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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. ________)*
Universal International, Inc.
- -------------------------------------------------------------------------------
(Name of Issuer)
Common Stock
- -------------------------------------------------------------------------------
(Title of Class of Securities)
913900403
--------------------------
(CUSIP Number)
Mark Ravich
Universal International, Inc.
5000 Winnetka Avenue North
New Hope, MN 55428
(612) 533-1169
- -------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
November 17, 1997
---------------------------------------------
(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the statement [ ]. (A fee
is not required only if the reporting person: (1) has a previous statement on
file reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
NOTE. Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the notes).
<PAGE>
SCHEDULE 13D
- --------------------- -------------------------
CUSIP NO. 65440K 10 6 Page 1 of Pages
- --------------------- -------------------------
- ---------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
99 Cents Only Stores
EIN: 95-2411605
- ---------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
- ---------------------------------------------------------------------------
3 SEC USE ONLY
- ---------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
- ---------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) [ ]
- ---------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
- ---------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 4,500,000
SHARES -------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY EACH 0
REPORTING -------------------------------------------------------
PERSON WITH 9 SOLE DISPOSITIVE POWER
4,500,000
-------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- ---------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,500,000
- ---------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* [ ]
- ---------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
47.9%
- ---------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- ---------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
PAGE 2
<PAGE>
Item 1. SECURITY AND ISSUER
-------------------
This statement on Schedule 13D (this "Schedule") relates to the common
stock, $0.001 par value per share (the "Common Stock") of Universal
International, Inc., a Minnesota corporation (the "Company"). The Company's
principal executive offices are located at 5000 Winnetka Avenue North, New
Hope, Minnesota 55428.
Item 2. IDENTITY AND BACKGROUND
-----------------------
This Schedule is being filed on behalf of 99 Cents Only Stores, a
California corporation ("99 Cents Only"). The principal business and office
address of 99 Cents Only is 4000 East Union Pacific Avenue, City of Commerce,
California 90023. 99 Cents Only is a deep-discount retailer of primarily name-
brand, close-out and regularly available general merchandise at an affordable,
single price point. During the last five years, 99 Cents Only has not been
convicted in a criminal proceeding (excluding traffic violations and similar
misdemeanors) and has not been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with respect to such
laws.
The directors and executive officer of 99 Cents Only are David Gold,
Chairman of the Board, Chief Executive Officer and President, Howard Gold,
Senior Vice President of Warehouse Operations and Director, Jeff Gold, Senior
Vice President of Real Estate and Management Information Systems and Director,
Eric Schiffer, Senior Vice President of Finance and Administration, Andrew
Farina, Chief Financial Officer, Helen Pipkin, Senior Vice President of
Wholesale Operations, William Christy, Director, Marvin Holen, Director, Ben
Schwartz, Director, and Larry Glascott, Director. The following information
is supplied with respect to these individuals:
I. (a) David Gold.
(b) Mr. Gold's business address is 4000 East Union Pacific Avenue,
City of Commerce, California 90023.
(c) Mr. Gold's principal occupation or employment is serving as 99
Cents Only's Chairman of the Board, Chief Executive officer and President.
(d) - (e) During the last five years, David Gold has not been
convicted in a criminal proceeding (excluding traffic violations and similar
misdemeanors) and has not been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations
PAGE 3
<PAGE>
of, or prohibiting or mandating activities subject to, federal or state
securities laws or finding any violation with respect to such laws.
(f) Mr. Gold is a citizen of the United States.
II. (a) Howard Gold.
(b) Mr. Gold's business address is 4000 East Union Pacific Avenue,
City of Commerce, California 90023.
(c) Mr. Gold's principal occupation or employment is serving as 99
Cents Only's Senior Vice President of Warehouse Operations and Director.
(d) - (e) During the last five years, Howard Gold has not been
convicted in a criminal proceeding (excluding traffic violations and similar
misdemeanors) and has not been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with respect to such
laws.
(f) Mr. Gold is a citizen of the United States.
III. (a) Jeff Gold.
(b) Mr. Gold's business address is 4000 East Union Pacific Avenue,
City of Commerce, California 90023.
(c) Mr. Gold's principal occupation or employment is serving as 99
Cents Only's Senior Vice President of Real Estate and Management Information
Systems and Director.
(d) - (e) During the last five years, Jeff Gold has not been
convicted in a criminal proceeding (excluding traffic violations and similar
misdemeanors) and has not been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with respect to such
laws.
(f) Mr. Gold is a citizen of the United States.
IV. (a) Eric Schiffer
PAGE 4
<PAGE>
(b) Mr. Schiffer's business address is 4000 East Union Pacific
Avenue, City of Commerce, California 90023.
(c) Mr. Schiffer's principal occupation or employment is serving as
99 Cents Only's Senior Vice President of Finance and Administration.
(d) - (e) During the last five years, Eric Schiffer has not been
convicted in a criminal proceeding (excluding traffic violations and similar
misdemeanors) and has not been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with respect to such
laws.
(f) Mr. Schiffer is a citizen of the United States.
V. (a) Andrew Farina
(b) Mr. Farina's business address is 4000 East Union Pacific Avenue,
City of Commerce, California 90023.
(c) Mr. Farina's principal occupation or employment is serving as 99
Cents Only's Chief Financial Officer.
(d) - (e) During the last five years, Andrew Farina has not been
convicted in a criminal proceeding (excluding traffic violations and similar
misdemeanors) and has not been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with respect to such
laws.
(f) Mr. Farina is a citizen of the United States.
VI. (a) Helen Pipkin
(b) Ms. Pipkin's business address is 4000 East Union Pacific Avenue,
City of Commerce, California 90023.
(c) Ms. Pipkin's principal occupation or employment is serving as 99
Cents Only's Senior Vice President of Wholesale Operations.
PAGE 5
<PAGE>
(d) - (e) During the last five years, Helen Pipkin has not been
convicted in a criminal proceeding (excluding traffic violations and similar
misdemeanors) and has not been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with respect to such
laws.
(f) Ms. Pipkin is a citizen of the United States.
VII. (a) William Christy
(b) Mr. Christy's business address is 4000 East Union Pacific Avenue,
City of Commerce, California 90023
(c) Mr. Christy is retired.
(d) - (e) During the last five years, William Christy has not been
convicted in a criminal proceeding (excluding traffic violations and similar
misdemeanors) and has not been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with respect to such
laws.
(f) Mr. Christy is a citizen of the United States.
VIII.(a) Marvin Holen
(b) Mr. Holen's business address is 900 Wilshire Boulevard,
Suite 1100, Los Angeles, California 90017
(c) Mr. Holen's principal occupation or employment is as an attorney.
(d) - (e) During the last five years, Marvin Holen has not been
convicted in a criminal proceeding (excluding traffic violations and similar
misdemeanors) and has not been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with respect to such
laws.
(f) Mr. Holen is a citizen of the United States.
IX. (a) Ben Schwartz
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<PAGE>
(b) Mr. Schwartz's business address is 4000 East Union Pacific
Avenue, City of Commerce, California 90023
(c) Mr. Schwartz is retired.
(d) - (e) During the last five years, Ben Schwartz has not been
convicted in a criminal proceeding (excluding traffic violations and similar
misdemeanors) and has not been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with respect to such
laws.
(f) Mr. Schwartz is a citizen of the United States.
X. (a) Lawrence Glascott
(b) Mr. Glascott's business address is 4000 East Union Pacific
Avenue, City of Commerce, California 90023
(c) Mr. Glascott is retired.
(d) - (e) During the last five years, Lawrence Glascott has not been
convicted in a criminal proceeding (excluding traffic violations and similar
misdemeanors) and has not been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with respect to such
laws.
(f) Mr. Glascott is a citizen of the United States.
Item 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION:
-------------------------------------------------
On November 17, 1997, 99 Cents Only acquired 4,500,000 shares (the
"Shares")of Common Stock for a purchase price consisting of $2,000,000 cash and
a $2,000,000 credit established on the books and records of 99 Cents Only
against which the Company may apply the purchase price of merchandise purchased
by it from 99 Cents Only at the customary wholesale prices or as otherwise
mutually agreed. The cash portion of the purchase price was funded out of
working capital.
Item 4. PURPOSE OF THE TRANSACTION:
--------------------------
The shares purchased by 99 Cents Only have been acquired by 99 Cents Only
solely for its own account, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of the shares. From
time to time, 99 Cents may explore the possibility of acquiring
PAGE 7
<PAGE>
additional shares of Common Stock. Any determination with respect to the
acquisition of additional shares will depend upon a variety of factors,
including, without limitation, current and anticipated future trading prices
for the shares, the financial condition, results of operations and prospects of
the Company and general economic, financial market and industry conditions.
If the Company determines to issue any additional shares of its capital
stock, or warrants, options, rights or other securities exercisable for or
convertible into shares of its capital stock (collectively, the "Equity
Securities"), excluding a few limited exceptions, the Company shall first give
to 99 Cents Only the right to purchase all or any portion of the Equity
Securities. In addition, to the extent the Company desires to effect a merger
or consolidation of the Company into or with another corporation in which the
shareholders of the Company shall thereby own less than 50% of the voting
securities of the surviving corporation, or a sale, transfer or lease (but not
including a transfer or lease by pledge or mortgage to a bona fide lender) of
all or substantially all of the assets of the Issuer (each a "Sale"), the
Company shall first give to 99 Cents Only the right to effect the Sale.
The Stock Purchase Agreement dated November 11, 1997 between the Company
and 99 Cents Only provides that the Company shall amend its Bylaws and take
such action as is necessary to provide (i) that the size of the Company's Board
of Directors shall be increased to seven (7) directors, (ii) that the
compensation committee of the Board of Directors shall consist of three (3)
directors, and (iii) that the audit committee of the Board of Directors shall
consist of three (3) directors. The Shareholders Agreement dated November 17,
1997 by and among the Company, 99 Cents Only and Mark Ravich, Chief Executive
Officer and Chief Financial Officer of the Company, (the "Shareholder
Agreement") provides that so long as 99 Cents Only owns at least 20% of the
Shares, the Company shall nominate and recommend to its shareholders that they
elect designees of 99 Cents Only to the Board of Directors of the Company in
such number that at all times the designees of 99 Cents Only constitute at
least one member less than a majority of the members of the Board of Directors
of the Company. The Shareholders Agreement also provides that so long as 99
Cents Only is entitled to have its designees nominated to Board of Directors of
the Company, it also shall be entitled to have two designees on the
Compensation Committee and one designee on the Audit Committee.
Item 5. INTEREST IN SECURITIES OF THE ISSUER:
------------------------------------
(a) AMOUNT BENEFICIALLY OWNED:
-------------------------
4,500,000 Shares owned by 99 Cents Only
PERCENT OF CLASS:
----------------
47.9%
PAGE 8
<PAGE>
(b) NUMBER OF SHARES AS TO WHICH 99 CENTS ONLY HAS:
----------------------------------------------
(i) Sole power to vote or to direct the vote: 4,500,000.
(ii) Shared power to vote or to direct the vote: 0
(iii) Sole power to dispose or to direct the disposition of:
4,500,000.
(iv) Shared power to dispose or to direct the disposition of: 0.
(c) None.
(d) None.
(e) N/A.
Item 6. CONTRACTS:
---------
The Shareholders Agreement provides for the nomination by the Company of
certain designees of 99 Cents Only to the Board of Directors of the Company,
the voting by Mr. Ravich for such directors and the appointment of designees of
99 Cents Only to the Compensation and Audit Committees of the Board of
Directors.
The Registration Rights Agreement, dated November 17, 1997 between the
Company and 99 Cents Only, provides 99 Cents Only with certain demand and piggy
back registration rights with respect to the Shares.
Item 7. MATERIAL TO BE FILED AS EXHIBITS:
--------------------------------
EXHIBIT 7.1:
----------
Stock Purchase Agreement
EXHIBIT 7.2:
----------
Shareholders Agreement
EXHIBIT 7.3:
----------
Registration Rights Agreement
PAGE 9
<PAGE>
SIGNATURE:
---------
After reasonable inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this statement is true,
complete and correct.
By: /s/ Andrew Farina
---------------------
Name: Andrew Farina
Title: Chief Financial Officer
Date: 11-26-97
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the 11th
day of November, 1997 (the "Effective Date"), among Universal International,
Inc., a Minnesota corporation (the "Company") and 99 Cents Only Stores, a
California corporation (the "Investor"). An index of defined terms used
herein is included as Section 13 hereto.
In consideration for the agreements contained herein, intending to be
legally bound, the Company and the Investor hereby agree as follows:
1. PURCHASE AND SALE OF STOCK.
--------------------------
1.1 AUTHORIZATION. The Company has authorized the sale and issuance of
4,500,000 shares (the "Shares") of its common stock, par value $0.001 per share
(the "Common Stock").
1.2 SALE AND ISSUANCE OF THE SHARES. Subject to the terms and conditions
set forth in this Agreement, the Investor shall purchase at the Closing (as
defined below) and the Company shall sell and issue to the Investor at the
Closing, the Shares, at a purchase price of approximately $0.8889 per share, or
an aggregate purchase price of Four Million Dollars ($4,000,000) (the "Purchase
Price"). The Purchase Price shall be paid as follows:
(a) $2,000,000 by delivery of a check or by wire transfer; and
(b) $2,000,000 to be evidenced by a credit established on the books
and records of the Investor against which the Company may apply the purchase
price of merchandise purchased by it from the Investor at the Investor's
customary wholesale prices or as otherwise mutually agreed (fob point of origin
and subject to Investor's customary terms of sale or as otherwise agreed in
writing). The items of merchandise for purchase and the quantities of each
item shall be mutually agreed to by the parties prior to purchase and
application of the credit. It is expressly agreed that the Investor may limit
availability and quantities of any items in its sole discretion.
2. CLOSING.
-------
2.1 THE CLOSING. The purchase and sale of the Shares shall take place on
the second business day following such date as all of the conditions to the
obligations of the parties hereunder are fully satisfied or waived, or on such
other date, as the Company and the Investor agree upon orally or in writing
(which place, time and date are designated as the "Closing").
2.2 DELIVERIES. At the Closing, the Company shall deliver to the
Investor a certificate or certificates representing the Shares, in exchange for
delivery to the Company from the Investor, by check or wire transfer, of the
cash portion of the Purchase Price.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in the
disclosure letter to be delivered by the Company to the Investor at or prior to
the execution of this Agreement, which letter shall describe the nature of each
exception to the following representations and warranties in reasonable detail
and which specifically refers to the subsection of this Agreement to which it
applies (the "Disclosure Letter"), the Company hereby represents and warrants
to the Investor as follows:
3.1 ORGANIZATION AND STANDING; ARTICLES AND BY-LAWS. The Company is duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation. The Company is qualified, licensed or domesticated as a
foreign corporation and is in good standing in all jurisdictions where the
character of its properties owned or held under lease or the nature of its
activities make such qualification necessary, except where the failure to be so
qualified, licensed or domesticated would not have individually or in the
aggregate, a Material Adverse Effect. The Company has all requisite power and
authority and all requisite licenses, permits and franchises necessary to own,
lease and operate its properties and assets and to carry on its business in the
manner and in the locations as presently conducted, except where the failure to
do so would not have, individually or in the aggregate, a Material Adverse
Effect. Copies of the Certificate of Incorporation (as certified by the
Secretary of State of the State of Minnesota) and Bylaws of the Company have
been delivered to the Investor and are accurate and complete as of the date
hereof.
3.2 CAPITAL STOCK. The authorized capital stock of the Company consists
of 75,000,000 shares of Common Stock. As of the date hereof, (i) there are
4,893,328 shares of Common Stock issued and outstanding, all of which are duly
authorized, validly issued, fully paid and non-assessable and were not issued
in violation of any preemptive rights or any Federal or State securities laws,
(ii) no shares of Common Stock are held by Subsidiaries of the Company, and
(iii) 1,182,000 shares of Common Stock are subject to future issuance under
outstanding options to purchase Common Stock. Section 3.2 of the Disclosure
Letter shall contain a recitation of the authorized and outstanding capital of
each of the Company's Subsidiaries. As of the date hereof, and as of the
Closing Date, there are and will be (i) no options, warrants, calls,
subscriptions, convertible securities or other rights, (including preemptive
rights), agreements, understandings, arrangements or commitments of any
character obligating the Company now or at any time in the future to issue or
sell any of its capital stock or other equity interests of the Company or any
of its Subsidiaries, (ii) no obligations, contingent or otherwise, of the
Company or any of its Subsidiaries, to repurchase, redeem or otherwise acquire
any shares of capital stock or other equity interests of the Company or any of
its Subsidiaries or to provide funds or to make any investment (in the form of
a loan, capital contribution or otherwise) in any Subsidiary or another entity,
other than guarantees of obligations of Subsidiaries to institutional lenders
entered into in the ordinary course of business, (iii) no outstanding bonds,
debentures, notes or other obligations of the Company the holders of which have
the right to vote (or which are convertible into or exercisable for securities
having the right to vote) with the Company stockholders on any matter, (iv) no
obligations, contingent or otherwise, guaranteeing the value of any of the
shares of the Common Stock of the Company or any of its Subsidiaries either now
or at any time in the future, and (v) no voting trusts, proxies or other
agreements or understandings to which the Company is a party or is bound with
respect to the voting of any capital stock or other equity interests of the
Company or any of its Subsidiaries.
PAGE 2
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3.3 SUBSIDIARIES. The Disclosure Letter sets forth a true and correct
list of each Subsidiary of the Company as of the date hereof. All of the
outstanding capital stock of each such Subsidiary is owned entirely by the
Company or by a Subsidiary of the Company, as the case may be, as of the date
hereof, free and clear of all liens, charges, pledges, security interests or
other encumbrances, except for restrictions on transfer imposed by applicable
securities laws. All such shares of capital stock have been duly authorized
and validly issued and are fully paid and nonassessable. There are no
agreements, understandings or undertakings governing the rights and duties of
the Company or any Subsidiary of the Company as a stockholder of any
Subsidiary, including, without limitation, any agreement, arrangement or
understanding under which the Company is or may become obligated, directly or
indirectly, to acquire or dispose of any equity interest in, make any capital
contribution or extend credit to, or act as guarantor, surety or indemnitor for
any liability of any Subsidiary. Each such Subsidiary is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, has the corporate power and authority to carry on its business as
it is now being conducted and is duly qualified to do business and is in good
standing in all jurisdictions where the failure to be so qualified would have,
individually or in the aggregate, a Material Adverse Effect. Other than its
Subsidiaries, neither the Company nor any Subsidiary of the Company has any
equity investment in any corporation, joint venture, partnership or other
business enterprise.
3.4 COMMISSION REPORTS AND FINANCIAL STATEMENTS. From and after January
1, 1994 the Company and each Subsidiary subject to the periodic reporting
requirements under the Exchange Act has filed with the Commission all forms,
reports, registration statements, proxy statements and other documents
(collectively, the "Company Reports") required to be filed by the Company and
any such Subsidiary under the Securities Act, the Exchange Act, and the rules
and regulations promulgated thereunder (collectively, the "Securities Laws"),
except failures to file which, individually or in the aggregate, do not have a
Material Adverse Effect; provided however, with respect to each Subsidiary, the
Company provides the representation stated above only from such date that each
Subsidiary became a Subsidiary of the Company. As of their respective dates,
or, in the case of registration statements, as of their respective effective
dates, all of the Company Reports, including all exhibits and schedules thereto
and all documents incorporated by reference therein, (i) complied as to form in
all material respects with the requirements of the Securities Laws applicable
thereto and (ii) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements, in light of the circumstances under which they were made,
not misleading. The representation in clause (ii) of the preceding sentence
shall not apply to any misstatement or omission in any Company Report filed
prior to the date of this Agreement which was superseded or corrected by a
subsequent Company Report filed before the date hereof. The audited
consolidated financial statements and unaudited interim consolidated financial
statements included or incorporated by reference in the Company Reports
(collectively, the "Company Financial Statements") have been prepared in
accordance with GAAP applied on a consistent basis in accordance with the
Company's historical practices which practices conform to GAAP (except as may
be indicated therein or in the notes thereto) and fairly present the
consolidated financial position of the Company or other Person, as applicable,
as of and at the dates thereof and the results of operations and cash flows for
the periods then ended, subject in the case of the unaudited interim financial
statements, to normal, recurring year-end adjustments and any other adjustments
described therein. Except as set forth or reflected in the Company Financial
Statements at December 31, 1996, or as set forth in the
PAGE 3
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interim unaudited balance sheets, or in the notes thereto, included in the
Company Reports since that date, neither the Company nor any of its
Subsidiaries, has any liabilities or obligations of any kind or nature (whether
accrued, absolute, contingent or otherwise) which would be required to be
reflected or reserved against in any balance sheet of the Company, or in the
notes thereto, prepared in accordance with GAAP consistently applied, except
liabilities arising since December 31, 1996 either (i) in the ordinary course
of business; or (ii) as contemplated or permitted by this Agreement.
3.5 AUTHORIZATION
(a) The Company has all requisite corporate power and authority to
execute, deliver and perform the obligations under the terms of this Agreement
and all of the transactions contemplated hereunder, including the sale and
issuance of the Shares to the Investor. The execution and delivery of this
Agreement by the Company and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of the Company and, other than the stockholder approval, if any, required
pursuant to Section 8.4 hereof, all corporate proceedings have been taken and
no other corporate proceedings on the part of the Company are necessary to
authorize the execution, delivery and performance by the Company of this
Agreement.
(b) This Agreement, when executed and delivered by the Company, will
constitute the valid and binding obligation of the Company, enforceable in
accordance with its terms except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of creditors'
rights and remedies or by other equitable principles of general application
(collectively, the "Remedies Exception"). The execution, delivery and
performance of this Agreement by the Company will not conflict with or
constitute a breach, violation or default under the Company's Articles of
Incorporation or Bylaws, any statute, law or administrative regulation, or
under any judgment, decree, order, writ, governmental permit or license, any
material contract, agreement, lease, indenture or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound, which breach, violation or default would have
individually or in the aggregate, a Material Adverse Effect on the Company.
3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1997, the
Company and its Subsidiaries each has conducted its business in all material
respects in the ordinary and usual course consistent with past practice, and
there has not been (a) any event or occurrence which, individually or in the
aggregate, has or reasonably could result in a Material Adverse Effect, (b) any
material change in accounting methods, principles and practices by the Company
and its Subsidiaries (except for any such changes required by reason of a
concurrent change in GAAP or to conform a Subsidiary's accounting methods,
principles or practices to those of the Company), (c) any damage, destruction
or loss, whether covered by insurance or not, having, individually or in the
aggregate, a Material Adverse Effect, (d) except as contemplated by this
Agreement, any entry by the Company or any of its Subsidiaries into any
commitment or transaction material to the Company which is not in the ordinary
course of business consistent with past practice, (e) any declaration, payment
or setting aside for payment of any dividends, or (f) any grant to any officer
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or director of any increase in compensation (other than periodic salary
increases not cumulatively in excess of 10% made in the ordinary course of
business consistent with past practice or increases resulting from job
promotions or expansions of employment responsibilities), or any loan to any
officer or director, or any adoption, amendment in any material respect or
termination of any bonus, profit sharing, stock option, employee stock
ownership, pension, retirement, deferred compensation, employment or consulting
or other plan, agreement or arrangement for the benefit of employees of the
Company.
3.7 PENDING LITIGATION. The Company has disclosed in the Disclosure
Letter all information in its possession or custody or under its control with
respect to litigation pending or threatened as of the date hereof. Except as
set forth in the Disclosure Letter, the Company has no litigation pending as of
the date hereof. To the best of the Company's knowledge, the ultimate
liability for damages arising from such litigation (based upon assumptions that
the Company believes in good faith to be reasonable under the circumstances) is
either adequately reserved against in the Company Financial Statement at
December 31, 1996 or in the unaudited balance sheets included in the Company
Reports since that date or will not have individually or in the aggregate a
Material Adverse Effect on the Company. Except as set forth in the Disclosure
Letter, there are no actions, suits or proceedings of any nature pending, or,
to the knowledge of the Company, threatened, against or by the Company or any
of its Subsidiaries or any of their respective properties, assets or business,
nor is the Company or any of its Subsidiaries or any of its properties, assets
or business, subject to any order, judgment, ruling, or decree of any competent
authority, which would have, or is reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect. The Company has not received
notice of any actual or threatened violation of any applicable statute,
regulation, code, ordinance, rule, order, judgment, decree or requirement
relating to its operations or its owned or leased properties and to the
knowledge of the Company, no such violation exists, in each case, other than a
violation which would not have, individually or in the aggregate, a Material
Adverse Effect.
3.8 TAX RETURNS. The Company and each of its Subsidiaries (i) has
accurately prepared and duly and timely filed all federal and state and all
other material income, property, sales and use and other applicable tax reports
and returns ("Tax Returns") required to be filed (subject to any extensions
applicable to any such filing) except where the failure to do so would not
have, individually or in the aggregate, a Material Adverse Effect, and all such
Tax Returns are true and complete except for such inaccuracies which would not
have a Material Adverse Effect, (ii) has paid all Taxes shown to be due and
payable on such Tax Returns or which have become due and payable pursuant to
any assessment, deficiency notice, 30-day letter, or other notice received by
it, and (iii) has properly accrued on its books and records all Taxes for such
periods subsequent to the periods covered by the Tax Returns, except for any
Taxes which would not have, individually or in the aggregate, a Material
Adverse Effect. To the Company's knowledge, the Tax Returns of the Company and
each of its Subsidiaries have not been examined by the appropriate taxing
authority. Neither the Company nor any of its Subsidiaries has executed or
filed with the Internal Revenue Service ("IRS") or any other taxing authority
any agreement now in effect extending the period for assessment or collection
of any income or other Taxes. Neither the Company nor any of its Subsidiaries
is a party to any pending action or proceeding by any governmental authority
for assessment or collection of Taxes, and to the knowledge of the Company, no
claim for assessment or collection of Taxes has been asserted against it.
There are
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no liens for Taxes upon the assets of the Company or any of its
Subsidiaries except liens for Taxes not yet due. True, correct and complete
copies of all Tax Returns filed by the Company and each of its Subsidiaries and
all communications relating thereto have been delivered to the Investor or made
available to the representatives of the Investor. All Taxes which the Company
is required to withhold or collect, including without limitation, sales and use
taxes, have been duly withheld or collected and, to the extent required, have
been paid over to the proper governmental authorities or are held in separate
bank accounts for such purposes, except where the failure to do so would not
have, individually or in the aggregate, a Material Adverse Effect. For
purposes of this Agreement, the term "Taxes" shall mean and include all taxes,
charges, fees, levies or other assessments, including, without limitation,
income, gross receipts, excise, property, sales, withholding, social security,
occupation, use, service, license, payroll, franchise, transfer and recording
taxes, fees and charges imposed by the United States, or any state, local or
foreign government or subdivision or agency thereof, whether computed on a
separate, consolidated, unitary, combined or any other basis; and such term
shall include any interest, fines, penalties or additional amounts attributable
or imposed on or with respect to any such taxes, charges, fees, levies or other
assessments.
3.9 TAX ELECTION. Neither the Company nor any of its Subsidiaries has
filed (and will not file prior to the Closing Date) any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f) of the Code apply
to any disposition of the subsection (f) assets (as such term is defined in
Section 341(f)(4) of the Code) owned by the Company or any of its Subsidiaries.
3.10 PROPERTIES, ENCUMBRANCES. The Company and its Subsidiaries have good
and marketable title in fee simple to, or a valid leasehold interest in, each
of the real properties reflected on the Company Financial Statements or which
have been acquired after the date thereof or used or controlled by them as of
the date hereof (collectively, the "Company Properties"), in each case, free
and clear of all liens, mortgages or deeds of trust, claims against title,
security interests or other encumbrances on title ("Liens") or any rights of
way, written agreements, laws, ordinances or regulations affecting the use or
occupancy of such properties, or any reservations of an interest in title
("Restrictions") except (i) Liens and Restrictions reflected in the Company
Financial Statements, (ii) Liens and Restrictions for taxes not yet due and
payable or being contested in good faith, (iii) Liens and Restrictions
attaching by operation of law, incurred in the ordinary course of business
consistent with past practices and securing payments not past due, (iv) the
rights of landlords or sublessors under the applicable lease, (v) Liens and
Restrictions disclosed in the Disclosure Schedule and (vi) Liens and
Restrictions which do not have, individually or in the aggregate, a Material
Adverse Effect (collectively, the "Company Permitted Liens"). Neither the
Company nor any of its Subsidiaries own any real property or lease or otherwise
use any real property other than the Company Properties in the conduct of its
business. All rental payments due under the lease pursuant to which the
Company uses the Company Properties have been paid and neither the Company nor
any of its Subsidiaries is in default (nor to the Company's knowledge, is any
landlord of the Company alleging that either the Company or any of its
Subsidiaries is in default), and to the knowledge of the Company, the landlord
under the lease is not in default, and no condition or event exists which with
the giving of notice or the passage of time, or both, would constitute a
material default by any party under any such lease
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other than any such non-payment or default which could not have, individually
or in the aggregate, a Material Adverse Effect.
3.11 PERSONAL PROPERTY. The Company and its Subsidiaries own good and
marketable title to or a valid right to use all items of personal property
owned or used by them which are material to their business, free and clear of
all Liens or Restrictions other than the Company Permitted Liens.
3.12 EMPLOYEE BENEFIT PLANS. The Disclosure Letter sets forth a list of
all plans and other arrangements which provide compensation or benefits to
officers, directors or consultants or employee benefits to employees of the
Company or its Subsidiaries, including, without limitation, all "employee
benefit plans" as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and all bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental retirement, severance
and other similar fringe or employee benefit plans, and all employment or
executive compensation agreements (collectively, the "Company Plans"). All
Company Plans comply with and are and have been operated in material compliance
with each applicable provision of ERISA, the Code, other federal statutes,
state law (including, without limitation, state insurance law) and the
regulations and rules promulgated pursuant thereto or in connection therewith,
except for any such failure to comply which would not have, individually or in
the aggregate, a Material Adverse Effect. No Company Plan is covered by Title
IV of ERISA or Section 412 of the Code. Neither the Company, any of its
Subsidiaries, nor any affiliate of the Company as determined under Section
414(b), (c), (m) or (o) of the Code ("ERISA Affiliate") has failed to make any
contributions or to pay any amounts due and owing as required by the terms of
any Company Plan, which failure would have, individually or in the aggregate, a
Material Adverse Effect. No amounts payable under the Company Plans will fail
to be deductible for federal income tax purposes by virtue of Section 280G of
the Code. True and complete copies of each written Company Plan have been made
available to the Investor or its representatives. Except as required by
Section 4980B of the Code, neither the Company, any of its Subsidiaries nor any
ERISA Affiliate has promised any former employee or other individual not
employed by the Company, any of its Subsidiaries or any ERISA Affiliate,
medical or other benefit coverage, and neither the Company, any of its
Subsidiaries nor any ERISA Affiliate maintains or contributes to any plan or
arrangement providing medical benefits, life insurance or other welfare
benefits to former employees, their spouses or dependents or any other
individual not employed by the Company, any of its Subsidiaries or any ERISA
Affiliate except to the extent required by applicable law. Neither the Company
nor any Subsidiary is a party or subject to any agreement, contract or other
obligation which would require the making of any payment, other than payments
as contemplated by this Agreement, to any employee of the Company or to any
other Person as a result of the consummation of the transactions contemplated
herein.
3.13 CERTAIN AGREEMENTS. Neither the Company nor any of its Subsidiaries
is a party to any oral or written (i) agreement (including, without limitation,
any employment, management, severance or consulting contract) with any current
or former officer (whose employment terminated in the last year), director, or
record or beneficial holder of more than 5% of the outstanding shares of the
Common Stock of the Company or with any entity in which any of the
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foregoing is a more than 5% equity owner, officer, director, employee or
consultant, (ii) any agreement involving an amount in excess of $25,000 the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving the Company or any of its
Subsidiaries of the nature contemplated by this Agreement, (iii) agreement or
plan, including any stock option plan, stock appreciation rights plan,
restricted stock plan or stock purchase plan, any of the benefits of which will
be increased, or the vesting of benefits of which will be accelerated, by the
occurrence of the transactions contemplated by this Agreement or the value of
any of the benefits of which will be calculated on the basis of the
transactions contemplated by this Agreement or (iv) unconsummated or pending
agreement involving the acquisition of any equity interest in any business.
3.14 COMPLIANCE WITH APPLICABLE LAW. The businesses of the Company and
its Subsidiaries are not being conducted in violation of any applicable law,
ordinance, regulation, decree or order of any governmental entity, except for
violations which either singly or in the aggregate do not and are not expected
to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is a party to or subject to any judgment, decree, or order entered
in any suit or proceeding brought by any governmental agency or by any other
person, enjoining the Company or any of its Subsidiaries with respect to any
business practice, the acquisition of any property, or the conduct of business
in any area.
3.15 ENVIRONMENTAL COMPLIANCE MATTERS. The businesses of the Company and
its Subsidiaries as conducted in the past were not and as currently being
conducted are not in violation of any applicable law, ordinance, rule,
prohibition or regulation relating to pollution, or the production, storage,
labeling or disposition of wastes or hazardous or toxic substances, or the
health, safety or environmental conditions on, beneath or about any of the
properties owned, used or leased by the Company or any of its Subsidiaries or
relating to the business of the Company or any of its Subsidiaries (such laws,
ordinances, rules, prohibitions and regulations being herein referred to as
"Environmental Laws"), except for any such violation which would not have,
individually or in the aggregate, a Material Adverse Effect. The Company and
its Subsidiaries have timely filed all material reports, obtained all material
approvals and permits and generated and maintained all material data,
documentation and records required under any applicable Environmental Laws,
except where the failure to do so would not have, individually or in the
aggregate, a Material Adverse Effect. Neither the Company, its Subsidiaries
nor, to the knowledge of the Company or its Subsidiaries, any other Person has
placed, stored, buried, spilled or released, used, generated, manufactured,
refined, processed, treated, dumped or disposed of any materials produced by,
or resulting from, any business, commercial or industrial activities,
operations or processes, including without limitation any materials which are
"Hazardous Wastes", "Hazardous Substances", "Hazardous Materials",
"Pollutants", "Toxic Substances", "Solid Wastes" or "Contaminants" (as such
terms are defined in any applicable Environmental Law, including without
limitation the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, the Hazardous Materials Transportation Act, the
Resource Conservation and Recovery Act and the Toxic Substances Control Act),
on, beneath or about, or transported any such materials to or from, any of the
properties owned, used or leased by the Company or its Subsidiaries in each
case other than in material compliance with applicable Environmental Laws and
in the ordinary course of the Company's or its Subsidiaries' business or where
the failure to comply would not have individually or in the aggregate a
Material Adverse
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Effect. Neither the Company nor its Subsidiaries has received any notice
from any governmental agency or private or public entity advising it
that it is or may be responsible, or potentially responsible, for costs with
respect to a release, a threatened release or clean up of materials located in
any property owned by the Company or its Subsidiaries or produced by, or
resulting from, any business, commercial or industrial activities, operations
or processes of the Company or its Subsidiaries, including without limitation,
materials which are Hazardous Wastes, Hazardous Substances, Hazardous
Materials, Pollutants, Toxic Substances, Solid Wastes or Contaminants.
3.16 PATENTS, TRADE NAMES AND OTHER INTELLECTUAL PROPERTY RIGHTS. The
Company and each Subsidiary owns or is validly licensed or otherwise has the
right to use, free and clear of all Liens and Restrictions other than Company
Permitted Liens, any and all patents, trademarks, trade names, service marks,
copyrights, trade secrets, technology, know-how and processes (collectively,
"Intellectual Property"), used in or necessary for the conduct of its business
as now conducted or as proposed to be conducted except where any such failure
would not have, individually or in the aggregate, a Material Adverse Effect.
The operations and products of the Company do not infringe any Intellectual
Property rights of any other Person, except for any infringement which would
not have, individually or in the aggregate, a Material Adverse Effect. The
Company has not received any communication in the past three years alleging or
stating that the Company or any employee has violated or infringed, or by
conducting business as proposed, would violate or infringe any Intellectual
Property right of any other Person.
3.17 INVENTORY. All items that constitute "Inventory" are of a quality
and quantity saleable at regular prices or usable by the Company or its
Subsidiaries in the ordinary course of its business, net of reserves reflected
on the Company's Balance Sheet at September 30, 1997 and no items included in
Inventory have been pledged as collateral (other than to Coast Business Credit)
or are held on consignment from others. All Inventory is either located at the
Company Properties or in transit from one Company Property to another Company
Property.
3.18 CUSTOMER RETURNS. The Company maintains in the ordinary course of
business reserves for the possible return of items of Inventory previously
transferred to customers. The reserves for customer returns which have
occurred or may occur after September 30, 1997 provided for on the Company
Financial Statements are adequate to cover the gross profit recognized by the
Company on the original sale of the item of Inventory to the customer.
3.19 UNDISCLOSED LIABILITIES. The Company is not subject to any
liabilities of any nature except to the extent set forth or provided for in the
Company Financial Statements, except liabilities which individually or in the
aggregate would not have a Material Adverse Effect.
3.20 TRANSACTIONS WITH AFFILIATES. Except for regular salary payments and
fringe benefits under an individual's compensation package with the Company,
none of the officers, employees, directors, or other Affiliates of the Company,
or members of their immediate families is a party to any agreements,
understandings, indebtedness or proposed transactions with the Company or any
Subsidiary. No officer, director or employee is directly interested in any
contract with the Company or any Subsidiary other than such employment-related
agreements and arrangements (including stock option agreements). Neither the
Company nor any Subsidiary has
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guaranteed or assumed any obligations of the Company's officers, directors, or
employees. To the best knowledge of the Company, none of such individuals has
any direct or indirect ownership interest in any firm or entity with which the
Company or any Subsidiary is affiliated or with which the Company or any
Subsidiary has a business relationship, or any entity that competes with the
Company or any Subsidiary, except that such individuals may own less than 1% of
the outstanding voting stock in publicly traded companies that may compete with
the Company.
3.21 DISCLOSURE. Neither this Agreement nor the Ancillary Agreements nor
any other statements (oral or written) or financial schedules, organizational
charts or certificates made or delivered in connection with the transactions
contemplated by this Agreement contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statements herein or
therein not misleading.
3.22 BROKER/FINDER. The Company has not dealt with, or incurred liability
for a fee to, any finder, broker, investment banker or financial advisor in
connection with any of the transactions contemplated by this Agreement or the
negotiations looking toward the consummation of such transactions.
3.23 MATERIAL DOCUMENTS. Neither the Company nor any Subsidiary is a
party to any agreements, documents, arrangements or commitments that are
material to the business, prospects, financial condition or results of
operations of the Company that have not been filed with the Commission or
reviewed by the Investor.
3.24 INVESTMENT INFORMATION. The Company has disclosed to the Investor
any and all information that is material to making an investment decision in
the Company.
3.25 NO CONSENTS. No consent, authorization, order or approval of, or
filing with or registration with, any governmental authority, commission, board
or other regulatory body of the United States or any state or political
subdivision thereof, or any other Person, is required to be made or obtained by
the Company for or in connection with the execution and delivery by the Company
of this Agreement and the Ancillary Agreements and the consummation by the
Company of the transactions contemplated hereby and thereby, the absence of
which would have a Material Adverse Effect on the Company other than the
approval of the NASD to proceed with the transactions contemplated by this
Agreement absent approval by the shareholders of the Company.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. The Investor hereby
represents and warrants to the Company that:
4.1 AUTHORIZATION
(a) The Investor has all requisite corporate power and authority to
execute, deliver and perform the obligations under the terms of this Agreement
and all of the transactions contemplated hereunder. The execution and delivery
of this Agreement by the Investor and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of the Investor and all corporate proceedings have been
taken and no
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other corporate proceedings on the part of the Investor are necessary
to authorize the execution, delivery and performance by the Investor
of this Agreement.
(b) This Agreement, when executed and delivered by the Investor,
will constitute the valid and binding obligation of the Investor, enforceable
in accordance with its terms except as such enforceability may be limited by
the Remedies Exception. The execution, delivery and performance of this
Agreement by the Investor will not conflict with or constitute a breach,
violation or default under the Investor's Articles of Incorporation or Bylaws,
any statute, law or administrative regulation, or under any judgment, decree,
order, writ, governmental permit or license, any material contract, agreement,
lease, indenture or instrument to which the Investor or any of its Subsidiaries
is a party or by which the Investor or any of its Subsidiaries is bound, which
breach, violation or default would have individually or in the aggregate, a
Material Adverse Effect on the Investor.
4.2 ACCREDITED INVESTOR: EXPERIENCE. The Investor is an "accredited
investor" as defined by Rule 501(a) promulgated by the Commission and the
Investor has, alone or with such Investor's advisers, substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Company so that the Investor is capable of evaluating
the merits and risks of the Investor's investment in the Company and has the
capacity to protect its own interest and can afford to sustain a total loss on
such investment. The Investor was not organized solely to make this investment
in the Company.
4.3 INVESTMENT INTENT. The Shares to be purchased by the Investor are
being acquired by the Investor solely for such Investor's own account, for
investment purposes only, and with no present intention of distributing,
selling or otherwise disposing of the Shares. The Investor understands that
the Shares have not been registered under the Securities Act and are being
issued and sold to the Investor in reliance upon an exemption from the
registration provisions of the Securities Act, the availability of which
depends upon, among other things, the bona fide nature of the Investor's
investment intent and accuracy of the Investor's representations, as expressed
herein.
4.4 RULE 144. The Investor understands that the Shares are "restricted
securities" under the federal securities laws, inasmuch as they are being
acquired from the Company in a transaction not involving a public offering, and
that under such laws and applicable regulations such securities may be resold
without registration under the Securities Act only in certain limited
circumstances. The Investor is familiar with Rule 144, as amended, promulgated
under the Securities Act, understands the conditions precedent to reliance upon
such rule for the resale of the Shares and the resale limitations imposed
thereby and by the Securities Act.
4.5 LEGENDS. It is understood that the certificates evidencing the
Shares may bear one or all of the following legends:
(a) "These securities have not been registered under the Securities
Act of 1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant
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to Rule 144 of such Act or as otherwise provided in that certain Stock Purchase
Agreement dated as of November __, 1997."
(b) Any legend required by the laws of the State of California,
including any legend required by the California Department of Corporations, and
the laws and regulations of any other applicable jurisdiction.
4.6 BROKER/FINDER. The Investor has not dealt with, or incurred
liability for a fee to, any finder, broker, investment banker or financial
advisor in connection with any of the transactions contemplated by this
Agreement or the negotiations looking toward the consummation of such
transactions.
5. CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE
SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA OR OF ANY OTHER STATE OR JURISDICTION
AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION FOR SUCH SECURITIES PRIOR TO THE QUALIFICATION IS UNLAWFUL,
UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION UNDER THE CALIFORNIA
CORPORATIONS CODE AND THE LAWS OR REGULATIONS OF ANY OTHER APPLICABLE
JURISDICTION. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
6. CONDITIONS TO THE INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of
the Investor to purchase and pay for the Shares at the Closing and the other
obligations of the Investor under this Agreement are subject to the fulfillment
at or prior to the Closing of the following conditions, any of which may be
waived in writing in whole or in part by the Investors:
6.1 REPRESENTATIONS AND WARRANTIES. On the date of the Closing, the
representations and warranties of the Company contained herein shall be true
and correct in all respects with the same force and effect as though such
representations and warranties had been made at and as of the time of Closing,
except for representations and warranties that speak as of a specific date or
time, which need only be true and correct in all respects as of such date or
time.
6.2 PERFORMANCE. The Company shall have performed and complied with all
agreements, covenants, obligations and conditions contained in this Agreement
that are required to be performed or complied with by it on or before the
Closing.
6.3 QUALIFICATIONS; LEGAL INVESTMENT. All authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state or any other third party that are required in connection
with the lawful sale and issuance of the Shares pursuant to this Agreement
shall have been duly obtained and shall be effective on and as of the Closing.
No stop order or other order enjoining the sale of the Shares shall have been
issued and no proceedings for such purpose shall be pending or, to the best
knowledge of the Company and the Investor, threatened by the Commission, the
California Commissioner of Corporations or any
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commissioner of corporations or similar officer of any state having
jurisdiction over this transaction. At the time of the Closing, the sale and
issuance of the Shares shall be legally permitted by all laws and regulations
to which the Company and the Investor are subject.
6.4 ANCILLARY AGREEMENTS. The Company and the Investor shall have
executed and delivered to each other each of the Ancillary Agreements.
6.5 NO LEGAL ACTION. No preliminary or permanent injunction or other
order, decree or ruling issued by an court of competent jurisdiction, or by any
governmental, administrative or regulatory agency or commission, in the United
States which prohibits the consummation of the transactions contemplated by
this Agreement or the Ancillary Agreements.
6.6 NO ADVERSE CHANGE. Since the date hereof, there shall not have
occurred any change in the financial condition, business or operations of the
Company and its Subsidiaries that would have or would be reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect.
6.7 CLOSING DOCUMENTS. The Company shall have delivered to the Investor,
unless waived in writing by the Investor:
(a) Copies (certified by the President of the Company) of the
resolutions duly adopted by the Board of Directors of the Company, authorizing
the execution, delivery and performance of this Agreement and the Ancillary
Agreements and the transactions contemplated hereby;
(b) A copy (certified by the President or Secretary of the Company)
of the Bylaws as amended through the date of the Closing;
(c) A certificate of the Chief Executive Officer and Chief Financial
Officer of the Company confirming that the conditions in Sections 6.1, 6.2, 6.3
and 6.6 have been satisfied;
(d) The Ancillary Agreements; and
(e) Such other documents relating to the transactions contemplated
by this Agreement as the Investor may reasonably request.
6.8 OPINION OF COMPANY COUNSEL. The Investors shall have received an
opinion of counsel to the Company, dated the Closing Date, in form and
substance customary in transactions of the type contemplated by this Agreement
and reasonably acceptable to the Investor.
7. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of
the Company under this Agreement are subject to the fulfillment at or prior to
the Closing of the following conditions, any of which may be waived in writing
in whole or in part by the Company:
7.1 REPRESENTATIONS AND WARRANTIES. On the date of the Closing, the
representations and warranties of the Investors contained in Section 4 shall be
true and correct in all respects with
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the same force and effect as though such representations and warranties had
been made at and as of the time of Closing, except for representations and
warranties that speak as of a specific date or time, which need only be true
and correct in all respects as of such date or time.
7.2 PERFORMANCE. The Investor shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by such Investor on or before the
Closing, (other than payment to the Company of the Purchase Price which shall
be paid at Closing).
7.3 QUALIFICATIONS: LEGAL INVESTMENT. All authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful sale and
issuance of the Shares pursuant to this Agreement shall have been duly obtained
and shall be effective on and as of the Closing. No stop order or other order
enjoining the sale of the Shares shall have been issued and no proceedings for
such purpose shall be pending or, to the best knowledge of the Company or the
Investor, threatened by the Commission, the California Commissioner of
Corporations or any commissioner of corporations or similar officer of any
state having jurisdiction over this transaction. At the time of the Closing,
the sale and issuance of the Shares shall be legally permitted by all laws and
regulations to which the Company and the Investor are subject.
7.4 OPINION OF COUNSEL TO THE INVESTOR. The Company shall have received
an opinion of counsel to the Investor, dated the Closing Date, in form and
substance attached hereto as Exhibit "A".
8. COVENANTS OF THE COMPANY AND THE INVESTOR.
-----------------------------------------
8.1 INSPECTION OF RECORDS. Prior to the Closing, the Company shall allow
the duly authorized and appropriate officers, attorneys, accountants and other
representatives of the Investor free and full access at all reasonable times
and upon reasonable notice to the Company and its Subsidiaries, its personnel,
properties, contracts, books and records, and all other documents and data for
purposes of conducting its due diligence examination of the Company.
8.2 ACQUISITION PROPOSAL. Prior to the earlier to occur of the Closing
or the termination of this Agreement (the "Proposal Period"), the Company
agrees (a) that neither it nor any of its Subsidiaries shall, and it shall
direct and use its best efforts to cause its officers, directors, employees,
agents and representatives (including, without limitation, any investment
banker, attorney or accountant retained by it or any of its subsidiaries) not
to, initiate, solicit or encourage, directly or indirectly, any inquiries or
the making or implementation of any proposal or offer (including, without
limitation, any proposal or offer to its stockholders) with respect to a
merger, acquisition, consolidation or similar transaction involving, or any
purchase of all or any significant portion of the assets or any equity
securities of, the Company or any of its subsidiaries (any such proposal or
offer being hereinafter referred to as an "Acquisition Proposal") or engage in
any negotiations concerning, or provide any confidential information or data
to, or have any discussions with, any person relating to an Acquisition
Proposal, or otherwise facilitate any effort or attempt to make or implement an
Acquisition Proposal; (b) that it will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties
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conducted heretofore with respect to any of the foregoing and will take
the necessary steps to inform the individuals or entities referred to above of
the obligations undertaken in this section; and (c) that it will notify the
Investor immediately if any such inquiries or proposals are received by, any
such information is received from, or any such negotiations or discussions are
sought to be initiated or continued with, it.
8.3 PROTECTIVE PROVISIONS. Commencing on the date hereof and so long as
the Investor owns at least 70% of the Shares (as adjusted for all stock splits,
stock dividends and recapitalizations effected after the Closing Date), the
Company shall not, without first obtaining the written approval of the Investor
(i) amend, repeal, alter or change any of the rights, preferences or privileges
of the Common Stock; (ii) increase or decrease the authorized number of shares
of Common Stock; (iii) create (by reclassification of an existing class or
series, or otherwise) any new class or series of shares senior to or on a
parity with the Common Stock as to voting rights, dividends, redemption or a
distribution of assets of the Company in liquidation; (iv) declare or pay any
dividend on any class or series of stock of the Company; (v) purchase, redeem,
or otherwise acquire (or pay into or set aside for a sinking fund for such
purpose), or direct or permit any Subsidiary of the Company to purchase or
otherwise acquire, any of the Common Stock; provided, however, that this
restriction shall not apply to the repurchase of shares of Common Stock from
employees, directors or consultants pursuant to agreements under which the
Company has the option to repurchase such shares upon the occurrence of certain
events, such as the termination of employment, provided any such agreements
have been disclosed to the Investor prior to the Closing Date; (vi) merge,
reorganize, or effect any transaction in which assets of the Company valued in
excess of $1 million (other than sales of inventory in the ordinary course of
business) are sold; (vii) issue any options or warrants to purchase any equity
securities of the Company; (viii) make, amend or grant any security interest,
pledge, hypothecation, encumbrance or lien on any property of the Company; (ix)
terminate, dissolve, liquidate or wind-up the Company, (x) engage in any
transaction between the Company and any officer, director or Person who
beneficially or of record owns at least 5% of the Common Stock, or affiliates
thereof; (xi) open or acquire a new retail store or acquire, purchase, lease or
otherwise enter into any agreement which purports to bind the Investor; (xii)
increase the compensation or benefits payable or to become payable to its
officers or employees, except in amounts consistent with past practices or
grant any severance or termination pay to, or enter into any employment or
severance agreement with, any director, officer or other employee of the
Company or any of its Subsidiaries or establish or amend any collective
bargaining, bonus, profit sharing, compensation, stock option, pension,
retirement, deferred compensation, employment or consulting or other plan,
agreement, trust, fund, plan, policy or arrangement for the benefit of any
current or former directors, officers or employees; (xiii) purchase any real
property; (xiv) sublease or assign any Company Property, or modify any lease,
or exercise any option under any lease to extend the term of such lease for
more than a five year period or to create a financial obligation of the Company
which for the remainder of the existing term and the extended term, in the
aggregate, exceeds $500,000; (xv) enter into any new leases for additional
facilities; (xvi) sell or license any Intellectual Property; (xvii) become a
franchisor or franchisee; (xviii) enter into any exclusivity agreements with
respect to purchases or sales by the Company or any Subsidiary or any non-
competition agreements; or (xix) make any loans or extend credit in an amount
in excess of $5,000, other than a loan in favor of Mr. Steven Buxbaum in an
amount not to exceed $33,000 in settlement of the pending litigation
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instituted against Mr. Buxbaum, and threatened to be instituted against the
Company and one of its Subsidiaries, by Buxbaum, Ginsberg & Associates, et. al.
8.4 APPROVAL BY COMPANY STOCKHOLDERS AND NASD. The Company shall take
all necessary or appropriate action under the Securities Laws, the Bylaws of
the NASD and other applicable Nasdaq rules, Minnesota Law and its Certificate
of Incorporation and Bylaws to obtain all necessary approvals and consents from
governmental authorities, third parties and the stockholders of the Company, if
any, of this Agreement, the Ancillary Agreements and the transactions
contemplated hereby and thereby.
8.5 INCUMBENT DIRECTORS. The Company shall amend its Bylaws or take such
action as may be necessary to provide (a) that the size of the Company's Board
of Directors shall be increased to seven (7) directors, (b) that the
compensation committee of the Board of Directors shall consist of three (3)
directors, and (c) that the audit committee of the Board of Directors shall
consist of three (3) directors. Pursuant to the terms of its Bylaws, the
Company shall appoint, effective immediately following the Closing, the
designees of the Investor to the Board and the respective committees to which
they are entitled to be appointed under the Shareholders Agreement.
8.6 DIRECTOR AND OFFICER LIABILITY INSURANCE. The Company shall
maintain in effect directors' and officers' liability insurance covering the
Investors' designees to the Company's Board of Directors containing terms no
less favorable than those currently applicable to directors and officers of the
Company under its existing directors' and officers' liability policy. The
Company covenants to periodically review and modify, if appropriate, its
directors' and officers' liability policy to be consistent with the terms
customarily contained in policies of public companies with total assets and
market capitalization in amounts similar to that of the Company.
8.7 FILINGS; OTHER ACTION. Subject to the terms and conditions herein
provided, the Company and the Investor shall (a) use all reasonable efforts to
cooperate with one another in (i) determining which filings are required to be
made prior to the Closing Date with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Date from
states and foreign jurisdictions in connection with the execution and delivery
of this Agreement and the Ancillary Agreements and the consummation of the
transactions contemplated hereby and thereby and (ii) timely making all such
filings and timely seeking all such consents, approvals, permits or
authorizations; and (b) use all reasonable efforts to take, or cause to be
taken, all other action and do, or cause to be done, all other things
necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement. If, at any time after the Closing
Date, any further action is necessary or desirable to carry out the purpose of
this Agreement, the proper officers and directors of the Company and the
Investor shall take all such necessary or desirable action.
8.8 NOTIFICATION OF CERTAIN MATTERS. Following the execution of this
Agreement and continuing until that date which is 90 days following the date on
which the Company's auditors deliver their audit opinion to the Company (with a
copy to Investor) with respect to the Company's financial statements for the
year ended December 31, 1997, the Company shall use reasonable good faith
efforts to promptly give written notice to the Investor and the Investor shall
use
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reasonable good faith efforts to promptly give written notice to the
Company, upon becoming aware of the occurrence or, to its knowledge,
respectively, impending or threatened occurrence, of any event which would
cause or constitute a breach of any of its representations, warranties or
covenants contained or referenced in this Agreement and use its reasonable good
faith efforts to prevent or promptly remedy the same.
8.9 LEGAL ACTION. In the event that a preliminary or permanent
injunction or other order decree or ruling is issued by any court of competent
jurisdiction or by any governmental, administrative or regulatory agency or
commission in the United States which prohibits the consummation of the
transactions contemplated by this Agreement or the Ancillary Agreements and
shall be in effect, each party agrees to use its reasonable efforts to have
such injunction lifted. Notwithstanding the foregoing, in the event any such
injunction is not lifted by the Drop Dead Date, the provisions of Section
11.1.2 are controlling.
8.10 PUBLICITY. The Company and the Investor shall, subject to their
respective legal obligations of public companies, use reasonable efforts to
agree upon the text of any press release relating to the transactions
contemplated by this Agreement and the Ancillary Agreements; provided, however,
if the parties hereto are unable to agree upon the text of any such press
release, nothing herein shall require any party to obtain the consent of any
other party to the release of any such press release which, upon the advice of
outside legal counsel, such party determines in good faith is required to be
issued by applicable law or the rules and regulations of the NASD.
9. POST CLOSING COVENANTS OF THE COMPANY AND THE INVESTOR.
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9.1 INDEMNIFICATION.
9.1.1 GENERAL. From and after the Closing Date, the parties
shall indemnify each other as provided in this Section 9.1. As used in this
Agreement, (a) the term "Damages" shall mean all liabilities, demands, claims,
actions or causes of action, regulatory, legislative or judicial proceedings or
investigations, assessments, levies, losses, fines, penalties, judgments,
damages, costs and expenses, including without limitation reasonable
attorneys', accountants', investigators', and experts' fees and expenses,
sustained or incurred in connection with the defense or investigation of any
claim; (b) the term "Indemnified Party" shall mean a party who is entitled to
indemnification from a party hereto pursuant to this Section 9.1; (c) the term
"Indemnifying Party" shall mean a party hereto who is required to provide
indemnification under this Section 9.1 to another party; and (d) the term
"Third Party Claim" shall mean any claim, action, suit, proceeding,
investigation or like matter which is asserted or threatened by a party other
than the parties hereto, their successors and permitted assigns, against any
Indemnified Party or to which any Indemnified Party is subject.
9.1.2 THE COMPANY INDEMNIFICATION OBLIGATIONS. The Company shall
indemnify, save and keep the Investor, its officers, directors, employees and
stockholders (each an "Investor Indemnitee" and collectively, the "Investor
Indemnitees") harmless against and from all Damages sustained or incurred by
any Investor Indemnitee, as a result of or arising out of or by virtue of:
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(a) any inaccuracy in or breach of any representation or
warranty made by the Company to the Investor herein or in any of the Ancillary
Agreements delivered to the Investor in connection herewith; and
(b) the breach by the Company of, or failure of the Company to
comply with, any of the covenants or obligations under this Agreement or any of
the Ancillary Agreements to be performed by the Company (including, without
limitation, their obligations under this Section 9.1).
9.1.3 THE INVESTOR INDEMNIFICATION OBLIGATIONS. The Investor
shall indemnify, save and keep the Company, its officers, directors, employees
and stockholders (individually a "Company Indemnitee" and collectively, the
"Company Indemnitees") harmless against and from all Damages sustained or
incurred by any Company Indemnitee as a result of or arising out of or by
virtue of:
(a) any inaccuracy in or breach of any representation or
warranty made by the Investor to the Company herein or in any Ancillary
Agreements delivered to the Company in connection herewith;
(b) any breach by the Investor, or failure by the Investor to
comply with, any of the covenants or obligations under this Agreement or any of
the Ancillary Agreements to be performed by the Investor (including without
limitation its obligations under this Section 9.1).
9.1.4 LIMITATION ON INDEMNIFICATION OBLIGATIONS. No Indemnified
Party shall be entitled to recover under this Section 9.1 unless a claim has
been asserted by written notice, setting forth the basis for such claim (a
"Notice of Loss"), delivered to the Indemnifying Party on or prior to that date
which is 90 days following the date on which the Company's auditors deliver
their audit opinion to the Company (with a copy to Investor) with respect to
the Company's financial statements for the year ended December 31, 1997;
provided however, the limitations set forth in the preceding sentence shall not
apply to any claim for Damages to the extent it arises out of fraud or
intentional misrepresentation or in the event that the Indemnifying Party
intentionally fails timely to notify the Indemnified Party of, or conceals from
the Indemnified Party, a breach of a representation or warranty that otherwise
could result in an indemnifiable claim.
9.1.5 THIRD PARTY CLAIMS OTHER THAN TAXES. Forthwith following
the receipt of notice of a Third Party Claim (other than a Third Party Claim
with respect to Taxes) with respect to which indemnification is sought
hereunder, the party receiving the notice of the Third Party Claim shall (i)
notify the other party of its existence setting forth with reasonable
specificity the facts and circumstances of which such party has received notice
and (ii) if the party giving such notice is an Indemnified Party, specifying
the basis hereunder upon which the Indemnified Party's claim for
indemnification is asserted. The Indemnified Party shall, upon reasonable
notice, tender the defense of a Third Party Claim to the Indemnifying Party.
If:
(a) the defense of a Third Party Claim so tendered is accepted
without qualification (or reservation of rights) by the Indemnifying Party
within thirty (30) days thereafter
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such tender; or
(b) within thirty (30) days after the date on which written
notice of a Third Party Claim has been given pursuant to this Section 9.1.5,
the Indemnifying Party shall acknowledge in writing to the Indemnified Party
and without qualification (or reservation of rights) its indemnification
obligations as provided in this Section 9.1.5;
(c) the defense of a Third Party Claim is accepted by the
Indemnifying Party pursuant to Section 9.1.5(a) or 9.1.5(b) above, then, except
as hereinafter provided, the Indemnified Party shall not, and the Indemnifying
Party shall, have the right to contest, defend, litigate or settle such Third
Party Claim. Notwithstanding the preceding sentence, the Indemnified Party
shall have the right to be represented by counsel at its own expense in any
such contest, defense, litigation or settlement conducted by the Indemnifying
Party provided that the Indemnified Party shall be entitled to reimbursement
therefor if the Indemnifying Party shall lose its right to contest, defend,
litigate and settle the Third Party Claim as herein provided. The Indemnifying
Party shall lose its right to defend and settle the Third Party Claim if it
shall fail to diligently contest the Third Party Claim. So long as the
Indemnifying Party has not lost its right and/or obligation to contest, defend,
litigate and settle as herein provided, the Indemnifying Party shall have the
exclusive right to contest, defend and litigate the Third Party Claim and shall
have the exclusive right, in its discretion exercised in good faith, and upon
the advice of counsel, to settle any such matter, either before or after the
initiation of litigation, at such time and upon such terms as it deems fair and
reasonable, provided that at least ten (10) days prior to any such settlement,
written notice of its intention to settle shall be given to the Indemnified
Party. All expenses (including without limitation attorneys' fees) incurred by
the Indemnifying Party in connection with the foregoing shall be paid by the
Indemnifying Party. Notwithstanding the foregoing, in connection with any
settlement negotiated by an Indemnifying Party, no Indemnified Party shall be
required by an Indemnifying Party to (x) enter into any settlement that does
not include as an unconditional term thereof the delivery by the claimant or
plaintiff to the Indemnified Party of a release from all liability in respect
of such claim or litigation, (y) enter into any settlement that attributes by
its terms liability or wrongful conduct to the Indemnified Party or (z) consent
to the entry of any judgment that does not include as a term thereof a full
dismissal of the litigation or proceeding with prejudice. Absent waiver by the
Indemnified Party, any settlement negotiated by an Indemnifying Party shall
contain a provision requiring that all parties to the settlement maintain the
terms thereof in strict confidence, subject only to disclosure to legal
counsel, to accountants (each of whom shall be required to maintain the
confidentiality of the terms of the settlement) or as required by applicable
law or court order. No failure by an Indemnifying Party to acknowledge in
writing its indemnification obligations under this Section 9.1.5 shall relieve
it of such obligations to the extent they exist. If an Indemnified Party is
entitled to indemnification against a Third Party Claim, and the Indemnifying
Party fails to accept a tender of, or assume, the defense of a Third Party
Claim pursuant to this Section 9.1.5 or if, in accordance with the foregoing,
the Indemnifying Party shall lose its right to contest, defend, litigate and
settle such a Third Party Claim, the Indemnified Party shall have the right,
without prejudice to its right of indemnification hereunder, in its discretion
exercised in good faith and upon the advice of counsel to contest, defend and
litigate such Third Party Claim, and may settle such Third Party Claim, either
before or after the initiation of litigation, at such time and upon such terms
as the Indemnified Party deems fair and reasonable, provided that at least ten
(10) days prior to any such settlement, written notice of its intention to
settle is given to the Indemnifying Party. If, pursuant to this Section 9.1.5,
the Indemnified Party so contests, defends, litigates or
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settles a Third Party Claim, for which it is entitled to indemnification
hereunder as hereinabove provided, the Indemnified Party shall be reimbursed by
the Indemnifying Party for the reasonable attorneys' fees and other expenses of
defending, contesting, litigating and/or settling the Third Party Claim which
are incurred from time to time, forthwith following the presentation to the
Indemnifying Party of itemized bills for said attorneys' fees and other
expenses.
9.1.6 CLAIMS INVOLVING TAXES. In the case of any proposed or
actual assessment of Tax liabilities for which an Investor Indemnitee is
entitled to indemnification from the Company as provided herein, the Investor
shall give notice to the Company, and shall contest such proposed or actual
assessment in the manner reasonably directed by the Company (in consultation
with the Investor) through the administrative review or appeal procedures
available under the relevant Tax laws and regulations. The Company shall bear
all costs and expenses relating to any action requested by the Company to be
taken by the Investor under this Section 9.1.6. If the pursuit of such
administrative remedies by the Investor is unsuccessful, the Investor shall be
entitled to indemnification for the Tax (and any penalties and interest)
pursuant to Section 9.1 hereof; PROVIDED HOWEVER, that if within ten (10) days
of receipt from the Investor of notice of its intention to do so, the Company
shall notify the Investor of their desire to contest the proposed or assessed
Tax deficiency in the courts, they shall be entitled to do so at their expense
provided the Company pays the deficiency and any penalties and interest if
required in order to seek judicial relief. The Investor shall cooperate with
the Company for such purposes but shall be entitled to reimbursement for any
out-of-pocket expenses incurred by the Investor in doing so. For purposes of
this Section 9.1.6, the Company shall select a Company representative to act on
their behalf who shall serve as a liaison between Investor and the Company with
respect to all matters arising under or related to this Section 9.1.6.
9.1.7 COOPERATION. Subject to the provisions of Section 9.1.5,
the Indemnified Party shall have the right, at its own expense, to participate
in the defense of any Third Party Claim, and if said right is exercised, the
parties shall cooperate in the investigation and defense of said Third Party
Claim.
9.1.8 SUBROGATION. The Indemnifying Party shall not be entitled
to require that any action be brought against any other Person before action is
brought against it hereunder by the Indemnified Party and shall not be
subrogated to any right of action until it has paid in full or successfully
settled or defended against the Third Party Claim for which indemnification is
sought.
9.1.9 INDEMNIFICATION NET OF BENEFITS. The amount of any
recovery by an Indemnified Party pursuant to this Section 9.1 shall be net of
any insurance benefits actually received by such Indemnified Party (but not to
the extent such benefits are repaid through retrospective premium adjustments
or otherwise) or any foreign federal, state and/or local tax benefits actually
received by such Indemnified Party as a result of the state of facts which
entitled the Indemnified Party to recover from the Indemnifying Party pursuant
to this Section 9.1. Notwithstanding the foregoing, any increase or decrease
in the basis of any assets or stock of the Investor or any of its Subsidiaries
shall not be considered to give rise to a tax benefit for purposes of this
Section 9.1.9.
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9.2 LISTING OF ADDITIONAL SHARES ON NASDAQ. As promptly as reasonably
practicable following the Closing, the Company shall prepare and submit to the
National Association of Securities Dealers a Nasdaq Additional Listing
Application and all other documents and fees necessary to cause the Shares to
be listed on the Nasdaq Small Cap Market, all as in compliance with the rules
and regulations of the NASD.
9.3 INSURANCE. The Company shall maintain insurance on the Company
Properties and its other assets that is commercially reasonable.
9.4 SECURITY INTEREST. To the extent permitted under the Company's Loan
and Security Agreement with Coast Business Credit or if otherwise permitted by
Coast Business Credit, and subject to the security interest of Coast Business
Credit under the Loan and Security Agreement, the Company covenants to
cooperate with the Investor and use its best efforts to assist the Investor to
obtain and perfect a security interest in those items of property identified on
Exhibit B hereto to secure the Company's existing and future trade obligations
to the Investor in the normal course of business.
10. RIGHT OF FIRST REFUSAL.
----------------------
10.1 RIGHTS OF INVESTOR. If the Company determines to issue any
additional shares of its capital stock, or warrants, options, rights or other
securities exercisable for or convertible into shares of its capital stock
(collectively, the "Equity Securities"), except as provided in Section 10.5
below, the Company shall first give to the Investor the right to purchase all
or any portion of the Equity Securities by delivering to the Investor a written
offer which shall state the price and other terms and conditions of the
proposed issuance. If the Company proposes to issue the Equity Securities for
consideration other than solely cash and/or promissory notes, the offer to the
Investor shall, to the extent of such consideration, permit the Investor to pay
in lieu thereof, cash equal to the fair market value (as determined by the
independent appraisal of an appraiser mutually agreeable to the Investor and
the Company and paid for by the Company) of any portion of such consideration,
and the offer shall state the appraiser's estimate of such fair market value.
The Board of Directors shall fix the period of the offer, which shall be a
minimum of 30 days or such longer period as is necessary to determine the fair
market value of the consideration referred to in the preceding sentence.
10.2 ACCEPTANCE OF COMPANY OFFER. The Investor may accept an offer by
giving written notice (the "Acceptance Notice") to the Company before the offer
expires that the Investor has accepted the offer to purchase some or all of the
securities offered (the "Accepted Securities"). Within ten (10) days following
delivery of the Acceptance Notice, the Investor shall deliver to the Company
payment in full for the Accepted Securities purchased by it against delivery by
the Company to the Investor of a certificate or certificates evidencing the
Accepted Securities purchased by the Investor.
10.3 MERGERS; ACQUISITIONS. To the extent the Company desires to effect a
merger or consolidation of the Company into or with another corporation in
which the shareholders of the Company shall thereby own less than 50% of the
voting securities of the surviving corporation, or a sale, transfer or lease
(but not including a transfer or lease by pledge or mortgage to a bona
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fide lender) of all or substantially all of the assets of the Corporation (each
a "Sale"), the Company shall first give to the Investor the right to effect the
Sale by delivering to the Investor a written offer which shall state the price
and other terms and conditions of the Sale. If the Sale is proposed to be
effected for consideration other than solely cash and/or promissory notes, the
offer to the Investor shall, to the extent of such consideration, permit the
Investor to pay in lieu thereof, cash equal to the fair market value (as
determined by the independent appraisal of an appraiser mutually agreeable to
the Investor and the Company and paid for by the Company) of any portion of
such consideration and the offer shall state the appraiser's estimate of such
fair market value. The Board of Directors shall fix the period of the offer,
which shall be a minimum of 30 days. The Investor may accept an offer by
giving written notice to the Company (the "Acceptance Notice") before the offer
expires that such Investor has accepted the offer to effect the Sale. If the
Investor elects to effect the Sale, the transactions necessary to effect the
Sale shall take place at such reasonable time and place as may be specified in
the Acceptance Notice, but no later than 60 days from the date of the
Acceptance Notice.
10.4 ISSUANCES TO THIRD PARTIES. To the extent the offer contained in
this Section 10 is not accepted in full by the Investor, the Company may, for a
period of sixty (60) days after the expiration of such offer or the receipt by
the Company of the Investor's written notice that it declines to accept the
offer, issue and sell the Equity Securities, upon terms and conditions no less
favorable to the Company than those specified in such offer, to any Person or
Persons.
10.5 EXCLUDED TRANSACTIONS. Notwithstanding the provisions of this
Section 10, the Company shall not be required to first offer the Equity
Securities to the Investors pursuant to this Agreement if:
(a) The issuance by the Company is as a result of the acquisition of
the assets or stock of another company in exchange for shares of capital stock
of the Company; or
(b) The issuance by the Company is pursuant to convertible
securities issued to employees, directors or consultants of the Company; or
(c) The Investor owns less than 70% of the Shares (as adjusted for
all stock splits, stock dividends and recapitalizations effected after the
Closing Date) at the time of such issuance.
11. TERMINATION.
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11.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date, notwithstanding approval thereof the by stockholders of the
Company:
11.1.1 by mutual written consent duly authorized by the Boards of
Directors of the Company and the Investor;
11.1.2 by either party at any time after November 20, 1997 (the
"Drop Dead Date") if the Closing has not occurred as of the time of the
termination; provided, however, that the right to terminate this Agreement
under this Section 11.1.2 shall not be available to any party whose
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failure to fulfill any obligation under this Agreement has been the cause of or
a substantial contributor to the failure of the Closing to occur on or before
such date. No termination of this Agreement shall relieve either party for
damages caused by any breach of this Agreement.
11.1.3 by either party if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued a nonappealable final order, decree or ruling or taken any other action
having the effect of permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement or the Ancillary
Agreements (provided that (i) the party seeking to terminate this Agreement
pursuant to Section 11, 11.1 is subject to such order, decree or ruling, it
shall have used all reasonable efforts to have such order ,decree or ruling
removed and (ii) the right to terminate the Agreement under this Section
11, 11.1 shall not be available to any party who has not complied with its
obligations under Section 8.7 and such noncompliance materially contributed to
the issuance of any such order, decree or ruling or the taking of such action).
11.2 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 11,11.1, (a) this Agreement shall become void and of no effect with no
liability on the part of any party hereto and (b) if termination of this
Agreement shall be judicially determined to have been caused by willful breach
of this Agreement, then, in addition to other remedies at law or equity for
breach of this Agreement, the party found to have willfully breached this
Agreement shall indemnify the other parties for their respective costs, fees
and expenses of their counsel, accountants and other experts and advisors as
well as fees and expenses incident to negotiation, preparation and execution of
this Agreement, the Ancillary Agreements and related documentation.
12. MISCELLANEOUS.
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12.1 EXPENSES. The Company and the Investors each agree to pay their own
legal and other expenses relating in any manner to the negotiation and
consummation of this Agreement and any related agreements.
12.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
(including transferees of any Shares). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
12.3 GOVERNING LAW; ARBITRATION. This Agreement shall be governed by and
construed under the laws of the State of Minnesota as applied to agreements
among Minnesota residents entered into and to be performed entirely within
Minnesota. The parties' rights under this Section shall be governed by and
construed in accordance with the Federal Arbitration Act, 9 U.S.C. sections 1
et. sec. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by the following procedures:
Either party may send the other written notice identifying the matter in
dispute and involving the procedures of this Section. Within
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fourteen (14) days after such written notice is given, one or more principals
of each party shall meet at a mutually agreeable location in Los Angeles,
California, for the purpose of determining whether they can resolve the dispute
themselves by written agreement, and, if not, whether they can agree upon a
third-party impartial arbitrator (the "Arbitrator") to whom to submit the
matter in dispute for final and binding arbitration. If the parties fail to
resolve the dispute by written agreement or to agree on the Arbitrator within a
twenty-one (21) day period, either party may make written application to the
Judicial Arbitration and Mediation Services ("JAMS"), for the appointment of a
single Arbitrator to resolve the dispute by arbitration and at the request of
JAMS, the parties shall meet with JAMS at its offices or confer with JAMS by
telephone within ten (10) calendar days of such request to discuss the dispute
and the qualifications and experience which each party respectively believes
the Arbitrator should have; provided, however, the selection of the Arbitrator
shall be the exclusive decision of JAMS and shall be made within thirty (30)
days of the written application to JAMS. Within 30 days of the selection of
the Arbitrator, the parties shall meet in Los Angeles, California with such
Arbitrator at a place and time designated by the Arbitrator after consultation
with the parties and present their respective positions on the dispute. Each
party shall have no longer than one day to present its position, the entire
proceeding before the Arbitrator shall be on no more than three consecutive
days, and the award shall be made in writing no more than 30 days following the
end of the proceeding. Such award shall be a final and binding determination
of the dispute and shall be fully enforceable as an arbitration award in any
court having jurisdiction and venue over the parties. The prevailing party (as
determined by the Arbitrator) shall in addition be awarded by the Arbitrator
such party's own attorneys' fees and expenses in connection with such
proceeding. The non-prevailing party (as determined by the Arbitrator,) shall
pay the Arbitrator's fees and expenses.
12.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
12.6 NOTICES. Unless otherwise provided herein, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given (a) upon personal delivery to the party to be notified, or
(b) three (3) days after deposit in the United States mail, by registered or
certified mail, postage prepaid and addressed to the party to be notified at
the address indicated for such party on the signature page hereof or at such
other address as such party may designate by ten (10) days advance written
notice to the other parties.
12.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either
generally or in a particular instance, either before or after the Closing and
either retroactively or prospectively), only with the written consent of the
Company and the Investor.
12.8 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision or provisions shall be
excluded from this
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Agreement and the balance of the Agreement shall be interpreted as if such
provision or provisions were so excluded and shall be enforceable in accordance
with its terms.
12.9 FINDER'S FEE. The Company and the Investor shall each indemnify and
hold the other harmless from any liability for any commission or compensation
in the nature of a finder's fee (including the costs, expenses and legal fees
of defending against such liability) for which the Company or the Investor, or
any of their respective directors, officers, employees, or representatives, as
the case may be, is responsible.
12.10 CONSTRUCTION. The language in all parts of this Agreement shall be
in all cases construed simply according to its fair meaning and not strictly
for or against any of the parties.
12.11 ENTIRE AGREEMENT. This Agreement, the Exhibits hereto, the
Ancillary Agreements and the other documents required to be delivered pursuant
hereto constitute the entire understanding and agreement between the parties
with regard to the specific subject matter hereof and no party shall be liable
or bound by any representation, warranty, covenant or agreement except as
specifically set forth herein. Any previous agreement (whether written, oral
or implied) among the parties relative to the specific subject matter hereof is
superseded by this Agreement.
12.12 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties and covenants of the Company and the Investor
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closing and shall in no way be affected by
any investigation of the subject matter thereof made by or on behalf of the
Investor or the Company; provided, however, that the representations and
warranties shall expire on that date which is 90 days following the date on
which the Company's auditors deliver their audit opinion to the Company (with a
copy to Investor) with respect to the Company's financial statements for the
year ended December 31, 1997, subject to the exceptions set forth in Section
9.1.4.
13. INDEX.
13.1 "AFFILIATE" means, when used with reference to a specified Person,
any Person that directly or indirectly through one or more intermediaries
controls or is controlled by, or is under common control with, the specified
Person. For purposes of this definition, "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
13.2 "ANCILLARY AGREEMENTS" means the Registration Rights Agreement and
the Shareholders Agreement.
13.3 "COMMISSION" means the United Stated Securities and Exchange
Commission.
13.4 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
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13.5 "GAAP" means generally accepted accounting principles.
13.6 "CODE" means the Internal Revenue Code of 1986, as amended.
13.7 "MATERIAL ADVERSE EFFECT" means (i) with respect to the Company and
its Subsidiaries, an effect which is materially adverse to the business,
properties, assets, revenues, operations, financial condition or results of
operations of the Company and its Subsidiaries, taken as a whole, and (ii) with
respect to the Investor and its Subsidiaries, an effect which is materially
adverse to the business, properties, assets, revenues, operations, financial
condition or results of operations of the Investor and its Subsidiaries, taken
as a whole.
13.8 "NASD" means the National Association of Securities Dealers, Inc.
13.9 "PERSON" includes an individual, partnership, limited liability
company, limited liability partnership, trust, estate, corporation, joint
venture, unincorporated association, government bureau or agency or other
entity of whatsoever kind or nature.
13.10 "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement to be entered into between the Company and the Investor attached to
this Agreement as Appendix A.
13.11 "SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
13.12 "SHAREHOLDERS AGREEMENT" means the Shareholders Agreement to be
entered into between the Company and the Investor attached hereto as Appendix
B.
13.13 "SUBSIDIARY" of the corporation means (i) any corporation of which
equity securities possessing a majority of the ordinary voting power in
electing the board of directors are, at the time as of which such determination
is being made, owned by such corporation either directly or indirectly through
one or more Subsidiaries and (ii) any Person (other than a corporation) in
which such corporation or any Subsidiary, directly or indirectly, has more than
a 10% ownership interest or over which it exercise control including, without
limitation, with respect to the Company, Odds N Ends, Inc.
DEFINED TERM SECTION
------------ -------
Acceptance Notice 10.2
Accepted Securities 10.2
Acquisition Proposal 8.2
Ancillary Agreements 6.4
Closing 2.1
Company Preamble
Company Permitted Liens 3.10
Company Plans 3.12
Company Properties 3.10
Company Reports 3.4
Disclosure Letter 6.1
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Equity Securities 10.1
ERISA 3.12
ERISA Affiliate 3.12
Company Financial Statements 3.4
Intellectual Property 3.15
Investor Preamble
IRS 3.8
Liens 3.10
Remedies Exception 3.5(b)
Restrictions 3.10
Securities Laws 3.4
Shares 1.1
Taxes 3.8
Tax Returns 3.8
PAGE 27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed delivered this
Agreement as of the date first above written.
THE COMPANY:
UNIVERSAL INTERNATIONAL, INC.
a Minnesota corporation
By: _______________________________
Name: Mark Ravich
Title: Chief Executive Officer and
Chief Financial Officer
Address: ______________________
______________________
______________________
THE INVESTOR:
99 CENTS ONLY STORES
a California corporation
By: _______________________
Name: David Gold
Title: President, Chief Executive
Officer and Chairman of the Board
Address: ______________________
______________________
______________________
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EXHIBIT A
OPINIONS TO BE RENDERED BY COUNSEL TO THE INVESTOR
1. Each of the Agreement and the Ancillary Agreements has been duly
authorized, executed and delivered by the Investor and constitutes the valid
and binding obligation of the Investor, enforceable against the Investor in
accordance with its terms (subject to the qualifications set forth below).
The parties to this Agreement understand and agree that counsel to the
Investor will not opine as to Minnesota law which is the law governing the
Agreement and the Ancillary Agreements and that counsel to the Investor shall
opine only as to questions of law of the State of California, the General
Corporation Law of the State of Delaware and the federal law of the United
States of America, as applicable, and shall not express any opinion with
respect to any other laws or the law of any other jurisdiction.
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EXHIBIT B
ITEMS OF PROPERTY
All "accounts", "general intangibles", "chattel paper", "products",
"fixtures" and "equipment", as such items are defined in Division 9 of the
California Uniform Commercial Code in effect on the date hereof; and all
products, proceeds and insurance proceeds of any or all of the foregoing.
SHAREHOLDERS AGREEMENT
This Shareholders Agreement (this "AGREEMENT") is made as of the 17th day
of November, 1997 by and among Universal International, Inc., a Minnesota
corporation (the "COMPANY"), 99 Cents Only Stores, a California corporation
(the "INVESTOR") and Mark Ravich, an individual.
R E C I T A L S
WHEREAS, the Company has concurrently herewith issued and sold to the
Investor 4,500,000 shares (the "Shares") of common stock, $.001 per share, of
the Company (the "Common Stock").
WHEREAS, Mr. Ravich is the Chief Executive Officer of the Company and owns
beneficially and as of record those shares of the Common Stock as identified on
Exhibit A attached hereto.
WHEREAS, the Company, the Investor and Mr. Ravich desire to enter into
this Shareholders Agreement in order to set forth their agreement with respect
to the nomination of directors to the Company's Board of Directors, the voting
for such directors and the appointment of members to the Compensation and Audit
Committees of the Board of Directors.
NOW, THEREFORE, in consideration of the foregoing recitals and covenants
and agreements contained herein, the parties agree as follows:
A G R E E M E N T
1. BOARD OF DIRECTORS
1.1 So long as the Investor owns at least 20% of the Shares, the Company
shall nominate and recommend to its shareholders that they elect
designees of the Investor to the Board of Directors of the Company in
such number that at all times the Investor's designees constitute at
least one member less than a majority of the members of the Board of
Directors of the Company.
1.2 So long as Mark Ravich (a) beneficially owns, as determined pursuant
to the rules and regulations promulgated under the Securities Act, at
least 4% of the outstanding shares of Common Stock, and (b) consents
to and has the capacity to serve on the Board of Directors of the
Company, the Company shall nominate and recommend to its shareholders
that they elect Mark Ravich to the Board of Directors of the Company.
1.3 Mark Ravich shall vote the shares of Common Stock held by him in
favor of electing the designees of the Investor to the Board of
Directors of the Company so long as the Company is required to so
nominate them as provided in clause 1.1 above.
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1.4 The Investor shall vote its shares of Common Stock in favor of
electing Mark Ravich to the Board of Directors of the Company so long
as the Company is required to nominate Mr. Ravich pursuant to
clause 1.2 above.
1.5 Mark Ravich shall agree, if requested by the Investor, to serve as a
Director for at least two years following the date hereof so long as
the Company maintains Director and Officer Insurance with policy
limits (and deductibles) at the levels existing at the date hereof.
1.6 Subject to waiver by the Investor in its sole and absolute
discretion, so long as the Investor is entitled to have its designees
nominated to the Board of Directors in accordance with clause 1.1
above, the Compensation Committee of the Board of Directors shall
consist of three directors, at least two of which shall be the
designees of the Investor and the Audit Committee of the Board of
Directors shall consist of three directors, at least one of which
shall be a designee of the Investor.
2. MISCELLANEOUS
2.1 COUNTERPARTS. This Agreement may be executed in several
counterparts, and all counterparts so executed shall constitute one
agreement, binding on all of the parties hereto, notwithstanding that
all of the parties are not signatory to the original or the same
counterpart.
2.2 SURVIVAL. This Agreement shall be binding upon, and, as to permitted
or accepted successors, transferees and assigns, inure to the benefit
of the parties hereto and their respective legal representatives,
successors, transferees and assigns, in all cases whether by merger,
reverse merger, consolidation, sale of assets, other sale, operation
of law or otherwise.
2.3 SEVERABILITY. In the event any Section, or any sentence within any
Section, is declared by a court of competent jurisdiction to be void
or unenforceable, such sentence or Section shall be deemed severed
from the remainder of this Agreement and the balance of this
Agreement shall remain in full force and effect.
2.4 NOTIFICATION OR NOTICES. Any notice or other communication required
or permitted hereunder shall be in writing and shall be deemed to
have been given if personally delivered or deposited in the United
States mail, registered or certified, postage prepaid, addressed to
the parties' addresses set forth below. Notices given in the manner
provided for in this Section 2.4 shall be deemed effective on the
third day following deposit in the mail or on the day of delivery if
given by hand. Notices must be addressed to the parties hereto at
the following addresses, unless the same shall have been changed by
notice in accordance herewith:
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If to the Company, at:
Universal International, Inc.
5000 Winnetka Avenue North
New Hope, Minnesota 55428
Fax No.:
Attn:
with a copy to:
If to Investor, at:
99 Cents Only Stores
4000 Union Pacific Avenue
City of Commerce, California 90023
Fax No.:
Attn: David Gold
with a copy to:
Troop Meisinger Steuber & Pasich LLP
10940 Wilshire Blvd., Suite 800
Los Angeles, California 90024
Fax No.: (310) 443-7599
Attn: C.N. Franklin Reddick III, Esq.
If to Mark Ravich, at:
7609 Stonewood Court
Edina, Minnesota 55439
2.5 CONSTRUCTION. The language in all parts of this Agreement shall be
in all cases construed simply according to its fair meaning and not
strictly for or against any of the parties.
2.6 GOVERNING LAW. This Agreement shall be construed according to the
laws of the State of Minnesota, without giving effect to the
principles of conflicts of law thereof.
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<PAGE>
2.7 ADDITIONAL DOCUMENTS. Each party, upon the request of another party,
agrees to perform all further acts and execute, acknowledge and
deliver all documents which may be reasonably necessary, appropriate
or desirable to carry out the provisions of this Agreement, including
but not limited to acknowledging before a notary public any signature
heretofore or hereafter made by party.
2.8 WAIVER. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this
Agreement or to exercise any right or remedy consequent upon a breach
thereof shall constitute a waiver of any such breach or any other
covenant, duty, agreement or condition.
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<PAGE>
IN WITNESS WHEREOF the parties have caused this Agreement to be executed
the day and year first above written.
UNIVERSAL INTERNATIONAL, INC.,
a Minnesota corporation
By: _________________________________
Name: _______________________________
Title: Chief Executive Officer and Chief
Financial Officer
99 CENTS ONLY STORES,
a California corporation
By: _________________________________
Name: David Gold
Title: President, Chief Executive Officer and
Chairman of the Board
MARK RAVICH
_________________________________
PAGE 5
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of this 17th day of November, 1997, by and among Universal
International, Inc., a Minnesota corporation (the "Company") and 99 Cents Only
Stores, a California corporation (the "Investor").
RECITALS
A. The Company and the Investor entered into a Definitive Stock Purchase
Agreement, dated November 11, 1997 (the "Purchase Agreement") pursuant to which
the Investor purchased from the Company 4,500,000 shares of its Common Stock
(the "Shares").
B. As a condition to the obligations of the Investor to purchase the
Shares pursuant to the Purchase Agreement, the Company has agreed to extend
registration rights to the Investor.
AGREEMENT
NOW, THEREFORE, on the basis of the preceding facts, and in consideration
of the mutual covenants set forth below, the Company and the Investors hereby
agree as follows:
1. DEFINITIONS. For the purposes of this Agreement, the following words
shall have the meanings set forth below:
(a) "Commission" means the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
(b) "Common Stock" means the Company's Common Stock, par value $.001
per share.
(c) "Company Notice" shall have the meaning set forth in Section 2
hereof.
(d) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
(e) "Holder" means the Investor and any holder of Registrable Stock
to whom the registration rights conferred by this Agreement have been
transferred in compliance with Section 14 hereof.
(f) "Initiating Holders" means any Holder or Holders who in the
aggregate hold not less than thirty five percent (35%) of the outstanding
Registrable Stock.
(g) "Long-Form Registration Statement" means a registration
statement on Form S-l, Form S-2 or Form SB-2, or any similar form of
registration statement adopted by the Commission from and after the date
hereof.
<PAGE>
(h) "Other Stockholders" means persons other than Holders who, by
virtue of agreements with the Company, are entitled to include their securities
in certain registrations hereunder.
(i) "Piggyback Notice" shall have the meaning set forth in Section 4
hereof.
(j) "Prospective Sellers" shall have the meaning set forth in
Section 7.(a)(ii) hereof.
(k) "Purchase Agreement" shall have the meaning set forth in Recital
A to this Agreement.
(l) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
(m) "Registrable Stock" means (i) the Shares and (ii) any Common
Stock issued or issuable with respect to the Shares by reason of a stock
dividend or stock split or in connection with a combination of shares or other
recapitalization. A person shall be deemed to be a holder of Registrable Stock
when such person has a right to acquire such Registrable Stock (by conversion
or otherwise) regardless of whether such acquisition has actually been
effected. Each share of Registrable Stock shall continue to be Registrable
Stock in the hands of each subsequent holder thereof; provided, however, that
Registrable Stock shall not include any shares of Common Stock which have
previously been registered or which have been sold (or are freely tradeable) to
the public either pursuant to a registration statement or Rule 144, or which
have been sold (or are freely tradeable) in a private transaction in which the
transferor"s rights under this Agreement are not assigned.
(n) "Registration Expenses" shall have the meaning set forth in
Section 8 hereof.
(o) "Requesting Holders" shall have the meaning set forth in Section
2.(c) hereof.
(p) "Rule 144" means Rule 144 promulgated by the Commission under
the Securities Act, as such rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
(q) "Rule 145" means Rule 145 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
(r) "Securities Act" means the Securities Act of 1933, as amended,
or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
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(s) "Short-Form Registration Statement" means a registration
statement on Form S-3 or any similar form of registration statement adopted by
the Commission from and after the date hereof.
(t) "Violation" shall have the meaning set forth in Section 9.(a)
hereof.
(u) Other Terms. Unless the context otherwise requires, all
capitalized terms not defined in this Agreement shall have the respective
meanings accorded to them in the Purchase Agreement.
2. REQUIRED REGISTRATIONS.
----------------------
(a) DEMAND REGISTRATION. Subject to Section 3.(a) below, if, at any
time Initiating Holders propose to dispose of, pursuant to a Long-Form
Registration Statement all or a part of the Registrable Stock at an aggregate
offering price to the public of not less than Five Million Dollars
($5,000,000), then such holders may request the Company in writing to effect
such registration, stating the form of registration statement under the
Securities Act to be used, the number of shares of Registrable Stock to be
disposed of and the intended method of disposition of such shares.
(b) SHORT-FORM REGISTRATION. If at any time at which the Company is
entitled to file a registration statement on a Short-Form Registration
Statement holders of the Registrable Stock then outstanding propose to dispose
of shares of such Registrable Stock pursuant to a Short-Form Registration
Statement, then such holders may request the Company in writing to effect such
registration, stating the form of registration statement under the Securities
Act to be used, the number of shares of Registrable Stock to be disposed of and
the intended method of disposition of such shares; provided that, the Company
shall not be obligated to effect any such registration (i) if the Company has,
within the twelve (12) month period preceding the date of such request, already
effected two registrations via a Short-Form Registration Statement pursuant to
this Section 2.(b), or (ii) if the Initiating Holders and the Requesting
Holders (as defined in Section 2.(c) below) propose to sell Registrable Stock
and such other securities (if any) on Form S-3 at an aggregate price to the
public of less than $500,000.
(c) COMPANY NOTICE. Upon receipt of the request of the Initiating
Holders pursuant to Section 2.(a) or 2.(b) above, the Company shall give prompt
written notice thereof to all other holders of Registrable Stock and all Other
Stockholders (the "Company Notice"). Subject to the provisions of Section 3
below, the Company shall use its best efforts promptly to effect the
registration under the Securities Act of all shares of Registrable Stock
specified in the requests of the Initiating Holders and all other securities
specified in the requests (stating the number of shares to be disposed of and
the intended method of disposition of such shares) of the Other Stockholders
("Requesting Holders") given within 30 days after receipt of the Company
Notice.
3. LIMITATIONS ON REQUIRED REGISTRATIONS.
-------------------------------------
(a) The Company shall not be required to prepare and file more than
two (2) Long-Form Registration Statements, which actually become or are
declared effective, at the
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request of holders of Registrable Stock pursuant to Section 2.(a) hereof. The
foregoing, however, shall not limit the Company's obligation from time to time
to prepare and file up to two (2) Short-Form Registration Statements each
twelve (12) months if requested by holders of Registrable Stock pursuant to
Section 2.(b) hereof.
(b) Only Common Stock may be included in a registration, and,
whenever a registration requested by the holders of Registrable Stock is for a
firmly underwritten offering, if the underwriters advise the Company in
writing, that marketing factors require a limitation on the number of shares to
be underwritten (including both the Initiating Holders and the Requesting
Holders) of Registrable Stock and other securities, as applicable, proposing to
sell their shares in such underwriting and registration shall share pro rata in
the available portion of the registration in question, such sharing to be based
upon the number of shares of Registrable Stock and other securities then held
by such holders, respectively. If any holder of Registrable Stock disapproves
of the terms of the underwriting, such holder may elect to withdraw therefrom
by written notice to the Company, the underwriter and the Initiating Holders.
The Registrable Stock of such holder also shall be withdrawn from registration;
provided, however, that if by the withdrawal of such Registrable Stock a
greater number of shares of Registrable Stock held by other holders of
Registrable Stock may be included in such registration (up to the maximum of
any limitation imposed by the underwriters), then the Company shall offer to
all holders of Registrable Stock who have included Registrable Stock in the
registration the right to include additional shares of Registrable Stock in the
same proportion used in determining the limitation imposed by the provisions of
this Section 3.(b).
(c) The Company shall not be required to prepare and file a
registration statement pursuant to Section 2 hereof if the Company in good
faith gives written notice to the holders of Registrable Stock within thirty
(30) days of a registration request by an Initiating Holder that the Company is
commencing to prepare a Company-initiated registration statement and the
Company is actively employing in good faith all reasonable efforts to cause
such registration statement to be filed with the Commission within ninety (90)
days of such notice.
(d) Notwithstanding the foregoing, if the Company shall furnish to
the Initiating Holders and Requesting Holders a certificate signed by the
President of the Company stating that in the good faith judgment of the Board
of Directors of the Company, it would be detrimental to the Company and its
shareholders for such registration statement to be filed and/or declared
effective and it is in the best interest of the Company to defer the filing or
effectiveness of such registration statement, the Company shall have the right
to defer such filing or effectiveness for a period of not more than ninety (90)
days after receipt of the request of the Initiating Holders; provided, however,
that the Company may not utilize this right more than once in any 12-month
period.
4. INCIDENTAL REGISTRATION. If the Company at any time proposes to
register any of its securities for sale for its own account or for the account
of any other person (other than a registration relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a Rule 145 transaction, or a registration on any
form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of
Registrable Stock), it shall each such time
PAGE 4
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give written notice (for purposes of this Section 4, the "Notice"), at its
expense, to all holders of Registrable Stock of its intention to do so at least
thirty (30) days prior to the filing of a registration statement with respect
to such registration with the Commission. If any holder of Registrable Stock
desires to dispose of all or part of such stock, it may request registration
thereof in connection with the Company's registration by delivering to the
Company, within thirty (30) days after receipt of the Notice, written notice
of such request (the "Piggyback Notice") stating the number of shares of
Registrable Stock to be disposed of and the intended method of disposition of
such shares by such holder or holders. The Company shall use its best efforts
to cause all shares of Registrable Stock specified in the Piggyback Notice to
be registered under the Securities Act so as to permit the sale or other
disposition (in accordance with the intended methods thereof as aforesaid) by
such holder or holders of the shares so registered, subject, however, to the
limitations set forth in Sections 5 and 10 hereof.
5. LIMITATIONS ON INCIDENTAL REGISTRATION.
--------------------------------------
(a) If the registration of which the Company gives notice pursuant
to Section 4 above is for the purpose of permitting a disposition of securities
by the Company pursuant to a firm commitment underwritten offering, the notice
shall so state, and the Company shall have the right to limit the aggregate
size of the offering or the number of shares to be included therein by
shareholders of the Company if requested to do so in good faith by the managing
underwriter of the offering and only securities which are to be included in the
underwriting may be included in the registration. Notwithstanding the
foregoing, the Company shall not grant to any shareholder incidental
registration rights which would reduce the number of shares includable by
holders of Registrable Stock in an incidental registration without the consent
of the holders of at least 51% of the Registrable Stock.
(b) Whenever the number of shares which may be registered pursuant
to Section 4 is limited by the provisions of Section 5.(a) above, the Company
shall have priority as to sales over the holders of Registrable Stock, and each
holder hereby agrees that it shall withdraw its securities from such
registration to the extent necessary to allow the Company to include all the
shares which the Company desires to sell for its own account to be included
within such registration. The holders of Registrable Stock given rights by
Section 4 above shall share pro rata (as a single class) in the available
portion of the registration in question, such sharing to be based upon the
number of shares of such stock then held by each of such holders, respectively.
6. DESIGNATION OF UNDERWRITER. In the case of any registration
initiated by the holders of Registrable Stock pursuant to the provisions of
Section 2 hereof which is proposed to be effected pursuant to a firm commitment
underwriting, the holders of the Registrable Stock shall have the right to
designate the managing underwriter by majority vote, subject to the approval of
the Company, which approval will not be unreasonably withheld, and all holders
of Registrable Stock participating in the registration shall enter into a
customary agreement with the underwriters and sell their shares only pursuant
to such underwriting.
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7. REGISTRATION PROCEDURES.
-----------------------
(a) If and when the Company is required by the provisions of this
Agreement to use its best efforts to effect the registration of shares of
Registrable Stock, the Company shall:
(i) prepare and file with the Commission a registration
statement with respect to such shares and use its best efforts to cause such
registration statement to become and remain effective for up to 120 days as
provided herein; provided, however, that such 120-day period shall be extended
for a period of time equal to the period the holder refrains from selling any
securities included in such registration at the request of an underwriter of
Common Stock or other securities of the Company;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectuses used in
connection therewith as may be necessary to keep such registration statement
effective and current and to comply with the provisions of the Securities Act
with respect to the sale or other disposition of all shares covered by such
registration statement, including such amendments and supplements as may be
reasonably necessary to reflect the intended method of disposition from time to
time of the holder or holders of Registrable Stock who have requested that any
of their shares be sold or otherwise disposed of in connection with the
registration (the "Prospective Sellers");
(iii) furnish to each Prospective Seller such number of copies
of each prospectus, including preliminary prospectuses, in conformity with the
requirements of the Securities Act, and such other documents, as the
Prospective Seller may reasonably request in order to facilitate the public
sale or other disposition of the shares owned by it;
(iv) register or qualify the shares covered by such registration
statement under such other securities, blue sky or other applicable laws of
such jurisdictions within the United States as each Prospective Seller shall
reasonably request to enable such seller to consummate the public sale or other
disposition of the shares owned by such seller; provided, however the Company
shall not be required to execute a general consent to service of process or to
qualify as a foreign corporation;
(v) upon written request, furnish to each Prospective Seller a
signed counterpart, addressed to the Prospective Sellers and their
underwriters, if any, of (A) an opinion of counsel for the Company, dated the
effective date of the registration statement and (B) a "comfort" letter signed
by the independent public accountants who have certified the Company's
financial statements included in the registration statement, such document to
cover substantially the same matters with respect to the registration statement
(and the prospectus included therein) and (in the case of the accountants'
letter) with respect to the events subsequent to the date of the financial
statements, as are customarily covered (at the time of such registration) in
the opinions of issuers' counsel and in accountants' letters delivered to the
underwriters in connection with underwritten public offerings of securities;
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(vi) cause all such shares to be listed or quoted on each
securities exchange or over the counter market on which similar securities
issued by the Company are then listed or quoted;
(vii) provide a transfer agent and registrar for all such
shares and arrange for a CUSIP number not later than the effective date of such
registration statement;
(viii) enter into such customary agreements (including an
underwriting agreement) containing such terms and conditions as are customary
and take all such other customary actions as the holders of a majority of the
Registrable Stock being sold reasonably request in order to expedite or
facilitate the disposition of such shares;
(ix) make available for inspection by any Prospective Seller,
any underwriter participating in any disposition pursuant to such registration
statement, and any attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company which any of them may reasonably
request, 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 the preparation of such registration
statement;
(x) notify each seller of Registrable Stock covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or incomplete in the light of the circumstances then existing; and
(xi) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first month after the effective date of the
registration statement, which earnings statement shall satisfy the provisions
of Section 11(a) of the Securities Act and Rule 158 promulgated thereunder.
(b) Each Prospective Seller shall furnish to the Company such
information as the Company may reasonably require from the Prospective Seller
for inclusion in the registration statement (and the prospectus included
therein).
(c) The Prospective Sellers shall not (until further notice) effect
sales of the shares covered by the registration statement after receipt of
telegraphic or written notice from the
PAGE 7
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Company to suspend sales to permit the Company to correct or update a
registration statement or prospectus.
8. EXPENSES OF REGISTRATION. All expenses incurred in effecting any
registration requested pursuant to Section 2 or 4 hereof, including, without
limitation, all registration and filing fees, printing expenses, expenses of
compliance with blue sky laws, fees and disbursements of counsel for the
Company, reasonable fees and disbursements of one special counsel for the
holders of Registrable Stock, expenses of any audits incidental to or required
by any such registration, and expenses of all marketing and promotional efforts
reasonably requested by the managing underwriter which are customary for the
Company to pay ("Registration Expenses") shall be borne by the Company;
provided, however, that each Prospective Seller shall bear underwriting
discounts or brokerage fees or commissions relating to the sale of its
Registrable Stock.
9. INDEMNIFICATION.
---------------
(a) In the event of any registration of any of its securities under
the Securities Act pursuant to this Agreement, the Company shall to the extent
permitted by law indemnify and hold harmless each person requesting or joining
in a registration of such securities, each underwriter (as defined in the
Securities Act) and each controlling person of any holder or underwriter, if
any (within the meaning of the Securities Act), against any losses, claims,
damages or liabilities, joint or several (or actions in respect thereof), to
which such holder, underwriter or controlling person may be subject under the
Securities Act, under any other statute or at common law, 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
securities were registered under the Securities Act, any preliminary prospectus
or final prospectus contained therein, or any summary prospectus issued in
connection with any securities being registered, or any amendment or supplement
thereto, or any other document, or (ii) any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading or (iii) any violation by the
Company of the Securities Act or any blue sky law, or any rule or regulation
promulgated under the Securities Act or any blue sky law, or any other law,
applicable to the Company in connection with any such registration,
qualification or compliance (each of (i), (ii) and (iii) are referred to
hereafter as a "Violation"), and shall reimburse each such holder, underwriter
or controlling person for any legal or other expenses reasonably incurred by
such holder, underwriter or controlling person in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the Company shall not be liable to any holder, underwriter or
controlling person in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any such untrue statement or
omission made in such registration statement, preliminary prospectus, summary
prospectus, prospectus, or amendment or supplement thereto, or any other
document, in reliance upon and in conformity with written information furnished
to the Company by such holder, underwriter or controlling person, respectively,
specifically for use therein. The indemnity provided for herein shall remain
in full force and effect regardless of any investigation made by or in behalf
of the holder, underwriter or controlling person.
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(b) In the event of any registration of any of its securities under
the Securities Act pursuant to this Agreement, each holder of Registrable Stock
requesting or joining in a registration of such Registrable Stock shall to the
extent permitted by law indemnify and hold harmless the Company, each
underwriter (as defined in the Securities Act) and each controlling person of
the Company or underwriter, if any (within the meaning of the Securities Act),
against any losses, claims, damages or liabilities, joint or several (or
actions in respect thereof), to which the Company, underwriter or controlling
person may be subject under the Securities Act, under any other statute or at
common law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon written information furnished by such holder of Registrable Stock
expressly for use in connection with such registration, and shall reimburse the
Company, underwriter or controlling person for any legal or other expenses
reasonably incurred by the Company, underwriter or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that no such holder of Registrable
Stock shall be liable to the Company, underwriter or controlling person in any
such case to the extent that any such loss, claim, damage or liability exceeds
the proceeds from the offering received by such holder of Registrable Stock
from the underwriters. The indemnity provided for herein shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Company, underwriter or controlling person.
(c) If the indemnification provided for in Section 9.(a) or 9.(b)
above is unavailable to an indemnified party in respect of any losses, claims,
damages. or liabilities referred to therein, then the indemnifying party, in
lieu of indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities, in such proportion as is appropriate to reflect
the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by the indemnifying party, or by the indemnified party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The parties
agree that it would not be just and equitable if contribution pursuant to this
Section 9.(c) were determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable considerations
referred to above. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages and liabilities or actions in respect
thereof referred to above shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 9.(c), no
holder of Registrable Stock shall be required to contribute any amount in
excess of the amount by which the total price at which the Registrable Stock
sold by it exceeds the amount of any damages which such holder of Registrable
Stock has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentations (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
PAGE 9
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(d) Promptly after receipt by an indemnified party under Section
9.(a) or 9.(b) above of notice of the commencement of any action, such
indemnified party shall notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party
shall not relieve it from any liability which it may have to any indemnified
party otherwise than under such Sections or to the extent that it has not been
prejudiced as a proximate result of such failure. 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 therein and, to the extent that it shall wish, to
assume the defense thereof, with counsel satisfactory to such indemnified
party; provided, however, that if the defendants in any such action include
both the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be legal defenses available to
it and/or other indemnified parties which are different from or in addition to
those available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assert such legal defenses
(in which case the indemnifying party shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties). Upon
the permitted assumption by the indemnifying party of the defense of such
action, and approval by the indemnified party of counsel, the indemnifying
party shall not be liable to such indemnified party under this Section 9 for
any legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof unless (i) the indemnified party shall have
employed separate counsel in connection with the assertion of legal defenses in
accordance with the proviso to the preceding sentence, (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time, (iii) the
indemnifying party and its counsel do not actively and vigorously pursue the
defense of such action or (iv) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party.
10. INCLUSION OF ADDITIONAL SHARES IN REQUIRED REGISTRATIONS: OTHER
COMPANY INITIATED REGISTRATIONS. The Company shall not register securities for
sale (i) for its own account or for the account of any other person in any
registration requested by the holders of Registrable Stock pursuant to Section
2 hereof or (ii) for the account of any person other than the Company and the
holders of Registrable Stock in a Company-initiated registration if the number
of shares includable by the holders of Registrable Stock is limited pursuant to
Section 5 hereof, unless permitted to do so by the written consent of holders
who hold at least fifty-one percent (51%) of the Registrable Stock as to which
registration has been requested.
11. RIGHTS WHICH MAY BE GRANTED TO OTHER PERSONS. The Company shall not
grant any person registration rights which shall in any way whatsoever impair
the priority of the registration rights granted to the Investor in this
Agreement.
12. RULE 144 REQUIREMENTS. With a view to making available the benefits
of certain rules and regulations of the Commission that may permit the sale of
the Shares to the public without registration, the Company agrees to:
(a) make and keep public information regarding the Company available
as those terms are understood and defined in Rule 144 under the Securities Act
at all times following the date hereof;
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(b) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act at any all times following the date hereof;
(c) so long as a Holder owns any Shares, furnish to the Holder
forthwith upon written request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at all times following
the date hereof) 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 as a Holder may reasonably request in availing itself of
any rule or regulation of the Commission allowing a Holder to sell any such
securities without registration.
13. HOLDBACK. If the Company files a registration statement in
connection with an underwritten public offering, a holder of Registrable Stock
shall not effect any sale (including any "short sale") or distribution of any
shares (except pursuant to such registration statement) of the capital stock of
the Company, whether now owned or hereafter acquired, during the period
requested by the underwriters commencing with the effective date of such
registration statement and ending on the close of business on a date which is
not more than one hundred and eighty (180) days thereafter or such time as the
registration statement is withdrawn, whichever is earlier; provided, however,
that employees who hold at least 10% of the Common Stock (on an as-converted
basis) of the Company and officers and directors also have agreed to hold their
shares of Common Stock (or securities convertible into Common Stock) during
such period.
14. ASSIGNMENT OF REGISTRATION RIGHT. The rights to cause the Company to
register Registrable Stock pursuant to this Agreement may be assigned (but only
with all related obligations) by any holder of Registrable Stock to a
transferee or assignee of such securities who, pursuant to such assignment or
transfer, acquires at least 5% of the Registrable Stock (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations); provided, however, that the Company is, within a reasonable
time after any such transfer, furnished with written notice of the name and
address of the transferee or assignee and the securities with respect to which
such registration rights are being assigned and such transferee of assignee
agrees in writing to be bound by and subject to the terms and conditions of
this Agreement.
15. MISCELLANEOUS.
-------------
(a) ADJUSTMENTS AFFECTING REGISTRABLE STOCK. The Company shall not
effect a stock split or combination of shares or take any other action, or
permit any change to occur, with respect to its equity securities, which would
adversely affect at such time the ability of the holders of Registrable Stock
to include such stock in a registration undertaken pursuant to this Agreement
or which would adversely affect the marketability of such stock in any such
registration.
(b) NOTICE. Unless otherwise provided herein, any notice required
or permitted under this Agreement shall be given in writing and shall be deemed
effectively given (i) upon personal delivery to the party to be notified, (ii)
three (3) days after deposit in the United States mail, by registered or
certified mail, postage prepaid and addressed to the party to be notified at
the address indicated for such party on the signature page hereof, or at such
other address as such
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party may designate by ten (10) days advance written notice to the other
parties or (iii) upon electronic confirmation of receipt, if sent by facsimile
or similar electronic means.
(c) SEVERABILITY AND GOVERNING LAW. Should any Section or any part
of a Section within this Agreement be rendered void, invalid or unenforceable
by any court of law for any reason, such invalidity or unenforceability shall
not void or render invalid or unenforceable any other Section or part of a
Section in this Agreement. This Agreement is made and entered into in the
State of Minnesota and the laws of said state shall govern the validity and
interpretation hereof and the performance by the parties hereto of their
respective duties and obligations hereunder.
(d) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(e) CAPTIONS AND SECTION HEADINGS. Section titles or captions
contained in this Agreement are inserted as a matter of convenience and for
reference purposes only, and in no way define, limit, extend or describe the
scope of this Agreement or the intent of any provision hereof.
(f) SINGULAR AND PLURAL, ETC. Whenever the singular number is used
herein and where required by the context, the same shall include the plural,
and the neuter gender shall include the masculine and feminine genders.
(g) COSTS AND ATTORNEYS' FEES. In the event that any action, suit,
or other proceeding is instituted concerning or arising out of this Agreement,
the prevailing party shall recover all of such party's costs and attorneys'
fees incurred in each and every such action, suit, or other proceeding,
including any and all appeals or petitions therefrom. As used herein,
"attorneys' fees" shall mean the full and actual costs of any legal services
actually rendered in connection with the matters involved, calculated on the
basis of the usual fee charged by the attorneys performing such services.
(h) AMENDMENTS AND WAIVERS. Neither this Agreement nor any term
hereof may be changed, waived, discharged or terminated orally or in writing,
except that any term of this Agreement may be amended and the observance of any
such term may be waived (either generally or in a particular instance and
either retroactively or prospectively) only with the written consent of the
Company and the holders of at least a majority of the Registrable Stock;
provided, however, that no such amendment or waiver shall affect the provisions
of this Section 15.(h), and no such waiver shall extend to or affect any other
obligation not expressly waived.
(i) SUCCESSORS AND ASSIGNS. All rights, covenants and agreements of
the parties contained in this Agreement shall, except as otherwise provided
herein, be binding upon and inure to the benefit of their respective successors
and assigns.
(j) SPECIFIC PERFORMANCE. The parties hereto agree that the Shares
cannot be purchased or sold in the open market and that, for these reasons,
among others, the parties will be irreparably damaged in the event that this
Agreement is not specifically enforceable.
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Accordingly, in the event of any controversy concerning the capital stock which
is the subject of this Agreement, or any right or obligation to register such
securities, such right or obligation shall be enforceable in a court of equity
by specific performance. The rights granted in this Section 15.(j) shall be
cumulative and not exclusive, and shall be in addition to any and all other
rights which the parties hereto may have hereunder, at law or in equity.
(k) DELAY OF REGISTRATION. Notwithstanding the preceding paragraph
or anything to the contrary contained in this Agreement, no holder of
Registrable Stock shall have any right to obtain or seek an injunction
restraining or otherwise delaying any registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Agreement.
(l) ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties and there are no further or other agreements or
understandings, written or oral, in effect between the parties relating to the
subject matter hereof unless expressly referred to herein.
[signatures on following page]
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IN WITNESS WHEREOF, the parties hereto have executed delivered this
Agreement as of the date first above written.
THE COMPANY:
UNIVERSAL INTERNATIONAL, INC.
a Minnesota corporation
By: _________________________________
Name: Mark Ravich
Title: Chief Executive Officer and Chief
Financial Officer
Address: ______________________
______________________
______________________
THE INVESTOR:
99 CENTS ONLY STORES
a California corporation
By: _____________________
Name: David Gold
Title: President, Chief Executive Officer and
Chairman of the Board
Address: ______________________
______________________
______________________
