company in writing, which in the
reasonable judgment of such holder and its counsel should be included.
For purposes of Section 7(a) and 7(b) and of Section 4(c), the period of
distribution of Restricted Stock included therein shall be deemed to extend
until the first to occur of (i) each underwriter's completion of the
distribution of all securities purchased by it; and (ii) one hundred and twenty
(120) days.
In connection with each registration hereunder, the sellers of Restricted
Stock will furnish to the Company in writing such information with respect to
themselves and the proposed distribution by them as reasonably shall be
necessary in order to assure compliance with federal and applicable state
securities laws.
In connection with each registration pursuant to Section 4, 5 or 6 covering
an underwritten public offering, the Company and each seller agree to enter into
a written agreement with the managing underwriter selected in the manner herein
provided in such form and containing such provisions as are customary in the
securities business for such an arrangement between such underwriter and
companies of the Company's size and investment stature.
No Holder of shares of Restricted Stock included in a registration
statement shall (until further notice) effect sales thereof after receipt of
telegraphic or written notice from the Company to suspend sales to permit the
Company to correct or update a registration statement or 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
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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 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
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where the Company or its agents has affirmatively undertaken or agreed in
writing that the Company (the undertaking of any underwriter chosen by the
Company being attributed to the Company) will undertake such registration or
qualification on the seller's behalf (provided that in such instance the Company
shall not be so liable if it has undertaken its best efforts to so register or
qualify the Restricted Stock) and will reimburse each such seller, and such
officer and director, each such underwriter and each such controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by any such
seller, any such underwriter or any such controlling person in writing
specifically for use in such registration statement or prospectus, and except
that the foregoing indemnity agreement is subject to the condition that, insofar
as it relates to any such untrue statement or alleged untrue statement or
omission or alleged omission made in the preliminary prospectus but eliminated
or remedied in the amended prospectus on file with the Commission at the time
the registration statement becomes effective or in the amended prospectus filed
with the Commission pursuant to Rule 424(b) or in the prospectus subject to
completion and term sheet under Rule 434 of the Securities Act, which together
meet the requirements of Section 10(a) of the Securities Act (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
such seller, any such underwriter or any such controlling person, if such
seller, underwriter or controlling person was obligated under law to provide a
copy of the Final Prospectus to the person or entity asserting the loss,
liability, claim or damage and failed to do so after sufficient copies of the
Final Prospectus were delivered by the Company to such seller, underwriter or
controlling person in sufficient time to deliver the Final Prospectus within the
period required by the Securities Act; provided, further, that this indemnity
shall not be deemed to relieve any underwriter of any of its due diligence
obligations.
(b) To the extent permitted by law, in the event of a registration of
any of the Restricted Stock under the Securities Act pursuant to 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,
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underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that such seller will be
liable hereunder in any such case if and only to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in reliance
upon and in conformity with information pertaining to such seller furnished in
writing to the Company by such seller specifically for use in such registration
statement or prospectus; and provided, further, that the foregoing indemnity
agreement is subject to the condition that, insofar as it relates to any such
untrue statement or alleged untrue statement or omission or alleged omission
made in the preliminary prospectus but eliminated or remedied in the amended
prospectus on file with the Commission at the time the registration statement
becomes effective or in the Final Prospectus, such indemnity agreement shall not
inure to the benefit of the Company , any controlling person or any underwriter,
if the Company, underwriter or controlling person was obligated under law to
provide a copy of the Final Prospectus to the person or entity asserting the
loss, liability, claim or damage and failed to do so within the period required
by the Securities Act; provided, further, that this indemnity shall not be
deemed to relieve any underwriter of any of its due diligence obligations; and
provided, further, that in no event shall any indemnity by a seller under this
Section 9(b) exceed the gross proceeds from the offering received by such
seller.
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 9 and shall only relieve it
from any liability which it may have to such indemnified party under this
Section 9 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected; provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and counsel to the indemnified party shall have
reasonably concluded that there are reasonable 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
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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 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;
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(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:
(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
14
<PAGE>
Restricted Stock), whether so expressed or not; provided, however, that
registration rights conferred herein on the Holders of shares of Restricted
Stock shall only inure to the benefit of a transferee of shares of Restricted
Stock if such transferee, in the Company's reasonable judgment, is not a
competitor of the Company, and (i) there is transferred to such transferee at
least 20% of the total shares of Restricted Stock originally issued to the
direct or indirect transferor of such transferee by the Company; or (ii) such
transfer is made in connection with the distribution by a Holder to such Holders
beneficial owners (including, without limitation, to partners of a general or
limited partnership, shareholders of a corporation and beneficiaries of a trust)
of securities of the Holder or to the partners or employees of the Holder,
provided that at the Company's request, one person shall be designated by such
transferees as their agent for purposes of their rights hereunder and the
provision of a notice by the Company to such agent in accordance with the
provisions hereof shall be deemed compliance with such provisions for all such
beneficial owners, partners and employees, and following such request by the
Company, the Company shall have no obligation under said provisions with respect
to such transferees until it shall have been notified of the name and address of
such agent.
(b) Each Holder agrees that it will provide notice to the Company of
any transfer or assignment of its rights or interests hereunder. Any failure by
the Company to fulfill a covenant or obligation hereunder which is the direct
result of a failure by a Holder to provide such notice shall not be deemed to be
a breach of any covenant or obligation hereunder.
Nothing in this Agreement shall be construed to create any rights or
obligations except among the parties hereto and their respective and permitted
successors and assigns, and no person or entity shall be regarded as a
third-party beneficiary of this Agreement.
Except as provided in Section 13(a) above, all notices, requests, consents
and other communications hereunder shall be in writing, shall be addressed to
the receiving party's address set forth below or to such other address as a
party may designate by notice hereunder, and shall be either (i) delivered by
hand; (ii) sent by overnight courier, with a receipt obtained; or (iii) sent by
registered or certified mail, return receipt requested, postage prepaid.
If to the Company:
Jay Jacobs, Inc.
1530 Fifth Avenue
Seattle, Washington 98101
Facsimile No.: (206) 621-9830
Attn.: Rex L. Steffey
with a copy to:
15
<PAGE>
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
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
16
<PAGE>
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 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
17
<PAGE>
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.
(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]
18
<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: /s/ REX L. STEFFEY
--------------------------------------
Name: Rex L. Steffey
Title: President and Chief
Executive Officer
CAHILL, WARNOCK STRATEGIC PARTNERS
FUND, L.P.
By: CAHILL WARNOCK STRATEGIC
PARTNERS, L.P., its General
Partner
By: /s/ EDWARD L. CAHILL
--------------------------------------
Name: Edward L. Cahill
Title: a General Partner
STRATEGIC ASSOCIATES, L.P.
By: CAHILL, WARNOCK & COMPANY, LLC
its General Partner
By: /s/ EDWARD L. CAHILL
--------------------------------------
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: /s/ KIM Z. GOLDEN
--------------------------------------
Name: Kim Z. Golden
Title: Managing Director
19
<PAGE>
/s/ MICHAEL D. SULLIVAN
-------------------------------------
Michael D. Sullivan
20
-----------------------------------------------------
SECURITIES PURCHASE AGREEMENT
DATED February 1, 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
Page
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
i
<PAGE>
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
ii
<PAGE>
JAY JACOBS, INC.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is dated as of
February 1, 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
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
1
<PAGE>
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 $
1,950,000, 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.
"Common Stock" means the Company's Common Stock, par value $.01 per share.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
2
<PAGE>
"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.
"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.
3
<PAGE>
"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
(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,
4
<PAGE>
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 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
5
<PAGE>
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 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
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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.
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
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<PAGE>
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 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
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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 "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
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<PAGE>
(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 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;
10
<PAGE>
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;
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.
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<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 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.
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<PAGE>
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.
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.
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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.
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.
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<PAGE>
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.
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.
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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 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;
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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. 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.
17
<PAGE>
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.
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.
18
<PAGE>
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.
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
19
<PAGE>
Seattle, Washington 98101
Attn: John J. Halle, Esq.
Telephone No.: 206-624-0900
Facsimile No.: 206-386-7500
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
20
<PAGE>
confirmed receipt by the addressee thereof, and (iii) if sent by registered or
certified mail, three (3) business days after dispatch.
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.
21
<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 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,
22
<PAGE>
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.]
23
<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: /s/ REX L. STEFFEY
----------------------------------------------------
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: /s/ EDWARD L. CAHILL
----------------------------------------------------
Edward L. Cahill, a general partner
STRATEGIC ASSOCIATES, L.P.
By: Cahill, Warnock & Company, LLC, its general partner
By: /s/EDWARD L. CAHILL
----------------------------------------------------
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: /s/KIM Z. GOLDEN
----------------------------------------------------
Kim Z. Golden, its managing director
24
<PAGE>
AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT
AND LIMITED WAIVER AND CONSENT
This AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT AND LIMITED WAIVER
AND CONSENT (this "Amendment") dated as of February 1, 1999 is by and between
JAY JACOBS, INC., a Washington corporation ("Borrower"), and FINOVA CAPITAL
CORPORATION, a Delaware corporation ("FINOVA"). Unless otherwise specified
herein, capitalized terms used in this Amendment shall have the meanings
ascribed to them by the Loan Agreement (as hereinafter defined).
RECITALS
WHEREAS, FINOVA and Borrower are parties to that certain Loan and
Security Agreement, dated as of May 29, 1998 (as amended by Amendment No. 1
dated as of July 17, 1998, the "Existing Loan Agreement", and as further
amended, supplemented, restated or otherwise modified from time to time, the
"Loan Agreement");
WHEREAS, Borrower and FINOVA desire to amend the Existing Loan
Agreement to, inter alia, (i) modify the calculation of Advance Rate, (ii)
establish a loan reserve for required computer upgrades, (iii) extend the time
period in which Borrower must remedy Year 2000 Problems, (iv) modify certain
definitions and covenants with respect to Borrower's issuance of new preferred
stock and warrants and (v) modify certain other provisions as set forth herein;
and
WHEREAS, Borrower has requested that FINOVA, and, subject to the terms
and conditions of this Amendment, FINOVA has agreed to, (i) waive certain Events
of Default with respect to Borrower's EBITDA compliance under the Loan
Agreement, (ii) amend certain financial covenants of Borrower and (iii) consent
to the funding of certain payments to certain Subordinating Creditors;
NOW THEREFORE, in consideration of the mutual execution hereof and
other good and valuable consideration, the parties hereto agree as follows:
Section 1. Amendments To The Existing Loan Agreement. Subject to the
satisfaction of the conditions precedent set forth in Section 9 hereof, the
parties hereto hereby agree to amend the Existing Loan Agreement as follows:
(a) Section 1.1 of the Existing Loan Agreement is hereby amended
by adding the following new defined terms in the proper alphabetical order:
"Securities Purchase Agreement" has the meaning ascribed to
such term in Section 6.1.25 hereto.
"Series D Preferred Stock" has the meaning ascribed to such
term in Section 6.1.25 hereto.
<PAGE>
"Subordinated Debt Exchange" has the meaning ascribed to
such term in Section 6.1.25 hereto.
"Year 2000 Reserve" means a special Loan Reserve of $300,000
reflecting approximately one-half of the amount needed for
Borrower to upgrade its existing MIS system for its chief
executive office and the POS terminals at each of its store
locations to remedy any Year 2000 Problems. Such Year 2000
Reserve shall be reduced dollar for dollar by each
expenditure by Borrower in calendar year 1999 for such
computer upgrading upon FINOVA's receipt from Borrower of
satisfactory written evidence of payment therefor; provided
Borrower has spent an initial $300,000 on such computer
upgrading.
(b) The definition of "Advance Rate" set forth in Section 1.1 of
the Existing Loan Agreement is hereby amended and restated to read as follows:
"Advance Rate" means a percentage rate, established on a
monthly basis, equal to the product of (i) the Net GOB Sale
Value Rate of Borrower's Eligible Inventory as of the date
of the most recent monthly Appraisal Report and (ii) a
percentage equal to (A) from the Closing Date to and
including August 15, 1999, 100% and (B) from August 16, 1999
thereafter, 95%. The Advance Rate so computed will remain in
effect until the next monthly Appraisal Report has been
delivered. In the event, for any reason, the next monthly
Appraisal Report is not timely delivered, FINOVA shall be
entitled to adjust the Advance Rate or impose such Loan
Reserves as FINOVA may deem appropriate in its discretion
until such monthly Appraisal Report is received. So long as
no Event of Default has occurred and is continuing, (i)
during the period commencing on January 1 and ending August
15 of each year, the Net GOB Sale Value Rate shall be
determined by reference to the "low" or "slow" selling
season rate specified in the applicable Appraisal Report and
(ii) during the period commencing August 16 and ending
December 31 of each year, the Net GOB Sale Value Rate shall
be determined by reference to the "high" or "prime" selling
season rate specified in the applicable Appraisal Report.
Without limiting any of FINOVA's other rights and remedies,
anytime any Event of Default has occurred and is continuing,
FINOVA may adjust the Advance Rate and/or impose such Loan
Reserves as FINOVA may deem appropriate in its discretion.
Notwithstanding the foregoing, during the period commencing
January 11, 1999 through and including February 15, 1999,
the Net GOB Sale Value Rate shall be determined by reference
to the "high" or "prime" selling season rate specified in
the applicable Appraisal Report; provided, that such Net GOB
Sale Value Rate shall be reduced by deducting 1% on January
11, 1999 and an additional 1% on each Monday of each
calendar week occurring thereafter through and including
February 15, 1999 at which time the Net GOB Sale Value Rate
2
<PAGE>
shall no longer be governed by this sentence. For purposes
of illustration only, if the Net GOB Sale Value Rate for
January 11, 1999 equals 80%, the Advance Rate which would be
applicable on January 11, 1999 would equal 79% (i.e., 80% -
1% = 79%).
(c) The definition of "Loan Reserve" set forth in Section 1.1 of
the Existing Loan Agreement is hereby amended by adding the language "Year 2000
Reserve" after the language "In-Transit Reserve,".
(d) The definition of "Preferred Stock" set forth in Section 1.1
of the Existing Loan Agreement is hereby amended by (i) deleting the word "and"
appearing after the language "Series B Preferred Stock" and inserting a comma
(",") in place thereof and (ii) adding the language "Series D Preferred Stock"
immediately after the language "Series C Preferred Stock" appearing in the third
line thereof.
(e) The definition of "Statement of Rights and Preferences of
Preferred Stock" set forth in Section 1.1 of the Existing Loan Agreement is
hereby amended and restated in its entirety to read as follows:
"Statement of Rights and Preferences of Preferred Stock"
means collectively, (i) the Statement of Rights and
Preferences of Series A Preferred Stock and Series B
Preferred Stock of the Borrower, as in effect on December 3,
1997, (ii) the Statement of Rights and Preferences of Series
C Preferred Stock of the Borrower, as in effect on March 11,
1998, and (iii) the Statement of Rights and Preferences of
Series D Preferred Stock of the Borrower, as in effect on
February 1, 1999, as each may be amended from time to time
with the prior written consent of FINOVA.
(f) Section 6.1.14 of the Existing Loan Agreement is hereby
amended by replacing the language "the first anniversary of the Closing Date"
with "October 1, 1999".
(g) Section 6.1.22 of the Existing Loan Agreement is hereby
amended by replacing the language "the first anniversary of the Closing Date"
with "October 1, 1999".
(h) Section 6.1 of the Existing Loan Agreement is amended by
adding at the end thereof a new Section 6.1.25 as set forth below:
6.1.25 Securities Purchase Agreement Transactions. Issue, in
one or more tranches, certain warrants for Borrower's common
stock and up to 40,000 shares of Borrower's Series D
Preferred Stock (the "Series D Preferred Stock") to certain
Subordinating Creditors
3
<PAGE>
for gross cash consideration of $100 per share of Series D
Preferred Stock in accordance with the terms of that certain
Securities Purchase Agreement dated on or about February 1,
1999 between Borrower and certain Subordinating Creditors
(the "Securities Purchase Agreement"). Borrower further
covenants that the first $2,000,000 of gross cash proceeds
generated from the issuance of such Series D Preferred Stock
(from which the reasonable out-of-pocket costs and expenses
of the purchasers of such Series D Preferred Stock may be
deducted) will be received no later than February 1, 1999
and be paid to FINOVA to reduce the Revolving Credit Loans
and the balance of proceeds from subsequent issuances of
such Series D Preferred Stock will be used to reduce past
due trade obligations and for other purposes at the sole
discretion of the purchasers of such Series D Preferred
Stock, provided such purposes are in compliance with the
terms of the Loan Documents. Borrower also covenants that on
or prior to February 1, 1999, Borrower's existing $2,000,000
Subordinated Debentures dated March 11, 1998 will be
exchanged pursuant to the Securities Purchase Agreement for
(x) certain warrants for Borrower's common stock, (y) new
subordinated debentures having a maturity date of December
31, 2001 and requiring payment of all interest obligations
thereunder only on such maturity date (the "Subordinated
Debt Exchange") and (z) payment of the obligations described
in Section 2(b) of Amendment No. 2 to Loan and Security
Agreement and Limited Waiver and Consent dated as of
February 1, 1999 between FINOVA and Borrower.
(i) Section 6.2.17 of the Existing Loan Agreement is hereby
amended by amending and restating clause (y) to read as follows:
(y) the warrants issued to certain Subordinating Creditors,
pursuant to the terms of (i) the Subordinated Debenture
Purchase Agreement, dated as of March 11, 1998, between
Borrower and certain Subordinating Creditors and (ii) the
Securities Purchase Agreement, and
(j) Section 2.6 of the Schedule to the Existing Loan Agreement is
hereby amended by adding a new paragraph at the end of such section as follows:
Amendment No. 2 Fee Borrower agrees to pay to FINOVA an
Amendment No. 2 Fee of $30,000, in connection with the
execution and delivery of Amendment No. 2 to Loan and
Security Agreement and Limited Waiver and Consent between
FINOVA and Borrower, which shall be fully earned as of the
date of execution of such Amendment No. 2 but shall be
payable in five (5) installments of $6,000 beginning on the
effective date of such Amendment No. 2
4
<PAGE>
and on the first Business Day of each month thereafter
through and including June 1, 1999.
(k) The EBITDA covenant set forth in Section 6.1.13 of the
Schedule to the Existing Loan Agreement is hereby amended and restated in its
entirety to read a follows:
EBITDA: Borrower shall maintain Earnings Before Interest,
Taxes, Depreciation and Amortization ("EBITDA") (i) on
a cumulative basis (as defined below) beginning May 1,
1998 to and including January 30, 1999, (ii) on a
cumulative basis beginning February 1, 1999 through and
including January 29, 2000 and (iii) for the trailing
twelve month period for every monthly measurement
period after January 29, 2000, as follows:
<TABLE>
<CAPTION>
Measurement Period Ending EBITDA
------------------------- ------
<S> <C>
May 30, 1998 None
July 4, 1998 $150,000
August 1, 1998 $100,000
August 29, 1998 $661,000
October 3, 1998 $938,000
October 31, 1998 $1,099,000
November 28, 1998 $1,766,000
January 2, 1999 $4,246,000
January 30, 1999 $3,401,000
February 27, 1999 ($1,613,000)
April 3, 1999 ($1,850,000)
May 1, 1999 ($1,963,000)
May 29, 1999 ($1,575,000)
July 3, 1999 ($800,000)
July 31, 1999 ($790,000)
August 28, 1999 ($280,000)
October 2, 1999 $216,000
October 30, 1999 $326,000
November 27, 1999 $352,000
January 1, 2000 $2,517,000
January 29, 2000 $2,069,000
February 26, 2000 $3,000,000
April 1, 2000 $3,000,000
April 29, 2000 $3,000,000
May 27, 2000 $3,000,000
June 1, 2000 $3,000,000
July 29. 2000 $3,000,000
August 26, 2000 $3,000,000
September 30, 2000 $3,000,000
5
<PAGE>
October 28, 2000 $3,000,000
November 25, 2000 $3,000,000
December 30, 2000 $3,000,000
February 3, 2001 $3,000,000
</TABLE>
As used above, "cumulative basis" shall mean the amount
of EBITDA generated from the designated starting date
of the period (i.e., May 1, 1998 or February 1, 1999)
to the end of the relevant measurement period
designated in the column above. Borrower shall not be
deemed to be in breach of the foregoing covenant unless
Borrower fails to comply with the projected EBITDA
levels for two consecutive months, provided, that the
actual EBITDA in each such month is no more than
$300,000 below the projected EBITDA level for such
month; provided, further that after FINOVA's receipt of
Borrower's projections for calendar year 2000, Borrower
and FINOVA agree to enter into good faith negotiations
to reset the EBITDA levels for all periods ending after
January 29, 2000. In the event that no written
agreement between Borrower and FINOVA is reached prior
to January 1, 2000, required EBITDA level shall be as
set forth above for such subsequent periods.
Section 2. Limited Waiver; Limited Consent.
(a) Limited Waiver. Borrower hereby acknowledges and agrees that
certain Events of Default exist by virtue of the failure of Borrower to maintain
the required EBITDA for the periods ending November 28, 1998, January 2, 1999
and January 30, 1999 as set forth in Section 6.1.13 of the Existing Loan
Agreement (the "Existing Defaults"). Subject to the satisfaction of the
conditions precedent set forth in Section 9 hereof, FINOVA hereby waives the
Existing Defaults; provided, that nothing contained herein shall in any way
waive, release, modify or limit Borrower's obligations to meet future EBITDA
requirements and to otherwise comply with each of the terms and conditions of
the Existing Loan Agreement nor any of FINOVA's rights and privileges in respect
thereof.
(b) Limited Consent. In connection with the proposed issuance of
the Series D Preferred Stock and the proposed Subordinated Debt Exchange
described above, Borrower has requested that Borrower be permitted to fund
payments of up to (I) $140,000 of outstanding interest obligations in respect of
Borrower's $2,000,000 Subordinated Debentures, dated March 11, 1998, and (II)
$57,500 of preferred dividend obligations pursuant to the terms of the Statement
of Rights and Preferences of Series A Preferred Stock and Series B Preferred
Stock of Jay Jacobs, Inc., adopted by the Borrower on December 2, 1997 (the
payments described in clauses (I) and (II) above, the "Proposed Payments").
Subject to the satisfaction of the conditions
6
<PAGE>
to effectiveness of this Amendment, FINOVA hereby consents to the Borrower
funding, and the applicable Subordinating Creditors receiving, the Proposed
Payments so long as each of the "Required Payment Conditions" set forth below
are satisfied on the date of the funding of the Proposed Payments. As used
herein, "Required Payment Conditions" shall mean, at the time of funding any
Proposed Payment (x) Borrower shall have issued not less than 20,000 shares of
its Series D Preferred Stock for gross cash consideration of not less than
$2,000,000 (less the reasonable out of pocket costs and expenses of the
purchasers thereof), (y) no Event of Default or event which, with the passage of
time or the provision of notice or both, would constitute an Event of Default,
has occurred and is continuing under the Loan Agreement and no Event of Default
would result from the making of such Proposed Payment, and (z) according to the
monthly financial statements submitted to FINOVA by Borrower pursuant to the
Loan Agreement, (i) Borrower will have a Debt Service Coverage Ratio of no less
than 1.0:1.0 and (ii) Borrower will have at least $500,000 of Excess
Availability (as defined in the Loan Agreement) for the 30 day period
immediately preceding the date of such payment (taken as an average) and
immediately after giving effect to such proposed payment.
Section 3. Representations And Warranties Of Borrower. Borrower
represents and warrants that:
(a) the execution, delivery and performance by Borrower of this
Amendment have been duly authorized by all necessary corporate action and this
Amendment is a legal, valid and binding obligation of Borrower enforceable
against Borrower in accordance with its terms, except as the enforcement thereof
may be subject to (i) the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights generally
and (ii) general principles of equity (regardless of whether such enforcement is
sought in a proceeding in equity or at law);
(b) each of the representations and warranties contained in the
Loan Agreement is true and correct in all material respects on and as of the
date hereof as if made on the date hereof, except to the extent that such
representations and warranties expressly relate to an earlier date; and
(c) neither the execution, delivery and performance of this
Amendment nor the consummation of the transactions contemplated hereby does or
shall contravene, result in a breach of, or violate (i) any provision of
Borrower's certificate or articles of organization or by-laws, (ii) any law or
regulation, or any order or decree of any court or government instrumentality,
or (iii) any indenture, mortgage, deed of trust, lease, agreement or other
instrument to which Borrower is a party or by which Borrower or any of its
property is bound, except in any such case to the extent such conflict or breach
has been waived by a written waiver document, a copy of which has been delivered
to FINOVA on or before the date hereof.
Section 4. Acknowledgments Regarding Loan Agreement.
(a) Except as specifically amended above, the Loan Agreement and
the other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.
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(b) The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of FINOVA under the
Loan Agreement or any other Loan Document, nor constitute a waiver of any
provision of the Loan Agreement or any other Loan Document, except as
specifically set forth herein. Upon the effectiveness of this Amendment, each
reference in the Loan Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of similar import shall mean and be a reference to the Loan
Agreement as amended hereby.
(c) Borrower hereby acknowledges and agrees that there is no
defense, setoff or counterclaim of any kind, nature or description to the
Obligations or the payment thereof when due.
Section 5. Costs And Expenses. As provided in Section 8.1 of the Loan
Agreement, Borrower agrees to reimburse FINOVA for all fees, costs and expenses,
including the fees, costs and expenses of counsel or other advisors for advice,
assistance, or other representation in connection with this Amendment (and the
other documents to be delivered in connection herewith).
Section 6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ARIZONA.
Section 7. Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purposes.
Section 8. Counterparts. This Amendment may be executed in any number
of counterparts, each of which when so executed shall be deemed an original, but
all such counterparts shall constitute one and the same instrument.
Section 9. Effectiveness.
(a) This Amendment shall become effective when each of the
following conditions precedent have been met to the satisfaction of FINOVA or
waived in writing by FINOVA:
(i) Amendment. Each of FINOVA and Borrower shall have
delivered to the other duly executed counterparts to this Amendment;
(ii) Representations. The representations and warranties
contained herein shall be true and correct in all respects; and
(iii) Guarantors' Consent. Guarantor shall have delivered to
FINOVA duly executed counterpart to the form of Acknowledgment and Consent
attached to this Amendment.
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(iv) Subordination Agreement Amendment. Borrower and each
Subordinating Creditor party thereto shall have delivered to FINOVA duly
executed counterparts to Amendment No. 1 to Subordination Agreement in the form
of Exhibit A attached to this Amendment.
(v) Securities Purchase Agreement. FINOVA shall have
received and approved the final form of the Securities Purchase Agreement and be
satisfied that (I) each of the conditions to the "First Closing" (as defined
therein) set forth in Sections 6 and 7 of such Securities Purchase Agreement
(except for the condition regarding the effectiveness of this Amendment) have
been met and (II) that the "Original Debentures" shall have exchanged and
replaced with the "New Debentures" (as such terms are defined in the Securities
Purchase Agreement).
(vi) First Closing Proceeds. FINOVA shall have received cash
proceeds of the initial issuance of 20,000 shares of the Series D Preferred
Stock in an amount equal to $2,000,000 less the reimbursable out-of-pocket costs
and expenses of the purchasers thereof.
[Signature page follows]
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[Signature Page to Amendment No. 2]
IN WITNESS WHEREOF, the parties hereto hereupon set their hands as of
the date first written above.
JAY JACOBS, INC.
By: /s/ WILLIAM L. LAWRENCE, JR.
------------------------------------
William L. Lawrence, Jr.
Its: Executive Vice President
FINOVA CAPITAL CORPORATION
By: /s/ [NOT LEGIBLE]
------------------------------------
Its: Vice President
[Signature Page to Amendment No. 2]
<PAGE>
Acknowledgment and Consent
The undersigned hereby acknowledges receipt of the attached Amendment
and consents to the execution and performance thereof by Jay Jacobs, Inc. The
undersigned hereby also reaffirms that the guarantee of such undersigned in
favor of FINOVA remains in full force and effect and acknowledges and agrees
that there is no defense, setoff or counterclaim of any kind, nature or
description to obligations arising under such guarantee.
J.J. DISTRIBUTION COMPANY
By: /s/ WILLIAM L. LAWRENCE, JR.
------------------------------------
Name: William L. Lawrence, Jr.
Title: President
[Guarantor's Acknowledgment and Consent to Amendment No. 2]
