As filed with the Securities and Exchange Commission on January 26, 1999.
Registration No. 333-44229
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TOPS APPLIANCE CITY, INC.
(exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
New Jersey 5731 22-3174554
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
45 Brunswick Avenue
Edison, New Jersey 08818
(732) 248-2850
(Address, including zip code, and telephone number,
including area code, of registrant's principal offices)
RICHARD JONES
Chief Executive Officer
Tops Appliance City, Inc.
45 Brunswick Avenue
Edison, New Jersey 08818
(732) 248-2850
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
W. RAYMOND FELTON, ESQ.
Greenbaum, Rowe, Smith, Ravin, Davis & Himmel LLP
Metro Corporate Campus One
Post Office Box 5600
Woodbridge, New Jersey 07095
(732) 549-5600
Approximate date of commencement of proposed
sale to the public: As soon as practicable after
this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.
If any of the securities being registered on this Form are to be offered
<PAGE>
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. xxx
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Amount Offering Aggregate Amount of
Title of each Class of to be Price per Offering Registration
Securities to be Registered Registered Share (1) Price Fee
- ----------------------------- ------------ ---------- ----------- ---------------
<S> <C> <C> <C> <C>
6 1/2% Convertible Subordinated
Debentures Due 2003........ $ 97,500* 100% $ 97,500 $2,329.32
Common Stock, no par value
per share (2).............. 55,715* - - -
Common Stock, no par value
per share (3).............. 2,067,148** $2.125 $4,392,689.50 $1,295.84
Common Stock, no par value
per share (4)............... 857,143* - - -
Common Stock, no par value
per share (5)............... 3,480,000* - - -
Common Stock, no par value
per share (6)............... 500,000** $2.125 $1,062,500.00 $ 313.44
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Such number represents the number of shares of Common Stock as are
initially issuable upon conversion of the 6 1/2% Convertible Subordinated
Debentures due 2003 registered hereby.
(3) Shares of Common Stock issued to Bay Harbour Management, L.C., or its
managed accounts, as a result of a private placement of common stock, and not
registered pursuant to the Securities Act of 1933.
(4) Shares of Common Stock issued to Robert D. Carl, III upon the
conversion by Mr. Carl of $1,500,000 principal amount of the registrant's 6 1/2%
Convertible Subordinated Debentures due 2003. (
5) Shares of Common Stock issued to Bay Harbour Management, L.C., or its
managed accounts, upon the conversion by Bay Harbour Management, L.C., or its
managed accounts, of $6,090,000 principal amount of the registrant's 6 1/2%
Convertible Subordinated Debentures due 2003.
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(6) Shares of Common Stock purchased by Bay Harbour Management, L.C., or
its managed accounts, from common stockholders of the Company in private
transactions, which shares of Common Stock are not registered pursuant to the
Securities Act of 1933.
* The registration fee with regard to such securities was paid on or about
January 14, 1998.
** A portion of the applicable registration fee with regard to such
securities, being $1,486.80 in total, was paid on or about November 12, 1998.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
TOPS APPLIANCE CITY, INC.
Cross Reference Sheet
Form S-3 Item No. and Caption Prospectus Caption
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus........................... Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus.................. Inside Front Cover;
Outside Back Cover Page
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges... Offering Summary;
The Company; the
Exchange; Risk Factors
4. Use of Proceeds...................... Use of Proceeds
5. Determination of Offering Price...... Not Applicable
6. Dilution............................. Not Applicable
7. Selling Security Holders............. Selling Shareholders
8. Plan of Distribution................. Outside Front Cover Page;
Plan of Distribution
9. Description of Securities
to be Registered..................... The Securities
10. Interest of Named Experts and Counsel Not Applicable
11. Material Changes..................... Not Applicable
12. Incorporation of Certain Information
by Reference......................... Incorporation of Certain
Documents by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.......................... Not Applicable
4
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 26, 1999
PROSPECTUS
TOPS APPLIANCE CITY, INC.
$97,500
6 1/2% Convertible Subordinated Debentures
due 2003
(Interest Payable February 28 and August 31)
6,960,006 Shares of Common Stock
This Prospectus relates to (a) $97,500 aggregate principal amount of
the Company's 6 1/2% Convertible Subordinated Debentures due 2003 issued on
September 1, 1997 (the "Debentures"),(b) 55,715 shares of Common Stock, no par
value, of the Company (the "Issuable Shares"), issuable upon the exercise of the
conversion right provided by the Debentures, (c) 4,337,143 shares of Common
Stock, no par value, of the Company (the "Converted Shares"), issued to Bay
Harbour Management, L.C., or its managed accounts (collectively, "Bay Harbour"),
and Robert D. Carl, III ("Carl"), respectively, which shares of Common Stock
were issued upon the conversion of Debentures by Bay Harbour and Carl, (d)
500,000 shares of Common Stock, no par value, of the Company (the "Third Party
Shares"), purchased by Bay Harbour in private transactions from shareholders of
the Company, which Third Party Shares are not registered pursuant to the
Securities Act of 1933, as amended (the "Securities Act")and (e) 2,067,148
shares of Common Stock, no par value, of the Company (the "Private Placement
Shares"), purchased by Bay Harbour from the Company in a private placement,
which Private Placement Shares are not registered pursuant to the Securities Act
(the Issuable Shares, the Converted Shares, the Third Party Shares and the
Private Placement Shares are hereinafter referred to collectively as the
"Shares" and the Converted Shares, the Third Party Shares and the Private
Placement Shares are hereinafter referred to collectively as the "Issued
Shares"). The Private Placement Shares include 1,400,000 shares of Common Stock
which were issued to Bay Harbour in exchange for the proceeds of the private
placement and 667,148 shares of Common Stock which were issued to Bay Harbour as
an adjustment in connection with the private placement as a result of the
decrease in the price of the Company's Common Stock following the closing of the
private placement.
<PAGE>
The Debentures and the Shares that are being registered hereby are to
be offered for the account of the holders thereof, who are the Debenture Holders
as set forth on page 17 of this Prospectus, Bay Harbour accounts, and Carl, all
of whom are referred to collectively in this Prospectus as the "Selling
Shareholders."
The Debentures are convertible into Common Stock of the Company after
February 28, 1999 at a conversion price of $1.75 per share (equivalent to
571.42857 shares per $1,000 principal amount of Debentures). On January 21, 1999
the last reported sale price of the Common Stock of the Company on the NASDAQ
National Market System (where it trades under the symbol TOPS) was $2.188 per
share.
The Debentures are redeemable at the option of the holder upon a
Change in Control (as defined in the Indenture), subject to certain conditions,
at 101% of the principal amount thereof plus accrued interest, and under certain
other circumstances. The Debentures are unsecured obligations of the Company and
subordinate in right of payment to all existing and future Senior Indebtedness
(as defined in the Indenture) of the Company. At January 21, 1999, the aggregate
amount of Senior Indebtedness of the Company was approximately $49,395,000. The
Debentures will rank pari passu with the 6 1/2% Convertible Subordinated
Debentures due 2003 issued on November 30, 1993 in respect of payment of
principal and interest.
The Debentures are traded in the Private Offering, Resales and
Trading through the Automated Linkages ("PORTAL") Market. The Company does not
intend to list the Debentures on any national securities exchange. It may be
unlikely that a secondary market in the Debentures themselves (as opposed to the
Shares) will develop.
See "Risk Factors" at page 11 for a discussion of certain factors
that should be considered in connection with an investment in the Debentures and
the Shares.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The Debentures and the Shares are being registered to permit
secondary trading of the Debentures and the Issued Shares and, upon conversion,
the Issuable Shares, by the holders thereof from time to time after the date of
this Prospectus. The Company has agreed, among other things, to bear all expense
(other than underwriting discounts, selling commissions and fees and the
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<PAGE>
expenses of counsel and other advisors to holders of the Debentures or the
Shares) in connection with the registration and sale of the Debentures and the
Shares covered by this Prospectus.
The Company anticipates that holders of the Shares may sell all or a
portion of the Shares from time to time on the NASDAQ National Market System,
and may sell Debentures or Shares through a broker or brokers or in the
over-the-counter market at prices prevailing on such exchange or the
over-the-counter market, as appropriate, at the times of such sales. Holders of
Debentures or Shares may also make private sales directly or through such broker
or brokers. Brokers participating in such transactions will receive customary
brokerage commissions from sellers of Debentures or Shares. In effecting sales,
brokers or dealers engaged by holders of Debentures or Shares may arrange for
other brokers or dealers to participate. In connection with such sales, holders
of Debentures or Shares and brokers participating in such sales may be deemed to
be underwriters within the meaning of the Securities Act.
The date of this Prospectus is January 26, 1999
3
<PAGE>
No dealer, salesperson or other person is authorized in connection with
any offering made hereby to give any information or to make any representation
not contained in this Prospectus, and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any of the Debentures, the Issued Shares or the Issuable Shares
into which the Debentures may be converted, to any person in any jurisdiction in
which it is unlawful to make such an offer or solicitation to such person.
Neither the delivery of this Prospectus nor any sale made hereunder shall under
any circumstances create any implication that the information contained herein
is correct as of any date subsequent to the date hereof.
AVAILABLE INFORMATION
Tops Appliance City, Inc. (the "Company") is subject to the
information requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith files reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at 500 West Madison Street, Chicago, Illinois
60601 and 7 World Trade Center, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission and the address for such site is http://www.sec.gov. The
Company's Common Stock is quoted on the NASDAQ National Market System, and such
reports, proxy statements and other information can also be inspected at the
offices of NASDAQ Operations, 1735 K Street, N.W., Washington, D.C.
The Company has filed with the Commission a registration statement on
Form S-3 (copies of which may be obtained from the Commission at its principal
office in Washington, D.C. upon payment of the charges prescribed by the
Commission, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made
4
<PAGE>
to the Registration Statement and the exhibits thereto. Statements
contained in this Prospectus as to the contents of any contract or any other
documents are not necessarily complete and, in each such instance, reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission
pursuant to the Exchange Act are hereby incorporated by reference in this
Prospectus, except as otherwise superseded or modified herein:
(a) The Company's Annual Report on Form 10-K/A for the year ended December
30, 1997.
(b) The Company's Proxy Statement for its Annual Meeting of Stockholders
held on June 29, 1998.
(c) The Company's Quarterly Reports on Form 10-Q/A for the quarters ended
March 31, 1998, June 30, 1998 and September 29, 1998.
(d) The Company's Current Reports on Form 8-K dated February 9, 1988, April
8, 1998 and July 14, 1998.
(e) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form S-1 filed on June 3, 1992, as amended
(Registration No. 33-48326).
(f) The description of the Company's 6 1/2% Convertible Subordinated
Debentures due 2003 and the section entitled "ERISA Considerations" contained in
the Company's Registration Statement on Form S-3 filed on February 10, 1994, as
amended (Registration No. 33-75110).
(g) All documents subsequently filed by the Company pursuant to Section 13,
14, or 15(d) of the Exchange Act prior to the termination of the offering to
which this Prospectus relates shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the date of filing of such
documents.
Any statement contained in any document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed documents which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part
5
<PAGE>
of this Prospectus. The Company will furnish without charge to each person
to whom this Prospectus is delivered, upon his written or oral request, a copy
of any or all of the documents referred to above which have been incorporated
into this Prospectus by reference (including the exhibits to such documents).
Requests for such copies should be directed to:
TOPS APPLIANCE CITY, INC.
45 Brunswick Avenue
Edison, New Jersey 08818
Attention: Richard Jones
Chief Executive Officer
(732) 248-2850
6
<PAGE>
OFFERING SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing, and the financial statements incorporated by reference,
elsewhere in this Prospectus.
THE COMPANY
Tops Appliance City, Inc. ("Tops" or the "Company") is a leading
retailer of home appliances and consumer electronics in New Jersey and New York,
serving a customer base within the Greater New York Metropolitan Area. The
Company operates 9 retail megastores, ranging in size from 43,000 to 120,000
square feet, in heavily populated areas in New Jersey and in New York. The
Company also operates a commercial division, selling to small independent
retailers, builders and landlords, corporate buying groups and clubs and others.
Tops' stores display a broad selection of high quality, nationally recognized
brand names in each of its product categories. The Company's primary products
include major appliances (such as refrigerators, washers and dryers),
televisions, VCRs, camcorders, air-conditioners, consumer electronics, audio
equipment, personal computers, small electronic appliances, vacuum cleaners,
seasonal goods, home fitness products, housewares, related accessories and
extended service plans.
THE 1997 EXCHANGE
Pursuant to a Debenture Exchange Agreement, dated as of August 20,
1997, between the Company and BEA Associates, a New York partnership ("BEA"), as
agent for certain holders of the Company's 6 1/2% Convertible Subordinated
Debentures due 2003 issued on November 30, 1993 (the "1993 Debentures"), the
Company issued $7,687,500 of new debentures (the "Debentures") for $15,375,000
of the 1993 Debentures. The Company has been advised that the parties to that
exchange, with the exception of ABT Co., Incorporated, Retirement Plan ("ABT")
and Gordon Bennett ("Bennett"), transferred all of the Debentures to Bay Harbour
and Carl and that BEA is no longer agent for any holder of any of the
Debentures. To the best knowledge of the Company, BEA was the discretionary
money manager for the holders of the 1993 Debentures who exchanged them for
Debentures pursuant to certain written advisory agreements between BEA and each
such holder and had the discretionary authority to transfer any or all of the
Debentures. Bay Harbour and Carl, pursuant to certain Conversion Agreements with
the Company, dated July 16, 1998 and May 8, 1998, respectively, converted
$7,590,000 principal amount of the Debentures into 4,337,143 shares of Common
Stock at a conversion price of $1.75 per share.
7
<PAGE>
DEBENTURE HOLDERS
The Debentures are being registered pursuant to the terms of the
Debenture Exchange Agreement dated as of August 20, 1997 between the Company and
BEA. The Debentures are held by ABT ($62,500) and Bennett ($35,000).
THE PRIVATE PLACEMENT
The Company issued 1,400,000 shares of Common Stock to Bay Harbour on
July 20, 1998 in exchange for $5,040,000 pursuant to the terms of a Share
Purchase Agreement (the "Share Agreement"), dated as of July 16, 1998, between
the Company and Bay Harbour, and the Company subsequently issued an additional
667,148 shares of Common Stock to Bay Harbour in connection with the private
placement as an adjustment because of the decrease in the price of the Company's
Common Stock following the closing of the private placement(the "Private
Placement"). The shares of Common Stock issued in connection with the Private
Placement were not registered pursuant to the Act, but the Company agreed to use
its best efforts to cause such shares of Common Stock to be registered pursuant
to the Act.
THIRD-PARTY TRANSACTIONS
In certain private transactions between Bay Harbour and certain
holders of Common Stock of the Company, Bay Harbour acquired 500,000 shares of
Common Stock of the Company for $3.00 per share, or $1,500,000 in the aggregate.
As a condition of Bay Harbour entering into the Conversion Agreement to convert
the Debentures held by Bay Harbour into Common Stock, the Company agreed to use
its best efforts to cause shares of Common Stock acquired by Bay Harbour in such
private transactions to be registered pursuant to the Act.
DEFINITIONS
Capitalized terms not defined herein have the respective meanings
assigned to such terms in the 1994 Registration Statement (as hereinafter
defined).
8
<PAGE>
THE OFFERING
The Debentures
Securities Offered............. $97,500 principal amount of 6 1/2%
Convertible Subordinated Debentures due 2003
of the Company.
Interest Payment Dates......... 6 1/2% per annum payable semi-annually on
February 28 and August 31, commencing
February 28, 1998.
Conversion Rights.............. The Debentures are convertible into Issuable
Shares after February 28, 1999 at
a conversion price of $1.75 per share.
Accordingly, each $1,000 principal amount
of Debentures is convertible into
571.42857 shares of the Company's common
stock, subject to adjustment, or an
aggregate of 55,715 shares, representing
approximately 0.4% of the Company's
outstanding Common Stock on a fully
diluted basis.
Redemption at the Option of
the Holder.................. If a Redemption Event occurs, subject to
certain conditions, each holder shall
have the right, at the holder's option, to
require the Company to purchase all or any
part of such holder's Debentures at 101%
of the principal amount thereof plus
accrued interest.
Change of Control............. Upon a Change of Control, the Company will be
required to make an offer to purchase the
aggregate principal amount of the Debentures
then outstanding at 101% of the principal
amount thereof, plus accrued interest to the
date of purchase.
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Subordination................. The Debentures are subordinate in right of
payment to all existing and future Senior
Indebtedness. The Debentures do not limit or
restrict the Company's ability to incur any
additional Indebtedness.
Use of Proceeds............... The Debentures and, upon conversion of the
Debentures, the Issuable Shares, are not
owned by the Company; accordingly, the
Company will receive none of the proceeds
from the sale thereof.
ERISA Considerations.......... The Debentures may be sold or transferred to
employee benefit plans only under certain
circumstances. See "ERISA Considerations" as
contained in the Company's Registration
Statement on Form S-3 filed on February 10,
1994, as amended, (Registration Statement No.
33-75110)(the "1994 Registration Statement").
In addition, transfers of the Debentures are
subject to certain restrictions.
The Common Stock
Securities Offered .............. 6,960,006 shares of Common Stock, no par
value, of the Company
Use of Proceeds .............. The Company did not receive any proceeds
from the conversion of Debentures
into the Converted Shares or of the
purchase by Bay Harbour of the Third Party
Shares. The Company does not own the
Issued Shares and will not receive any
proceeds from this sale. The Company
received $5,040,000 as a result of the
Private Placement and the issuance of the
Private
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Placement Shares. The Company
used the net proceeds from the issuance of
the Private Placement Shares for working
capital and capital expenditures for new
stores.
NASDAQ National Market
System Symbol .............. TOPS
RISK FACTORS
In addition to the other information in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the Debentures or the Shares offered by this Prospectus.
Going Concern Status
In the Company's annual report (Form 10-K) for the year ended
December 31, 1996, the report of the Company's independent auditors, Ernst &
Young LLP, contained therein, contained an explanatory paragraph with respect to
the uncertainty of the Company's ability to continue as a going concern. The
Company reported operating losses for fiscal year 1997 and for the quarter ended
March 31, 1998, which were significantly less than the operating losses for
fiscal year 1996 and for the quarter ended April 1, 1997, respectively. The
Company reported operating income for the quarters ended June 30, 1998 and
September 29, 1998. The Company is taking steps to improve its operating
performance, however, no assurances can be given that such steps will be
effective. In the Company's annual report (Form 10-K/A) for the year ended
December 30, 1997, the report of the Company's independent accountants, Arthur
Andersen, LLP, contained therein, did not contain any statement concerning the
Company's ability to continue as a going concern.
Future Growth
The Company has experienced flat or declining comparable store sales
for the past five years. This sales performance was mostly attributable to the
continuing weak retail environment in the appliance and electronics industries
and increased competition. This competitive environment has put pressure on
gross margins as retailers focus on maintaining market share. In addition, the
recent demand for consumer electronics has decreased due to the lack of new
products brought to market. Research also indicates that high consumer debt
levels have also reduced consumer spending
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on nonessential items. The fiscal
periods ending December 30, 1997 and December 31, 1996 were also severely
impacted by the unseasonably cooler weather in the northeast during the summer
months which affected sales of room air conditioners. Substantial price
deflation in video and home office products also contributed to the weak sales
performance. The Company believes that increases in comparable store sales are
dependent upon the effectiveness of the Company's merchandising and marketing
strategies and on the Company opening new stores. New store openings are
dependent on the Company's ability to identify and finance new locations on
acceptable terms and to hire appropriate store personnel. There can be no
assurances that the Company will be able to open or operate new stores on a
timely or profitable basis or that comparable store sales will increase in the
future.
Year 2000 Readiness
The Company has initiated a program to prepare the Company's computer
systems and applications for the year 2000. This is necessary because computer
programs have been written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculation causing
disruptions of operations, including, among other things, a temporary inability
to process normal business transactions. In addition, many of the Company's
vendors and service providers are also faced with similar issues related to the
year 2000.
In connection with the Company's programs related to year 2000,
management has assessed the Company's information systems, including its
hardware and software systems and embedded systems contained in the Company's
stores, distribution facilities and corporate headquarters. Based on the
findings of this assessment, the Company has commenced a plan to upgrade or
replace the Company's hardware or software for year 2000 readiness as well as to
assess the year 2000 readiness of the Company's vendors and service providers.
In addition, the Company's management is currently formulating contingency
plans, which, in the event that the Company is unable fully to achieve year 2000
readiness in a timely manner, or any of the Company's vendors or service
providers fails to achieve year 2000 readiness, may be implemented to minimize
the risks of interruptions of the Company's business.
Based on its assessment to date of the year 2000 readiness of the
Company's vendors, service providers and other third parties on which the
Company relies for business operations, the Company believes that the Company's
principal vendors, service providers and other third parties are taking action
for year 2000 compliance. However, the Company has limited ability to test and
control such third parties' year 2000 readiness, and the Company cannot provide
assurance that failure of such third parties to address the year 2000 issue will
not cause an
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interruption of the Company's business.
The Company has committed significant resources in connection with
resolving its year 2000 issues. The Company expects that the principal costs
will be those associated with the remediation and testing of its computer
applications. The Company estimates that the total costs associated with
implementing year 2000 readiness will be approximately $2.0 million, consisting
of system replacement costs of $1.0 million, and equipment replacement of $1.0
million. The Company anticipates that it will finance the cost of its year 2000
remediation.
The Company expects to complete its year 2000 remediation by October
1999. However, the Company's ability to execute its plan in a timely manner may
be adversely affected by a variety of factors, some of which are beyond the
Company's control including turnover of key employees, availability and
continuity of consultants and the potential for unforeseen implementation
problems. The Company's business could be interrupted if the year 2000 plan is
not implemented in a timely manner, if the Company's vendors, service providers
or other third parties are not year 2000 ready or if the Company's contingency
plans are not successful. Based on current available information, and although
no assurance can be given, the Company does not believe that any such
interruptions are likely to have a material adverse effect on the Company's
results of operation, liquidity or financial condition.
Control by Current Shareholders
Leslie S. Turchin owns 2,217,859 shares of Common Stock, constituting
approximately 16.5% of the Company's outstanding Common Stock, The Westinghouse
Electric Corporation Master Trust owns 2,236,638 shares of Common Stock,
constituting approximately 16.6% of the Company's outstanding Common Stock and
Bay Harbour owns 6,305,000 shares of Common Stock, constituting approximately
46.8% of the Company's outstanding Common Stock. As a result, these three
shareholders are able to control the election of the Company's Board of
Directors and thereby direct the policies of the Company. The Common Stock does
not have cumulative voting rights.
Competition
The Company operates in a highly competitive marketplace. The Company
faces competition for customers from specialty and traditional department
stores, other retailers and, in some product lines, warehouse clubs. Some of
these competitors are units of large or regional chains that may have greater
financial and other resources than the Company. One such competitor is Circuit
City, a national retailer of consumer electronics, music and appliances, which
recently entered the Company's marketplace. The Company does not anticipate that
such entrance by Circuit City will have a negative material effect on the
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Company. The Company does not believe that there are any major barriers to
competitors entering into the Company's marketplace. If any of the Company's
major competitors seek to gain or retain market share by reducing prices, the
Company may be required to reduce its prices and thereby reduce its gross
margins and profitability. In addition, if the Company expands outside its
traditional geographic region, its success will depend in part on its ability to
gain market share from established competitors. One of the Company's leading
competitors, Nobody Beats the Wiz, Inc. ("The Wiz"), filed for bankruptcy
protection under Chapter 11 of the United States Bankruptcy Code. Cablevision
subsequently purchased the business of The Wiz. The Company does not believe
that The Wiz bankruptcy filing or subsequent sale of its business have had, or
will have, a negative material effect on the Company.
Seasonality and General Economic Conditions
The Company's business is affected to a certain extent by a pattern
of seasonality. Historically, the Company's sales have been greater in the
fourth quarter, which includes the Christmas selling season, than in any other
quarter. The Company also generally experiences an increase in sales during May
through August due to air conditioner sales, and the timing and amount of the
increase are largely dependent upon weather conditions. The Company's sales are
also generally lowest in the first quarter. The Company experienced net losses
in fiscal years 1995 and 1996. Similar to other retail businesses, the Company's
operations may be affected adversely by unfavorable local, regional or national
economic developments which result in reduced consumer spending in the markets
served by its stores. If the Company's sales were to be substantially below
those normally experienced during the summer months or during the Christmas
selling season, the Company's operating results would be affected in an adverse
and disproportionate manner.
Extended Service Contracts
Approximately 4.5% to 5% of the Company's net sales and service
revenues in each of the past five years consist of revenues earned from the sale
of extended service plans. The Company's gross margins with respect to such
sales exceed the Company's gross margins from the sale of products. Unlike many
of its competitors, the Company sells these contracts on a non-recourse basis to
a third party administrator that is required to maintain insurance to guarantee
the performance under the Company's extended service contracts program. As a
result of their contribution to
14
<PAGE>
profitability, a reduction in the Company's
revenues from extended service contracts could have a disproportionate effect on
the Company's operating results.
Certain Anti-Takeover Effects
The Company's Certificate of Incorporation and By-Laws include
provisions that may be deemed to have anti-takeover effects and may delay, defer
or prevent a takeover attempt that shareholders might consider in their best
interests. These provisions include a classified Board of Directors consisting
of three classes as nearly equal in number as possible, Board of Directors'
authorization to issue up to 20,000,000 shares of preferred stock in one or more
series with such rights, obligations and preferences as the Board of Directors
may provide, a provision under which only the Board of Directors may call
meetings of shareholders, and certain advance notice procedures for nominating
candidates for election to the Board of Directors.
Absence of Public Market
There is no existing market for the Debentures and there can be no
assurance as to the liquidity of any markets that may develop for the
Debentures. Future trading prices of the Debentures will depend on many factors
including, among other things, prevailing interest rates, the Company's
operating results, the price of the Company's Common Stock and the market for
similar securities. The Debentures are traded in the PORTAL Market; however, the
Company does not intend to apply for listing of the Debentures on any securities
exchange.
Subordination
The Debentures are subordinate in right of payment to all Senior
Indebtedness of the Company. At January 21, 1999, the Company's outstanding
Senior Indebtedness was approximately $49,395,000 million. By reason of such
subordination of the Debentures, in the event of the insolvency, bankruptcy,
liquidation, reorganization, dissolution or winding up of the business of the
Company or upon a default in payment with respect to any indebtedness of the
Company or an event of default with respect to such indebtedness resulting in
the acceleration thereof, the assets of the Company will be available to pay the
amounts due on the Debentures only after all Senior Indebtedness of the Company
has been paid in full.
15
<PAGE>
Consolidated Ratio of Earnings to Fixed Charges
Year Ended December 30 or 31 Nine Months Ended
- ------------------------------------------- -----------------
1993 1994 1995 1996 1997 9/30/97 9/29/98
- ---- ---- ---- ---- ---- ------- -------
2.8 (1) (1) (1) (1) (2) (2)
(1) Earnings for the years ended December 27, 1994, December 26, 1995,
December 31, 1996 and December 30, 1997 were inadequate to cover fixed charges.
Additional earnings of $2.2 million, $3.2 million, $21.4 million and $7.1
million, respectively, would have been required to bring the ratio to 1.0 in the
respective periods
(2) Earnings for the nine-month periods ended September 29, 1998 and
September 30, 1997 were inadequate to cover fixed charges. Additional earnings
of $3.9 million and $8.3 million, respectively, would have been required to
bring the ratio to 1.0.
THE SECURITIES
The Debentures
The Company has incorporated the description of the 1993 Debentures
contained in the 1994 Registration Statement. The description contained therein
is accurate in all material respects except for the following:
1. The price at which the Debentures may be converted into Shares is
$1.75 per share. Any such conversion may not occur prior to February 28, 1999
unless agreed to by the Company in accordance with all applicable laws.
2. Upon conversion of Debentures into Shares, in the event that BEA
owns, beneficially or otherwise, in excess of 12.5% or 25%, respectively, of the
outstanding common stock of the Company, BEA shall have the right to designate
one or two directors of the Company, as the case may be.
3. The Debentures have not been issued under the Indenture (as such
term is defined in the 1994 Registration Statement). However, all terms of the
Indenture apply to the Debentures except that the trustee under the Indenture
has no authority, power or obligation with respect to the Debentures and no
registrar or paying agent exists with respect to the Debentures.
16
<PAGE>
4. The Debentures rank pari passu with the 1993 Debentures in
respect of the payment of principal and interest.
5. The Company has no right to effect an optional redemption of the
Debentures.
6. In the event that a third party offers to purchase all of the
common stock of the Company or the securities of the Company held by BEA,
beneficially or otherwise, at a price in excess of $1.75 per share and the
Company's board of directors rejects such an offer, BEA has the right to convert
any Debentures which it then holds, beneficially or otherwise, and sell all of
the common stock of the Company which it then holds, beneficially or otherwise,
to such third party; provided, however, that the Company has thirty (30) days
prior to the sale of any such common stock to such third party to purchase such
common stock from BEA upon the same terms and conditions as are offered to BEA.
The Common Stock
The Company has incorporated the description of the Common Stock
contained in the Company's Registration Statement on Form S-1 filed on June 3,
1992, as amended (Registration No. 33-48326).
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the
Debentures nor will it receive any proceeds from the conversion of the
Debentures into Issuable Shares. The Company also did not receive any proceeds
from the conversion of Debentures into the Converted Shares or of the purchase
by Bay Harbour of the Third Party Shares. The Company received $5,040,000 as a
result of the Private Placement and the issuance of the Private Placement
Shares. The Company used the net proceeds from the issuance of the Private
Placement Shares for working capital and capital expenditures for new stores.
17
<PAGE>
SELLING SHAREHOLDERS
The following sets forth certain information with respect to the
Selling Shareholders, none of whom has ever held any position or office with the
Company or has had any other material relationship with the Company.
<TABLE>
<CAPTION>
Principal Amount of Principal Amount of Debentures to be Held
Debentures Before Debentures to be After Offering
Name Offering Offered
- --------------------------- --------------------- ------------------ ----------------------
<S> <C> <C> <C>
ABT Co., Incorporated
Retirement Plan $62,500 $62,500 0
Gordon Bennett $35,000 $35,000 0
</TABLE>
<TABLE>
<CAPTION>
Name of Selling Shareholder Shares Owned Before Shares to be Shares to be Owned After
Offering Offered Offering
- --------------------------- ------------------- ------------- ------------------------
<S> <C> <C> <C>
ABT Co., Incorporated
Retirement Plan 35,715 35,715 0
Gordon Bennett 20,000 20,000 0
Bay Harbour Management, L.C. 6,047,148 6,047,148 0
Robert D. Carl 857,143 857,143 0
</TABLE>
PLAN OF DISTRIBUTION
The Debentures and the Shares are being registered to permit public
secondary trading of the Debentures and the Shares by the holders thereof from
time to time after the date of this Prospectus. The Company has agreed, among
other things, to bear all expenses (other than underwriting discounts, selling
commissions and fees and the expenses of counsel and other advisors to holders
of the Debentures or the Shares) in connection with the registration and sale of
the Debentures and the Shares covered by this Prospectus.
The Company anticipates that holders of Shares may sell all or a
portion of the Shares from time to time on the NASDAQ National
18
<PAGE>
Market System, and may sell Debentures or Shares through a broker or
brokers or in the over-the-counter market at prices prevailing on such exchange
or the over-the-counter market, as appropriate, at the times of such sales.
Holders of Debentures or Shares may also make private sales directly or through
such broker or brokers. Brokers participating in such transactions will receive
customary brokerage commissions from sellers of Debentures or Shares. In
effecting sales, brokers or dealers engaged by holders of Debentures or Shares
may arrange for other brokers or dealers to participate. In connection with such
sales, holders of Debentures or Shares and brokers participating in such sales
may be deemed to be underwriters within the meaning of the Securities Act. The
Company does not intend to list the Debentures on any national securities
exchange. It may be unlikely that a secondary market in the Debentures
themselves (as opposed to the Shares) will develop.
LEGAL MATTERS
The legality of the Debentures and the Shares offered by this
Prospectus has been passed upon by Greenbaum, Rowe, Smith, Ravin, Davis & Himmel
LLP, Woodbridge, New Jersey.
EXPERTS
The consolidated financial statements of Tops Appliance City, Inc.
appearing in the Company's annual report (Form 10-K/A) for the year ended
December 30, 1997, have been audited by Arthur Andersen LLP, independent
auditors, as set forth in their report therein, included therein and
incorporated herein by reference, and the consolidated financial statements of
Tops Appliance City, Inc. at December 31, 1996, and for each of the 2 years in
the period then ended, appearing in the Company's annual report (Form 10-K/A)
for the year ended December 30, 1997, were audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon (which contains an
explanatory paragraph with respect to the uncertainty of the Company's ability
to continue as a going concern), included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such reports given upon the authority of such firms
as experts in accounting and auditing.
19
<PAGE>
No dealer, salesperson or other person
has been authorized to give any information
or to make any representations in connection
with this offering other than those contained
in this Prospectus and, if given or made, such
information or representations must not be relied
upon as having been authorized by the Company.
This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy by
anyone in any jurisdiction in which such offer
or solicitation is not authorized, or in which
the person making such offer or solicitation is
not qualified to do so, or to any person to whom it
is unlawful to make such offer or solicitation.
Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances,
create an implication that there has not been any
change in the affairs of the Company since the date
hereof.
TABLE OF CONTENTS
Page
Available Information 4
Incorporation of
Certain Documents
by Reference ....... 5
Offering Summary .... 7
The Company ......... 7
The Offering ........ 9
Risk Factors ........ 11
Use of Proceeds ..... 17
Plan of Distribution 18
Legal Matters ....... 19
Experts ............. 19
TOPS APPLIANCE
CITY, INC.
$97,500 6 1/2% Convertible
Subordinated Debentures
due 2003
6,960,006 Shares of
Common Stock
PROSPECTUS
January 26, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The registrant estimates expenses in connection with the offering
described in this Registration Statement will be as follows:
Item Amount
Securities and Exchange Commission Registration Fee $ 3,816.12
Printing and Engraving Expenses 0.00
Accountants' Fees and Expenses 25,000.00
Legal Fees and Expenses 50,000.00
Miscellaneous 170.68
Total $ 78,986.80
===========
Item 15. Indemnification of Directors and Officers.
The description set forth under the caption "Indemnification of
Directors and Officers" in the Company's Form S-1 Registration Statement No.
33-48326 is incorporated herein by reference.
Item 16. Exhibits.
Exhibit Number Description of Document
4 Specimen of stock certificate for shares of Common
Stock; Incorporated by reference from Form S-1 filed
June 3, 1992, Registration No. 33-48326.
4.2 Specimen of Certificate for Debentures - incorporated
by reference from Exhibit 10.34 of Form 10-K for year
ended December 30, 1997.
5 Form of Opinion of Greenbaum, Rowe, Smith, Ravin,
Davis & Himmel LLP - page II-10.
10.34 Debenture Exchange Agreement dated August 20,
1997 between the Registrant and BEA Associates
incorporated by reference from Exhibit 10.34 of
Form 10-K/A for year ended December 30, 1997.
II-1
<PAGE>
10.36 Conversion Agreement dated May 8, 1998 between the
Registrant and Robert D. Carl, III - page II-12.
10.37 Conversion Agreement dated July 16, 1998 between
the Registrant and Bay Harbour Management, L.C.
- page II-15.
10.38 Share Purchase Agreement dated July 16, 1998 between
the Registrant and Bay Harbour Management, L.C.
- page II-26.
23.1 Consent of Arthur Andersen LLP - Page II-7
23.2 Consent of Ernst & Young LLP - Page II-8
23.3 Consent of Greenbaum, Rowe, Smith, Ravin, Davis &
Himmel LLP (included in Exhibit 5)
Item 17. Undertakings.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
II-2
<PAGE>
such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made of
the securities registered hereby, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided however that the undertakings set forth in paragraphs (i) and (ii)
above do not apply if the Registration Statement is on Form S-3 or Form S-8 and
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable ground to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Edison, State of New Jersey, on the 18th day of
January, 1999.
TOPS APPLIANCE CITY, INC.
By:/s/ Thomas L. Zambelli
-----------------------------
Thomas L. Zambelli
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
Signature Title Date
- ------------------------ ---------------------------------- ----------------
*Robert G. Gross Director January 18, 1999
- ------------------------
Robert G. Gross
/s/Thomas L. Zambelli Executive Vice January 18, 1999
- ------------------------ President, Secretary,
Thomas L. Zambelli Director, and Chief
Financial Officer
(Principal Financial Officer)
*Anthony L. Formica Director January 18, 1999
- ------------------------
Anthony L. Formica
*John H. Hollands Director January 19, 1999
- ------------------------
John H. Hollands
*Richard Jones President, CEO and January 18, 1999
- ---------------------- Director (Principal
Richard Jones Executive Officer)
/s/Douglas P. Teitelbaum Director January 14, 1999
- ------------------------
Douglas P. Teitelbaum
/s/Steven A. Van Dyke Director January 14, 1999
- ----------------------
Steven A. Van Dyke
II-4
<PAGE>
/s/Walter A. Jones Director January 15, 1999
- ----------------------
Walter A. Jones
*By:/s/ Thomas L. Zambelli Attorney-in-Fact January 18, 1998
- ---------------------------
Thomas L. Zambelli
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description of Document Page
-------------- ----------------------- ----
<S> <C> <C>
5 Form of Opinion of Greenbaum,
Rowe, Smith, Ravin Davis & Himmel LLP II-10
10.36 Conversion Agreement dated May 8, 1998
between the Registrant and
Robert D. Carl, III II-12
10.37 Conversion Agreement dated July 16, 1998
between the Registrant and Bay Harbour
Management, L.C. II-15
10.38 Share Purchase Agreement dated
July 16, 1998 between the Registrant
and Bay Harbour Management, L.C. II-26
23.1 Consent of Arthur Andersen LLP II-8
23.2 Consent of Ernst & Young, LLP II-9
23.3 Consent of Greenbaum, Rowe, Smith,
Ravin, Davis & Himmel LLP (included in II-10
Exhibit 5
24 Power-of-Attorney II-7
</TABLE>
II-6
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Thomas L. Zambelli his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission and any
other regulatory authority, granting unto said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite and
necessary to be one in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
Signature Title Date
- --------- ----- ----
/s/Douglas S. Teitelbaum Director January 14, 1999
- -------------------------
Douglas S. Teitelbaum
/s/Steven A. Van Dyke Director January 14, 1999
- -------------------------
Steven A. Van Dyke
/s/Walter A. Jones Director January 15, 1999
- -------------------------
Walter A. Jones
II-7
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our report dated
February 18, 1998, included in Tops Appliance City, Inc.'s Form 10-K/A for the
year ended December 30, 1997 and to all references to our Firm included in this
registration statement.
/s/ Arthur Andersen LLP
Roseland, New Jersey
January 15, 1999
II-8
<PAGE>
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 2 to the Registration Statement on Form S-3 and related Prospectus
of Tops Appliance City, Inc. for the registration of $97,500 aggregate principal
amount of the Company's 6-1/2% Convertible Subordinated Debentures and 6,960,006
shares of its Common Stock and to the incorporation by reference therein of our
report dated April 15, 1997 with respect to the consolidated financial
statements and schedule of Tops Appliance City, Inc. included in its Annual
Report (Form 10-K/A) for the year ended December 30, 1997, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young, LLP
MetroPark, New Jersey
January 14, 1999
II-9
<PAGE>
___________, 1999
Page 1
II-1
EXHIBIT 5
Greenbaum, Rowe, Smith, Ravin, Davis & Himmel LLP
Metro Corporate Campus One
P.O. Box 5600
Woodbridge, NJ 07095-0988
________, 1999
Tops Appliance City, Inc.
45 Brunswick Avenue
Edison, New Jersey 08818
Re: Tops Appliance City, Inc.
Gentlemen:
We have acted as counsel to Tops Appliance City, Inc., a New Jersey
corporation (the "Company"), in connection with the filing by the Company of a
Registration Statement (the "Registration Statement")on Form S-3 (Registration
No. 333-44229), covering the registration of $97,500 6 1/2% Convertible
Subordinated Debentures due 2003 (the "Debentures") and 6,960,006 shares of
common stock, no par value per share, (the "Common Stock")(the Debentures and
the Common Stock are collectively the "Securities"). We have been asked to issue
an opinion as to whether the Securities being registered will, when sold be, or
are, legally issued, fully paid, non-assessable, and binding obligations of the
Company. Capitalized terms contained herein and not defined herein shall have
the meaning assigned to such term as contained in the Registration Statement.
As counsel to the Company, we have examined the Certificate of
Incorporation and By-Laws, as amended to date, and other corporate records of
the Company and have made such other investigations as we have deemed necessary
in connection with the opinion hereinafter set forth. We have relied, to the
extent we deem such reliance proper, upon certain factual representations of
officers and directors of the Company given in certificates, in answer to our
written inquiries and otherwise, and, although we have not independently
verified all of the facts contained therein, nothing has come to our attention
that would cause us to believe that any of the statements contained therein are
II-10
<PAGE>
untrue or misleading.
___________, 1999
Page 1
In making the aforesaid examinations, we have assumed the genuineness
of all signatures and the conformity to original documents of all copies
furnished to us. We have assumed that the corporate records of the Company
furnished to us constitute all of the existing corporate records of the Company
and include all corporate proceedings taken by it.
Based solely upon and subject to the foregoing, we are of the opinion
that:
(1) The Debentures being registered by the Company are legally issued,
fully paid, non-assessable, and binding obligations of the Company.
(2) The shares of Common Stock issuable upon conversion of the
Debentures have been duly authorized and reserved for issuance upon
conversion, and when issued upon conversion in accordance with the terms of
the Debentures, will have been validly issued and will be fully paid and
non-assessable, and the issuance of such shares by the Company is not
subject to any preemptive or similar rights.
(3) The Issued Stock has been validly issued and is fully paid and
non-assessable, and the issuance of the Issued Stock by the Company is not
subject to any preemptive or similar rights.
We hereby consent to the filing of this opinion as an Exhibit to the
aforesaid Registration Statement and to the reference to our firm under the
caption "Legal Matters" in the Prospectus.
Very truly yours,
Greenbaum, Rowe, Smith, Ravin, Davis & Himmel LLP
II-11
<PAGE>
EXHIBIT 10.2
CONVERSION AGREEMENT
THIS CONVERSION AGREEMENT, dated the 8th day of May, 1998, by and between
Tops Appliance City, Inc., a New Jersey corporation having an address at 45
Brunswick Avenue, CN 14, Edison, New Jersey 08818 ("Tops"), and Robert D. Carl,
III, a resident of the State of Tennessee having an address at 8300 Dunwoody
Place, Suite 209, Atlanta, Georgia 30350 ("Holder").
W I T N E S S E T H:
WHEREAS, Tops issued certain 6-1/2% Convertible Subordinated Debentures due
2003 (the "Debentures") pursuant to a Debenture Exchange Agreement, dated as of
August 20, 1997, between Tops and BEA Associates, a New York partnership (the
"Exchange Agreement"); and
WHEREAS, Holder is the beneficial owner of $1,500,000 in principal of the
Debentures; and
WHEREAS, the Debentures may, at the option of the Holder, be converted into
common stock of Tops (the "Common Stock") at a conversion price of $1.75 per
share (the "Conversion Price") after February 28, 1999; and
WHEREAS, Tops has agreed to permit Holder to convert the Debentures into
Common Stock at the Conversion Price in accordance with the terms and conditions
of this Agreement; and
WHEREAS, Holder has agreed to convert the Debentures into Common Stock at
the Conversion Price in accordance with the terms and conditions of this
Agreement;
NOW, THEREFORE, intending to be legally bound, and in exchange for good and
valuable consideration the sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. At the time set forth in Paragraph 2 hereof, Holder agrees to convert
(the "Conversion") $1,500,000 in principal of the Debentures into Common Stock
at the Conversion Price with the debt represented by the Debentures being
cancelled, subject to Paragraph 2 hereof.
II-12
<PAGE>
2. Holder's and Tops' obligations in Paragraph 1 hereof are subject to
the approval by both the Board of Directors and common stockholders of Tops of
the conversion of all or any part of the Debentures into Common Stock. The
Conversion shall occur immediately following the receipt of all approvals as
provided in this Paragraph without further action being required by Holder or
Tops, and upon the Conversion, Holder agrees immediately to return to Tops the
certificate(s) respecting the Debentures held by Holder, duly endorsed to Tops
for transfer.
3. Upon the Conversion, Tops shall immediately pay to Holder all accrued
and unpaid interest respecting one-half (1/2) or Seven Hundred Fifty Thousand
($750,000) in principal amount of the Debentures which were so converted. In
addition, and as consideration to Holder for agreeing to convert the Debentures
as provided herein, (i) on August 31, 1998, Tops shall pay to Holder an amount
equal to Twenty-Four Thousand Three Hundred Seventy-Five ($24,375) Dollars and
(ii) on February 28, 1999, Tops shall pay to Holder an amount equal to
Twenty-Four Thousand Three Hundred Seventy-Five ($24,375) Dollars.
4. Tops acknowledges that it caused a registration statement on Form S-3
to be filed with the Securities and Exchange Commission on or about January 14,
1998 to register the Debentures and the common stock of Tops issuable upon
conversion of the Debentures under the Securities Act of 1933, as amended (the
"Act"). Tops agrees to hereafter use its best efforts to cause such registration
statement to become effective under the Act such that the Common Stock shall be
registered.
5. Tops hereby represents to Holder that this Agreement constitutes the
legal and binding obligation of Tops, enforceable against Tops in accordance
with its terms.
6. Holder represents to Tops that: (i) this Agreement constitutes the
binding obligation of Holder, enforceable against Holder in accordance with its
terms; and (ii) Holder is the lawful and beneficial owner of the Debentures free
and clear of any lien, security interest, pledge, or other encumbrance with full
and complete right to convert the Debentures as provided herein.
7. This Agreement constitutes the entire agreement between Tops and
Holder relating to the subject matter hereof, shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns,
may be amended only in writing
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<PAGE>
signed by the parties hereto, and shall be
governed by the laws of the State of New Jersey, excluding the conflict of law
provisions of such state.
IN WITNESS WHEREOF, this Agreement has been executed and delivered as of
the date first above written.
TOPS APPLIANCE CITY, INC.
BY:/S/ Robert G. Gross
-------------------------
Robert Gross
Chief Executive Officer
/s/ Robert D. Carl, III
---------------------------
Robert D. Carl, III
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<PAGE>
EXHIBIT 10.3
July 16, 1998
Mr. Doug Teitelbaum
Bay Harbour Management, L.C.
885 Third Avenue, 34th Floor
New York, NY 10022
Dear Mr. Teitelbaum:
We understand that Bay Harbour Management, L.C., acting for its managed
accounts ("Bay Harbour"), holds $6,090,000 aggregate principal amount of 6 1/2%
Convertible Subordinated Debentures due 2003 with a $1.75 conversion price (such
Debentures held by Bay Harbour being referred to herein as the "Debentures") of
Tops Appliance City, Inc., a New Jersey corporation (the "Company"). To induce
Bay Harbour to commit to convert the Debentures into common stock, no par value
per share, of the Company ("Common Stock"), the Company has agreed that Bay
Harbour may convert the Debentures upon the terms set forth in this letter. Bay
Harbour agrees to convert such Debentures upon such terms to the extent provided
herein.
1. The Debentures shall be convertible into shares of Common Stock
("Conversion Stock") immediately upon approval of such conversion by the
shareholders of the Company. The Company shall present the matter for approval
by the shareholders on or before September 30, 1998, and shall use its best
efforts to obtain such approval. Concurrently herewith, The Turchin Family
Limited Partnership and The Westinghouse Pension Plan, who together hold greater
than 51% of the outstanding Common Stock, have delivered to Bay Harbour letters
in which they undertake to vote in favor of such approval. The conversion price
of the Conversion Stock shall be $1.75 per share (the "Conversion Price");
provided that if, at any time after the date of this Agreement, the number of
outstanding shares of Common Stock is (i) increased by a stock dividend or
distribution payable in shares of Common Stock or by a subdivision or split-up
of shares of Common Stock, or (ii) decreased by a combination or reverse split
of shares of Common Stock, then, following the record date fixed for the
determination of holders of Common Stock entitled to receive the benefits of
such stock dividend, distribution, subdivision, split-up, combination or reverse
split, the Conversion Price shall be adjusted to a new amount equal to the
product of (A) the Conversion Price in effect on such record date and (B) the
quotient obtained by dividing (x) the number of shares of Common Stock
outstanding on such record date (without giving effect to the event referred to
in the foregoing clause (i) or (ii)) by (y) the number of shares of Common Stock
which would be outstanding immediately after the event referred to in the
foregoing clause (i) or (ii), if such event had occurred immediately following
such record date.
2. Bay Harbour agrees that, promptly after the Debentures become
convertible under paragraph 1 and the other conditions set forth in this letter
are satisfied, it will convert all of the Debentures into 3,480,000 shares of
Conversion Stock (subject to any antidilution adjustments under the
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<PAGE>
terms of the Debentures).
3. The Company shall pay to Bay Harbour in cash at the time of conversion
all accrued and unpaid interest on the Debentures being converted through the
date of conversion.
4. The Company shall pay Bay Harbour's reasonable out-of-pocket
expenses, including fees and disbursements of counsel, in connection with the
conversion of the Debentures and the preparation and consummation of this letter
(the "Legal Expenses"). The Company is paying, on the date hereof, a statement
of Bay Harbour's counsel for estimated fees and disbursements through the date
hereof.
5. From and after the date of conversion of the Debentures and provided
that Bay Harbour continues to hold at least 15% of the outstanding Common Stock,
Bay Harbour shall have the right to nominate two directors to the Company's
Board of Directors. The Board of Directors of the Company has duly appointed Bay
Harbour's initial nominees to fill two newly created Board positions, effective
upon the conversion of the Debentures as provided herein. Subject to the
provisions hereof, at the time any vacancy arises in the two Board seats
occupied by Bay Harbour nominees, the Company agrees to use its best efforts
promptly to cause such vacancy to be filled by a new person nominated by Bay
Harbour. Each individual nominated by Bay Harbour shall complete a questionnaire
in the same form as has been executed by all other directors of the Company. The
rights provided in this Paragraph shall be in addition to any other rights held
by Bay Harbour to designate one or more directors to the Board of Directors of
the Company.
6. (a) If the Company or any of its subsidiaries shall receive, on or
prior to the second anniversary of the date of this letter, a bona fide written
offer (the "Offer") from a third party or parties (the "Offerors") to purchase
or otherwise acquire any Designated Securities, then the Company shall, prior to
accepting the Offer, make an offer (a "First Refusal Offer") to issue such
Designated Securities to Bay Harbour upon the terms set forth in this paragraph
6; provided, that this paragraph 6 shall not apply to (i) any Offer received by
the Company after Bay Harbour and its managed accounts no longer hold at least
15% of the outstanding Common Stock, or (ii) debt securities or equity
securities having terms within a range which, not more than 60 days prior to the
Company's receipt of the Offer in question, the Company proposed in writing for
consideration by Bay Harbour and Bay Harbour stated in writing its lack of
interest in participating in a financing in such range. The First Refusal Offer
shall state that the Company proposes to issue such Designated Securities,
include a copy of the Offer, disclose the name and address of the Offeror (or
Offerors), and set forth such other information about the Offer and the Offeror
(or Offerors) as may be available to the Company and reasonably necessary to
understand the Offer.
(b) "Designated Securities" means all (x) securities (other than
convertible debt and other equity securities) evidencing indebtedness ("debt
securities") and (y) shares of capital stock, options, warrants, or other rights
to acquire such shares, and securities exchangeable or convertible into such
shares or rights ("equity securities"), proposed to be issued by the Company or
any subsidiary, other than:
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(i) debt securities the proceeds of which are to be used for working
capital purposes and the maturity of which does not exceed one year;
(ii) equity securities to be issued to any employee of, or supplier of
goods or services or licensor to, the Company as full or partial
consideration for employment services or under any bona fide supply,
license, or similar business agreement or arrangement or under any Section
401(k) plan;
(iii) equity securities to be issued as full or partial consideration
in connection with any bona fide business or asset acquisition;
(iv) equity securities issued as a stock dividend or upon any stock
split or other subdivision or combination of shares of capital stock;
(v) debt securities issued under any revolving credit facility secured
by collateral having a fair market value equal to at least 100% of the
principal amount of such debt from time to time outstanding;
(vi) debt securities evidencing a mortgage financing secured by real
estate having a fair market value equal to at least 100% of the principal
amount of such debt;
(vii) the issuance of equity securities of the Company to Bay Harbour
pursuant to that certain Share Purchase Agreement between the Company and
Bay Harbour, dated July 15, 1998; and
(viii) the issuance of not more than 1,400,000 shares of Common Stock
to any third party in an arms-length transaction.
(c) Within 20 days (the "Acceptance Period") after delivery of the First
Refusal Offer, Bay Harbour may deliver a notice (an "Acceptance Notice") to the
Company stating that it exercises its right to purchase or otherwise acquire,
upon the terms specified in the First Refusal Offer, (i) all of the Designated
Securities specified in the First Refusal Offer or (ii) if there are two or more
Offerors, the specific number of Designated Securities any single Offeror
offered to purchase or acquire, unless such Offerors are acting in concert and
the Offer by its terms is conditioned upon the issuance to the Offerors of all
Designated Securities specified in the Offer. The closing of the purchase or
other acquisition, upon the terms specified in the First Refusal Offer, by Bay
Harbour of any Designated Securities shall take place at the offices of the
Company within 10 days after the end of the Acceptance Period or at such time as
is set forth in the Offer; provided, however, that the Acceptance Notice may
state that the purchase or acquisition of the Designated Securities specified in
the Acceptance Notice (if less than all of the Designated Securities specified
in the First Refusal Offer) shall be conditioned upon the issuance of any
remaining Designated Securities to the Offeror, in which case such purchase or
acquisition shall be subject to, and shall take place simultaneously with, such
issuance to the Offeror or Offerors.
(d) If Bay Harbour does not exercise its rights as provided in this
Paragraph with
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<PAGE>
respect to all of the Designated Securities specified in the
First Refusal Offer, then the remaining Designated Securities may be issued to
the Offeror or Offerors upon the terms set forth in the Offer, provided that
such issuance is bona fide and completed within 120 days after the end of the
Acceptance Period. If such issuance is not completed within such 120-day period,
the restrictions set forth in this Paragraph shall again become effective in
full.
7. The Company shall cause the Conversion Stock to be registered under a
shelf registration statement filed with the Securities and Exchange Commission
in accordance with the provisions of the attached Annex and shall comply with
its obligations set forth therein. The within registration right shall also
apply to all unregistered shares of Common Stock which Bay Harbour acquires from
Turchin and/or Westinghouse (collectively the "Unregistered Shares"), provided,
however, that Bay Harbour shall have the right to request that the Company cause
any or all of the Unregistered Shares to be registered in accordance with Annex
A only on one (1) occasion upon the delivery by Bay Harbour of written notice of
such request to the Company which notice shall contain the number of shares of
Common Stock to be registered and the date of delivery of such notice shall be
the date on which the Company's time to file such registration statement shall
begin.
8. The Company hereby represents and warrants that:
(a) This letter has been duly authorized, executed and delivered by the
Company and constitutes the valid and binding obligation of the Company,
enforceable in accordance with its terms.
(b) The Conversion Stock has been duly authorized and, upon issuance
pursuant thereto, will be validly issued, fully paid and non-assessable with no
personal liability attaching to the ownership thereof, and is not and will not
be subject to preemptive or any other similar rights of the shareholders of the
Company or others; and the Conversion Stock has been duly reserved for issuance.
(c) The execution, delivery and performance of this letter and the issuance
and delivery of the Conversion Stock does not and will not violate or conflict
with (i) any applicable provision of law, statute, rule or regulation, or, to
the knowledge of the Company, any order, judgment or decree applicable to the
Company of any court, arbitrator, governmental agency or the National
Association of Securities Dealers, Inc., or (ii) the Company's certificate of
incorporation or bylaws.
(d) The Company's Form 10-K for the period ending December 30, 1997, and
Form 10-Q for the period ending March 31, 1998 are correct and complete and do
not, as of the date hereof, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading.
9. Concurrently herewith the Company is delivering to Bay Harbour: (i) A
certified resolution of the Company's Board of Directors authorizing the
execution, delivery and performance of this letter and the issuance of the
Conversion Stock in accordance herewith, reserving the Conversion Stock for
issuance, and appointing Bay Harbour's initial nominees to the Board in
accordance with Paragraph 5 above, (ii) certified copies of the Company's
certificate of incorporation and bylaws, (iii) a
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<PAGE>
certificate stating that the conditions specified in Paragraph 10 have been
satisfied, (iv) an opinion of the Company's legal counsel as to the matters set
forth in Paragraph 8(a) and (c), (v) payment in full of all Legal Expenses, and
(vi) such additional certificates and other documents as Bay Harbour may
reasonably request.
10. Bay Harbour's obligation to convert the Debentures pursuant to
Paragraph 2 shall be subject to the following conditions precedent:
(a) The representations and warranties of the Company set forth in
Paragraph 8 shall be true and correct as if made as of the date of conversion,
as evidenced by a certificate of the Company's Chief Executive Officer to such
effect; and
(b) Such conversion shall have been duly approved by the shareholders of
the Company.
(c) The Company shall have performed or complied with all of the covenants
and agreements required to be performed or complied with by the Company under
this Agreement at or prior to the Closing.
(d) The Company shall have obtained all consents, approvals, orders,
authorizations of, and registrations and filings with, any Federal, state, local
or foreign government or any court of competent jurisdiction, administrative
agency or commission or other governmental authority or instrumentality,
domestic or foreign (a "Governmental Entity") or NASDAQ, that are required to be
obtained or made by the Company, in connection with the execution, delivery or
performance of this Agreement by the Company or the consummation by the Company
of any of the transactions contemplated hereby.
(e) No action or proceeding by or before any Governmental Entity, or any
other person shall be pending or to the Company's knowledge threatened
challenging or seeking to restrain or prohibit the conversion of the Debentures
or any of the other transactions contemplated by this Agreement or seeking to
obtain damages from Bay Harbour (or any of its affiliates) in connection with
the conversion of the Debentures or any of the other transactions contemplated
by this Agreement.
(f) No statute, rule, regulation, executive order, decree, temporary
restraining order, preliminary injunction, permanent injunction or other order
enacted, entered, promulgated, enforced or issued by any Governmental Entity or
other legal restraint or prohibition preventing the conversion of the Debentures
shall be in effect.
(g) Subsequent to March 31, 1998, there shall not have been any development
which, with respect to the Company constitutes a material adverse effect upon
the business, affairs, assets, operations, properties, financial position, or
results of operations of the Company.
(h) The Company shall have delivered to Bay Harbour all documents set forth
in
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<PAGE>
Paragraph 9 hereof.
If all of the conditions set forth in this Paragraph 10 are not satisfied within
six months after the date of this letter, Bay Harbour shall have no further
obligation to convert the Debentures but the remaining provisions of this letter
shall remain in full force and effect.
11. The validity and interpretation of this letter shall be governed by
the laws of the State of New York. All covenants, agreements, representations
and warranties made herein and in the certificates delivered pursuant to this
letter shall survive the conversion of the Debentures and issuance of the
Conversion Stock and shall bind the successors and assigns of the parties
hereto. This letter may not be changed orally, but only by an agreement in
writing signed by the Company and Bay Harbour.
Very truly yours,
TOPS APPLIANCE CITY, INC.
By:/s/ Robert G. Gross
--------------------------
Name: Robert G. Gross
Title: Chief Executive Officer
Confirmed
BAY HARBOUR MANAGEMENT, L.C.
By:/s/ Douglas P. Teitelbaum
-------------------------
Name: Douglas P. Teitelbaum
Title: Principal & Portfolio Manager
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<PAGE>
ANNEX A
Registration of Conversion Stock
Capitalized terms not defined in this Annex shall have the meanings
assigned in the letter to which this Annex is attached (the "Letter").
(a) Mandatory Shelf Registration
(i) The Company shall prepare and, as promptly as practicable but
in no event more than 60 days after the date hereof, file with the
Securities and Exchange Commission (the "SEC") a Shelf Registration
Statement (as defined below) on Form S-3 which, at the time such shelf
Registration Statement is declared effective by the SEC, covers the
offer and resale of the Conversion Stock by a holder from time to time
and the methods of distribution elected by such holder of Conversion
Stock and set forth in such Shelf Registration Statement. As used
herein, "register," "registered" and "Registration" each refer to a
registration of Conversion Stock effected by filing with the SEC a
registration statement in compliance with the Securities Act and the
declaration or ordering by the SEC of effectiveness of such
registration statement. "Shelf Registration" means a registration
effected pursuant to this Annex. "Shelf Registration Statement" means
a shelf registration statement of the Company filed with the SEC
pursuant to the provisions of this Annex which covers all of the
Conversion Stock, as applicable, on Form S-3 under Rule 415 under the
Securities Act of 1933 (the "Securities Act"), or any similar rule
that may be adopted by the SEC, amendments and supplements to such
registration statement, including post-effective amendments, in each
case including the prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein. "Shelf
Registration Statement may include an amendment to the Company's
existing amended registration statement no. 33344229 filed with the
SEC on June 16, 1998.
(ii) The Company shall use its best efforts (x) to cause the
Shelf Registration Statement to become effective as promptly as
possible but in no event more than 120 days after the date hereof;
provided, that if the Company determines in the good faith judgment of
the Company's general counsel that the filing of a registration
statement would require the disclosure of material information which
the Company has a good faith business purpose for preserving as
confidential and, without disclosure of such material information, the
Company is unable to comply with SEC requirements, the Company shall
not be required to effect a registration pursuant to this clause (ii)
under the earlier of (A) the date upon which such material information
is disclosed to the public or ceases to be material or (B) 60 days
after the Company makes such good faith determination, (y) to keep the
Shelf Registration Statement continuously effective in order to permit
the prospectus forming part thereof to be usable by the holders of
Conversion Stock for a period equal to the longer of (1) five years
and (2) the period any holder of Conversion Stock is subject to any
limitations on the resale thereof under Rule 144, and (z) to cause all
of the Conversion Stock covered by the Shelf Registration Statement as
of the effective date thereof to be listed on the NASDAQ National
Market or such other principal securities market on which securities
of the same class or series issued by the Company are then listed or
traded.
(b) Registration Procedures. In connection with the Shelf Registration
Statement, the Company shall:
(i) prepare and file with the SEC a Shelf Registration Statement
on Form S-3 with respect to the Conversion Stock and use its best
efforts to cause such Shelf Registration Statement
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<PAGE>
to become and remain effective as provided in this Annex;
(ii) submit to the SEC, within five (5) business days after the
Company learns that no review of the Shelf Registration Statement will
be made by the staff of the SEC or that the staff of the SEC has no
further comments on the Shelf Registration Statement, as the case may
be, a request for acceleration of effectiveness of the Shelf
Registration Statement to a time and date not later than 48 hours
after the submission of such request;
(iii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such Shelf
Registration Statement effective and current and to comply with the
provisions of the Securities Act with respect to the disposition of
all shares covered by such Shelf Registration Statement, including
such amendments and supplements as may be necessary to reflect the
intended method of disposition from time to time of the prospective
seller or sellers of such Conversion Stock.
(iv) furnish (x) to Bay Harbour, and its legal counsel, (1)
promptly after the same is prepared and publicly distributed, filed
with the SEC or received by the Company, one copy of the Shelf
Registration Statement and any amendment thereto, each prospectus and
each amendment or supplement thereto, (2) each letter written by or on
behalf of the Company to the SEC or the staff of the SEC and each item
of correspondence from the SEC or the staff of the SEC relating to
such Shelf Registration Statement (other than any portion of any
thereof which contains information for which the Company has sought
confidential treatment), and (y) to each selling holder of Conversion
Stock such number of copies of a prospectus in conformity with the
requirements of the Securities Act, and such other documents, as such
holder may reasonably request in order to facilitate the public sale
or other disposition of the Conversion Stock owned by such holder, and
(v) use its best efforts to register or qualify the shares of
Conversion Stock covered by such Shelf Registration Statement under
such other securities or 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 in such jurisdictions of the shares
of Conversion Stock owned by such seller.
(c) Designation of Underwriter. In the case of any registration
effected pursuant to this Annex, a majority in interest of the holders of
Conversion Stock shall have the right to designate the managing underwriter
in any underwritten offering.
(d) Cooperation by Prospective Sellers
(i) Each prospective seller of Conversion Stock, and each
underwriter designated by each such seller, will furnish to the
Company such information as the Company may reasonably require from
such seller or underwriter in connection with the Shelf Registration
Statement (and the prospectus included therein).
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(ii) The holders
holding shares of the Conversion Stock included in the registration
will not (until further notice by the Company) effect sales thereof
(or deliver a prospectus to any purchaser) after receipt of
telegraphic or written notice from the Company to suspend sales to
permit the Company to correct or update a registration statement or
prospectus. In connection with any offering, each holder who is a
prospective seller, will not use any offering document, offering
circular or other offering materials with respect to the offer or sale
of Conversion Stock, other than the prospectuses provided by the
Company and any documents incorporated by reference therein.
(e) Expenses. All expenses incurred in complying with this Annex,
including; without limitation, all registration and filing fees (including
all expenses incident to filing with NASDAQ), fees and expenses of
complying with securities and "blue sky" laws, printing expenses and fees
and disbursements of counsel for the Company and one counsel from the
holders of Conversion Stock, and the independent certified public
accountants shall be paid by the Company; provided, however, that all
underwriting discounts and selling commissions applicable to the Conversion
Stock covered by registrations effected pursuant to this Annex shall not be
borne by the Company but shall be borne by the seller or sellers of the
Conversion Stock.
(f) Indemnification
(i) The Company shall indemnify and hold harmless the seller of
any shares of Conversion Stock registered under the Securities Act
pursuant to this Annex, each underwriter of such shares, if any, each
broker or any other person acting on behalf of such seller and each
other person, if any, who controls any of the foregoing persons,
within the meaning of the Securities Act or the Securities Exchange
Act of 1934 (the "1934 Act"), against any losses, claims, damages or
liabilities, joint or several, to which any of the foregoing persons
may become subject under the Securities Act or the 1934 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in
any registration statement under which such Conversion Stock was
registered under the Securities Act, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement
thereto, or any document prepared or furnished by the Company incident
to the registration or qualification of any Conversion Stock pursuant
to this Annex, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading or, with respect to any prospectus, necessary to make the
statements therein in light of the circumstances under which they were
made, not misleading, or any violation by the Company of the
Securities Act or state securities or "blue sky" laws applicable to
the Company and relating to action or inaction required of the Company
in connection with such registration or qualification under such state
securities or blue sky laws; and shall reimburse such seller, such
underwriter, broker or other person acting on behalf of such seller
and each such controlling person for any legal or any other expenses
reasonably incurred by any of them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, the Company shall not be liable in such cases to the extent
that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in any registration statement under which
such Conversion Stock was registered under the Securities Act, any
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preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, in reliance upon and in conformity
with written information furnished to the Company by such seller or
underwriter expressly for use therein.
(ii) Each prospective seller of Conversion Stock and any
underwriter acting on its behalf shall indemnify and hold harmless (in
the same manner and to the same extent as set forth in (i) above) the
Company, each director of the Company, each officer of the Company who
shall sign the Shelf Registration Statement and any person who
controls the Company within the meaning of the Securities Act or the
1934 Act, with respect to any untrue statement or omission from the
Shelf Registration Statement, any preliminary prospectus or prospectus
contained therein, or any amendment or supplement thereof, if such
untrue statement or omission was made in reliance upon and in
conformity with written information furnished to the Company through
an instrument duly executed by such seller or such underwriter, as the
case may be, specifically for use in the preparation of the Shelf
Registration Statement, preliminary prospectus, prospectus or
amendment or supplement; provided that the maximum amount of liability
in respect of such indemnification shall be limited, in the case of
each prospective seller of Conversion Stock, to an amount equal to the
net proceeds actually received by such prospective seller from the
sale of Conversion Stock effected pursuant to such registration.
(iii) Notwithstanding the foregoing provisions of this Annex, if
pursuant to an underwritten public offering of Common Stock, the
Company, the selling shareholders and the underwriters enter into an
underwriting or purchase agreement relating to such offering which
contains provisions covering indemnification among the parties thereto
in connection with such offering, the indemnification provisions of
paragraph (d) of this Annex shall be deemed inoperative for purposes
of such offering to the extent inconsistent therewith.
(iv) If the indemnification provided for in this Annex is
unavailable or insufficient to hold harmless an indemnified party
under subparagraph (i) or (ii) above, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified
party as a result of the losses, claims, damages, expenses or
liabilities (or actions in respect thereof) referred to in
subparagraph (i) or (ii) above (x) in such proportion as is
appropriate to reflect the relative benefits received by the
indemnifying party or parties on the one hand and the indemnified
party on the other from the issuance and conversion of the Debentures,
or (y) if the allocation provided by the foregoing clause (i) is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above
but also the relative fault of the indemnifying party or parties on
the one hand and the indemnified party on the other in connection with
the statements or omissions that resulted in such losses, claims,
damages, expenses or liabilities (or actions in respect thereof) as
well as any other relevant equitable considerations. Notwithstanding
the foregoing, no prospective seller of Conversion Stock shall be
liable for an amount exceeding that set forth in the proviso to
subparagraph (ii) above.
(v) Each party entitled to indemnification under paragraph (d) of
this Annex (the "indemnified party") shall give notice to the party
required to provide indemnification (the "indemnifying party")
promptly after such indemnified party has actual knowledge of any
claim as to which indemnity may be sought, and shall permit the
indemnifying party (at its expense) to assume the defense of any
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claim
or any litigation resulting therefrom, provided that the counsel who
shall conduct the defense of such claim or litigation, shall be
reasonably satisfactory to the indemnified party and shall not without
the indemnified party's consent, be counsel to the indemnifying party,
and the indemnified party may participate in such defense, but only at
such indemnified party's expenses, and provided, further, that the
omission by an indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under
paragraph (d) of this Annex except to the extent that the omission
results in a failure of actual notice to the indemnifying party and
such indemnifying party is damaged solely as a result of the failure
to give notice. No indemnifying party, in the defense of any such
claim or litigation, shall, except with the consent of each
indemnified party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation.
(g) SEC Filings and S-3 Requirements. The Company will timely file all
reports required to be filed under the 1934 Act and any other material
reports or documents required to be filed in order for the Company to meet
the requirements for use of Form S-3 for registration of the resale of the
Conversion Stock.
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EXHIBIT 10.4
[Execution Copy]
SHARE PURCHASE AGREEMENT
THIS AGREEMENT made as of July 16, 1998 (the "Agreement"), by and
between TOPS APPLIANCE CITY, INC. ("Seller"), a New Jersey corporation having an
address at 45 Brunswick Avenue, Edison, New Jersey 08818, and BAY HARBOUR
MANAGEMENT, L.C. acting for its managed accounts ("Buyer"), a Florida limited
liability company having an address at 885 Third Avenue, 34th Floor, New York,
New York 10022.
W I T N E S S E T H :
WHEREAS, Buyer has agreed to purchase from Seller and Seller has agreed
to sell to Buyer One Million Four Hundred Thousand (1,400,000) shares (the
"Shares") of Seller's authorized and unissued shares of common stock, no par
value (the "Common Stock"), upon the terms and conditions contained herein;
NOW, THEREFORE, in consideration of the mutual promises herein set
forth, and intending to be legally bound hereby, the parties do hereby agree as
follows:
1. Sale and Purchase of Shares.
a. Seller agrees to sell to Buyer, and Buyer agrees to purchase from
Seller, at the Closing (as such term is defined in Paragraph 2 below), the
Shares free and clear of all liens and encumbrances of any kind for the Purchase
Price provided in Subparagraph (b) below.
b. The purchase price (hereafter referred to as the "Purchase Price") to
be paid to Seller by Buyer for the Shares shall be Three Dollars and Sixty Cents
($3.60) per share for an aggregate amount of Five Million Forty Thousand
($5,040,000) Dollars, payable by wire transfer pursuant to the wiring
instructions set forth in Schedule I hereto.
2. The Closing. Subject to the conditions and provisions set forth
herein, the closing under this Agreement (the "Closing") shall be deemed to
occur as of July 20, 1998 (the "Closing Date"), at the offices of Greenbaum,
Rowe, Smith, Ravin, Davis & Himmel LLP, 99 Wood Avenue South, Iselin, New
Jersey.
3. Representations.
a. Seller represents and warrants to Buyer as follows:
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i. the Shares are unissued shares of Seller's duly authorized Common
Stock and upon issuance hereto, will be validly issued, fully paid and
non-assessable shares of Common Stock with no personal liability attaching
to the ownership thereof, and such shares of Common Stock are not and will
not be subject to preemptive or any other similar rights of the
shareholders of Seller or others.
ii. in the event that Seller shall elect to issue Adjustment Stock
(as defined in Paragraph 5 below) as payment for any Adjustment Amount (as
defined in Paragraph 5 below), upon issuance pursuant hereto, any such
Adjustment Stock will be validly issued, fully paid and non-assessable with
no personal liability attaching to the ownership thereof, and such
Adjustment Stock is not and will not be subject to preemptive or any other
similar rights of the shareholders of Seller or others.
iii. the Shares (and any Adjustment Shares issued pursuant to
Paragraph 5(c) hereof) shall be issued to Buyer free and clear of all
liens, claims, debts, charges, restrictions, or encumbrances of any kind.
iv. Seller has full power and legal right to sell, transfer and
deliver the Shares (and any Adjustment Shares issued pursuant to Paragraph
5(c) hereof) to Buyer in accordance with the terms of this Agreement, and
otherwise to execute and deliver this Agreement and to consummate and close
the transactions provided for in this Agreement in the manner and upon the
terms herein specified.
v. this Agreement has been duly authorized, executed and delivered
by Seller and, assuming due authorization, execution and delivery by Buyer,
constitutes a legal, valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms, subject, as to validity,
binding effect and enforcement remedies, to applicable bankruptcy,
insolvency, reorganization and other laws affecting creditors' rights
generally, and to equitable principles.
vi. there is not pending, nor to Seller's knowledge is there
threatened, any suit, action or administrative, arbitration or other
proceeding which could adversely affect or materially impair the ability of
Seller to perform any of its obligations under this Agreement.
vii. the execution, delivery and performance of this Agreement and
the issuance and delivery of the Shares (and any Adjustment Shares issued
pursuant to Paragraph 5(c) hereof) does not and will not with the passage
of time violate or conflict with (x) any applicable provision of law,
statute, rule or regulation, or any order, judgment or decree of any court,
arbitrator, governmental agency or the National Association of Securities
Dealers, Inc. ("NASD") of which the Seller has
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knowledge, (y) Seller's
certificate of incorporation or bylaws or (z) any material contract,
agreement or instrument to which Seller is a party or by which it or any of
its properties or assets are bound or affected.
viii. Seller's Form 10-K for the period ending December 30, 1997,
and Form 10-Q for the period ending March 31, 1998 are correct and complete
and do not, as of the date hereof, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
ix. all clearances, approvals, authorizations and consents, orders
of, and designations by, any Governmental Entity (as defined below) or NASD
required under the laws of the United States or the regulations of the
NASD, for or in connection with the issuance and delivery of the Shares
(and any Adjustment Shares issued pursuant to Paragraph 5(c) hereof), and
compliance with the terms of this Agreement have been obtained and complied
with, or will be obtained prior to Closing, and are in full force and
effect.
x. Seller shall defend, indemnify and hold harmless Buyer from and
against any loss or liability arising from any breach of the
representations and warranties of Seller contained herein.
b. Buyer represents and warrants to Seller as follows:
i. Buyer, for itself and on behalf of its managed accounts, has full
power and legal right to purchase the Shares (and any Adjustment Shares
issued pursuant to Paragraph 5(c) hereof) from Seller in accordance with
the terms of this Agreement, and otherwise to execute and deliver this
Agreement and to consummate and close the transactions provided for in this
Agreement in the manner and upon the terms herein specified, and this
Agreement and the transactions contemplated hereby will not result in the
violation of any other agreement to which Buyer is a party or by which it
is bound or of Buyer's Articles of Organization.
ii. Buyer understands that the law firm of Greenbaum, Rowe, Smith,
Ravin, Davis & Himmel LLP is counsel to Seller, and not in any way counsel
to Buyer, for the purpose of this Agreement.
iii. This Agreement has been duly authorized, executed and delivered
by Buyer and, assuming due authorization, execution and delivery by Seller,
constitutes a legal, valid and binding obligation of Buyer, enforceable
against Buyer in accordance witn its terms, subject, as to validity,
binding effect and enforcement remedies, to applicable bankruptcy,
insolvency, reorganization and other laws affecting
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creditors' rights generally, and to equitable principles.
iv. There is not pending, nor to Buyer's knowledge is there
threatened, any suit, action or administrative, arbitration or other
proceeding which could adversely affect or materially impair the ability of
Buyer to perform any of its obligations under this Agreement.
v. Buyer is purchasing the Shares (and any Adjustment Shares issued
pursuant to Paragraph 5(c) hereof) for investment purposes only and not
with a view towards reselling or otherwise distributing the Shares or the
Adjustment Shares, as the case may be.
vi. Buyer acknowledges that, at Closing, the Shares (and any
Adjustment Shares issued pursuant to Paragraph 5(c) hereof) are not
registered under the Securities Act of 1933, as amended or under any State
securities laws and that certain restrictions exist with regard to the
resale of the Shares and the Adjustment Shares, as the case may be.
vii. Buyer agrees that it shall not during its ownership,
beneficially or otherwise, of the Shares sell any shares of common stock of
the Seller "short".
viii. Buyer shall defend, indemnify and hold harmless Seller from
and against any loss or liability arising from any breach of the
representations and warranties of Buyer contained herein.
c. The representations made by the parties in this Paragraph 3 shall
survive the Closing for a period of two (2) years from the Closing Date.
4. Closing. At the Closing, the following transactions shall occur, all
of which shall be deemed to occur simultaneously:
a. Seller will deliver or cause to be delivered to Buyer:
i. this Agreement;
ii. a share certificate or certificates for the Shares to be sold by
Seller to Buyer, which certificate shall have affixed thereto or typed
thereon the following legend:
The securities represented hereby have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any State
securities laws. Neither this security nor any interest or participation
herein may be reoffered, sold, assigned, transferred, pledged, encumbered
or otherwise disposed of in the absence of such registration or unless such
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transaction is exempt from, or not subject to, registration.
provided, however, that such legend shall be removed from the share certificate
or certificates respecting the Shares upon the registration of the Shares,
pursuant to Paragraph 10 hereof, becoming effective; and
iii. all other documents set forth in Paragraph 6 hereof.
b. Buyer will deliver or cause to be delivered to Seller:
i. this Agreement;
ii. the sum of Five Million Forty Thousand ($5,040,000) Dollars in
accordance with Paragraph 1(b); and
iii. all other documents set forth in Paragraph 6 hereof.
5. Adjustment to Purchase Price. In the event that at anytime beginning
on the thirtieth (30th) day next following the Closing Date the closing price
per share of the Seller's common stock as traded in the NASDAQ National Market
(the "Closing Price") is below the Adjustment Trigger Price (as defined below)
for ten (10) consecutive trading sessions, the Purchase Price shall be adjusted
as follows:
a. Upon the first (1st) occurrence of any such ten (10) consecutive
trading session period, Seller shall pay to Buyer an amount (the "Initial
Adjustment Amount") equal to the product of (i) the number of Shares then still
owned, beneficially or otherwise, by Buyer, and (ii) the amount by which the
Adjustment Trigger Price exceeds the average Closing Price for such ten (10) day
period.
b. Following the first (1st) occurrence of any such ten (10) consecutive
trading session period as provided in Paragraph 5(a) above, in the event that
the average Closing Price during a subsequent 10 day period (each a "10 Day
Period") is below the average Closing Price for the prior 10 Day Period in which
an Adjustment Amount has been paid by the Seller, the Seller shall pay to the
Buyer an amount (the "Additional Adjustment Amount" and together with the
Initial Adjustment Amount and any other Additional Adjustment Amount, the
"Adjustment Amounts") equal to the product of (i) the number of Shares then
still owned, beneficially or otherwise, by Buyer, and (ii) the amount by which
the last applicable average Closing Price used for calculating an Adjustment
Amount exceeds the average Closing Price for such current applicable 10 Day
Period.
c. The Seller shall have the right, in its sole discretion, to pay any
Adjustment Amount to Buyer in cash or by issuing shares of its common stock to
Buyer having a market value equal to the Adjustment Amount (the "Adjustment
Stock"), which shall thereafter constitute Shares for purposes of clauses (a)
and (b) of this Paragraph 5.
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d. The Seller shall pay any applicable Adjustment Amount to Buyer within
thirty (30) days of the receipt by Seller of the written request of Buyer for
such payment.
e. A 10 Day Period shall not include any day from any prior 10 Day
Period.
f. The "Adjustment Trigger Price" shall be $3.60; provided that if, at
any time after the date of this letter, the number of outstanding shares of
Common Stock is (i) increased by a stock dividend or distribution payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, or (ii) decreased by a combination or reverse split of shares of Common
Stock, then, following the record date fixed for the determination of holders of
Common Stock entitled to receive the benefits of such stock dividend,
distribution, subdivision, split-up, combination or reverse split, the
Adjustment Trigger Price shall be adjusted to a new amount equal to the product
of (A) the Adjustment Trigger Price in effect on such record date and (B) the
quotient obtained by dividing (x) the number of shares of Common Stock
outstanding on such record date (without giving effect to the event referred to
in the foregoing clause (i) or (ii)) by (y) the number of shares of Common Stock
which would be outstanding immediately after the event referred to in the
foregoing clause (i) or (ii), if such event had occurred immediately following
such record date.
6. Conditions to Closing.
a. The obligation of Buyer to purchase the Shares pursuant to Paragraph 1
hereof is subject to the satisfaction (or waiver by Buyer in writing) of each of
the following conditions precedent at the Closing:
i. the representations and warranties of Seller made in this
Agreement shall be true and correct in all respects, as of the date hereof,
and at and as of the Closing as though then made.
ii. Seller shall have performed or complied with all of the
covenants and agreements required to be performed or complied with by
Seller under this Agreement at or prior to Closing.
iii. Seller has obtained all consents, approvals, orders,
authorizations of, and registrations and filings with, any Federal, state,
local or foreign government or any court of component jurisdiction,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign (a "Governmental Entity") or NASD,
that are required to be obtained or made by Seller, in connection with the
execution, delivery or performance of this Agreement by Seller or the
consummation by Seller of any of the transactions contemplated hereby.
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iv. no action or proceeding by or before any Governmental Entity, or
any other person shall be pending or threatened challenging or seeking to
restrain or prohibit the purchase and sale of any of the Shares or any of
the other transactions contemplated by this Agreement or seeking to obtain
damages from Buyer (or any of its affiliates) in connection with the
purchase and sale of the Shares or any of the other transactions
contemplated by this Agreement.
v. no statute, rule, regulation, executive order, decree, temporary
restraining order, preliminary injunction, permanent injunction or other
order, enacted, entered, promulgated, enforced or issued by any
Governmental Entity or other legal restraint or prohibition preventing the
purchase and sale of the Shares shall be in effect.
vi. Subsequent to March 31, 1998, there shall not have been any
development which, with respect to Seller constitutes a material adverse
effect upon the business, affairs, assets, operations, properties,
financial position, or results of operations of Seller.
vii. Seller shall have delivered to Buyer:
(1) a certificate dated the date of the Closing (the "Closing
Date") stating that the conditions set forth in Paragraph 6(a)(i)
through (vi) have been satisfied;
(2) a certified resolution of Seller's Board of Directors
authorizing the execution, delivery and performance of this Agreement
and the issuance of the Shares in accordance herewith, and appointing
the Buyer's initial nominees to the Board of Directors in accordance
with Paragraph 7 hereof, together with certified copies of Seller's
certificate of incorporation and bylaws.
(3) an opinion from Seller's legal counsel dated the Closing
Date, as to the matters set forth in Paragraph 3(a)(i), (iii) through
(vi), (vii) (other than as to the matters set forth in clause (z) of
Paragraph 3(a)(vii)) and (ix).
(4) payment in full of the Legal Expenses; and
(5) the delivery of such additional certificates and documents
as Buyer may reasonably request.
b. The obligation of Seller to sell the Shares pursuant to Paragraph 1
hereof is subject to the satisfaction (or waiver by Seller in writing) of each
of the following conditions precedent
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at the Closing:
i. the representations and warranties of Buyer made in this
Agreement shall be true and correct in all respects, as of the date hereof,
and at and as of the Closing as though then made.
ii. Buyer shall have performed or complied with all of the covenants
and agreements required to be performed or complied with by Buyer under
this Agreement at or prior to Closing.
iii. Buyer shall have delivered to Seller a certificate dated the
Closing Date stating that the conditions set forth in Paragraph 6(b)(i) -
(ii) have been satisfied.
7. Board of Directors Seat. Provided that Buyer continues to own,
beneficially or otherwise at least 15% of the outstanding Common Stock,
following the Closing Buyer shall have the right to designate (x) until the date
upon which all 6 1/2% Convertible Subordinated Debentures due 2003 held by Buyer
on the Closing Date are converted into shares of Common Stock (the "Conversion
Date"), three (3) directors to the Board of Directors of the Seller, and (y)
after the Conversion Date, one (1) director to the Board of Directors of the
Seller. Each individual nominated by Buyer shall complete a questionnaire in the
same form as has been executed by all other directors of Seller. The rights
provided in this Paragraph shall be in addition to any other rights held by
Buyer, or that may be granted to Buyer, to designate one or more directors to
the Board of Directors of the Seller.
8. Attorney Fees. Seller agrees to pay all of the Buyer's reasonable
attorney fees and disbursements incurred in connection with Buyer's investments
in securities of Seller upon presentment at Closing of a statement containing
the estimated legal fees and disbursements of Buyer's counsel ("Legal
Expenses"). The Legal Expenses shall be due and payable upon the Closing of the
within transaction.
9. Right of Refusal.
a. If the Seller or any of its subsidiaries shall receive, on or prior to
the second anniversary of the date of this Agreement, a bona fide written offer
(the "Offer") from a third party or parties (the "Offerors") to purchase or
otherwise acquire any Designated Securities (as hereinafter defined), then the
Seller shall, prior to accepting the Offer, make an offer (a "First Refusal
Offer") to issue such Designated Securities to Buyer upon the terms set forth in
this Paragraph 9; provided, that this Paragraph 9 shall not apply to (i) any
Offer received by the Seller after Buyer and its managed accounts no longer hold
at least 15% of the outstanding Common Stock, or (ii) debt securities or equity
securities having terms within a range which, not more than 60 days prior to the
Seller's receipt of the Offer in question, the Seller proposed in writing for
consideration by the Buyer and Buyer stated in writing its lack of interest in
participating in a financing in such range. The First
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Refusal Offer shall state
that the Seller proposes to issue such Designated Securities, include a copy of
the Offer, disclose the name and address of the Offeror (or Offerors), and set
forth such other information about the Offer and the Offeror (or Offerors) as
may be available to the Seller and reasonably necessary to understand the Offer.
b. "Designated Securities" means all (x) securities (other than
convertible debt and other equity securities) evidencing indebtedness ("debt
securities") and (y) shares of capital stock, options, warrants, or other rights
to acquire such shares, and securities exchangeable or convertible into such
shares or rights ("equity securities"), proposed to be issued by the Seller or
any subsidiary, other than:
i. debt securities the proceeds of which are to be used for working
capital purposes and the maturity of which does not exceed one year;
ii. equity securities to be issued to any employee of, or supplier
of goods or services or licensor to, the Seller as full or partial
consideration for employment services or under any bona fide supply,
license, or similar business agreement or arrangement or under any Section
401(k) plan;
iii. equity securities to be issued as full or partial consideration
in connection with any bona fide business or asset acquisition;
iv. equity securities issued as a stock dividend or upon any stock
split or other subdivision or combination of shares of capital stock;
v. debt securities issued under any revolving credit facility
secured by collateral having a fair market value equal to at least 100% of
the principal amount of such debt from time to time outstanding;
vi. debt securities evidencing a mortgage financing secured by real
estate having a fair market value equal to at least 100% of the principal
amount of such debt; and
vii. the issuance of not more than 1,400,000 shares of Common Stock
to any third-party in an arms-length transaction.
c. Within 20 days (the "Acceptance Period") after delivery of the First
Refusal Offer, Buyer may deliver a notice (an "Acceptance Notice") to the Seller
stating that it exercises its right to purchase or otherwise acquire, upon the
terms specified in the First Refusal Offer, (i) all of the Designated Securities
specified in the First Refusal Offer or (ii) if there are two or more Offerors,
the specific number of Designated Securities any single Offeror offered to
purchase or acquire, unless such Offerors are acting in concert and the Offer by
its terms is conditioned upon the issuance to the Offerors of all Designated
Securities specified in the Offer. The closing of the purchase or other
acquisition, upon the terms
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specified in the First Refusal Offer, by Buyer of
any Designated Securities shall take place at the offices of the Seller within
10 days after the end of the Acceptance Period or at such time as is set forth
in the Offer; provided, however, that the Acceptance Notice may state that the
purchase or acquisition of the Designated Securities specified in the Acceptance
Notice (if less than all of the Designated Securities specified in the First
Refusal Offer) shall be conditioned upon the issuance of any remaining
Designated Securities to the Offeror, in which case such purchase or acquisition
shall be subject to, and shall take place simultaneously with, such issuance to
the Offeror or Offerors.
d. If Buyer does not exercise its rights as provided in this Paragraph
with respect to all of the Designated Securities specified in the First Refusal
Offer, then the remaining Designated Securities may be issued to the Offeror or
Offerors upon the terms set forth in the Offer, provided that such issuance is
bona fide and completed within 120 days after the end of the Acceptance Period.
If such issuance is not completed within such 120-day period, the restrictions
set forth in this Paragraph shall again become effective in full.
10. Indemnity Against Brokerage Commissions. Each of Seller and Buyer
hereby represent and warrant that there is no corporation, firm or person
entitled to receive from it a brokerage commission or finder's fee in connection
with this Agreement or the transactions provided for herein. Seller and Buyer
agree to indemnify and save the other party hereto harmless from and against any
claim for brokerage commission or finder's fee based on any retention or alleged
retention of a broker or finder by the other. This provision shall survive the
Closing.
11. Registration Rights. Seller shall register the Shares (and any
Adjustment Shares issued pursuant to Paragraph 5(c) hereof under a shelf
registration statement filed with the Securities and Exchange Commission upon
the terms set forth in Annex A, and shall comply with its other obligations set
forth therein.
12. Notices. All notices and other communications to be made hereunder
shall be in writing and shall be deemed to have been given when the same are
either (i) personally delivered or mailed, registered or certified mail, first
class postage prepaid return receipt requested, or (ii) delivered by a reputable
private overnight courier service utilizing a written receipt or other written
proof of delivery to the applicable party at the address set forth above. The
substance of any such notice shall be deemed to have been fully acknowledged in
the event of refusal of acceptance by the party to whom the notice is addressed.
13. Captions. All captions and headings of paragraphs, subparagraphs and
sections are not part of this Agreement and shall not be used for the
interpretation or determination of the validity of this Agreement or any
provision hereof.
14. Names and Entities. The masculine gender shall include the neuter
genders, and the word "person" shall include a corporation, firm, partnership or
other entity. Whenever the singular is used in this Agreement the same shall
include the plural when required by the context and vice
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versa.
15. Severability. In the event any one or more of the provisions of this
Agreement shall be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect other
provisions hereof, and this Agreement shall be construed as if such invalid,
illegal or unenforceable provision never had been contained herein.
16. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York without giving effect to the conflict of law
principles thereof.
17. Assignment. No party may assign its rights or obligations under this
Agreement without the prior written consent of other party hereto.
18. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
19. Consent To Jurisdiction. Each of the parties hereto irrevocably
submits to the non-exclusive jurisdiction of (a) the Supreme Court of the State
of New York, New York County, and (b) the United States District Court for the
Southern District of New York, for the purposes of any suit, action or other
proceeding arising out of this Agreement or any transaction contemplated hereby.
Each of the parties hereto further agrees that service of any process, summons,
notice or documents by United States registered mail, return receipt requested,
to such party's respective address set forth in the introduction of this
Agreement, shall be effective service of process for any action, suit or
proceeding in New York with respect to any matters to which it has submitted to
jurisdiction in this Paragraph 18. Each of the parties hereto irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (x) the Supreme Court of the State of New York, New York County, and
(y) the United States District Court for the Southern District of New York, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.
20. Entire Agreement. This Agreement contains the entire understanding
and agreement of the parties hereto with respect to the matters contained
herein, and may not be amended or supplemented at any time unless by a writing
executed by each of the said parties.
21. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
collectively shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SELLER:
ATTEST: TOPS APPLIANCE CITY, INC.
- ------------------------------- By:/s/ Robert G. Gross
----------------------------
Robert G. Gross
Chief Executive Officer
BUYER:
ATTEST: BAY HARBOUR MANAGEMENT, L.C.,
for its managed accounts,
_______________________________ By:/s/ Douglas P. Teitelbaum
----------------------------
Douglas P. Teitelbaum
Principal & Portfolio Manager
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SCHEDULE I
Wiring Instructions
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<PAGE>
ANNEX A
Registration of Shares
Capitalized terms not defined in this Annex shall have the meanings
assigned in the Agreement to which this Annex is attached (the "Agreement").
(a) Mandatory Shelf Registration
(i) The Seller shall prepare and, as promptly as practicable but in
no event more than 60 days after the date hereof, file with the Securities
and Exchange Commission (the "SEC") a Shelf Registration Statement (as
defined below) on Form S-3 which, at the time such shelf Registration
Statement is declared effective by the SEC, covers the offer and resale of
the Shares by a holder from time to time and the methods of distribution
elected by such holder of Shares and set forth in such Shelf Registration
Statement. As used herein, "register," "registered" and "registration" each
refer to a registration of Shares effected by filing with the SEC a
registration statement in compliance with the Securities Act and the
declaration or ordering by the SEC of effectiveness of such registration
statement. "Shelf Registration" means a registration effected pursuant to
this Annex. "Shelf Registration Statement" means a shelf registration
statement of the Seller filed with the SEC pursuant to the provisions of
this Annex which covers all of the Shares, as applicable, on Form S-3 under
Rule 415 under the Securities Act of 1933 (the "Securities Act"), or any
similar rule that may be adopted by the SEC, amendments and supplements to
such registration statement, including post-effective amendments, in each
case including the prospectus contained therein, all exhibits thereto and
all material incorporated by reference therein. Shelf Registration
Statement may include an amendment to the Company's existing amended
registration statement no. 333-44229 filed with the SEC on June 16, 1998.
(ii) The Seller shall use its best efforts (x) to cause the Shelf
Registration Statement to become effective as promptly as possible but in
no event more than 120 days after the date hereof; provided, that if Seller
determines in the good faith judgment of Seller's general counsel that the
filing of a registration statement would require the disclosure of material
information which Seller has a good faith business purpose for preserving
as confidential and, without disclosure of such material information,
Seller is unable to comply with SEC requirements, Seller shall not be
required to effect a registration pursuant to this clause (ii) until the
earlier of (A) the date upon which such material information is disclosed
to the public or ceases to be material or (B) 60 days after the Company
makes such good faith determination, (y) to keep the Shelf Registration
Statement continuously effective in order to permit the prospectus forming
part thereof to be usable by the holders of Shares for a period equal to
the longer of (1) five years and (2) the period any holder of Shares is
subject to any limitations on the resale thereof under Rule 144, and (z) to
cause all of the Shares covered by the Shelf Registration Statement
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as of
the effective date thereof to be listed on the NASDAQ National Market or
such other principal securities market on which securities of the same
class or series issued by the Seller are then listed or traded.
(b) Registration Procedures. In connection with the Shelf Registration
Statement, the Seller shall:
(i) prepare and file with the SEC a Shelf Registration Statement on
Form S-3 with respect to the Shares and use its best efforts to cause such
Shelf Registration Statement to become and remain effective as provided in
this Annex;
(ii) submit to the SEC, within five (5) business days after the
Seller learns that no review of the Shelf Registration Statement will be
made by the staff of the SEC or that the staff of the SEC has no further
comments on the Shelf Registration Statement, as the case may be, a request
for acceleration of effectiveness of the Shelf Registration Statement to a
time and date not later than 48 hours after the submission of such request;
(iii) prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such Shelf Registration Statement
effective and current and to comply with the provisions of the Securities
Act with respect to the disposition of all shares covered by such Shelf
Registration Statement, including such amendments and supplements as may be
necessary to reflect the intended method of disposition from time to time
of the prospective seller or sellers of such Shares.
(iv) furnish (x) to Buyer, and its legal counse1, (1) promptly after
the same is prepared and publicly distributed, filed with the SEC or
received by the Seller, one copy of the Shelf Registration Statement and
any amendment thereto, each prospectus and each amendment or supplement
thereto, (2) each letter written by or on behalf of the Seller to the SEC
or the staff of the SEC and each item of correspondence from the SEC or the
staff of the SEC relating to such Shelf Registration Statement (other than
any portion of any thereof which contains information for which the Seller
has sought confidential treatment), and (y) to each selling holder of
Shares such number of copies of a prospectus in conformity with the
requirements of the Securities Act, and such other documents, as such
holder may reasonably request in order to facilitate the public sale or
other disposition of the Shares owned by such holder, and
(v) use its best efforts to register or qualify the shares of Shares
covered by such Shelf Registration Statement under such other securities or
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 in such
jurisdictions of the shares of Shares owned by such seller.
(c) Designation of Underwriter. In the case of any registration effected
pursuant to this Annex, a
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majority in interest of the holders of Shares shall
have the right to designate the managing underwriter in any underwritten
offering.
(d) Cooperation by Prospective Sellers
(i) Each prospective seller of Shares, and each underwriter
designated by each such seller, will furnish to the Seller such information
as the Seller may reasonably require from such seller or underwriter in
connection with the Shelf Registration Statement (and the prospectus
included therein).
(ii) The holders holding shares of the Shares included in the
registration will not (until further notice by the Seller) effect sales
thereof (or deliver a prospectus to any purchaser) after receipt of
telegraphic or written notice from the Seller to suspend sales to permit
the Seller to correct or update a registration statement or prospectus. In
connection with any offering, each holder who is a prospective seller, will
not use any offering document, offering circular or other offering
materials with respect to the offer or sale of Shares, other than the
prospectuses provided by the Seller and any documents incorporated by
reference therein.
(e) Expenses. All expenses incurred in complying with this Annex,
including, without limitation, all registration and filing fees (including all
expenses incident to filing with NASD), fees and expenses of complying with
securities and "blue sky" laws, printing expenses and fees and disbursements of
counsel for the Seller and one counsel for the holders of Shares, and the
independent certified public accountants shall be paid by the Seller; provided,
however, that all underwriting discounts and selling commissions applicable to
the Shares covered by registrations effected pursuant to this Annex shall not be
borne by the Seller but shall be borne by the seller or sellers of the Shares.
(f) Indemnification
(i) The Seller shall indemnify and hold harmless the seller of any
shares of Shares registered under the Securities Act pursuant to this
Annex, each underwriter of such shares, if any, each broker or any other
person acting on behalf of such seller and each other person, if any, who
controls any of the foregoing persons, within the meaning of the Securities
Act or the Securities Exchange Act of 1934 (the "1934 Act"), against any
losses, claims, damages or liabilities, joint or several, to which any of
the foregoing persons may become subject under the Securities Act or the
1934 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
an untrue statement or alleged untrue statement of a material fact
contained in any registration statement under which such Shares was
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or
any document prepared or furnished by the Seller incident to the
registration or qualification of any Shares pursuant to this Annex, or
arise out of or are
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based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading or, with respect to any prospectus,
necessary to make the statements therein in light of the circumstances
under which they were made, not misleading, or any violation by the Seller
of the Securities Act or state securities or "blue sky" laws applicable to
the Seller and relating to action or inaction required of the Seller in
connection with such registration or qualification under such state
securities or blue sky laws; and shall reimburse such seller, such
underwriter, broker or other person acting on behalf of such seller and
each such controlling person for any legal or any other expenses reasonably
incurred by any of them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, the
Seller shall not be liable in such cases to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made
in any registration statement under which such Shares was registered under
the Securities Act, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto, in reliance upon
and in conformity with written information furnished to the Seller by each
seller or underwriter expressly for use therein.
(ii) Each prospective seller of Shares and any underwriter acting on
its behalf shall indemnify and hold harmless (in the same manner and to the
same extent as set forth in (i) above) the Seller, each director of the
Seller, each officer of the Seller who shall sign the Shelf Registration
Statement and any person who controls the Seller within the meaning of the
Securities Act or the 1934 Act, with respect to any untrue statement or
omission from the Shelf Registration Statement, any preliminary prospectus
or prospectus contained therein, or any amendment or supplement thereof, if
such untrue statement or omission was made in reliance upon and in
conformity with written information furnished to the Seller through an
instrument duly executed by such seller or such underwriter, as the case
may be, specifically for use in the preparation of the Shelf Registration
Statement, preliminary prospectus, prospectus or amendment or supplement;
provided that the maximum amount of liability in respect of such
indemnification shall be limited, in the case of each prospective seller of
Shares, to an amount equal to the net proceeds actually received by such
prospective seller from the sale of Shares effected pursuant to such
registration.
(iii) Notwithstanding the foregoing provisions of this Annex, if
pursuant to an underwritten public offering of Common Stock, the Seller,
the selling shareholders and the underwriters enter into an underwriting or
purchase agreement relating to such offering which contains provisions
covering indemnification among the parties thereto in connection with such
offering, the indemnification provisions of paragraph (d) of this Annex
shall be deemed inoperative for purposes of such offering to the extent
inconsistent therewith.
(iv) If the indemnification provided for in this Annex is
unavailable or insufficient to hold harmless an indemnified party under
subparagraph (i) or (ii) above, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified
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party as a
result of the losses, claims, damages, expenses or liabilities (or actions
in respect thereof) referred to in subparagraph (i) or (ii) above (x) in
such proportion as is appropriate to reflect the relative benefits received
by the indemnifying party or parties on the one hand and the indemnified
party on the other from the issuance of the Shares, or (y) if the
allocation provided by the foregoing clause (i) is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above but also the relative
fault of the indemnifying party or parties on the one hand and the
indemnified party on the other in connection with the statements or
omissions that resulted in such losses, claims, damages, expenses or
liabilities (or actions in respect thereof) as well as any other relevant
equitable considerations. Notwithstanding the foregoing, no prospective
seller of Shares shall be liable for an amount exceeding that set forth in
the proviso to subparagraph (ii) above.
(v) Each party entitled to indemnification under paragraph (d) of
this Annex (the "indemnified party") shall give notice to the party
required to provide indemnification (the "indemnifying party") promptly
after such indemnified party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the indemnifying party (at its
expense) to assume the defense of any claim or any litigation resulting
therefrom, provided that the counsel who shall conduct the defense of such
claim or litigation, shall be reasonably satisfactory to the indemnified
party and shall not without the indemnified party's consent, be counsel to
the indemnifying party, and the indemnified party may participate in such
defense, but only at such indemnified party's expenses, and provided,
further, that the omission by an indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its obligations
under paragraph (d) of this Annex except to the extent that the omission
results in a failure of actual notice to the indemnifying party and such
indemnifying party is damaged solely as a result of the failure to give
notice. No indemnifying party, in the defense of any such claim or
litigation, shall, except with the consent of each indemnified party,
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in
respect to such claim or litigation.
(g) SEC Filings and S-3 Requirements. The Seller will timely file all
reports required to be filed under the 1934 Act and any other material reports
or documents required to be filed in order for the Seller to meet the
requirements for use of Form S-3 for registration of the resale of the Shares.
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