UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Amendment NO. __)*
Under the Securities Exchange Act of 1934
Factory Stores of America, Inc.
(Name of Issuer)
Common Stock
(Title of Class of Securities)
0003030691
(CUSIP Number)
John W. Gildea
Gildea Management Company
115 East Putnam Avenue
Greenwich, CT 06830
(203) 661-6945
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
April 29, 1996
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box /__/.
Check the following box if a fee is being paid with the statement /X/. (A fee
is not required only if the reporting person: (1) has a previous statement on
file reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
Note: Six copies of this statement, including all ex ibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act.
Exhibit Index: Page 12
Page 1 of 172 Pages
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CUSIP No. 0003030691 SCHEDULE 13D Page 2 of 172 Pages
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON1
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
John W. Gildea
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)
(b)
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS
PF2
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e)
/__/
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
- -------------------------------------------------------------------------------
7 SOLE VOTING POWER
3,000
NUMBER OF ---------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY -0-
OWNED BY ---------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 114,111
PERSON WITH ---------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
746,666
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
860,777 Shares
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES|_|
/__/
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.79%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IN
- -------------------------------------------------------------------------------
1 Filing jointly pursuant to Rule 13d-1(f)(1) of the Securities
Exchange Act of 1934, as amended.
2 Mr. Gildea used personal funds to purchase the 3,000 shares
which are beneficially owned by him and to purchase the right
to acquire the additional 111,111 shares which may be
beneficially owned by him. The right to acquire the balance
of the shares, or 746,666 shares, was purchased by Network
Fund, III, Ltd., with its working capital.
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CUSIP No. 0003030691 SCHEDULE 13D Page 3 of 172 Pages
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON1
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Network Fund III, Ltd.
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP /__/ (a)
/__/ (b)
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS
WC
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e)
/__/
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Cayman Islands, B.W.I.
- -------------------------------------------------------------------------------
7 SOLE VOTING POWER
-0-
NUMBER OF --------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY -0-
OWNED BY EACH --------------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH -0-
--------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
746,666
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
746,666 Shares
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
/__/
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.94 %
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON1
CO
- -------------------------------------------------------------------------------
1 Filing jointly pursuant to Rule 13d-1(f)(1) of the Securities
Exchange Act of 1934, as amended.
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CUSIP No. 0003030691 SCHEDULE 13D Page 4 of 172 Pages
Item 1. Security and Issuer.
This Statement on Schedule 13D (the "Schedule 13D) relates to the Common Stock,
par value $0.01 per share (the "Common Stock"), of Factory Stores of America,
Inc., a Delaware corporation (the "Company"). The address of the principal
executive offices of the Company is 230 N. Equity Drive, Smithfeild, North
Carolina 27577.
Item 2. Identity and Background.
This Schedule 13D is filed jointly on behalf of John W. Gildea, a United States
citizen ("Gildea"), and Network Fund III, Ltd., a Cayman Islands exempted
company ("Network"), pursuant to Rule 13d-1(f)(1) under the Securities Exchange
Act of 1934, as amended.
Gildea is a managing director of Gildea Management Company, a
Delaware corporation ("GM"). Gildea, as a director and Chairman of Network and
as a managing director of GM, which has the power to dispose of the right to
acquire up to 746,666 shares of Common Stock which Network may be deemed to own
beneficially (the "Network Shares"), by virtue of an Investment Advisory
Agreement, dated February 26, 1996 between GM and Network, a copy of which is
attached hereto as Exhibit 2, may be deemed to share any beneficial ownership
of the Network Shares with Network. Gildea has the sole power to vote or to
direct the voting, and the sole right to dispose or direct the disposition, of
3,000 shares of Common Stock beneficially owned by him, and the sole power to
dispose of the right to acquire up to an aggregate of 111,111 shares of Common
Stock (collectively the "Gildea Shares") in his individual capacity. Network
disclaims any beneficial ownership of the Gildea Shares. Network's principal
business is investing in securities and other financial instruments of issuers
located principally in the United States. The principal business address and
the principal office address of Network is P.O. Box 219, Butterfield House,
Grand Cayman, Cayman Islands, B.W.I. Gildea's principal business is managing
the investments of various entities in issuers located principally in the
United States. Gildea's principal business address is 115 East Putnam Avenue,
Greenwich, CT 06830.
The name, business address, citizenship and present principal
occupation of each director and executive officer of Network are set forth on
Schedule I hereto. This Schedule 13D does not report the sole right of William
P. O'Donnell, a Managing Director of GM and a Director of Network, to dispose
or direct the disposition of the right to acquire up to 11,111 shares of Common
Stock. Each of Gildea and Network disclaim beneficial ownership of all such
11,111 shares.
None of Network, Gildea or, to the best knowledge of either
of them, any of the persons listed on Schedule I hereto has, during the last
five years: (i) been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or (ii) been a party to a civil proceeding
of a judicial or administrative body of competent jurisdiction and as a result
of such proceeding was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating activities subject
to, federal or state securities laws of finding any violation with respect to
such laws.
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CUSIP No. 0003030691 SCHEDULE 13D Page 5 of 172 Pages
Item 3. Source and Amount of Funds or Other Consideration.
Network purchased from the Company (i) an Exchangeable
Subordinated Note, dated April 3, 1996, payable to Network in a principal
amount of $5,000,000, a copy of which is attached hereto as Exhibit 3 for
$5,000,000 and (ii) an Exchangeable Subordinated Note, dated April 29, 1996,
payable to Network in a principal amount of $1,720,000, a copy of which is
attached hereto as Exhibit 4 for $1,720,000 (collectively, the "Network
Exchangeable Notes"), pursuant to a Note Purchase Agreement dated April 2, 1996
(the "Note Purchase Agreement"), by and among the Company, Blackacre Bridge
Capital, L.L.C., a Delaware limited liability company ("Blackacre") and GM, a
copy of which is attached hereto as Exhibit 5. All funds required to purchase
the Network Exchangeable Notes were obtained from Network's working capital.
Gildea purchased from the Company an Exchangeable
Subordinated Note, dated April 3, 1996, payable to Gildea in a principal amount
of $1,000,000 (the "Gildea Exchangeable Note") for $1,000,000, a copy of which
is attached hereto as Exhibit 6, pursuant to the Note Purchase Agreement.
Gildea purchased the Gildea Exchangeable Note in cash obtained solely from his
personal funds.
The Network Exchangeable Notes and the Gildea Exchangeable
Note are hereinafter sometimes collectively referred to as the "Notes".
Gildea purchased an aggregate of 3,000 Gildea Shares for
which he has sole voting and dispositive power for cash in aggregate amount of
$44,430 obtained solely from his personal funds.
The Network Exchangeable Notes and the Gildea Exchangeable
Note are each convertible from and after the occurrence of a Conversion Right
Triggering Event at the option of the holder of each Note in whole or in part
into a number of fully paid and non-assessable shares of Common Stock equal to
the ratio of: (1) the principal amount of each Note or the portion thereof to
be converted to (ii) the Conversion Price in effect on the conversion date, in
each case on the terms and subject to the conditions set forth in the Notes.
The Notes define a Conversion Right Triggering Event as one of the following
events: (i) the effective date for the Certificate of Designation or the
consummation of the exchange of the Notes for shares of preferred stock shall
not have occurred for any reason on or prior to November 1, 1996, (ii) an Event
of Default (as defined in the Note) shall have occurred and be continuing and
(iii) a Change of Control Event (as defined in the Note) shall have occurred.
The Notes provide that the Conversion Price shall initially be $9.00 per share
of Common Stock, as such Conversion Price may be and adjusted from time to time
in accordance with the terms of the Notes. Assuming a Conversion Price of $9.00
per share, upon the occurrence of a Conversion Right Triggering Event, the (i)
Network Exchangeable Notes would be convertible at the option of Network into
up to 746,666 shares of Common Stock and (ii) the Gildea Exchangeable Note
would be convertible at the option of Gildea into up to 111,111 shares of
Common Stock.
Alternatively, subject to fulfillment of certain conditions
set forth in the Notes (including, without limitation, the effectiveness of the
Certificate of Designation, Preferences and Rights in the form attached as
Exhibit 2.1(b) to the Note Purchase Agreement, the "Certificate of
Designation") the Notes (to the extent not earlier converted) may be
mandatorily exchangeable for shares of preferred stock of the Company, which
preferred stock will in turn be convertible at the option of the holder thereof
into shares of Common Stock.
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CUSIP No. 0003030691 SCHEDULE 13D PPage 6 of 172 Pages
Pursuant to the terms of the Note Purchase Agreement, the
Company has agreed to issue and sell to designees of GM and Blackacre (which
could include Network and Gildea), and GM and Blackacre have agreed to cause
such designees to purchase from the Company up to an additional $5 million
principal amount of exchangeable subordinated notes upon the terms and subject
to the conditions set forth in the Note Purchase Agreement.
Reference is made to Exhibits 3-6 hereto for a complete
description of the terms of the Note Purchase Agreement and the Notes.
Item 4. Purpose of Transaction.
Gildea intends to hold the 3,000 Gildea Shares for which he
has sole voting and dispositive power for investment.
Network acquired the Network Exchangeable Notes and thereby
the right to acquire the Network Shares, and Gildea acquired the Gildea
Exchangeable Note and thereby the right to acquire up to 111,111 of the Gildea
Shares, pursuant to the terms of the Note Purchase Agreement and each of
Network and Gildea intend to hold the Network Exchangeable Notes and the Gildea
Exchangeable Notes and any shares of Common Stock obtained by them upon the
conversion of any such Note in whole or in part for investment.
The Company has agreed in the Note Purchase Agreement to file
a registration statement with the Securities and Exchange Commission
registering the resale of any shares of preferred stock and the shares of
Common Stock issuable on any conversion of the Notes and any preferred stock.
The Company also agreed to cause such shares of Common Stock to be approved for
listing on the New York Stock Exchange upon official notice of issuance.
The Company has agreed in the Note Purchase Agreement to take
or cause to be taken all action necessary to nominate a representative of GM
and Blackacre (the "Board Representative") for election to the Company's Board
of Directors, and to include the Board Representative in the slate of nominees
for election as directors of the Company in the proxy statement for the next
annual meeting of shareholders of the Company and to continue to cause the
Board Representative to be nominated for election and re-election to the
Company's Board of Directors for so long as GM and its affiliate beneficially
own in the aggregate at least 5% of the issued and outstanding Common Stock of
Borrower or securities convertible into or exercisable for an aggregate of at
least 5% of the issued and outstanding Common Stock (including the Notes).
Glidea is presently a Director of the Company and the Board Representative.
Except as specifically set forth in this Schedule 13D, neither Network nor
Gildea has any plans or proposals which relate to or would result in any of the
actions or effects set forth in items (a) through (j) of Item 4 of Schedule
13D, although either of them may develop such plans or proposals.
Network and Gildea intend to review on a continuing basis
their investments in the Company. As of the date of this Schedule 13D, except
as specially set forth in this Schedule 13D, no determination has been made by
Network or Gildea to acquire additional shares of Common Stock or securities
convertible into or exercisable for shares of Common Stock or dispose of any
shares of Common Stock or securities convertible into or exercisable for shares
of Common Stock now held by them, although either of them may decide to so
acquire or dispose of shares of Common Stock or
355270.7
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CUSIP No. 0003030691 SCHEDULE 13D Page 7 of 172 Pages
securities convertible into or exercisable for shares of Common Stock . Any
such determination will depend on market conditions prevailing from time to
time and on other conditions which may be applicable depending on the nature of
the transaction or transactions involved.
Item 5. Interest in Securities of the Issuer.
(a) and (b). The aggregate percentage of shares of Common
Stock reported which may be deemed beneficially owned by Network and Gildea is
based upon the 11,814,975 shares of Common Stock outstanding as reported in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995. This Schedule 13D does not report 4,000 shares of Common Stock held by
Gildea's spouse as custodian for Gildea's children. Each of Network and Gildea
disclaims beneficial ownership of all such 4,000 shares.
(a) (i) Network may be deemed to be the direct
beneficial owner of the 746,666 Network Shares which
are issuable upon the conversion of the entire
principal amount of the Network Exchangeable Notes.
Gildea may be deemed to be the indirect, beneficial
owner of the 746,666 Network Shares. The 746,666
Network Shares represent approximately 5.94% of the
outstanding Common Stock (calculated in accordance
with Rule 13d-3).
(ii) The 3,000 Gildea Shares beneficially owned by
Gildea, the 746,666 Network Shares that Gildea may
be deemed to indirectly own beneficially and the
111,111 remaining Gildea Shares which are issuable
upon the conversion of the entire principal amount
of the Gildea Exchangeable Note that Gildea may be
deemed to be the direct beneficial owner of
represent in the aggregate approximately 6.79% of
the outstanding Common Stock (calculated in
accordance with Rule 13d-3).
(b) (1) Network and Gildea may be deemed to share the power
to dispose of or direct the disposition of the right
to acquire the Network Shares upon the conversion of
the Network Exchangeable Notes.
(ii) Gildea has sole power to vote or to direct the
voting, and the sole right to dispose or to direct
the disposition, of 3,000 of the Gildea Shares.
Gildea may be deemed to have the sole power to
dispose of or direct the disposition of the right to
acquire the remaining 111,111 Gildea Shares upon the
conversion of the Gildea Exchangeable Note.
(c) Except as set forth in this Schedule 13D, none of Network,
Gildea or, to the best knowledge of Network or Gildea, any
person named on Schedule I hereto owns any shares of Common
Stock, and none has purchased or sold any shares of Common
Stock during the past 60 days.
(d) Except as set forth in this Schedule 13D, no person is known
by Network or Gildea to have the right to receive or the
power to direct the receipt of dividends from, or the
proceeds from the sale of, the Network Shares or the Gildea
Shares beneficially owned by Network or Gildea.
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CUSIP No. 0003030691 SCHEDULE 13D Page 8 of 172 Pages
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
Except as set forth in this Schedule 13D, there are no
contracts, arrangements, understandings or relationships
(legal or otherwise) among the persons referred to in Item 2
of this Schedule 13D or between such persons and any other
person with respect to any of the securities of the Company,
including, but not limited to, any relating to the transfer
or voting of any of such securities, finder's fees, joint
ventures, loan or option arrangements, puts or calls,
guarantees of profits, division of profits or loss or the
giving or withholding of proxies.
Item 7. Materials to Be Filed as Exhibits.
1. Joint Filing Agreement, dated April 30, 1996
2. Investment Advisory Agreement, dated February 26, 1996, by
and between GM and Network
3. Note Purchase Agreement, dated April 2, 1996, by and among
the Company, Blackacre Bridge Capital, L.L.C. and GM
4. Exchangeable Subordinated Note dated April 3, 1996 made by
the Company in favor of Network
5. Exchangeable Subordinated Note dated April 29, 1996 made by
the Company in favor of Network
6. Exchangeable Subordinated Note dated April 3, 1996 made by
the Company in favor of Gildea
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CUSIP No. 0003030691 SCHEDULE 13D Page 9 of 172 Pages
SIGNATURE
After reasonable inquiry and to the best of their respective knowledge
and belief, the undersigned certify that the information set forth in this
statement is true, complete and correct.
Dated: April 30, 1996
NETWORK FUND III, LTD.
By: /s/ John W. Gildea
-------------------------------
Name: John W. Gildea
Title: Chairman
/s/ John W. Gildea
-------------------------------
John W. Gildea
355270.7
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CUSIP No. 0003030691 SCHEDULE 13D Page 10 of 172 Pages
SCHEDULE I
Reporting Person: Network Fund III, Ltd.
P.O. Box 219 Butterfield House
Grand Cayman, Cayman Islands, B.W.I.
Executive Officers, Directors and Controlling Person:
Name: John W. Gildea
Positions: Director and Chairman
Principal Occupation
and Employment;
Business Address: Managing Director of Gildea Management
Company, a Delaware corporation ("GM"); the
business address of GM and Mr. Gildea is:
115 Putnam Avenue, Greenwich, CT 06803.
By virtue of being Managing Director of GM which under its Investment
Advisory Agreement with Network (see Exhibit 2) has the power to
dispose of any of the Network Shares which may be held by Network, and
the Chairman of Network, Mr. Gildea may be deemed to be a controlling
person of Network.
Name: William P. O'Donnell
Positions: Director and Managing Director
Principal Occupation
and Employment; Managing Director of Gildea
Management Company
Business Address: 115 Putnam Avenue
Greenwich, CT 06803
Citizenship: USA
Name: Peter Arthur Neil Bailey
Position: Director
Principal Occupation
and Employment;
Business Address: Director of Abacus Asset Management in
Jersey, Channel Islands, a member of
Coopers & Lybrand International, a limited
liability association incorporated in
Switzerland; business address: La Motte
Chambers, La Motte Street, St. Heiler,
Jersey, Channel Islands, U.K. JE1 1BJ
Citizenship: U.K.
355270.7
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CUSIP No. 0003030691 SCHEDULE 13D Page 11 of 172 Pages
Name: Geoffrey William Fisher
Position: Director
Principal Occupation
and Employment;
Business Address: Director of Abacus Asset Management in
Jersey, Channel Islands, a member of
Coopers & Lybrand International, a limited
liability association incorporated in
Switzerland; business address: La Motte
Chambers, La Motte Street, St. Heiler,
Jersey, Channel Islands, U.K. JE1 1BJ
Citizenship: U.K.
Name: Michael David de Figueiredo
Position: Director
Principal Occupation
and Employment;
Business Address: Director of Abacus (CI) Limited, a member
of Coopers & Lybrand International, a
limited liability association incorporated
in Switzerland; business address: La Motte
Chambers, La Motte Street, St. Heiler,
Jersey, Channel Islands, U.K. JE1 1BJ
Citizenship: U.K.
355270.7
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CUSIP No. 0003030691 SCHEDULE 13D Page 12 of 172 Pages
EXHIBIT INDEX
Page
Exhibit Number
1. Joint Filing Agreement, dated April 30, 1996 14
2. Investment Advisory Agreement, dated Febraury 26, 1996, 16
by and between GM and Network
3. Note Purchase Agreement, dated April 2, 1996, by and 22
among the Company, Blackacre Bridge Capital, L.L.C.
and GM
4. Exchangeable Subordinated Note dated April 3, 1996 made 94
by the Company in favor of Network
5. Exchangeable Subordinated Note dated April 29, 1996 made 120
by the Company in favor of Network
6. Exchangeable Subordinated Note dated April 3, 1996 made 146
by the Company in favor of Gildea
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EXHIBIT 1
355270.7
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EXHIBIT 2
355270.7
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EXHIBIT 3
355270.7
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EXHIBIT 4
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EXHIBIT 5
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EXHIBIT 6
355270.7
AGREEMENT
The undersigned hereby agrees that this statement on Schedule 13D with
respect to beneficial ownership of shares of common stock of Factory Stores of
America, Inc., a Delaware corporation is filed jointly, on behalf of each of
them.
Dated: April 30, 1996
NETWORK FUND III, LTD.
By: /s/ John W. Gildea
-------------------------------
Name: John W. Gildea
Title: Chairman
/s/ John W. Gildea
-------------------------------
John W. Gildea
355270.7
EXHIBIT 2
364609.1
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NETWORK FUND III, LTD.
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT (the "Agreement") is entered into as
of February 26, 1996 by and between GILDEA MANAGEMENT COMPANY, a Delaware
corporation (the "Investment Advisor"), and NETWORK FUND III, LTD., a Cayman
Islands exempted company (the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund has been formed as a closed-end investment company,
the objective, of which is to achieve capital appreciation in accordance with
the investment objectives and strategies as more fully described in the
Confidential Private Placement Memorandum of the Fund dated February 1996 (the
"Memorandum"); and
WHEREAS, the Fund wishes to engage the Investment Advisor to provide
investment advisory services with respect to the Fund's assets; and
WHEREAS, the Investment advisor wishes to accept the same upon the
terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein contained, the parties agree as follows:
1. Investment Management Services. In accordance with the provisions
of the Memorandum and Articles of Association of the Fund, and under the
ultimate supervision of the Board of Directors of the Fund (the "Directors")
from time to time as provided therein, and in accordance with the investment
objectives, polices, guidelines and restrictions which are set forth in the
Memorandum or which are otherwise communicated to the Investment Advisor in
writing by the Fund, the Investment Advisor shall use its reasonable efforts to
invest the assets of the Fund according to the strategy set forth in the
Memorandum. Capitalized terms not otherwise defined herein shall be used herein
as defined in the Memorandum.
2. Authority of the Investment Advisor. The Investment Advisor shall
have full discretion and authority, without obtaining the Fund's prior approval,
to manage the investment and reinvestment of the assets of the Fund in such
manner as the Investment Advisor considers appropriate consistent with the
Memorandum. In furtherance of the foregoing, the Fund hereby designates and
appoints the Investment Advisor as its agent and attorney-in-fact, with full
power and authority and without the need for further approval of
364609.1
<PAGE>
the Fund (except as may be required by law), to carry out the following with
respect to the assets of the Fund:
(a) to effect purchases and sales (including short sales) or
(i) securities of any type whatsoever, denominated in any currency, whether or
not issued by government entities, partnerships, trusts or corporations, (ii)
any put or call options thereon (including the writing of options, whether
covered or uncovered), and (iii) other securities and instruments consistent
with the Fund's investment policies and program;
(b) to make all decisions relating to the manner, method and
timing of investment transactions, and to select brokers and dealers for
the execution, clearance and settlement of any transactions;
(c) to borrow from banks, brokers or other financial
institutions to the extent permitted by the Memorandum and to pledge assets of
the Fund in connection therewith;
(d) to direct custodians to deliver funds or securities for
the purpose of effecting transactions, and to instruct custodians to exercise or
abstain from exercising any privilege or right attaching to such assets; and
(e) to make and execute, in the name and on behalf of the
Fund, all such documents (including, without limitation, customer agreements and
other documents in connection with the establishment and maintenance of
brokerage accounts) and to take all such other actions as the Investment Advisor
considers necessary or advisable to carry out its investment management duties
hereunder.
3. Brokerage. In the course of selecting brokers, dealers, banks and
intermediaries to effect transactions for the Fund, the Investment Advisor may
agree to such commissions, fees and other charges on behalf of the Fund as the
Investment Advisor shall deem reasonable in the circumstances taking into
account all such factors as it deems relevant, including the quality of research
and other services made available to it (even if such services are not for the
exclusive benefit of the Fund). It is understood that the costs of such services
will not necessarily represent the lowest costs available and that the
Investment Advisor is under no obligation to combine or arrange orders so as to
obtain reduced charges.
4. Investments for the Accounts of Others and Allocation of
Opportunities.
(a) It is understood that the Investment Advisor and its
directors, officers, employees and principals may from time to time purchase and
sell securities or other investment assets for their own accounts, for the
accounts of their families, for the account of any entity in which they have a
beneficial interest or for the accounts of others for whom they may provide
investment advisory or other services (collectively, "Managed Accounts"),
notwithstanding the fact that the Fund may have or may take an investment
position in the
364609.1
2
<PAGE>
same security; provided, however, that the Investment Advisor shall not cause
the Fund to purchase any asset from or sell any asset to the Investment Advisor,
or any of its directors, officers, employees or principals or any account or
entity controlled by such persons without the consent of the Fund.
(b) It is understood that when the Investment Advisor
determines that it would be appropriate for the Fund and one or more Managed
Accounts to participate in an investment opportunity, the Investment Advisor
will seek to execute orders for the fund and for such Managed Accounts on an
equitable basis. In such situations, the Investment Advisor may place orders for
the Fund and each Managed Account simultaneously, and if all such orders are not
filled at the same price, the Investment Advisor may cause the Fund and each
Managed Account to pay or receive the average of the prices at which the orders
were filled for the Fund and all Managed Accounts. If all such orders cannot be
fully executed under prevailing market conditions, the Investment Advisor may
allocate the securities traded among the Fund and the Managed Accounts in a
manner which it considers equitable, taking into account the size of the order
placed for the Fund and each such Managed Account as well as any other factors
which it deems relevant.
(c) The Investment Advisor will not organize any other
investment fund with the same objectives as the Fund (other than a parallel U.S.
Limited partnership for U.S. investors) unless at least sixty percent (60%) of
the capital of the Fund has been invested in portfolio securities consistent
with the Fund's objectives.
5. Compensation.
(a) For its services hereunder, the Investment Advisor shall
be entitled to receive a quarterly management fee from the fund at an annual
rate equal to 1.75% of the Net Value of the Fund (as defined in the Memorandum).
The management fee shall b calculated and payable in arrears after the end of
each calendar quarter based on the Net Value of the Fund as of the end of the
calendar quarter. The management fee shall be paid promptly to the Investment
Advisor after the close of each calendar quarter.
(b) In addition to the management fee, once the Fund has made
aggregate distributions to holders of its Common Shares equal to their initial
investment plus a 7% non-compounded annual return (the "Preferred Return"), then
the Investment Advisor will receive distributions in its capacity as holder of
the Fund's Founders Shares until it has received cumulative distributions equal
to a 1.75% non-compounded annual return on the Fund's capital,and thereafter
distributions will be made 80% to holders of Common Shares of the Fund and 20%
to the Investment Advisor in its capacity as holder of Founders Shares, in each
case as provided in the Memorandum and in the Articles and Memorandum of
Association of the Fund.
6. Scope of Liabilities. The Investment Advisor shall not be liable to
the Fund, its affiliates or shareholders for any losses, damages, expenses
or claims occasioned by any
364609.1
3
<PAGE>
act or omission of the Investment Advisor in connection with the performance of
its services hereunder, other than as a result of its own willful misconduct,
gross negligence or reckless disregard of its duties hereunder, or as otherwise
required by applicable law.
7. Indemnification. The Fund shall indemnify the Investment Advisor
(which shall include solely for purposes of this Section 9 any of its directors,
officers, employees and shareholders) against and hold them harmless from any
expense, loss, liability or damage arising out of any claim asserted or
threatened to be asserted by any third party, in connection with the Investment
Advisor's serving or having served as such pursuant to this Agreement; provided,
however, that the Investment Advisor shall not be entitled to indemnification
with respect to any expense, loss, liability or damage which was caused by its
own gross negligence, willful misconduct or reckless disregard of its duties
hereunder. The Fund shall advance to the Investment Advisor the reasonable costs
and expenses of investigating and/or defending any such claim, subject to
receiving a written undertaking from the Investment Advisor to repay any such
amounts advanced to it in the event and to the extent of any subsequent
determination that the Investment Advisor was not entitled to indemnification
hereunder. In the event that the Investment Advisor is or becomes a party to any
action or proceeding in respect of which indemnification may be sought
hereunder, the Investment Advisor shall promptly notify the Fund thereof.
Following such notice, the Fund shall be entitled to participate therein and, to
the extent that it may wish, to assume the defense thereof with counsel
reasonably satisfactory to the Investment Advisor. After notice from the Fund to
the Investment Advisor of an election so to assume the defense thereof, the Fund
will not be liable to the Investment Advisor hereunder for any legal or other
expenses subsequently incurred by the Investment Advisor in connection with the
defense thereof other than reasonable costs of investigation unless counsel for
the Investment Advisor shall reasonably determine that there is a conflict of
interest which requires separate representation of the parties. The Fund shall
not be liable hereunder for any settlement of any action or claim effected
without its written consent thereto, which consent shall not be unreasonably
withheld, nor shall the Fund enter into any settlement which shall impose any
obligation on the Investment Advisor without its written consent.
8. Independent Contractor. For all purposes of this Agreement, the
Investment Advisor shall be an independent contractor and not an employee or
agent of the Fund, nor shall anything herein be construed as making the Fund a
partner or co-venturer with the Investment Advisor or any of its affiliates.
Except as provided in this Agreement, the Investment Advisor shall not have
authority to bind, obligate or represent the Fund. Without limiting the
generality of the foregoing, the Investment Advisor shall have no authority
whatsoever (nor shall it have any duty) on behalf of the Fund to: (i)
communicate with shareholders of the Fund or with the general public; (ii)
solicit sales of the Shares of the Fund or accept subscriptions therefor; (iii)
maintain the principal corporate records or books of account of the Fund; (iv)
disburse payments of dividends, legal and accounting fees, and directors' and
officers' salaries; or (v) make redemptions of the shares of the Fund.
364609.1
4
<PAGE>
9. Information Concerning Activities. The Investment Advisor shall send
or arrange that there be sent to the Fund confirmations of all transactions for
its account. The Investment Advisor shall also furnish from time to time such
further information and reports concerning the activities undertaken by the
Investment Advisor on behalf of the Fund as the Fund may reasonably request.
10. Expenses. All expenses incurred directly in connection with
transactions effected or positions held on behalf of the Fund pursuant to the
Investment Advisor's exercise of its duties hereunder (including, without
limitation, custodial fees, clearing fees, brokerage commissions, interest and
commitment fees on loans and debit balances, withholding or transfer taxes and
other expenses as described in the Memorandum) shall be paid or reimbursed by
the Fund. The Investment Advisor shall bear its own overhead and other internal
operating costs, except that the Investment Advisor may cause certain of such
expenses to be paid out of brokerage commissions generated by trading on behalf
of the Fund as described in the Memorandum.
11. Term, Termination, Renewal and Survival.
(a) The initial term of this Agreement shall commence on the date
hereof and shall continue until the final dissolution and liquidation of the
Fund, subject to termination by either party upon not less than thirty (30)
days' prior written notice to the other in the event of any material breach by
the other party of its obligations under this Agreement, which breach is not
remedied within such period.
(b) In the event of the termination of this Agreement, (i) the
Investment Advisor shall be entitled to the management fee accrued through the
date of termination, (ii) the provisions of Sections 6 and 7 shall survive any
termination, and (iii) the Investment Advisor shall have the right, at its
option, to resell the Founders Shares to the Fund at a purchase price equal to
the accrued but unpaid distributions due to the holders of Founders Shares
through the date of such termination based upon the Net Value of the Fund (as
defined in the Memorandum) as of such date.
12. Modification; Waiver. Except as otherwise expressly provided
herein, this Agreement shall not be amended nor shall any provision of this
Agreement be considered modified or waived unless evidenced by a writing signed
by the parties to be charged with such amendment, waiver or modification.
13. Entire Agreement; Binding Effect; Assignment. This Agreement
represents the entire agreement among the parties, shall be binding upon and
inure to the benefit of the parties hereto and their restive successors, and
their rights and obligations hereunder shall not be assignable, transferable or
delegable without the written consent of the other party hereto. Any attempted
assignment, transfer or delegation hereof without such consent shall be void.
364609.1
5
<PAGE>
14. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Cayman Islands, without giving effect to
conflicts of law.
15. Counterparts. This Agreement may be signed in any number of
counterparts. Any single counterpart or a set of counterparts signed in either
case by the parties hereto shall constitute a full and original agreement for
all purposes.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
NETWORK FUND III, LTD.
By:___________________________
Name:
Title:
GILDEA MANAGEMENT COMPANY
By:___________________________
Name:
Title:
64609.1
6
NOTE PURCHASE AGREEMENT
NOTE PURCHASE AGREEMENT ("Agreement"), dated this 2nd day of
April, 1996, by and among FACTORY STORES OF AMERICA, INC., a Delaware
corporation with offices at 230 North Equity Drive, Smithfield, North Carolina
27577 (the "Borrower"), BLACKACRE BRIDGE CAPITAL, L.L.C., a Delaware limited
liability company with offices at 950 Third Avenue, New York, New York 10022
("Blackacre"), and GILDEA MANAGEMENT COMPANY, a Delaware corporation with
offices at 115 E. Putnam Avenue, Greenwich, Connecticut 06830 ("Gildea").
PRELIMINARY STATEMENT
Borrower desires to sell and issue to designees of Blackacre
and Gildea, and Blackacre and Gildea desire to cause their designees to
purchase from Borrower exchangeable subordinated notes in an aggregate
principal amount up to $25 million and senior notes in an aggregate principal
amount of $5 million from the Borrower.
NOW, THEREFORE, in consideration of the mutual promises,
covenants, representations, warranties and conditions hereinafter contained,
the parties do hereby agree as follows:
1. DEFINITIONS.
Certain capitalized terms used in this agreement are defined in
Schedule A; references to a "Schedule" or an "exhibit" are, unless otherwise
specified, to a Schedule or an exhibit attached to this agreement.
2. ISSUANCE, SALE AND PURCHASE OF THE NOTES.
2.1. On the terms and subject to the conditions set forth in this
agreement, Borrower shall issue and sell to Designees of Blackacre and Gildea,
and Blackacre and Gildea shall cause such Designees to purchase from Borrower,
up to $25 million principal amount of Exchangeable Subordinated Notes (the
"Exchangeable Notes"). The Exchangeable Notes will be in the form of exhibit
2.1(a) hereto, including being exchangeable for shares of Series A Convertible
Preferred Stock, par value $25.00 per share, of Borrower (the "Preferred
Stock") at the rate of $25 principal amount of Exchangeable Notes for each
share of Preferred Stock and a purchase price equal to 100% of the principal
amount thereof. The certificate of designation attached hereto as exhibit
2.1(b) (the "Certificate of Designation") sets forth the designations,
346537.11
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preferences and relative participating, optional or other special rights, and
qualifications, or restrictions of the Preferred Stock.
2.2. On the terms and subject to the conditions set forth in this
agreement, Borrower shall issue and sell to Designees of Blackacre and Gildea,
and Blackacre and Gildea shall cause such Designees to purchase from Borrower,
$5 million principal amount of Senior Notes (the "Senior Notes"). The Senior
Notes will be in the form of exhibit 2.2 hereto, and will have a purchase price
equal to 97% of the principal amount thereof.
2.3. The Exchangeable Notes and the Senior Notes are hereinafter
collectively referred to as the "Notes".
2.4. The issuance and sale and the purchase of the Exchangeable
Notes and the Senior Notes are hereinafter collectively referred to as the
"Transactions".
3. CLOSING.
3.1. The parties hereto intend to close the initial funding of
the Transactions (the "Closing") on April 2, 1996. The date of the initial
funding of the Transactions shall hereinafter be referred to as the "Closing
Date."
3.2. Notwithstanding the foregoing, Blackacre, Gildea and any
Designees will be required to close and fund the Transactions at the Closing
and at any subsequent funding in accordance with the funding Schedule set forth
in Schedule 4.1 (a "Subsequent Funding") if and only if all the conditions
contained herein will have been complied with by Borrower in all material
respects no later than two Business Days prior to the date scheduled for the
Closing or the Subsequent Funding (except for such conditions which cannot be
satisfied until the Closing or such Subsequent Funding Date) and provided that
Borrower is not in default in any material respect with respect to any
provisions of this agreement. The date of any Subsequent Funding shall
hereinafter be referred to as the "Subsequent Funding Date".
3.3. The Closing and each Subsequent Funding will be held at the
offices of Battle Fowler LLP, 75 East 55th Street, New York, New York.
3.4. At the Closing, or the Subsequent Funding, the Borrower will
deliver to the Designees of Blackacre and Gildea the Notes to be purchased by
the Designees of Blackacre and Gildea, dated the Closing Date, or the
Subsequent Funding Date, as the case may be, and registered in the names of
Designees of Blackacre and Gildea, in consideration of the purchase price
therefor paid by wire transfer or immediately available funds for the account
of the Borrower. Blackacre and Gildea shall provide the Borrower with the names
of the Designees of Blackacre and Gildea
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346537.11
<PAGE>
at least two days prior to the Subsequent Funding Date set forth in Schedule
4.1. for each Subsequent Funding, except that Blackacre and Gildea shall
provide the Borrower with the names of the Designees of Blackacre and Gildea to
purchase the last $5 million of commitments to purchase Exchangeable Notes at
least five (5) Business Days prior to the Subsequent Funding Date set forth in
Schedule 4.1 for such purchase.
3.5. If at the Closing or a Subsequent Funding the Borrower shall fail
to tender the Notes to Blackacre and Gildea as provided above in this section
3, or if any of the conditions specified in section 5 shall not have been
fulfilled in all material respects to Blackacre and Gildea's reasonable
satisfaction, Blackacre and Gildea and their Designees shall, at Blackacre and
Gildea's election, be relieved of all further obligations under this agreement,
without thereby waiving any rights Blackacre and Gildea or the Designees may
have by reason of such failure or such nonfulfillment.
3.6. If the Closing does not occur on or prior to May 1, 1996 (the
"Termination Date"), time being of the essence with respect to such date, this
agreement and the obligations of the parties hereto contained herein will
expire and terminate on close of business on such date.
4. FUNDING SCHEDULE.
4.1. The Exchangeable Notes will be issued, sold and purchased in the
principal amount of $10 million on the Closing Date and may, to the extent of
the balance of Exchangeable Note commitment, be funded, at the option of
Borrower, on or before the Subsequent Funding Date for each Subsequent Funding
set forth in Schedule 4.1.
4.2. The Senior Notes will be issued, sold and purchased in a
principal amount of $5 million, at the option of Borrower, on or before the
Subsequent Funding Date for the Senior Notes set forth in Schedule 4.1.
4.3. Each issuance, sale and purchase of the Notes prior to the
Subsequent Funding Date for such Notes set forth in Schedule 4.1 shall require
written notice from Borrower delivered to Blackacre and Gildea at least three
(3) Business Days prior to the requested Subsequent Funding Date in the case of
the Exchangeable Notes, and at least five (5) Business Days prior to the
requested Subsequent Funding Date in the case of the Senior Notes. In each case
the notice shall set forth the aggregate amount to be borrowed and wire
instructions for transfer of the funding proceeds of such issuance, sale and
purchase. All notices of funding shall be irrevocable.
4.4. The Borrower shall apply all proceeds from the issue, sale
and purchase of the Notes as specified in Schedule 4.4 hereto.
-3-
346537.11
<PAGE>
5. CONDITIONS TO CLOSING.
The obligations of Blackacre and Gildea and any Designees
of Blackacre and Gildea to purchase and pay for the Notes to be sold to
Designees of Blackacre and Gildea at the Closing and at any Subsequent Funding
are subject to the fulfillment, to Blackacre and Gildea's reasonable
satisfaction, prior to or at the Closing or any Subsequent Funding, as the case
may be, of the following conditions:
5.1. Representations and Warranties.
The representations and warranties of the Borrower
contained in this agreement, and those otherwise made in writing by or on
behalf of the Borrower in connection with the transactions contemplated by this
agreement shall be correct in all material respects when made and as of the
Closing Date as if made on and as of the Closing Date.
5.2. Performance; No Default.
Borrower shall have performed and complied in all material
respects with all agreements and conditions contained in this agreement
required to be performed or complied with by it prior to or at the Closing Date
or Subsequent Funding Date, as the case may be, and after giving effect to the
issue and sale of any Notes, no Default or Event of Default shall have occurred
and be continuing.
5.3. Compliance Certificates.
At the Closing, Borrower shall have delivered to Blackacre
and Gildea and each Designee an Officer's Certificate, dated the Closing Date,
certifying that the conditions specified in sections 5.1, 5.2 and 5.9 have been
fulfilled. At each Subsequent Funding, Borrower shall have delivered to
Blackacre and Gildea and each Designee an Officer's Certificate, dated the
Subsequent Funding Date certifying that the conditions specified in sections
5.2 and 5.9 have been fulfilled.
5.4. Opinions of Counsel.
The Blackacre and Gildea and each Designee shall have
received a favorable opinion, dated the Closing Date and each Subsequent
Funding Date, reasonably satisfactory to Blackacre and Gildea, from Morrison &
Foerster LLP, counsel for the Borrower, substantially in the form set forth in
exhibit 5.4 and covering such other matters incident to the transactions
contemplated hereby as Blackacre and Gildea or Blackacre and Gildea's counsel
may reasonably request (and the Borrower hereby instructs its counsel to
deliver such opinion to Blackacre and Gildea).
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346537.11
<PAGE>
5.5. Payment of Counsel Fees.
Without limiting the provisions of section 13, the Borrower
shall have paid the reasonable fees, charges and disbursements of Blackacre and
Gildea's counsel incurred in connection with the Transactions through the
Closing Date or a Subsequent Funding Date, as the case may be.
5.6. Payment of Commitment Fees.
Borrower shall have paid to Blackacre and Gildea the
non-refundable fee as provided in section 2(a)(i) of the Commitment Letter.
5.7. Warrants.
Borrower shall have issued to Blackacre and Gildea or their
Designees the Warrants as provided in section 2.a.iii of the Commitment Letter.
5.8. Bank One Consent and Waiver. Borrower shall have delivered
to Blackacre and Gildea a consent and waiver of Bank One in substantially the
form of exhibit 5.8 hereto.
5.9. Additional Conditions.
(a) Borrower shall have executed and delivered a commitment
letter in substantially the form of exhibit 5.9(a), which shall provide, among
other things, for the increase of the Bank One Loan Facility to at least $75
million;
(b) there shall not have occurred and be continuing an
event of default or an event which, with the lapse of time or notice or both,
would constitute an event of default under any Indebtedness in a principal
amount in excess of $1,000,000 to which Borrower or any of its Subsidiaries is
a party or would permit the acceleration of Indebtedness in a principal amount
in excess of $250,000 to which Borrower or any of its Subsidiaries is a party;
(c) Borrower's senior management incumbent on March 1, 1996
(which for this purpose shall consist of C. Cammack Morton) shall be incumbent
with substantially the same duties and responsibilities on any such funding
date as on March 1, 1996; or
(d) except as disclosed in the written materials previously
provided to Blackacre or Gildea in connection with the Transaction, since
December 31, 1995, there shall not have occurred a material adverse change in
the business, properties, financial condition, results of operations or
prospects of Borrower other than changes that relate to the economy in general;
and
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346537.11
<PAGE>
(e) with respect to the last $5 million of the Exchangeable
Note funding commitment, Blackacre and Gildea shall have approved in Blackacre
and Gildea's sole discretion the Borrower's use of such proceeds as identified
by Borrower in writing two Business Days prior to the Subsequent Funding Date
for such funds. If Borrower proposes one or more uses of the proceeds for the
last $5 million of the Exchangeable Note funding commitment and Blackacre and
Gildea do not approve of any such use of proceeds, Blackacre and Gildea shall
promptly pay to Borrower the sum of $100,000 as a refund of that portion of the
commitment fee relating to the last $5 million of the Exchangeable Note funding
commitment. Borrower shall have the right of set-off against any amounts
payable by Borrower to Blackacre with respect to the Senior Note, or to Network
Fund III, Ltd., as the Designee of Gildea, with respect to the Exchangeable
Notes purchased by Network Fund III, Ltd., if all or any portion of any such
$100,000 refund is not promptly paid to Borrower as required by this section
5.9.
5.10. Proceedings and Documents.
All corporate and other proceedings in connection with the
transactions contemplated by this agreement and all documents and instruments
incident to such transactions shall be reasonably satisfactory to Blackacre and
Gildea and Blackacre and Gildea's counsel, and Blackacre and Gildea and
Blackacre and Gildea's counsel shall have received all such counterpart
originals or certified or other copies of such documents as Blackacre and
Gildea or they may reasonably request.
6. REPRESENTATIONS AND WARRANTIES OF THE BORROWER.
The Borrower hereby represents and warrants to each of
Blackacre, Gildea and each Designee as follows:
6.1. Organization and Qualification; Subsidiaries. (a) The
Borrower is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. The Borrower has all
requisite corporate power and authority to own, operate, lease and encumber its
properties and carry on its business as now conducted, and to enter into this
agreement and to perform its obligations hereunder.
(b) Each of the Significant Subsidiaries of the Borrower is
a corporation, partnership or limited liability company duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, and has the corporate or power and authority to
own its properties and carry on its business as it is now being conducted.
(c) Each of the Borrower and its Significant Subsidiaries
is duly qualified to do business and in good standing in each jurisdiction in
which the ownership of its property or the conduct of its business requires
such qualification,
-6-
346537.11
<PAGE>
except for any failures to be so qualified or to be in good standing as would
not, individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
(d) The Disclosure Schedule sets forth the name of each
Subsidiary of the Borrower (whether owned directly or indirectly through one or
more intermediaries). All of the outstanding shares of capital stock of, or
other equity interest in, each of the Subsidiaries owned by the Borrower are
duly authorized, validly issued, fully paid and nonassessable, and are owned,
directly or indirectly, by the Borrower free and clear of all Liens, except as
set forth in the Disclosure Schedule. Except as contemplated hereby, there are
no existing options, warrants, calls, subscriptions, convertible securities or
other rights, agreements or commitments which obligate the Borrower or any of
the Significant Subsidiaries to issue, transfer or sell any shares of capital
stock or equity interests in any of the Significant Subsidiaries except as
would not, individually or in the aggregate, reasonably be expected to result
in the Material Adverse Effect.
6.2. Authority Relative to Agreement; Board Approval. (a) The
execution, delivery and performance of this agreement and the Notes, the
authorization, issuance and delivery of the Preferred Stock and the issuance
and delivery of the Common Stock upon conversion of the Exchangeable Notes or
of shares of Preferred Stock in accordance with the provisions of the
Certificate of Designation have been duly and validly authorized by all
necessary corporate action on the part of the Borrower and its shareholders,
subject only to the approval of the amendment of the Borrower's Second Restated
Certificate of Incorporation substantially in the form of exhibit 6.2 hereto
(the "Charter Amendment") pursuant to section 242 of the General Corporation
Law of the State of Delaware (the "Delaware General Corporation Law"), the
filing of such Charter Amendment with the Secretary of State of the State of
Delaware pursuant to section 103 of the Delaware General Corporation Law and
upon the effectiveness of the Charter Amendment, the execution,
acknowledgement, filing and recordation of the Certificate of Designation
pursuant to section 151(g) of the Delaware General Corporation Law and the
approval of the shareholders of the issuance of such shares of Preferred Stock
and Common Stock pursuant the New York Stock Exchange's Shareholder Approval
Policy 312.03 (the "NYSE Policy"), or absent such shareholder approval, the
waiver by the New York Stock Exchange of the NYSE Policy. This agreement has
been duly executed and delivered by the Borrower and constitutes the valid and
legally binding obligation of the Borrower, enforceable against the Borrower in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights or general
principles of equity. Upon issuance of any Notes pursuant to the terms and
conditions of this agreement, each Note will constitute a valid and legally
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights or general
principles of equity, subject further in the case
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<PAGE>
of any Exchangeable Notes, to the approval by the stockholders of the Charter
Amendment and the filing of the Charter Amendment and the Certificate of
Designation and of the issuance of the shares of Preferred Stock upon the
exchange of the Exchangeable Notes and of the Common Stock upon conversion of
the Exchangeable Notes and the Preferred Stock as described on section 6.2(a).
The Board of Directors of the Borrower has determined to recommend that the
stockholders of the Borrower vote in favor of and approve the Charter Amendment
and the issuance of the Preferred Stock pursuant to this agreement and the
issuance of the shares of Preferred Stock and the shares of Common Stock issued
on conversion of the Exchangeable Notes and the Preferred Stock and on exercise
of the Warrants as required by the NYSE Policy.
(b) Subject to the filing of the Certificate of Designation
as described in section 6.2(a), Borrower will at all times reserve and keep
available, solely for issuance, sale and delivery upon the exchange of the
Exchangeable Notes, a number of shares of Preferred Stock issuable upon such
exchange and each share of Preferred Stock issuable upon the exchange of the
Exchangeable Notes will, upon issuance upon any such exchange, be duly and
validly issued, fully paid and nonassessable. The Borrower will at all times
reserve and keep available, solely for issuance, sale and delivery upon the
conversion of the Exchangeable Notes and the Preferred Stock, a number of
shares of Common Stock issuable upon any such conversion and the shares of
Common Stock issuable upon conversion of the Exchangeable Notes and the
Preferred Stock will, upon issuance upon any such conversion, be duly and
validly issued, fully paid and nonassessable.
6.3. Capital Stock of Borrower. (a) The authorized capital stock of
the Borrower on the date hereof consists solely of Seventy-Five Million
(75,000,000) shares, consisting of Fifty Million (50,000,000) shares of Common
Stock and Twenty- Five Million (25,000,000) shares of Excess Stock, $0.01 par
value per share (the "Excess Stock"). As of December 31, 1995, there were
11,814,200 shares of Common Stock issued and outstanding and no shares of
Excess Stock issued and outstanding. Upon the filing of the Charter Amendment,
the authorized capital stock of the Borrower will be as set forth in the
Charter Amendment. All such issued and outstanding shares of Common Stock are
duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. The Borrower has no outstanding bonds, debentures, notes or
other obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities the holders of which have the
right to vote) with the stockholders of the Borrower on any matter. Except as
set forth in the Disclosure Schedule and Borrower Reports, there are no
existing options, warrants, calls, subscriptions, convertible securities, or
other rights, agreements or commitments which obligate the Borrower to issue,
transfer or sell any shares of capital stock or other equity interests of the
Borrower.
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<PAGE>
6.4. No Conflicts; No Defaults; Required Filings and Consents.
(a) Except as contemplated hereby, neither the execution
and delivery by Borrower hereof nor the consummation by Borrower of the
transactions contemplated hereby in accordance with the terms hereof, will:
(i) conflict with or result in a breach of any
provisions of the Second Restated Certificate of Incorporation or By-laws of
the Borrower;
(ii) result in a breach or violation of, a default
under, or the triggering of any payment or other obligations pursuant to, or
accelerate vesting under, any of the Borrower stock option plans or similar
compensation plan or any grant or award made under any of the foregoing, except
as would not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect;
(iii) violate or conflict with any statute,
regulation, judgment, order, writ, decree or injunction applicable to the
Borrower or its Significant Subsidiaries, except as would not, individually or
in the aggregate, reasonably be expected to result in a Material Adverse
Effect;
(iv) except as set forth in the Disclosure
Schedule or the Borrower Reports, violate or conflict with or result in a
breach of any provision of, or constitute a default (or any event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination or in a right of termination or cancellation of, or
accelerate the performance required by, or result in the creation of any Lien
upon any of the properties of the Borrower or its Significant Subsidiaries
under, or result in being declared void, voidable or without further binding
effect, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust or any license, franchise, permit, lease, contract,
agreement or other instrument, commitment or obligation to which the Borrower
or its Significant Subsidiaries is a party, or by which the Borrower or its
Significant Subsidiaries or any of their properties is bound or affected,
except for any of the foregoing matters which would not reasonably be expected
to, individually or in the aggregate, result in a Material Adverse Effect; or
(v) require any consent, approval or authorization
of, or declaration, filing or registration with, any Government Authority,
other than any filings required under the Securities Act of 1933, as amended
(the "Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), state securities laws ("Blue Sky Laws") and any filings
required to be made with the Delaware Secretary of State (including, the filing
of the Charter Amendment and the Certificate of Designation as described in
section 6.2(a)) or any national securities exchange on which the Borrower
Common Stock is listed, except as would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
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(b) Except as waived by the Bank One Consent and Waiver
attached hereto as exhibit 5.8, there are no defaults under the Bank One
Facility and no events have occurred or failed to occur which, with the lapse
of time notice or both, would constitute an event of default under the Bank One
Facility.
(c) The commitment letter attached hereto as exhibit 6.4
from Bank One is in full force and effect on the date hereof.
6.5. SEC and Other Documents; Financial Statements; Undisclosed
Liabilities. (a) Blackacre and Gildea and each Designee has had access to the
Borrower registration statements filed with the Securities and Exchange
Commission (the "SEC") in connection with the Borrower's initial and subsequent
public offerings of Common Stock, and all exhibits, amendments and supplements
thereto, and each registration statement, report, proxy statement or
information statement and all exhibits thereto prepared by it or relating to it
since the effective date of the Borrower's registration statement filed under
the Securities Act of 1933, as amended, each in the form (including exhibits
and any amendments thereto) filed with the SEC (collectively, the "Borrower
Reports"). The Borrower Reports filed with the SEC constitute all forms,
reports and documents required to be filed by the Borrower under the Securities
Act, the Exchange Act and the rules and regulations promulgated thereunder (the
"Securities Laws"). As of their respective dates, the Borrower Reports (i)
complied as to form in all material respects with the applicable requirements
of the Securities Laws and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. There is no
unresolved violation or alleged violation asserted by any Government Authority
with respect to any of the Borrower Reports.
(b) Each of the balance sheets included in or incorporated
by reference into the Borrower Reports (including the related notes and
schedules) fairly presented the financial position of the entity or entities to
which it relates as of its date and each of the statements of operations,
stockholders' equity (deficit) and cash flows included in or incorporated by
reference into the Borrower Reports (including any related notes and schedules)
fairly presented the results of operations, retained earnings or cash flows, as
the case may be, of the entity or entities to which it relates for the periods
set forth therein, in each case in accordance with GAAP consistently applied
during the periods involved, except as may be noted therein and except, in the
case of the unaudited statements, normal recurring year-end adjustments which
would not, individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.
(c) Except as and to the extent set forth in the Borrower
Reports or any Disclosure Schedule hereto, to the Borrower's knowledge, none of
the Borrower or any of its Significant Subsidiaries has any Material
liabilities (nor do there exist any
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circumstances) that would, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.
(d) Except as disclosed in the Borrower Reports and the
Disclosure Schedule and except for (i) agreements made in the ordinary course
of business with a maturity of less than one year or that are terminable on 30
days or less notice, and (ii) agreements the breach or non-fulfillment of which
would not, individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect, each material agreement entered into by the
Borrower as of the date hereof is in full force and effect as against the
Borrower and, to the Borrower's knowledge, as against the other parties
thereto, no payments, if any, thereunder are delinquent, and no notice of
default thereunder has been sent or received by the Borrower or any of its
Significant Subsidiaries, except where the same would not, individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.
There does not exist under any such material agreement any default, and, to the
Borrower's knowledge, no event has occurred which, with notice or lapse of time
or both, would constitute such a default, except as would not, individually or
in the aggregate, reasonably be expected to result in a Material Adverse
Effect.
6.6. Litigation; Compliance with Law. There are no actions, suits or
proceedings pending or, to the Borrower's knowledge, threatened against the
Borrower or any of its Significant Subsidiaries that would, individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect,
or which question the validity hereof or any action taken or to be taken in
connection herewith.
6.7. Absence of Certain Changes or Events.
Except as disclosed in the Borrower Reports filed with the
SEC prior to the date hereof or in the Disclosure Schedule, since December 31,
1995, the Borrower and each of its Significant Subsidiaries has conducted its
business only in the ordinary course of such business , and there has not been
(a) any change, circumstance or event that would reasonably be expected to
result in a Material Adverse Effect, including any such change, circumstance or
event which is or will be reportable in Borrower's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, (b) any declaration, setting aside
or payment of any dividend or other distribution with respect to the Common
Stock (other than any regular quarterly dividend), (c) any commitment,
contractual obligation, borrowing, capital expenditure or transaction entered
into by the Borrower or any of its Significant Subsidiaries, other than
commitments which would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect, or (d) any change in the
Borrower's accounting principles, practices or methods which would,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
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6.8. Tax Matters; REIT and Partnership Status. (a) To the Borrower's
knowledge, as of the date hereof, the Borrower is a "domestically-controlled"
REIT within the meaning of Code section 897(h)(4)(B). To the Borrower's
knowledge, except as set forth in the Disclosure Schedule, no person or entity
which would be treated as an "individual" for purposes of section 542(a)(2) of
the Code (as modified by section 856(h) of the Code) owns or would be
considered to own (taking into account the ownership attribution rules under
section 544 of the Code, as modified by section 856(h) of the Code) in excess
of 9.8% of the value of the outstanding equity interest in the Borrower.
(b) The Borrower (i) intends in its federal income tax
return for the tax year ended December 31, 1995 and for the tax year that will
end on December 31, 1996 to elect to be taxed as a real estate investment trust
within the meaning of section 856 of the Code ("REIT") and has complied (or
will comply) with all applicable provisions of the Code relating to a REIT, for
1995 and 1996, (ii) has operated, and intends to continue to operate, in such a
manner as to qualify as a REIT for 1995 and 1996, (iii) has not taken or
omitted to take any action which would reasonably be expected to result in a
challenge to its status as a REIT, and, to the Borrower's knowledge, no such
challenge is pending or threatened, and (iv) assuming the accuracy of the
representations and warranties of Designees of Blackacre and Gildea contained
in section 7.6, will not be rendered unable to qualify as a REIT for federal
income tax purposes as a consequence of the transactions contemplated hereby.
(c) The Borrower was eligible to and did validly elect to
be taxed as a REIT for federal income tax purposes for calendar year 1993 and
all subsequent taxable periods.
6.9. Financial Records; the Borrower's Restated Certificate of
Incorporation and By-laws; Corporate Records. (a) The books of account and
other financial records of the Borrower and each of its Significant
Subsidiaries are in all respects true and complete, have been maintained in
accordance with good business practices, and are accurately reflected in all
material respects in the financial statements included in the Borrower Reports.
(b) The Borrower has previously delivered or made available
to Blackacre and Gildea true and complete copies of the Borrower's Second
Restated Certificate of Incorporation and the By-laws, as amended to date, and
the charter, by-laws, organization documents, partnership agreements and joint
venture agreements of the Significant Subsidiaries, and all amendments thereto.
6.10. Properties. (a) All real property owned or leased by the
Borrower or any of its Subsidiaries or otherwise used by the Borrower or its
Subsidiaries in the conduct of their business or operations, together with the
land and all buildings, structures and other improvements and fixtures located
on or under such land and all
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easements, rights and other appurtenances to such land are hereinafter referred
to as the "Borrower Properties". The Borrower, or, in the case of Borrower
Properties owned by Significant Subsidiaries (collectively, with the Borrower
Properties, the "Significant Borrower Properties"), the Significant Subsidiary
or trustees holding legal title solely for the benefit of a Significant
Subsidiary owns good and marketable fee simple title (or, if so indicated in
the Disclosure Schedule, leasehold title ) to each of the Borrower Properties,
in each case except for Permitted Liens, free and clear of any Liens, title
defects, contractual restrictions or covenants, laws, ordinances or regulations
affecting use or occupancy (including zoning regulations and building codes) or
reservations of interests in title (collectively, "Property Restrictions"),
except for Property Restrictions imposed or promulgated by law or by any
Government Authority which are customary and typical for similar properties. To
the Borrower's knowledge, none of the Property Restrictions materially
interferes with, impairs, or is violated by, the existence of any building or
other structure or improvement which constitutes a part of, or the present use,
occupancy or operation (or, if applicable, development) of, the Significant
Borrower Properties taken as a whole, and such matters do not, individually or
in the aggregate, have a Material Adverse Effect. American Land Title
Association policies of title insurance (or marked title insurance commitments
having the same force and effect as title insurance policies) have been issued
by national title insurance companies insuring the fee simple or leasehold, as
applicable, title of the Borrower or its Significant Subsidiaries or a trustee
holding legal title solely for the benefit of a Significant Subsidiary, as
applicable, to each of the Significant Borrower Properties in amounts at least
equal to the original cost thereof, subject to only to Permitted Liens, and, to
the Borrower's knowledge, such policies are valid and in full force and effect
and no claim has been made under any such policy.
(b) Except as set forth in the Disclosure Schedule, with
respect to each Borrower Lease for premises larger than 15,000 square feet of
rentable space (collectively, the "Material Borrower Leases"), except for
matters which are not, individually or in the aggregate, reasonably expected to
have a Material Adverse Effect, (i) each of the Material Borrower Leases is
valid and subsisting and in full force and effect as against the Borrower or
the Significant Subsidiary, as applicable, and, to the Borrower's knowledge, as
against the tenant, and has not been amended, modified or supplemented, (ii)
the tenant under each of the Material Borrower Leases is in actual possession
of the premises leased thereunder, (iii) no tenant under any Material Borrower
Lease is more than 30 days in arrears in the payment of rent, (iv) none of the
Borrower or any of its Significant Subsidiaries has received any written notice
from any tenant under any Material Borrower Lease of its intention to vacate,
(v) no notice of default has been sent or received by the landlord under any
Material Borrower Lease which remains uncured as of the date hereof, no default
has occurred under any Material Borrower Lease and, to the Borrower's
knowledge, no event has occurred and is continuing which, with notice or lapse
of time or both, would constitute a default under any Material Borrower Lease,
(vi) none of the
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Material Borrower Leases and none of the rents or other amounts payable
thereunder has been assigned, pledged or encumbered except in connection with
financing secured by the applicable Borrower Property which is described in the
Disclosure Schedule, (vii) no tenant under any of the Material Borrower Leases
has asserted any claim which is likely to affect the collection of rent from
such tenant, and (viii) the landlord under each Material Borrower Lease has
fulfilled all of its obligations thereunder in respect of tenant improvements
and capital expenditures.
(c) To Borrower's knowledge, the Disclosure Schedule sets
forth a complete and accurate list of all material commitments, letters of
intent or similar written understandings made or entered into by the Borrower
or any of its Significant Subsidiaries as of the date hereof to sell, mortgage,
pledge, hypothecate any Significant Borrower Property or to otherwise enter
into a material transaction in respect of the ownership or financing of any
Significant Borrower Property, or to purchase or acquire an option, right of
first refusal or similar right in respect of any real property, which, in any
such case, has not yet been reduced to a written contract, and sets forth with
respect to each such commitment, letter of intent or other understanding the
principal terms thereof.
(d) The Disclosure Schedule contains a complete and
accurate description of any non-compliance by any Significant Borrower
Property, to the Borrower's knowledge, with any law, ordinance, code, health
and safety regulation or insurance requirement, other than such non-compliance
as would not, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect.
(e) The Borrower has disclosed to Blackacre and Gildea all
adverse matters known to the Borrower with respect to or in connection with the
Borrower Properties (including the Material Borrower Leases and the Tenancy
Leases), which would, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
(f) The ground leases underlying the leased Significant
Borrower Properties referenced in the Disclosure Schedule (collectively, the
"Tenancy Leases") are valid, binding and in full force and effect as against
the Borrower or the Significant Subsidiary and, to the Borrower's knowledge, as
against the other party thereto. There does not exist under any of the Tenancy
Leases any default, and, to the Borrower's knowledge, no event has occurred
which, with notice or lapse of time or both, would constitute such a default,
except as would not, individually or in the aggregate, be reasonably expected
to result in a Material Adverse Effect.
(g) The Borrower and each of its Significant Subsidiaries
have good and sufficient title to all the personal and non-real properties and
assets reflected in their books and records as being owned by them (including
those reflected in the balance sheets of the Borrower and its Significant
Subsidiaries as of September 30,
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<PAGE>
1995, except as since sold or otherwise disposed of in the ordinary course of
business), free and clear of all Liens, except for Permitted Liens which are
not, individually or in the aggregate, reasonably expected to have a Material
Adverse Effect.
6.11. Environmental Matters.
(a) Except as set forth in the Environmental Reports:
(i) To the Borrower's knowledge, each of the Borrower and
its Significant Subsidiaries has obtained, and now maintains as currently valid
and effective, all (a) permits required under the Environmental Laws (the
"Environmental Permits") in connection with the operation of its businesses and
properties. To the Borrower's knowledge, each of the Borrower and its
Significant Subsidiaries, and each Significant Borrower Property is and has
been in compliance with all terms and conditions of the Environmental Permits
and all Environmental Laws, except only to an extent which would not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect. The Borrower has no knowledge of any circumstances
that may prevent or interfere with such compliance in the future.
(ii) To the Borrower's knowledge, there are no
environmental liens or encumbrances on any of the Significant Borrower
Properties and, no government actions have been taken or are in process which
are reasonably likely to subject any Significant Borrower Property to such
liens or other encumbrances.
(iii) No Environmental Claim with respect to the operations
or the businesses of the Borrower or its Significant Subsidiaries, or with
respect to the Significant Borrower Properties, has been asserted or, to the
Borrower's knowledge, threatened, and, to the Borrower's knowledge, no
circumstances exist with respect to the Borrower or its Subsidiaries or the
Borrower Properties that would reasonably be expected to result in any
Environmental Claim being asserted, in any such case, against (i) the Borrower
or its Significant Subsidiaries, or (ii) to the Borrower's knowledge, any
person whose liability for any Environmental Claims the Borrower or its
Significant Subsidiaries has or may have retained or assumed either
contractually or by operation of law.
(iv) Except as disclosed in the Disclosure Statement, to
Borrower's knowledge, (i) none of the Borrower or its Significant Subsidiaries
has been notified or anticipates being notified of potential responsibility in
connection with any site that has been placed on, or proposed to be placed on,
the National Priorities List or its state or foreign equivalents pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), 42 U.S.C. ss. 9601 et seq., or analogous state or foreign laws,
(ii) no Materials of Environmental Concern are present on, in or
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under any Significant Borrower Property in a manner or condition that is
reasonably likely to give rise to an Environmental Claim which would reasonably
be expected to result in a Material Adverse Effect, (iii) none of the Borrower
or its Subsidiaries has Released or arranged for the Release of any Materials
of Environmental Concern at any location to an extent or in a manner which
would reasonably be expected to result in a Material Adverse Effect, and (iv)
to the Borrower's knowledge, no asbestos or asbestos-containing material is
present at any Significant Borrower Property and no employee, agent, contractor
or subcontractor of the Borrower or its Significant Subsidiaries is now or has
in the past been exposed to friable asbestos or asbestos- containing material
at any Significant Borrower Property, except, in the case of each of the
matters set forth in this subpart (iv), for such matters as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(b) The Borrower Environmental Reports disclose all
materially adverse matters known to the Borrower in respect of the
environmental condition (including violations of Environmental Laws,
Environmental Claims and the presence or Release of any Materials of
Environmental Concern) of the Borrower Properties (it being understood,
however, that reference in the Borrower Environmental Reports to other
environmental reports, investigations, assessments or other documents shall not
constitute disclosure of the contents thereof except to the extent such
contents are fully discussed in the Borrower Environmental Reports). To the
Borrower's knowledge, none of the matters disclosed by the Borrower
Environmental Reports would, individually or in the aggregate, be reasonably
likely to have a Material Adverse Effect. The Borrower has no knowledge of any
facts or circumstances relating to the environmental condition of any Borrower
Property that is not a Significant Borrower Property that are reasonably likely
to result in a Material Adverse Effect.
(c) For purposes hereof, the terms listed below shall have
the following meanings:
(i) "Claim" shall mean all actions, causes of
action, suits, debts, dues, accounts, reckonings, bonds, bills, covenants,
contracts, controversies, promises, trespasses, damages, judgments, executions,
claims, liabilities and demands whatsoever, in law or equity.
(ii) "Environmental Claim" shall mean any Claim
investigation or notice (written or oral) by any person alleging potential
liability (including potential liability for investigatory costs, cleanup
costs, governmental response costs, natural resources damages, property
damages, personal injuries or fatalities, or penalties) arising out of, based
on or resulting from (A) the presence, generation, transportation, treatment,
use, storage, disposal or Release of Materials of Environmental Concern or the
threatened Release of Materials of Environmental Concern at any location, or
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(B) activities or conditions forming the basis of any violation, or alleged
violation of, or liability or alleged liability under, any Environmental Law.
(iii) "Environmental Laws" shall mean federal,
state, local, provincial, municipal and foreign laws, ordinances, principles of
common law, rules, by-laws, orders, governmental policies, statutes,
regulations, agreements, treaties, customary law, and international principles
relating to the pollution or protection of the environment or of flora or fauna
or their habitat or of human health and safety, or to the cleanup or
restoration of the environment, including, but not limited to, any laws
relating to (A) generation, treatment, storage, disposal or transportation of
wastes, emissions or discharges or protection of the environment from the same,
(B) exposure of persons to, or Release or threat of Release of, Materials of
Environmental Concern and (C) the safety and health of workers and employees.
(iv) "Materials of Environmental Concern" shall
mean all chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum or any fraction thereof, petroleum products and hazardous substances
(as defined in section 101(14) of CERCLA, 42 U.S.C. ss. 6601(14)), or solid or
hazardous wastes as now defined and regulated under any Environmental Laws.
(v) "Release" shall mean any release, spill,
emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal,
leaching or migration.
6.12. Proxy Statement. The Proxy Statement and all of the information
included or incorporated by reference therein (other than any information
supplied or to be supplied by Blackacre and Gildea or any Designee for
inclusion or incorporation by reference therein) will not, as of the date such
Proxy Statement is first mailed to the stockholders of the Borrower and as of
the time of the meeting of the stockholders of the Borrower in connection with
the transactions contemplated hereby, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement
will comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations promulgated by the SEC thereunder.
6.13. Vote Required. The affirmative vote of the holders of a majority
of the outstanding shares of Common Stock entitled to vote thereon and duly
present in person or by proxy at a meeting duly called to vote thereon is the
only vote of the holders of any class or series of the Borrower's capital stock
necessary to approve the Charter Amendment and the issuance of the shares of
Preferred Stock and Common Stock pursuant to the NYSE Policy, and no other
votes by the holders of the outstanding shares of Common Stock are necessary to
approve the transactions contemplated by this agreement. Any shares of Common
Stock owned by Blackacre
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and Gildea or any of their respective Designees shall be eligible to vote and
shall be counted in any vote with respect to the Charter Amendment and the
issuance of the shares of Preferred Stock and Common Stock pursuant to the NYSE
Policy.
6.14. Securities Act Matters. Assuming the accuracy of the
representations and warranties of Designees of Blackacre and Gildea set forth
in sections 7.3, 7.4 and 7.5, the offer and sale of the Notes to Blackacre and
Gildea or the Designees of Blackacre and Gildea in the manner contemplated by
this agreement is exempt from the registration requirements of the Securities
Act; and it is not necessary to qualify an indenture with respect to the Notes
under the Trust Indenture Act.
6.15. Knowledge Defined. As used herein, the phrase "to the Borrower's
knowledge" (or words of similar import) means the actual knowledge of those
individuals identified in the Disclosure Schedule.
7. REPRESENTATIONS OF BLACKACRE AND GILDEA AND THE
DESIGNEES. Each of Blackacre, Gildea and each of the Designees severally
represents and warrants as follows (but only as to itself).
7.1. Authority; Enforceability. Each of Blackacre, Gildea and each
Designee has, and at Closing and at each Subsequent Funding each of the
Designees will have, the right, power and authority to consummate the
transactions contemplated by this agreement, including the execution, delivery
and performance of this agreement and all agreements, instruments and documents
to be executed and delivered by each of Blackacre, Gildea and the Designees of
Blackacre and Gildea in connection with such transactions and the performance
of all its obligations hereunder or thereunder. This agreement has been duly
executed and delivered by Blackacre and Gildea and constitutes the valid and
legally binding obligation of Blackacre and Gildea, enforceable against
Blackacre and Gildea in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights or general principles of equity. Upon the execution and delivery by each
Designee of a Addendum To Note Purchase Agreement substantially in the form of
exhibit 17 hereof, this agreement will be duly executed and delivered by such
Designee of Blackacre and Gildea and will constitute the valid and legally
binding obligation of each such Designee of Blackacre and Gildea, enforceable
against each such Designee of Blackacre and Gildea in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium or other
similar laws relating to creditors' rights or general principles of equity.
7.2. Financing. Blackacre and Gildea and the Designees of Blackacre
and Gildea have and will have on the Closing Date and each Subsequent Funding
Date sufficient funds available to purchase the Notes and to consummate the
transactions contemplated by this agreement.
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7.3. Purchase for Investment. Blackacre and Gildea and the Designees
of Blackacre and Gildea, as the case may be, are purchasing the Notes for their
own accounts and not with a view to the distribution thereof within the meaning
of the Securities Act. Blackacre and Gildea and the Designees of Blackacre and
Gildea, as the case may be, understand that the Notes have not been registered
under the Securities Act and may be resold only if registered pursuant to the
provisions of the Securities Act or if any exemption from registration is
available, except under circumstances where neither such registration nor such
an exemption is required by law.
7.4. Available Information. Each of Blackacre and Gildea and the
Designees of Blackacre and Gildea confirm that Borrower has made available to
Blackacre and Gildea and each such Designee of Blackacre and Gildea and their
respective representatives and agents the opportunity to ask questions of the
officers and management employees of Borrower and to acquire such additional
information about the business and financial condition of Borrower as Blackacre
and Gildea and each of Blackacre and Gildea and such Designee has requested.
7.5. Accredited Investors. Each of Blackacre and Gildea and the
Designees of Blackacre and Gildea is an "accredited investor" as defined in and
under the Securities Act.
7.6. Maximum Investment. Upon the consummation of the transactions
contemplated hereby, including the exchange of the Exchangeable Notes into
Preferred Stock, or the conversion of the Exchangeable Notes or the Preferred
Stock in the shares of Common Stock, and the issuance of shares of Common Stock
upon the exercise of the Warrants, neither Blackacre and Gildea nor their
respective Designees will exceed the "Ownership Limit" as defined in section
A(4)(a) of Article Fourth of the Second Restated Certificate of Incorporation
of Borrower.
7.7. No Common Control. No Person (as defined in Rule 801.1(a)(1) of
the HSR Rules), taken together with any individual directly or indirectly
"controlled by" or "under common control with" (within the meaning of Rule
8.01.1(b) under the HSR Rules) such Person, is purchasing Notes in an aggregate
principal amount equal to or in excess of $15,000,000.
7.8. No Conflicts, Required Filings and Consent.
Except as contemplated hereby, neither the execution and
delivery by any Designee of Blackacre and Gildea hereof nor the consummation by
any Designee of Blackacre and Gildea of the transactions contemplated hereby in
accordance with the terms hereof, will:
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(a) violate or conflict with any statute, regulation,
judgment, writ, decree or injunction applicable to any Designee of Blackacre
and Gildea; or
(b) require any consent, approval or authorization of, or
declaration, filing or registration by any Designee of Blackacre or Gildea
under any Governmental Authority, other than filings required under the
Securities Act, the Exchange Act, Blue Sky laws or any national securities
exchange (including, without limitation, the New York Stock Exchange) on which
the Borrower Common Stock is listed.
7.9. No Adverse Action.
Neither Blackacre, Gildea nor any Designee has taken, or
caused to be taken, and shall not take, any action which is reasonably likely
to cause the transactions contemplated hereby to fail to qualify for an
exemption under section 4(2) of the Securities Act or under any applicable
exemption under state securities laws identified, in a state securities law
survey provided to Blackacre and Gildea by counsel to Borrower, as applicable
to, and to be relied upon by the Borrower in connection with, the transactions
contemplated hereby.
8. INFORMATION AS TO BORROWER.
8.1. Financial and Business Information.
The Borrower shall deliver to each of Blackacre and Gildea
and each holder of the Notes while such notes remain outstanding:
(a) SEC and Other Reports -- promptly upon becoming
available, one copy of (i) each financial statement, report, notice or proxy
statement sent by the Borrower or any Subsidiary to public securities holders
generally, and (ii) each regular or periodic report, each registration
statement which shall have become effective, and each final prospectus and all
amendments thereto filed by the Borrower or any Subsidiary with the Securities
and Exchange Commission or any successor agency;
(b) Notice of Default or Event of Default -- promptly, and
in any event within five (5) days of a Senior Financial Officer becoming aware
of the existence of any Default or Event of Default, a written notice
specifying the nature and period of existence thereof and what action the
Borrower is taking or proposes to take with respect thereto;
(c) ERISA Matters -- promptly, and in any event within five
(5) days after a Senior Financial Officer becoming aware of any of the
following occurring with respect to the Borrower or any ERISA Affiliate, a
written notice setting forth the nature thereof and the action, if any, that
the Borrower or such ERISA Affiliate proposes to take with respect thereto:
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(i) any reportable event, as defined in section
4043(b) of ERISA and the regulations thereunder, for which notice thereof has
not been waived pursuant to such regulations as in effect on the date hereof;
or
(ii) the taking by the PBGC of steps to
institute, or the threatening by the PBGC of the institution of proceedings
under section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by the Borrower or any ERISA
Affiliate of a notice from a Multi- employer Plan that such action has been
taken by the PBGC with respect to such Multiemployer Plan; or
(iii) any other event, transaction or condition
that could result in the incurrence of any liability by the Borrower or any
ERISA Affiliate pursuant to Title I or IV of ERISA or under the penalty or
excise tax provisions of the Code relating to employee benefit plans, or in the
imposition of any Lien on any of the rights, properties or assets of the
Borrower or any ERISA Affiliate under Title I or IV of ERISA or under such
penalty or excise tax provisions, if such liability or Lien, taken together
with any other such liabilities of Liens then existing, would be Material; and
(d) Requested Information -- with reasonable promptness,
such other data and information as from time to time may be reasonably
requested by any such holder of Notes, including, without limitation, any
financial statement, and other information complying with the requirements of
Rule 144A under the Securities Act, as amended from time to time.
8.2. Officer's Certificate.
Each Annual Report on Form 10-K or Quarterly Report on Form
10-Q delivered to a holder of Notes pursuant to section 8.1(a) or section
8.1(b) hereof shall be accompanied by a certificate of a Senior Financial
Officer setting forth a statement that such officer has reviewed the relevant
terms hereof and has made, or caused to be made, under his or her supervision,
a review of the transactions and conditions of the Borrower and its
Subsidiaries from the beginning of the quarterly or annual period covered by
the statements then being furnished to the date of the certificate and that
such review shall not have disclosed the existence during such period of any
condition or event which constitutes a Default or an Event of Default or, if
any such condition or event existed or exists (including, without limitation,
any such event or condition resulting from the failure of the Borrower or any
Subsidiary to comply with any Environmental Law), specifying the nature and
period of existence thereof and what action the Borrower shall have taken or
proposes to take with respect thereto.
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8.3. Inspection.
As long as any of the Notes remain outstanding, the
Borrower shall permit the representatives of each holder of a Note:
(a) No Default -- if no Default or Event of Default then
exists, at the expense of such holder and upon prior notice to the Borrower, to
visit the principal executive office of the Borrower, to discuss the affairs,
finances and accounts of the Borrower and its Subsidiaries with the Borrower's
officers, and, with the consent of the Borrower (which consent will not be
unreasonably withheld) to visit the other offices and properties of the
Borrower and each Subsidiary, all at such times and as often as may be
reasonably requested in writing; and
(b) Default -- if a Default or Event of Default then
exists, at the expense of the Borrower to visit and inspect any of the offices
or properties of the Borrower or any Subsidiary, to examine all their
respective books of account, records, reports and other papers, to make copies
and extracts therefrom, and to discuss their respective affairs, finances and
accounts with their respective officers and independent public accountants (and
by this provision the Borrower authorizes said accountants to discuss the
affairs, finances and accounts of the Borrower and its Subsidiaries), all at
such times and as often as may be requested.
9. AUTHORIZATION OF PREFERRED STOCK; CHANGE OF CONTROL.
9.1. Authorization of Preferred Stock; Certificate of Designation.
(a) Borrower shall prepare and file with the SEC, and mail
to its shareholders as promptly as practicable, a proxy statement (the "Proxy
Statement") relating to the Charter Amendment, the shareholder approval
required by the NYSE Policy and such other matters as may be required to
effectuate the Transactions. Borrower shall use its commercially reasonable
efforts to take, or cause to be taken, all actions necessary or, in the
reasonable opinion of Blackacre and Gildea, advisable to hold a meeting of its
shareholders ("Stockholders Meeting") as promptly as practicable. Borrower
shall use its commercially reasonable efforts to solicit from holders of Common
Stock proxies in favor of the Certificate of Amendment and the issuance of the
Preferred Stock and Common Stock in accordance with the NYSE Policy and shall
take all other action necessary or, in the reasonable opinion of Blackacre and
Gildea, advisable to secure any other vote or consent of the holders of Common
Stock ("Required Stockholder Approval") required by law and the Second Restated
Certification of Incorporation and By-Laws of Borrower to effect the
Transactions, including, without limitation, the authorization and issuance of
the Preferred Stock and Common Stock, provided, that Borrower shall not be
required to submit any matter described in this section 9.1(a) to a vote of its
shareholders more than once.
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(b) As soon as practicable, and in no event later than two
(2) Business Days following the receipt of the Required Stockholder Approval,
Borrower shall file, or cause to be filed, the Charter Amendment with the
Secretary of State of the State of Delaware pursuant to section 103 of the
Delaware General Corporation Law and thereafter, upon the effectiveness of the
Charter Amendment, execute, acknowledge, file and record the Certificate of
Designation with the Secretary of State of the State of Delaware pursuant to
section 151(g) of the Delaware General Corporation Law.
9.2. Registration Obligations.
(a) After the Closing Date, Borrower shall, at its sole
cost and expense, commence preparation of a registration statement to be filed
with the SEC registering the Preferred Stock and the shares of Common Stock
issuable on conversion of the Exchangeable Notes and the Preferred Stock and
exercise of the Warrants for resale under the Securities Act.
(b) Not later than seven days after the earlier to occur of
July 31,1996 and the issuance of the Preferred Stock upon the exchange of the
Exchangeable Notes, Borrower shall, at its sole cost and expense:
(i) file such registration statement (which shall
register the resale of the Preferred Stock only if it has been authorized on or
before the date of filing) with the SEC,
(ii) cause such securities to be qualified under
the state securities "Blue Sky" law of up to 10 jurisdictions chosen by
Designees of Blackacre and Gildea and
(iii) cause such shares of Common Stock to be
approved for listing on the New York Stock Exchange upon official notice of
issuance.
(c) If such registration statement does not register the
resale of the Preferred Stock and the exchange of the Exchangeable Notes for
shares of Preferred Stock thereafter takes place, Borrower shall, immediately
following such exchange:
(i) file a second registration statement
registering the resale of the Preferred Stock and
(ii) cause such shares of Preferred Stock to be
qualified under the state securities "Blue Sky" law of up to 10 jurisdictions
chosen by Designees of Blackacre and Gildea.
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(d) Borrower shall use its commercially reasonable efforts
to maintain such registration statement or registration statements current and
effective until such time as the securities covered thereby may be resold
pursuant to Rule 144 under the Securities Act without regard to any volume
limitation. Borrower shall also use its commercially reasonable efforts to
maintain such qualifications current and effective until such time as the
securities covered thereby may be resold without current qualification.
(e) It shall be a condition precedent to the obligations of
the Borrower to take any action pursuant to this section 9.2 that the holders
of the securities being registered shall furnish to the Borrower such
information regarding such securities held by them, and the intended method of
disposition of such securities as the Borrower shall reasonably request and as
shall be required in connection with the action to be taken by the Borrower.
9.3. Change of Control Event.
If a Change of Control Event occurs prior to the issuance,
sale and purchase of $25 million aggregate principal amount of Exchangeable
Notes, then, upon the occurrence of such Change in Control Event, Borrower
shall (a) immediately provide written notice to Blackacre and Gildea stating
that a payment is due to them under this section 9.3 and stating the amount of
such payment and showing the calculation of such amount in reasonable detail,
and (b) pay to Blackacre and Gildea, in the proportions indicated by Blackacre
and Gildea in a written notice delivered to Borrower, promptly after receipt of
such notice, a cash payment in an amount equal to the product of:
(a) the ratio of:
(i) the difference between $25 million (or $20
million if Blackacre and Gildea do not approve Borrower's good faith proposal
for the use of the proceeds for the last $5 million of the Exchangeable Note
funding commitment pursuant to section 5.9(e) hereof) and the principal amount
of Exchangeable Notes outstanding on the date of occurrence of such Change in
Control Event and
(ii) the Conversion Price of the Preferred Stock
then in effect, and
(b) the difference between:
(i) the fair market value of the consideration per
share paid or payable in respect of a single share of Common Stock in
connection with such Change in Control Event and
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(ii) the Conversion Price of the Preferred Stock
then in effect.
10. COVENANTS.
The Borrower covenants from the date hereof and for so long
as any Note remains outstanding, that:
10.1. Compliance with Law.
The Borrower will and will cause each of its Subsidiaries
to comply with all laws, ordinances or governmental rules or regulations to
which each of them is subject, including without limitation, Environmental
Laws, and will obtain and maintain in effect all licenses, certificates,
permits, franchises and other governmental authorizations necessary to the
ownership of their respective properties or to the conduct of their respective
businesses, in each case to the extent necessary to ensure that non-compliance
with such laws, ordinances or governmental rules or regulations or failures to
obtain or maintain in effect such licenses, permits, franchises and other
governmental authorizations could not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect on the business,
operations, affairs, financial condition, properties or assets of the Borrower
and its Subsidiaries taken as a whole.
10.2. Insurance.
The Borrower will and will cause each of its Subsidiaries
to maintain, with financially sound and reputable insurers, insurance with
respect to their respective properties and businesses against such casualties
and contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated.
10.3. Maintenance of Properties.
The Borrower will and will cause each of its Subsidiaries
to maintain and keep, or cause to be maintained and kept, their respective
properties in good repair, working order and condition (other than ordinary
wear and tear), so that the business carried on in connection therewith may be
properly conducted at all times, provided that this section shall not prevent
the Borrower or any Subsidiary from discontinuing the operation and the
maintenance of any of its properties if such discontinuance is desirable in the
conduct of its business and the Borrower has concluded that such discontinuance
would not have a Material Adverse Effect on the business, operations, affairs,
financial condition, properties or assets of the Borrower and its Subsidiaries
taken as a whole.
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10.4. Payment of Taxes.
The Borrower will and will cause each of its Subsidiaries
to file all income tax or similar tax returns required to be filed in any
jurisdiction and to pay and discharge all taxes shown to be due and payable on
such returns and all other taxes and assessments payable by any of them, to the
extent such taxes and assessments have become due and payable and before they
have become delinquent, provided that neither the Borrower nor any Subsidiary
need pay any such tax or assessment if (i) the amount, applicability or
validity thereof is contested by the Borrower or such Subsidiary on a timely
basis in good faith and in appropriate proceedings, and the Borrower or a
Subsidiary has established adequate reserves therefor in accordance with GAAP
on the books of the Borrower or such Subsidiary or (ii) the nonpayment of all
such taxes and assessments in the aggregate could not reasonably be expected to
have a Material Adverse Effect on the business, operations, affairs, financial
condition, properties or assets of the Borrower and its Subsidiaries taken as a
whole.
10.5. Corporate Existence, etc.
The Borrower will at all times preserve and keep in full
force and effect its corporate existence and will not consolidate with or merge
with or into, or transfer all or substantially all of its assets to, any person
unless (i) either Borrower is the resulting or surviving corporation or the
successor is a United States domestic corporation which assumes all of the
obligations of Borrower under the Notes (in which case all such obligations of
Borrower will terminate upon the assumption of such obligations by the
successor), (ii) immediately before and immediately after giving effect to such
transaction (and treating any indebtedness which becomes an obligation of
Borrower as a result of such transaction as having been incurred by Borrower at
the time of such transaction), no Default or Event of Default shall have
occurred and be continuing and (iii) immediately after giving effect to such
transaction, this agreement and the Notes shall each remain in full force and
effect and be enforceable against Borrower or its successor, as the case may
be, in accordance with their terms. The Borrower will at all times preserve and
keep in full force and effect the corporate existence of each of its
Subsidiaries (unless merged into the Borrower or a Subsidiary) and all rights
and franchises of the Borrower and its Subsidiaries unless, in the good faith
judgment of the Borrower, the termination of or failure to preserve and keep in
full force and effect such corporate existence, right or franchise would not
have a Material Adverse Effect.
10.6. Cooperation.
Borrower will cooperate fully with Blackacre and Gildea in
connection with the matters contemplated by this agreement, including: (i)
promptly supplying to and making available to Blackacre and Gildea all
information or other items required by, requested by or useful to them in
connection with the Transactions and (ii)
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having representatives of Borrower available to Blackacre and Gildea to discuss
all aspects of the business, properties, financial condition, results of
operations or prospects of Borrower and the Transactions.
10.7. Prior Notice of Liquidating Distribution.
Borrower shall give the holder of each Exchangeable Note
written notice of its intention to declare a liquidating distribution or
partial liquidating distribution at least 10 Business Days prior to the record
date for such distribution.
10.8. Prohibition Against Certain Issuances.
The Borrower shall not authorize or issue any new class or
series of capital stock raking prior to or on parity with ("Parity Stock") the
Preferred Stock without the consent of the holder or holders of more than the
majority of the principal amount of Exchangeable Notes at the time outstanding;
provided, however, that any such consent with respect to the issuance of any
new class or series of Parity Stock shall not be required if (x) the Fair
Market Value of the Common Stock immediately preceding the date on which the
Borrower gives the holders of Exchangeable Notes written notice of its
intention to issue any class or series of Parity Stock pursuant to this section
10.8 (the "Notice of Issuance Date") shall be $15.00 or more and (y) such new
class or series of Parity Stock shall be authorized and issued within six
months following the Notice of Issuance Date.
10.9. Nomination of Director.
(a) Borrower shall take or cause to be taken all actions
necessary to nominate Blackacre and Gildea's representative (the "Board
Representative") for election to Borrower's Board of Directors as soon as
practicable after the Closing. The Board Representative shall be included in
the slate of nominees for election as directors of Borrower contained in the
Proxy Statement.
(b) For so long as Gildea and its affiliates shall
beneficially own in the aggregate at least 5% of the issued and outstanding
Common Stock of Borrower or securities convertible into or exercisable for an
aggregate of at least 5% of the issued and outstanding Common Stock of Borrower
(which shall include the Exchangeable Notes), Borrower shall use its
commercially reasonable efforts to take, or cause to be taken, all actions
necessary to cause the Board Representative to be nominated for election or
reelection to Borrower's Board of Directors.
(c) The provisions of this section 10.9 shall survive
the exchange or conversion of the Exchangeable Notes.
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<PAGE>
11. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following
conditions or events shall occur and be continuing:
(a) the Borrower defaults in the payment of any principal
on any Note when the same becomes due and payable, whether at maturity, or by
declaration or otherwise; or
(b) the Borrower defaults in the payment of any interest on
any Note for more than 10 Business Days after the same becomes due and payable;
(c) there shall have occurred and be continuing an event of
default or an event which, with the lapse of time or notice or both, would
constitute an event of default under any Indebtedness in a principal amount in
excess of $1,000,000 to which Borrower or any of its subsidiaries is a party or
would permit the acceleration of Indebtedness in a principal amount in excess
of $250,000 to which Borrower or any of its subsidiaries is a party; or
(d) any representation or warranty made in writing by the
Borrower or by any officer of the Borrower in this agreement or in any writing
furnished in compliance herewith or in reference hereto proves to have been
false or incorrect in any material respect on the date as of which made; or
(e) the Borrower defaults in any material respect in the
performance of or compliance with any term contained in section 9 or 10 of this
agreement and in the case of sections 9.1, 9.2, 10.1, 10.2, 10.3, 10.4 ,10.6,
10.9 only such default or failure to comply continues for a period of 10 days
following notice thereof to Borrower; or
(f) the Borrower defaults in the performance of or
compliance with any term contained herein (other than those referred to in
paragraphs (a), (b), (c), (d) and (e) of this section 11) and such default is
not remedied within 30 days after the Borrower receiving written notice of such
default from any holder of a Note (any such written notice to be identified as
a "notice of default" and to refer specifically to this paragraph (f) of
section 11); or
(g) the Borrower or any of its Significant Subsidiaries (i)
is generally not paying its debts as they become due, (ii) files, or consents
by answer or otherwise to the filing against it of, a petition for relief or
reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy or insolvency law of any
jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv)
consents to the appointment of a custodian, receiver, trustee or other officer
with similar powers with respect to it or with respect to any
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<PAGE>
substantial part of its property, (v) is adjudicated as insolvent or to be
liquidated, or (vi) takes corporate action for the purpose of any of the
foregoing; or
(h) a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by the Borrower or any
of its Significant Subsidiaries, a custodian, receiver, trustee or other
officer with similar powers with respect to it or with respect to any
substantial part of its property, or constituting an order for relief or
approving a petition for relief or reorganization or any other petition in
bankruptcy or for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or ordering the dissolution, winding-up or
liquidation of the Borrower or any of its Significant Subsidiaries, or any such
petition shall be filed against the Borrower or any of its Significant
Subsidiaries and such petition shall not be dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money
aggregating in excess of $1,000,000 are rendered against one or more of the
Borrower and its Significant Subsidiaries and any of such judgments is not,
within 60 days after entry thereof, bonded, discharged or stayed pending
appeal, or is not discharged within 60 days after the expiration of any such
stay.
12. REMEDIES ON DEFAULT
12.1. If an Event of Default with respect to the Borrower described in
paragraph (g) or (h) of section 11 (other than an Event of Default described in
clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by
virtue of the fact that such clause encompasses clause (i) of paragraph (g))
has occurred, all the Notes then outstanding shall automatically become
immediately due and payable.
12.2. If any other Event of Default has occurred and is continuing and
if the holders of Exchangeable Subordinated Notes having a principal amount
representing more than 50% of all such Notes then outstanding so consent in
writing, any holder of an Exchangeable Subordinated Note may at any time at its
or their option, by notice or notices to the Borrower, declare such Note to be
immediately due and payable.
12.3. If any other Event of Default has occurred and is continuing and
if the holders of Senior Notes having a principal amount representing more than
50% of all such Notes then outstanding so consent in writing, any holder of a
Senior Note may at any time at its or their option, by notice or notices to the
Borrower, declare such Note to be immediately due and payable.
12.4. Upon any Notes becoming due and payable under this section 12,
whether automatically or by declaration, such Notes will forthwith mature and
the entire unpaid principal amount of such Notes, plus (x) all accrued and
unpaid interest thereon shall all be immediately due and payable, in each and
every case without
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<PAGE>
presentment, demand, protest or further notice, all of which are hereby waived,
and (y) all of the obligations of Blackacre and Gildea and each Designee under
this agreement and all their obligations and commitments hereunder (to the
extent then unfunded) shall terminate. Interest payable on the Exchangeable
Notes in respect of any dividend payable on the underlying Common Stock shall
be deemed to have accrued on the record date for such dividend.
12.5. If any Default or Event of Default has occurred and is
continuing, and provided that any applicable provisions of sections 12.2 and
12.3 have been met, Blackacre and Gildea and any Designee may proceed to
protect and enforce their rights hereunder and under the Notes by an action at
law, suit in equity or other appropriate proceeding, whether for the specific
performance of any agreement contained herein or in any Note, or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law or otherwise.
12.6. No course of dealing and no delay on the part of Blackacre and
Gildea or any Designee in exercising any right, power or remedy shall operate
as a waiver thereof or otherwise prejudice such holder's rights, powers or
remedies. No right, power or remedy conferred by this agreement or by any Note
upon any holder thereof shall be exclusive of any other right, power or remedy
referred to herein or therein or now or hereafter available at law, in equity,
by statute or otherwise. Without limiting the obligations of the Borrower under
section 13, the Borrower will pay to the holder of each Note on demand such
further amount as shall be sufficient to cover all costs and expenses of such
holder incurred in any enforcement or collection under this section 12,
including without limitation, reasonable attorneys' fees, expenses and
disbursements.
13. EXPENSES, ETC.
13.1. Transaction Expenses.
(a) Whether or not the transactions contemplated hereby are
consummated, the Borrower will pay promptly on demand all reasonable
costs and expenses incurred by Blackacre and Gildea or a holder of a
Note in connection with such transactions and in connection with any
amendments, waivers or consents under or in respect of this agreement
or the Notes (including any amendment, waiver or consent that is
requested but does not become effective). Such costs and expenses
include, but are not limited to:
(i) all costs and expense of negotiating,
preparing and reproducing this agreement and the Notes, of furnishing all
opinions by counsel for the Borrower (including any opinions requested by
Blackacre and Gildea or Blackacre and Gildea's special counsel as to any legal
matters in connection with any of the
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transactions contemplated hereby) and all certificates and other closing
documents to be delivered on behalf of the Borrower, and of the Borrower's
performance of and compliance with all agreements and conditions contained
herein on its part to be performed or complied with, including, without
limitation, the conversion or exchange of the Exchangeable Notes or the
Preferred Stock;
(ii) all taxes (other than income taxes otherwise
payable by any designee), if any, due as a result of the execution and delivery
of this agreement or the initial issue and sale of the Notes hereunder, the
exchange or conversion of the Exchangeable Notes or the conversion of the
Preferred Stock, or in connection with any amendment or waiver of this
agreement or the Notes;
(iii) the reasonable fees and the expenses and
disbursements of legal counsel (including local or special legal counsel, if
any) for Blackacre and Gildea and any local counsel reasonably required by
Blackacre and Gildea or such special counsel in connection with any of the
transactions referred to in clause (a) or otherwise in connection with the
issue and sale of the Notes and customary post- Closing clean-up, record-file
assembly and related matters (including, without limitation, all such fees,
expenses and disbursements not paid at the Closing pursuant to section 5.5);
(iv) the reasonable fees, expenses and
disbursements of any such special or reasonably required legal counsel
(including local or special legal counsel, if any) in connection with any
amendments, waivers or consents referred to above, and all out-of-pocket
expenses incurred by Blackacre and Gildea in connection with any such
amendments or waivers;
(v) all costs and expenses, including attorneys'
fees, incurred in enforcing (or determining whether or how to enforce) any
rights under this agreement or the Notes, whether or not suit is filed in
connection with the same, or in responding to any subpoena or other legal
process or informal investigative demand issued in connection with this
agreement or the Notes, or by reason of being a holder of any Note, or
otherwise in connection with the transactions contemplated hereby and thereby;
(vi) all costs and expenses, including attorneys'
and financial advisors' fees, incurred in connection with the insolvency or
bankruptcy of the Borrower or any Subsidiary or in connection with any work-out
or restructuring of the transactions contemplated hereby and by the Notes; and
(vii) the reasonable fees, expenses and
disbursements of one counsel for Blackacre, Gildea and the Designees of
Blackacre at Gildea in connection with the Proxy Statement, the registration
and qualification obligations of Borrower set forth in section 9.2 hereof and
related matters.
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(b) Anything contained herein to the contrary
notwithstanding, at any time prior to the maturity date of a Note or the
acceleration of a Note following the occurrence of a Default or an Event of
Default pursuant to section 11(a) or 11(b) hereunder, the Borrower's
obligations to pay the reasonable fees, expenses and disbursements of legal
counsel as provided in this section 13 shall be limited to the obligation to
pay the legal fees, expenses and disbursements of one legal counsel (and one
local legal counsel) for all holders owning less than $5,000,000 principal
amount of Notes. On or after the maturity date of any Note or upon the
acceleration of a Note following the occurrence of a Default or an Event of
Default with respect to any Note pursuant to section 11(a) or 11(b) hereunder,
Borrower's obligations to pay such legal fees, expenses and disbursements shall
extend up to one separate legal counsel (and one local legal counsel) for each
holder of an outstanding Note. Borrower's obligation to pay such legal fees,
expenses and disbursements shall apply up to one legal counsel (and local legal
counsel) for each holder of Notes in excess of $5,000,000 principal amount at
all times the Note or Notes held by such holder remain outstanding and
regardless of whether the Note or Notes held by such holder have been
accelerated following a Default or an Event of Default pursuant to section
11(a) or 11(b) or otherwise. Anything contained herein to the contrary
notwithstanding, Borrower's obligations under this section 13 shall not apply
to the fees, expenses or disbursements of any local counsel if suit is
initiated and maintained in New York.
13.2. Survival.
The obligations of the Borrower under this section 13 will
survive the payment, transfer, exchange or conversion of any Note, the
enforcement, amendment or waiver of any provision of this agreement or the
Notes, and the termination of this agreement.
14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
AGREEMENT.
All representations and warranties contained herein or made
in writing by or on behalf of the Borrower in connection with the transactions
contemplated hereby shall survive the execution and delivery of this agreement
and the Notes, the purchase or transfer by Blackacre and Gildea or any Designee
of any Note or portion thereof or interest therein and the payment, transfer,
exchange or conversion of any Note, and may be relied upon by any subsequent
holder of a Note, regardless of any investigation made at any time by or on
behalf of Blackacre and Gildea or any other holder of a Note. All statements
contained in any certificate or other instrument delivered by or on behalf of
the Borrower or any Designee pursuant to this agreement shall be deemed
representations and warranties of the Borrower under this agreement and shall
continue in full force and effect after the Closing Date or the Subsequent
Funding Date, as the case may be, and then terminate and expire with
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respect to any theretofore unasserted claims arising out of or otherwise in
respect of any falsity, breach or inaccuracy of such representations or
warranties on April 15, 1998. Subject to the preceding sentence, this
agreement, the Confidentiality Agreement and the Notes embody the entire
agreement and understanding between Blackacre and Gildea and any Designee and
the Borrower and supersede all prior agreements and understandings relating to
the subject matter hereof, including, without limitation, the Commitment Letter
(except with respect to section 2 of the Commitment Letter); provided, however,
anything contained herein to the contrary notwithstanding, Borrower's
obligations with respect to any Note shall terminate as of the earlier of the
(i) payment in full of such Note, (ii) exchange of such Note into Preferred
Stock or (iii) conversion of such Note into Common Stock and Borrower's
obligations under this agreement (except for any obligations pursuant to
sections 13 and 18) shall terminate as of the earliest date on which all Notes
shall have been either paid in full or converted or exchanged, as the case may
be, into Preferred Stock or Common Stock, as the case may be.
15. AMENDMENT AND WAIVER.
15.1. Requirements.
This agreement and any Note may be amended, and the
observance of any term hereof or of the Notes may be waived (either
retroactively or prospectively), with (and only with) the written consent of
the Borrower and holder who holds such Note(s).
15.2. Binding Effect, etc.
Any amendment or waiver consented to as provided in this
section 15 is binding upon each future holder of any Note and upon the Borrower
without regard to whether such Note has been marked to indicate such amendment
or waiver. No such amendment or waiver will extend to or affect any obligation,
covenant, agreement, Default or Event of Default not expressly amended or
waived or impair any right consequent thereon. No course of dealing between the
Borrower and the holder of any Note nor any delay in exercising any rights
hereunder or under any Note shall operate as a waiver of any rights of any
holder of such Note. As used herein and in the Note, the term "this agreement"
and references thereto shall mean this agreement as it may from time to time be
amended or supplemented.
16. NOTICES.
All notices and communications provided for hereunder shall
be in writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or
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(c) by a recognized overnight delivery service (with charges prepaid). Any such
notice must be sent:
if to Blackacre:
Blackacre Bridge Capital, L.L.C.
950 Third Avenue
New York, New York 10022
Telecopy No.: (212) 758-5305
Attention: Jeffrey B. Citrin, President
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Telecopy No.: (212) 856-7815
Attention: Thomas E. Kruger
if to Gildea:
Gildea Management Company
115 E. Putnam Avenue
Greenwich, Connecticut 06830
Telecopy No.: (203) 861-6727
Attention: William P. O'Donnell,
Managing Director
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Telecopy No.: (212) 856-7815
Attention: Thomas E. Kruger
if to the Borrower:
Factory Stores of America, Inc.
230 North Equity Drive
Smithfield, North Carolina 27577
Telecopy No.: (919) 934-7588
Attention: President
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with a copy to:
Morrison and Foerster LLP
2000 Pennsylvania Avenue, N.W.
Washington, D.C. 20006-1812
Telecopy No.: 202/887-0763
Attention: Michaela M. Twomey and Stephanie Tsacoumis
Notices under this section 16 will be deemed given only when actually received.
17. IDENTIFICATION OF DESIGNEES.
Each of Blackacre and Gildea shall have the right to identify
one or more Designees as the purchaser of all or part of the Notes which
Blackacre and Gildea have agreed to purchase hereunder by delivering an
Addendum to Note Purchase Agreement substantially in the form of exhibit 17
hereof executed on behalf of each such Designee. Any such Designee shall, upon
delivery of such Addendum, be entitled to the rights and assume the obligations
of a Designee hereunder to the extent of the Notes purchased by such Designee.
18. INDEMNIFICATION
(a) Subject to the limitations set forth in section 13.1(b),
Borrower agrees to indemnify and hold harmless Blackacre, Gildea, the Designees
of Blackacre and Gildea and their respective officers, directors, managers,
partners, employees, agents, Affiliates and representatives (the "Blackacre and
Gildea Indemnitees") harmless from and against, and in respect of, any and all
damages, claims, losses, liabilities and expenses (including, without
limitation, reasonable legal, accounting, consulting, engineering, and other
expenses) (collectively "Damages") that may be imposed on, incurred by, or
asserted against any of the Blackacre and Gildea Indemnitees by any other party
or parties (including, without limitation, a governmental entity) arising out
of, in connection with, relating to, caused by or alleged to have resulted from
(i) any falsity, breach or inaccuracy of any representation or warranty made by
Borrower herein or in any certificate or other document delivered by Borrower
pursuant hereto or (ii) any breach or violation of any covenant or agreement of
Borrower contained herein or in any Note or in any certificate or other
document delivered by Borrower pursuant hereto.
(b) Each of Blackacre, Gildea and each Designee of Blackacre
and Gildea, severally and not jointly, agrees to indemnify and hold harmless
Borrower and its officers, directors, employees, agents, Affiliates and
representatives (the "Borrower Indemnitees") harmless from and against, and in
respect of, any and all Damages that may be imposed on, incurred by, or
asserted against any of the Borrower Indemnitees by any other party or parties
(including, without limitation, a
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governmental entity) arising out of, in connection with, relating to, caused by
or alleged to have resulted from (i) any falsity, breach or inaccuracy of any
representation or warranty made by Blackacre, Gildea or such Designee herein or
in any certificate or other document delivered by Blackacre, Gildea or such
Designee pursuant hereto or (ii) any breach or violation of any covenant or
agreement of Blackacre, Gildea or such Designee contained herein or in any Note
or in any certificate or other document delivered by Blackacre, Gildea or any
Designee pursuant hereto.
(c) Borrower shall not be liable to indemnify the Blackacre
and Gildea Indemnitees for any Damages resulting from, arising out of, incurred
with respect to, relating to, in the nature of, or caused by the matters set
forth in section 10.18(a), except to the extent that the aggregate amount of
such Damages exceeds $100,000 (the "Threshold Amount"); provided, however, that
once such aggregate has been exceeded, Seller shall be liable for the entire
amount of such Damages, including such Threshold Amount.
(d) The indemnification obligations for all Damages relating
to matters set forth in sections 10.18(a)(i) or 10.18(b)(i) hereof shall
survive the execution and delivery of this agreement, the consummation of the
transactions contemplated hereby and the Closing Date or the Subsequent Funding
Date, as the case may be, and continue in full force and effect thereafter
until April 15, 1998 and then expire with respect thereto. The indemnification
obligations for all Damages relating to matters set forth in sections
10.18(a)(ii) and 10.18(b)(ii) hereof shall survive the execution and delivery
of this agreement, the consummation of the transactions contemplated hereby and
the Closing Date or the Subsequent Funding Date, as the case may be, and
continue in full force and effect thereafter until all applicable statutes of
limitation (including any extension thereof) have expired and then expire with
respect to any theretofore unasserted claims arising out of or otherwise in
respect to such breach.
19. MISCELLANEOUS.
19.1. Successors and Assigns.
(a) Borrower's rights and obligations hereunder will not be
assignable or otherwise transferable by Borrower, whether voluntarily or by
operation of law, without the prior written consent of the Blackacre and
Gildea.
(b) Blackacre and Gildea's rights and obligations hereunder
will not be assignable or otherwise transferable, whether voluntarily or by
operation of law, without the prior written consent of Borrower; provided that
nothing herein shall in any way limit Blackacre and Gildea's rights to
designate purchasers of the Exchangeable Notes and Senior Notes as contemplated
by section 17 hereof.
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19.2. Payments Due on Non-Business Days.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or interest on any Note that is
due on a date other than a Business Day shall be made on the next succeeding
Business Day without including the additional days elapsed in the computation
of the interest payable on such next succeeding Business Day.
19.3. Severability.
Any provision of this agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted by
law) not invalidate or render unenforceable such provision in any other
jurisdiction.
19.4. Construction.
Each covenant contained herein shall be construed (absent
express provision to the contrary) as being independent of each other covenant
contained herein, so that compliance with any one covenant shall not (absent
such an express contrary provision) be deemed to excuse compliance with any
other covenant. Where any provision herein refers to action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
19.5. Counterparts.
This agreement may be executed in any number of counterparts,
each of which shall be an original but all of which together shall constitute
one instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
19.6. Broker's Commission.
(a) Borrower represents and warrants to Blackacre and Gildea
and each Designee that it has not sought or used the services of any broker or
agent in connection with the Transactions and hereby agrees to indemnify and
hold harmless Blackacre and Gildea and each Designee from and against all
claims for brokerage commissions arising through Borrower.
(b) Blackacre and Gildea represent and warrant to Borrower
that neither of them has sought or used the services of any broker or agent in
connection with the
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Transactions and hereby agree to indemnify and hold harmless Blackacre and
Gildea from and against all claims for brokerage commissions arising through
Blackacre and Gildea.
19.7. No Other Negotiations or Commitments.
On or prior to the Termination Date, neither Borrower nor any
of its affiliates will apply for, enter into discussions for, solicit or accept
a commitment for any financing similar to the Transactions with any party other
than Blackacre and Gildea (and their designees), and Borrower will negotiate
exclusively with Blackacre and Gildea with respect to the Transactions.
19.8. Governing Law.
This agreement shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the law of the State
of New York excluding choice-of-law principles of the law of such State that
would require the application of the laws of a jurisdiction other than such
State.
19.9. Publicity. No press release or announcement concerning this
agreement or the Transactions will be issued by any party hereto without the
prior consent to the other parties hereto, except as such release or
announcement may be required by law, rule or regulation in which case the party
hereto required to make such release or announcement will allow the other
parties hereto reasonable time to comment on such release or announcement in
advance of its issuance.
[Balance of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the undersigned have executed this Note
Purchase Agreement as of the date first written above.
FACTORY STORES OF AMERICA, INC.
By: /s/ C. Cammack Morton
--------------------------------
Name: C. Cammack Morton
Title: President and Chief
Operating Officer
BLACKACRE CAPITAL GROUP, L.P.
By: Blackacre Capital Management Corp.,
its managing member
By: /s/ Jeffrey B. Citrin
---------------------------
Name: Jeffrey B. Citrin
Title: President
GILDEA MANAGEMENT COMPANY
By: /s/ John W. Gildea
--------------------------------
Name: John W. Gildea
Title: President
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SCHEDULE A
DEFINED TERMS
As used herein, the following terms have the respective
meanings set forth below or set forth in the section hereof following such
term:
"Affiliate" means, at any time, and with respect to any
Person, an other Person that at such time directly or indirectly through one or
more intermediaries Controls, or is Controlled by, or is under common Control
with, such first Person. As used in this definition, "Control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise. Unless the context
otherwise clearly requires, any reference to an "Affiliate" is a reference to
an Affiliate of the Borrower.
"Bank One" shall mean Bank One, Dayton National Association, a
national banking association.
"Bank One Loan Facility" shall mean (i) the Credit Agreement
dated April 13, 1994, between Borrower and Bank One, as amended by a First
Amendment to Credit Agreement dated as of June 29, 1994, a Letter Agreement
dated December 28, 1994 and a Second Amendment to Credit Agreement dated
January 16, 1995, (ii) an Amended and Restated Credit Agreement dated as of
February, 1, 1995, between Borrower and Bank One, as amended by a First
Amendment to Amended and Restated Credit Agreement dated as of March 2, 1995,
(iii) a Second Amended and Restated Credit Agreement dated as of May 1, 1995,
between Borrower and Bank One, as amended by a First Amendment to Second
Amended and Restated Credit Agreement dated as of May 22, 1995, (iv) a Third
Amended and Restated Credit Agreement dated as of July 14, 1995, between
Borrower and Bank One (v) a Promissory Note dated January 11, 1996, executed by
Borrower in favor of Bank One in the original principal amount of $5,000,000,
(v) a Promissory Note dated January 26, 1996, executed by Borrower in favor of
Bank One in the original principal amount of $1,000,000 and (vi) the
refinancing of such obligations pursuant to the terms and conditions of a
commitment letter dated on or about April 2, 1995 between Bank One and
Borrower.
"Blue Sky Laws" shall have the meaning set forth in section
6.4.
"Board Representative" shall have the meaning set forth in
section 10.9.
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"Borrower knowledge" shall have the meaning set forth in
section 6.15.
"Borrower Properties" shall have the meaning set forth in
section 6.10.
"Borrower Registration Statements" shall have the meaning set
forth in section 6.5.
"Borrower Reports" shall have the meaning set forth in
section 6.5.
"Business Day" means any day other than a Saturday, a Sunday
or a day on which commercial banks in New York City are required or authorized
to be closed.
"CERCLA" shall have the meaning set forth in section 6.11(e).
"Certificate of Designation" shall have the meaning set forth
in section 2.1.
"Change of Control Event" means (i) the consummation of a
merger or consolidation of Borrower with or into another entity, (ii) the
consummation of a sale by Borrower of the Borrower or all or a material portion
of its assets or business by any means, (iii) the consummation by any person
(including Borrower) of a tender offer or exchange offer for all or part of the
outstanding shares of Borrower's Common Stock or (iv) the payment by Borrower
of a liquidating distribution or partial liquidating distribution to holders of
any shares of Borrower's Common Stock.
"Charter Amendment" shall have the meaning set forth in
section 6.2.
"Claim" shall have the meaning set forth in section 6.11.
"Closing" shall have the meaning set forth in section 3.1.
"Closing Date" shall have the meaning set forth in section
3.1.
"Code" means the Internal Revenue Code of 1986, as the same
may be amended from time to time, and the rules and regulations promulgated
thereunder, as from time to time in effect.
"Commitment Letter" shall mean the Commitment Letter dated
March 28, 1996 by and among Borrower, Blackacre and Gildea.
"Common Stock" shall mean the Common Stock, par value $ 0.01
per share of Borrower.
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"Confidentiality Agreement" shall mean the confidentiality
agreement dated February 20, 1996 by and between Gildea and Borrower.
"Default" means an event or condition the occurrence or
existence of which would, with the lapse of time or the giving of notice or
both, become an Event of Default.
"Delaware General Corporation Law" shall have the meaning set
forth in section 6.2.
"Designee" of Blackacre and Gildea means a designee which
shall execute and deliver a written Addendum to Note Purchase Agreement
substantially in the form of exhibit 17 hereof pursuant to section 17.
"Disclosure Schedule" shall mean the Disclosure Schedule
attached to this Agreement.
"Environmental Claim" shall have the meaning set forth in
section 6.11.
"Environmental Laws" shall have the meaning set forth in
section 6.11.
"Environmental Permits" shall have the meaning set forth in
section 6.11.
"Environmental Reports" shall mean the Phase I Environmental
Assessments identified in the Disclosure Schedule.
"Event of Default" means any event or condition described in
section 11.
"Exchange Act" means the Securities and Exchange Act of 1934,
as amended from time to time.
"Exchangeable Subordinated Note" shall have the meaning set
forth in section 2.1.
"Excess Stock" shall have the meaning set forth in section
6.3.
"Fair Market Value" of the Common Stock means, as of any
date, the average of the daily closing prices of Common Stock for the 30
consecutive Trading Days next preceding the date prior to the date in question.
The closing price for each day shall be the last sale price, or the closing bid
price if no sale occurred, of Common Stock on the New York Stock Exchange for
trading.
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"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States of America.
"Governmental Authority" means
(a) the government of
(i) the United States of America and any State or
other political subdivisions thereof, or
(ii) any jurisdiction in which the Borrower or any
Subsidiary conducts all or any part of its business, or which asserts
jurisdiction over any properties of the Borrower or any Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"HSR Rules" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and at the rules and regulations
promulgated thereunder.
"Indebtedness" shall mean any obligation for money borrowed,
including lease obligations that are capitalized for financial accounting
purposes on the books of lessee and the Class A, Class B and Class C
Collateralized Commercial Mortgage Notes issued by FSA Finance, Inc., pursuant
to the Indenture dated as of May 22, 1995 among FSA Finance, Inc., Fleet
Management and Recovery Corporation and Bank One, Columbus, N.A.
"Lien" means, with respect to any Person, any mortgage, lien,
pledge, adverse claim, charge, security interest or other encumbrance, or any
interest or title of any vendor, lessor, lender or other secured party to or of
such Person any under conditional sale or other title retention agreement or
Capital Lease, upon or with respect to any property or asset of such Person
(including in the case of stock, stockholder agreements, voting trust
agreements and all similar arrangements).
"Material", when capitalized, means material in relation to
the business, operations, affairs, financial condition, assets, or properties
of the Borrower and its Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on
(a) the business, operations, affairs, financial condition, assets, or
properties of the Borrower and its Subsidiaries taken as a whole or (b) on the
ability of the Borrower to perform its obligations under this agreement and the
Notes, or (c) on the validity or enforceability of this agreement or the Notes.
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"Material Borrower Leases" shall have the meaning set forth
in section 6.10(b).
"Material of Environmental Concern" shall have the meaning
set forth in section 6.11(g)(v).
"Multiemployer Plan" means any Plan which is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).
"NYSE Policy" shall have the meaning set forth in section 6.2.
"Notes" shall have the meaning set forth in section 2.3.
"Officer's Certificate" means a certificate of a Senior
Financial Officer or of any other officer of the Borrower whose
responsibilities extend to the subject matter of such certificate.
"PBGC" means the Pension Benefit Guaranty Corporation
referred to and defined in ERISA or any successor thereto.
"Pension Plan" means, at any time, any "employee pension
benefit plan" (as such term is defined in section 3 of ERISA) maintained at
such time by the Borrower or any ERISA Affiliate for employees of the Borrower
or such ERISA Affiliate, excluding any Multiemployer Plan.
"Permitted Liens" shall mean Liens for (a) taxes, assessments
and other governmental charges, if such taxes, assessments or charges shall not
be due and payable, or if the validity thereof is being contested in good faith
by appropriate proceedings and adequate reserves have been established with
respect thereto on the latest audit balance sheet of Borrower; (b) workmen's,
repairmen's or other similar Liens (inchoate or otherwise) arising or incurred
in the ordinary course of business in respect of obligations which are
reflected on the most recent balance sheet contained in the Borrower Reports or
were incurred after the date of such balance sheet in the ordinary course of
business; and (c) minor title defects, easements or Liens affecting real
property which defects, easements or Liens do not, individually or in the
aggregate, impair the continued use, occupancy, value or marketability of title
of the property to which they relate.
"Person" means an individual, partnership, corporation,
trust, unincorporated organization, or a government or agency or political
subdivision thereof.
"Plan" means an "employee pension benefit plan" (as defined
in section 3(2) of ERISA) which is or, within the preceding five years, has
been
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established or maintained, or to which contributions are or, within the
preceding five years, have been made or required to be made, by the Borrower or
any ERISA Affiliate or with respect to which the Borrower or any ERISA
Affiliate may have any liability.
"Preferred Stock" shall have the meaning set forth in section
2.1.
"Property Restrictions" shall have the meaning set forth in
section 6.10.
"Proxy Statement" shall have the meaning set forth in section
9.1(a).
"REIT" shall have the meaning set forth in section 6.8.
"Release" shall have the meanings set forth in section
6.11(g)(v).
"Required Stockholder Approval" shall have the meaning set
forth in section 9.1(a).
"Responsible Officer" means any Senior Financial Officer and
any other officer of the Borrower with responsibility for the administration of
the relevant portion of this agreement.
"SEC" shall have the meaning set forth in section 6.5.
"Securities Act" shall have the meaning set forth in section
6.4(d).
"Securities Laws" shall have the meaning set forth in section
6.5
"Senior Financial Officer" means the chief financial officer,
principal accounting officer, treasurer or comptroller of the Borrower.
"Senior Notes" shall have the meaning set forth in section
2.2.
"Significant Borrower Properties" shall have the meanings set
forth in section 6.10.
"Significant Subsidiary" means at any time any Subsidiary
that would at such time constitute a "significant subsidiary" (as such term is
defined in Regulation S-X of the Securities and Exchange Commission as in
effect on the date of the Closing) of the Borrower.
"Stockholders Meeting" shall have the meaning in section
9.1(a).
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"Subsequent Funding" shall have the meaning set forth in
section 3.2.
"Subsequent Funding Date" shall have the meaning set forth in
section 3.2.
"Subsidiary" means, as to any Person, any corporation,
association or other business entity in which such Person or one or
more of its Subsidiaries or such Person and one or more of its
Subsidiaries owns sufficient voting securities to enable it or them
(as a group) ordinarily, in the absence of contingencies, to elect a
majority of the directors (or Persons performing similar functions) of
such entity, and any partnership or joint venture if more than a 50%
interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take
major business actions without the prior approval of such Person or
one or more of its Subsidiaries). Unless the context otherwise clearly
requires, any reference to a "Subsidiary" is a reference to a
Subsidiary of Borrower.
"Tenancy Leases" shall have the meaning set forth in section
6.10(f).
"Termination Date" shall have the meaning set forth in
section 3.6.
"Transactions" shall have the meaning set forth in section
2.4.
"Trust Indenture Act" shall mean the Trust Indenture Act of
1939, as amended.
"Warrants" shall mean the warrants to purchase 200,000 shares
of Common Stock of Borrower issued to Blackacre and Gildea or their Designees
as provided in section 2.a.iii of the Commitment Letter.
"Wholly-Owned Subsidiary" means, at any time, any Subsidiary
one hundred percent (100%) of all of the equity Securities (except directors'
qualifying shares) and voting Securities of which are owned by any one or more
of the Borrower and the Borrower's other Wholly-Owned Subsidiaries at such
time.
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exhibit 5.4
SUGGESTED OPINION OF COUNSEL TO THE BORROWER
1. Borrower is a corporation duly incorporated, validly
existing and in good standing under the laws of its state of incorporation and
has all requisite corporate power and authority to carry on its business and
own its Material properties.
2. Borrower has duly qualified and is in good standing as a
foreign corporation in each jurisdiction where it owns Material properties or
the nature of its activities makes such qualification necessary, except where
the failure to so qualify and be in good standing would not have a material
adverse effect on the ability of the Borrower to perform its obligations under
the Note Purchase Agreement and the Notes.
3. The Borrower has all requisite corporate power and
authority to execute and deliver the Note Purchase Agreement, to issue and sell
the Notes, and to perform its obligations set forth in each of the Note
Purchase Agreement and the Notes.
4. Each of the Note Purchase Agreement and the Notes has been
duly authorized by all necessary corporate action on the part of the Borrower
(no action on the part of the stockholders of the Borrower being required in
respect thereof), and each of the Note Purchase Agreement and the Notes being
issued and sold by the Borrower today has been executed and delivered by a duly
authorized officer of the Borrower, and constitutes a legal, valid and binding
obligation of the Borrower, enforceable against the Borrower in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the rights of
creditors generally, and except as such enforceability may be limited by
general principles of equity, whether applied in a court of law or in equity
and subject only to the approval of the Charter Amendment pursuant to section
242 of the Delaware General Corporation Law and the filing of the Charter
Amendment pursuant to section 103 of the Delaware General Corporation Law and
the filing of the Certificate of Designation with the Secretary of State of the
State of Delaware pursuant to section 151(g) of the Delaware General
Corporation Law.
5. The execution and delivery by the Borrower of the Note
Purchase Agreement and the Notes, the issue and sale by the Borrower of the
Notes purchased by Blackacre and Gildea today and the performance by the
Borrower of its obligations thereunder will not conflict with, constitute a
violation of, result in a breach of any provision of, constitute a default
under, or result in the creation or imposition of
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any Lien or encumbrance upon any of its Material properties pursuant to the
second restated certificate of incorporation or bylaws of the Borrower, any
applicable statute, rule or regulation to which the Borrower is subject, or any
agreement or instrument identified in the Disclosed Schedule to the Note
Purchase Agreement or known to us after due inquiry to which the Borrower is a
party or by which its respective Material properties may be bound.
6. All consents, approvals and authorizations of, and all
designations, declarations, filings, registrations, qualifications and
recordations with, Governmental Authorities required on the part of the
Borrower in connection with the execution and delivery of each of the Note
Purchase Agreement and the Notes and the issue and sale of the Notes and the
use of the proceeds thereof have been duly obtained and are in full force and
effect, except for the filing of the Charter Amendment and the Certificate of
Designation with the Secretary of State of Delaware and the filing of the Proxy
Statement and any related soliciting material with the SEC.
7. To our knowledge there is no action, proceeding or
investigation pending or threatened (or any basis therefor known to us) which
questions the validity of the Note Purchase Agreement or the Notes or any
action taken or to be taken pursuant to the Note Purchase Agreement or the
Notes.
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TABLE OF CONTENTS
Section Page
1. DEFINITIONS....................................................... 1
2. ISSUANCE, SALE AND PURCHASE OF THE NOTES.......................... 1
3. CLOSING........................................................... 2
4. FUNDING SCHEDULE.................................................. 3
5. CONDITIONS TO CLOSING............................................. 4
5.1. Representations and Warranties............................ 4
5.2. Performance; No Default................................... 4
5.3. Compliance Certificates................................... 4
5.4. Opinions of Counsel....................................... 4
5.5. Payment of Counsel Fees................................... 5
5.6. Payment of Commitment Fees................................ 5
5.7. Warrants.................................................. 5
5.8. Bank One Consent and Waiver............................... 5
5.9. Additional Conditions..................................... 5
5.10. Proceedings and Documents................................. 6
6. REPRESENTATIONS AND WARRANTIES OF THE BORROWER.................... 6
6.1. Organization and Qualification; Subsidiaries.............. 6
6.2. Authority Relative to Agreement; Board Approval........... 7
6.3. Capital Stock of Borrower................................. 8
6.4. No Conflicts; No Defaults; Required Filings and........... 9
6.5. ConsentsSEC and Other Documents; Financial
Statements Undisclosed Liabilities........................ 10
6.6. Litigation; Compliance with Law........................... 11
6.7. Absence of Certain Changes or Events...................... 11
6.8. Tax Matters; REIT and Partnership Status.................. 12
6.9. Financial Records; the Borrower's Restated Certificate
of Incorporation and By-laws; Corporate Records........... 12
6.10. Properties................................................ 12
6.11. Environmental Matters..................................... 15
6.12. Proxy Statement........................................... 17
6.13. Vote Required............................................. 17
6.14. Securities Act Matters.................................... 18
6.15. Knowledge Defined......................................... 18
-i-
346537.11
<PAGE>
Section Page
7. REPRESENTATIONS OF BLACKACRE AND GILDEA AND THE
DESIGNEES......................................................... 18
7.1. Authority; Enforceability................................. 18
7.2. Financing................................................. 18
7.3. Purchase for Investment................................... 19
7.5. Accredited Investors...................................... 19
7.6. Maximum Investment........................................ 19
7.7. No Common Control......................................... 19
7.8. No Conflicts, Required Filings and Consent................ 19
7.9. No Adverse Action......................................... 20
8. INFORMATION AS TO BORROWER........................................ 20
8.1. Financial and Business Information........................ 20
8.2. Officer's Certificate..................................... 21
8.3. Inspection................................................ 22
9. AUTHORIZATION OF PREFERRED STOCK; CHANGE OF CONTROL............... 22
9.1. Authorization of Preferred Stock;
Certificate of Designation................................ 22
9.2. Registration Obligations.................................. 23
9.3. Change of Control Event................................... 24
10. COVENANTS......................................................... 25
10.1. Compliance with Law....................................... 25
10.2. Insurance................................................. 25
10.3. Maintenance of Properties................................. 25
10.4. Payment of Taxes.......................................... 26
10.5. Corporate Existence, etc.................................. 26
10.6. Cooperation............................................... 26
10.7. Prior Notice of Liquidating Distribution.................. 27
10.8. Prohibition Against Certain Issuances..................... 27
10.9. Nomination of Director.................................... 27
11. EVENTS OF DEFAULT................................................. 28
12. REMEDIES ON DEFAULT............................................... 29
13. EXPENSES, ETC..................................................... 30
13.1. Transaction Expenses...................................... 30
13.2. Survival.................................................. 32
14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
AGREEMENT......................................................... 32
-ii-
346537.11
<PAGE>
Section Page
15. AMENDMENT AND WAIVER.............................................. 33
15.1. Requirements.............................................. 33
15.2. Binding Effect, etc....................................... 33
16. NOTICES........................................................... 33
17. IDENTIFICATION OF DESIGNEES....................................... 35
18. INDEMNIFICATION................................................... 35
19. MISCELLANEOUS..................................................... 36
19.1. Successors and Assigns.................................... 36
19.2. Payments Due on Non-Business Days......................... 37
19.3. Severability.............................................. 37
19.4. Construction.............................................. 37
19.5. Counterparts.............................................. 37
19.6. Broker's Commission....................................... 37
19.7. No Other Negotiations or Commitments...................... 38
19.8. Governing Law............................................. 38
19.9. Publicity................................................. 38
SCHEDULE A Defined Terms
SCHEDULE 4.1 Funding Schedule
SCHEDULE 4.4 Use of Proceeds
DISCLOSURE SCHEDULE
Exhibit 2.1(a) Form of Exchangeable Notes
Exhibit 2.1(b) Form of Certificate of Designation
Exhibit 2.2(b) From of Senior Note
Exhibit 5.4 Form of Opinion of Counsel to the Borrower
Exhibit 5.8 Bank One Consent and Waiver
Exhibit 5.9(a) Bank One Commitment Letter
Exhibit 6.2 Charter Amendment
Exhibit 17 Form of Addendum to Note Purchase Agreement
-iii-
346537.11
<PAGE>
NOTE PURCHASE AGREEMENT
by and among
FACTORY STORES OF AMERICA, INC.,
the Borrower,
AND
BLACKACRE BRIDGE CAPITAL, L.L.C.
and
GILDEA MANAGEMENT COMPANY
Dated: April 2, 1996
346537.11
EXCHANGEABLE SUBORDINATED NOTE
$5,000,000 April 3, 1996
FOR VALUE RECEIVED, the undersigned, Factory Stores of
America, Inc., a Delaware corporation (the "Borrower"), hereby promises to pay
to Network Fund III, Ltd., a Cayman Island corporation (the "Lender"), in
immediately available funds, (a) the principal sum of Five Million dollars
($5,000,000), or such other amount as is then outstanding hereunder, on or
before December 31, 1996 and (b) interest thereon as provided in section 2
hereof.
This note is issued pursuant to the terms of the Note
Purchase Agreement (as defined below), and evidences a loan made by the Lender
to the Borrower pursuant thereto.
1. Definitions. As used in this note, the following terms shall have the
following meanings.
a. "Aggregate Consideration Receivable" by the Borrower in
connection with the issuance of any shares of Common Stock
(or any rights, warrants, options or convertible or
exercisable securities entitling the holders thereof to
subscribe for or purchase any shares of Common Stock or any
stock appreciation rights entitling the holders thereof to
any interest in an increase in value, however measured, of
shares of Common Stock) means the sum of:
i. the aggregate consideration paid to the Borrower for
such shares, rights, warrants, options or
convertible or exercisable securities and
ii. the aggregate consideration or premiums stated in
such rights, warrants, options or convertible or
exercisable securities to be payable for the shares
of Common Stock covered thereby,
calculated in each case in accordance with section 5(d)(v)
hereof. In case all or any portion of the consideration to be
received by the Borrower may be paid in a form other than
cash, the value of such consideration shall be determined in
good faith by the Board of Directors or a duly authorized
committee thereof (irrespective of the accounting
353737.1
<PAGE>
treatment thereof), and described in a resolution of the
Board of Directors or such committee.
b. "Bank One" means Bank One, Dayton, National Association, a
national banking association.
c. "Bank One Facility" means (i) the Credit Agreement dated
April 13, 1994, between Borrower and Bank One, as amended by
a First Amendment to Credit Agreement dated as of June 29,
1994, a Letter Agreement dated December 28, 1994 and a Second
Amendment to Credit Agreement dated January 16, 1995, (ii) an
Amended and Restated Credit Agreement dated as of February,
1, 1995, between Borrower and Bank One, as amended by a First
Amendment to Amended and Restated Credit Agreement dated as
of March 2, 1995, (iii) a Second Amended and Restated Credit
Agreement dated as of May 1, 1995, between Borrower and Bank
One, as amended by a First Amendment to Second Amended and
Restated Credit Agreement dated as of May 22, 1995, (iv) a
Third Amended and Restated Credit Agreement dated as of July
14, 1995, between Borrower and Bank One (v) a Promissory Note
dated January 11, 1996, executed by Borrower in favor of Bank
One in the original principal amount of $5,000,000, (v) a
Promissory Note dated January 26, 1996, executed by Borrower
in favor of Bank One in the original principal amount of
$1,000,000 and (vi) the refinancing of such obligations
pursuant to the terms and conditions of a commitment letter
dated on or about April 2, 1996 between Bank One and
Borrower.
d. "Board of Directors" means the board of directors of the
Borrower.
e. "Borrower" means Factory Stores of America, Inc., a Delaware
corporation.
f. "Borrower Senior Management" shall mean C. Cammack Morton.
g. "Business Day" means any day other than a Saturday, a Sunday
or a day on which banking institutions in the City of New
York, New York are authorized or obligated by law or
executive order to close.
h. "Capital Stock" means any and all shares, rights to purchase,
warrants, options, convertible securities, participations in
or other equivalents of or interests (other than security
interests) in (however designated and whether voting or
nonvoting) corporate stock.
353737.1
2
<PAGE>
i. "Certificate of Designation" means the Certificate of
Designation, Preferences and Rights of the Series A Preferred
Stock, in the form attached to the Note Purchase Agreement as
exhibit 2.1(b) thereto.
j. "Change in Control Event" means any of the following events:
(i) the consummation of a merger or consolidation of the
Borrower with or into another entity.
(ii) the consummation of a sale by the Borrower of the
Borrower or all or a material portion of its assets
or business by any means.
(iii) the consummation by any Person (including the
Borrower) of a tender offer or exchange offer for
all or part of the outstanding shares of the
Borrower's Common Stock.
(iv) the payment by the Borrower of a liquidating
distribution or partial liquidating distribution to
holders of any shares of the Borrower's Common
Stock.
k. "Common Stock" means the Common Stock, par value $ 0.01 per
share, of the Borrower and, in the case of a
reclassification, recapitalization or other similar change in
such Common Stock or in the case of a consolidation or merger
of the Borrower with or into another Person, such
consideration to which a holder of a share of Common Stock
would have been entitled upon the occurrence of such event.
l. "Conversion Date" has the meaning indicated in section
5(b)(iii) hereof.
m. "Conversion Notice" has the meaning indicated in section
5(b)(i) hereof.
n. "Conversion Price" shall initially be the dollar amount
specified in section 5(a)(ii) hereof, and shall thereafter be
the dollar amount determined in accordance with the
provisions of section 5(d) hereof.
o. "Conversion Right Triggering Event" means any of the
following events:
i. for any reason, the Exchange Closing Date or the
Effective Date of the Certificate of Designation
shall not have occurred on or prior to November 1,
1996.
ii. an Event of Default shall have occurred and be
continuing.
353737.1
3
<PAGE>
iii. a Change in Control Event shall have occurred.
p. "Conversion Right Triggering Event Per Share Consideration,"
with respect to any Conversion Right Triggering Event, means
the closing price of the Common Stock on the date such
Conversion Right Triggering Event occurs; provided that, in
the case of a Conversion Right Triggering Event described in
section 1(a)(o)(i) hereof, "Conversion Right Triggering Event
Per Share Consideration" shall mean the last sale price, or
the closing bid price if no sale occurred, of the Common
Stock on the New York Stock Exchange on the Conversion Date
following such Conversion Right Triggering Event.
q. "Effective Date Notice" has the meaning indicated in section
4(b) hereof.
r. "Effective Date of the Certificate of Designation" means the
date as of which the Certificate of Designation shall have
become effective in accordance with section 103 of the
General Corporation Law of the State of Delaware.
s. "Effective Purchase Price per Share" at which the Borrower
issues any shares of Common Stock (or any rights, warrants,
options or convertible or exercisable securities entitling
the holders thereof to subscribe for or purchase any shares
of Common Stock or any stock appreciation rights entitling
the holders thereof to any interest in an increase in value,
however measured, of shares of Common Stock) shall mean an
amount equal to the ratio of:
i. the Aggregate Consideration Receivable by the
Borrower in connection with the issuance of such
shares of Common Stock (or any such rights,
warrants, options, convertible or exercisable
securities or stock appreciation rights) to
ii. the number of shares of Common Stock so issued (or
issuable upon the exercise or conversion of such
rights, warrants, options or convertible or
exercisable securities or the Common Stock
equivalent, as nearly as it may be calculated, of
such stock appreciation rights).
t. "Event of Default" means an event of default or an event
which, with the lapse of time, the giving of notice or both,
would constitute an event of default under any Indebtedness
in a principal amount in excess of $1,000,000 to which the
Borrower or any of its subsidiaries is a party or would
permit the acceleration of Indebtedness in a principal amount
in
C/M: 11901.0003 353737.1
4
<PAGE>
excess of $250,000 to which the Borrower or any of its
subsidiaries is a party.
u. "Exchange Closing Date" has the meaning indicated in section
4(e) hereof.
v. "Exchange Closing Notice" has the meaning indicated in
section 4(c)(ii) hereof.
w. "Exchange Decline Notice" has the meaning indicated in
section 4(c)(i)(2) hereof.
x. "Excluded Transaction" means the issuance of shares of
Capital Stock of the Borrower to employees or directors of
the Borrower under an employee benefit plan or arrangement
adopted by the Borrower ; provided, however, in no event
shall the aggregate amount of all such issuances exceed 10%
of the issued and outstanding shares of Capital Stock of the
Borrower on the date prior to the date of this note
(calculated on a fully-diluted basis) .
y. "Fair Market Value" of the Common Stock, as of any date,
means the average of the closing prices of Common Stock for
the 30 consecutive Trading Days next preceding such date. The
closing price for each day shall be the last sale price, or
the closing bid price if no sale occurred, of Common Stock on
the New York Stock Exchange.
z. "Indebtedness" means any obligation for money borrowed,
including lease obligations that are capitalized for
financial accounting purposes on the books of the lessee and
the Class A, Class B and Class C Collateralized Commercial
Mortgage Notes issued by FSA Finance, Inc., pursuant to the
Indenture dated as of May 22, 1995 among FSA Finance, Inc.,
Fleet Management and Recovery Corporation and Bank One,
Columbus, N.A.
aa. "Interest Payment Date" has the meaning indicated in section
2(a) of this note.
ab. "Lender" has the meaning indicated in the first paragraph of
this note.
ac. "Note Event of Default" means an Event of Default as defined
in section 11 of the Note Purchase Agreement.
ad. "Note Purchase Agreement" means that certain note purchase
agreement, dated as of April 2, 1996, by and among the
Borrower,
353737.1
5
<PAGE>
Blackacre Bridge Capital, L.L.C., a Delaware limited
liability company, and Gildea Management Company, a Delaware
corporation.
ae. "Person" means an individual, a corporation, a partnership
(including a limited partnership and limited liability
partnership), a limited liability company, a joint venture,
an association, a joint-stock company, a trust, a business
trust, a government or any agency or any political
subdivision, any unincorporated organization, or any other
entity.
af. "Series A Preferred Stock" means the Series A Convertible
Preferred Stock, par value $25.00 per share, of the Borrower,
the designation, preferences and rights of which are set
forth in the Certificate of Designation.
ag. "Trading Day" means any day on which the New York Stock
Exchange is open for business.
ah. "Triggering Dividend" has the meaning indicated in section
2(a) of this note.
2. Interest.
a. Interest shall be payable on this note in immediately
available funds on each date (an "Interest Payment Date") on
which any dividend or distribution (the "Triggering
Dividend") is paid on the Common Stock, provided that:
i. such Interest Payment Date occurs on or after the
date of this note, regardless of whether this note
is outstanding on such Interest Payment Date, and
ii. the record date for such dividend or distribution
occurs on or prior to the date that the principal
amount of this note has been paid in full.
b. Interest payable with respect to this Note on any Interest
Payment Date shall represent interest accrued on this note
for the period ending on the record date for the Triggering
Dividend relating to such interest payment and beginning on
the date hereof, in the case of interest payable on the first
Interest Payment Date, and beginning on the date after the
record date relating to the dividend or distribution on the
Common Stock immediately preceding the Triggering Dividend,
in the case of each successive Interest Payment Date.
353737.1
6
<PAGE>
c. The amount of interest payable on this note on the first
Interest Payment Date shall be equal to interest accrued
hereon at a rate of 11.11% per annum for the period from date
hereof to and including the record date for the Triggering
Dividend payable on such initial Interest Payment Date.
d. The amount of interest payable on this note on each subsequent
Interest Payment Date shall be equal to the product of:
i. the aggregate number of shares of Series A Preferred
Stock issuable on exchange of this note pursuant to
section 4(a) hereof, based on the outstanding
principal amount of this note on the close of
business on the record date for such Triggering
Dividend,
ii. the number of shares of Common Stock issuable on
conversion on the record date for such Triggering
Dividend (or that would be issuable on conversion on
such record date if the Preferred Stock were
outstanding on that date) of a single share of
Series A Preferred Stock, and
iii. the amount of the Triggering Dividend per share of
Common Stock.
3. Subordination. The indebtedness evidenced by this note shall be
subordinate and junior in right of payment to all existing and future
senior Indebtedness of the Borrower for borrowed money, including
without limitation Indebtedness arising under the Bank One Facility,
or any refinancing thereof, in the event of any liquidation,
dissolution or winding-up of the affairs of Borrower, either voluntary
or involuntary.
4. Exchange.
a. This note shall be mandatorily exchanged for shares of Series
A Preferred Stock at the rate of $25 principal amount of this
note for each share of Series A Preferred Stock, on the terms
and subject to the conditions specified in this section 4.
b. Promptly after the Effective Date of the Certificate of
Designation, the Borrower shall give written notice (the
"Effective Date Notice") to the Lender, which notice shall:
i. certify that the Certificate of Designation has
become effective in accordance with section 103 of
the General Corporation Law of the State of
Delaware;
353737.1
7
<PAGE>
ii. state that the Borrower is prepared to issue to the
Lender or its designee or designees the shares of
Series A Preferred Stock issuable on exchange of
this note in accordance with this section 4; and
iii. be accompanied by a certificate of the President or
Chief Financial Officer of the Borrower either:
(1) stating that the conditions to the
mandatory exchange of this note for shares
of Series A Preferred Stock set forth in
section 4(f) hereof have been satisfied, or
(2) identifying in reasonable detail the
reasons why and in what manner the
conditions to the mandatory exchange of
this note for shares of Series A Preferred
Stock set forth in section 4(f) hereof have
not been satisfied.
c. The Lender shall, within 10 Business Days of receipt of the
Effective Date Notice by the Lender,
i. if such Effective Date Notice is accompanied by a
certificate described in section 4(b)(iii)(2)
hereof:
(1) give written notice to the Borrower stating
that the Lender intends to exchange this
note for shares of Series A Preferred
Stock, notwithstanding the matters referred
in such certificate, in which event section
4(c)(ii) hereof shall apply; or
(2) give written notice (the "Exchange Decline
Notice") to the Borrower stating that the
Lender does not intend to exchange this
note for shares of Series A Preferred
Stock, in which event the Borrower shall
have no further obligation to provide the
Lender with an opportunity to exchange this
note for shares of Series A Preferred Stock
and the Lender shall have no further
obligation to exchange this note for shares
of Series A Preferred Stock.
ii. if such Effective Date Notice is accompanied by a
certificate described in section 4(b)(iii)(1) hereof
and not section 4(b)(iii)(2) hereof, or if the
Lender shall have given the notice specified in
section 4(c)(i)(1) hereof, give written notice (the
"Exchange Closing Notice") to the Borrower setting
forth:
353737.1
8
<PAGE>
(1) the time, date (which shall be not more
than 20 Business Days from the date of
receipt of the Effective Date Notice by the
Lender) and place of the exchange of this
note for shares of Series A Preferred Stock
in accordance with this section 4, and
(2) the name or names in which the certificate
or certificates representing the shares of
Series A Preferred Stock to be issued on
exchange of this note should be registered
and the number of shares to be represented
by such certificate or certificates.
d. On the time and date and at the place specified in the
Exchange Closing Notice (unless the Lender and the Borrower
shall agree in writing at another time, date and/or place, in
which event at such other time, date and/or place):
i. the Lender shall deliver to the Borrower this note
marked paid in full, against delivery to the Lender
by the Borrower of the items specified in section
4(d)(ii) hereof; and
ii. the Borrower shall deliver to the Lender:
(1) a stock certificate or certificates
representing the shares of Series A
Preferred Stock issuable on exchange of
this note in accordance with this section 4
registered in the name or names and
representing the number of shares specified
in the Exchange Closing Notice, and
(2) a certificate of the president or any vice
president of the Borrower, dated the
Exchange Closing Date, certifying that the
conditions set forth in section 4(f) hereof
have been complied with,
against delivery to the Borrower by the Lender of
this note marked cancelled and paid in full.
e. This note shall be deemed to have been exchanged for shares
of Series A Preferred Stock and to have been paid in full and
cancelled as of the date of delivery of the items specified
in sections 4(d)(i) and (ii) hereof, which date is herein
referred to as the "Exchange Closing Date."
f. The mandatory exchange of this note for shares of Series A
Preferred Stock in accordance with this section 4 shall be
subject to satisfaction
353737.1
9
<PAGE>
(or waiver in the sole discretion of the Lender) of each of
the following conditions on or prior to the Exchange Closing
Date:
i. there shall have not occurred and be continuing an
Event of Default or an event which, with the lapse
of time or notice or both, would constitute an Event
of Default; and
ii. Borrower Senior Management incumbent with the
Borrower on March 1, 1996 shall be incumbent with
the Borrower on the Exchange Closing Date with
substantially the same duties and responsibilities
as on March 1, 1996.
g. If:
i. the Borrower delivers an Effective Date Notice
complying in all regards with the requirements of
sections 4(b)(i), (ii) and (iii) hereof and such
Effective Date Notice is not accompanied by a
certificate described in section 4(b)(iii)(2)
hereof, and
ii. the Lender fails timely to deliver either an
Exchange Closing Notice or an Exchange Decline
Notice,
then the Borrower may deliver to the Lender, as specified in
section 16(c) hereof, the items specified in section 4(d)(ii)
hereof and, upon such delivery, this note shall be deemed to
have exchanged for shares of Series A Preferred Stock and to
have been paid in full and cancelled as of the date of
delivery by the Borrower to the Lender of such items.
5. Conversion.
a. Right of conversion.
i. From and after the occurrence of a Conversion Right
Triggering Event, this note shall be convertible at
the option of the holder thereof, except to the
extent of any limitations imposed under Policy
312.03(c) of the New York Stock Exchange, in whole
or in part, into a number of fully paid and
non-assessable shares of Common Stock equal to the
ratio of:
(1) the principal amount of this note or the
portion thereof to be converted to
(2) the Conversion Price in effect on the
Conversion Date,
353737.1
10
<PAGE>
or into such additional or other securities, cash or
property and at such other rates as required in
accordance with the provisions of this section 5, at
any time and from time to time.
ii. For purposes of this note, the "Conversion Price"
shall initially be the lesser of:
(1) $9.00 per share and
(2) the average of the daily closing prices
(last close price, regular way) of the
Common Stock on the New York Stock Exchange
for the 30-day period ending May 1, 1996,
as such Conversion Price may be adjusted
from time to time in accordance with the
provisions of this section 5.
iii. Not later than May 15, 1996, the Borrower shall
provide written notice to the holder of this note at
the address indicated herein setting forth the
Conversion Price as of the date of such notice.
iv. The Borrower will give the Lender written notice of
any Change in Control Event (other than an event
described in section 1(j)(iii) hereof) no later than
10 Business Days in advance of such Change in
Control Event and will give the Lender written
notice of any Change in Control Event described in
section 1(j)(iii) hereof promptly after the Borrower
becomes aware of such event.
v. If, at the time of receipt by the Borrower from the
Lender of a Conversion Notice, the Borrower is
precluded by Policy 312.03(c) of the New York Stock
Exchange or any other law, rule or regulation to
which Borrower is subject from converting this note
in whole or in part into shares of Common Stock on
the terms and subject to the conditions set forth in
this section 5, then the portion of the principal
amount of this note not so precluded from being
converted shall be converted as provided in this
section 5 and the maturity date of the balance of
the principal amount of this note shall be extended
to March 31, 1997 and the Borrower will continue to
pay interest thereon as provided in section 2
hereof.
vi. If the maturity date of a portion of this note is
extended as provided in section 5(a)(v) hereof, on
March 31, 1997 the Borrower will pay to the Lender,
in full satisfaction of this note, an amount in cash
(or other consideration acceptable to the Lender
C/M: 11901.0003 353737.1
11
<PAGE>
in the Lender's sole discretion having a value)
equal to the sum of:
(1) the principal amount of this note then
outstanding,
(2) the product of:
(a) the ratio of
(i) the principal amount of
this note then outstanding
on the date of the
Conversion Notice referred
to in section 5(a)(v)
hereof to
(ii) the Conversion Price in
effect on the date of the
Conversion Notice referred
to in section 5(a)(v)
hereof, and
(b) the difference between:
(i) the Conversion Right
Triggering Event Per Share
Consideration and
(ii) the Conversion Price in
effect on the date of the
Conversion Notice referred
to in section 5(a)(v)
hereof; and
(3) interest on this note, at an annual rate
equal to the ratio of (i) four times the
most recent quarterly dividend per share
paid or payable on the Common Stock to (ii)
the Conversion Price in effect on March 31,
1997, for the period beginning on the
record date for the Triggering Dividend
relating to the most recent dividend paid
or payable on the Common Stock and ending
on March 31, 1997.
vii. Interest on any overdue amounts payable under
section 5(a)(vi) hereof shall accrue at the default
rate of 15% per annum and shall be payable to the
extent accrued on the first date of each month.
viii. If the maturity date of a portion of this note is
extended as provided in section 5(a)(v) hereof,
nothing in this note shall preclude the Lender from
converting this note or any portion
353737.1
12
<PAGE>
thereof outstanding at any time on or prior to the
date the principal amount of this note is paid in
full.
b. Conversion Procedures.
i. In order to exercise the conversion privilege, the
holder of this note shall surrender this note to the
Borrower and shall give written notice to the
Borrower ("Conversion Notice") that the holder of
this note elects to convert this note, or the
portion thereof specified in said notice, into
shares of Common Stock. The Conversion Notice shall
also state the name or names (with address) in which
the certificate or certificates for shares of Common
Stock which shall be issuable upon such conversion
shall be issued. This note shall, upon surrender for
conversion, unless the shares issuable on conversion
are to be issued in the same name as the
registration of this note, be duly endorsed by, or
be accompanied by instruments of transfer in form
satisfactory to the Borrower duly executed by, the
holder of this note or its duly authorized attorney.
ii. Within ten Business Days after receipt of a
Conversion Notice and surrender of this note, the
Borrower shall issue and deliver to the holder of
this note (or upon the written order of the holder
of this note) a certificate or certificates for the
number of full shares of Common Stock issuable upon
the conversion of this note or portion thereof in
accordance with the provisions of this section 5,
and cash in respect of any fractional shares of
Common Stock issuable upon such conversion, as
provided in section 5(c) hereof. If less than the
total outstanding principal amount of this note is
to be converted, the Borrower shall issue, execute
and deliver or cause to be issued, executed and
delivered to (or upon the written order of) the
holder of this note, without charge to the holder of
this note, a new note, in the form hereof, for a
principal amount equal to the unconverted portion of
this note.
iii. Each conversion shall be deemed to have been
effected on the date (the "Conversion Date") on
which this note shall have been surrendered to the
Borrower and a Conversion Notice with respect to
such note shall have been received by the Borrower,
as described above. Any Person in whose name any
certificate or certificates for shares of Common
Stock shall be issuable upon conversion shall be
deemed to have become the holder of record of the
shares represented thereby on the Conversion Date;
353737.1
13
<PAGE>
provided, however, that surrender of this note on
any date when the stock transfer books of the
Corporation shall be closed shall constitute the
Person in whose name the certificates are to be
issued as the record holder thereof for all purposes
on the next succeeding day on which such stock
transfer books are open, but such conversion shall
be at the Conversion Price in effect on the date on
which such certificate or certificates shall have
been surrendered.
iv. Except as otherwise provided in this section 5, no
payment or adjustment will be made for dividends or
other distributions with a record date prior to the
Conversion Date with respect to any shares of Common
Stock issuable upon conversion of this note as
provided herein.
c. Cash Payments in Lieu of Fractional Shares. No fractional
shares of Common Stock or scrip representing fractional
shares shall be issued upon conversion of this note. If any
fractional shares of Common Stock would, but for this section
5(c), be issuable upon the conversion of this note, the
Borrower shall promptly after the Conversion Date make a
payment therefor in cash equal to the Fair Market Value of
such fractional share of Common Stock on the first Business
Day immediately preceding the Conversion Date.
d. Adjustment of Conversion Price. The Conversion Price shall be
adjusted from time to time by the Borrower as follows:
i. if the Borrower shall at any time after March 1, 1996:
(1) declare a dividend or distribution on the
Common Stock payable in shares of Common
Stock not otherwise payable to a holder of
this note as interest pursuant to section 2
hereof,
(2) subdivide or reclassify outstanding shares
of Common Stock into a greater number of
shares,
(3) combine shares of outstanding Common Stock
into a smaller number of shares,
(4) declare a dividend or distribution on the
Common Stock in shares of any series of its
Capital Stock other than Common Stock, or
353737.1
14
<PAGE>
(5) issue by reclassification of any shares of
its outstanding Common Stock, shares of any
series of its Capital Stock or any
obligation of the Corporation or other
property,
then the conversion privilege and the Conversion
Price in effect immediately prior thereto shall be
adjusted so that the holder of this note shall be
entitled to receive the number of shares of Common
Stock or other Capital Stock and/or property of the
Borrower which the holder of this note would have
owned or would have been entitled to receive after
the happening of any of the events described above
had this note been converted immediately prior to
the happening of such event. Such adjustment shall
become effective immediately after the applicable
record date in the case of a dividend or
distribution and shall become effective immediately
after the effective date in the case of a
subdivision, combination or reclassification. Such
adjustments shall be made successively whenever any
event referred to above shall occur.
ii. If the Borrower shall at any time after March 1,
1996 issue any shares of Common Stock (or any
rights, warrants, options or convertible or
exercisable securities entitling the holders thereof
to subscribe for or purchase any shares of Common
Stock or any stock appreciation rights entitling the
holders thereof to any interest in an increase in
value, however measured, of shares of Common Stock)
for an Effective Purchase Price per Share less than
the Conversion Price in effect immediately prior to
the date of such issuance, then the Conversion Price
shall be adjusted to equal the ratio of:
(1) the sum of:
(a) the product of:
(i) the number of shares of
Common Stock outstanding
immediately prior to such
issuance and
(ii) the Conversion Price in
effect immediately prior
to such issuance and
(b) the Aggregate Consideration
Receivable by the Borrower in
connection with such issuance to
C/M: 11901.0003 353737.1
15
<PAGE>
(2) the sum of:
(a) the number of shares of Common
Stock outstanding immediately prior
to such issuance and
(b) the number of additional shares of
Common Stock to be so issued
(including the number of shares
underlying such rights, warrants,
options or convertible or
exercisable securities).
If the Borrower shall at any time after March 1,
1996 issue any shares of Common Stock (or any
rights, warrants, options or convertible or
exercisable securities entitling the holders thereof
to subscribe for or purchase any shares of Common
Stock or any stock appreciation rights entitling the
holders thereof to any interest in an increase in
value, however measured, of shares of Common Stock)
in an Excluded Transaction the Conversion Price in
effect immediately prior to the date of such
issuance shall not be adjusted as the result of such
Excluded Transaction.
Such adjustment shall be made successively whenever
any shares, rights, warrants, options, convertible
or exercisable securities or stock appreciation
rights are issued at an Effective Purchase Price per
Share that is less than the Conversion Price in
effect on the date of such issuance. To the extent
that any such rights, warrants, options, convertible
or exercisable securities or stock appreciation
rights expire without having been converted or
exercised, the Conversion Price then in effect shall
be readjusted to the Conversion Price which then
would be in effect if such rights, options,
warrants, convertible or exercisable securities or
stock appreciation rights had not been issued, but
such readjustment shall not affect the number of
shares of Common Stock or other shares of Capital
Stock delivered upon any conversion prior to the
date such readjustment is made.
iii. If the Borrower shall at any time after March 1,
1996 distribute to all holders of its Common Stock
any of its assets or debt securities, or rights,
options, warrants or convertible or exercisable
securities of the Borrower (including securities
issued for cash, but excluding distributions of
Capital Stock referred to in section 5(d)(i)
hereof), then in each such case, the Conversion
Price shall be adjusted to equal the Conversion
Price in effect immediately prior to such
distribution less an amount equal to the then fair
market value (as reasonably determined by the Board
of
353737.1
16
<PAGE>
Directors, in good faith and as described in a
resolution of the Board of Directors) of the portion
of the assets or debt securities of the Borrower so
distributed or of such rights, options, warrants or
convertible or exchangeable securities applicable to
one share of Common Stock. Such adjustment shall
become effective immediately after the record date
for the determination of shares entitled to receive
such distribution. Such adjustment shall be made
successively whenever any event listed above shall
occur. Notwithstanding the foregoing, no adjustment
of the Conversion Price shall be made upon the
distribution to holders of Common Stock of such
rights, options, warrants, convertible securities,
assets or debt securities if the plan or arrangement
under which such rights, options, warrants,
convertible securities, assets or debt securities
are issued provides for their issuance to the holder
of this note in the same pro rata amounts upon
conversion thereof.
iv. In any case in which this section 5(d) provides that
an adjustment shall become effective immediately
after a record date for an event, the Borrower may
defer until the occurrence of such event:
(1) issuing to the Holder of any shares of
Series A Preferred Stock converted after
such record date and before the occurrence
of such event the additional shares of
Common Stock issuable upon such conversion
by reason of the adjustment required by
such event over and above the Common Stock
issuable upon such conversion before giving
effect to such adjustment, and
(2) paying to such Holder any amount in cash in
lieu of any fractional share of Common
Stock pursuant to section 5(c).
v. For purposes of any computations of Aggregate
Consideration Receivable or other consideration
pursuant to this section 5, the following shall
apply:
(1) in the case of the issuance of shares of
Capital Stock for cash, the consideration
shall be the amount of such cash, provided
that in no case shall any deduction be made
for any commissions, discounts or other
expenses incurred by the Borrower for any
underwriting of the issue or otherwise in
connection therewith; and
353737.1
17
<PAGE>
(2) in the case of the issuance of shares of
Capital Stock for a consideration in whole
or in part other than cash, the
consideration other than cash shall be
deemed to be the fair market value thereof
as reasonably determined in good faith by
the Board of Directors or a duly authorized
committee thereof (irrespective of the
accounting treatment thereof), and
described in a resolution of the Board of
Directors or such committee.
vi. If after an adjustment the holder of this note may,
upon conversion of such note, receive shares of two
or more classes of Capital Stock of the Borrower,
the Borrower shall determine on a fair basis the
allocation of the adjusted Conversion Price between
the classes of Capital Stock. After such allocation,
the conversion privilege and the Conversion Price of
each class of Capital Stock shall thereafter be
subject to adjustment on terms comparable to those
applicable to Common Stock in this section 5.
vii. In no event shall an adjustment pursuant to this
section 5 reduce the Conversion Price below the then
par value, if any, of the shares of Common Stock
issuable upon conversion of this note.
viii. No adjustment in the Conversion Price shall be
required unless such adjustment would require an
increase or decrease of at least one percent (1%) in
the Conversion Price then in effect.
e. Effect of Reclassification, Consolidation, Merger or Sale. If
this note is outstanding and there shall occur:
i. any reclassification or change of outstanding shares
of Common Stock issuable upon conversion of this
note (other than a change in par value, or from par
value to no par value, or from no par value to par
value, or as a result of a subdivision or
combination),
ii. any consolidation or merger of the Borrower with or
into another Person shall be effected as a result of
which holders of Common Stock issuable upon
conversion of this note shall be entitled to receive
stock, securities or other property or assets
(including cash) with respect to or in exchange for
such Common Stock, or
iii. any sale or conveyance of the properties and assets
of the Borrower as, or substantially as, an entirety
to any other Person,
353737.1
18
<PAGE>
this note shall be convertible into the kind and amount of
shares of stock and other securities or property or assets
(including cash) receivable upon such reclassification,
change, consolidation, merger, sale or conveyance by a holder
of the number of shares of Common Stock issuable upon
conversion of this note immediately prior to such
reclassification, change, consolidation, merger, sale or
conveyance. In any such case, appropriate adjustments which
shall be as nearly equivalent as may be practicable to the
adjustments provided for in this section 5.
If this section 5(e) applies with respect to a transaction,
section 5(d) hereof shall not apply with respect to that
transaction. The above provisions of this section 5(e) shall
similarly apply to successive reclassifications,
consolidations, mergers and sales.
f. Taxes on Shares Issued. The issuance of stock certificates
upon conversion of this note shall be made without charge to
the converting the holder of this note for any tax in respect
of the issuance thereof.
g. Reservation of Shares; Shares to be Fully Paid; Compliance
with Governmental Requirements. The Borrower shall reserve,
free from preemptive rights, out of its authorized but
unissued shares, or out of shares held in its treasury,
sufficient shares of Common Stock to provide for the
conversion of this note from time to time outstanding. The
Borrower covenants that all shares of Common Stock which may
be issued upon conversion of this note will upon issuance be
fully paid and nonassessable by the Borrower and free from
all taxes, liens and charges with respect to the issuance
thereof.
h. Notice to Holders Prior to Certain Actions.
i. If:
(1) the Borrower shall take any action that
would require an adjustment in the
Conversion Price pursuant to section 5(d)
hereof; or
(2) any event described in section 5(e) hereof
shall occur; or
(3) the voluntary or involuntary dissolution,
liquidation or winding-up of the Borrower
shall occur;
the Borrower shall cause notice of such proposed
action or event to be mailed to the holder of this
note, as promptly as possible
353737.1
19
<PAGE>
but in any event no later than the later of (x) the
date 15 days prior to the record date for such
proposed action or the effective date of such event
or (y) the date on which the Borrower first publicly
announces such proposed action or event.
ii. In any event, such notice shall specify:
(1) the date on which a record is to be taken
for the purpose of such action, or, if a
record is not to be taken, the date as of
which the holders of record of Common Stock
are to be determined, or
(2) the date on which such proposed event is
expected to become effective, and the date
as of which it is expected that holders of
record of Common Stock shall be entitled to
exchange their Common Stock for securities
or other property deliverable upon such
event.
6. Note Events of Default. Upon the occurrence of a Note Event of
Default, the unpaid principal amount of this note, together with all
interest accrued and unpaid thereon, shall become, or may be declared
to be, immediately due and payable, upon the conditions and with the
effect provided in section 12 of the Note Purchase Agreement.
7. LIMITATION ON INTEREST. NOTWITHSTANDING ANY OTHER PROVISION HEREOF, IN
NO EVENT SHALL THE AMOUNT OR RATE OF INTEREST (INCLUDING TO THE EXTENT
APPLICABLE ANY DEFAULT RATE INTEREST OR LATE PAYMENT CHARGE) PAYABLE,
CONTRACTED FOR, CHARGED OR RECEIVED UNDER OR IN CONNECTION WITH THIS
NOTE, FROM TIME TO TIME OR FOR WHATEVER REASON, EXCEED THE MAXIMUM
RATE OR AMOUNT, IF ANY, SPECIFIED BY APPLICABLE LAW. If from any
circumstance whatsoever fulfillment of any provision hereof or other
documents at the time performance of such provision shall be due shall
involve transcending the limit of such validity, and if from any such
circumstance the Lender shall ever receive an amount deemed interest
by applicable law which shall exceed the highest lawful rate, such
amount which would be excessive interest shall be applied to the
reduction of the principal amount owing hereunder or on account of any
other principal indebtedness of the undersigned to the Lender, and not
to payment of interest or if such excessive interest exceeds the
unpaid balance of principal hereof and such other indebtedness, the
excess shall be refunded to the Borrower. All sums paid or agreed to
be paid by the Borrower for the use, forbearance or detention of the
indebtedness of the Borrower to the Lender shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full
353737.1
20
<PAGE>
term of such indebtedness until payment in full so that the actual
rate of interest on account of such indebtedness is uniform through
the term hereof. The terms and provisions of this section 7 shall
control and supersede every other provision of all agreements between
the Borrower and the Lender and all obligations of the Borrower to the
Lender.
8. Enforceability. The Borrower acknowledges that this note and the
Borrower's obligations under this note are and shall at all times
continue to be absolute and unconditional in all respects, and shall
at all times be a valid, legally binding obligation of the Borrower
enforceable against Borrower in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights or general principles of equity. This
note and the Note Purchase Agreement set forth the entire agreement
and understanding of the Lender and the Borrower with respect to the
Transactions contemplated hereby and thereby, and the Borrower
absolutely, unconditionally and irrevocably waives any and all right
to assert any setoff, counterclaim or crossclaim of any nature
whatsoever with respect to this note or the obligations of the
Borrower hereunder in any action or proceeding brought by the Lender
to collect amounts owing under this note, or any portion thereof;
provided, however, that the foregoing shall not be deemed a waiver of
the Borrower's right to assert any compulsory counterclaim maintained
in a court of the United States, or of the State of New York if such
counterclaim is compelled under local law or rule of procedure, nor
shall the foregoing be deemed a waiver of the Borrower's right to
assert any claim which would constitute a defense, setoff,
counterclaim or crossclaim of any nature whatsoever against the Lender
in any separate action or proceeding. The Borrower acknowledges that
no oral or other agreements, conditions, promises, understandings,
representations or warranties exist with respect to this note or with
respect to the obligations of the Borrower under this note, except
those specifically set forth in this note.
9. WAIVERS AND SPECIAL AGREEMENTS. THE BORROWER HEREBY MAKES AND
ACKNOWLEDGES THAT IT MAKES ALL OF THE WAIVERS AND SPECIAL AGREEMENTS
("WAIVERS") SET FORTH IN THIS NOTE KNOWINGLY, INTENTIONALLY,
VOLUNTARILY, WITHOUT DURESS, AND ONLY AFTER EXTENSIVE CONSIDERATION OF
THE RAMIFICATIONS OF SUCH WAIVERS WITH ITS ATTORNEY; THE BORROWER
FURTHER ACKNOWLEDGES THAT THE BORROWER UNDERSTANDS THE RIGHTS BEING
WAIVED AND THAT THE WAIVERS ARE A MATERIAL INDUCEMENT TO THE LENDER TO
MAKE THIS NOTE TO THE BORROWER; THAT THE TERMS OF THIS NOTE ARE
FAVORABLE TO THE BORROWER AND THAT THE LENDER WOULD NOT HAVE MADE THIS
NOTE ON SUCH TERMS WITHOUT SUCH WAIVERS. The Borrower and all other
parties now or hereafter liable hereon, jointly and severally, with
respect to this note:
353737.1
21
<PAGE>
a. acknowledge that the transaction of which this note is a part
is part of a commercial transaction,
b. waive any and all (from time to time):
i. grace, diligence, demand, presentment for payment,
protest, notice of any kind (including disclosure of
facts which materially increase risks, notice of
protest, acceptance, liability, suit, demand, or
action, dishonor, payment or nonpayment, protest,
intention to accelerate or acceleration, extension
or renewal) except as otherwise expressly required
in the Note Purchase Agreement; and
ii. agree that any delay in exercising, failure to
exercise, or non- exercise (or partial exercise),
from time to time, by the Lender of any obligation
or of any rights or remedies (or to insist upon
strict performance) in any one or more instances
shall not constitute a waiver thereof (or preclude
full exercise or insistence upon strict performance
thereof) in that or any other instance, and any
single exercise of any such right or remedies in any
one or more instances shall not preclude full
exercise in any other instance.
10. Calculations of Amounts Due. All calculations of amounts due on any
date, whether by acceleration or otherwise, will be made by the Lender
(or its agent or representative) and the Borrower agrees that all such
calculations will be conclusive and binding absent manifest error.
11. Amendments. This note may not be modified, amended, changed or
terminated orally, but only by an agreement in writing signed by the
Borrower and the Lender. No waiver of any term, covenant or provision
of this note shall be effective unless given in writing by the Lender
and, if so given by the Lender, shall only be effective in the
specific instance in which given.
12. Governing Law. This note is and shall be deemed entered into in the
State of New York and shall be governed by and construed in accordance
with the laws of the State of New York and no defense given or allowed
by the laws of any state or country shall be interposed in any action
or proceeding hereon unless such defense is either given or allowed by
the laws of the State of New York. The Borrower acknowledges and
agrees that this note is, and is intended to be, an instrument for the
payment of money only, as such phrase is used in ss.3213 of the Civil
Practice Law and Rules of the State of New York, and the Borrower has
been fully advised by its counsel of the Lender's rights and remedies
pursuant to saidss.3213.
353737.1
22
<PAGE>
13. Venue and Jurisdiction. The Borrower agrees to submit to the
non-exclusive personal jurisdiction in the State of New York in any
action or proceeding arising out of this note. In furtherance of such
agreement, the Borrower hereby agrees and consents that without
limiting other methods of obtaining jurisdiction, personal
jurisdiction over the Borrower in any such action or proceeding may be
obtained within or without the jurisdiction of any court located in
New York and that any process or notice of motion or other application
to any such court in connection with any such action or proceeding may
be served upon the Borrower by registered or certified mail to, or by
personal service at, the last known address of the Borrower, whether
such address be within or without the jurisdiction of any such court.
The Borrower hereby agrees that the venue of any litigation arising in
connection with the indebtedness, or in respect of any of the
obligations of the Borrower under this note, shall to the extent
permitted by law, be in New York County.
14. WAIVER OF TRIAL BY JURY. THE BORROWER HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES, AND THE LENDER, BY ITS ACCEPTANCE OF THIS
NOTE, IRREVOCABLY AND UNCONDITIONALLY WAIVES, ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LITIGATION WHATSOEVER ARISING OUT OF OR IN
CONNECTION WITH THIS NOTE AND ANY OBLIGATIONS RELATED THERETO.
15. Article Fourth of Second Restated Certificate of Incorporation. The
rights of Lender hereunder shall be subject to the terms and
conditions of Article Fourth of Borrower's Second Restated Certificate
of Incorporation, as the same may be amended or restated from to time,
including, without limitation, the provisions of such Article Fourth
with respect to the (i) "Restrictions of Transfer to Preserve Tax
Benefit; Exchange for Excess Stock" contained in Article Fourth A(4),
(ii) requirement for legends to be affixed to each certificate for
Common Stock contained in Article Fourth (A)(5) and (iii) preferences,
qualifications, limitations, restrictions and rights of Excess Stock
contained in Article Fourth (B).
16. Miscellaneous.
a. All payments hereunder shall be made by wire transfer of
immediately available federal funds to such account as the
holder of this note shall specify from time to time by notice
in writing to the Borrower.
b. This note may not be prepaid without the written consent of
the holder hereof. An exchange or conversion of this note in
accordance with the terms hereof shall not be deemed to be
prepayment hereof.
353737.1
23
<PAGE>
c. All notices permitted or required to be given to the holder
of this Note shall be deemed to have been duly given if
delivered personally, or by telecopy (if the sender on the
same day sends a confirming copy of such notice by a
nationally recognized overnight delivery service, charges
prepaid), if sent by certified or registered mail or
nationally recognized overnight delivery service, postage
prepaid to such holder at its last address shown on the books
of the Borrower.
d. Whenever any payment to be made hereunder shall be stated to
be due on a Saturday, Sunday or any national holiday, such
payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the
computation of payment of interest on this note.
e. If a mutilated note is surrendered to the Borrower, or if a
holder of this note claims this note has been lost, destroyed
or willfully taken and provides an indemnity bond or
agreement or other security sufficient, in the reasonable
judgment of the Borrower, to protect the Borrower and any of
its officers, directors, employees or representatives from
any loss which any of them may suffer if this note is
replaced, then the Borrower shall issue a replacement note of
like tenor and dated the date to which interest has been paid
on the mutilated, lost, destroyed or taken note.
f. The Borrower shall keep at its principal office a register in
which the Borrower shall provide for the registration of this
note and of transfers of this note. Upon surrender of this
note for transfer at the principal office of the Borrower,
duly endorsed or accompanied by a written instrument of
transfer duly executed by the holder hereof or its attorney
duly authorized in writing, the Borrower shall execute and
deliver in the name of the designated transferee a new
promissory note in a principal amount equal to the unpaid
principal amount of, and dated the date to which interest has
been paid on, this note, and otherwise in the form of this
note.
g. This note and the rights hereunder (or any portion thereof)
are not assignable or transferable by the Lender except as
follows:
i. upon the prior consent of Borrower, which consent
shall not be unreasonably withheld or delayed;
ii. upon notice to Borrower, to any affiliate of Lender
or any other party to the Note Purchase Agreement
(including Designee parties thereto); or
353737.1
24
<PAGE>
iii. the occurrence of an Event of Default.
In the case of any such assignment or transfer, the Borrower
shall, at its expense and upon written request of the holder
of this note and surrender of this note for such purpose,
issue new notes in exchange therefor in such denominations of
at least $500,000 as shall be specified by the holder of this
note, in an aggregate principal amount equal to the then
unpaid principal amount of this note and substantially in the
form of this note and dated the date immediately following
the record date for the most recent Triggering Dividend. The
Borrower may not assign or transfer its rights or obligations
(or any portion thereof) under this note.
IN WITNESS WHEREOF, the Borrower has duly executed this note as of the
day and year first above written.
FACTORY STORES OF AMERICA, INC.
By: /s/ C. Cammack Morton
----------------------------------
Name: C. Cammack Morton
Title: President and
Chief Operating Officer
353737.1
25
EXCHANGEABLE SUBORDINATED NOTE
$1,720,000 April 29, 1996
FOR VALUE RECEIVED, the undersigned, Factory Stores of
America, Inc., a Delaware corporation (the "Borrower"), hereby promises to pay
to Network Fund III, Ltd., a Cayman Island corporation (the "Lender"), in
immediately available funds, (a) the principal sum of One Million Seven Hundred
Twenty Thousand Dollars ($1,720,000), or such other amount as is then
outstanding hereunder, on or before December 31, 1996 and (b) interest thereon
as provided in section 2 hereof.
This note is issued pursuant to the terms of the Note
Purchase Agreement (as defined below), and evidences a loan made by the Lender
to the Borrower pursuant thereto.
1. Definitions. As used in this note, the following terms shall have the
following meanings.
a. "Aggregate Consideration Receivable" by the Borrower in
connection with the issuance of any shares of Common Stock
(or any rights, warrants, options or convertible or
exercisable securities entitling the holders thereof to
subscribe for or purchase any shares of Common Stock or any
stock appreciation rights entitling the holders thereof to
any interest in an increase in value, however measured, of
shares of Common Stock) means the sum of:
i. the aggregate consideration paid to the Borrower for
such shares, rights, warrants, options or
convertible or exercisable securities and
ii. the aggregate consideration or premiums stated in
such rights, warrants, options or convertible or
exercisable securities to be payable for the shares
of Common Stock covered thereby,
calculated in each case in accordance with section 5(d)(v)
hereof. In case all or any portion of the consideration to be
received by the Borrower may be paid in a form other than
cash, the value of such consideration shall be determined in
good faith by the Board of Directors or a duly authorized
committee thereof (irrespective of the accounting
360268.1
<PAGE>
treatment thereof), and described in a resolution of the Board
of Directors or such committee.
b. "Bank One" means Bank One, Dayton, National Association, a
nationalbanking association.
c. "Bank One Facility" means (i) the Credit Agreement dated
April 13, 1994, between Borrower and Bank One, as amended by
a First Amendment to Credit Agreement dated as of June 29,
1994, a Letter Agreement dated December 28, 1994 and a
Second Amendment to Credit Agreement dated January 16, 1995,
(ii) an Amended and Restated Credit Agreement dated as of
February, 1, 1995, between Borrower and Bank One, as amended
by a First Amendment to Amended and Restated Credit
Agreement dated as of March 2, 1995, (iii) a Second Amended
and Restated Credit Agreement dated as of May 1, 1995,
between Borrower and Bank One, as amended by a First
Amendment to Second Amended and Restated Credit Agreement
dated as of May 22, 1995, (iv) a Third Amended and Restated
Credit Agreement dated as of July 14, 1995, between Borrower
and Bank One (v) a Promissory Note dated January 11, 1996,
executed by Borrower in favor of Bank One in the original
principal amount of $5,000,000, (v) a Promissory Note dated
January 26, 1996, executed by Borrower in favor of Bank One
in the original principal amount of $1,000,000 and (vi) the
refinancing of such obligations pursuant to the terms and
conditions of a commitment letter dated on or about April 2,
1996 between Bank One and Borrower.
d. "Board of Directors" means the board of directors of the
Borrower.
e. "Borrower" means Factory Stores of America, Inc., a Delaware
corporation.
f. "Borrower Senior Management" shall mean C. Cammack Morton.
g. "Business Day" means any day other than a Saturday, a Sunday
or a day on which banking institutions in the City of New
York, New York are authorized or obligated by law or
executive order to close.
h. "Capital Stock" means any and all shares, rights to purchase,
warrants, options, convertible securities, participations in
or other equivalents of or interests (other than security
interests) in (however designated and whether voting or
nonvoting) corporate stock.
-2-
360268.1
<PAGE>
i. "Certificate of Designation" means the Certificate of
Designation, Preferences and Rights of the Series A Preferred
Stock, in the form attached to the Note Purchase Agreement as
exhibit 2.1(b) thereto.
j. "Change in Control Event" means any of the following events:
(i) the consummation of a merger or consolidation of the
Borrower with or into another entity.
(ii) the consummation of a sale by the Borrower of the
Borrower or all or a material portion of its assets
or business by any means.
(iii) the consummation by any Person (including the
Borrower) of a tender offer or exchange offer for
all or part of the outstanding shares of the
Borrower's Common Stock.
(iv) the payment by the Borrower of a liquidating
distribution or partial liquidating distribution to
holders of any shares of the Borrower's Common
Stock.
k. "Common Stock" means the Common Stock, par value $ 0.01 per
share, of the Borrower and, in the case of a
reclassification, recapitalization or other similar change in
such Common Stock or in the case of a consolidation or merger
of the Borrower with or into another Person, such
consideration to which a holder of a share of Common Stock
would have been entitled upon the occurrence of such event.
l. "Conversion Date" has the meaning indicated in section
5(b)(iii) hereof.
m. "Conversion Notice" has the meaning indicated in section
5(b)(i) hereof.
n. "Conversion Price" shall initially be the dollar amount
specified in section 5(a)(ii) hereof, and shall thereafter be
the dollar amount determined in accordance with the
provisions of section 5(d) hereof.
o. "Conversion Right Triggering Event" means any of the
following events:
i. for any reason, the Exchange Closing Date or the
Effective Date of the Certificate of Designation
shall not have occurred on or prior to November 1,
1996.
ii. an Event of Default shall have occurred and be
continuing.
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iii. a Change in Control Event shall have occurred.
p. "Conversion Right Triggering Event Per Share Consideration,"
with respect to any Conversion Right Triggering Event, means
the closing price of the Common Stock on the date such
Conversion Right Triggering Event occurs; provided that, in
the case of a Conversion Right Triggering Event described in
section 1(a)(o)(i) hereof, "Conversion Right Triggering Event
Per Share Consideration" shall mean the last sale price, or
the closing bid price if no sale occurred, of the Common
Stock on the New York Stock Exchange on the Conversion Date
following such Conversion Right Triggering Event.
q. "Effective Date Notice" has the meaning indicated in section
4(b) hereof.
r. "Effective Date of the Certificate of Designation" means the
date as of which the Certificate of Designation shall have
become effective in accordance with section 103 of the
General Corporation Law of the State of Delaware.
s. "Effective Purchase Price per Share" at which the Borrower
issues any shares of Common Stock (or any rights, warrants,
options or convertible or exercisable securities entitling
the holders thereof to subscribe for or purchase any shares
of Common Stock or any stock appreciation rights entitling
the holders thereof to any interest in an increase in value,
however measured, of shares of Common Stock) shall mean an
amount equal to the ratio of:
i. the Aggregate Consideration Receivable by the
Borrower in connection with the issuance of such
shares of Common Stock (or any such rights,
warrants, options, convertible or exercisable
securities or stock appreciation rights) to
ii. the number of shares of Common Stock so issued (or
issuable upon the exercise or conversion of such
rights, warrants, options or convertible or
exercisable securities or the Common Stock
equivalent, as nearly as it may be calculated, of
such stock appreciation rights).
t. "Event of Default" means an event of default or an event
which, with the lapse of time, the giving of notice or both,
would constitute an event of default under any Indebtedness
in a principal amount in excess of $1,000,000 to which the
Borrower or any of its subsidiaries is a party or would
permit the acceleration of Indebtedness in a principal amount
in
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<PAGE>
excess of $250,000 to which the Borrower or any of its
subsidiaries is a party.
u. "Exchange Closing Date" has the meaning indicated in section
4(e) hereof.
v. "Exchange Closing Notice" has the meaning indicated in section
4(c)(ii) hereof.
w. "Exchange Decline Notice" has the meaning indicated in section
4(c)(i)(2) hereof.
x. "Excluded Transaction" means the issuance of shares of
Capital Stock of the Borrower to employees or directors of
the Borrower under an employee benefit plan or arrangement
adopted by the Borrower ; provided, however, in no event
shall the aggregate amount of all such issuances exceed 10%
of the issued and outstanding shares of Capital Stock of the
Borrower on the date prior to the date of this note
(calculated on a fully-diluted basis) .
y. "Fair Market Value" of the Common Stock, as of any date,
means the average of the closing prices of Common Stock for
the 30 consecutive Trading Days next preceding such date. The
closing price for each day shall be the last sale price, or
the closing bid price if no sale occurred, of Common Stock on
the New York Stock Exchange.
z. "Indebtedness" means any obligation for money borrowed,
including lease obligations that are capitalized for
financial accounting purposes on the books of the lessee and
the Class A, Class B and Class C Collateralized Commercial
Mortgage Notes issued by FSA Finance, Inc., pursuant to the
Indenture dated as of May 22, 1995 among FSA Finance, Inc.,
Fleet Management and Recovery Corporation and Bank One,
Columbus, N.A.
aa. "Interest Payment Date" has the meaning indicated in section
2(a) of this note.
ab. "Lender" has the meaning indicated in the first paragraph of
this note.
ac. "Note Event of Default" means an Event of Default as defined
in section 11 of the Note Purchase Agreement.
ad. "Note Purchase Agreement" means that certain note purchase
agreement, dated as of April 2, 1996, by and among the
Borrower,
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Blackacre Bridge Capital, L.L.C., a Delaware limited
liability company, and Gildea Management Company, a Delaware
corporation.
ae. "Person" means an individual, a corporation, a partnership
(including a limited partnership and limited liability
partnership), a limited liability company, a joint venture,
an association, a joint-stock company, a trust, a business
trust, a government or any agency or any political
subdivision, any unincorporated organization, or any other
entity.
af. "Series A Preferred Stock" means the Series A Convertible
Preferred Stock, par value $25.00 per share, of the Borrower,
the designation, preferences and rights of which are set
forth in the Certificate of Designation.
ag. "Trading Day" means any day on which the New York Stock
Exchange is open for business.
ah. "Triggering Dividend" has the meaning indicated in section
2(a) of this note.
2. Interest.
a. Interest shall be payable on this note in immediately
available funds on each date (an "Interest Payment Date") on
which any dividend or distribution (the "Triggering
Dividend") is paid on the Common Stock, provided that:
i. such Interest Payment Date occurs on or after the
date of this note, regardless of whether this note
is outstanding on such Interest Payment Date, and
ii. the record date for such dividend or distribution
occurs on or prior to the date that the principal
amount of this note has been paid in full.
b. Interest payable with respect to this Note on any Interest
Payment Date shall represent interest accrued on this note
for the period ending on the record date for the Triggering
Dividend relating to such interest payment and beginning on
the date hereof, in the case of interest payable on the first
Interest Payment Date, and beginning on the date after the
record date relating to the dividend or distribution on the
Common Stock immediately preceding the Triggering Dividend,
in the case of each successive Interest Payment Date.
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c. The amount of interest payable on this note on the first
Interest Payment Date shall be equal to interest accrued
hereon at a rate of 11.11% per annum for the period from date
hereof to and including the record date for the Triggering
Dividend payable on such initial Interest Payment Date.
d. The amount of interest payable on this note on each subsequent
Interest Payment Date shall be equal to the product of:
i. the aggregate number of shares of Series A Preferred
Stock issuable on exchange of this note pursuant to
section 4(a) hereof, based on the outstanding
principal amount of this note on the close of
business on the record date for such Triggering
Dividend,
ii. the number of shares of Common Stock issuable on
conversion on the record date for such Triggering
Dividend (or that would be issuable on conversion on
such record date if the Preferred Stock were
outstanding on that date) of a single share of
Series A Preferred Stock, and
iii. the amount of the Triggering Dividend per share of
Common Stock.
3. Subordination. The indebtedness evidenced by this note shall be
subordinate and junior in right of payment to all existing and future
senior Indebtedness of the Borrower for borrowed money, including
without limitation Indebtedness arising under the Bank One Facility,
or any refinancing thereof, in the event of any liquidation,
dissolution or winding-up of the affairs of Borrower, either voluntary
or involuntary.
4. Exchange.
a. This note shall be mandatorily exchanged for shares of Series
A Preferred Stock at the rate of $25 principal amount of this
note for each share of Series A Preferred Stock, on the terms
and subject to the conditions specified in this section 4.
b. Promptly after the Effective Date of the Certificate of
Designation, the Borrower shall give written notice (the
"Effective Date Notice") to the Lender, which notice shall:
i. certify that the Certificate of Designation has
become effective in accordance with section 103 of
the General Corporation Law of the State of
Delaware;
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<PAGE>
ii. state that the Borrower is prepared to issue to the
Lender or its designee or designees the shares of
Series A Preferred Stock issuable on exchange of
this note in accordance with this section 4; and
iii. be accompanied by a certificate of the President or
Chief Financial Officer of the Borrower either:
(1) stating that the conditions to the
mandatory exchange of this note for shares
of Series A Preferred Stock set forth in
section 4(f) hereof have been satisfied, or
(2) identifying in reasonable detail the
reasons why and in what manner the
conditions to the mandatory exchange of
this note for shares of Series A Preferred
Stock set forth in section 4(f) hereof have
not been satisfied.
c. The Lender shall, within 10 Business Days of receipt of the
Effective Date Notice by the Lender,
i. if such Effective Date Notice is accompanied by a
certificate described in section 4(b)(iii)(2)
hereof:
(1) give written notice to the Borrower stating
that the Lender intends to exchange this
note for shares of Series A Preferred
Stock, notwithstanding the matters referred
in such certificate, in which event section
4(c)(ii) hereof shall apply; or
(2) give written notice (the "Exchange Decline
Notice") to the Borrower stating that the
Lender does not intend to exchange this
note for shares of Series A Preferred
Stock, in which event the Borrower shall
have no further obligation to provide the
Lender with an opportunity to exchange this
note for shares of Series A Preferred Stock
and the Lender shall have no further
obligation to exchange this note for shares
of Series A Preferred Stock.
ii. if such Effective Date Notice is accompanied by a
certificate described in section 4(b)(iii)(1) hereof
and not section 4(b)(iii)(2) hereof, or if the
Lender shall have given the notice specified in
section 4(c)(i)(1) hereof, give written notice (the
"Exchange Closing Notice") to the Borrower setting
forth:
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<PAGE>
(1) the time, date (which shall be not more
than 20 Business Days from the date of
receipt of the Effective Date Notice by the
Lender) and place of the exchange of this
note for shares of Series A Preferred Stock
in accordance with this section 4, and
(2) the name or names in which the certificate
or certificates representing the shares of
Series A Preferred Stock to be issued on
exchange of this note should be registered
and the number of shares to be represented
by such certificate or certificates.
d. On the time and date and at the place specified in the
Exchange Closing Notice (unless the Lender and the Borrower
shall agree in writing at another time, date and/or place, in
which event at such other time, date and/or place):
i. the Lender shall deliver to the Borrower this note
marked paid in full, against delivery to the Lender
by the Borrower of the items specified in section
4(d)(ii) hereof; and
ii. the Borrower shall deliver to the Lender:
(1) a stock certificate or certificates
representing the shares of Series A
Preferred Stock issuable on exchange of
this note in accordance with this section 4
registered in the name or names and
representing the number of shares specified
in the Exchange Closing Notice, and
(2) a certificate of the president or any vice
president of the Borrower, dated the
Exchange Closing Date, certifying that the
conditions set forth in section 4(f) hereof
have been complied with,
against delivery to the Borrower by the Lender of
this note marked cancelled and paid in full.
e. This note shall be deemed to have been exchanged for shares
of Series A Preferred Stock and to have been paid in full and
cancelled as of the date of delivery of the items specified
in sections 4(d)(i) and (ii) hereof, which date is herein
referred to as the "Exchange Closing Date."
f. The mandatory exchange of this note for shares of Series A
Preferred Stock in accordance with this section 4 shall be
subject to satisfaction
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<PAGE>
(or waiver in the sole discretion of the Lender) of each of
the following conditions on or prior to the Exchange Closing
Date:
i. there shall have not occurred and be continuing an
Event of Default or an event which, with the lapse
of time or notice or both, would constitute an Event
of Default; and
ii. Borrower Senior Management incumbent with the
Borrower on March 1, 1996 shall be incumbent with
the Borrower on the Exchange Closing Date with
substantially the same duties and responsibilities
as on March 1, 1996.
g. If:
i. the Borrower delivers an Effective Date Notice
complying in all regards with the requirements of
sections 4(b)(i), (ii) and (iii) hereof and such
Effective Date Notice is not accompanied by a
certificate described in section 4(b)(iii)(2)
hereof, and
ii. the Lender fails timely to deliver either an
Exchange Closing Notice or an Exchange Decline
Notice,
then the Borrower may deliver to the Lender, as specified in
section 16(c) hereof, the items specified in section 4(d)(ii)
hereof and, upon such delivery, this note shall be deemed to
have exchanged for shares of Series A Preferred Stock and to
have been paid in full and cancelled as of the date of
delivery by the Borrower to the Lender of such items.
5. Conversion.
a. Right of conversion.
i. From and after the occurrence of a Conversion Right
Triggering Event, this note shall be convertible at
the option of the holder thereof, except to the
extent of any limitations imposed under Policy
312.03(c) of the New York Stock Exchange, in whole
or in part, into a number of fully paid and
non-assessable shares of Common Stock equal to the
ratio of:
(1) the principal amount of this note or the
portion thereof to be converted to
(2) the Conversion Price in effect on the
Conversion Date,
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<PAGE>
or into such additional or other securities, cash or
property and at such other rates as required in
accordance with the provisions of this section 5, at
any time and from time to time.
ii. For purposes of this note, the "Conversion Price"
shall initially be the lesser of:
(1) $9.00 per share and
(2) the average of the daily closing prices
(last close price, regular way) of the
Common Stock on the New York Stock Exchange
for the 30-day period ending May 1, 1996,
as such Conversion Price may be adjusted
from time to time in accordance with the
provisions of this section 5.
iii. Not later than May 15, 1996, the Borrower shall
provide written notice to the holder of this note at
the address indicated herein setting forth the
Conversion Price as of the date of such notice.
iv. The Borrower will give the Lender written notice of
any Change in Control Event (other than an event
described in section 1(j)(iii) hereof) no later than
10 Business Days in advance of such Change in
Control Event and will give the Lender written
notice of any Change in Control Event described in
section 1(j)(iii) hereof promptly after the Borrower
becomes aware of such event.
v. If, at the time of receipt by the Borrower from the
Lender of a Conversion Notice, the Borrower is
precluded by Policy 312.03(c) of the New York Stock
Exchange or any other law, rule or regulation to
which Borrower is subject from converting this note
in whole or in part into shares of Common Stock on
the terms and subject to the conditions set forth in
this section 5, then the portion of the principal
amount of this note not so precluded from being
converted shall be converted as provided in this
section 5 and the maturity date of the balance of
the principal amount of this note shall be extended
to March 31, 1997 and the Borrower will continue to
pay interest thereon as provided in section 2
hereof.
vi. If the maturity date of a portion of this note is
extended as provided in section 5(a)(v) hereof, on
March 31, 1997 the Borrower will pay to the Lender,
in full satisfaction of this note, an amount in cash
(or other consideration acceptable to the Lender
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<PAGE>
in the Lender's sole discretion having a value)
equal to the sum of:
(1) the principal amount of this note then
outstanding,
(2) the product of:
(a) the ratio of
(i) the principal amount of
this note then outstanding
on the date of the
Conversion Notice referred
to in section 5(a)(v)
hereof to
(ii) the Conversion Price in
effect on the date of the
Conversion Notice referred
to in section 5(a)(v)
hereof, and
(b) the difference between:
(i) the Conversion Right
Triggering Event Per Share
Consideration and
(ii) the Conversion Price in
effect on the date of the
Conversion Notice referred
to in section 5(a)(v)
hereof; and
(3) interest on this note, at an annual rate
equal to the ratio of (i) four times the
most recent quarterly dividend per share
paid or payable on the Common Stock to (ii)
the Conversion Price in effect on March 31,
1997, for the period beginning on the
record date for the Triggering Dividend
relating to the most recent dividend paid
or payable on the Common Stock and ending
on March 31, 1997.
vii. Interest on any overdue amounts payable under
section 5(a)(vi) hereof shall accrue at the default
rate of 15% per annum and shall be payable to the
extent accrued on the first date of each month.
viii. If the maturity date of a portion of this note is
extended as provided in section 5(a)(v) hereof,
nothing in this note shall preclude the Lender from
converting this note or any portion
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<PAGE>
thereof outstanding at any time on or prior to the
date the principal amount of this note is paid in
full.
b. Conversion Procedures.
i. In order to exercise the conversion privilege, the
holder of this note shall surrender this note to the
Borrower and shall give written notice to the
Borrower ("Conversion Notice") that the holder of
this note elects to convert this note, or the
portion thereof specified in said notice, into
shares of Common Stock. The Conversion Notice shall
also state the name or names (with address) in which
the certificate or certificates for shares of Common
Stock which shall be issuable upon such conversion
shall be issued. This note shall, upon surrender for
conversion, unless the shares issuable on conversion
are to be issued in the same name as the
registration of this note, be duly endorsed by, or
be accompanied by instruments of transfer in form
satisfactory to the Borrower duly executed by, the
holder of this note or its duly authorized attorney.
ii. Within ten Business Days after receipt of a
Conversion Notice and surrender of this note, the
Borrower shall issue and deliver to the holder of
this note (or upon the written order of the holder
of this note) a certificate or certificates for the
number of full shares of Common Stock issuable upon
the conversion of this note or portion thereof in
accordance with the provisions of this section 5,
and cash in respect of any fractional shares of
Common Stock issuable upon such conversion, as
provided in section 5(c) hereof. If less than the
total outstanding principal amount of this note is
to be converted, the Borrower shall issue, execute
and deliver or cause to be issued, executed and
delivered to (or upon the written order of) the
holder of this note, without charge to the holder of
this note, a new note, in the form hereof, for a
principal amount equal to the unconverted portion of
this note.
iii. Each conversion shall be deemed to have been
effected on the date (the "Conversion Date") on
which this note shall have been surrendered to the
Borrower and a Conversion Notice with respect to
such note shall have been received by the Borrower,
as described above. Any Person in whose name any
certificate or certificates for shares of Common
Stock shall be issuable upon conversion shall be
deemed to have become the holder of record of the
shares represented thereby on the Conversion Date;
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<PAGE>
provided, however, that surrender of this note on
any date when the stock transfer books of the
Corporation shall be closed shall constitute the
Person in whose name the certificates are to be
issued as the record holder thereof for all purposes
on the next succeeding day on which such stock
transfer books are open, but such conversion shall
be at the Conversion Price in effect on the date on
which such certificate or certificates shall have
been surrendered.
iv. Except as otherwise provided in this section 5, no
payment or adjustment will be made for dividends or
other distributions with a record date prior to the
Conversion Date with respect to any shares of Common
Stock issuable upon conversion of this note as
provided herein.
c. Cash Payments in Lieu of Fractional Shares. No fractional
shares of Common Stock or scrip representing fractional
shares shall be issued upon conversion of this note. If any
fractional shares of Common Stock would, but for this section
5(c), be issuable upon the conversion of this note, the
Borrower shall promptly after the Conversion Date make a
payment therefor in cash equal to the Fair Market Value of
such fractional share of Common Stock on the first Business
Day immediately preceding the Conversion Date.
d. Adjustment of Conversion Price. The Conversion Price shall be
adjusted from time to time by the Borrower as follows:
i. if the Borrower shall at any time after March 1, 1996:
(1) declare a dividend or distribution on the
Common Stock payable in shares of Common
Stock not otherwise payable to a holder of
this note as interest pursuant to section 2
hereof,
(2) subdivide or reclassify outstanding shares
of Common Stock into a greater number of
shares,
(3) combine shares of outstanding Common Stock
into a smaller number of shares,
(4) declare a dividend or distribution on the
Common Stock in shares of any series of its
Capital Stock other than Common Stock, or
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<PAGE>
(5) issue by reclassification of any shares of
its outstanding Common Stock, shares of any
series of its Capital Stock or any
obligation of the Corporation or other
property,
then the conversion privilege and the Conversion
Price in effect immediately prior thereto shall be
adjusted so that the holder of this note shall be
entitled to receive the number of shares of Common
Stock or other Capital Stock and/or property of the
Borrower which the holder of this note would have
owned or would have been entitled to receive after
the happening of any of the events described above
had this note been converted immediately prior to
the happening of such event. Such adjustment shall
become effective immediately after the applicable
record date in the case of a dividend or
distribution and shall become effective immediately
after the effective date in the case of a
subdivision, combination or reclassification. Such
adjustments shall be made successively whenever any
event referred to above shall occur.
ii. If the Borrower shall at any time after March 1,
1996 issue any shares of Common Stock (or any
rights, warrants, options or convertible or
exercisable securities entitling the holders thereof
to subscribe for or purchase any shares of Common
Stock or any stock appreciation rights entitling the
holders thereof to any interest in an increase in
value, however measured, of shares of Common Stock)
for an Effective Purchase Price per Share less than
the Conversion Price in effect immediately prior to
the date of such issuance, then the Conversion Price
shall be adjusted to equal the ratio of:
(1) the sum of:
(a) the product of:
(i) the number of shares of
Common Stock outstanding
immediately prior to such
issuance and
(ii) the Conversion Price in
effect immediately prior
to such issuance and
(b) the Aggregate Consideration
Receivable by the Borrower in
connection with such issuance to
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<PAGE>
(2) the sum of:
(a) the number of shares of Common
Stock outstanding immediately prior
to such issuance and
(b) the number of additional shares of
Common Stock to be so issued
(including the number of shares
underlying such rights, warrants,
options or convertible or
exercisable securities).
If the Borrower shall at any time after March 1,
1996 issue any shares of Common Stock (or any
rights, warrants, options or convertible or
exercisable securities entitling the holders thereof
to subscribe for or purchase any shares of Common
Stock or any stock appreciation rights entitling the
holders thereof to any interest in an increase in
value, however measured, of shares of Common Stock)
in an Excluded Transaction the Conversion Price in
effect immediately prior to the date of such
issuance shall not be adjusted as the result of such
Excluded Transaction.
Such adjustment shall be made successively whenever
any shares, rights, warrants, options, convertible
or exercisable securities or stock appreciation
rights are issued at an Effective Purchase Price per
Share that is less than the Conversion Price in
effect on the date of such issuance. To the extent
that any such rights, warrants, options, convertible
or exercisable securities or stock appreciation
rights expire without having been converted or
exercised, the Conversion Price then in effect shall
be readjusted to the Conversion Price which then
would be in effect if such rights, options,
warrants, convertible or exercisable securities or
stock appreciation rights had not been issued, but
such readjustment shall not affect the number of
shares of Common Stock or other shares of Capital
Stock delivered upon any conversion prior to the
date such readjustment is made.
iii. If the Borrower shall at any time after March 1,
1996 distribute to all holders of its Common Stock
any of its assets or debt securities, or rights,
options, warrants or convertible or exercisable
securities of the Borrower (including securities
issued for cash, but excluding distributions of
Capital Stock referred to in section 5(d)(i)
hereof), then in each such case, the Conversion
Price shall be adjusted to equal the Conversion
Price in effect immediately prior to such
distribution less an amount equal to the then fair
market value (as reasonably determined by the Board
of
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<PAGE>
Directors, in good faith and as described in a
resolution of the Board of Directors) of the portion
of the assets or debt securities of the Borrower so
distributed or of such rights, options, warrants or
convertible or exchangeable securities applicable to
one share of Common Stock. Such adjustment shall
become effective immediately after the record date
for the determination of shares entitled to receive
such distribution. Such adjustment shall be made
successively whenever any event listed above shall
occur. Notwithstanding the foregoing, no adjustment
of the Conversion Price shall be made upon the
distribution to holders of Common Stock of such
rights, options, warrants, convertible securities,
assets or debt securities if the plan or arrangement
under which such rights, options, warrants,
convertible securities, assets or debt securities
are issued provides for their issuance to the holder
of this note in the same pro rata amounts upon
conversion thereof.
iv. In any case in which this section 5(d) provides that
an adjustment shall become effective immediately
after a record date for an event, the Borrower may
defer until the occurrence of such event:
(1) issuing to the Holder of any shares of
Series A Preferred Stock converted after
such record date and before the occurrence
of such event the additional shares of
Common Stock issuable upon such conversion
by reason of the adjustment required by
such event over and above the Common Stock
issuable upon such conversion before giving
effect to such adjustment, and
(2) paying to such Holder any amount in cash in
lieu of any fractional share of Common
Stock pursuant to section 5(c).
v. For purposes of any computations of Aggregate
Consideration Receivable or other consideration
pursuant to this section 5, the following shall
apply:
(1) in the case of the issuance of shares of
Capital Stock for cash, the consideration
shall be the amount of such cash, provided
that in no case shall any deduction be made
for any commissions, discounts or other
expenses incurred by the Borrower for any
underwriting of the issue or otherwise in
connection therewith; and
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<PAGE>
(2) in the case of the issuance of shares of
Capital Stock for a consideration in whole
or in part other than cash, the
consideration other than cash shall be
deemed to be the fair market value thereof
as reasonably determined in good faith by
the Board of Directors or a duly authorized
committee thereof (irrespective of the
accounting treatment thereof), and
described in a resolution of the Board of
Directors or such committee.
vi. If after an adjustment the holder of this note may,
upon conversion of such note, receive shares of two
or more classes of Capital Stock of the Borrower,
the Borrower shall determine on a fair basis the
allocation of the adjusted Conversion Price between
the classes of Capital Stock. After such allocation,
the conversion privilege and the Conversion Price of
each class of Capital Stock shall thereafter be
subject to adjustment on terms comparable to those
applicable to Common Stock in this section 5.
vii. In no event shall an adjustment pursuant to this
section 5 reduce the Conversion Price below the then
par value, if any, of the shares of Common Stock
issuable upon conversion of this note.
viii. No adjustment in the Conversion Price shall be
required unless such adjustment would require an
increase or decrease of at least one percent (1%) in
the Conversion Price then in effect.
e. Effect of Reclassification, Consolidation, Merger or Sale. If
this note is outstanding and there shall occur:
i. any reclassification or change of outstanding shares
of Common Stock issuable upon conversion of this
note (other than a change in par value, or from par
value to no par value, or from no par value to par
value, or as a result of a subdivision or
combination),
ii. any consolidation or merger of the Borrower with or
into another Person shall be effected as a result of
which holders of Common Stock issuable upon
conversion of this note shall be entitled to receive
stock, securities or other property or assets
(including cash) with respect to or in exchange for
such Common Stock, or
iii. any sale or conveyance of the properties and assets
of the Borrower as, or substantially as, an entirety
to any other Person,
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<PAGE>
this note shall be convertible into the kind and amount of
shares of stock and other securities or property or assets
(including cash) receivable upon such reclassification,
change, consolidation, merger, sale or conveyance by a holder
of the number of shares of Common Stock issuable upon
conversion of this note immediately prior to such
reclassification, change, consolidation, merger, sale or
conveyance. In any such case, appropriate adjustments which
shall be as nearly equivalent as may be practicable to the
adjustments provided for in this section 5.
If this section 5(e) applies with respect to a transaction,
section 5(d) hereof shall not apply with respect to that
transaction. The above provisions of this section 5(e) shall
similarly apply to successive reclassifications,
consolidations, mergers and sales.
f. Taxes on Shares Issued. The issuance of stock certificates
upon conversion of this note shall be made without charge to
the converting the holder of this note for any tax in respect
of the issuance thereof.
g. Reservation of Shares; Shares to be Fully Paid; Compliance
with Governmental Requirements. The Borrower shall reserve,
free from preemptive rights, out of its authorized but
unissued shares, or out of shares held in its treasury,
sufficient shares of Common Stock to provide for the
conversion of this note from time to time outstanding. The
Borrower covenants that all shares of Common Stock which may
be issued upon conversion of this note will upon issuance be
fully paid and nonassessable by the Borrower and free from
all taxes, liens and charges with respect to the issuance
thereof.
h. Notice to Holders Prior to Certain Actions.
i. If:
(1) the Borrower shall take any action that
would require an adjustment in the
Conversion Price pursuant to section 5(d)
hereof; or
(2) any event described in section 5(e) hereof
shall occur; or
(3) the voluntary or involuntary dissolution,
liquidation or winding-up of the Borrower
shall occur;
the Borrower shall cause notice of such proposed
action or event to be mailed to the holder of this
note, as promptly as possible
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<PAGE>
but in any event no later than the later of (x) the
date 15 days prior to the record date for such
proposed action or the effective date of such event
or (y) the date on which the Borrower first publicly
announces such proposed action or event.
ii. In any event, such notice shall specify:
(1) the date on which a record is to be taken
for the purpose of such action, or, if a
record is not to be taken, the date as of
which the holders of record of Common Stock
are to be determined, or
(2) the date on which such proposed event is
expected to become effective, and the date
as of which it is expected that holders of
record of Common Stock shall be entitled to
exchange their Common Stock for securities
or other property deliverable upon such
event.
6. Note Events of Default. Upon the occurrence of a Note Event of
Default, the unpaid principal amount of this note, together with all
interest accrued and unpaid thereon, shall become, or may be declared
to be, immediately due and payable, upon the conditions and with the
effect provided in section 12 of the Note Purchase Agreement.
7. LIMITATION ON INTEREST. NOTWITHSTANDING ANY OTHER PROVISION HEREOF, IN
NO EVENT SHALL THE AMOUNT OR RATE OF INTEREST (INCLUDING TO THE EXTENT
APPLICABLE ANY DEFAULT RATE INTEREST OR LATE PAYMENT CHARGE) PAYABLE,
CONTRACTED FOR, CHARGED OR RECEIVED UNDER OR IN CONNECTION WITH THIS
NOTE, FROM TIME TO TIME OR FOR WHATEVER REASON, EXCEED THE MAXIMUM
RATE OR AMOUNT, IF ANY, SPECIFIED BY APPLICABLE LAW. If from any
circumstance whatsoever fulfillment of any provision hereof or other
documents at the time performance of such provision shall be due shall
involve transcending the limit of such validity, and if from any such
circumstance the Lender shall ever receive an amount deemed interest
by applicable law which shall exceed the highest lawful rate, such
amount which would be excessive interest shall be applied to the
reduction of the principal amount owing hereunder or on account of any
other principal indebtedness of the undersigned to the Lender, and not
to payment of interest or if such excessive interest exceeds the
unpaid balance of principal hereof and such other indebtedness, the
excess shall be refunded to the Borrower. All sums paid or agreed to
be paid by the Borrower for the use, forbearance or detention of the
indebtedness of the Borrower to the Lender shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full
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<PAGE>
term of such indebtedness until payment in full so that the actual
rate of interest on account of such indebtedness is uniform through
the term hereof. The terms and provisions of this section 7 shall
control and supersede every other provision of all agreements between
the Borrower and the Lender and all obligations of the Borrower to the
Lender.
8. Enforceability. The Borrower acknowledges that this note and the
Borrower's obligations under this note are and shall at all times
continue to be absolute and unconditional in all respects, and shall
at all times be a valid, legally binding obligation of the Borrower
enforceable against Borrower in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights or general principles of equity. This
note and the Note Purchase Agreement set forth the entire agreement
and understanding of the Lender and the Borrower with respect to the
Transactions contemplated hereby and thereby, and the Borrower
absolutely, unconditionally and irrevocably waives any and all right
to assert any setoff, counterclaim or crossclaim of any nature
whatsoever with respect to this note or the obligations of the
Borrower hereunder in any action or proceeding brought by the Lender
to collect amounts owing under this note, or any portion thereof;
provided, however, that the foregoing shall not be deemed a waiver of
the Borrower's right to assert any compulsory counterclaim maintained
in a court of the United States, or of the State of New York if such
counterclaim is compelled under local law or rule of procedure, nor
shall the foregoing be deemed a waiver of the Borrower's right to
assert any claim which would constitute a defense, setoff,
counterclaim or crossclaim of any nature whatsoever against the Lender
in any separate action or proceeding. The Borrower acknowledges that
no oral or other agreements, conditions, promises, understandings,
representations or warranties exist with respect to this note or with
respect to the obligations of the Borrower under this note, except
those specifically set forth in this note.
9. WAIVERS AND SPECIAL AGREEMENTS. THE BORROWER HEREBY MAKES AND
ACKNOWLEDGES THAT IT MAKES ALL OF THE WAIVERS AND SPECIAL AGREEMENTS
("WAIVERS") SET FORTH IN THIS NOTE KNOWINGLY, INTENTIONALLY,
VOLUNTARILY, WITHOUT DURESS, AND ONLY AFTER EXTENSIVE CONSIDERATION OF
THE RAMIFICATIONS OF SUCH WAIVERS WITH ITS ATTORNEY; THE BORROWER
FURTHER ACKNOWLEDGES THAT THE BORROWER UNDERSTANDS THE RIGHTS BEING
WAIVED AND THAT THE WAIVERS ARE A MATERIAL INDUCEMENT TO THE LENDER TO
MAKE THIS NOTE TO THE BORROWER; THAT THE TERMS OF THIS NOTE ARE
FAVORABLE TO THE BORROWER AND THAT THE LENDER WOULD NOT HAVE MADE THIS
NOTE ON SUCH TERMS WITHOUT SUCH WAIVERS. The Borrower and all other
parties now or hereafter liable hereon, jointly and severally, with
respect to this note:
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<PAGE>
a. acknowledge that the transaction of which this note is a part
is part of a commercial transaction,
b. waive any and all (from time to time):
i. grace, diligence, demand, presentment for payment,
protest, notice of any kind (including disclosure of
facts which materially increase risks, notice of
protest, acceptance, liability, suit, demand, or
action, dishonor, payment or nonpayment, protest,
intention to accelerate or acceleration, extension
or renewal) except as otherwise expressly required
in the Note Purchase Agreement; and
ii. agree that any delay in exercising, failure to
exercise, or non- exercise (or partial exercise),
from time to time, by the Lender of any obligation
or of any rights or remedies (or to insist upon
strict performance) in any one or more instances
shall not constitute a waiver thereof (or preclude
full exercise or insistence upon strict performance
thereof) in that or any other instance, and any
single exercise of any such right or remedies in any
one or more instances shall not preclude full
exercise in any other instance.
10. Calculations of Amounts Due. All calculations of amounts due on any
date, whether by acceleration or otherwise, will be made by the Lender
(or its agent or representative) and the Borrower agrees that all such
calculations will be conclusive and binding absent manifest error.
11. Amendments. This note may not be modified, amended, changed or
terminated orally, but only by an agreement in writing signed by the
Borrower and the Lender. No waiver of any term, covenant or provision
of this note shall be effective unless given in writing by the Lender
and, if so given by the Lender, shall only be effective in the
specific instance in which given.
12. Governing Law. This note is and shall be deemed entered into in the
State of New York and shall be governed by and construed in accordance
with the laws of the State of New York and no defense given or allowed
by the laws of any state or country shall be interposed in any action
or proceeding hereon unless such defense is either given or allowed by
the laws of the State of New York. The Borrower acknowledges and
agrees that this note is, and is intended to be, an instrument for the
payment of money only, as such phrase is used in ss.3213 of the Civil
Practice Law and Rules of the State of New York, and the Borrower has
been fully advised by its counsel of the Lender's rights and remedies
pursuant to saidss.3213.
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<PAGE>
13. Venue and Jurisdiction. The Borrower agrees to submit to the
non-exclusive personal jurisdiction in the State of New York in any
action or proceeding arising out of this note. In furtherance of such
agreement, the Borrower hereby agrees and consents that without
limiting other methods of obtaining jurisdiction, personal
jurisdiction over the Borrower in any such action or proceeding may be
obtained within or without the jurisdiction of any court located in
New York and that any process or notice of motion or other application
to any such court in connection with any such action or proceeding may
be served upon the Borrower by registered or certified mail to, or by
personal service at, the last known address of the Borrower, whether
such address be within or without the jurisdiction of any such court.
The Borrower hereby agrees that the venue of any litigation arising in
connection with the indebtedness, or in respect of any of the
obligations of the Borrower under this note, shall to the extent
permitted by law, be in New York County.
14. WAIVER OF TRIAL BY JURY. THE BORROWER HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES, AND THE LENDER, BY ITS ACCEPTANCE OF THIS
NOTE, IRREVOCABLY AND UNCONDITIONALLY WAIVES, ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LITIGATION WHATSOEVER ARISING OUT OF OR IN
CONNECTION WITH THIS NOTE AND ANY OBLIGATIONS RELATED THERETO.
15. Article Fourth of Second Restated Certificate of Incorporation. The
rights of Lender hereunder shall be subject to the terms and
conditions of Article Fourth of Borrower's Second Restated Certificate
of Incorporation, as the same may be amended or restated from to time,
including, without limitation, the provisions of such Article Fourth
with respect to the (i) "Restrictions of Transfer to Preserve Tax
Benefit; Exchange for Excess Stock" contained in Article Fourth A(4),
(ii) requirement for legends to be affixed to each certificate for
Common Stock contained in Article Fourth (A)(5) and (iii) preferences,
qualifications, limitations, restrictions and rights of Excess Stock
contained in Article Fourth (B).
16. Miscellaneous.
a. All payments hereunder shall be made by wire transfer of
immediately available federal funds to such account as the
holder of this note shall specify from time to time by notice
in writing to the Borrower.
b. This note may not be prepaid without the written consent of
the holder hereof. An exchange or conversion of this note in
accordance with the terms hereof shall not be deemed to be
prepayment hereof.
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<PAGE>
c. All notices permitted or required to be given to the holder
of this Note shall be deemed to have been duly given if
delivered personally, or by telecopy (if the sender on the
same day sends a confirming copy of such notice by a
nationally recognized overnight delivery service, charges
prepaid), if sent by certified or registered mail or
nationally recognized overnight delivery service, postage
prepaid to such holder at its last address shown on the books
of the Borrower.
d. Whenever any payment to be made hereunder shall be stated to
be due on a Saturday, Sunday or any national holiday, such
payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the
computation of payment of interest on this note.
e. If a mutilated note is surrendered to the Borrower, or if a
holder of this note claims this note has been lost, destroyed
or willfully taken and provides an indemnity bond or
agreement or other security sufficient, in the reasonable
judgment of the Borrower, to protect the Borrower and any of
its officers, directors, employees or representatives from
any loss which any of them may suffer if this note is
replaced, then the Borrower shall issue a replacement note of
like tenor and dated the date to which interest has been paid
on the mutilated, lost, destroyed or taken note.
f. The Borrower shall keep at its principal office a register in
which the Borrower shall provide for the registration of this
note and of transfers of this note. Upon surrender of this
note for transfer at the principal office of the Borrower,
duly endorsed or accompanied by a written instrument of
transfer duly executed by the holder hereof or its attorney
duly authorized in writing, the Borrower shall execute and
deliver in the name of the designated transferee a new
promissory note in a principal amount equal to the unpaid
principal amount of, and dated the date to which interest has
been paid on, this note, and otherwise in the form of this
note.
g. This note and the rights hereunder (or any portion thereof)
are not assignable or transferable by the Lender except as
follows:
i. upon the prior consent of Borrower, which consent
shall not be unreasonably withheld or delayed;
ii. upon notice to Borrower, to any affiliate of Lender
or any other party to the Note Purchase Agreement
(including Designee parties thereto); or
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<PAGE>
iii. the occurrence of an Event of Default.
In the case of any such assignment or transfer, the Borrower
shall, at its expense and upon written request of the holder
of this note and surrender of this note for such purpose,
issue a new note in exchange therefor in a principal amount
equal to the then unpaid principal amount of this note and
substantially in the form of this note and dated the date
immediately following the record date for the most recent
Triggering Dividend. The Borrower may not assign or transfer
its rights or obligations (or any portion thereof) under this
note.
IN WITNESS WHEREOF, the Borrower has duly executed this note as of the
day and year first above written.
FACTORY STORES OF AMERICA, INC.
By: /s/ C. Cammack Morton
--------------------------------
Name: C. Cammack Morton
Title: President and Chief
Operating Officer
-25-
360268.1
EXCHANGEABLE SUBORDINATED NOTE
$1,000,000 April 3, 1996
FOR VALUE RECEIVED, the undersigned, Factory Stores of
America, Inc., a Delaware corporation (the "Borrower"), hereby promises to pay
to John W. Gildea, (the "Lender"), in immediately available funds, (a) the
principal sum of One Million dollars ($1,000,000), or such other amount as is
then outstanding hereunder, on or before December 31, 1996 and (b) interest
thereon as provided in section 2 hereof.
This note is issued pursuant to the terms of the Note
Purchase Agreement (as defined below), and evidences a loan made by the Lender
to the Borrower pursuant thereto.
1. Definitions. As used in this note, the following terms shall have the
following meanings.
a. "Aggregate Consideration Receivable" by the Borrower in
connection with the issuance of any shares of Common Stock
(or any rights, warrants, options or convertible or
exercisable securities entitling the holders thereof to
subscribe for or purchase any shares of Common Stock or any
stock appreciation rights entitling the holders thereof to
any interest in an increase in value, however measured, of
shares of Common Stock) means the sum of:
i. the aggregate consideration paid to the Borrower for
such shares, rights, warrants, options or
convertible or exercisable securities and
ii. the aggregate consideration or premiums stated in
such rights, warrants, options or convertible or
exercisable securities to be payable for the shares
of Common Stock covered thereby,
calculated in each case in accordance with section 5(d)(v)
hereof. In case all or any portion of the consideration to be
received by the Borrower may be paid in a form other than
cash, the value of such consideration shall be determined in
good faith by the Board of Directors or a duly authorized
committee thereof (irrespective of the accounting
353737.1
<PAGE>
treatment thereof), and described in a resolution of the
Board of Directors or such committee.
b. "Bank One" means Bank One, Dayton, National Association, a
national banking association.
c. "Bank One Facility" means (i) the Credit Agreement dated
April 13, 1994, between Borrower and Bank One, as amended by
a First Amendment to Credit Agreement dated as of June 29,
1994, a Letter Agreement dated December 28, 1994 and a Second
Amendment to Credit Agreement dated January 16, 1995, (ii) an
Amended and Restated Credit Agreement dated as of February,
1, 1995, between Borrower and Bank One, as amended by a First
Amendment to Amended and Restated Credit Agreement dated as
of March 2, 1995, (iii) a Second Amended and Restated Credit
Agreement dated as of May 1, 1995, between Borrower and Bank
One, as amended by a First Amendment to Second Amended and
Restated Credit Agreement dated as of May 22, 1995, (iv) a
Third Amended and Restated Credit Agreement dated as of July
14, 1995, between Borrower and Bank One (v) a Promissory Note
dated January 11, 1996, executed by Borrower in favor of Bank
One in the original principal amount of $5,000,000, (v) a
Promissory Note dated January 26, 1996, executed by Borrower
in favor of Bank One in the original principal amount of
$1,000,000 and (vi) the refinancing of such obligations
pursuant to the terms and conditions of a commitment letter
dated on or about April 2, 1996 between Bank One and
Borrower.
d. "Board of Directors" means the board of directors of the
Borrower.
e. "Borrower" means Factory Stores of America, Inc., a Delaware
corporation.
f. "Borrower Senior Management" shall mean C. Cammack Morton.
g. "Business Day" means any day other than a Saturday, a Sunday
or a day on which banking institutions in the City of New
York, New York are authorized or obligated by law or
executive order to close.
h. "Capital Stock" means any and all shares, rights to purchase,
warrants, options, convertible securities, participations in
or other equivalents of or interests (other than security
interests) in (however designated and whether voting or
nonvoting) corporate stock.
353737.1
2
<PAGE>
i. "Certificate of Designation" means the Certificate of
Designation, Preferences and Rights of the Series A Preferred
Stock, in the form attached to the Note Purchase Agreement as
exhibit 2.1(b) thereto.
j. "Change in Control Event" means any of the following events:
(i) the consummation of a merger or consolidation of the
Borrower with or into another entity.
(ii) the consummation of a sale by the Borrower of the
Borrower or all or a material portion of its assets
or business by any means.
(iii) the consummation by any Person (including the
Borrower) of a tender offer or exchange offer for
all or part of the outstanding shares of the
Borrower's Common Stock.
(iv) the payment by the Borrower of a liquidating
distribution or partial liquidating distribution to
holders of any shares of the Borrower's Common
Stock.
k. "Common Stock" means the Common Stock, par value $ 0.01 per
share, of the Borrower and, in the case of a
reclassification, recapitalization or other similar change in
such Common Stock or in the case of a consolidation or merger
of the Borrower with or into another Person, such
consideration to which a holder of a share of Common Stock
would have been entitled upon the occurrence of such event.
l. "Conversion Date" has the meaning indicated in section
5(b)(iii) hereof.
m. "Conversion Notice" has the meaning indicated in section
5(b)(i) hereof.
n. "Conversion Price" shall initially be the dollar amount
specified in section 5(a)(ii) hereof, and shall thereafter be
the dollar amount determined in accordance with the
provisions of section 5(d) hereof.
o. "Conversion Right Triggering Event" means any of the
following events:
i. for any reason, the Exchange Closing Date or the
Effective Date of the Certificate of Designation
shall not have occurred on or prior to November 1,
1996.
ii. an Event of Default shall have occurred and be
continuing.
353737.1
3
<PAGE>
iii. a Change in Control Event shall have occurred.
p. "Conversion Right Triggering Event Per Share Consideration,"
with respect to any Conversion Right Triggering Event, means
the closing price of the Common Stock on the date such
Conversion Right Triggering Event occurs; provided that, in
the case of a Conversion Right Triggering Event described in
section 1(a)(o)(i) hereof, "Conversion Right Triggering Event
Per Share Consideration" shall mean the last sale price, or
the closing bid price if no sale occurred, of the Common
Stock on the New York Stock Exchange on the Conversion Date
following such Conversion Right Triggering Event.
q. "Effective Date Notice" has the meaning indicated in section
4(b) hereof.
r. "Effective Date of the Certificate of Designation" means the
date as of which the Certificate of Designation shall have
become effective in accordance with section 103 of the
General Corporation Law of the State of Delaware.
s. "Effective Purchase Price per Share" at which the Borrower
issues any shares of Common Stock (or any rights, warrants,
options or convertible or exercisable securities entitling
the holders thereof to subscribe for or purchase any shares
of Common Stock or any stock appreciation rights entitling
the holders thereof to any interest in an increase in value,
however measured, of shares of Common Stock) shall mean an
amount equal to the ratio of:
i. the Aggregate Consideration Receivable by the
Borrower in connection with the issuance of such
shares of Common Stock (or any such rights,
warrants, options, convertible or exercisable
securities or stock appreciation rights) to
ii. the number of shares of Common Stock so issued (or
issuable upon the exercise or conversion of such
rights, warrants, options or convertible or
exercisable securities or the Common Stock
equivalent, as nearly as it may be calculated, of
such stock appreciation rights).
t. "Event of Default" means an event of default or an event
which, with the lapse of time, the giving of notice or both,
would constitute an event of default under any Indebtedness
in a principal amount in excess of $1,000,000 to which the
Borrower or any of its subsidiaries is a party or would
permit the acceleration of Indebtedness in a principal amount
in
C/M: 11901.0003 353737.1
4
<PAGE>
excess of $250,000 to which the Borrower or any of its
subsidiaries is a party.
u. "Exchange Closing Date" has the meaning indicated in section
4(e) hereof.
v. "Exchange Closing Notice" has the meaning indicated in
section 4(c)(ii) hereof.
w. "Exchange Decline Notice" has the meaning indicated in
section 4(c)(i)(2) hereof.
x. "Excluded Transaction" means the issuance of shares of
Capital Stock of the Borrower to employees or directors of
the Borrower under an employee benefit plan or arrangement
adopted by the Borrower ; provided, however, in no event
shall the aggregate amount of all such issuances exceed 10%
of the issued and outstanding shares of Capital Stock of the
Borrower on the date prior to the date of this note
(calculated on a fully-diluted basis) .
y. "Fair Market Value" of the Common Stock, as of any date,
means the average of the closing prices of Common Stock for
the 30 consecutive Trading Days next preceding such date. The
closing price for each day shall be the last sale price, or
the closing bid price if no sale occurred, of Common Stock on
the New York Stock Exchange.
z. "Indebtedness" means any obligation for money borrowed,
including lease obligations that are capitalized for
financial accounting purposes on the books of the lessee and
the Class A, Class B and Class C Collateralized Commercial
Mortgage Notes issued by FSA Finance, Inc., pursuant to the
Indenture dated as of May 22, 1995 among FSA Finance, Inc.,
Fleet Management and Recovery Corporation and Bank One,
Columbus, N.A.
aa. "Interest Payment Date" has the meaning indicated in section
2(a) of this note.
ab. "Lender" has the meaning indicated in the first paragraph of
this note.
ac. "Note Event of Default" means an Event of Default as defined
in section 11 of the Note Purchase Agreement.
ad. "Note Purchase Agreement" means that certain note purchase
agreement, dated as of April 2, 1996, by and among the
Borrower,
353737.1
5
<PAGE>
Blackacre Bridge Capital, L.L.C., a Delaware limited
liability company, and Gildea Management Company, a Delaware
corporation.
ae. "Person" means an individual, a corporation, a partnership
(including a limited partnership and limited liability
partnership), a limited liability company, a joint venture,
an association, a joint-stock company, a trust, a business
trust, a government or any agency or any political
subdivision, any unincorporated organization, or any other
entity.
af. "Series A Preferred Stock" means the Series A Convertible
Preferred Stock, par value $25.00 per share, of the Borrower,
the designation, preferences and rights of which are set
forth in the Certificate of Designation.
ag. "Trading Day" means any day on which the New York Stock
Exchange is open for business.
ah. "Triggering Dividend" has the meaning indicated in section
2(a) of this note.
2. Interest.
a. Interest shall be payable on this note in immediately
available funds on each date (an "Interest Payment Date") on
which any dividend or distribution (the "Triggering
Dividend") is paid on the Common Stock, provided that:
i. such Interest Payment Date occurs on or after the
date of this note, regardless of whether this note
is outstanding on such Interest Payment Date, and
ii. the record date for such dividend or distribution
occurs on or prior to the date that the principal
amount of this note has been paid in full.
b. Interest payable with respect to this Note on any Interest
Payment Date shall represent interest accrued on this note
for the period ending on the record date for the Triggering
Dividend relating to such interest payment and beginning on
the date hereof, in the case of interest payable on the first
Interest Payment Date, and beginning on the date after the
record date relating to the dividend or distribution on the
Common Stock immediately preceding the Triggering Dividend,
in the case of each successive Interest Payment Date.
353737.1
6
<PAGE>
c. The amount of interest payable on this note on the first
Interest Payment Date shall be equal to interest accrued
hereon at a rate of 11.11% per annum for the period from date
hereof to and including the record date for the Triggering
Dividend payable on such initial Interest Payment Date.
d. The amount of interest payable on this note on each subsequent
Interest Payment Date shall be equal to the product of:
i. the aggregate number of shares of Series A Preferred
Stock issuable on exchange of this note pursuant to
section 4(a) hereof, based on the outstanding
principal amount of this note on the close of
business on the record date for such Triggering
Dividend,
ii. the number of shares of Common Stock issuable on
conversion on the record date for such Triggering
Dividend (or that would be issuable on conversion on
such record date if the Preferred Stock were
outstanding on that date) of a single share of
Series A Preferred Stock, and
iii. the amount of the Triggering Dividend per share of
Common Stock.
3. Subordination. The indebtedness evidenced by this note shall be
subordinate and junior in right of payment to all existing and future
senior Indebtedness of the Borrower for borrowed money, including
without limitation Indebtedness arising under the Bank One Facility,
or any refinancing thereof, in the event of any liquidation,
dissolution or winding-up of the affairs of Borrower, either voluntary
or involuntary.
4. Exchange.
a. This note shall be mandatorily exchanged for shares of Series
A Preferred Stock at the rate of $25 principal amount of this
note for each share of Series A Preferred Stock, on the terms
and subject to the conditions specified in this section 4.
b. Promptly after the Effective Date of the Certificate of
Designation, the Borrower shall give written notice (the
"Effective Date Notice") to the Lender, which notice shall:
i. certify that the Certificate of Designation has
become effective in accordance with section 103 of
the General Corporation Law of the State of
Delaware;
353737.1
7
<PAGE>
ii. state that the Borrower is prepared to issue to the
Lender or its designee or designees the shares of
Series A Preferred Stock issuable on exchange of
this note in accordance with this section 4; and
iii. be accompanied by a certificate of the President or
Chief Financial Officer of the Borrower either:
(1) stating that the conditions to the
mandatory exchange of this note for shares
of Series A Preferred Stock set forth in
section 4(f) hereof have been satisfied, or
(2) identifying in reasonable detail the
reasons why and in what manner the
conditions to the mandatory exchange of
this note for shares of Series A Preferred
Stock set forth in section 4(f) hereof have
not been satisfied.
c. The Lender shall, within 10 Business Days of receipt of the
Effective Date Notice by the Lender,
i. if such Effective Date Notice is accompanied by a
certificate described in section 4(b)(iii)(2)
hereof:
(1) give written notice to the Borrower stating
that the Lender intends to exchange this
note for shares of Series A Preferred
Stock, notwithstanding the matters referred
in such certificate, in which event section
4(c)(ii) hereof shall apply; or
(2) give written notice (the "Exchange Decline
Notice") to the Borrower stating that the
Lender does not intend to exchange this
note for shares of Series A Preferred
Stock, in which event the Borrower shall
have no further obligation to provide the
Lender with an opportunity to exchange this
note for shares of Series A Preferred Stock
and the Lender shall have no further
obligation to exchange this note for shares
of Series A Preferred Stock.
ii. if such Effective Date Notice is accompanied by a
certificate described in section 4(b)(iii)(1) hereof
and not section 4(b)(iii)(2) hereof, or if the
Lender shall have given the notice specified in
section 4(c)(i)(1) hereof, give written notice (the
"Exchange Closing Notice") to the Borrower setting
forth:
353737.1
8
<PAGE>
(1) the time, date (which shall be not more
than 20 Business Days from the date of
receipt of the Effective Date Notice by the
Lender) and place of the exchange of this
note for shares of Series A Preferred Stock
in accordance with this section 4, and
(2) the name or names in which the certificate
or certificates representing the shares of
Series A Preferred Stock to be issued on
exchange of this note should be registered
and the number of shares to be represented
by such certificate or certificates.
d. On the time and date and at the place specified in the
Exchange Closing Notice (unless the Lender and the Borrower
shall agree in writing at another time, date and/or place, in
which event at such other time, date and/or place):
i. the Lender shall deliver to the Borrower this note
marked paid in full, against delivery to the Lender
by the Borrower of the items specified in section
4(d)(ii) hereof; and
ii. the Borrower shall deliver to the Lender:
(1) a stock certificate or certificates
representing the shares of Series A
Preferred Stock issuable on exchange of
this note in accordance with this section 4
registered in the name or names and
representing the number of shares specified
in the Exchange Closing Notice, and
(2) a certificate of the president or any vice
president of the Borrower, dated the
Exchange Closing Date, certifying that the
conditions set forth in section 4(f) hereof
have been complied with,
against delivery to the Borrower by the Lender of
this note marked cancelled and paid in full.
e. This note shall be deemed to have been exchanged for shares
of Series A Preferred Stock and to have been paid in full and
cancelled as of the date of delivery of the items specified
in sections 4(d)(i) and (ii) hereof, which date is herein
referred to as the "Exchange Closing Date."
f. The mandatory exchange of this note for shares of Series A
Preferred Stock in accordance with this section 4 shall be
subject to satisfaction
353737.1
9
<PAGE>
(or waiver in the sole discretion of the Lender) of each of
the following conditions on or prior to the Exchange Closing
Date:
i. there shall have not occurred and be continuing an
Event of Default or an event which, with the lapse
of time or notice or both, would constitute an Event
of Default; and
ii. Borrower Senior Management incumbent with the
Borrower on March 1, 1996 shall be incumbent with
the Borrower on the Exchange Closing Date with
substantially the same duties and responsibilities
as on March 1, 1996.
g. If:
i. the Borrower delivers an Effective Date Notice
complying in all regards with the requirements of
sections 4(b)(i), (ii) and (iii) hereof and such
Effective Date Notice is not accompanied by a
certificate described in section 4(b)(iii)(2)
hereof, and
ii. the Lender fails timely to deliver either an
Exchange Closing Notice or an Exchange Decline
Notice,
then the Borrower may deliver to the Lender, as specified in
section 16(c) hereof, the items specified in section 4(d)(ii)
hereof and, upon such delivery, this note shall be deemed to
have exchanged for shares of Series A Preferred Stock and to
have been paid in full and cancelled as of the date of
delivery by the Borrower to the Lender of such items.
5. Conversion.
a. Right of conversion.
i. From and after the occurrence of a Conversion Right
Triggering Event, this note shall be convertible at
the option of the holder thereof, except to the
extent of any limitations imposed under Policy
312.03(c) of the New York Stock Exchange, in whole
or in part, into a number of fully paid and
non-assessable shares of Common Stock equal to the
ratio of:
(1) the principal amount of this note or the
portion thereof to be converted to
(2) the Conversion Price in effect on the
Conversion Date,
353737.1
10
<PAGE>
or into such additional or other securities, cash or
property and at such other rates as required in
accordance with the provisions of this section 5, at
any time and from time to time.
ii. For purposes of this note, the "Conversion Price"
shall initially be the lesser of:
(1) $9.00 per share and
(2) the average of the daily closing prices
(last close price, regular way) of the
Common Stock on the New York Stock Exchange
for the 30-day period ending May 1, 1996,
as such Conversion Price may be adjusted
from time to time in accordance with the
provisions of this section 5.
iii. Not later than May 15, 1996, the Borrower shall
provide written notice to the holder of this note at
the address indicated herein setting forth the
Conversion Price as of the date of such notice.
iv. The Borrower will give the Lender written notice of
any Change in Control Event (other than an event
described in section 1(j)(iii) hereof) no later than
10 Business Days in advance of such Change in
Control Event and will give the Lender written
notice of any Change in Control Event described in
section 1(j)(iii) hereof promptly after the Borrower
becomes aware of such event.
v. If, at the time of receipt by the Borrower from the
Lender of a Conversion Notice, the Borrower is
precluded by Policy 312.03(c) of the New York Stock
Exchange or any other law, rule or regulation to
which Borrower is subject from converting this note
in whole or in part into shares of Common Stock on
the terms and subject to the conditions set forth in
this section 5, then the portion of the principal
amount of this note not so precluded from being
converted shall be converted as provided in this
section 5 and the maturity date of the balance of
the principal amount of this note shall be extended
to March 31, 1997 and the Borrower will continue to
pay interest thereon as provided in section 2
hereof.
vi. If the maturity date of a portion of this note is
extended as provided in section 5(a)(v) hereof, on
March 31, 1997 the Borrower will pay to the Lender,
in full satisfaction of this note, an amount in cash
(or other consideration acceptable to the Lender
C/M: 11901.0003 353737.1
11
<PAGE>
in the Lender's sole discretion having a value)
equal to the sum of:
(1) the principal amount of this note then
outstanding,
(2) the product of:
(a) the ratio of
(i) the principal amount of
this note then outstanding
on the date of the
Conversion Notice referred
to in section 5(a)(v)
hereof to
(ii) the Conversion Price in
effect on the date of the
Conversion Notice referred
to in section 5(a)(v)
hereof, and
(b) the difference between:
(i) the Conversion Right
Triggering Event Per Share
Consideration and
(ii) the Conversion Price in
effect on the date of the
Conversion Notice referred
to in section 5(a)(v)
hereof; and
(3) interest on this note, at an annual rate
equal to the ratio of (i) four times the
most recent quarterly dividend per share
paid or payable on the Common Stock to (ii)
the Conversion Price in effect on March 31,
1997, for the period beginning on the
record date for the Triggering Dividend
relating to the most recent dividend paid
or payable on the Common Stock and ending
on March 31, 1997.
vii. Interest on any overdue amounts payable under
section 5(a)(vi) hereof shall accrue at the default
rate of 15% per annum and shall be payable to the
extent accrued on the first date of each month.
viii. If the maturity date of a portion of this note is
extended as provided in section 5(a)(v) hereof,
nothing in this note shall preclude the Lender from
converting this note or any portion
353737.1
12
<PAGE>
thereof outstanding at any time on or prior to the
date the principal amount of this note is paid in
full.
b. Conversion Procedures.
i. In order to exercise the conversion privilege, the
holder of this note shall surrender this note to the
Borrower and shall give written notice to the
Borrower ("Conversion Notice") that the holder of
this note elects to convert this note, or the
portion thereof specified in said notice, into
shares of Common Stock. The Conversion Notice shall
also state the name or names (with address) in which
the certificate or certificates for shares of Common
Stock which shall be issuable upon such conversion
shall be issued. This note shall, upon surrender for
conversion, unless the shares issuable on conversion
are to be issued in the same name as the
registration of this note, be duly endorsed by, or
be accompanied by instruments of transfer in form
satisfactory to the Borrower duly executed by, the
holder of this note or its duly authorized attorney.
ii. Within ten Business Days after receipt of a
Conversion Notice and surrender of this note, the
Borrower shall issue and deliver to the holder of
this note (or upon the written order of the holder
of this note) a certificate or certificates for the
number of full shares of Common Stock issuable upon
the conversion of this note or portion thereof in
accordance with the provisions of this section 5,
and cash in respect of any fractional shares of
Common Stock issuable upon such conversion, as
provided in section 5(c) hereof. If less than the
total outstanding principal amount of this note is
to be converted, the Borrower shall issue, execute
and deliver or cause to be issued, executed and
delivered to (or upon the written order of) the
holder of this note, without charge to the holder of
this note, a new note, in the form hereof, for a
principal amount equal to the unconverted portion of
this note.
iii. Each conversion shall be deemed to have been
effected on the date (the "Conversion Date") on
which this note shall have been surrendered to the
Borrower and a Conversion Notice with respect to
such note shall have been received by the Borrower,
as described above. Any Person in whose name any
certificate or certificates for shares of Common
Stock shall be issuable upon conversion shall be
deemed to have become the holder of record of the
shares represented thereby on the Conversion Date;
353737.1
13
<PAGE>
provided, however, that surrender of this note on
any date when the stock transfer books of the
Corporation shall be closed shall constitute the
Person in whose name the certificates are to be
issued as the record holder thereof for all purposes
on the next succeeding day on which such stock
transfer books are open, but such conversion shall
be at the Conversion Price in effect on the date on
which such certificate or certificates shall have
been surrendered.
iv. Except as otherwise provided in this section 5, no
payment or adjustment will be made for dividends or
other distributions with a record date prior to the
Conversion Date with respect to any shares of Common
Stock issuable upon conversion of this note as
provided herein.
c. Cash Payments in Lieu of Fractional Shares. No fractional
shares of Common Stock or scrip representing fractional
shares shall be issued upon conversion of this note. If any
fractional shares of Common Stock would, but for this section
5(c), be issuable upon the conversion of this note, the
Borrower shall promptly after the Conversion Date make a
payment therefor in cash equal to the Fair Market Value of
such fractional share of Common Stock on the first Business
Day immediately preceding the Conversion Date.
d. Adjustment of Conversion Price. The Conversion Price shall be
adjusted from time to time by the Borrower as follows:
i. if the Borrower shall at any time after March 1, 1996:
(1) declare a dividend or distribution on the
Common Stock payable in shares of Common
Stock not otherwise payable to a holder of
this note as interest pursuant to section 2
hereof,
(2) subdivide or reclassify outstanding shares
of Common Stock into a greater number of
shares,
(3) combine shares of outstanding Common Stock
into a smaller number of shares,
(4) declare a dividend or distribution on the
Common Stock in shares of any series of its
Capital Stock other than Common Stock, or
353737.1
14
<PAGE>
(5) issue by reclassification of any shares of
its outstanding Common Stock, shares of any
series of its Capital Stock or any
obligation of the Corporation or other
property,
then the conversion privilege and the Conversion
Price in effect immediately prior thereto shall be
adjusted so that the holder of this note shall be
entitled to receive the number of shares of Common
Stock or other Capital Stock and/or property of the
Borrower which the holder of this note would have
owned or would have been entitled to receive after
the happening of any of the events described above
had this note been converted immediately prior to
the happening of such event. Such adjustment shall
become effective immediately after the applicable
record date in the case of a dividend or
distribution and shall become effective immediately
after the effective date in the case of a
subdivision, combination or reclassification. Such
adjustments shall be made successively whenever any
event referred to above shall occur.
ii. If the Borrower shall at any time after March 1,
1996 issue any shares of Common Stock (or any
rights, warrants, options or convertible or
exercisable securities entitling the holders thereof
to subscribe for or purchase any shares of Common
Stock or any stock appreciation rights entitling the
holders thereof to any interest in an increase in
value, however measured, of shares of Common Stock)
for an Effective Purchase Price per Share less than
the Conversion Price in effect immediately prior to
the date of such issuance, then the Conversion Price
shall be adjusted to equal the ratio of:
(1) the sum of:
(a) the product of:
(i) the number of shares of
Common Stock outstanding
immediately prior to such
issuance and
(ii) the Conversion Price in
effect immediately prior
to such issuance and
(b) the Aggregate Consideration
Receivable by the Borrower in
connection with such issuance to
C/M: 11901.0003 353737.1
15
<PAGE>
(2) the sum of:
(a) the number of shares of Common
Stock outstanding immediately prior
to such issuance and
(b) the number of additional shares of
Common Stock to be so issued
(including the number of shares
underlying such rights, warrants,
options or convertible or
exercisable securities).
If the Borrower shall at any time after March 1,
1996 issue any shares of Common Stock (or any
rights, warrants, options or convertible or
exercisable securities entitling the holders thereof
to subscribe for or purchase any shares of Common
Stock or any stock appreciation rights entitling the
holders thereof to any interest in an increase in
value, however measured, of shares of Common Stock)
in an Excluded Transaction the Conversion Price in
effect immediately prior to the date of such
issuance shall not be adjusted as the result of such
Excluded Transaction.
Such adjustment shall be made successively whenever
any shares, rights, warrants, options, convertible
or exercisable securities or stock appreciation
rights are issued at an Effective Purchase Price per
Share that is less than the Conversion Price in
effect on the date of such issuance. To the extent
that any such rights, warrants, options, convertible
or exercisable securities or stock appreciation
rights expire without having been converted or
exercised, the Conversion Price then in effect shall
be readjusted to the Conversion Price which then
would be in effect if such rights, options,
warrants, convertible or exercisable securities or
stock appreciation rights had not been issued, but
such readjustment shall not affect the number of
shares of Common Stock or other shares of Capital
Stock delivered upon any conversion prior to the
date such readjustment is made.
iii. If the Borrower shall at any time after March 1,
1996 distribute to all holders of its Common Stock
any of its assets or debt securities, or rights,
options, warrants or convertible or exercisable
securities of the Borrower (including securities
issued for cash, but excluding distributions of
Capital Stock referred to in section 5(d)(i)
hereof), then in each such case, the Conversion
Price shall be adjusted to equal the Conversion
Price in effect immediately prior to such
distribution less an amount equal to the then fair
market value (as reasonably determined by the Board
of
353737.1
16
<PAGE>
Directors, in good faith and as described in a
resolution of the Board of Directors) of the portion
of the assets or debt securities of the Borrower so
distributed or of such rights, options, warrants or
convertible or exchangeable securities applicable to
one share of Common Stock. Such adjustment shall
become effective immediately after the record date
for the determination of shares entitled to receive
such distribution. Such adjustment shall be made
successively whenever any event listed above shall
occur. Notwithstanding the foregoing, no adjustment
of the Conversion Price shall be made upon the
distribution to holders of Common Stock of such
rights, options, warrants, convertible securities,
assets or debt securities if the plan or arrangement
under which such rights, options, warrants,
convertible securities, assets or debt securities
are issued provides for their issuance to the holder
of this note in the same pro rata amounts upon
conversion thereof.
iv. In any case in which this section 5(d) provides that
an adjustment shall become effective immediately
after a record date for an event, the Borrower may
defer until the occurrence of such event:
(1) issuing to the Holder of any shares of
Series A Preferred Stock converted after
such record date and before the occurrence
of such event the additional shares of
Common Stock issuable upon such conversion
by reason of the adjustment required by
such event over and above the Common Stock
issuable upon such conversion before giving
effect to such adjustment, and
(2) paying to such Holder any amount in cash in
lieu of any fractional share of Common
Stock pursuant to section 5(c).
v. For purposes of any computations of Aggregate
Consideration Receivable or other consideration
pursuant to this section 5, the following shall
apply:
(1) in the case of the issuance of shares of
Capital Stock for cash, the consideration
shall be the amount of such cash, provided
that in no case shall any deduction be made
for any commissions, discounts or other
expenses incurred by the Borrower for any
underwriting of the issue or otherwise in
connection therewith; and
353737.1
17
<PAGE>
(2) in the case of the issuance of shares of
Capital Stock for a consideration in whole
or in part other than cash, the
consideration other than cash shall be
deemed to be the fair market value thereof
as reasonably determined in good faith by
the Board of Directors or a duly authorized
committee thereof (irrespective of the
accounting treatment thereof), and
described in a resolution of the Board of
Directors or such committee.
vi. If after an adjustment the holder of this note may,
upon conversion of such note, receive shares of two
or more classes of Capital Stock of the Borrower,
the Borrower shall determine on a fair basis the
allocation of the adjusted Conversion Price between
the classes of Capital Stock. After such allocation,
the conversion privilege and the Conversion Price of
each class of Capital Stock shall thereafter be
subject to adjustment on terms comparable to those
applicable to Common Stock in this section 5.
vii. In no event shall an adjustment pursuant to this
section 5 reduce the Conversion Price below the then
par value, if any, of the shares of Common Stock
issuable upon conversion of this note.
viii. No adjustment in the Conversion Price shall be
required unless such adjustment would require an
increase or decrease of at least one percent (1%) in
the Conversion Price then in effect.
e. Effect of Reclassification, Consolidation, Merger or Sale. If
this note is outstanding and there shall occur:
i. any reclassification or change of outstanding shares
of Common Stock issuable upon conversion of this
note (other than a change in par value, or from par
value to no par value, or from no par value to par
value, or as a result of a subdivision or
combination),
ii. any consolidation or merger of the Borrower with or
into another Person shall be effected as a result of
which holders of Common Stock issuable upon
conversion of this note shall be entitled to receive
stock, securities or other property or assets
(including cash) with respect to or in exchange for
such Common Stock, or
iii. any sale or conveyance of the properties and assets
of the Borrower as, or substantially as, an entirety
to any other Person,
353737.1
18
<PAGE>
this note shall be convertible into the kind and amount of
shares of stock and other securities or property or assets
(including cash) receivable upon such reclassification,
change, consolidation, merger, sale or conveyance by a holder
of the number of shares of Common Stock issuable upon
conversion of this note immediately prior to such
reclassification, change, consolidation, merger, sale or
conveyance. In any such case, appropriate adjustments which
shall be as nearly equivalent as may be practicable to the
adjustments provided for in this section 5.
If this section 5(e) applies with respect to a transaction,
section 5(d) hereof shall not apply with respect to that
transaction. The above provisions of this section 5(e) shall
similarly apply to successive reclassifications,
consolidations, mergers and sales.
f. Taxes on Shares Issued. The issuance of stock certificates
upon conversion of this note shall be made without charge to
the converting the holder of this note for any tax in respect
of the issuance thereof.
g. Reservation of Shares; Shares to be Fully Paid; Compliance
with Governmental Requirements. The Borrower shall reserve,
free from preemptive rights, out of its authorized but
unissued shares, or out of shares held in its treasury,
sufficient shares of Common Stock to provide for the
conversion of this note from time to time outstanding. The
Borrower covenants that all shares of Common Stock which may
be issued upon conversion of this note will upon issuance be
fully paid and nonassessable by the Borrower and free from
all taxes, liens and charges with respect to the issuance
thereof.
h. Notice to Holders Prior to Certain Actions.
i. If:
(1) the Borrower shall take any action that
would require an adjustment in the
Conversion Price pursuant to section 5(d)
hereof; or
(2) any event described in section 5(e) hereof
shall occur; or
(3) the voluntary or involuntary dissolution,
liquidation or winding-up of the Borrower
shall occur;
the Borrower shall cause notice of such proposed
action or event to be mailed to the holder of this
note, as promptly as possible
353737.1
19
<PAGE>
but in any event no later than the later of (x) the
date 15 days prior to the record date for such
proposed action or the effective date of such event
or (y) the date on which the Borrower first publicly
announces such proposed action or event.
ii. In any event, such notice shall specify:
(1) the date on which a record is to be taken
for the purpose of such action, or, if a
record is not to be taken, the date as of
which the holders of record of Common Stock
are to be determined, or
(2) the date on which such proposed event is
expected to become effective, and the date
as of which it is expected that holders of
record of Common Stock shall be entitled to
exchange their Common Stock for securities
or other property deliverable upon such
event.
6. Note Events of Default. Upon the occurrence of a Note Event of
Default, the unpaid principal amount of this note, together with all
interest accrued and unpaid thereon, shall become, or may be declared
to be, immediately due and payable, upon the conditions and with the
effect provided in section 12 of the Note Purchase Agreement.
7. LIMITATION ON INTEREST. NOTWITHSTANDING ANY OTHER PROVISION HEREOF, IN
NO EVENT SHALL THE AMOUNT OR RATE OF INTEREST (INCLUDING TO THE EXTENT
APPLICABLE ANY DEFAULT RATE INTEREST OR LATE PAYMENT CHARGE) PAYABLE,
CONTRACTED FOR, CHARGED OR RECEIVED UNDER OR IN CONNECTION WITH THIS
NOTE, FROM TIME TO TIME OR FOR WHATEVER REASON, EXCEED THE MAXIMUM
RATE OR AMOUNT, IF ANY, SPECIFIED BY APPLICABLE LAW. If from any
circumstance whatsoever fulfillment of any provision hereof or other
documents at the time performance of such provision shall be due shall
involve transcending the limit of such validity, and if from any such
circumstance the Lender shall ever receive an amount deemed interest
by applicable law which shall exceed the highest lawful rate, such
amount which would be excessive interest shall be applied to the
reduction of the principal amount owing hereunder or on account of any
other principal indebtedness of the undersigned to the Lender, and not
to payment of interest or if such excessive interest exceeds the
unpaid balance of principal hereof and such other indebtedness, the
excess shall be refunded to the Borrower. All sums paid or agreed to
be paid by the Borrower for the use, forbearance or detention of the
indebtedness of the Borrower to the Lender shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full
353737.1
20
<PAGE>
term of such indebtedness until payment in full so that the actual
rate of interest on account of such indebtedness is uniform through
the term hereof. The terms and provisions of this section 7 shall
control and supersede every other provision of all agreements between
the Borrower and the Lender and all obligations of the Borrower to the
Lender.
8. Enforceability. The Borrower acknowledges that this note and the
Borrower's obligations under this note are and shall at all times
continue to be absolute and unconditional in all respects, and shall
at all times be a valid, legally binding obligation of the Borrower
enforceable against Borrower in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights or general principles of equity. This
note and the Note Purchase Agreement set forth the entire agreement
and understanding of the Lender and the Borrower with respect to the
Transactions contemplated hereby and thereby, and the Borrower
absolutely, unconditionally and irrevocably waives any and all right
to assert any setoff, counterclaim or crossclaim of any nature
whatsoever with respect to this note or the obligations of the
Borrower hereunder in any action or proceeding brought by the Lender
to collect amounts owing under this note, or any portion thereof;
provided, however, that the foregoing shall not be deemed a waiver of
the Borrower's right to assert any compulsory counterclaim maintained
in a court of the United States, or of the State of New York if such
counterclaim is compelled under local law or rule of procedure, nor
shall the foregoing be deemed a waiver of the Borrower's right to
assert any claim which would constitute a defense, setoff,
counterclaim or crossclaim of any nature whatsoever against the Lender
in any separate action or proceeding. The Borrower acknowledges that
no oral or other agreements, conditions, promises, understandings,
representations or warranties exist with respect to this note or with
respect to the obligations of the Borrower under this note, except
those specifically set forth in this note.
9. WAIVERS AND SPECIAL AGREEMENTS. THE BORROWER HEREBY MAKES AND
ACKNOWLEDGES THAT IT MAKES ALL OF THE WAIVERS AND SPECIAL AGREEMENTS
("WAIVERS") SET FORTH IN THIS NOTE KNOWINGLY, INTENTIONALLY,
VOLUNTARILY, WITHOUT DURESS, AND ONLY AFTER EXTENSIVE CONSIDERATION OF
THE RAMIFICATIONS OF SUCH WAIVERS WITH ITS ATTORNEY; THE BORROWER
FURTHER ACKNOWLEDGES THAT THE BORROWER UNDERSTANDS THE RIGHTS BEING
WAIVED AND THAT THE WAIVERS ARE A MATERIAL INDUCEMENT TO THE LENDER TO
MAKE THIS NOTE TO THE BORROWER; THAT THE TERMS OF THIS NOTE ARE
FAVORABLE TO THE BORROWER AND THAT THE LENDER WOULD NOT HAVE MADE THIS
NOTE ON SUCH TERMS WITHOUT SUCH WAIVERS. The Borrower and all other
parties now or hereafter liable hereon, jointly and severally, with
respect to this note:
353737.1
21
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a. acknowledge that the transaction of which this note is a part
is part of a commercial transaction,
b. waive any and all (from time to time):
i. grace, diligence, demand, presentment for payment,
protest, notice of any kind (including disclosure of
facts which materially increase risks, notice of
protest, acceptance, liability, suit, demand, or
action, dishonor, payment or nonpayment, protest,
intention to accelerate or acceleration, extension
or renewal) except as otherwise expressly required
in the Note Purchase Agreement; and
ii. agree that any delay in exercising, failure to
exercise, or non- exercise (or partial exercise),
from time to time, by the Lender of any obligation
or of any rights or remedies (or to insist upon
strict performance) in any one or more instances
shall not constitute a waiver thereof (or preclude
full exercise or insistence upon strict performance
thereof) in that or any other instance, and any
single exercise of any such right or remedies in any
one or more instances shall not preclude full
exercise in any other instance.
10. Calculations of Amounts Due. All calculations of amounts due on any
date, whether by acceleration or otherwise, will be made by the Lender
(or its agent or representative) and the Borrower agrees that all such
calculations will be conclusive and binding absent manifest error.
11. Amendments. This note may not be modified, amended, changed or
terminated orally, but only by an agreement in writing signed by the
Borrower and the Lender. No waiver of any term, covenant or provision
of this note shall be effective unless given in writing by the Lender
and, if so given by the Lender, shall only be effective in the
specific instance in which given.
12. Governing Law. This note is and shall be deemed entered into in the
State of New York and shall be governed by and construed in accordance
with the laws of the State of New York and no defense given or allowed
by the laws of any state or country shall be interposed in any action
or proceeding hereon unless such defense is either given or allowed by
the laws of the State of New York. The Borrower acknowledges and
agrees that this note is, and is intended to be, an instrument for the
payment of money only, as such phrase is used in ss.3213 of the Civil
Practice Law and Rules of the State of New York, and the Borrower has
been fully advised by its counsel of the Lender's rights and remedies
pursuant to saidss.3213.
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13. Venue and Jurisdiction. The Borrower agrees to submit to the
non-exclusive personal jurisdiction in the State of New York in any
action or proceeding arising out of this note. In furtherance of such
agreement, the Borrower hereby agrees and consents that without
limiting other methods of obtaining jurisdiction, personal
jurisdiction over the Borrower in any such action or proceeding may be
obtained within or without the jurisdiction of any court located in
New York and that any process or notice of motion or other application
to any such court in connection with any such action or proceeding may
be served upon the Borrower by registered or certified mail to, or by
personal service at, the last known address of the Borrower, whether
such address be within or without the jurisdiction of any such court.
The Borrower hereby agrees that the venue of any litigation arising in
connection with the indebtedness, or in respect of any of the
obligations of the Borrower under this note, shall to the extent
permitted by law, be in New York County.
14. WAIVER OF TRIAL BY JURY. THE BORROWER HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES, AND THE LENDER, BY ITS ACCEPTANCE OF THIS
NOTE, IRREVOCABLY AND UNCONDITIONALLY WAIVES, ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LITIGATION WHATSOEVER ARISING OUT OF OR IN
CONNECTION WITH THIS NOTE AND ANY OBLIGATIONS RELATED THERETO.
15. Article Fourth of Second Restated Certificate of Incorporation. The
rights of Lender hereunder shall be subject to the terms and
conditions of Article Fourth of Borrower's Second Restated Certificate
of Incorporation, as the same may be amended or restated from to time,
including, without limitation, the provisions of such Article Fourth
with respect to the (i) "Restrictions of Transfer to Preserve Tax
Benefit; Exchange for Excess Stock" contained in Article Fourth A(4),
(ii) requirement for legends to be affixed to each certificate for
Common Stock contained in Article Fourth (A)(5) and (iii) preferences,
qualifications, limitations, restrictions and rights of Excess Stock
contained in Article Fourth (B).
16. Miscellaneous.
a. All payments hereunder shall be made by wire transfer of
immediately available federal funds to such account as the
holder of this note shall specify from time to time by notice
in writing to the Borrower.
b. This note may not be prepaid without the written consent of
the holder hereof. An exchange or conversion of this note in
accordance with the terms hereof shall not be deemed to be
prepayment hereof.
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c. All notices permitted or required to be given to the holder
of this Note shall be deemed to have been duly given if
delivered personally, or by telecopy (if the sender on the
same day sends a confirming copy of such notice by a
nationally recognized overnight delivery service, charges
prepaid), if sent by certified or registered mail or
nationally recognized overnight delivery service, postage
prepaid to such holder at its last address shown on the books
of the Borrower.
d. Whenever any payment to be made hereunder shall be stated to
be due on a Saturday, Sunday or any national holiday, such
payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the
computation of payment of interest on this note.
e. If a mutilated note is surrendered to the Borrower, or if a
holder of this note claims this note has been lost, destroyed
or willfully taken and provides an indemnity bond or
agreement or other security sufficient, in the reasonable
judgment of the Borrower, to protect the Borrower and any of
its officers, directors, employees or representatives from
any loss which any of them may suffer if this note is
replaced, then the Borrower shall issue a replacement note of
like tenor and dated the date to which interest has been paid
on the mutilated, lost, destroyed or taken note.
f. The Borrower shall keep at its principal office a register in
which the Borrower shall provide for the registration of this
note and of transfers of this note. Upon surrender of this
note for transfer at the principal office of the Borrower,
duly endorsed or accompanied by a written instrument of
transfer duly executed by the holder hereof or its attorney
duly authorized in writing, the Borrower shall execute and
deliver in the name of the designated transferee a new
promissory note in a principal amount equal to the unpaid
principal amount of, and dated the date to which interest has
been paid on, this note, and otherwise in the form of this
note.
g. This note and the rights hereunder (or any portion thereof)
are not assignable or transferable by the Lender except as
follows:
i. upon the prior consent of Borrower, which consent
shall not be unreasonably withheld or delayed;
ii. upon notice to Borrower, to any affiliate of Lender
or any other party to the Note Purchase Agreement
(including Designee parties thereto); or
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iii. the occurrence of an Event of Default.
In the case of any such assignment or transfer, the Borrower
shall, at its expense and upon written request of the holder
of this note and surrender of this note for such purpose,
issue new notes in exchange therefor in such denominations of
at least $500,000 as shall be specified by the holder of this
note, in an aggregate principal amount equal to the then
unpaid principal amount of this note and substantially in the
form of this note and dated the date immediately following
the record date for the most recent Triggering Dividend. The
Borrower may not assign or transfer its rights or obligations
(or any portion thereof) under this note.
IN WITNESS WHEREOF, the Borrower has duly executed this note as of the
day and year first above written.
FACTORY STORES OF AMERICA, INC.
By: /s/ C. Cammack Morton
----------------------------------
Name: C. Cammack Morton
Title: President and
Chief Operating Officer
353737.1
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