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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): OCTOBER 15, 1996
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FRIEDMAN'S INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 0-22356 58-2058362
(State or other jurisdiction (Commission File Number) (IRS Employer Identification No.)
of incorporation)
</TABLE>
4 West State Street
Savannah, Georgia 31401
(Address of Principal Executive Offices)
912-233-9333
(Registrant's telephone number, including area code)
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Item 5. Other Events.
Effective October 16, 1996, Friedman's Inc. (the "Company") made a
convertible senior subordinated term loan to Crescent Jewelers, a California
corporation ("Crescent") in the principal amount of $20 million (the "Term
Loan") pursuant to a Loan and Security Agreement, by and between the Company
and Crescent. The Term Loan is due in October, 1999, is secured by
substantially all of the assets of Crescent and is subordinate in right of
payment and lien priority to Crescent's senior secured bank credit facility,
currently in the amount of $50 million, pursuant to the terms of a
Subordination Agreement by and among certain financial institutions, LaSalle
National Bank, as Agent for such financial institutions, and the Company.
Also effective October 16, 1996, the Company entered into a Standby
Purchase Agreement by and between the Company and Crescent (the "Standby
Purchase Agreement"), pursuant to which the Company agreed that for an initial
period of twelve months following the date of the Standby Purchase Agreement
(which period may be extended at Crescent's option by an additional six
months), the Company would, upon the request of Crescent, purchase up to $5
million of Crescent's 10% Convertible Senior Subordinated Notes due 2006 (the
"10% Notes"). The 10% Notes will be issued pursuant to a Note Purchase
Agreement by and among Crescent, the Company and any other purchasers of the
10% Notes, the form of which is an exhibit to the Standby Purchase Agreement.
Pursuant to a Conversion Agreement (the "Conversion Agreement") by and
among the Company, Crescent and Crescent Jewelers, Inc., a Delaware corporation
("CJI") which owns 100% of the outstanding capital stock of Crescent, up to
one-half of the unpaid principal amount of the Term Loan and the entire unpaid
principal amount of the 10% Notes held by the Company, if any, (together the
"Principal Amount") are convertible into shares of Class A Common Stock
("Stock") of CJI, under the following conditions: (i) at any time prior to an
initial public offering by Crescent, the Principal Amount may be converted into
Stock at the option of the Company at a conversion price of $3.68 per share
(the "Conversion Price"); (ii) upon the initial public offering of Crescent,
the Principal Amount shall be converted into Stock at the Conversion Price
provided that the initial public offering price is equal to or greater than
150% of the Conversion Price; and (iii) if not converted pursuant to (ii), at
any time after the initial public offering of Crescent, the Principal Amount
may be converted into Stock at the option of the Company at the Conversion
Price. In addition, pursuant to the Conversion Agreement, up to one-half of
the remaining unpaid principal amount of the Term Loan is convertible into
Stock, on or after the initial public offering of Crescent, at the initial
public offering price.
The shares of Stock received upon the conversion of the Term Loan or
the 10% Note are subject to a Registration Rights Agreement by and among CJI
and the investors listed on Schedule A thereto, which include the Company (the
"Registration Rights Agreement"). Pursuant to the Registration Rights
Agreement, the Company has the right, under certain circumstances, to demand
two registrations of shares of Stock received in conversion of the Term Loan
and 10% Note, and to participate in certain offerings by CJI of Stock.
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The Company and Crescent are affiliates and Bradley J. Stinn, Chairman
and Chief Executive Officer of the Company, is the Chariman and Chief Executive
Officer of Crescent. The Term Loan, the Subordination Agreement, the Standby
Purchase Agreement, the form of Note Purchase Agreement, the Conversion
Agreement and the Registration Rights Agreement, and the transactions
contemplated thereby, were approved by a Special Committee of disinterested
members of the Board of Directors of the Company, supported by a fairness
opinion and the advice of counsel.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
Exhibits:
10.1 Loan and Security Agreement dated as of October 15, 1996, by and
between Friedman's Inc. and Crescent Jewelers.
10.2 Promissory Note dated as of October 15, 1996, in the original
principal amount of $20,000,000 executed by Crescent Jewelers in
favor of Friedman's, Inc.
10.3 Subordination Agreement, dated as of October 15, 1996, by and
among the financial institutions party thereto, LaSalle
National Bank, as Agent and Friedman's Inc.
10.4 Standby Purchase Agreement, dated as of October 15, 1996, by and
between Friedman's Inc. and Crescent Jewelers, including, as an
exhibit thereto, the Form of Note Purchase Agreement.
10.5 Conversion Agreement, dated as of October 15, 1996, by and among
Friedman's Inc., Crescent Jewelers, Inc. and Crescent Jewelers.
10.6 Registration Rights Agreement made as of the 15th day of October,
1996, by and between Crescent Jewelers, Inc. and the investors
listed from time to time on Schedule A thereto.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Friedman's Inc.
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(Registrant)
Date: October 23, 1996 By /s/ John G. Call
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John G. Call
Chief Financial Officer
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
___________
Exhibits
TO
CURRENT REPORT
ON
FORM 8-K
Dated: October 15, 1996
Friedman's Inc.
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INDEX TO EXHIBITS
10.1 Loan and Security Agreement dated as of October 15, 1996, by and
between Friedman's Inc. and Crescent Jewelers.
10.2 Promissory Note dated as of October 15, 1996, in the original principal
amount of $20,000,000 executed by Crescent Jewelers in favor of
Friedman's, Inc.
10.3 Subordination Agreement, dated as of October 15, 1996, by and among the
financial institutions party thereto, LaSalle National Bank, as Agent
and Friedman's Inc.
10.4 Standby Purchase Agreement, dated as of October 15, 1996, by and
between Friedman's Inc. and Crescent Jewelers, including, as an
exhibit thereto, the Form of Note Purchase Agreement.
10.5 Conversion Agreement, dated as of October 15, 1996, by and among
Friedman's Inc., Crescent Jewelers, Inc. and Crescent Jewelers.
10.6 Registration Rights Agreement made as of the 16th day of October, 1996,
by and between Crescent Jewelers, Inc. and the investors listed from
time to time on Schedule A thereto.
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EXHIBIT 10.1
Execution Copy
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement") made as of this
15th day of October, 1996 by and between FRIEDMAN'S INC., a Delaware
corporation ("Lender"), 4 West State Street, Savannah, Georgia 31401, and
CRESCENT JEWELERS, a California corporation ("Borrower"), 315 11th Street,
Oakland, California 94607.
W I T N E S S E T H
WHEREAS, Borrower has requested that Lender make to Borrower a
$20,000,000 term loan, and Lender is willing to make such term loan to
Borrower, subject to the terms and conditions hereof;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by Borrower, the parties agree as
follows:
1. DEFINITIONS.
(a) "ACCOUNT," "ACCOUNT DEBTOR," "CHATTEL PAPER," "DOCUMENTS,"
"EQUIPMENT," "GENERAL INTANGIBLES," "GOODS," "INSTRUMENTS," "INVENTORY" and
"INVESTMENT PROPERTY" shall have the respective meanings assigned to such
terms, as of the date of this Agreement, in the Georgia Uniform Commercial
Code.
(b) "AFFILIATE" shall mean any Person directly or indirectly
controlling, controlled by or under common control with Borrower and shall in
any case include Friedman's Inc.
(c) "AGENT" shall mean LaSalle or its successor acting in its
capacity as agent under the LaSalle Loan Agreement.
(d) "BUSINESS DAY" shall mean (i) when used with respect to the
LIBOR Rate Loans, a day on which dealings may be effected in deposits of United
States Dollars in the London interbank foreign currency deposits market and on
which LaSalle is conducting and other banks may conduct business in London,
England and in the State of Illinois and (ii) when used with respect to any
other provision of this Agreement or Exhibit A, any day excluding Saturday,
Sunday and any day which is a legal holiday under the laws of the State of
Illinois or Georgia or is a day on which banking institutions located in either
such state are closed.
(e) "COLLATERAL" shall mean all of the property of Borrower
described in paragraph 4 hereof, together with all other real or personal
property of any Obligor or any other Person now or hereafter pledged to Lender,
to secure, either directly or indirectly, repayment of any of the Liabilities.
(f) "ENVIRONMENTAL LAWS" shall mean all federal, state, district,
local and foreign laws, rules, regulations, ordinances, and consent decrees
relating to health, safety, hazardous
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substances, pollution and environmental matters, as now or at any time
hereafter in effect, applicable to Borrower's business or facilities owned or
operated by Borrower, including laws relating to emissions, discharges,
releases or threatened releases of pollutants, contamination, chemicals, or
hazardous, toxic or dangerous substances, materials or wastes into the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) or otherwise relating to the
generation, manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials.
(g) "EVENT OF DEFAULT" shall have the meaning specified in
paragraph 12 hereof.
(h) "EXHIBIT A" shall mean the exhibit entitled Exhibit A -
Special Provisions which is attached hereto and made a part hereof.
(i) "EXHIBIT B" shall mean the exhibit entitled Exhibit B -
Business and Collateral Locations which is attached hereto and made a part
hereof, as amended from time to time in a manner consistent with this
Agreement.
(j) "EXHIBIT C" shall mean the exhibit entitled Exhibit C - List
of Contingent Liabilities which is attached hereto and made a part hereof.
(k) "EXHIBIT D" shall mean the exhibit entitled Exhibit D -
Existing Indebtedness which is attached hereto and made a part hereof.
(l) "EXHIBIT E" shall mean the exhibit entitled Exhibit E - Form
of Note which is attached hereto and made a part hereof.
(m) "EXHIBIT F" shall mean the exhibit entitled Exhibit F -
Permitted Liens which is attached hereto and made a part hereof.
(n) "EXISTING SUBORDINATED DEBT" shall have the meaning specified
in paragraph 7(c)(i) of Exhibit A.
(o) "HAZARDOUS MATERIALS" shall mean any hazardous, toxic or
dangerous substance, materials and wastes, including, without limitation,
hydrocarbons (including naturally occurring or man-made petroleum and
hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation,
radioactive materials, biological substances, polychlorinated biphenyls,
pesticides, herbicides and any other kind and/or type of pollutants or
contaminants (including, without limitation, materials which include hazardous
constituents), sewage, sludge, industrial slag, solvents and/or any other
similar substances, materials, or wastes and including any other substances,
materials or wastes that are or become regulated under any Environmental Law
(including, without limitation any that are or become classified as hazardous
or toxic under any Environmental Law).
(p) "INDEMNIFIED PARTY" shall have the meaning specified in
paragraph 14 hereof.
(q) "INTEREST PERIOD" shall have the meaning specified in
paragraph 2(b) of Exhibit A.
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(r) "LASALLE LOAN" shall mean a "Loan" under and as defined in
the LaSalle Loan Agreement.
(s) "LASALLE LOAN AGREEMENT" shall mean that certain Loan and
Security Agreement dated as of the date hereof by and among Borrower, the
financial institutions from time to time parties thereto as Lenders and Agent,
as amended, restated, supplemented or otherwise modified from time to time as
permitted under paragraph 11(s) hereof.
(y) "LENDER" shall mean Friedman's Inc. and any other Person
having an interest as a lender under this Agreement at such time pursuant to
paragraph 8 of Exhibit A or otherwise. All references to Lender shall mean
collectively each and all of such Persons and their respective successors and
assigns.
(u) "LENDERS" shall mean each financial institution from time to
time a "Lender" under the LaSalle Loan Agreement.
(v) "LIABILITIES" shall mean any and all obligations, liabilities
and indebtedness of Borrower hereunder and under the Other Agreements to Lender
or to any parent, affiliate or subsidiary of Lender of any and every kind and
nature, howsoever created, arising or evidenced and howsoever owned, held or
acquired, whether now or hereafter existing, whether now due or to become due,
whether primary, secondary, direct, indirect, absolute, contingent or otherwise
(including, without limitation, obligations of performance), whether several,
joint or joint and several, and whether arising or existing under written or
oral agreement or by operation of law. The term "Liabilities" shall not include
any of Borrower's indebtedness or other obligations owing under or in respect
of any of the Borrower's 10% Convertible Senior Subordinated Notes held by
Lender and which were issued pursuant to the terms of the Standby Purchase
Agreement dated as of the date hereof by and between Borrower and Lender, the
Note Purchase Agreement relating to such Notes or the Conversion Agreement
dated as of the date hereof by and among Borrower, Parent and Lender.
(w) "LIBOR" shall have the meaning specified in paragraph 2(b) of
Exhibit A to the LaSalle Loan Agreement.
(x) "LIBOR LOAN" shall mean that portion of the principal balance
of the Loan bearing interest at a rate based on LIBOR.
(y) "LOAN" shall mean the term loan made by or on behalf of Lender
to Borrower pursuant to paragraph 2 hereof and all other loans, advances and
financial accommodations made by or on behalf of Lender to or on behalf of
Borrower hereunder.
(z) LOCAL DEPOSITORY ACCOUNT" shall have the meaning specified in
paragraph 6 of Exhibit A.
(aa) "LOCK BOX" and "LOCK BOX ACCOUNT" shall have the meanings
specified in paragraph 7 hereof.
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(bb) "MINIMUM TANGIBLE NET WORTH - COVENANT DEFINITION" shall have
the meaning specified in paragraph 11(p) hereof.
(cc) "OBLIGOR" shall mean Borrower and each other Person who is or
shall become primarily or secondarily liable for any of the Liabilities.
(dd) "OTHER AGREEMENTS" shall mean all agreements, instruments and
documents, other than this Agreement, including, without limitation,
guaranties, mortgages, trust deeds, pledges, powers of attorney, consents,
assignments, contracts, notices, security agreements, leases, financing
statements and all other writings heretofore, now or from time to time
hereafter executed by or on behalf of Borrower or any other Person and
delivered to Lender or to any parent, affiliate or subsidiary of Lender in
connection with the Liabilities or the transactions contemplated hereby.
(ee) "PARENT" shall mean any Person now or at any time or times
hereafter directly owning or controlling (alone or with any other Person) at
least a majority of the issued and outstanding stock of Borrower. As of the
date hereof, the "Parent" is Crescent Jewelers Inc., a Delaware corporation.
(ff) "PERMITTED LIENS" shall mean (i) statutory liens of landlords,
carriers, warehousemen, processors, mechanics, materialmen or suppliers
incurred in the ordinary course of business and securing amounts not yet due or
declared to be due by the claimant thereunder, (ii) liens or security interests
in favor of Lender (iii) liens or security interests in favor of Agent, for the
benefit of Agent and Lenders, to the extent permitted under the Subordination
Agreement, (iv) zoning restrictions and easements, licenses, covenants and
other restrictions affecting the use of real property that do not individually
or in the aggregate have a material adverse effect on Borrower's ability to use
such real property for its intended purpose in connection with Borrower's
business, and (v) liens specifically permitted by Lender in writing and liens
listed on Exhibit F hereto.
(gg) "PERSON" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, entity, party or foreign or United States government
(whether federal, state, county, city, municipal or otherwise), including,
without limitation, any instrumentality, division, agency, body or department
thereof.
(hh) "PRIME RATE" shall have the meaning specified in paragraph
2(a) of Exhibit A.
(ii) "PRIME RATE LOAN" shall mean that portion of the principal
balance of the Loan bearing interest at a rate based on the Prime Rate.
(jj) "REGULATORY CHANGE" shall have the meaning specified in
paragraph 3(b) of Exhibit A.
(kk) "SUBORDINATION AGREEMENT" shall mean that certain
Subordination Agreement dated as of the date hereof by and among Lender, Agent
and Lenders.
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(ll) "SUBSIDIARY" shall mean any corporation or other entity of
which more than fifty percent (50%) of the outstanding capital stock having
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether at the time stock of any other class of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time, directly or indirectly, owned by
Borrower or by any partnership, joint venture or limited liability company of
which more than fifty percent (50%) of the outstanding equity interests are at
the time, directly or indirectly, owned by Borrower or of which Borrower is a
general partner.
(mm) "TANGIBLE NET WORTH" shall mean Borrower's shareholders'
equity (including retained earnings) less the book value of all intangible
assets as determined solely by Lender on a consistent basis plus the amount of
any LIFO reserve plus the amount of any debt subordinated to Agent and Lenders
all as determined under generally accepted accounting principles applied on a
basis consistent with the financial statement of Borrower dated July 31, 1996.
2. TERM LOAN. Subject to the terms and conditions of this
Agreement (including Exhibit A) and the Other Agreements, Lender agrees to make
to Borrower a term loan in the amount of $20,000,000. The unpaid principal of
the Loan outstanding shall bear interest at the rates set forth in Exhibit A.
The entire outstanding principal balance, together with all accrued and unpaid
interest, shall be due and payable in full on October 15, 1999 (the "Maturity
Date"). Borrower may request that Lender extend the Maturity Date by
successive one-year intervals by executing and delivering to Lender at least
180 days but no more than 210 days prior to the current Maturity Date a
written request. Borrower acknowledges that Lender has not promised (either
expressly or impliedly), nor has any obligation or commitment whatsoever, to
extend the Maturity Date at any time. Lender shall notify Borrower in writing
(with a copy to Agent at its address for notices provided for under the
Subordination Agreement) on or before the date which is 151 days prior to the
current Maturity Date whether it agrees to the requested extension of the
Maturity Date or whether it has declined such request. Borrower hereby
authorizes Lender, in its sole discretion, to advance amounts to make any
payments of principal, interest, fees, costs and expenses required by this
Agreement which amounts shall be included as principal of the Loan. The Loan
shall be evidenced by a promissory note delivered to Lender in the amount of
$20,000,000 in substantially the form attached hereto as Exhibit E. If made,
the initial proceeds of the Loan shall be made available to Borrower as
requested in a letter to Lender.
3. FEES AND CHARGES. Borrower shall pay to Lender , in addition
to all other amounts payable hereunder, the fees and charges set forth in
Exhibit A. It is the intent of the parties that the rate of interest and the
other charges to Borrower under this Agreement shall be lawful; therefore, if
for any reason the interest or other charges payable under this Agreement are
found by a court of competent jurisdiction, in a final determination, to exceed
the limit which Lender may lawfully charge Borrower, then the obligation to pay
interest and other charges shall automatically be reduced to such limit and, if
any amount in excess of such limit shall have been paid, then such amount shall
be refunded to Borrower. The parties hereto hereby agree and stipulate that
the only charge imposed upon Borrower for the use of money in connection with
this Agreement is and shall be the interest specifically described in
subsections (a) and (b) of paragraph 2 of Exhibit A. The parties hereto
further agree and stipulate that all facility fees, default charges, late
charges, funding or "breakage" charges, increased cost charges, attorneys'
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fees and reimbursement for costs and expenses paid by Lender to third parties
or for damages incurred by Lender, are charges made to compensate the Lender
for underwriting or administrative services and costs or losses performed or
incurred, and to be performed or incurred, by Lender in connection with this
Agreement and shall under no circumstances be deemed to be charges for the use
of money pursuant to Official Code of Georgia Annotated Sections 7-4-2 and
7-4-18. All charges other than charges for the use of money shall be fully
earned and nonrefundable when due.
4. GRANT OF SECURITY INTEREST TO LENDER. As security for the
payment of the Loan and for the payment or other satisfaction of all other
Liabilities, Borrower hereby assigns to Lender, and grants to Lender a
continuing security interest in, the following property of Borrower, whether
now or hereafter owned, existing, acquired or arising and wherever now or
hereafter located: (a) all Accounts and all Chattel Paper and all Goods whose
sale, lease or other disposition by Borrower has given rise to Accounts or
Chattel Paper and have been returned to, or repossessed or stopped in transit
by Borrower; (b) all Instruments, Documents and General Intangibles (including,
without limitation, all patents, patent applications, trademarks, trademark
applications, trade names, trade secrets, goodwill, copyrights, copyright
applications, registrations, licenses, franchises, customer lists, tax refund
claims, claims against carriers and shippers, guarantee claims, contracts
rights, security interests, security deposits and any rights to
indemnification); (c) all Inventory; (d) all Goods (other than Inventory),
including, without limitation, Equipment, vehicles and fixtures; (e) all
computer hardware and software, including without limitation, computer
terminals, processing units, display terminals, disk drives, cables, peripheral
devices, source code, object code and all related applications and data files,
together with all documentation with respect to any of the foregoing and all
rights with respect to any of the foregoing in the nature of warranties,
service contracts, support agreements and maintenance rights; (f) all
Investment Property; (g) all deposits and cash; (h) any other property of
Borrower now or hereafter in the possession, custody or control of Agent, any
of the Lenders, Lender or any agent or any parent, affiliate or subsidiary of
Agent, any of the Lenders, Lender or any participant with Lender in the Loan
for any purpose (whether for safekeeping, deposit, collection, custody, pledge,
transmission or otherwise); and (i) all additions and accessions to,
substitutions for, and replacements, products and proceeds of the foregoing
property, including, without limitation, proceeds of all insurance policies
insuring the foregoing property, and all of Borrower's books and records
relating to any of the foregoing and to Borrower's business.
5. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY
INTERESTS THEREIN. Borrower shall, at Lender's request, at any time and from
time to time, execute and deliver to Lender such financing statements,
documents and other agreements and instruments (and pay the cost of filing or
recording the same in all public offices deemed necessary or desirable by
Lender) and do such other acts and things as Lender may deem necessary or
desirable in its sole discretion in order to establish and maintain a valid,
attached and perfected security interest in the Collateral in favor of Lender,
(free and clear of all other liens, claims, encumbrances and rights of third
parties whatsoever, whether voluntarily or involuntarily created, except
Permitted Liens) to secure payment of the Liabilities, and in order to
facilitate the collection of the Collateral. Each item of Chattel Paper shall,
at Lender's sole election, be delivered to Lender (or its designee) or be
conspicuously marked with a legend stating that such Chattel Paper is subject
to the security interest granted to Lender. All items of Inventory held by
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Borrower as consignee shall be clearly marked as such and shall be segregated
from Inventory owned by Borrower. Borrower irrevocably hereby makes,
constitutes and appoints Lender (and all Persons designated by Lender for that
purpose) as Borrower's true and lawful attorney and agent-in-fact to execute
such financing statements, documents and other agreements and instruments and
do such other acts and things as may be necessary to preserve and perfect
Lender's security interest in the Collateral. Borrower further agrees that a
carbon, photographic, photostatic or other reproduction of this Agreement or of
a financing statement shall be sufficient as a financing statement.
6. POSSESSION OF COLLATERAL AND RELATED MATTERS. Unless an
"Event of Default" has occurred and is continuing, Borrower shall have the
right, except as otherwise provided in this Agreement, in the ordinary course
of Borrower's business, to (a) sell, lease or furnish under contracts of
service any of Borrower's Inventory normally held by Borrower for any such
purpose, and (b) use and consume any raw materials, work in process or other
materials normally held by Borrower for such purpose; provided, however, that a
sale in the ordinary course of business shall not include any transfer or sale
in satisfaction, partial or complete, of a debt owed by Borrower.
7. COLLECTIONS.
(a) Subject to the provisions of paragraph 6 of Exhibit A,
Borrower shall direct all of its Account Debtors to make all payments on
Chattel Paper directly to a post office box (the "Lock Box") designated by, and
under the exclusive control of, LaSalle or another financial institution
acceptable to Lender. Borrower shall establish an account (the "Lock Box
Account") in Borrower's name with LaSalle or such other financial institution
acceptable to Lender, into which all payments received in the Lock Box shall be
deposited, and into which Borrower will immediately deposit all payments
received by Borrower for Inventory or services in the identical form in which
such payments were received, whether by cash or check. If Borrower, any
Affiliate or Subsidiary, or any shareholder, officer, director, employee or
agent of Borrower or any Affiliate or Subsidiary, or any other Person acting
for or in concert with Borrower shall receive any monies, checks, notes, drafts
or other payments relating to or as proceeds of Chattel Paper or other
Collateral, Borrower and each such Person shall receive all such items in trust
for Lender and, immediately upon receipt thereof, shall remit the same (or
cause the same to be remitted) in kind to the Lock Box Account. If the Lock
Box Account is not established with LaSalle, the financial institution with
which the Lock Box Account is established shall acknowledge and agree, in a
manner satisfactory to Lender, that such financial institution has no right to
setoff against the Lock Box Account or against any other account maintained by
such financial institution into which the contents of the Lock Box Account are
transferred, and that such financial institution shall wire, or otherwise
transfer in immediately available funds in a manner satisfactory to Lender,
funds deposited in the Lock Box Account on a daily basis as such funds are
collected. Borrower agrees that all payments made to such Lock Box Account or
otherwise received by Lender, whether in respect of Chattel Paper or as
proceeds of other Collateral or otherwise, will be applied on account of the
Liabilities in accordance with the terms of this Agreement. Borrower agrees to
pay all customary fees, costs and expenses which such financial institution
incurs in connection with opening and maintaining the Lock Box Account with
respect to Borrower and depositing for collection any check or other item of
payment received by Lender on account of
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the Liabilities. All of such fees, costs and expenses may, in Lender's sole
discretion, be paid by Lender on Borrower's behalf, and such payments by Lender
shall constitute principal of the Loan, shall be payable to Lender by Borrower
upon demand, and, until paid, shall bear interest at the highest rate then
applicable to the Loan hereunder. All checks, drafts, instruments and other
items of payment or proceeds of Chattel Paper or other Collateral shall be
endorsed by Borrower to Lender (or its designee), and, if that endorsement of
any such item shall not be made for any reason, Lender is hereby irrevocably
authorized to endorse the same on Borrower's behalf. For the purpose of this
paragraph, Borrower irrevocably hereby makes, constitutes and appoints Lender
(and all Persons designated by Lender for that purpose) as Borrower's true and
lawful attorney and agent-in-fact (i) to endorse Borrower's name upon said
items of payment and/or proceeds of Chattel Paper or other Collateral and upon
any Chattel Paper, Document, Instrument, invoice or similar document or
agreement relating to any amounts owed to Borrower or goods pertaining thereto;
(ii) to take control in any manner of any item of payment or proceeds thereof;
and (iii) to have access to any lock box or postal box into which any of
Borrower's mail is deposited, and open and process all mail addressed to
Borrower and deposited therein.
(b) Lender may, at any time and from time to time, whether before
or after notification to any Account Debtor and whether before or after the
maturity of any of the Liabilities, (i) enforce collection of any of Borrower's
Chattel Paper, Accounts or other amounts owed to Borrower by suit or otherwise;
(ii) exercise all of Borrower's rights and remedies with respect to proceedings
brought to collect any Chattel Paper, Accounts or other amounts owed to
Borrower; (iii) surrender, release or exchange all or any part of any amounts
owed to Borrower and evidenced by Chattel Paper, Accounts or other amounts owed
to Borrower, or compromise or extend or renew for any period (whether or not
longer than the original period) any indebtedness thereunder; (iv) sell or
assign any Chattel Paper, Account or other amounts owed to Borrower upon such
terms, for such amount and at such time or times as Lender deems advisable; (v)
prepare, file and sign Borrower's name on any proof of claim in bankruptcy or
other similar document against any Account Debtor or other Person obligated to
Borrower; and (vi) do all other acts and things which are necessary, in
Lender's sole discretion, to fulfill Borrower's obligations under this
Agreement and to allow Lender to collect the Chattel Paper or Accounts or other
amounts owed to Borrower. In addition to any other provision hereof, Lender
may at any time after the occurrence and during the continuance of an Event of
Default, at Borrower's expense, notify any parties obligated on any of the
Chattel Paper or Accounts to make payment directly to Lender (or its designee)
of any amounts due or to become due thereunder.
(c) Lender, in its sole discretion, without waiving or releasing
any obligation, liability or duty of Borrower under this Agreement or the Other
Agreements or any Event of Default, may at any time or times hereafter, but
shall not be obligated to, pay, acquire or accept an assignment of any security
interest, lien, encumbrance or claim asserted by any Person in, upon or against
the Collateral. All sums paid by Lender in respect thereof and all costs, fees
and expenses including, without limitation, reasonable attorney fees, all court
costs and all other charges relating thereto incurred by Lender shall
constitute principal of the Loan, payable by Borrower to Lender on demand and,
until paid, shall bear interest at the highest rate then applicable to the Loan
hereunder.
-8-
<PAGE> 9
(d) Immediately upon Borrower's receipt of any portion of the
Collateral evidenced by an agreement, Instrument or Document (other than
Chattel Paper, which shall be governed by paragraph 5 hereof), Borrower shall
deliver the original thereof to Lender (or its designee) together with an
appropriate endorsement or other specific evidence of assignment thereof to
Lender (in form and substance acceptable to Lender). If an endorsement or
assignment of any such items shall not be made for any reason, Lender is hereby
irrevocably authorized, as Borrower's attorney and agent-in-fact, to endorse or
assign the same on Borrower's behalf.
8. SCHEDULES AND REPORTS.
(a) At such times as may be required by Lender from time to time
hereafter, Borrower shall deliver to Lender (i) a schedule identifying each
item of Eligible Chattel Paper (as defined in the LaSalle Loan Agreement),
together with copies thereof when requested by Lender (with cash register point
of sale documentation attached) pertaining to each such Eligible Chattel Paper,
for the month (or other applicable period) immediately preceding; (ii) such
additional schedules, certificates, reports and information with respect to the
Collateral as Lender may from time to time require; and (iii) an assignment of
any or all items of Collateral to Lender if requested. Lender, through its
officers, employees or agents, shall have the right, at any time and from time
to time in Lender's name, in the name of a nominee of Lender or in Borrower's
name, to verify the validity, amount or any other matter relating to Borrower's
Chattel Paper and Accounts, by mail, telephone, telegraph or otherwise.
Borrower shall reimburse Lender, on demand, for all costs, fees and expenses
incurred by Lender in this regard.
(b) Without limiting the generality of the foregoing, Borrower
shall deliver to Lender if requested, at least twice a month, on the fifteenth
(15th) and the last days of each month (or more frequently when requested by
Lender), a report with respect to Borrower's Inventory and a report listing all
Inventory held by Borrower as consignee, indicating the identity of the
consignor and the value of the consigned Inventory. Borrower shall immediately
notify Lender of any event causing loss or depreciation in value of Borrower's
Inventory (other than normal depreciation occurring in the ordinary course of
business).
(c) If requested by Lender, Borrower shall furnish to Lender
copies of each schedule and report delivered to Agent or any of the Lenders
under paragraph 9 of the LaSalle Loan Agreement simultaneously with the
delivery thereof.
(d) All schedules, certificates, reports, assignments and other
items delivered by Borrower to Lender hereunder shall be executed by an
authorized representative of Borrower and shall be in such form and contain
such information as Lender shall reasonably specify.
9. TERMINATION. This Agreement shall be in effect until the date
that the Liabilities are paid in full. At such time as Borrower has repaid all
of the Liabilities and this Agreement has terminated, Borrower and Lender shall
deliver to each other a mutual release, in form and substance reasonably
satisfactory to Lender, of all obligations and liabilities of Borrower and its
officers, directors, employees, agents, parents, subsidiaries and affiliates
(other than, in the case of Borrower, its indemnification obligations under
Section 14 hereof) to Lender and of Lender, and its officers, directors,
employees, agents, parents, subsidiaries and affiliates to
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<PAGE> 10
Borrower. If, during the term of this Agreement, Borrower prepays all or any
portion of the Liabilities, and in connection therewith, either (a) permits any
security agreement, financing statement or analogous instrument to be executed
or filed with respect to the Collateral for the benefit of someone other than
Lender other than with respect to Permitted Liens, or (b) creates, incurs, or
assumes any liability for borrowed money (except for borrowings under the
LaSalle Loan Agreement and borrowings permitted pursuant to paragraph 10(p)
hereof), Borrower agrees to pay to Lender, as a prepayment fee, in addition to
the payment of all other Liabilities, an amount equal to three percent (3%) of
the outstanding principal balance of the Loan outstanding at the time of such
prepayment if such prepayment occurs on or before the first anniversary of the
date of this Agreement; and two percent (2%) of the outstanding principal
balance of the Loan outstanding at the time of such prepayment if such
prepayment occurs after the first anniversary of the date of this Agreement but
on or before the second anniversary of the date of this Agreement; provided,
however, that (i) if the Loan is paid down to zero in connection with either an
initial public offering of stock of Borrower or a merger by Borrower with and
into Lender or a subsidiary or affiliate of Lender, no prepayment fee shall be
assessed and (ii) if the Loan is prepaid in whole or in part as a result of the
exercise by Lender of its rights under the Conversion Agreement dated as of the
date hereof by and between Borrower, Parent and Lender, then no prepayment fee
shall be assessed in connection with such prepayment.
10. REPRESENTATIONS, WARRANTIES AND COVENANTS. Borrower hereby
represents, warrants and covenants that:
(a) the financial statements delivered or to be delivered by
Borrower to Lender at or prior to the date of this Agreement and at all times
subsequent thereto accurately reflect the financial condition of Borrower as of
the dates of such financial statements, and there has been no material adverse
change in the financial condition, the operations or any other status of
Borrower since the date of the financial statements delivered to Lender most
recently prior to the date of this Agreement;
(b) the office where Borrower keeps its books, records and
accounts (or copies thereof) concerning the Collateral, Borrower's principal
place of business and all of Borrower's other places of business, locations of
Collateral and post office boxes are as set forth in Exhibit B, as amended from
time to time with Lender's consent; Borrower shall promptly (but in no event
less than thirty (30) days prior thereto) advise Lender in writing of the
proposed opening of any new place of business, the closing of any existing
place of business, any change in the location of Borrower's books, records and
accounts (or copies thereof) or the opening or closing of any post office box
of Borrower;
(c) the Collateral, including, without limitation, the Equipment
(except any part thereof which prior to the date of this Agreement Borrower
shall have advised Lender in writing consists of Collateral normally used in
more than one state) is and shall be kept, or, in the case of vehicles, based,
only at the addresses set forth on the first page of this Agreement or on
Exhibit B, as amended from time to time with Lender's consent, and at other
locations within the continental United States of which Lender has been advised
by Borrower in writing;
-10-
<PAGE> 11
(d) if any of the Collateral consists of Goods of a type normally
used in more than one state, whether or not actually so used, Borrower shall
promptly give written notice to Lender of any use of any such Goods in any
state other than a state in which Borrower has previously advised Lender such
Goods shall be used, and such Goods shall not, unless Lender shall otherwise
consent in writing, be used outside of the continental United States;
(e) no security agreement, financing statement or analogous
instrument exists or shall exist with respect to any of the Collateral other
than any security agreement, financing statement or analogous instrument
evidencing security interests in favor of Lender or evidencing Permitted Liens;
(f) Borrower is and shall at all times while this Agreement
remains in effect be the lawful owner of all Collateral now purportedly owned
or hereafter purportedly acquired by Borrower, free from all liens, claims,
security interests and encumbrances whatsoever, whether voluntarily or
involuntarily created and whether or not perfected, other than Permitted Liens;
(g) Borrower has the right and power and is duly authorized and
empowered to enter into, execute and deliver this Agreement and the Other
Agreements and perform its obligations hereunder and thereunder; Borrower's
execution, delivery and performance of this Agreement and the Other Agreements
does not and shall not conflict with the provisions of any statute, regulation,
ordinance or rule of law, or any material agreement, contract or other document
which may now or hereafter be binding on Borrower, and Borrower's execution,
delivery and performance of this Agreement and the Other Agreements shall not
result in the imposition of any lien or other encumbrance upon any of
Borrower's property under any existing indenture, mortgage, deed of trust, loan
or credit agreement or other agreement or instrument by which Borrower or any
of its property may be bound or affected;
(h) there are no actions or proceedings which are pending or, to
the best of Borrower's knowledge, threatened against Borrower which might
result in any material adverse change in its financial condition or materially
adversely affect the Collateral and Borrower shall, promptly upon becoming
aware of any such pending or threatened action or proceeding, give written
notice thereof to Lender;
(i) Borrower has obtained all licenses, authorizations, approvals
and permits the lack of which would have a material adverse effect on the
operation of its business, and Borrower is and shall remain in compliance in
all material respects with all applicable federal, state, local and foreign
statutes, orders, regulations, rules and ordinances (including, without
limitation, statutes, orders, regulations, rules and ordinances relating to
taxes, employer and employee contributions and similar items, securities,
employee retirement and welfare benefits, employee health and safety or
environmental matters) the failure to comply with which would have a material
adverse effect on its business, property, assets, operations or condition,
financial or otherwise;
(j) all written information now, heretofore or hereafter furnished
by Borrower to Lender (other than projections, which shall be based on
reasonable assumptions) is and shall be true and correct in all material
respects as of the date with respect to which such information was or is
furnished;
-11-
<PAGE> 12
(k) Borrower is not conducting, permitting or suffering to be
conducted, and Borrower shall not conduct, permit or suffer to be conducted,
any activities pursuant to or in connection with which any of the Collateral is
now, or will (while any Liabilities remain outstanding) be owned by any
Affiliate; provided, however, that Borrower may enter into transactions with
Affiliates in the ordinary course of business pursuant to terms that are no
less favorable to Borrower than the terms upon which such transfers or
transactions would have been made had they been made to or with a Person that
is not an Affiliate and, in connection therewith, may transfer cash or property
to Affiliates for fair value;
(l) Borrower's name has always been as set forth on the first page
of this Agreement and, except for the trade name "J. Burton Jewelers," Borrower
does not use trade names or division names in the operation of its business,
except as otherwise disclosed in writing to Lender; Borrower shall notify
Lender in writing within ten (10) days of the change of its name or the use of
any trade names or division names not previously disclosed to Lender in
writing;
(m) with respect to Borrower's Equipment: (i) Borrower has good
and indefeasible and merchantable title to and ownership of all of its
Equipment (other than that which is leased), including, without limitation, the
Equipment described or listed on Schedule 1 hereof other than Equipment that
is disposed of in the ordinary course of business with all proceeds of such
dispositions being paid to Lender for application to the Liabilities; (ii)
Borrower shall keep and maintain the Equipment in good operating condition and
repair (ordinary wear and tear excepted) and shall make all necessary
replacements thereof and renewals thereto so that the value and operating
efficiency thereof shall at all times be preserved and maintained; (iii)
Borrower shall not permit any such items to become a fixture to real estate or
an accession to other personal property; and (iv) Borrower, immediately on
demand by Lender, shall deliver to Lender any and all evidence of ownership of,
including, without limitation, certificates of title and applications of title
to, any of the Equipment;
(n) this Agreement and the Other Agreements to which Borrower is a
party are the legal, valid and binding obligations of Borrower and are
enforceable against Borrower in accordance with their respective terms;
(o) Borrower is solvent, is able to pay its debts as they become
due and has capital sufficient to carry on its business, now owns property
having a value both at fair valuation and at present fair saleable value
greater than the amount required to pay its debts, and will not be rendered
insolvent by the execution and delivery of this Agreement or any of the Other
Agreements or by completion of the transactions contemplated hereunder or
thereunder;
(p) Borrower is not now obligated, nor shall it create, incur,
assume or become obligated (directly or indirectly), for any loans or other
indebtedness for borrowed money other than the Loan, and the indebtedness and
obligations under the LaSalle Loan Agreement except that Borrower may (i)
borrow money from a Person other than Lender on an unsecured and subordinated
basis (including up to $5,000,000 of money borrowed from Lender and up to
$3,000,000 of money borrowed from another Person, in each case pursuant to the
terms of a Note Purchase Agreement in the form of Exhibit A to the Standby
Purchase Agreement dated as of the date hereof between Lender and Borrower) if
a subordination agreement in favor of Lender
-12-
<PAGE> 13
and in form and substance satisfactory to Lender is executed and delivered to
Lender relative thereto; (ii) maintain the Existing Subordinated Debt; (iii)
incur other unsecured indebtedness for borrowed money not to exceed Two Hundred
Fifty Thousand Dollars ($250,000) in the aggregate at any time outstanding; and
(iv) incur unsecured indebtedness to trade creditors in the ordinary course of
Borrower's business;
(q) Borrower does not own any margin securities having a
marked-to-market value of more than Two Hundred Fifty Thousand Dollars
($250,000), and none of the proceeds of the Loan hereunder shall be used for
the purpose of purchasing or carrying any margin securities or for the purpose
of reducing or retiring any indebtedness which was originally incurred to
purchase any margin securities or for any other purpose not permitted by
Regulation G or Regulation U of the Board of Governors of the Federal Reserve
System as in effect from time to time;
(r) except as otherwise disclosed in writing to Lender, Borrower
has no Parents, Subsidiaries or divisions, except that Crescent Jewelers, Inc.,
a Delaware corporation, is the Parent of Borrower and Diamond Insurance Company
is a wholly-owned subsidiary of Borrower; and Borrower is not engaged in any
joint venture or partnership with any Person;
(s) Borrower is a corporation duly organized and in good standing
in the State of California and Borrower is duly qualified and in good standing
in all states where the nature and extent of the business transacted by it or
the ownership of its assets makes such qualification necessary, except where
the failure to so qualify would not have a material adverse effect on Borrower;
(t) Borrower is not in default under any material contract, lease
or commitment to which it is a party or by which it is bound (including any of
the documents, instruments and agreements set forth on Exhibit D), nor does
Borrower know of any dispute regarding any contract, lease or commitment which
is material to the continued financial success of Borrower, except where such
default or dispute would not have a material adverse effect on Borrower;
(u) there are no material controversies pending or, to the best of
Borrower's knowledge, threatened between Borrower and any of its employees,
other than employee grievances arising in the ordinary course of business which
are not, in the aggregate, material to the continued financial success and
well-being of Borrower, and Borrower is in compliance in all material respects
with all federal and state laws respecting employment and employment terms,
conditions and practices; and
(v) Borrower possesses, and shall continue to possess, adequate
licenses, patents, patent applications, copyrights, service marks, trademarks,
trademark applications, trade styles and trade names to continue to conduct its
business as heretofore conducted by it.
Borrower represents, warrants and covenants to Lender that all representations
and warranties of Borrower contained in this Agreement (whether appearing in
paragraphs 10 or 11 hereof or elsewhere) shall be true at the time of
Borrower's execution of this Agreement, shall survive the execution, delivery
and acceptance hereof by the parties hereto and the closing of the transactions
described herein or related hereto, shall remain true until the repayment in
full of all of the
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<PAGE> 14
Liabilities and termination of this Agreement, and shall be deemed remade by
Borrower at the time any LaSalle Loan is made under the LaSalle Loan Agreement.
11. ADDITIONAL COVENANTS OF BORROWER. Until payment or
satisfaction in full of all Liabilities and termination of this Agreement,
unless Borrower obtains the prior written consent of the Lender waiving or
modifying any of Borrower's covenants hereunder in any specific instance,
Borrower agrees as follows:
(a) Borrower shall at all times keep accurate and complete books,
records and accounts with respect to all of Borrower's business activities, in
accordance with generally accepted accounting principles consistently applied,
and shall keep such books, records and accounts, and any copies thereof, only
at the addresses indicated for such purpose on Exhibit B;
(b) Borrower agrees to deliver to Lender the following financial
information, all of which shall be prepared in accordance with generally
accepted accounting principles consistently applied: (i) no later than twenty-
five (25) days after each calendar month, copies of internally prepared
financial statements, including, without limitation, balance sheets and
statements of income, retained earnings and cash flow of Borrower, on a
consolidated basis, certified by the Chief Financial Officer of Borrower; (ii)
no later than forty-five (45) days after the end of each of the first three
quarters of Borrower's fiscal year a balance sheet, operating statement and
reconciliation of surplus of Borrower, each on a consolidated and consolidating
basis, which quarterly financial statements may be unaudited but shall be
certified by the Chief Financial Officer of Borrower; (iii) together with each
financial statement delivered pursuant to clauses (i) and (ii) of this
subparagraph 11(b), a certificate executed by the Chief Financial Officer of
Borrower stating that no Event of Default or event which with notice or the
passage of time or both would become an Event of Default has occurred (or, if
an Event of Default or any such other event has occurred, describing such event
and stating what actions Borrower has taken or intends to take as a result
thereof) and showing the calculations made to demonstrate that Borrower has
complied with all financial covenants contained in this Agreement and Exhibit
A; (iv) no later than ninety (90) days after the end of each of Borrower's
fiscal years (including the fiscal year ended July 31, 1996), annual financial
statements on a consolidated and consolidating basis with an unqualified
opinion by independent certified public accountants selected by Borrower and
reasonably satisfactory to Lender; and (v) a copy of any management letters
sent to Borrower by such accountants;
(c) Borrower shall promptly advise Lender in writing of any
material adverse change in the business, assets or condition, financial or
otherwise, of Borrower, the occurrence of any Event of Default hereunder or the
occurrence of any event which, if incurred, will become an Event of Default
hereunder after notice or lapse of time (or both);
(d) Lender, or any Persons designated by it, shall have the right,
at any time, to call at Borrower's places of business at any reasonable times,
and, without hindrance or delay, to inspect the Collateral and to inspect,
audit, check and make extracts from Borrower's books, records, journals,
orders, receipts and any correspondence and other data relating to Borrower's
business, the Collateral or any transactions between the parties hereto, and
shall have the right to make such verification concerning Borrower's business
as Lender may consider reasonable under the
-14-
<PAGE> 15
circumstances. Borrower shall furnish to Lender such information relevant to
Lender's rights under this Agreement as Lender shall at any time and from time
to time request. Borrower authorizes Lender to discuss the affairs, finances
and business of Borrower with any officers, employees or directors of Borrower
or with any Affiliate or the officers, employees or directors of any Affiliate,
and to discuss the financial condition of Borrower with Borrower's independent
public accountants. Any such discussions shall be without liability to Lender.
Borrower shall pay to Lender all customary fees and out-of-pocket expenses
incurred by Lender in the exercise of its rights hereunder, and all of such
fees and expenses shall constitute principal of the Loan hereunder, shall be
payable on demand and, until paid, shall bear interest at the highest rate then
applicable to the Loan hereunder;
(e) Borrower shall:
(i) keep the Collateral properly housed and insured for
the full insurable value thereof against loss or damage by fire,
theft, explosion, sprinklers, collision (in the case of motor
vehicles) and such other risks as are customarily insured against by
Persons engaged in businesses similar to that of Borrower, with such
companies, in such amounts, with such deductibles and under policies
in such form as shall be reasonably satisfactory to Lender. If
requested by Lender, original (or certified) copies of such policies
of insurance shall be delivered to Lender promptly upon request,
together with evidence of payment of all premiums therefor. Borrower
shall deliver to Lender upon its request a copy of an endorsement to
such insurance policies, in form and substance acceptable to Lender,
showing loss under such insurance policies payable to Lender as its
interest may appear. Such endorsement, or an independent instrument
furnished to Lender, shall provide that the insurance company shall
give Lender at least thirty (30) days written notice before any such
policy of insurance is altered or canceled and that no act, whether
willful or negligent, or default of Borrower or any other Person shall
affect the right of Lender to recover under such policy of insurance
in case of loss or damage. In addition, Borrower shall cause to be
executed and delivered to Lender an assignment of proceeds of its
business interruption insurance policies. Borrower hereby directs all
insurers under all policies of insurance to pay all proceeds payable
thereunder directly to Lender (or its designee). Borrower
irrevocably, makes, constitutes and appoints Lender (and all officers,
employees or agents designated by Lender) as Borrower's true and
lawful attorney (and agent-in-fact) for the purpose of making,
settling and adjusting claims under such policies of insurance,
endorsing the name of Borrower on any check, draft, instrument or
other item of payment for the proceeds of such policies of insurance
and making all determinations and decisions with respect to such
policies of insurance; and
(ii) maintain, at its expense, such public liability and
third party property damage insurance as is customary for Persons
engaged in businesses similar to that of Borrower with such companies
and in such amounts, with such deductibles and under policies in such
form as shall be reasonably satisfactory to Lender. Borrower shall
deliver original (or certified) copies of such policies to Lender
promptly upon Lender's request, together with evidence of payment of
all premiums therefor; each such policy shall contain an endorsement
showing Lender as additional insured thereunder and providing that the
-15-
<PAGE> 16
insurance company shall give Lender at least thirty (30) days written
notice before any such policy shall be altered or canceled.
If Borrower at any time or times hereafter shall fail to obtain or
maintain any of the policies of insurance required above or to pay any premium
relating thereto, then Lender, without waiving or releasing any obligation or
default by Borrower hereunder, may (but shall be under no obligation to) obtain
and maintain such policies of insurance and pay such premiums and take such
other actions with respect thereto as Lender reasonably deems advisable. All
sums disbursed by Lender in connection with any such actions, including,
without limitation, court costs, expenses, other charges relating thereto and
reasonable attorneys' fees, shall constitute principal of the Loan hereunder,
and shall be payable on demand by Borrower to Lender and, until paid, shall
bear interest at the highest rate then applicable to the loan hereunder. As of
the date hereof, Lender is satisfied that Borrower is in compliance with this
Section 11(e);
(f) Borrower shall not use the Collateral, or any part thereof, in
any unlawful business or for any unlawful purpose or use or maintain any of the
Collateral in any manner that does or could result in material damage to the
environment or a material violation of any applicable environmental laws, rules
or regulations; Borrower shall keep the Collateral in good condition, repair
and order (ordinary wear and tear excepted); shall permit Lender to examine any
of the Collateral at any time and wherever the Collateral may be located; shall
not permit the Collateral, or any part thereof, to be levied upon under
execution, attachment, distraint or other legal process; shall not sell, lease,
grant a security interest in or otherwise dispose of any of the Collateral
except as expressly permitted by this Agreement; shall not, following the
occurrence of an Event of Default, settle or adjust any amounts due with
respect to any Chattel Paper without the consent of Lender (except for
adjustments in the ordinary course that are reported to Lender within two (2)
Business Days); and shall not secrete or abandon any of the Collateral, or
remove or permit removal of any of the Collateral from any of the locations
listed on Exhibit B, except for the removal of Inventory sold in the ordinary
course of Borrower's business as permitted herein;
(g) all monies and other property obtained by Borrower from Lender
pursuant to this Agreement will be used solely for business purposes of
Borrower;
(h) Borrower shall, at the request of Lender, indicate on its
records concerning the Collateral a notation, in form satisfactory to Lender,
of the security interest of Lender hereunder;
(i) Borrower shall file all required tax returns and pay all of
its taxes when due, including, without limitation, taxes imposed by federal,
state or municipal agencies, and shall cause any liens for taxes to be promptly
released; provided, that Borrower shall have the right to contest the payment
of such taxes in good faith by appropriate proceedings so long as (i) the
amount so contested is reserved for on Borrower's financial statements, (ii)
the contesting of any such payment does not give rise to a lien for taxes,
(iii) Borrower keeps on deposit with Lender (or its designee) (such deposit to
be held without interest) an amount of money which, in the sole judgment of
Lender, is sufficient to pay such taxes and any interest or penalties that may
accrue thereon, and (iv) if Borrower fails to prosecute such contest with
reasonable diligence, Lender may apply the money so deposited in payment of
such taxes. If Borrower fails to pay any such taxes and in the absence of any
such contest by Borrower, Lender may (but shall be under no
-16-
<PAGE> 17
obligation to) advance and pay any sums required to pay any such taxes and/or
to secure the release of any lien therefor, and any sums so advanced by Lender
shall constitute principal of the Loan hereunder, shall be payable by Borrower
to Lender on demand, and, until paid, shall bear interest at the highest rate
then applicable to the Loan hereunder;
(j) Except for those items listed on Exhibit C hereto, Borrower
shall not assume, guarantee or endorse, or otherwise become liable in
connection with, the obligations of any Person, except by endorsement of
instruments for deposit or collection or similar transactions in the ordinary
course of business;
(k) Borrower shall not (i) enter into any merger or consolidation
(ii) sell, lease or otherwise dispose of any of its assets except in the
ordinary course of business; (iii) purchase all or substantially all of the
assets of any Person or any division of any Person, or (iv) enter into any
other transaction outside the ordinary course of Borrower's business,
including, without limitation, any purchase, redemption or retirement of any
shares of any class of its stock or any other equity interest, and any issuance
of any shares of, or warrants or other rights to receive or purchase any shares
of, any class of its stock or any other equity interest;
(l) Borrower shall not declare or pay any dividend or other
distribution (whether in cash or in kind) on any class of its stock (if
Borrower is a corporation) or on account of any equity interest in Borrower (if
Borrower is a partnership, limited liability company or other type of entity)
and Borrower shall not make any additional investments in or make or suffer to
exist any loans or intercompany obligations owing to or by Borrower from or to
its Parent or any subsidiary, or affiliate of Borrower except indebtedness
under a note payable to Subsidiary in the amount of $10,581,000, as increased
from time to time hereafter;
(m) Borrower shall not purchase or otherwise acquire, or contract
to purchase or otherwise acquire, the obligations or stock of any Person, other
than direct obligations of the United States;
(n) Borrower shall not amend its organizational documents or
change its fiscal year or enter into a new line of business materially
different from Borrower's current business;
(o) Borrower's Tangible Net Worth shall at no time be less than
the "Minimum Tangible Net Worth - Covenant Definition"; "Minimum Tangible Net
Worth - Covenant Definition" for any period means the amount set forth opposite
said period below:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
August 31 through November 30, 1996 $16,300,000.00
December 1, 1996 through November 30, 1997 $19,000,000.00
December 1, 1997 through November 30, 1998 $22,300,000.00
</TABLE>
-17-
<PAGE> 18
<TABLE>
<S> <C>
December 1, 1998 through November 30, 1999 $27,800,000.00
</TABLE>
(p) Borrower shall reimburse Lender for all costs and expenses,
including, without limitation, legal expenses and reasonable attorneys' fees,
incurred by Lender in connection with documentation and consummation of this
transaction and any other transactions between Borrower and Lender, including,
without limitation, Uniform Commercial Code and other public record searches,
and filings, overnight courier or other express or messenger delivery,
appraisal costs, surveys, title insurance and environmental audit or review
costs; (ii) collection, protection or enforcement of any rights in or to the
Collateral; (iii) collection of any Liabilities and (iv) administration and
enforcement of any of Lender's rights under this Agreement. Following the
occurrence of an Event of Default, Borrower shall reimburse Lender for all
costs and expenses, including, without limitation, legal expenses and
reasonable attorneys' fees, incurred by Lender in seeking to collect any
Liabilities owing to Lender and to enforce any of Lender's rights under this
Agreement or under any of the Other Agreements. All such costs, expenses and
charges shall constitute principal of the Loan hereunder, shall be payable by
Borrower to Lender on demand, and, until paid, shall bear interest at the
highest rate then applicable to the Loan hereunder;
(q) Borrower shall not purchase or otherwise acquire (including,
without limitation, acquisition by way of capitalized lease), or commit to
purchase or acquire, any fixed asset if, after giving effect to such purchase
or other acquisition, the aggregate cost of all such fixed assets purchased or
otherwise acquired would, during any fiscal year, exceed the amount set forth
opposite such fiscal year below;
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
1997 $3,500,000.00
1998 $4,400,000.00
1999 $5,300,000.00
</TABLE>
(r) Borrower shall deliver to Lender promptly upon Borrower's
receipt a copy of any notice or other communication received by Borrower from
Agent, any of the Lenders or any other Person under or in any way relating to
the LaSalle Loan Agreement where such notice or other communication states or
claims the existence or occurrence of any default or event of default under the
terms of the LaSalle Loan Agreement or any Other Agreement (as defined in the
LaSalle Loan Agreement); and
(s) Borrower shall not amend any of the terms and conditions of
any document evidencing or relating to any of the Existing Subordinated Debt.
12. DEFAULT. The occurrence of any one or more of the following
events shall constitute an "Event of Default" by Borrower hereunder:
(a) the failure of any Obligor to pay when due, declared due, or
demanded by Lender, in accordance with the terms of this Agreement, any of the
Liabilities;
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<PAGE> 19
(b) the failure of any Obligor to perform, keep or observe any of
the covenants, conditions, promises, agreements or obligations of such Obligor
under this Agreement or any of the Other Agreements;
(c) An Obligor shall fail to pay when due and payable the
principal of, or interest on, any indebtedness for money borrowed (other than
the Loan) having an aggregate outstanding principal amount of Five Hundred
Thousand Dollars ($500,000) or more; or the maturity of any such indebtedness
shall have (x) been accelerated in accordance with the provisions of any
indenture, contract or instrument evidencing, providing for the creation of or
otherwise concerning such indebtedness or (y) been required to be prepaid prior
to the stated maturity thereof; or any other event shall have occurred and be
continuing which, with or without the passage of time, the giving of notice or
otherwise, would permit any holder or holders of such indebtedness, or any
other Person, to accelerate the maturity of any such indebtedness or require
any such indebtedness to be prepaid prior to its stated maturity.
(d) the failure of any Obligor to perform, keep or observe any of
the covenants, conditions, promises, agreements or obligations of such Obligor
under any other agreement with any Person if such failure is reasonably likely
to have a material adverse effect on such Obligor's business, property, assets,
operations or condition, financial or otherwise;
(e) the making or furnishing by any Obligor to Lender of any
representation, warranty, certificate, schedule, report or other communication
within or in connection with this Agreement or the Other Agreements or in
connection with any other agreement between such Obligor and Lender, which is
untrue or misleading in any material respect;
(f) the loss, theft, damage or destruction (except where insurance
coverage conforming to the requirements of this Agreement exists and the
insurer has admitted liability) of, or (except as permitted hereby) sale, lease
or furnishing under a contract of service of, any of the Collateral, in each
case with respect to Collateral having a value in the aggregate; in excess of
the lesser of One Million Dollars ($1,000,000) or Borrower's shrinkage reserve
from time to time;
(g) the creation (whether voluntary or involuntary) of any lien or
other encumbrance upon any of the Collateral, other than the Permitted Liens,
or the making or any attempt to make any levy, seizure or attachment thereof;
(h) the commencement of any proceedings in bankruptcy by or
against any Obligor or for the liquidation or reorganization of any Obligor, or
alleging that such Obligor is insolvent or unable to pay its debts as they
mature, or for the readjustment or arrangement of any Obligor's debts, whether
under the United States Bankruptcy Code or under any other law, whether state
or federal, now or hereafter existing for the relief of debtors, or the
commencement of any analogous statutory or non-statutory proceedings involving
any Obligor; provided, however, that if such commencement of proceedings
against such Obligor is involuntary, such action shall not constitute an Event
of Default unless such proceedings are not dismissed within thirty (30) days
after the commencement of such proceedings;
-19-
<PAGE> 20
(i) the appointment of a receiver or trustee for any Obligor, for
any of the Collateral or for any substantial part of any Obligor's assets or
the institution of any proceedings for the dissolution, or the full or partial
liquidation, or the merger or consolidation, of any Obligor which is a
corporation, limited liability company or partnership; provided, however, that
if such appointment or commencement of proceedings against such Obligor is
involuntary, such action shall not constitute an Event of Default unless such
appointment is not revoked or such proceedings are not dismissed or stayed
within thirty (30) days after the commencement of such proceedings;
(j) the entry of any judgment or order against any Obligor in an
amount in excess of Two Hundred Fifty Thousand Dollars ($250,000) in the
aggregate for all such judgments and orders, which remains unsatisfied or
undischarged and in effect for thirty (30) days after such entry without a stay
of enforcement or execution;
(k) the dissolution of any Obligor which is a partnership, limited
liability company or corporation;
(l) the cessation of employment of Bradley Stinn in the position
of Chief Executive Officer (or his failure to continue to perform the duties of
Chief Executive Officer) of Borrower for any reason other than death or
permanent disability, or the failure of Morgan Schiff & Co., Inc. to own,
directly and beneficially, sufficient shares of the Borrower's stock to
exercise at least fifty-one percent (51%) of the voting control of Parent or
Parent ceases to own, directly and beneficially, one hundred percent (100%) of
the outstanding stock of Borrower;
(m) the occurrence of an event of default under, or the revocation
or termination of, any agreement, instrument or document executed and delivered
by any Person to Lender pursuant to which such Person has guaranteed to Lender
the payment of all or any of the Liabilities or has granted Lender a security
interest in or lien upon some or all of such Person's real and/or personal
property to secure the payment of all or any of the Liabilities; and
(n) the institution in any court of a criminal proceeding against
any Obligor, or the indictment of any Obligor for any crime.
13. REMEDIES UPON AN EVENT OF DEFAULT.
(a) Upon the occurrence of an Event of Default described in
paragraph 12(h) hereof, all of Borrower's Liabilities shall immediately and
automatically become due and payable, without notice of any kind. Upon the
occurrence of any other Event of Default, all Liabilities may, at the option of
the Lender, and without demand, notice or legal process of any kind, be
declared, and immediately shall become, due and payable.
(b) Upon the occurrence and during the continuation of an Event of
Default, Lender may exercise from time to time any rights and remedies
available to it under the Uniform Commercial Code and any other applicable law
in addition to, and not in lieu of, any rights and remedies expressly granted
in this Agreement or in any of the Other Agreements and all of Lender's rights
and remedies shall be cumulative and non-exclusive to the extent permitted by
law.
-20-
<PAGE> 21
In particular, but not by way of limitation of the foregoing, Lender may,
without notice, demand or legal process of any kind, take possession of any or
all of the Collateral, including, without limitation, Borrower's computer
hardware and software (in addition to Collateral of which it already has
possession), wherever it may be found, and for that purpose may pursue the same
wherever it may be found, and may enter into any of Borrower's premises where
any of the Collateral may be, and search for, take possession of, remove, keep
and store any of the Collateral until the same shall be sold or otherwise
disposed of, and Lender shall have the right to store the same at any of
Borrower's premises without cost to Lender. At Lender's request, Borrower
shall, at Borrower's expense, assemble the Collateral and make it available to
Lender at one or more places to be designated by Lender and reasonably
convenient to Lender and Borrower. Borrower recognizes that if Borrower fails
to perform, observe or discharge any of its Liabilities under this Agreement or
the Other Agreements, no remedy at law will provide adequate relief to Lender,
and agrees that Lender shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages. Any
notification of intended disposition of any of the Collateral required by law
will be deemed reasonably and properly given if given at least five (5)
calendar days before such disposition. Any proceeds of any disposition by
Lender of any of the Collateral may be applied by Lender to the payment of
expenses in connection with the Collateral, including, without limitation,
legal expenses and reasonable attorneys' fees, and any balance of such proceeds
may be applied by Lender toward the payment of such of the Liabilities, and in
such order of application, as Lender may from time to time elect.
14. INDEMNIFICATION. Borrower agrees to defend, protect,
indemnify and hold harmless Lender, each affiliate or subsidiary of Lender
(with counsel reasonably satisfactory to Lender), and each of their respective
officers, directors, employees, attorneys and agents (each an "Indemnified
Party") from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and disbursements
of any kind or nature (including, without limitation, the disbursements and the
reasonable fees of counsel for each Indemnified Party in connection with any
investigative, administrative or judicial proceeding, whether or not the
Indemnified Party shall be designated a party thereto), which may be imposed
on, incurred by, or asserted against, any Indemnified Party (whether direct,
indirect or consequential and whether based on any federal, state or local laws
or regulations, including, without limitation, securities laws, Environmental
Laws and commercial laws and regulations, under common law or in equity, or
based on contract or otherwise) in any manner relating to or arising out of
this Agreement or any Other Agreement, or any act, event or transaction related
or attendant thereto, the making and management of the Loan or the use or
intended use of the proceeds of the Loan; provided, however, that Borrower
shall have no obligation hereunder to any Indemnified Party with respect to
matters caused by or resulting from the willful misconduct or gross negligence
of such Indemnified Party. To the extent that the undertaking to indemnify set
forth in the preceding sentence may be unenforceable because it is violative of
any law or public policy, Borrower shall satisfy such undertaking to the
maximum extent permitted by applicable law. Any liability, obligation, loss,
damage, penalty, cost or expense covered by this indemnity shall be paid to
each Indemnified Party on demand, and, failing prompt payment, shall, together
with interest thereon at the highest rate then applicable to the Loan hereunder
from the date incurred by each Indemnified Party until paid by Borrower, be
added to the Liabilities of
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<PAGE> 22
Borrower and be secured by the Collateral. The provisions of this paragraph 14
shall survive the satisfaction and payment of the other Liabilities and the
termination of this Agreement.
15. NOTICE. All written notices and other written communications
with respect to this Agreement shall be sent by ordinary, certified or
overnight mail, by telecopy or delivered in person, and (i) in the case of
Lender shall be sent to it at 4 West State Street, Savannah, Georgia 31401,
Attention: Chief Financial Officer and (ii) in the case of Borrower, shall be
sent to it at its principal place of business set forth on the first page of
this Agreement.
16. CHOICE OF GOVERNING LAW; CONSTRUCTION; FORUM SELECTION. This
Agreement and the Other Agreements are submitted by Borrower to Lender for
Lender's acceptance or rejection at Lender's principal place of business as an
offer by Borrower to borrow monies from Lender now and from time to time
hereafter, and shall not be binding upon Lender or become effective until
accepted by Lender, in writing, at said place of business. If so accepted by
Lender, this Agreement and the Other Agreements shall be deemed to have been
made at said place of business. THIS AGREEMENT AND THE OTHER AGREEMENTS SHALL
BE GOVERNED AND CONTROLLED BY THE INTERNAL LAWS OF THE STATE OF GEORGIA AS TO
INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT AND IN ALL OTHER
RESPECTS, INCLUDING, WITHOUT LIMITATION, THE LEGALITY OF THE INTEREST RATE AND
OTHER CHARGES, BUT EXCLUDING PERFECTION OF THE SECURITY INTERESTS IN COLLATERAL
LOCATED OUTSIDE OF THE STATE OF GEORGIA, WHICH SHALL BE GOVERNED AND CONTROLLED
BY THE LAWS OF THE RELEVANT JURISDICTION IN WHICH SUCH COLLATERAL IS LOCATED.
If any provision of this Agreement shall be held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or remaining provisions of this Agreement.
To induce Lender to accept this Agreement, Borrower irrevocably agrees
that, subject to Lender's sole and absolute election, ALL ACTIONS OR
PROCEEDINGS IN ANY WAY, MANNER OR RESPECT ARISING OUT OF OR FROM OR RELATED TO
THIS AGREEMENT, THE OTHER AGREEMENTS OR THE COLLATERAL SHALL BE LITIGATED IN
COURTS HAVING SITUS WITHIN THE CITY OF ATLANTA OR SAVANNAH, STATE OF GEORGIA.
BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR
FEDERAL COURTS LOCATED WITHIN SAID CITY AND STATE. Borrower hereby irrevocably
appoints and designates the Secretary of State of Georgia (or any other person
having and maintaining a place of business in such state whom Borrower may from
time to time hereafter designate upon ten (10) days written notice to Lender
and who Lender has agreed in its reasonable discretion in writing is
satisfactory and who has executed an agreement in form and substance
satisfactory to Lender agreeing to act as such attorney and agent), as
Borrower's true and lawful attorney and duly authorized agent for acceptance of
service of legal process. Borrower agrees that service of such process upon
such person shall constitute personal service of such process upon Borrower.
BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF
ANY LITIGATION BROUGHT AGAINST BORROWER BY LENDER IN ACCORDANCE WITH THIS
PARAGRAPH.
-22-
<PAGE> 23
17. MODIFICATION AND BENEFIT OF AGREEMENT. This Agreement and the
Other Agreements may not be modified, altered or amended except by an agreement
in writing signed by Borrower or such other person who is a party to such Other
Agreement, and Lender. Borrower may not sell, assign or transfer this
Agreement or the Other Agreements or any portion thereof, including, without
limitation, Borrower's rights, titles, interest, remedies, powers or duties
hereunder and thereunder. Borrower hereby consents to Lender's sale,
assignment, transfer or other disposition, at any time and from time to time
hereafter, of this Agreement or the Other Agreements, or of any portion
thereof, or participations therein, including, without limitation, Lender's
rights, titles, interest, remedies, powers and/or duties and agrees that it
shall execute and deliver such documents as Lender may reasonably request in
connection with any such sale, assignment, transfer or other disposition.
18. HEADINGS OF SUBDIVISIONS. The headings of subdivisions in
this Agreement are for convenience of reference only, and shall not govern the
interpretation of any of the provisions of this Agreement.
19. POWER OF ATTORNEY. Borrower acknowledges and agrees that its
appointment of Lender as its attorney and agent-in-fact for the purposes
specified in this Agreement is an appointment coupled with an interest and
shall be irrevocable until all of the Liabilities are satisfied and paid in
full and this Agreement is terminated.
20. CONFIDENTIALITY. Borrower and Lender hereby agree and
acknowledge that any and all information relating to Borrower which is (i)
furnished by Borrower to Lender (or to any affiliate of Lender) and (ii)
non-public, confidential or proprietary in nature, shall be kept confidential
by Lender or such affiliate in accordance with applicable law, provided,
however, that such information and other credit information relating to
Borrower may be distributed by Lender or such affiliate to Lender's or such
affiliate's directors, officers, employees, attorneys, affiliates, assignees,
participants, auditors and regulators, and upon the order of a court or other
governmental agency having jurisdiction over Lender or such affiliate, or in
response to any summons or subpoena, to any other party. Borrower and Lender
further agree that this provision shall survive the termination of this
Agreement.
21. WAIVER OF JURY TRIAL; OTHER WAIVERS.
(a) BORROWER AND LENDER EACH HEREBY WAIVES ALL RIGHTS TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS
AGREEMENT, ANY OF THE OTHER AGREEMENTS, THE LIABILITIES, THE COLLATERAL, ANY
ALLEGED TORTIOUS CONDUCT BY BORROWER OR LENDER OR WHICH, IN ANY WAY, DIRECTLY
OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN BORROWER
AND LENDER. IN NO EVENT SHALL LENDER BE LIABLE FOR LOST PROFITS OR OTHER
SPECIAL OR CONSEQUENTIAL DAMAGES.
(b) Borrower hereby waives demand, presentment, protest and notice
of nonpayment, and further waives the benefit of all valuation, appraisal and
exemption laws.
-23-
<PAGE> 24
(c) BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY
KIND PRIOR TO THE EXERCISE BY LENDER OF ITS RIGHTS TO REPOSSESS THE COLLATERAL
OF BORROWER WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON SUCH
COLLATERAL.
(d) Lender's failure, at any time or times hereafter, to require
strict performance by Borrower of any provision of this Agreement or any of the
Other Agreements shall not waive, affect or diminish any right of Lender
thereafter to demand strict compliance and performance therewith. Any
suspension or waiver by Lender of an Event of Default under this Agreement or
any default under any of the Other Agreements shall not suspend, waive or
affect any other Event of Default under this Agreement or any other default
under any of the Other Agreements, whether the same is prior or subsequent
thereto and whether of the same or of a different kind or character. No delay
on the part of Lender in the exercise of any right or remedy under this
Agreement or any Other Agreement shall preclude other or further exercise
thereof or the exercise of any right or remedy. None of the undertakings,
agreements, warranties, covenants and representations of Borrower contained in
this Agreement or any of the Other Agreements and no Event of Default under
this Agreement or default under any of the Other Agreements shall be deemed to
have been suspended or waived by Lender unless such suspension or waiver is in
writing, signed by a duly authorized officer of Lender and directed to Borrower
specifying such suspension or waiver.
22. SUBORDINATION AGREEMENT. THE RIGHTS AND REMEDIES OF LENDER
HEREUNDER AND UNDER THE OTHER AGREEMENTS ARE SUBJECT TO THE TERMS AND
CONDITIONS OF THE SUBORDINATION AGREEMENT.
23. CONVERSION RIGHTS. Lender may, subject to the terms and
conditions of the Conversion Agreement, cause the Loan and the other
Liabilities to be converted to certain equity interests in Borrower's Parent.
24. LASALLE LOAN AGREEMENT. Any definitions or other terms or
provisions of the LaSalle Loan Agreement incorporated herein by reference will
be deemed to continue in effect for the benefit of the Lender until this
Agreement has terminated and all Liabilities have been indefeasibly paid in
full, including, without limitation, whether or not the LaSalle Loan Agreement
remains in effect or whether or not the LaSalle Loan Agreement is amended,
restated or terminated after the date hereof.
25. CERTAIN DETERMINATIONS BY LENDER. (a) So long as the LaSalle
Loan Agreement remains in effect, Lender agrees that the following provisions
shall apply with respect to the indicated paragraphs of this Agreement or the
Security Agreement of the Parent or of Diamond Insurance Company (the
"Guarantors") executed and delivered on the date hereof (each a "Security
Agreement", and together the "Security Agreements"), as applicable:
(i) For purposes of the definition of the term "Tangible
Net Worth" herein, the book value of Borrower's intangible assets
shall be the same amount as determined by the
-24-
<PAGE> 25
Agent for purposes of the definition of the term "Tangible Net Worth"
in the LaSalle Loan Agreement;
(ii) Borrower shall be deemed to have satisfied any
requirement of delivery to Lender of Chattel Paper under paragraph 5
or of Collateral evidenced by an agreement, Instrument or Document
under paragraph 7(d), if Borrower shall have delivered such property
to Agent;
(iii) For purposes of paragraph 7(a), Lender agrees that
any financial institution having control over a Lock Box or at which a
Lock Box Account is maintained and which is acceptable to Agent, shall
be deemed acceptable to Lender;
(iv) For purposes of paragraph 7(a), Lender agrees that
any acknowledgment and agreement from a financial institution
regarding ownership of amounts on deposit in a Lock Box Account, such
financial institution's right of setoff and such financial
institution's agreement to transfer periodically such amounts on
deposit to Lender (or its designee), and which acknowledgment and
agreement is acceptable to Agent, shall be deemed acceptable to
Lender; and
(v) Borrower may deliver a copy of any insurance policy
the original of which is otherwise required to be provided to Lender
under paragraph 11(e) if such original has been or is being delivered
to Agent;
(b) so long as the LaSalle Loan Agreement remains in effect and no
Event of Default shall have or occurred and be continuing, Lender agrees that
the following provisions shall apply with respect to the indicated paragraphs
of this Agreement or the Security Agreements of each of the Guarantors, as
applicable:
(i) Lender agrees that it will not verify any matter
relating to Borrower's Chattel Paper and Accounts as permitted under
paragraph 8(a);
(ii) Lender agrees that any schedule of Chattel Paper
required to be delivered under paragraph 8(a), any Inventory report
required to be delivered under paragraph 8(b), and any financial
report required to be delivered under 11(b), which is in form
satisfactory to Agent shall be deemed acceptable to Lender;
(ii) For purposes of paragraph 11(b), Lender agrees that
any independent certified public accountants acceptable to Agent,
shall be deemed acceptable to Lender;
(iv) For purposes of paragraph 11(e), Lender agrees that
any insurance form acceptable to Agent, shall be deemed acceptable to
Lender;
(v) Each Guarantor may deliver a copy of any insurance
policy the original of which is otherwise required to be provided to
Lender under paragraph 8(d) of each Security Agreement if such
original has been or is being delivered to Agent;
-25-
<PAGE> 26
(vi) Lender agrees that it will not verify any matter
relating to any Guarantor's Chattel Paper and Accounts as permitted
under paragraph 5(a) of each Security Agreement;
(vii) Lender agrees that any schedule of Chattel Paper
required to be delivered under paragraph 5(a) of each Security
Agreement and any Inventory report required to be delivered under
paragraph 5(b) of each Security Agreement, which is in form
satisfactory to Agent shall be deemed acceptable to Lender;
(viii) For purposes of paragraph 8(d) of each Security
Agreement, Lender agrees that any insurance form acceptable to Agent,
shall be deemed acceptable to Lender; and
(ix) For purposes of paragraph 7(a) Lender agrees that any
appointment by Borrower or Lender as Borrower's attorney and
agent-in-fact shall be exercised by Lender consistent with Agent's
rights.
[Signatures On Next Page]
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<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the 15th day of October, 1996.
CRESCENT JEWELERS FRIEDMAN'S INC.
By: /s/ Joseph M. Donaghy By: /s/ John G. Call
----------------------------------- ----------------------------
Title: Chief Financial Officer Title: Chief Financial Officer
<PAGE> 1
EXHIBIT 10.2
NOTE
Executed as of the 15th day of
October, 1996. Amount: $20,000,000.00
FOR VALUE RECEIVED, the Undersigned promises to pay to the order of
FRIEDMAN'S INC. (hereinafter, together with any holder hereof, called
"Lender"), at the main office of the Lender, the principal sum of
Twenty-Million and No/100 Dollars ($20,000,000.00) plus the aggregate unpaid
principal amount of the Loan made by Lender to the Undersigned pursuant to and
in accordance with the Loan Agreement (as hereinafter defined) in excess of
such amount or, if more or less, the aggregate unpaid principal amount of all
advances made by Lender to the Undersigned pursuant to and in accordance with
Paragraph 2 of the Loan Agreement. The Undersigned further promises to pay
interest on the outstanding principal amount hereof on the dates and at the
rates provided in the Loan Agreement from the date hereof until payment in full
hereof. Principal hereunder shall be payable pursuant to the terms of the Loan
Agreement.
This Note is referred to in and was delivered pursuant to that certain
Loan and Security Agreement, as it may be amended from time to time, together
with all exhibits thereto, dated October 15, 1996, between Lender and the
Undersigned (the "Loan Agreement"). All terms which are capitalized and used
herein (which are not otherwise defined herein) shall have the meaning ascribed
to such term in the Loan Agreement.
If payment hereunder becomes due and payable on a Saturday, Sunday or
legal holiday under the laws of the United States or the State of Georgia, the
due date thereof shall be extended to the next succeeding business day, and
interest shall be payable thereon at the rate specified during such extension.
Credit shall be given for payments made in the manner and at the times provided
in the Loan Agreement. It is the intent of the parties that the rate of
interest and other charges to the Undersigned under this Note shall be lawful;
therefore, if for any reason the interest or other charges payable hereunder
are found by a court of competent jurisdiction, in a final determination, to
exceed the limit which Lender may lawfully charge the Undersigned, then the
obligation to pay interest or other charges shall automatically be reduced to
such limit and, if any amount in excess of such limit shall have been paid,
then such amount shall be refunded to the Undersigned.
The principal and all accrued interest hereunder may be prepaid by the
Undersigned, in part or in full, at any time; provided, however, that if
Borrower prepays all of the Liabilities prior to the scheduled due date
thereof, the Undersigned shall pay a prepayment fee as provided in the Loan
Agreement.
The Undersigned waives the benefit of any law that would otherwise
restrict or limit Lender in the exercise of its right, which is hereby
acknowledged, to set-off against the Liabilities, without notice and at any
time hereafter, any indebtedness matured or unmatured owing from Lender to the
Undersigned. The Undersigned waives every defense, counterclaim or setoff
which the Undersigned may now have or hereafter may have to any action by
Lender in enforcing this Note and/or any of the other Liabilities, or in
enforcing Lender's rights in the Collateral and ratifies and confirms whatever
Lender may do pursuant to the terms hereof and of
<PAGE> 2
the Loan Agreement and with respect to the Collateral and agrees that Lender
shall not be liable for any error in judgment or mistakes of fact or law.
The Undersigned, any other party liable with respect to the
Liabilities and any and all endorsers and accommodation parties, and each one
of them, if more than one, waive any and all presentment, demand, notice of
dishonor, protest, and all other notices and demands in connection with the
enforcement of Lender's rights hereunder.
THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL LAWS OF THE
STATE OF GEORGIA AS TO INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION,
EFFECT, AND IN ALL OTHER RESPECTS, INCLUDING WITHOUT LIMITATION, THE LEGALITY
OF THE INTEREST RATE AND OTHER CHARGES, and shall be binding upon the
Undersigned and the Undersigned's heirs, legal representatives, successors and
assigns. If this Note contains any blanks when executed by the Undersigned,
the Lender is hereby authorized, without notice to the Undersigned to complete
any such blanks according to the terms upon which the loan or loans were
granted. Wherever possible, each provision of this Note shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited by or be invalid under such law,
such provision shall be severable, and be ineffective to the extent of such
prohibition or invalidity, without invalidating the remaining provisions of
this Note. If more than one party shall execute this Note, the term
"Undersigned" as used herein shall mean all parties signing this Note, and each
one of them, and all such parties, their respective heirs, executors,
administrators, successors and assigns, shall be jointly and severally
obligated hereunder.
To induce the Lender to make the loan evidenced by this Note, the
Undersigned (i) irrevocably agrees that, subject to Lender's sole and absolute
election, all actions arising directly or indirectly as a result or in
consequence of this Note or any other agreement with the Bank, or the
Collateral, shall be instituted and litigated only in courts having situs in
the City of Atlanta or Savannah, State of Georgia, (ii) hereby consents to the
jurisdiction and venue of any State or Federal Court located and having its
situs in said cities, and (iii) waives any objection based on forum
non-conveniens. IN ADDITION, THE UNDERSIGNED HEREBY WAIVES TRIAL BY JURY IN
ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS NOTE,
THE LIABILITIES, THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY THE
UNDERSIGNED OR LENDER OR WHICH IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT
OF OR RELATES TO THE RELATIONSHIP BETWEEN THE UNDERSIGNED AND LENDER, waives
personal service of any and all process, and consents that all such service of
process may be made by certified mail, return receipt requested, directed to
the Undersigned at the address indicated in the Lender's records; and service
so made shall be complete five (5) days after the same has been deposited in
the U.S. mails as aforesaid.
As used herein, all provisions shall include the masculine, feminine,
neuter, singular and plural thereof, wherever the context and facts require
such construction and in particular the word "Undersigned" shall be so
construed.
-2-
<PAGE> 3
THE RIGHTS AND REMEDIES OF LENDER HEREUNDER ARE SUBJECT TO THE TERMS
AND CONDITIONS OF THE SUBORDINATION AGREEMENT (as defined in the Loan
Agreement).
IN WITNESS WHEREOF, each of the Undersigned, if more than one, has
executed this Note on the date above set forth.
CRESCENT JEWELERS
By
--------------------------------------
Name
------------------------------------
Title
-----------------------------------
Address:
315 11th Street
Oakland, California 94607
-3-
<PAGE> 1
EXHIBIT 10.3
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT is dated as of October __, 1996 and is by and
among FRIEDMAN'S INC. ("Friedman's"), each of the Lenders from time to time
party to the Loan Agreement (as defined below) and LASALLE NATIONAL BANK, as
Agent for such Lenders ("Agent").
W I T N E S S E T H:
WHEREAS, Crescent Jewelers, a California corporation ("Borrower"), is
indebted to Friedman's, as evidenced by a Loan and Security Agreement (the
"Friedman's Agreement") and Note, each dated of even date herewith (together
with the Other Agreements as defined in the Friedman's Agreement, the "Junior
Debt Instruments"), and will or may from time to time hereafter be otherwise
indebted to Friedman's in various sums;
WHEREAS, Friedman's is desirous of having Agent and the other Lenders party
to that certain Loan and Security Agreement dated of even date herewith (the
"Loan Agreement") among Borrower, Agent and the other Lenders extend and/or
continue the extension of credit to Borrower from time to time in accordance
with the terms of the Loan Agreement, and Lenders have required as a condition
to the extension and/or continued extension of such credit that the "Junior
Debt" (as defined below) be subordinated to the "Senior Debt" (as defined below)
in the manner hereinafter set forth; and
WHEREAS, the parties hereto acknowledge that the extension and/or continued
extension of credit, as aforesaid, by Lenders and Friedman's is necessary or
desirable to the conduct and operation of the business of Borrower;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
I. Friedman's hereby agrees:
A. to subordinate the indebtedness evidenced by the Junior Debt
Instruments now or at any time or times hereafter owing by Borrower, or any
successor or assign of Borrower, including without limitation, a receiver,
trustee or debtor-in-possession (the term "Borrower" as used hereinafter shall
include any such successor or assign) to Friedman's, whether such indebtedness
is absolute or contingent, direct or indirect and howsoever evidenced, including
without limitation all interest thereon (collectively, the "Junior Debt") to any
and all indebtedness evidenced by the Loan Agreement and the Other Agreements
(as defined in the Loan Agreement) now or at any time or times hereafter owing
by Borrower to Lenders (whether absolute or contingent, direct or indirect and
howsoever evidenced, including without limitation all interest thereon) and all
other demands, claims, liabilities or causes of action for which Borrower may
now or at any time or times hereafter in any way be liable to Lenders, whether
under any agreement, instrument or document executed and
<PAGE> 2
delivered or made by Borrower to Agent, any Lender or otherwise (collectively,
the "Senior Debt");
b. except as otherwise permitted in Section 6 below, not to ask for or
receive from Borrower or any other person or entity any security for the Junior
Debt not specifically granted by the Junior Debt Instruments; agrees that all
security interests, liens, encumbrances and claims, whether now existing or
hereafter arising, which in any way secure the payment of the Junior Debt
("Friedman's Collateral") are subordinate to and junior in right to all security
interests, liens, encumbrances and claims, whether now existing or hereafter
arising, which in any way secure the payment of the Senior Debt (the "Lenders'
Collateral"); agrees that it will not take any action to enforce any of its
liens on Friedman's Collateral; and agrees that it shall have no right to
possession of any assets of Borrower or any other assets included in Friedman's
Collateral or the Lenders' Collateral, whether by judicial action or otherwise,
unless and until all the Senior Debt has been indefeasibly paid in full in cash,
the Loan Agreement has terminated and all obligations arising in connection
therewith have been discharged and agrees that it will not file any fixture
filings under the Uniform Commercial Code against any assets of Borrower unless
Agent has also made each such filing;
c. except for payments permitted under Section 2 below, to instruct
Borrower not to pay, and agrees not to accept payment of, or (except, subject to
paragraph 1(D), to the extent necessary to preserve its claims against Borrower
in any liquidation, bankruptcy or other similar proceeding) assert, demand, sue
for or seek to enforce against Borrower or any other person or entity, by setoff
or otherwise, all or any portion of the Junior Debt unless and until the Senior
Debt has been indefeasibly paid in full in cash, the Loan Agreement has
terminated and all obligations arising in connection therewith have been
discharged and, in particular but not by way of limitation, agrees that, until
all of the Senior Debt has been indefeasibly paid in full in cash, the Loan
Agreement has terminated and all obligations arising in connection therewith
have been discharged, it will not exercise any of its rights under the second
sentence of paragraph 5 (marking and delivery of Chattel Paper), paragraph 7(a)
and paragraph 6 of Exhibit A (collection of accounts), paragraph 7(d) (delivery
of Collateral in the form of Instruments or Documents), or the second to last
sentence of paragraph 8(a) (account verification) of the Friedman's Loan
Agreement or under paragraph 5(a) of each of the Security Agreements between
Friedman's and Crescent Jewelers, Inc. and Diamond Insurance Company and that it
will defer to Agent the right to determine whether any matters that are required
to be satisfactory or acceptable to Friedman's under the Friedman's Loan
Agreement and to Agent under the Loan Agreement are satisfactory or acceptable;
d. to subrogate Agent, for its benefit and the benefit of the other
Lenders, to the Junior Debt and Friedman's Collateral; irrevocably authorizes
Agent, for its benefit and the benefit of the other Lenders, (i) to collect,
receive, enforce and accept any and all sums or distributions of any kind that
may become due, payable or distributable on or in respect of the Junior Debt or
Friedman's Collateral, whether paid
<PAGE> 3
directly by Borrower or paid or distributed in any liquidation, bankruptcy,
arrangement, receivership, assignment, reorganization or dissolution proceedings
or otherwise; (ii) in Agent's sole discretion, to make and present claims
therefor (including filing of proofs of claim if Friedman's shall have failed to
do so within 5 days following Agent's request that they do so) in any such
proceedings; (iii) to vote all of Friedman's claims in any such proceedings,
provided, however, that Agent may not vote any such claim in a manner that would
impair or effect, directly or indirectly, any of Friedman's rights under the
subordination provisions of the Note Purchase Agreement dated April 13, 1990,
relating to Borrower's 9% Convertible Subordinated Notes Due April 15, 2000, the
Indenture dated as of January 15, 1989, relating to the Borrower's 13-1/2%
Senior Subordinated Notes due 1999 and the Indenture dated as of January 15,
1989, relating to the Borrower's 14-1/2% Senior Subordinated Notes due 1999,
each as amended through the date hereof (collectively, the "Subordinated Debt
Documents") to receive any payments or distributions to which the holders of the
securities issued under the Subordinated Debt Documents would be entitled but
for the subordination provisions of the Subordinated Debt Documents; and (iv) to
take such other actions not inconsistent with this subsection 1(D) as Agent
deems necessary or advisable in connection with any such proceedings, in each
case, either in Agent's name in the name of any Lender or Lenders or in the name
of Friedman's;
e. to receive and hold in trust for and promptly turn over to Agent,
in the form received (except for the endorsement or assignment by Friedman's
where necessary), any sums at any time paid to, or received by, Friedman's in
respect of the Junior Debt that Friedman's is not permitted to be paid or
receive by the terms of this Agreement at any time while this Agreement is in
force and effect and to reimburse Agent for all costs, including reasonable
attorney's fees, incurred by Agent in the course of collecting said sums should
Friedman's fail to voluntarily turn the same over to Agent as herein required.
If Friedman's fails to promptly endorse or assign to Agent any items of payment
received by Friedman's on account of the Junior Debt, Friedman's hereby
automatically and irrevocably makes, constitutes and appoints Agent (and all
persons designated by Agent for that purpose) as Friedman's true and lawful
attorney and agent-in-fact, solely to make such endorsement or assignment in
Friedman's name; and
f. not to modify or amend any agreement, instrument or document
evidencing or securing the Junior Debt, including without limitation the Junior
Debt Instruments, without the prior written consent of Agent, where such
amendment, supplement, alteration, modification, waiver or consent provides for
the following or which has any of the following effects: (i) increases or
decreases the overall principal amount of the Junior Debt or increases the
amount of any single scheduled installment of principal or interest; (ii)
shortens or accelerates the date upon which any installment of principal or
interest of any Junior Debt becomes due; (iii) shortens the final maturity date
of the Junior Debt or otherwise accelerates the amortization schedule with
respect to such indebtedness; (iv) increases the rate of interest accruing on
the Junior Debt; (v) provides for the payment of additional fees or an increase
in the existing fees or (vi) modifies any covenant in a manner, or imposes a new
covenant, which is more
<PAGE> 4
onerous or more restrictive to an Obligor or which places additional
restrictions on an Obligor or which requires an Obligor to comply with more
restrictive financial ratios or which requires an Obligor to better its
financial performance from that set forth in the existing financial covenants.
Notwithstanding the foregoing, if Agent and Borrower amend the Loan Agreement,
Friedman's and Borrower shall be permitted to make identical changes to the
corresponding provisions of the Friedman's Loan Agreement, if any, together with
any necessary conforming changes.
II. (A) Borrower may pay, and Friedman's may receive, regularly
scheduled payments of interest on an unaccelerated basis owing under the Junior
Debt Instruments (as in effect on the date hereof or modified as permitted under
subsection 1(F) above) so long as no payment default has occurred and is
continuing in respect of the Senior Debt or would be caused by the making of any
such payment and so long as Friedman's has not failed to purchase Notes (as
defined in the Standby Purchase Agreement attached hereto as Exhibit A) at a
time when it was obligated to purchase them under such Standby Purchase
Agreement. Borrower may resume interest payments on the Junior Debt Instruments
when such payment default is cured or waived or has ceased to exist if this
Section 2 otherwise permits the payment at that time.
b. In addition, during the continuance of any event of default (other
than in the payment of principal or interest) with respect to any Senior Debt
pursuant to which the maturity thereof may be accelerated, upon receipt by
Friedman's of a written notice from Agent (a "Blockage Notice"), no such
regularly scheduled payments of interest may be made by Borrower upon or in
respect of the Junior Debt Instruments for a payment blockage period ("Payment
Blockage Period") commencing on the date of receipt of such notice and ending
179 days thereafter (unless such event of default shall have been cured or
waived or such Payment Blockage Period shall have been terminated by written
notice to Friedman's from Agent). Notwithstanding anything to the contrary
herein, in no event shall a Payment Blockage Period extend beyond 179 days from
the date any such regularly scheduled interest payment was due. Notwithstanding
anything to the contrary herein, not more than a total of 179 days of Payment
Blockage Period may occur with respect to the Junior Debt Instruments during any
period of 360 consecutive days, it being understood that the provisions of this
Section 2(B) shall prevent not more than 6 regularly scheduled interest payments
to be made under the Friedman's Agreement as in effect on the date hereof, out
of any 7 consecutive such interest payments. For all purposes of this Section
2(B), no event of default which existed or was continuing on the date of the
commencement of any Payment Blockage Period with respect to the Senior Debt
shall be, or be made, the basis for the commencement of a second Payment
Blockage Period by Agent whether or not within a period of 360 consecutive days
unless such event of default shall have been cured or waived for a period of not
less than 90 consecutive days. The foregoing sentence shall not, however,
prevent an additional Payment Blockage Period based upon a new event of default
under the same provision of the Loan Agreement. Notwithstanding the foregoing,
no further notice may be given with respect to an event of default of the type
referred to in this Section 2(B) on any Senior Debt or in respect
<PAGE> 5
of any acceleration unless and until all regularly scheduled payments of
interest not paid on the Junior Debt Instruments during any such Payment
Blockage Period as a result of any notice pursuant to this Section 2(B) shall
have been paid in full in cash or cash equivalents. Nothing in this Section 2
shall relieve the holders of such Senior Debt from any notice requirements set
forth in the instrument evidencing such Senior Debt.
c. Agent and Lenders agree that a Blockage Notice may only be given
to Friedman's if contemporaneously with the giving of such Blockage Notice,
Agent or the requisite number of Lenders are giving blockage notices under the
subordination provisions of each of (i) the Note Purchase Agreement, dated as of
April 13, 1990, as amended, relating to Borrower's 9% Convertible Subordinated
Notes due April 15, 2000; (ii) the Indenture, dated as of January 15, 1989, as
amended, relating to Borrower's 13-1/2% Subordinated Notes due 1999; and (iii)
the Indenture, dated as of January 15, 1989, as amended, relating to Borrower's
14-1/2% Subordinated Notes due 1999 (collectively, the "Note Agreements").
d. Friedman's agrees that it shall not exercise any of its blockage
rights under any of the Note Agreements without the prior written consent of
Agent, except that, if a payment default exists under the Friedman's Loan
Agreement, Friedman's may enforce compliance by Borrower and by the holders of
the debt instruments issued under the Note Agreements of the payment blockage
provisions of the Note Agreements relating to payment blockages in the case of a
payment default.
III. Friedman's represents and warrants to Agent and the other Lenders,
that Friedman's has not assigned or otherwise transferred the Junior Debt or
Friedman's Collateral, or any interest therein to any person or entity, that
Friedman's will make no such assignment or other transfer thereof without the
prior written consent of Agent, and that all agreements, instruments and
documents evidencing the Junior Debt and Friedman's Collateral will be endorsed
with proper notice of this Agreement. Friedman's represents and warrants to
Agent and Lenders that (i) the outstanding principal amount of Junior Debt
evidenced by the Junior Debt Instruments as of the date of this Agreement is
$20,000,000 and shall be no less than $20,000,000 at all times until the Senior
Debt has been paid in full, the Loan Agreement has terminated and obligations
arising in connection therewith have been discharged and (ii) that Friedman's
has executed the Standby Purchase Agreement attached hereto as Exhibit A.
IV. Friedman's expressly waives all notice of the acceptance by Agent
or any Lender of the subordination and other provisions of this Agreement and
all notices not specifically required pursuant to the terms of this Agreement,
and Friedman's expressly waives reliance by Agent and the other Lenders upon the
subordination and other provisions of this Agreement as herein provided.
Friedman's consents and agrees that all Senior Debt shall be deemed to have been
made, incurred and/or continued in reliance upon this Agreement. Friedman's
agrees that neither Agent nor any Lender has made any warranties or
representations with respect to the due execution, legality, validity,
completeness or enforceability of the documents, instruments and agreements
evidencing the Senior Debt, that Agent and each Lender shall be entitled to
manage and supervise its financial arrangements
<PAGE> 6
with Borrower in accordance with its usual practices, without impairing or
affecting this Agreement, and that neither Agent nor any Lender shall have any
liability to Friedman's, and Friedman's hereby waives any claim which it may now
or hereafter have against Agent or any Lender arising out of (i) any and all
actions which Agent or any Lender takes or omits to take (including without
limitation actions with respect to the creation, perfection or continuation of
liens or security interests in any existing or future Lenders' Collateral,
actions with respect to the occurrence of an event of default under any
documents, instruments or agreements evidencing the Senior Debt, actions with
respect to the foreclosure upon, sale, release, or depreciation of, or failure
to realize upon, any of Lenders' Collateral and actions with respect to the
collection of any claim for all or any part of the Senior Debt from any account
debtor, guarantor or other person or entity) with respect to the documents,
instruments and agreements evidencing the Senior Debt or to the collection of
the Senior Debt or the valuation, use, protection or release of Lenders'
Collateral (ii) Agent's or any Lender's election in any proceeding instituted
under Chapter 11 of Title 11 of United States Code (11 U.S.C. Section 101 et.
seq.) (the "Bankruptcy Code"), of the application of Section 1111(b)(2) of the
Bankruptcy Code, and/or (iii) any borrowing or grant of a security interest
under Section 364 of the Bankruptcy Code by Borrower, as debtor in possession.
Without limiting the generality of the foregoing, Friedman's waives the right to
assert the doctrine of marshalling with respect to any of the Lenders'
Collateral, and consents and agrees that Agent or any Lender may proceed against
any or all of the Lenders' Collateral in such order as Agent or any Lender shall
determine in its sole discretion.
V. Friedman's agrees that Agent or any Lender, at any time and from
time to time hereafter, may enter into such agreements with Borrower as Agent or
any Lender may deem proper extending the time of payment of or renewing or
otherwise altering the terms of all or any of the Senior Debt or affecting any
of Lenders' Collateral, and may sell or surrender or otherwise deal with any of
Lenders' Collateral, and may release any balance of funds of Borrower with Agent
or any Lender, without notice to Friedman's and without in any way impairing or
affecting this Agreement.
VI. Friedman's may ask for or receive from Borrower or any other
person or entity additional security for the Junior Debt so long as such
security is also being granted to Agent for the benefit of Lenders as security
for any of the Senior Debt and such security is taken by Friedman's subject to
the terms and conditions of this Agreement. Agent and Lenders agree not to ask
for or receive from Borrower or any other person or entity additional security
for the Senior Debt unless such security is also being granted to Friedman's as
security for the Junior Debt subject to the terms and conditions of this
Agreement.
VII. This Agreement shall be irrevocable and shall constitute a
continuing agreement of subordination and shall be binding on Friedman's and its
heirs, personal representatives, successors and assigns, and shall inure to the
benefit of Agent, each Lender and their respective successors and assigns until
the Senior Debt has been paid in full, the Loan Agreement has terminated and all
obligations arising in connection therewith have been discharged. Friedman's
agrees that it will not assign all or any part of its interests in the Junior
Debt Instruments. Agent and each Lender may continue, without notice to
Friedman's, to lend monies, extend credit and make other accommodations to or
for the account of Borrower
<PAGE> 7
on the faith hereof. Friedman's hereby agrees that all payments received by
Agent or any Lender may be applied, reversed, and reapplied, in whole or in
part, to any of the Senior Debt, without impairing or affecting this Agreement.
VIII. Friedman's hereby assumes responsibility for keeping itself
informed of the financial condition of Borrower, any and all endorsers and any
and all guarantors of the Senior Debt and the Junior Debt and of all other
circumstances bearing upon the risk of nonpayment of the Senior Debt and the
Junior Debt that diligent inquiry would reveal, and Friedman's hereby agrees
that neither Agent nor any Lender shall have any duty to advise Friedman's of
information known to Agent or any Lender regarding such condition or any such
circumstances or to undertake any investigation not a part of its regular
business routine. If Agent or any Lender, in its sole discretion, undertakes,
at any time or from time to time, to provide any information of the type
described herein to Friedman's, neither Agent nor any Lender shall be under any
obligation to subsequently update any such information or to provide any such
information to Friedman's on any subsequent occasion.
IX. Friedman's hereby appoints Agent as Friedman's bailee with respect
to any Friedman's Collateral in Agent's possession or control, including without
limitation, any Friedman's Collateral in the form of stock certificates,
instruments or chattel paper or amounts on deposit in any lock box account or
other deposit account. Agent hereby irrevocably accepts such appointment which
shall terminate upon the termination of this Agreement in accordance with its
terms. Except for a duty of reasonable care as described in the next sentence,
Agent shall have no duty as to any Friedman's Collateral. Agent shall be deemed
to have exercised reasonable care in the custody of the Friedman's Collateral in
its possession if Agent accords such Friedman's Collateral treatment
substantially equal to that which Agent accords its own property, it being
understood that Agent shall be under no obligation either to (i) obtain
possession of any chattel paper, stock certificates, instruments, cash or other
Friedman's Collateral or (ii) take any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Friedman's
Collateral. Friedman's hereby agrees that it will indemnify and hold harmless
the Agent from any reasonable costs and expenses incurred in connection with
Agent's actions as bailee hereunder, except to the extent that any liability is
determined by a court of competent jurisdiction to have resulted from Agent's
gross negligence or willful misconduct.
X. Agent and Lenders agree that Friedman's rights under the
Conversion Agreement dated as of the date hereof by and between Borrower,
Crescent Jeweler's, Inc. and Friedman's are not subject to this Agreement.
XI. Agent and Friedman's each agrees to give to the other prompt
written notice of the occurrence of an event of default under or in respect of
the Senior Debt or Junior Debt, as applicable, provided that either party's
failure to give any such notice shall not in any way limit the effectiveness of
this Agreement.
XII. Upon the payment in full of all amounts payable under or in
respect of the Senior Debt, Friedman's shall be subrogated to the rights of
Agent and Lenders to receive payments or other distributions of assets made on
account of the Senior Debt to the extent that
<PAGE> 8
payments or distributions otherwise payable to Friedman's have been applied to
the payment of the Senior Debt, until the Junior Debt shall be paid in full.
XIII. The provisions of this Agreement are solely for the purpose of
defining the relative rights of Friedman's, Agent and Lenders and shall not
impair, as between Friedman's and Borrower, the obligation of Borrower, which is
unconditional and absolute, to pay the Junior Debt in accordance with the terms
of the Junior Debt Instruments except as the payment thereof may be postponed or
otherwise directed in accordance with the express terms of this Agreement.
XIV. This Agreement shall terminate and be of no further force or
effect when all Senior Debt has been paid in full, the Loan Agreement terminated
and all obligations arising in connection therewith have been discharged.
XV. The provisions of this Agreement are not intended, nor shall they
be construed, to confer upon or give Borrower or any other person or entity
other than Agent, Lenders and Friedman's any rights, remedies or claims
hereunder or by reason hereof.
XVI. This Agreement may be executed in any number of counterparts, each
of which shall constitute an original but which together shall constitute one
instrument.
XVII. All notices or other communications to be given or delivered under
or by reason of this Agreement shall be in writing and delivered personally,
mailed by certified or registered mail, return receipt requested and postage
prepaid, sent via nationally recognized overnight courier, or sent via
facsimile, addressed as follows:
If to Agent or any Lender: LaSalle National Bank
135 South LaSalle Street
Suite 425
Chicago, Illinois 60606
Attention: Steven I. Fenton, Esq.
Facsimile No.: (312) 904-6109
If to Friedman's: Friedman's Inc.
4 West State Street
Savannah, Georgia 31401
Attention: John G. Call
Facsimile No.: (912) 238-4873
or to such other address or to the attention of such other person as the
recipient party shall have specified by prior written notice to the sending
party. Any such communication shall be deemed to have been given only upon
receipt.
I. No waiver shall be deemed to be made by Agent or any Lender of any
of its rights hereunder unless the same shall be in writing signed on behalf of
Agent and each such Lender and each such waiver, if any, shall be a waiver only
with respect to the specific matter or matters to which the waiver relates and
shall in no way impair the rights of Agent or
<PAGE> 9
any Lender or the obligations of Friedman's to Agent or any Lender in any other
respect at any other time.
II. THIS AGREEMENT SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL
LAWS OF THE STATE OF ILLINOIS.
III. To induce Lenders to accept this Agreement, Friedman's irrevocably
agrees that, subject to Agent's sole and absolute election, ALL ACTIONS OR
PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO
THIS AGREEMENT SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF
CHICAGO, STATE OF ILLINOIS. FRIEDMAN'S HEREBY CONSENTS AND SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN SAID CITY AND
STATE. Friedman's agrees that service of process in the manner specified in
paragraph 17 hereof (other than via facsimile) for the giving of notice to
Friedman's shall constitute personal service of such process upon Friedman's.
FRIEDMAN'S HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE
OF ANY LITIGATION BROUGHT AGAINST FRIEDMAN'S BY AGENT OR ANY LENDER IN
ACCORDANCE WITH THIS PARAGRAPH.
IV. FRIEDMAN'S HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION
OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT.
V. Friedman's agrees and acknowledges that nothing in this Agreement
shall be deemed to create a relationship of an agency or fiduciary nature, or
except as specifically herein provided, to create any duty or duties, between
Agent and/or Lender on the one hand and Friedman's on the other hand.
<PAGE> 10
IN WITNESS WHEREOF, this Agreement has been executed as of this ____ day
of October, 1996.
FRIEDMAN'S INC.
By /s/ John G. Call
------------------------------------
Title Chief Financial Officer
----------------------------------
LASALLE NATIONAL BANK, as Agent
By /s/ Douglas Colletti
------------------------------------
Title Vice President
----------------------------------
WELLS FARGO BANK, N.A.
By /s/ Peter S. Dobel
-------------------------------------
Title Vice President
----------------------------------
NATIONSBANK OF TEXAS, N.A.
By /s/ Joseph Lehrer
-------------------------------------
Title Vice President
----------------------------------
<PAGE> 11
BORROWER'S CONSENT
Borrower hereby consents to the foregoing Agreement (and the terms
thereof) and agrees to abide thereby and to keep, observe and perform the
several matters and things therein intended to be kept, observed and performed
by it, and specifically agrees not to make any payments contrary to the terms
of said Agreement.
A breach of any of the terms and conditions of this consent shall
constitute an "Event of Default" under the Loan Agreement (as defined in the
foregoing Agreement).
CRESCENT JEWELERS
By /s/ Joseph M. Donaghy
---------------------------------
Title Vice President and
------------------------------
Chief Financial Officer
-----------------------------
<PAGE> 1
EXHIBIT 10.4
Execution Copy
STANDBY PURCHASE AGREEMENT
This Standby Purchase Agreement, dated as of October 15, 1996, is by
and between Friedman's Inc., a Delaware corporation (the "Lender") and Crescent
Jewelers, a California corporation (the "Company").
WHEREAS, the Lender has entered into that certain Loan and Security
Agreement, dated as of the date hereof (the "Loan Agreement"), by and between
the Lender and the Company, pursuant to which the Lender has agreed to make a
term loan to the Company in the amount of $20,000,000; and
WHEREAS, the Lender and the Company desire to enter into this
Agreement, pursuant to which the Lender agrees, subject to the terms hereof, to
purchase up to $5,000,000 of Convertible Senior Subordinated Notes upon request
of the Company;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, receipt of which is hereby acknowledged, the
parties do hereby agree as follows:
Section 1 PURCHASE OF NOTES. Upon notice duly given in
accordance with Section 5 of this Agreement, the Company hereby agrees to sell
to the Lender, and the Lender hereby agrees to purchase from the Company, up to
Five Million Dollars and No/100s ($5,000,000) in aggregate principal amount of
10.0% Convertible Senior Subordinated Notes (the "Notes"), upon the terms and
conditions specified in, and in reliance upon the representations and
warranties of the Company contained in, a Note Purchase Agreement (the "Note
Purchase Agreement") in the form annexed hereto as Exhibit A (the "Notes").
The Lender shall not be required to purchase any Notes as provided in the
previous sentence, if at the time it would otherwise be required to do so, any
of the conditions specified in paragraph 7 of Exhibit A to the Loan Agreement
remain unsatisfied notwithstanding the fact that the Loan was made.
Section 2 REPRESENTATIONS AND WARRANTIES. The Company hereby
makes to the Lender the representations and warranties set forth in the Note
Purchase Agreement on and as of the date hereof as if set forth herein in their
entirety and as if the Refinancing Transactions (as defined in the form of Note
Purchase Agreement attached hereto) had been consummated.
Section 3 TERM OF AGREEMENT. This Agreement shall remain in
full force and effect for a period of one (1) year from the date hereof (the
"Initial Term"). This Agreement may be extended at the option of the Company
for an additional period of six (6) months after the Initial Term, provided
that: (a) the Company shall provide the Lender with written notice pursuant to
Section 5 of its election to extend the term of this Agreement at least sixty
(60) but not more than ninety (90) days prior to the end of the Initial Term,
and (b) the Company shall pay to the Lender an amount in cash equal to Fifty
Thousand Dollars and No/100s
<PAGE> 2
($50,000.00) (one percent of the aggregate principal amount issuable under the
Note Purchase Agreement) at the time of the giving of such notice by the
Company.
Section 4 CONSIDERATION. In consideration of the Lender's
obligations hereunder, the Company hereby agrees to pay to the Lender,
concurrently with the execution of this Agreement, an amount in cash equal to
Seventy-Five Thousand Dollars and No/100s ($75,000.00).
Section 5 NOTICES.
(a) All communications under this Agreement shall be in
writing and shall be delivered or mailed to the address set forth below, or at
such other address as shall have furnished in writing after the date hereof.
If to the Lender:
Friedman's Inc.
4 West State Street
Savannah, Georgia 31401
Attn: Robert S. Morris
If to the Company:
Crescent Jewelers
315 11th Street
Oakland, California 94607
(b) Any written communication so addressed and mailed by
certified mail, return receipt requested, shall be deemed to have been given
when so mailed. All other written communications shall be deemed to have been
given upon receipt thereof.
Section 6 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the law of the State of Georgia.
Section 7 HEADINGS. The headings of the Sections and other
subdivisions of this Agreement have been inserted for convenience of reference
only, and shall not be deemed to constitute a part hereof.
Section 8 SURVIVAL. All representations, warranties and
covenants made by the Company herein or by the Company or any Subsidiary in any
certificate or other instrument delivered under or in connection with this
Agreement shall be considered to have been relied upon by the Lender and shall
survive the purchase of the Notes regardless of any investigation made by the
Lender or on its behalf. All statements in any such certificate or other
instrument shall constitute representations and warranties of the Company
hereunder.
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<PAGE> 3
Section 9 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon the parties hereto and their respective successors and assigns,
and shall inure to the benefit of and be enforceable by the parties hereto and
their respective successors and assigns.
Section 10 AMENDMENT AND WAIVER. This Agreement may be amended
or supplemented, and the observance of any term hereof or thereof may be
waived, with the written consent of the Company and the Lender. Any amendment
or waiver effected in accordance with this Section 10 shall be binding upon the
Company and the Lender.
Section 11 COUNTERPARTS. This Agreement may be executed and
delivered to you simultaneously in one or more counterparts, each of which
shall be deemed an original, but all such counterparts shall together
constitute but one and the same instrument.
[Signatures On Next Page]
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<PAGE> 4
IN WITNESS WHEREOF, the undersigned have caused their names to be
signed hereto by the respective officers thereunto duly authorized as of the
day and year first above written.
CRESCENT JEWELERS (THE "COMPANY")
By: /s/ Joseph M. Donaghy
-------------------------------------
Joseph M. Donaghy
Chief Financial Officer
FRIEDMAN'S INC. (THE "LENDER")
By: /s/ Robert S. Morris
-------------------------------------
Robert S. Morris
President and Chief Operating Officer
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<PAGE> 5
EXHIBIT A
FORM OF NOTE PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
CRESCENT JEWELERS
$8,000,000 IN AGGREGATE PRINCIPAL AMOUNT
OF
10.0% CONVERTIBLE SENIOR SUBORDINATED
NOTES DUE OCTOBER 15, 2006
-----------------------
NOTE PURCHASE AGREEMENT
------------------------
Dated as of [First Issue Date]
- --------------------------------------------------------------------------------
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. ISSUANCE OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Authorization of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Purchase and Sale of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.4 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2. GENERAL REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.1 Capital Stock; Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.2 Organization and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.3 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.4 Financial Statements and Other Information; Financial Condition . . . . . . . . . . . . 4
Section 2.5 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.6 Licenses, Registrations, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.7 Title to Properties; Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.8 Compliance with Other Instruments, etc . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.9 No Materially Adverse Contracts, etc . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.10 Compliance with Law, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.11 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.12 Pending Litigation, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.14 Holding Company Act; Investment Company Act . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.15 No Foreign Assets Control Regulation Violation . . . . . . . . . . . . . . . . . . . . . 8
Section 2.16 No Margin Regulation Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.17 Outstanding Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.18 Corporate Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.19 Consent, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.20 No Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.21 Compliance with Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.22 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.23 Validity of Agreements and Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.24 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.25 Broker's or Finder's Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.26 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.27 Offerees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 3. REPRESENTATIONS OF THE PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.1 Investment Intent, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.2 ERISA Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.3 California Corporate Securities Law . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4. CONDITIONS OF OBLIGATION TO PURCHASE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.1 Opinion of Special Counsel for You . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.2 Opinions of Counsel for the Company . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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<PAGE> 7
<TABLE>
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Section 4.3 Performance of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.4 Representations True; No Event of Default . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.5 Existing Debt Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.6 Conversion Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.7 Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.8 Legality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.9 Assignment of Private Placement Number . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.10 Proceedings, Instruments, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 5. EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 6. CERTAIN SPECIAL RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.1 Home Office Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.2 Delivery Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.3 Issuance Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.4 Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.5 Transfer of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 7. PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.1 Optional Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.2 Mandatory Offer to Prepay Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 8. REGISTRATION, EXCHANGE AND REPLACEMENT OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.1 Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.2 Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.3 Replacement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 9. CERTAIN COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 9.1 Maintenance of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 9.2 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 9.3 General Maintenance of Properties and Business, etc . . . . . . . . . . . . . . . . . . 19
Section 9.4 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 9.5 Compliance with Law, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 9.6 Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 9.7 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 9.8 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.9 Merger; Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.10 Repurchase of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.11 Limitations on Restricted Investments and Restricted Payments . . . . . . . . . . . . . 23
Section 9.12 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.13 Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.14 Maintenance of Independent Directors . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.15 Limitation on Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.16 Limitations on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.17 Limitations on Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 9.18 Consolidated Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
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<PAGE> 8
<TABLE>
<S> <C>
Section 9.19 Wholly Owned Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 10. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.1 Notes Subordinated to Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.2 No Payment on Notes in Certain Circumstances . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.3 Notes Subordinated to Prior Payment of All Senior Indebtedness on
Dissolution, Liquidation or Reorganization of Company . . . . . . . . . . . . . . . . 28
Section 10.4 Noteholders to Be Subrogated to Rights of Holders of Senior Indebtedness . . . . . . . 29
Section 10.5 Obligations of the Company Unconditional . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 10.6 Subordination Rights Not Impaired by Acts or Omissions of Company or Holders of Senior
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 10.7 Section 10 Not to Prevent Events of Default . . . . . . . . . . . . . . . . . . . . . . 30
Section 10.8 No Fiduciary Duties Created to Holders of Senior Indebtedness . . . . . . . . . . . . . 31
Section 10.9 Amendment of Subordination Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 11. CONVERSION OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 11.1 Conversion Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 12. INFORMATION TO BE FURNISHED TO NOTEHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 12.1 Financial Statements of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 12.2 Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 12.3 Officer's Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 12.4 Accountants' Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 13. DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 13.1 Events of Default; Acceleration of Notes . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 13.2 Default Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 13.3 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 13.4 Annulment of Acceleration of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 14. INTERPRETATION OF AGREEMENT AND NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 14.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 14.2 Directly or Indirectly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 14.3 Accounting Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 14.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 14.5 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 14.6 Independence of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 15. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 15.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 15.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 15.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 15.4 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 15.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 15.6 Reproduction of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
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<PAGE> 9
SCHEDULE I Purchasers of the Notes
SCHEDULE 2.7 List of Defaults on Property
SCHEDULE 2.8 List of Consents
SCHEDULE 2.12 List of Litigation
SCHEDULE 14.1-A List of Existing Loans and Investments
SCHEDULE Y Refinancing Transactions
SCHEDULE Z Disclosure Schedule
EXHIBIT A Form of Note
-4-
<PAGE> 10
CRESCENT JEWELERS
315 Eleventh Street
Oakland, California 94607
-----------------------
NOTE PURCHASE AGREEMENT
-----------------------
Dated as of [First Issue Date]
To the Purchasers of the 10.0% Convertible Senior
Subordinated Notes due October 15, 2006 of
Crescent Jewelers Named in Schedule I Hereto
("Purchasers")
Ladies and Gentlemen:
The undersigned, Crescent Jewelers, a California corporation
(the "Company"), hereby agrees with you as follows:
SECTION 1. ISSUANCE OF NOTES.
Section 1.1 AUTHORIZATION OF NOTES. (a) The Company has
authorized the issuance and sale of up to $8,000,000 in aggregate principal
amount of its Convertible Senior Subordinated Notes due October 15, 2006,
substantially in the form annexed hereto as Exhibit A (the "Notes"). Each Note
shall bear interest from the date thereof until such Note shall become due and
payable in accordance with the terms thereof and hereof (whether at maturity,
by acceleration or otherwise) at the rate of 10.0% per annum, and be payable
semi-annually on each April 1 and October 1 (each an "Interest Payment Date"),
commencing [April][October] 1, 199__, and shall have a stated maturity of
October 15, 2006. Interest on the Notes shall be computed on the basis of a
360-day year of twelve 30-day months. Each Note shall bear interest on any
overdue principal, including any overdue payment or prepayment of principal and
premium, if any, and (to the extent permitted by applicable law) on any overdue
installment of interest, at the rate of 2% per annum above the rate of interest
payable at the time any such amount shall be overdue. If the Company shall
have paid any interest or premium on any Note in excess of that permitted by
law, then it is the express intent of the Company and the holder thereof that
all excess amounts
<PAGE> 11
previously collected by the Company be credited on the principal balance of the
Note, and the provisions thereof immediately be deemed reformed and the amounts
thereafter collectable thereunder reduced, without the necessity of the
execution of any new document, so as to comply with the then applicable law,
but so as to permit the recovery of the fullest amount otherwise called for
thereunder.
Section 1.2 PURCHASE AND SALE OF NOTES. Subject to a
Purchaser's execution of a counterpart signature page to this Agreement and the
amendment of Schedule I hereto to set forth the aggregate principal amount of
Notes to be purchased by such Purchaser and such other information with respect
to such Purchaser as is required to be set forth on Schedule I, the Company
agrees to sell to such Purchaser, and upon and subject to the terms and
conditions hereof and in reliance upon the representations and warranties of
the Company contained herein, such Purchaser agrees to purchase from the
Company, Notes in the aggregate principal amount specified opposite such
Purchaser's name in Schedule I hereto at a purchase price equal to the
principal amount thereof (the "Purchase Price"). The Company will deliver to
each Purchaser, at the offices of Alston & Bird, 1201 West Peachtree Street,
Atlanta, Georgia 30309-3424 or such other location as the Company and such
Purchaser shall agree in writing, one or more duly executed Notes, registered
in such Purchaser's name or the name of such Purchaser's nominee, and in the
aggregate principal amount specified opposite such Purchaser's name in Schedule
I hereto. The delivery of such Notes shall be made to such Purchaser's against
payment by wire transfer of immediately available funds to the account of the
Company, Acct. No. ____________ at LaSalle National Bank, 135 South LaSalle
Street, Chicago, Illinois 60603, ABA #_________, with notice of payment to
_________________, in the amount of the Purchase Price of such Notes, on the
time and date of closing upon which the Company and such Purchaser shall agree
in writing (such time and date being hereinafter called the "Closing Date").
Each Purchaser agrees that Schedule I may be amended without such Purchaser's
consent to add to such Schedule the aggregate principal amount of Notes to be
purchased by a Person becoming a Purchaser and such other information with
respect to such Person as is required to be set forth on Schedule I. The
Company agrees to deliver to each existing Purchaser, at least 15 days prior to
the issuance of any additional Notes hereunder, written notice of such
issuance, which notice shall set forth the identity of the prospective
Purchaser, the aggregate principal amount of Notes to be issued and the
proposed amendments to be made to Schedule I in connection with such issuance.
If on a Closing Date the Company shall fail to tender the
appropriate Notes to a Purchaser as provided above in this Section 1.2, or any
of the conditions specified in Section 4 hereof shall not have been fulfilled
to such Purchaser's satisfaction, at such Purchaser's election such Purchaser
shall be relieved of all obligations under this Agreement, without thereby
waiving any other rights such Purchaser may have by reason of such failure or
such nonfulfillment.
Section 1.3 USE OF PROCEEDS. The proceeds of the sale of
the Notes shall be used by the Company for general working capital purposes.
Section 1.4 DEFINITIONS. Certain capitalized terms used
in this Agreement are defined in Section 14.1 hereof; references to a
"Schedule" or "Exhibit" are, unless otherwise specified, to the Schedules and
Exhibits attached to this Agreement.
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SECTION 2. GENERAL REPRESENTATIONS AND WARRANTIES.
The Company hereby represents and warrants to you as follows
that except as set forth in the Disclosure Schedule attached hereto as Schedule
Z and all other Schedules attached hereto:
Section 2.1 CAPITAL STOCK; SUBSIDIARIES. (a) The
authorized Capital Stock of the Company consists of 100,000 shares of common
stock, $.01 par value, 1,000 of which are issued and outstanding and held by
CJI, the parent company of Company. All such outstanding shares have been
validly issued and are fully paid, nonassessable shares, and free of preemptive
rights. No shares of such common stock are held on the date hereof in the
treasury of the Company. The issuance and sale of all such shares have been in
full compliance with all applicable federal and state securities laws. There
are no subscriptions, options, warrants or calls relating to the issuance by
the Company of any shares of its Capital Stock, including any right of
conversion or exchange under any outstanding security or other instrument. To
the Company's knowledge, there are no voting trusts or other agreements or
understandings with respect to the voting of the Capital Stock of the Company.
The such common stock is vested with all the voting rights in the Company. The
Company is not subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its Capital Stock or
any security convertible into or exchangeable for any of its Capital Stock.
(b) The Company's sole Subsidiary is Diamond Insurance
Company, a Cayman Islands corporation. All of the outstanding shares of
Capital Stock of the Subsidiary have been validly issued and are fully paid and
nonassessable and are owned beneficially and of record by the Company, free and
clear of any Liens other than Liens in favor of, or for the benefit of, the
holders of the indebtedness under the Loan Agreements.
Section 2.2 ORGANIZATION AND AUTHORITY. The Company:
(a) is a corporation duly organized, validly existing and
in good standing under the laws of the State of California;
(b) has all requisite power and authority (corporate and
other) to own and operate its properties, to conduct its business as currently
conducted and as currently proposed to be conducted, and to offer, issue, sell
and deliver the Notes, to enter into this Agreement and to perform its
obligations under this Agreement and the Notes; and
(c) has duly qualified to do business as a foreign
corporation and is in good standing in every jurisdiction in which the failure
to so qualify would materially and adversely affect the business, earnings,
prospects, properties or condition (financial or other) of the Company and its
Subsidiary, taken as a whole.
Section 2.3 BUSINESS. The Company is a leading West
Coast-based specialty retailer of fine jewelry operating 104 stores in five
states. Each store offers jewelry in a wide
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variety of styles and prices, with particular emphasis on moderately priced,
high quality diamond, gemstone and gold products. The Company's objective is
to increase revenues and profits by increasing sales and operating income at
its existing stores and by expanding the number of stores that it operates in
existing and new geographic markets. The Company's strategy is to offer
competitive prices, a broad merchandise selection, a high level of customer
service and a disciplined credit program to appeal to its target customers, who
are generally low to middle income consumers between the ages of 18 and 45.
The Company's real estate expansion strategy is focused principally on opening
new stores in power strip centers in small cities and towns, which management
believes present the Company with substantial growth opportunities. Over the
next two years, the Company intends to open a significant number of stores in
existing and new markets. The Company's credit programs are an integral part
of its business strategy. The Company's credit strategy is to establish the
maximum number of credit relationships and simultaneously to optimize the
over-all return on assets. To accomplish this it seeks to reduce average
balances and payment maturities on its receivable portfolio while increasing
the volume of over-all transactions. The Company believes proper execution of
this strategy will improve store productivity, optimize the net yield from the
receivable portfolio and minimize collection risk. Consistent with industry
practice, the Company encourages the purchase of credit insurance products in
connection with sales of merchandise on credit. The Company's agent, American
Bankers Insurance Group, resells such products to the Company's subsidiary,
Diamond Insurance Company.
Section 2.4 FINANCIAL STATEMENTS AND OTHER INFORMATION;
FINANCIAL CONDITION. The Company has furnished to you copies of the
consolidated financial statements of the Company and its Subsidiary for the
Fiscal Years ended July 31, 1995 and 1996, including consolidated audited
balance sheets, consolidated statements of income, consolidated statements of
shareholders equity, and consolidated statements of cash flows, together with
the opinions thereon of Ernst & Young, independent certified public accountants
(such financial statements are hereinafter referred to as the "Financial
Statements"). The Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the respective periods. The Financial Statements are correct and complete
copies thereof, and fairly present in all material respects in accordance with
generally accepted accounting principles the financial position of the Company
and its Subsidiary as of the respective dates of the balance sheets included
therein and the results of operations of the Company and its Subsidiary for the
respective periods covered by the statements of income and cash flows. Neither
the Company nor its Subsidiary has any material obligation or liability of any
nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether due or not due) which, either individually or in the aggregate, would
be material to the Company or its Subsidiary that is not disclosed by the
Financial Statements other than liabilities incurred since July 31, 1996 in the
ordinary course of business which in the aggregate have no material adverse
effect on the financial condition of the Company or on the conduct of its
business. The Company does not know of any basis for the assertion against the
Company or its Subsidiary of any liability or obligation of any nature
whatsoever that is not disclosed in the Financial Statements which, either
individually or in the aggregate, would be material to the Company and its
Subsidiary, taken as a whole.
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Section 2.5 NO MATERIAL ADVERSE CHANGE. Since July 31,
1996, there has been no material adverse change in the business, earnings,
prospects, properties or condition (financial or other) of the Company or its
Subsidiary.
Section 2.6 LICENSES, REGISTRATIONS, ETC. The Company
and its Subsidiary own or possess, and hold free from burdensome restrictions
or known conflicts with the rights of others, all licenses, registrations,
franchises, permits, copyrights, trademarks, service marks, trade names and
patents and all rights with respect to the foregoing, necessary for the conduct
of their respective businesses as now conducted and as proposed to be
conducted, and are in compliance with the terms and conditions, if any, of all
such franchises, licenses, registrations, permits, rights of way, easements,
consents, copyrights, trademarks, service marks, trade names and patents and
the terms and conditions of any agreements relating thereto, except for such
conflicts or noncompliance which, either individually or in the aggregate, is
not reasonably expected to materially and adversely affect, and in the future
is not reasonably expected to (so far as the Company can now reasonably
foresee) materially and adversely affect, the business, earnings, properties or
condition (financial or other) of the Company and its Subsidiary, taken as a
whole.
Section 2.7 TITLE TO PROPERTIES; LEASES. The Company and
its Subsidiary each has good and valid title to the properties reflected as
being owned by it on the Financial Statements, as well as to the properties
acquired since said date (except property disposed of since said date in the
ordinary course of business). The Company and its Subsidiary each has the
right to, and does, enjoy peaceful and undisturbed possession under all leases
under which it is leasing property. All such leases are valid, subsisting and
in full force and effect, and none of such leases is in default other than as
set forth on Schedule 2.7.
Section 2.8 COMPLIANCE WITH OTHER INSTRUMENTS, ETC.
Neither the Company nor its Subsidiary is (a) in violation of any term of its
charter or by-laws, or (b) in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in,
and is not otherwise in default under, (i) any evidence of Indebtedness or any
instrument or agreement under or pursuant to which any evidence of Indebtedness
has been issued the consequences of which default would be to permit the holder
or holders of such Indebtedness, or any trustee or agent acting on behalf of
such holder or holders, to accelerate the maturity of any such Indebtedness or
to require that any such Indebtedness be prepaid prior to its stated maturity
or (ii) any other instrument or agreement to which it is a party or by which it
is bound or any of its properties is affected, the consequences of which
default would reasonably be expected to have a material and adverse effect on
the business, earnings, prospects, properties or condition (financial or other)
of the Company or its Subsidiary, taken as a whole. As of the date hereof,
neither the Company nor its Subsidiary has defaulted in, or failed to make at
the time contemplated, payment of any dividends or any mandatory redemption
payments of any preferred stock or any principal of, or premium or interest on,
any Indebtedness for Money Borrowed. Neither the execution, delivery or
performance of this Agreement nor the offer, issuance, sale, delivery or
performance of the Notes does or will (A) conflict with or violate the charter
or by-laws of the Company or its Subsidiary, (B) conflict with or result in a
breach of any of the terms, conditions or provisions of, or constitute a
default under, or result in the creation of any Lien on any of the properties
or assets of the Company or its Subsidiary pursuant to the terms of, any
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<PAGE> 15
evidence of Indebtedness, or any instrument or agreement under or pursuant
to which any evidence of Indebtedness has been issued, or any other instrument
or agreement referred to in this Section 2.8 to which the Company or its
Subsidiary are a party or by which they are bound or by which any of their
properties are affected (the consequences of which could reasonably be expected
to have a material and adverse effect on the business, earnings, prospects,
properties or condition (financial or other) of the Company or its Subsidiary),
or (C) require the consent of, or other action by, any trustee, shareholder or
creditor of, any lessor to or any investor in, the Company or its Subsidiary,
other than for the consents and actions described on Schedule 2.8, all of which
have been obtained or taken.
Section 2.9 NO MATERIALLY ADVERSE CONTRACTS, ETC. (a)
Neither the Company nor its Subsidiary is a party to or bound by (nor are any
of their respective properties affected by) any contract or agreement, or
subject to any order, writ, injunction or decree or other action of any court
or any governmental department, commission, bureau, board or other
administrative agency or official, or any charter or other corporate or
contractual restriction, which materially and adversely affects, or in the
future may (so far as the Company can now reasonably foresee) materially and
adversely affect, the business, earnings, prospects, properties or condition
(financial or other) of the Company or its Subsidiary.
(b) Neither the Company nor its Subsidiary is a party to
any material contract or agreement with any Affiliate which contract or
agreement is on terms that are less favorable to it than would obtain in a
comparable arm's-length transaction with a Person other than an Affiliate.
Section 2.10 COMPLIANCE WITH LAW, ETC. The Company and
its Subsidiary are in compliance with all statutes, laws and ordinances and all
governmental rules and regulations to which it is subject, the violation of
which, either individually or in the aggregate, would reasonably be expected to
materially and adversely affect the business, earnings, prospects, properties
or condition (financial or other) of the Company or its Subsidiary. Neither
the execution, delivery or performance of this Agreement nor the offer,
issuance, sale, delivery or performance of the Notes does or will cause the
Company or its Subsidiary to be in violation of any law or ordinance, writ,
injunction or decree or other action of any court or governmental authority or
arbitrator or any order, rule or regulation, of any federal or state agency, or
to the Company's knowledge, of any county, municipal or other governmental or
public authority or agency.
Section 2.11 COMPLIANCE WITH ERISA. (a) As used in this
Section 2.11 and in Section 9.7 hereof, the terms "employee benefit plan,"
"employee pension benefit plan" and "party in interest" shall have the
respective meanings assigned thereto in Section 3 of ERISA; the term
"prohibited transaction" shall have the meaning assigned thereto in Section
4975 of the Code and Section 406 of ERISA; the term "accumulated funding
deficiency" shall have the meaning assigned thereto in Section 412 of the Code
and Section 302 of ERISA; and the term "employer securities" shall have the
meaning assigned thereto in Section 407(d) of ERISA.
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(b) The Company and its Subsidiary have not, with respect
to any employee benefit plan established or maintained, or to which any
contributions have been made, by the Company or any of its ERISA Affiliates
(including any such plan also maintained by one or more other employers) for
the benefit of its employees or any trust created thereunder (collectively, the
"Plans" and, individually, a "Plan"), engaged in a prohibited transaction that
would subject the Company or its Subsidiary to a material tax or penalty.
(c) Neither the execution and delivery of this Agreement
nor the offer, issuance, sale and delivery of the Notes by the Company or the
consummation of the transactions contemplated hereby and thereby will involve
or constitute a prohibited transaction.
(d) Each Plan of the Company or its Subsidiary is in
substantial compliance with ERISA. No employee pension benefit plan
established or maintained, or to which any contributions have been made, by the
Company, its Subsidiary or any of its ERISA Affiliates (a "Pension Plan") has
an accumulated funding deficiency, whether or not waived. No proceedings have
been instituted by the PBGC nor has any other Person taken action to terminate
any Pension Plan. Neither the Company, its Subsidiary nor any of its ERISA
Affiliates has incurred any material liability to or on account of a Plan or
Pension Plan under ERISA. No condition exists which presents a material risk
to the Company or any of its ERISA Affiliates of incurring such a liability.
The current fair market value of all assets of each Pension Plan is not less
than the aggregate present value of all accrued benefits under such Pension
Plan. None of the Plans is, nor has the Company, its Subsidiary or any of its
ERISA Affiliates within the last six years been obligated to make any
contributions to, a "multiemployer plan" within the meaning of Section 4001 of
ERISA.
Section 2.12 PENDING LITIGATION, ETC. There is no action
at law, suit in equity or other proceeding or investigation (whether or not
purportedly on behalf of the Company or its Subsidiary) in any court or by or
before any other governmental or public authority or agency, or any arbitrator
or arbitration panel pending or, to the best knowledge of the Company,
threatened in writing against the Company, its Subsidiary or any of their
respective properties that, either individually or in the aggregate, (a) would
materially and adversely affect the business, earnings, prospects, properties
or condition (financial or other) of the Company or its Subsidiary, or (b)
question the validity or enforceability of this Agreement or the Notes, other
than, in each case, as set forth on Schedule 2.12. Neither the Company nor its
Subsidiary is in default with respect to any order, writ, injunction, judgment
or decree of any court or other governmental or public authority or agency or
arbitrator or arbitration panel.
Section 2.13 TAXES. All federal, state and other tax
returns of the Company and its Subsidiary required by law to be filed have been
duly filed or a valid extension for such filing has been obtained, and all
federal, state and other taxes, assessments, fees and other governmental
charges upon the Company and its Subsidiary or upon any of their respective
properties, incomes or assets that are due and payable have been paid, except
where such failure to file or pay would not materially and adversely affect the
respective properties, incomes, or assets of the Company or its Subsidiary. No
extensions of the time for the assessment of deficiencies have been granted by
the Company or its Subsidiary. The Company does not know of any proposed,
asserted, or
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assessed tax deficiency against it or its Subsidiary that would be material to
the condition (financial or other) of the Company or its Subsidiary. Neither
the Company nor its Subsidiary is a party to, bound by or obligated under any
tax sharing or similar agreement, except for that certain tax sharing agreement
by and between CJI and its Subsidiary dated July 8, 1994. There are no Liens
on any properties or assets of the Company or its Subsidiary imposed or arising
as a result of the delinquent payment or the non-payment of any tax,
assessment, fee or other governmental charge which is due and owing, except
Liens for taxes, assessments or other governmental charges either not
delinquent, or the validity of which is being contested in good faith by
appropriate proceedings and which are adequately reserved for in accordance
with GAAP. The charges, accruals and reserves, if any, on the books of the
Company and its Subsidiary in respect of federal, state and local corporate
franchise and income taxes for all fiscal periods to date are adequate in
accordance with generally accepted accounting principles, and the Company knows
of no additional unpaid assessments for such periods or of any basis therefor.
There are no applicable taxes or other governmental charges or governmental
fees payable by the Company or its Subsidiary in connection with the execution
and delivery of this Agreement or the offer, issuance, sale and delivery of the
Notes.
Section 2.14 HOLDING COMPANY ACT; INVESTMENT COMPANY ACT.
(a) The Company is not a "public utility company" or a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended, or a
"public utility" within the meaning of the Federal Power Act, as amended.
(b) The Company is not an "investment company" or an
"affiliated person" of an "investment company" or a company "controlled" by an
"investment company" as such terms are defined in the Investment Company Act of
1940, as amended. Neither the Company nor its Subsidiary is an "investment
adviser" or an "affiliated person" of an "investment adviser" as such terms are
defined in the Investment Advisers Act of 1940, as amended.
Section 2.15 NO FOREIGN ASSETS CONTROL REGULATION
VIOLATION. None of the transactions contemplated by this Agreement will result
in a violation of any of the foreign assets control regulations of the United
States Treasury Department, 31 C.F.R., Subtitle B, Chapter V, as amended, or
any ruling issued thereunder or any enabling legislation or Presidential
Executive Order granting authority therefor, nor will the proceeds of the sale
of the Notes be used by the Company in a manner that would violate any thereof.
Section 2.16 NO MARGIN REGULATION VIOLATION. None of the
transactions contemplated by this Agreement (including, without limitation, the
direct or indirect use of the proceeds from the sale of the Notes) will violate
or result in a violation of Section 7 of the Exchange Act or any regulations
issued pursuant thereto, including, without limitation, Regulation G (12
C.F.R., Part 207), as amended, Regulation T (12 C.F.R., Part 220), as amended,
and Regulation X (12 C.F.R., Part 224), as amended, of the Board of Governors
of the Federal Reserve System.
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Section 2.17 OUTSTANDING SECURITIES. All securities (as
defined in the Securities Act) of the Company and its Subsidiary have been
offered, issued, sold and delivered in compliance with, or pursuant to
exemptions from, all federal and state laws, and the rules and regulations of
federal and state regulatory bodies governing the offering, issuance, sale and
delivery of securities.
Section 2.18 CORPORATE PROCEEDINGS. The Company has taken
all corporate action necessary to be taken by it to authorize the execution and
delivery of this Agreement and the offer, issuance, sale and delivery of the
Notes and the performance of all obligations to be performed by it hereunder
and thereunder.
Section 2.19 CONSENT, ETC. No prior consent, approval or
authorization of, registration, qualification, designation, declaration or
filing with, or notice to (in each case that has not been obtained or made, as
appropriate) (a) any federal, state or local governmental or public authority
or agency, or (b) any stockholder, creditor, lessor or other non-governmental
Person, is or was required for the valid execution, delivery and performance of
this Agreement or the valid offer, issuance, sale, delivery and performance of
the Notes. The Company has obtained all consents, approvals or authorizations
of, made all declarations or filings with, or given all notices to, all
federal, state or local governmental or public authorities or agencies which
are necessary for the continued conduct by the Company of its business as now
conducted or as proposed to be conducted and which the failure to so obtain,
make or give would have a material and adverse effect on the Company or its
Subsidiary.
Section 2.20 NO EVENT OF DEFAULT. No event has occurred
and is continuing, and no condition exists, that, if the Notes had been issued
and were outstanding on the date hereof, would constitute a Default or an Event
of Default.
Section 2.21 COMPLIANCE WITH ENVIRONMENTAL LAWS. (a) The
Company and its Subsidiary each is, and will continue to be, in compliance with
all applicable federal, state and local environmental laws, regulations and
ordinances governing its business, products, properties or assets with respect
to all discharges into the ground and surface water, emissions into the ambient
air and generation, accumulation, storage, treatment, transportation, labeling
or disposal of waste materials or processed by-products for which failure to
comply could have a material and adverse effect on the business, earnings,
prospects, properties or condition (financial or other) of the Company or its
Subsidiary, and neither the Company nor its Subsidiary is liable for any
penalties, fines or forfeitures for failure to comply with any of the
foregoing, the failure to comply with which could have a material and adverse
effect on the business, earnings, prospects, properties or condition (financial
or other) of the Company or its Subsidiary. All licenses, permits or
registrations required for the business of the Company and its Subsidiary, as
presently conducted and proposed to be conducted, under any federal, state or
local environmental laws, regulations or ordinances have been secured (or
application for, or application for transfer thereof, have been made) and each
of the Company and its Subsidiary is in substantial compliance therewith.
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<PAGE> 19
(b) No release, emission, or discharge into the
environment of hazardous substances, as defined under the Comprehensive
Environmental Response, Compensation, and Liability Act, as amended, or
hazardous waste as defined under the Resource Conservation and Recovery Act, or
air pollutants as defined under the Clean Air Act, or pollutants as defined
under the Clean Water Act, is presently occurring or has in the past occurred
on or from any property owned or leased by the Company or its Subsidiary in
excess of federal, state or local permitted releases or reportable quantities,
or other concentrations, standards or limitations under the foregoing laws or
any state law governing the protection of health and the environment or under
any other federal, state, or local laws or regulations.
(c) Neither the Company nor its Subsidiary has ever,
except in accordance with applicable laws or regulations, (i) owned, occupied
or operated a site or structure on or in which (to the Company's knowledge) any
hazardous substance was or is stored, transported or disposed of, (ii)
transported or arranged for the transportation of any hazardous substance or
(iii) caused or been held legally responsible for any release or threatened
release of any hazardous substance, or received notification from any federal,
state or other governmental authority of any release or threatened release, or
that it may be required to pay the costs or expenses incurred in connection
with any efforts to mitigate the environmental impact of any release or
threatened release of any hazardous substance from any site or structure owned,
occupied or operated by the Company or its Subsidiary.
Section 2.22 FULL DISCLOSURE. Neither this Agreement, or
any report or financial statement referred to in Section 2.4 hereof, nor any
certificate, report, statement or other writing (other than projections,
forecasts or other statements of future events) furnished to you by or on
behalf of the Company in connection with the negotiation of this Agreement or
the sale of the Notes, contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained
herein or therein not misleading. There is no fact known to the Company with
respect to the Company or its Subsidiary that has not been disclosed to you in
writing that (a) materially and adversely affects or in the future would
reasonably be expected to (so far as the Company can now foresee) materially
and adversely affect the business, earnings, prospects, properties or condition
(financial or other) of the Company or its Subsidiary or (b) adversely affects
or in the future would reasonably be expected to (so far as the Company can now
reasonably foresee) materially and adversely affect the ability of the Company
to perform its obligations under this Agreement and the Notes.
Section 2.23 VALIDITY OF AGREEMENTS AND NOTES. This
Agreement has been duly executed and delivered by the Company and constitutes
the legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject in each case to applicable
principles of equity and bankruptcy and insolvency law. Upon receipt by the
Company of payment for the Notes as provided in this Agreement, the Notes will
have been duly issued by the Company and will constitute legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject in each case to applicable principles of
equity and bankruptcy and insolvency law.
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Section 2.24 LABOR RELATIONS. Neither the Company nor its
Subsidiary is engaged in any unfair labor practice which would have a material
and adverse effect on the Company or its Subsidiary. There is (a) no unfair
labor practice complaint pending or, to the Company's knowledge, threatened
against the Company or its Subsidiary before the National Labor Relations Board
and no grievance or arbitration proceedings arising out of or under collective
bargaining agreements is so pending or threatened, (b) no strike, labor
dispute, slowdown or stoppage pending or, to the Company's knowledge,
threatened against the Company or its Subsidiary, and (c) no union
representation question existing with respect to the employees of the Company
or its Subsidiary and no union organizing activities are taking place with
respect to any thereof.
Section 2.25 BROKER'S OR FINDER'S COMMISSIONS. Except as
previously disclosed to you in writing, no broker's or finder's placement fee
or commission will be payable by the Company with respect to the issuance and
delivery of the Notes or any of the transactions contemplated hereby. The
Company will hold you harmless from any claim, demand or liability for broker's
or finder's placement fees or commissions (other than any such fees or
commissions payable by or to you) whether or not payable by the Company alleged
to have been incurred in connection with this transaction.
Section 2.26 INSURANCE. The Company and its Subsidiary
have, with respect to the properties and business of the Company and its
Subsidiary, with financially sound and reputable insurers, insurance against
such casualties and contingencies of such types and in such amounts as is
customary in the case of corporations engaged in the same or a similar business
or having similar properties similarly situated.
Section 2.27 OFFEREES. The Company represents that
neither the Company nor Morgan Schiff & Co., Inc. (which are the only Persons
authorized by the Company to act as an agent, broker, dealer or otherwise in
connection with the offering or sale of the Notes) has, either directly or
through any agent, offered any of the Notes or any similar securities for sale
to, or solicited any offers to buy any thereof from, or otherwise approached or
negotiated in respect thereof with, any Person or Persons other than you. The
Company agrees that neither it nor any agent will on behalf of it, sell or
offer any of the Notes or any similar securities to, or solicit offers to buy
any thereof from, or otherwise approach or negotiate in respect thereof with,
any other Person or Persons whomsoever, or take any other action, so as to
bring the issuance and sale of the Notes within the provisions of Section 5 of
the Securities Act or the provisions of any state securities law requiring
registration of securities, notification of the issuance and sale thereof or
confirmation of the availability of any exemption from registration thereof.
SECTION 3. REPRESENTATIONS OF THE PURCHASER.
Section 3.1 INVESTMENT INTENT, ETC. This Agreement is
made with you in reliance upon your representation to the Company, which by
your acceptance hereof you confirm, that you are purchasing the Notes, and the
Class A Common Stock obtainable upon conversion thereof, for your own account
for investment and not with a view to the distribution thereof, and that you
have no present intention of distributing any of the same; provided, however,
that the disposition
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<PAGE> 21
of your property shall be at all times within your own control, and that your
right to sell or otherwise dispose of all or any part of the Notes purchased or
acquired by you pursuant to an effective registration statement under the
Securities Act (the Company being under no obligation to assist in the
preparation or filing of such registration statement except as expressly
provided herein) or under an exemption from such registration available under
the Securities Act and in accordance with any applicable state securities law
shall not be prejudiced. The Company and you each acknowledge that the Notes
are securities (as defined in the Securities Act and the Exchange Act). You
understand that the Notes and the Class A Common Stock obtainable upon
conversion thereof have not been registered under the Securities Act by reason
of a specific exemption from the registration provisions of the Securities Act.
You are experienced in evaluating companies such as the Company, its Subsidiary
and its parent, CJI, and are able to fend for yourself in transactions such as
the one contemplated by this Agreement, have such knowledge and experience in
financial and business matters that you are capable of evaluating the merits
and risks of your prospective investment, and have the ability to bear the
economic risks of the investment. You have been furnished with such materials
and have been given access to such information relating to the Company and CJI
as you have requested and you have been afforded the opportunity to ask
questions regarding the Company, its Subsidiary and its parent, CJI, and the
Notes and the Class A Common Stock obtainable upon conversion thereof as you
have found necessary to make an informed investment decision. You represent
that you are an "accredited investor" pursuant to Rule 501 of the Securities
Act.
Section 3.2 ERISA REPRESENTATIONS. You represent that no
part of the purchase price for the Notes to be purchased by you will be drawn
from the assets of a "separate account" (within the meaning of Section 3(17) of
ERISA) maintained by you.
Section 3.3 CALIFORNIA CORPORATE SECURITIES LAW. THE
SALE OF THE NOTES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN
QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND
THE ISSUANCE OF SUCH NOTES OR THE PAYMENT OR RECEIPT OR ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SUCH NOTES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR
25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS
AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED,
UNLESS THE SALE IS SO EXEMPT.
SECTION 4. CONDITIONS OF OBLIGATION TO PURCHASE NOTES.
A Purchaser's obligation to purchase and pay for the Notes to
be purchased by such Purchaser hereunder on the applicable Closing Date shall
be subject to the satisfaction, prior to or concurrently with such purchase and
payment, of the following conditions unless otherwise waived by such Purchaser
in writing:
Section 4.1 OPINION OF SPECIAL COUNSEL FOR YOU. Such
Purchaser shall have received from its special counsel in connection with the
transactions contemplated by this
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Agreement, an opinion, dated the applicable Closing Date, in form and substance
satisfactory to such Purchaser.
Section 4.2 OPINIONS OF COUNSEL FOR THE COMPANY. Such
Purchaser shall have received from Brobeck, Phleger & Harrison LLP, special
counsel for the Company, or other legal counsel acceptable to such Purchaser
and its counsel, an opinion, dated the applicable Closing Date, in form and
substance satisfactory to such Purchaser covering those matters addressed in
the opinion of the Company's counsels delivered in connection with the issuance
of the Company's 9% Convertible Subordinated Notes due April 15, 2000 and such
other matters as such Purchaser's counsel may request.
Section 4.3 PERFORMANCE OF OBLIGATIONS. The Company
shall have performed all its obligations to be performed hereunder prior to or
on the applicable Closing Date, and such Purchaser shall have received an
Officer's Certificate from the Company, dated the Closing Date, to such effect.
Section 4.4 REPRESENTATIONS TRUE; NO EVENT OF DEFAULT.
The representations and warranties of the Company contained in Section 2 hereof
shall be true on and as of the applicable Closing Date with the same effect as
though such representations and warranties had been made on and as of such
Closing Date. There shall exist on such Closing Date no Event of Default and
no condition or event which, with notice or lapse of time, would constitute an
Event of Default if the Notes had been outstanding at all times from and after
the date hereof. Such Purchaser shall have received an Officer's Certificate
from the Company, dated such Closing Date, to each such effect.
Section 4.5 EXISTING DEBT AGREEMENTS. Such Purchaser
shall have received an Officer's Certificate of the Company attaching a fully
executed copy each Existing Debt Agreement and certifying that such document is
a true and complete copy thereof, and that neither the offer, issuance, sale or
delivery of the Notes by the Company nor the execution, delivery or performance
of this Agreement does or will conflict with or result in a breach of, or
constitute a default under, such Existing Debt Agreements.
Section 4.6 CONVERSION AGREEMENT. The Company, CJI and
such Purchaser shall have entered into a Conversion Agreement.
Section 4.7 REGISTRATION RIGHTS AGREEMENT. The Company,
CJI, Friedman's and certain other holders shall have entered into the
Registration Rights Agreement.
Section 4.8 LEGALITY. The Notes shall qualify as a legal
investment for you under all applicable laws, and such Purchaser's purchase
thereof shall not cause such Purchaser to be subject to any onerous or
materially burdensome legal requirement or penalty.
Section 4.9 ASSIGNMENT OF PRIVATE PLACEMENT NUMBER. The
Company shall have caused the CUSIP Service Bureau of Standard & Poor's
Corporation to assign to the Notes a
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private placement number at its expense and shall have delivered evidence
thereof to such Purchaser and its special counsel.
Section 4.10 PROCEEDINGS, INSTRUMENTS, ETC. All
proceedings and actions taken on or prior to the applicable Closing Date in
connection with the transactions contemplated by this Agreement, and all
instruments incident thereto, shall be in form and substance reasonably
satisfactory to such Purchaser and its special counsel, and such Purchaser and
its special counsel shall have received copies of all documents that they may
reasonably request in connection with such proceedings, actions and
transactions (including, without limitation, copies of court documents,
certifications and evidence of the correctness of the representations and
warranties contained herein and certifications and evidence of the compliance
with the terms and the fulfillment of the conditions of this Agreement, in form
and substance reasonably satisfactory to such Purchaser and its special
counsel).
SECTION 5. EXPENSES.
Whether or not the Notes shall be sold or this Agreement shall
be terminated, the Company will pay, and will save you harmless against
liability for, all reasonable costs and expenses relating to this Agreement and
the Notes, and to any modification, amendment, alteration or enforcement of
this Agreement or the Notes (whether or not the same shall have come into
effect), including, without limitation:
(a) the cost of preparing and reproducing this Agreement
and the Notes, and every instrument of modification, amendment or alteration
hereof or thereof;
(b) the reasonable fees and disbursements of special
counsel for you and of counsel for the Company;
(c) the cost of delivering to your home office, insured
to your reasonable satisfaction, the Notes purchased by you on the Closing Date;
(d) all costs and expenses (including, without
limitation, legal fees and disbursements and other out-of-pocket expenses)
relating to any modifications, amendments, waivers or consents involving the
provisions of this Agreement or the Notes, or relating to the enforcement of
this Agreement or the Notes;
(e) the broker's or finder's fees of any Person in
connection with the sale of the Notes, it being represented and warranted by
the Company that any such Person acted solely as agent for the Company and not
as agent for you; and
(f) the fee of Standard & Poor's Corporation required in
connection with the assignment of a private placement number by it to the Notes.
The obligations of the Company under this Section 5 shall survive the payment
or prepayment of the Notes and the termination of this Agreement.
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<PAGE> 24
SECTION 6. CERTAIN SPECIAL RIGHTS.
Section 6.1 HOME OFFICE PAYMENT. Notwithstanding any
provision to the contrary in this Agreement or the Notes, the Company will
punctually pay in immediately available funds by 12:00 noon, Atlanta, Georgia
time on the date payment is due all amounts payable to you with respect to any
Notes held by you or your nominee (without the necessity for any presentation
or surrender thereof or any notation of such payment thereon) in the manner and
at the address for such purpose specified below your name in Schedule I hereto,
or at any other address as you may direct in writing; provided, however, that
the information set forth with respect to you in Schedule I hereto shall be
deemed notice sufficient to permit payment in accordance with this Section 6.1.
You agree that, as promptly as practicable after the payment or prepayment in
whole of any Note held by you or your nominee and receipt by you of a written
request from the Company to surrender such Note to the Company for
cancellation, you will surrender such Note at the office of the Company
maintained pursuant to Section 9.1 hereof. You agree that if you sell, assign
or transfer any Note, you will, prior to any such sale, assignment or transfer,
make a proper notation thereon of the amount of principal paid thereon as of
the date of such sale, assignment or transfer.
Section 6.2 DELIVERY EXPENSES. If you shall surrender
any Note to the Company pursuant to this Agreement, or if the Company shall
issue any new Note pursuant to this Agreement, the Company will pay all
reasonable costs and expenses of delivery of the surrendered Note and any Note
or Notes issued in exchange or replacement for, or on registration of transfer
of, the surrendered Note or any such new Note, as the case may be, in each case
insured to your reasonable satisfaction.
Section 6.3 ISSUANCE TAXES. The Company will pay all
taxes in connection with the execution and delivery of this Agreement and the
issuance and sale of the Notes, and any modification of this Agreement or the
Notes, and will save you and any subsequent holder of Notes harmless, without
limitation as to time, against any and all liabilities (including, without
limitation, any interest or penalty for nonpayment or delay in payment, or any
income taxes paid by you in connection with any reimbursement by the Company)
with respect to all such taxes (other than income taxes due resulting from a
transfer of the Notes). The obligations of the Company under this Section 6.3
shall survive the payment of the Notes and the termination of this Agreement.
Section 6.4 INTENTIONALLY OMITTED.
Section 6.5 TRANSFER OF NOTES. The Company agrees that
you and all other holders from time to time of the Notes may sell, assign or
transfer all or any portion of any Note without obtaining the consent of the
Company; provided, however, that so long as no Event of Default shall have
occurred and be continuing:
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(a) No holder of a Note shall transfer such Note to any
Person (excluding Friedman's and any of its Affiliates) if such Person or any
of its Affiliates is actively engaged in the operation of one or more retail
jewelry stores; and
(b) No holder of a Note shall sell, assign or transfer
all or any portion of such Note (the "Selling Noteholder") to any person that
is not then an Affiliate of such holder without first providing the Company
with notice of its intention to do so and the Company and CJI shall have a
right of first offer to purchase such Note or such portion thereof by
delivering an irrevocable binding offer stating the terms thereof not later
than two days following delivery of such notice and by consummating such
purchase within 30 days after the delivery of such binding offer. If the
Selling Noteholder does not accept such offer from the Company, it shall have
the right (but not the obligation) to consummate such sale, assignment or
transfer at any time within the sixty-day period immediately following delivery
of its original notice to the Company so long as the terms thereof, in the
reasonable opinion of the Selling Noteholder, are at least as favorable as
those offered by the Company. Nothing contained in this Section 6.5 shall
limit or affect the rights of the Noteholders under Section 11 hereof.
SECTION 7. PREPAYMENTS.
Section 7.1 OPTIONAL PREPAYMENT. (a) The Company, at
its option, may prepay the Notes in whole or in part, without premium or
penalty, at any time subject to the provisions of Section 7.1(b). Any partial
prepayment of the Notes shall be in a minimum amount of $1,000,000 and integral
multiples of $100,000 in excess thereof. Upon any partial prepayment of the
Notes, the principal amount so prepaid shall be allocated to all Notes at the
time outstanding in proportion to the respective outstanding principal amounts
thereof.
(b) Notice of any prepayment of Notes pursuant to this
Section 7.1 shall be given to each holder of Notes in a manner such that each
holder receives such notice not less than 30 or more than 60 days before the
date fixed for prepayment. Any notice of prepayment given pursuant to this
Section 7.1 hereof shall certify (a) the date on which prepayment is to be made
(the "Optional Prepayment Date"), (b) the principal amount of such holder's
Notes to be prepaid on such Optional Prepayment Date, and (c) the accrued
interest applicable to such prepayment. Notice of prepayment having been so
given, then, subject to the right of each Noteholder to convert its Notes as
permitted by the Conversion Agreement to which such Noteholder is a party, the
aggregate principal amount of Notes specified in such notice, together with
interest thereon, shall become due and payable on such Optional Prepayment Date.
Section 7.2 MANDATORY OFFER TO PREPAY NOTES. (a) If an
Operative Event (as hereinafter defined) shall occur, each holder of an
outstanding Note shall have the right to demand that the Company prepay all of
the Notes then held by such holder by giving written notice to such effect to
the Company not later than 90 days after the first to occur of the following:
(1) receipt by such holder from the Company of written notice of the occurrence
of such Operative Event or (ii) the date on which such holder, having otherwise
obtained actual knowledge of such Operative Event, notifies the Company
thereof. The Company shall prepay such Notes on a date specified to such
holder by written notice from the Company given not less
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<PAGE> 26
than 20 days prior to the prepayment date so specified (which date shall not be
earlier than 40 nor later than 90 days after the date demand for prepayment was
made by such holder) and such prepayment shall be at a price equal to the
greater of (x) the aggregate principal amount of the Notes to be prepaid,
together with interest thereon to the date of such prepayment or (y) the
Prepayment Purchase Price.
(b) As used in this Section 7.2, an "Operative Event" shall be
deemed to have taken place upon the first to occur of the following events:
(i) the Control Persons shall fail to own, of record and
beneficially, with full power to vote, shares of Capital Stock, of
whatever class or classes, entitling the holders thereof to cast at
least (x) until the consummation of an Initial Public Offering,
twenty-five percent (25%) of the votes for election of directors of
the Company or (y) after the consummation of an Initial Public
Offering, fifteen percent (15%) of the votes for election of directors
of the Company, or
(ii) any Person or Persons, together with its Affiliates
and any other Person party to a voting trust or similar agreement with
such Person (excluding for this purpose CJ Morgan Corporation, CJ
Morgan Limited Partnership, CJ Universal and the Control Persons)
shall own of record and beneficially, with full power to vote, shares
of Capital Stock, of whatever class or classes, entitling the holders
thereof to cast at least thirty-five (35%) of the votes for election
of directors of the Company; or
(iii) the Control Persons shall fail to own, of record and
beneficially, ten percent (10%) of all classes, in the aggregate, of
non-voting Capital Stock of the Company, unless, at such time, (A) at
least 90% of the aggregate principal amount of the Notes shall have
been converted into Voting Common Stock, and (B) the current or former
holders of the Notes shall own, in the aggregate, not more than 10% of
the amount of Voting Common Stock which would be held by such holders
if 100% of the initial aggregate amount of the Notes had been
converted into Voting Common Stock at such time.
(c) Notwithstanding the occurrence of an event described in clause
(i) or (ii) of Section 7.2(b) hereof, an Operative Event shall not be deemed to
have occurred if:
(i)(w) the Incapacity of Graber shall have occurred, (x) the
Noteholders shall have been advised in writing of the Incapacity of
Graber immediately upon the occurrence thereof, (y) within 180 days of
such Incapacity, the Noteholders shall have been notified of the
determination of the Board of Directors of the Company to find a
purchaser or purchasers for all of the Capital Stock or assets of the
Company, and (z) within 300 days of such Incapacity, such sale shall
have been consummated (it being agreed that the Company shall give
each Noteholder at least 40 days advance notice of the closing date
thereof); or
(ii) the Board of Directors of the Company shall have made
a determination to sell all of the Capital Stock or the assets of the
Company, other than in an Initial Public
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Offering, the Noteholders shall have been given notice thereof and
such sale shall have been consummated within 150 days after such
determination (it being agreed that the Company shall give each
Noteholder at least 40 days advance notice of the closing date of such
sale), so long as the purchaser or purchasers of such Capital Stock or
assets shall not include any of the Control Persons; or
(iii) at any time the Control Persons, CJ Morgan
Corporation, CJ Morgan Limited Partnership or CJ Universal have the
power (directly or indirectly) to elect a majority of the Board of
Directors of CJI;
provided, however, that each holder of a Note shall have the right to demand
that the Company prepay all of the Notes then held by such holder concurrently
with the consummation of any sale of the type referred to in clause (i) or (ii)
of this Section 7.2(c) by sending a notice to the Company to such effect not
later than 20 days prior to the closing date of such sale as set forth in the
notice of closing hereinabove referred to, such prepayment to be made at a
price equal to the greater of (A) the aggregate principal amount of the Notes
to be prepaid, together with interest thereon to the date of such prepayment,
or (B) the product of (i) the percentage of Class A Common Stock which would be
held by such holder on the date of such notice if such Notes had been converted
into Class A Common Stock on the date of such notice, and (ii) the net proceeds
of such sale to be distributed to all holders of Class A Common Stock.
(d) Promptly after obtaining knowledge of the occurrence of any
Operative Events (or of any event which would be an Operative Event but for the
provision of Section 7.2(c) hereof), the Company shall notify the Noteholders
thereof, specifying in reasonable detail the facts and circumstances
surrounding such event, and whether the Noteholders have a right to demand
prepayment in accordance with Section 7.2(a) hereof. The Company shall also
notify the Noteholders of the receipt of any demand for the prepayment of Notes
pursuant to 7.2(a) hereof.
SECTION 8. REGISTRATION, EXCHANGE AND REPLACEMENT OF NOTES.
Section 8.1 REGISTRATION. The Notes issuable pursuant to
this Agreement shall be registered Notes. The Company will keep, at the office
required to be maintained pursuant to Section 9.1 hereof, books for the
registration and registration of transfer of Notes. Prior to presentation of
any Note for registration of transfer, the Company shall treat the Person in
whose name such Note is registered as the owner and holder of such Note for all
purposes whatsoever, whether or not such Note shall be overdue, and the Company
shall not be affected by notice to the contrary.
Section 8.2 EXCHANGE. The holder of any Note, at its
option, may in person or by duly authorized attorney, surrender the same for
exchange at the office maintained pursuant to Section 9.1 hereof and promptly
thereafter and at the Company's expense, except as provided below, receive in
exchange therefor a new Note or Notes, as the case may be, each in the
denomination requested by such holder, dated the date to which interest shall
have been paid on the Note so surrendered or, if no interest shall have yet
been so paid, dated the date of the Note so surrendered and registered in the
name of such Person or Persons as shall have been designated in
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writing by such holder or its attorney for the same principal amount as the
then unpaid principal amount of the Note so surrendered. Subject to Section
9.1 hereof, the Company may require payment of a sum sufficient to cover any
stamp or other tax or governmental charge imposed in respect of any transfer
involved in such exchange.
Section 8.3 REPLACEMENT. Upon receipt by the Company of
evidence reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Note and (a) in the case of loss, theft or
destruction, of indemnity reasonably satisfactory to it; provided, however,
that if the holder of such Note is the original purchaser of the Note listed on
Schedule I hereto or any Affiliate thereof or any Institutional Investor, its
own agreement of indemnity shall be deemed to be satisfactory; or (b) in the
case of mutilation, upon surrender thereof, the Company, at its expense, will
execute and deliver in lieu thereof a new Note executed in the same manner as
the Note being replaced, in the same principal amount as the unpaid principal
amount of such Note and dated the date to which interest shall have been paid
on such Note or, if no interest shall have yet been so paid, dated the date of
such Note.
SECTION 9. CERTAIN COVENANTS OF THE COMPANY.
The Company covenants and agrees that so long as any Notes
shall remain outstanding:
Section 9.1 MAINTENANCE OF OFFICE. The Company will
maintain at the office located at the address for notices set forth in Section
15.1 hereof an office where notices, presentations and demands in respect of
this Agreement and the Notes may be given to and made upon it; provided,
however, that the Company may, upon 10 business days' prior written notice to
each Noteholder, move such office to any other location within the continental
boundaries of the United States. The Company hereby agrees that it will pay,
and will save any holder of a Note harmless against liability for, any stamp or
other tax or governmental charge imposed in respect of any transfer of a Note
resulting from such change in office; and said obligation of the Company shall
survive the payment or prepayment of the Notes and the termination of this
Agreement.
Section 9.2 CORPORATE EXISTENCE. The Company will (a)
take and fulfill, or cause to be taken and fulfilled, all actions and
conditions necessary to preserve and keep in full force and effect its
existence, rights and privileges as a corporation, and will not liquidate or
dissolve, and (b) take and fulfill, or cause to be taken and fulfilled, all
actions and conditions necessary to qualify, and to preserve and keep in full
force and effect its qualification, to do business as a foreign corporation in
the jurisdictions in which the conduct of its business or the ownership or
leasing of its properties requires such qualification unless the Board of
Directors of the Company determines in good faith that failure to so qualify
would not have a material and adverse affect on the business, earnings,
prospects, properties or condition (financial or other) of the Company and its
Subsidiary taken as a whole; provided, however, that this Section 9.2 shall not
be deemed to prohibit any transaction permitted by Section 9.9 hereof.
Section 9.3 GENERAL MAINTENANCE OF PROPERTIES AND
BUSINESS, ETC. (a) The Company will, and will cause its Subsidiary to,
maintain its properties and assets in normal
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working order and condition and make all necessary repairs, renewals,
replacements, additions, betterments and improvements thereto, ordinary wear
and tear excepted, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that nothing in this
Section 9.3 shall prevent the Company or its Subsidiary from discontinuing the
operation and maintenance of any of its properties if such discontinuance is,
in the judgment of the Company or such Subsidiary, desirable in the conduct of
its business, and if in the good faith determination of the Board of Directors
of the Company the anticipated effect of such discontinuance is not adverse in
any material respect to the Noteholders.
(b) The Company will, and will cause its Subsidiary to,
maintain with financially sound and reputable insurers, such insurance as may
be required by law and such other insurance, to such extent and against such
hazards and liabilities, as it in good faith determines is customarily
maintained by companies similarly situated with like properties.
(c) The Company will, and will cause its Subsidiary to,
keep true and accurate books of records and accounts in which full and correct
entries will be made with respect to all of its business transactions in
accordance with sound business practices, and reflect in its financial
statements adequate accruals and appropriations to reserves, all in accordance
with generally accepted accounting principles.
(d) The Company will, and will cause its Subsidiary to,
do or cause to be done all things necessary to preserve and keep in full force
and effect its existence, rights and franchises, except to the extent permitted
by this Agreement and except in such cases where the Board of Directors of the
Company determines in good faith that failure to do so would not have a
material and adverse affect on the business, earnings, prospects, properties or
condition (financial or other) of the Company and its Subsidiary taken as a
whole.
(e) The Company will, and will cause its Subsidiary to,
pay prior to delinquency all taxes, assessments and governmental levies which
if not paid would have a material and adverse affect on the business, earnings,
prospects, properties, or condition (financial or other) of the Company and its
Subsidiary taken as a whole, and except as contested in good faith and by
appropriate proceedings.
Section 9.4 INSPECTION. As long as a Noteholder holds
Notes in the aggregate principal amount of $2,500,000 or more, the Company will
permit any Person designated by such Noteholder, in writing, at such
Noteholder's expense, to visit and inspect any of the properties, corporate
books and financial records of the Company and its Subsidiary and to discuss
their affairs, finances and accounts with the principal officers of the Company
and (with notice) its independent public accountants, all at such reasonable
times and as often as such Noteholder may reasonably request. Each such
Noteholder agrees that it will use its best efforts to keep any information
obtained by it as a result of such visits, inspection and discussion
confidential in accordance with such procedures as such Noteholder applies
generally to information of this kind; provided, however, that such Noteholder
may disclose any such information (a) as has become generally available to the
public, (b) as may be required in any report, statement or testimony
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required to be submitted to any municipal, state or Federal regulatory body
having or claiming to have jurisdiction over it or to the National Association
of Insurance Commissioners or similar organizations or their successors, (c) as
may be required in response to any summons or subpoena or in connection with
any litigation, (d) to the extent that such Noteholder believes it appropriate
in order to comply with any law, order, regulation or ruling applicable to it
and (e) to the prospective transferee in connection with any contemplated
transfer of any of the Notes. No Noteholder may use any such confidential
information to compete with the businesses conducted by the Company or in
violation of applicable law as the basis for any market transaction in
securities of the Company. The Company may deny the benefits of this Section
9.4 to any Person (other than Friedmans and any of its Affiliates) it
reasonably believes to be a competitor or is acting on behalf of a competitor.
Section 9.5 COMPLIANCE WITH LAW, ETC. Neither the
Company nor its Subsidiary will (a) violate any law, ordinance, governmental
rule or regulations to which it is or may become subject, the violation of
which would, either individually or in the aggregate, materially and adversely
affect the business, earnings, prospects, properties or condition (financial or
other) of the Company or its Subsidiary, or (b) fail to obtain or maintain any
patents, trademarks, service marks, trade names, copyrights, design patents,
licenses, permits, franchises or other governmental authorizations necessary to
the ownership of its property or to the conduct of its business, except where
the failure so to obtain or maintain the foregoing would not, individually or
in the aggregate, have a material and adverse effect on the business, earnings,
prospects, properties or condition (financial or other) of the Company or its
Subsidiary.
Section 9.6 PAYMENT OF TAXES AND CLAIMS. The Company and
its Subsidiary each will pay and discharge promptly when due:
(a) all taxes, assessments and governmental charges and
levies imposed upon it, its income or profits or any of its properties, before
the same shall become delinquent; and
(b) all lawful claims of materialmen, mechanics,
carriers, warehousemen, landlords and other similar Persons for labor,
materials, supplies and rentals that, if unpaid, might by law become a Lien
upon any of its property;
provided, however, that none of the foregoing need be paid while the same is
being contested in good faith by appropriate proceedings diligently conducted
so long as adequate reserves shall have been established in accordance with
generally accepted accounting principles with respect thereto, title of the
Company or such Subsidiary, as the case may be, to the particular property
shall not be divested thereby and its right to use the particular property
shall not be materially and adversely affected thereby.
Section 9.7 ERISA. (a) The Company and its ERISA
Affiliates each will continue any and all Plans in compliance with all
applicable requirements of the Code, ERISA and the rules and regulations
adopted thereunder, in each case as in effect at the time, until such Plans are
terminated, and the liabilities thereof discharged, in accordance with
applicable law.
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(b) Neither the Company nor any of its ERISA Affiliates
will (i) have any accumulated funding deficiency with respect to any Pension
Plan, (ii) incur any excise tax or civil penalty under Section 4975 of the Code
or Section 502(i) of ERISA (respectively) with respect to any prohibited
transaction involving any employee benefit plan, nor (iii) become obligated to
make any contributions to any multiemployer plan (as defined in Section 2.11(d)
hereof).
(c) Neither the Company nor any of its ERISA Affiliates
will permit any event or condition to occur or exist with respect to any Plan
or Pension Plan if, as a result of such event or condition (together with all
other such events or conditions), the Company or any ERISA Affiliate would
incur or be reasonably likely to incur a liability to a Plan, a Pension Plan or
the PBGC (or any combination of the foregoing) which is or could be materially
adverse in relation to the consolidated financial position of the Company and
its Subsidiary.
Section 9.8 TRANSACTIONS WITH AFFILIATES. The Company
will not, and will not permit any Subsidiary to, directly or indirectly, enter
into any transaction (including, without limitation, the purchase, sale, lease
or exchange of any property or the rendering of any service) with any Affiliate
of the Company (other than any wholly-owned Subsidiary thereof), or CJ Morgan
Limited Partnership or CJ Morgan Corporation or any Affiliate thereof unless
the Board of Directors has determined that such transaction is (a) on terms
that are no less favorable to the Company or such Subsidiary, as the case may
be, than those which might be obtained at the time from Persons who are not
such an Affiliate or (b) is in the ordinary course of business of the Company
or such Subsidiary; provided, however, that, in the case of any such
transaction involving the payment, receipt or exchange by the Company or any
Subsidiary of cash or property in excess of $1,500,000 (the amount so paid,
received or exchanged, if other than in cash, to be determined by the Board of
Directors), such transaction shall be approved by a majority, but not less than
two, of the independent directors on the Board of Directors at such time; and
provided, further, that in no event shall the consideration paid by CJ Morgan
Limited Partnership or CJ Morgan Corporation or any Affiliate thereof or any
Affiliate of the Company in any such transaction consist of securities or other
debt instruments of such Person. Except as specifically set forth in the
preceding sentence, any determination made pursuant to this Section 9.8 shall
be made by the Board of Directors acting in good faith, whose determination
shall be conclusive; provided, however, that no member of the Board of
Directors affiliated with CJ Morgan Corporation or CJ Morgan Limited
Partnership or an Affiliate thereof or an Affiliate of the Company (other than
by virtue of being a member of the Company's Board of Directors) shall vote on
the transactions in which such Person is a participant. Notwithstanding the
forgoing, this Section 9.8 shall not apply to the agreements and transactions
listed in Schedule Y.
Section 9.9 MERGER; CONSOLIDATION. The Company will not
merge into or consolidate with any other Person or permit any other Person to
merge into or consolidate with it, transfer all or substantially all of its
assets, or liquidate, dissolve or otherwise transfer all if its assets unless
(i) the corporation which survives such merger or results from such
consolidation (the "surviving corporation") shall be organized under the laws
of the United States of America or a jurisdiction thereof, (ii) (A) the Company
shall be the surviving corporation or (B) the due and punctual payment of
principal, premium, if any, and interest on all the Notes according to their
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tenor, and the due and punctual performance and observance of all the covenants
in this Agreement to be performed or observed by the Company, shall be
expressly assumed in writing by the surviving corporation by an instrument
reasonably satisfactory in form and substance to the holders of at least a
majority in aggregate unpaid principal amount of the Notes then outstanding,
(iii) before and immediately after the consummation of the transaction, and
after giving effect thereto, (x) no Default or Event of Default shall exist and
(y) the Company shall be permitted under Section 9.16 hereof to incur an
additional $1.00 of indebtedness, (iv) immediately after the consummation of
the transaction, and after giving effect thereto, Consolidated Tangible Net
Worth of the surviving corporation shall not be less than the Consolidated
Tangible Net Worth of the Company immediately before consummation of the
transaction, and (v) an opinion of counsel (reasonably satisfactory in form and
substance to the holders of at least a majority in aggregate unpaid principal
amount of the Notes then outstanding) is delivered to each Noteholder upon
consummation of the transaction to the effect that the conditions in this
Section 9.9 have been satisfied and to the effect that this Agreement, the
Notes and the instrument referred to in clause (ii) (B) of this Section 9.9 are
legal, valid and binding obligations of the surviving corporation, enforceable
against the surviving corporation in accordance with their respective terms.
Section 9.10 REPURCHASE OF NOTES. Neither the Company nor
any Affiliate of the Company will, directly or indirectly, repurchase or make
any offer to repurchase any Notes unless such entity has offered to repurchase
Notes, pro rata, from all holders of Notes upon the same terms. If the Company
repurchases, or any other Affiliate purchases, any Notes, such Notes shall
thereafter be cancelled and no Notes shall be issued in substitution therefor.
For purposes of Section 7 hereof, the Company shall be deemed to be the owner
of all purchased Notes pursuant to this Section 9.10.
Section 9.11 LIMITATIONS ON RESTRICTED INVESTMENTS AND
RESTRICTED PAYMENTS. (a) The Company will not, directly or indirectly at any
time, (A) declare, make or pay, or incur any liability to make or pay, or cause
or permit to be declared, made or paid any Restricted Payment or (B) make any
Restricted Investment.
(b) Notwithstanding the foregoing, the restrictions of
Section 9.11(a) above will not prevent (A) the acquisition or retirement of
Capital Stock of the Company or its Subsidiary thereof solely in exchange for,
or through the application of net proceeds of a substantially concurrent sale
for cash (other than to a Subsidiary of the Company or an Affiliate which has
been a Subsidiary or division of the Company or one of its Subsidiary within
five years of the date of determination) of, other shares of such Capital Stock
(other than Restricted Capital Stock), (B) the redemption of Capital Stock
convertible into other shares of Capital Stock (other than Restricted Capital
Stock) where a responsible investment banking firm of national reputation has
entered into a contractual commitment with the Company pursuant to which such
investment banking firm is obligated to purchase from the Company all of the
shares of Capital Stock which would have been issuable upon the conversion of
the shares of the Capital Stock called for redemption which are redeemed rather
than converted, or (C) the execution, delivery, performance and consummation of
the agreements listed in on Schedule Y; provided, however, that the redemption
of Capital Stock pursuant to clause (B) above shall not constitute a Restricted
Payment for the purposes of Section 9.11(a).
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Section 9.12 SEC REPORTS. (a) The Company will provide
each Noteholder, within 5 days after it files them with the SEC, copies of the
annual reports and of the other information, documents, and reports (or copies
of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) which the Company is required to file with the SEC
pursuant to Sections 13 or 15(d) of the Exchange Act. If the Company is not
subject to the requirements of such Sections 13 or 15(d) of the Exchange Act,
the Company will provide each Noteholder, within 5 days after it would have
been required to file such information with the SEC if the Company had been so
subject, financial statements, including any notes thereto and with respect to
annual reports, an auditors' report by an accounting firm of established
national reputation, and a "Management's Discussion and Analysis of Financial
Condition and Results of Operations", both comparable to that which the Company
would have been required to include in such annual reports, information,
documents or other reports if the Company was subject to the requirements of
such Section 13 or 15(d) of the Exchange Act. The Company shall also comply
with the provisions of TIA Section 314(a).
(b) So long as any of the Notes shall remain outstanding,
the Company will cause each annual report to shareholders and each quarterly or
other financial report furnished by it to shareholders to be provided to and
mailed to the Noteholders at their addresses appearing in the register
maintained by the Company pursuant to Section 8.1 hereof at the time of such
mailing or furnishing to shareholders. If the Company is not required to
furnish annual or quarterly reports to its shareholders pursuant to the
Exchange Act, the Company shall cause its financial statements including any
notes thereto and with respect to the annual reports, an auditors' report by an
accounting firm of established national reputation, and a "Management's
Discussion and Analysis of Financial Condition and Results of Operations", to
be so mailed to the Noteholders within 105 days after the end of each of the
Company's Fiscal Years and within 45 days after the end of each of the first
three quarters of each Fiscal Year.
Section 9.13 INTENTIONALLY OMITTED.
Section 9.14 MAINTENANCE OF INDEPENDENT DIRECTORS. The
Company shall ensure that the members of its Board of Directors and the Board
of Directors of CJI shall at all times include at least two independent
directors; provided, however, that if from time to time the number of directors
on its Board of Directors or the Board of Directors of CJI is increased or
decreased, the number of independent directors shall be increased or decreased
to maintain the same proportion of independent directors to non-independent
directors (so long as there shall always remain at least two independent
directors on each such Board of Directors). For the purposes of this Section
9.14, the term "independent director" means any director who, together with the
members of his family, does not own, directly or indirectly, five percent (5%)
or more of the outstanding Capital Stock of the Company or CJI (or, if such
director is Michael J. Rippey or Richard Werdiger, ten percent (10%) or more of
the outstanding capital stock of the Company or CJI) and who is not (and none
of the members of whose family is) an officer or employee of the Company or CJI
or any of its Affiliates.
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Section 9.15 LIMITATION ON BUSINESS ACTIVITIES. The
Company shall not, and shall not permit its Subsidiary to, engage in any line
of business substantially different from those lines of business currently
carried on by it or customary for the industry it is currently in, which lines
of business shall include in any case, but not be limited to, retail jewelry
and luxury gift sales, consumer finance, credit insurance and reinsurance and
other consumer financial services, and credit collection services.
Section 9.16 LIMITATIONS ON INDEBTEDNESS. (a)
The Company will not, and will not permit any Designated Subsidiary to,
directly or indirectly, create, guaranty, incur, issue, assume or otherwise
become directly or indirectly liable with respect to (collectively, "incur")
any Indebtedness (other than Indebtedness between the Company and a Wholly
Owned Designated Subsidiary).
(b) The limitations of Section 9.16(a) hereof
notwithstanding, additional Indebtedness may be incurred by the Company or any
Designated Subsidiary, as the case may be, in connection with or arising under:
(i) the Refinancing Transactions in an aggregate
principal amount not to exceed $93,000,000 as follows: (A) no more
than $65,000,000 in aggregate principal amount under the Senior Loan
Documents (as defined in Schedule Y hereto), (B) no more than
$20,000,000 in aggregate principal amount under the Friedman's Loan
Documents (as defined in Schedule Y hereto) and (C) no more than
$8,000,000 in respect of the Notes;
(ii) trade letters of credit issued for the account of the
Company or any Designated Subsidiary in the ordinary course of its
business'
(iii) stand-by letters of credit issued for the account of
the Company or any Designated Subsidiary in connection with
obligations of the Company or any Designated Subsidiary, to the extent
that the aggregate amount payable thereunder does not exceed
$2,500,000;
(iv) other unsecured Indebtedness for borrowed money not
to exceed $250,000 in the aggregate at any time outstanding;
(v) unsecured Indebtedness to trade creditors incurred in
the ordinary course of the Company's business; and
(vi) secured Indebtedness to Aviv, Inc., a Texas
corporation, existing as of October 13, 1996.
(c) For purposes of this Section 9.16, if the Company or
any Designated Subsidiary has guarantied any Indebtedness of the Company or any
Designated Subsidiary, the amount so guarantied shall not be deemed to
constitute Indebtedness in addition to the underlying Indebtedness so
guarantied.
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Section 9.17 LIMITATIONS ON CAPITAL EXPENDITURES. The
Company shall not purchase or otherwise acquire (including, without limitation,
acquisition by way of capitalized lease), or commit to purchase or acquire, any
fixed asset if, after giving effect to such purchase or other acquisition, the
aggregate cost of all such fixed assets purchased or otherwise acquired would,
during any fiscal year, exceed the amount set forth opposite such fiscal year
below:
Fiscal Year Amount
----------- ------
1997 $3,750,000.00
1998 $4,650,000.00
1999 $5,550,000.00
provided, however, that during any fiscal year, if the aggregate cost of all
such fixed assets purchased or otherwise acquired is less than the amount set
forth opposite such fiscal year above, then the Company shall be permitted, in
the next succeeding fiscal year, to exceed the amount set forth opposite such
succeeding fiscal year by an amount equal to the lesser of (i) the difference
between (A) the aggregate cost of all such fixed assets purchased or otherwise
acquired during such fiscal year and (B) the amount set forth opposite such
fiscal year above, and (ii) $250,000.00.
Section 9.18 CONSOLIDATED TANGIBLE NET WORTH. The
Company's Tangible Net Worth shall at no time be less than the "Minimum
Tangible Net Worth - Covenant Definition"; "Minimum Tangible Net Worth -
Covenant Definition" for any period means the amount set forth opposite said
period below:
Period Amount
------ ------
August 31 through November 30, 1996 $15,800,000.00
December 1, 1996 through November 30, 1997 $18,500,000.00
December 1, 1997 through November 30, 1998 $21,800,000.00
December 1, 1998 through November 30, 1999 $27,300,000.00
Section 9.19 WHOLLY OWNED SUBSIDIARY. The Company shall
at all times remain a Wholly Owned Subsidiary of CJI; provided, however, that
notwithstanding the foregoing, the Company shall at any time be permitted to
merge and/or consolidated with and into CJI.
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SECTION 10. SUBORDINATION.
Section 10.1 NOTES SUBORDINATED TO SENIOR INDEBTEDNESS.
The Company agrees, and each holder of Notes by his acceptance of such Notes
likewise agrees, that the payment of the principal and interest on the Notes
(including, without limitation, any payment made pursuant to Section 7.2
hereof) is subordinated, to the extent and in the manner provided in this
Section 10, to the prior payment in full of all Senior Indebtedness.
This Section shall constitute a continuing offer to all
Persons who, in reliance upon such provisions, become holders of or continue to
hold, Senior Indebtedness and such provisions are made for the benefit of the
holders of Senior Indebtedness of the Company, and such holders are made
obligees hereunder and they and/or each of them may enforce such provisions,
Section 10.2 NO PAYMENT ON NOTES IN CERTAIN CIRCUMSTANCES.
(a) (i) The Company may not pay principal of or interest on the Notes and may
not acquire any Notes for cash or property (other than Capital Stock of the
Company or CJI that is not Restricted Capital Stock) including, without
limitation, pursuant to Section 7.2 hereof, if there exists a default in
payment of Senior Indebtedness, unless such payment default shall have been
cured or waived. The Company may resume payments on the Notes and may acquire
them when the payment default is cured or waived or has ceased to exist if this
Section 10 otherwise permits the payment or acquisition at that time.
(ii) In addition, during the continuance of any
event of default (other than in the payment of principal or interest) with
respect to any Senior Indebtedness pursuant to which the maturity thereof may
be accelerated, upon receipt by the Noteholders of a written notice from
LaSalle National Bank, as Agent, or after such time as the Senior Loan
Documents (as defined on Schedule Y) have been terminated, Friedman's Inc., no
such payment or acquisition of Notes may be made by the Company upon or in
respect of the Notes for a payment blockage period ("Payment Blockage Period")
commencing on the date of receipt of such notice and ending 360 days thereafter
(unless such event of default shall have been cured or waived or such Payment
Blockage Period shall have been terminated by written notice to the Noteholders
from LaSalle National Bank, as Agent, or Friedman's Inc., as the case may be).
Notwithstanding anything to the contrary herein, in no event shall a Payment
Blockage Period extend beyond 360 days from the date the payment on the Notes
was due. Notwithstanding anything to the contrary herein, not more than a
total of 360 days of Payment Blockage Period may occur with respect to the
Notes during any period of 540 consecutive days (it being understood that the
provisions of this Section 10.2(a)(ii) shall prevent not more than 2 interest
payments to be made under the terms of this Agreement (as in effect on the date
hereof) out of any 3 consecutive such interest payments). For all purposes of
this Section 10.2(a)(ii), no event of default which existed or was continuing
on the date of the commencement of any Payment Blockage Period with respect to
the Senior Indebtedness initiating such Payment Blockage Period shall be, or be
made, the basis for the commencement of a second Payment Blockage Period by
LaSalle National Bank, as Agent, or Friedman's Inc., as the case may be,
whether or not within a period of 540 consecutive days unless such event of
default shall have been cured or waived for a period of not less than 90
consecutive days. The foregoing sentence shall not, however, prevent an
additional Payment Blockage Period based upon a new
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event of default under the same provision of the relevant agreement.
Notwithstanding the foregoing, no further notice may be given in respect of any
event of default of the type referred to in this Section 10.2(a)(ii) on any
issue of Senior Indebtedness or in respect of any acceleration unless and until
all scheduled payments of principal and interest not paid on the Notes during
any such Payment Blockage Period as a result of any notice or acceleration
pursuant to this Section 10.2(a)(ii) shall have been paid in full in cash or
cash equivalents. Nothing in this Section 10 shall relieve the holders of such
Senior Indebtedness from any notice requirements set forth in the instrument
evidencing such Senior Indebtedness.
(b) In the event that, notwithstanding the provisions of
Section 10.2(a) the Company shall make any payment to the Noteholders on
account of the principal of or interest on the Notes inconsistent with the
provisions of such Section 10.2(a), such payment shall be held by the
Noteholders, for the benefit of, and shall be paid forthwith over and delivered
to, the holders of Senior Indebtedness (in their respective order of priority)
or their representative or the trustee under the indenture or other agreement
(if any) pursuant to which Senior Indebtedness may have been issued, as their
respective interests may appear, for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all such Senior
Indebtedness in full in the order of its priority and in accordance with its
terms, after giving effect to any concurrent payment or distribution to or for
the holders of Senior Indebtedness. Notwithstanding anything to the contrary
in this Section 10.2, including when any Payment Blockage Period is in effect,
the Company shall be permitted to make payments of interest to the Holders in
equity securities of CJI.
The Company shall give prompt written notice to the
Noteholders of any default in the payment of any of its Senior Indebtedness,
and in the event of any such event of default shall provide to the Noteholders
in the form of an Officer's Certificate the names and addresses of the holders
of such Senior Indebtedness or the name and address of the representative or
trustee acting on their behalf. The Noteholders shall be entitled to rely
conclusively on such Officer's Certificate without independent verification.
Section 10.3 NOTES SUBORDINATED TO PRIOR PAYMENT OF ALL
SENIOR INDEBTEDNESS ON DISSOLUTION, LIQUIDATION OR REORGANIZATION OF COMPANY.
Upon any distribution or payment of assets or Notes of the Company upon any
dissolution, winding-up, liquidation or reorganization of the Company of any
kind or character (whether voluntary or involuntary, in bankruptcy, insolvency
or receivership proceedings or upon an assignment for the benefit of creditors
or otherwise):
(a) the holders of all Senior Indebtedness shall first be
entitled to receive payment in full of such Senior Indebtedness (which payment
shall include, without limitation, any interest accruing subsequent to an event
specified in subsections (g) through (l), inclusive, of Section 13.1 hereof
only in the event that at the time of such payment less than $28,500,000 in the
aggregate principal amount of the 14 1/2% Senior Subordinated Notes due 1999 of
the Company are outstanding) before the Noteholders are entitled to receive any
payment or distribution of any assets (other than Capital Stock of the Company
or CJI that is not Restricted Capital Stock) on account of the principal of or
interest on the Notes;
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(b) any payment or distribution of assets of the Company
of any kind or character, whether in cash, property or Notes, to which the
Noteholders would be entitled except for the provisions of this Section 10,
including any such payment or distribution which may be payable or deliverable
by reason of the payment of any other indebtedness of the Company being
subordinated to the payment of the Notes, shall be paid by the liquidating
trustee or agent or other Person making such payment or distribution directly
to the holders of Senior Indebtedness or their representative or to the trustee
under any indenture under which Senior Indebtedness may have been issued (in
their respective order of priority), to the extent necessary to make payment in
full of all Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution or provision therefor to the holders of such
Senior Indebtedness, except that holders of the Notes shall be entitled to
receive securities that are subordinated to Senior Indebtedness to at least the
same extent as the Notes and whose other material terms are not less favorable
to the holders of Senior Indebtedness than the terms of the Notes; and
(c) in the event that notwithstanding the foregoing, any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, including any such payment or
distribution which may be payable or deliverable by reason of the payment of
any other Indebtedness of the Company being subordinated to the payment of the
Notes, shall be received by the trustee or the Noteholders on account of
principal of or interest on the Notes before all Senior Indebtedness is paid in
full, such payment or distribution shall be received and held in trust for and
shall be paid forthwith over and delivered to the holders of the Senior
Indebtedness remaining unpaid or unprovided for or their representative, or to
the trustee under any indenture under which such Senior Indebtedness may have
been issued (in their respective order of priority), for application to the
payment of such Senior Indebtedness until all such Senior Indebtedness shall
have been paid in full, after giving effect to any concurrent payment or
distribution or provision therefor to or for the holders of such Senior
Indebtedness, except that the Noteholders shall be entitled to receive
securities that are subordinated to Senior Indebtedness to at least the same
extent as the securities and whose other material terms are no less favorable
to the holders of Senior Indebtedness than the terms of the Notes.
The Company shall give prompt written notice to the
Noteholders of any dissolution, winding-up, liquidation or reorganization of
the Company or any assignment for the benefit of the Company's creditors.
Section 10.4 NOTEHOLDERS TO BE SUBROGATED TO RIGHTS OF
HOLDERS OF SENIOR INDEBTEDNESS. Subject to the payment in full of all Senior
Indebtedness pursuant to this Section 10, the Noteholders shall be subrogated
equally and ratably to the rights of the holders of Senior Indebtedness to
receive payments or distributions of assets of the Company applicable to the
Senior Indebtedness until all amounts owing on the Notes shall be paid in full,
and for the purpose of such subrogation no such payments or distributions to
the holders of Senior Indebtedness by or on behalf of the Company or by or on
behalf of the Noteholders by virtue of this Section 10 which otherwise would
have been made to the Noteholders shall, as among the Company, its creditors
other than holders of the Senior Indebtedness and the Noteholders, be deemed to
be payment by the Company to or on account of the Senior Indebtedness, it being
understood that the provisions
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of this Section 10 are intended solely for the purpose of defining the relative
rights of the Noteholders, on the one hand, and the holders of Senior
Indebtedness, on the other hand.
Section 10.5 OBLIGATIONS OF THE COMPANY UNCONDITIONAL.
Nothing contained in this Section 10 or elsewhere in this Agreement or in any
Note is intended to or shall impair, as among the Company, its creditors other
than holders of the Senior Indebtedness and the Noteholders, the obligation of
the Company, which is absolute and unconditional, to pay to the Noteholders the
principal of or interest (including, to the extent lawful, any interest on
overdue installments of interest) on the Notes as and when the same shall
become due and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the Noteholders and creditors of the
Company other than the holders of Senior Indebtedness, nor shall anything
herein or therein prevent any Noteholder from exercising all remedies otherwise
permitted by applicable law upon Default under this Agreement, subject to the
rights under this Section 10 of the holders of Senior Indebtedness in respect
of cash, property or securities of the Company received upon the exercise of
any such remedy. Upon any distribution of assets of the Company referred to in
this Section 10, the Noteholders shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which such dissolution,
winding-up, liquidation, reorganization or similar proceedings are pending, or
a certificate of the liquidating trustee or agent or other Person making any
distribution to the Noteholders, for the purpose of ascertaining the Persons
entitled to participate in such distribution, the holders of Senior
Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Section 10.
Nothing contained in this Section 10 or elsewhere in this
Agreement or in any Note is intended to or shall affect the obligation of the
Company to make or, except as specifically provided in this Section 10, prevent
the Company from making, at any time except during the pendency of any
dissolution, winding-up, liquidation or reorganization proceeding, and except
during the continuance of any default specified in Section 10.2 hereof (not
cured or waived), payments at any time of the principal of or interest on the
Notes.
Section 10.6 SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR
OMISSIONS OF COMPANY OR HOLDERS OF SENIOR INDEBTEDNESS. No right of any
present or future holders of any Senior Indebtedness to enforce subordination
as provided herein shall at any time in any way be prejudiced or impaired by
any act or failure to act on the part of the Company or by any act or failure
to act, in good faith, by any such holder, or by any noncompliance by the
Company with the terms of this Agreement, regardless of any knowledge thereof
which any such holder may have or be otherwise charged.
Section 10.7 SECTION 10 NOT TO PREVENT EVENTS OF DEFAULT.
The failure to make a payment on account of principal of or interest
(including, to the extent lawful, any interest on overdue installments of
principal and defaulted interest on the Notes) on the Notes by reason of any
provision of this Section 10 shall not be construed as preventing the
occurrence of an Event of Default under Section 13 hereof.
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Section 10.8 NO FIDUCIARY DUTIES CREATED TO HOLDERS OF
SENIOR INDEBTEDNESS. The Noteholders shall not be deemed to owe any fiduciary
duties to the holders of Senior Indebtedness by virtue of the provisions of
this Section 10.
Section 10.9 AMENDMENT OF SUBORDINATION PROVISIONS. No
provision of Section 10 hereof may be amended without the prior written consent
of LaSalle National Bank, as Agent, so long as any Indebtedness under the
Senior Loan Documents (as defined in Schedule Y hereto) remains outstanding
and, so long as any Indebtedness remains outstanding under the Friedmans Loan
Documents (as defined in Schedule Y hereto), Friedman's Inc.
SECTION 11. CONVERSION OF NOTES.
Section 11.1 CONVERSION PRIVILEGE. The unpaid principal
amount of any Note or any portion thereof may, at the election of the holder
thereof, be converted into shares of Class A Common Stock pursuant to, and upon
the terms and conditions of, the Conversion Agreement, if any, among such
holder, the Company and CJI.
SECTION 12. INFORMATION TO BE FURNISHED TO NOTEHOLDERS.
Section 12.1 FINANCIAL STATEMENTS OF THE COMPANY. The
Company covenants that it will deliver to each holder of a Note two copies of
the following:
(a) as soon as practicable and, in any case, within 90
days after the close of each Fiscal Year, the consolidated balance sheet of the
Company, setting forth the consolidated statement of financial position of the
Company and its Subsidiary as of the end of such Fiscal Year and the
consolidated statements of earnings, stockholders' equity and cash flow of the
Company and its Subsidiary for such Fiscal Year, setting forth in each case, in
comparative form, the figures for the preceding Fiscal Year, all in reasonable
detail, such consolidated financial statements of the Company to be accompanied
by an unqualified opinion thereon of a firm of independent certified public
accountants of nationally recognized standing, which opinion shall state that
(i) the examination of such accountants in connection with such financial
statements has been made in accordance with generally accepted auditing
standards and, accordingly, included such tests of the accounting records and
such other auditing procedures as were considered necessary in the
circumstances, and (ii) such financial statements present fairly the financial
condition of the Company and its Subsidiary at such date and the results of
operations thereof for such period and have been prepared in accordance with
generally accepted accounting principles consistently applied, except for
changes in application of generally accepted accounting principles in which
such accountants concur; and
(b) as soon as practicable and, in any case, within 45
days after the end of each of the first three Fiscal Quarters, the consolidated
financial statements of the Company and its Subsidiary, setting forth the
unaudited consolidated balance sheet of the Company and its Subsidiary as of
the end of such accounting period and the unaudited consolidated statements of
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earnings, stockholders' equity and cash flow of the Company and its Subsidiary
for such Fiscal Quarters and for the Fiscal Year to date, setting forth in each
case, in comparative form, the figures for the corresponding periods of the
preceding fiscal year, all in reasonable detail and prepared and certified by
the Chief Financial Officer or Treasurer of the Company as complete and
correct, as having been prepared in accordance with generally accepted
accounting principles consistently applied and as presenting fairly the
financial condition of the Company and its Subsidiary and results of operations
thereof subject, in each case, to changes resulting from year-end audit
adjustments, together with comments and quarterly budget analysis prepared for
presentation to the Board of Directors of the Company.
Section 12.2 OTHER INFORMATION. The Company will deliver
to each holder of a Note the following:
(a) promptly after submission thereof to the Company,
copies of any detailed reports submitted to the Company by its independent
certified public accountants in connection with each annual or interim audit of
the accounts of the Company made by such accountants;
(b) promptly upon distribution thereof, copies of all
financial, other statements (including proxy statements and annual
environmental audits) and reports or notices, excluding borrowing notices, as
the Company shall send to any class of its shareholders (in such capacity), any
of its bank lenders (including but not limited to the Bank Agent) or any holder
of any of its Indebtedness;
(c) promptly after filing thereof, copies of all regular
and periodic reports and registration statements which the Company may file
with the SEC or any governmental agency substituted therefor and, promptly upon
written request therefor, copies of any financial statements which the Company
may file annually with any state regulatory agency or agencies;
(d) promptly and, in any event, within 30 days
thereafter, notice of the institution of any suit, action or proceeding against
the Company which could, in the reasonable judgment of the Company, have a
materially adverse effect on the business, earnings, properties or condition
(financial or otherwise) of the Company and its Subsidiary, taken as a whole;
(e) promptly, and, in any event, within five days
thereafter upon any responsible officer of the Company obtaining knowledge of
any condition or event which constitutes or which, after notice or lapse of
time or both, would constitute an Event of Default, an Officer's Certificate of
the Company, specifying the nature and period of existence thereof, what action
the Company has taken or is taking or proposes to take with respect thereto,
and an estimate of the time necessary to cure such condition or event;
(f) promptly upon becoming aware of the occurrence of any
(i) "reportable event" (within the meaning of Section 4043 of ERISA) or (ii)
prohibited transaction, that could result in a material tax or penalty on the
Company or any of its ERISA Affiliates in connection with any Plan, a written
notice specifying the nature thereof, what action the Company or any of
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its ERISA Affiliates is taking or proposes to take with respect thereto and,
when known, any action taken by the Internal Revenue Service, the United States
Department of Labor or the PBGC with respect thereto;
(g) promptly after receipt of notice of the exercise of
any remedy by a secured party with respect to any of the assets or property of
the Company or its Subsidiary;
(h) promptly upon request therefor, such other data,
filings and information as any Noteholder may from time to time reasonably
request; and
(i) promptly upon the formation or the acquisition
thereof, notice of the formation or acquisition, as the case may be, of any new
Subsidiary.
Section 12.3 OFFICER'S CERTIFICATES. (a) Each set of
financial statements delivered pursuant to subsection (a) or (b) of Section
12.1 hereof shall be accompanied by a certificate, signed by the President, the
Chief Executive Officer or the Chief Financial Officer or the Treasurer of the
Company, stating that, in the opinion of such officer and to his or her
knowledge and belief, the Company was not, upon the date of such certificate or
at any time during the period covered by said financial statements, in default
under any of the provisions of this Agreement; provided, however, that, in the
event that any such default shall have occurred, such certificate shall so
specify and shall state whether such default has been cured or is continuing
and, if continuing, what steps the Company has taken or is taking or proposes
to take to cure such default and an estimate of the time necessary to cure such
default.
(b) In addition to the requirements set forth in
subsection (a) above, each set of financial statements delivered pursuant to
subsection (a) of Section 12.1 hereof shall be accompanied by a certificate
signed by the President, the Chief Executive Officer or the Chief Financial
Officer or the Treasurer of the Company, setting forth in reasonable detail the
calculations made as of the end of such period in determining compliance with
the provisions of Sections 9.9, 9.11 and 9.16 hereof.
Section 12.4 ACCOUNTANTS' CERTIFICATES. Each set of
financial statements delivered pursuant to subsection (a) of Section 12.1
hereof shall be accompanied by a report of the independent certified public
accountants who shall have reported on such financial statements (i) stating
that such accountants have read this Agreement insofar as is necessary for such
report and that, in making the examination necessary to express an opinion on
such financial statements, such accountants have obtained no knowledge of any
condition or event pertaining to accounting or financial matters, or the
consolidated financial condition of the Company and its Subsidiary, that then
constitutes an Event of Default, or, if any Event of Default then exists,
specifying the nature and period of existence thereof (provided that such
accountants may state that the purpose of such examination was not to determine
the existence of any Event of Default) and (ii) stating that such accountants
have reviewed the certificates delivered pursuant to Section 12.3(b) hereof for
each of the three preceding fiscal quarters and that nothing has come to their
attention, that would lead them to believe that the Company and its Subsidiary
are not in compliance with the provisions of
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Section Section 9.9, 9.11 and 9.16 hereof or if such accountants believe
otherwise, specifying the nature of such noncompliance.
SECTION 13. DEFAULTS AND REMEDIES.
Section 13.1 EVENTS OF DEFAULT; ACCELERATION OF NOTES. If
any of the following conditions or events ("Events of Default") shall occur and
be continuing:
(a) if any payment or prepayment (whether optional or
mandatory) of principal of or premium on any Note shall not be made when the
same becomes due and payable, whether at maturity, upon acceleration or
otherwise; or
(b) if any payment of interest on any Note shall not be
made when the same becomes due and payable and such default shall continue for
ten days following the date on which such payment was due and payable; or
(c) any representation or warranty of the Company
contained in this Agreement or in any agreement, instrument, certificate,
statement or other writing furnished in connection herewith or therewith or
pursuant hereto or thereto shall prove to have been false or inaccurate in any
material respect on the date as of which such representation or warranty was
made; or
(d) the Company shall default in the due and punctual
performance of or compliance with any covenant, condition or agreement to be
performed or observed by it under any provision hereof or of any Conversion
Agreement and the holders of more than 50% of the aggregate principal amount of
Notes then outstanding notify the Company of such default and any such default
shall continue unremedied for 30 days after receipt of such notice; or
(e) the Company or its Subsidiary shall (i) fail to pay
when due principal of or interest on any Indebtedness for Money Borrowed of the
Company or such Subsidiary with an outstanding aggregate principal amount of at
least $2,000,000, whether at maturity, at a date fixed for prepayment, upon
acceleration or otherwise, and such failure continues after the expiration of
any applicable grace period or (ii) at any time that no Designated Senior
Indebtedness is outstanding, default in the performance or observance of any
other provision contained in any instrument or agreement evidencing such
Indebtedness for Money Borrowed, if the effect of such default is to permit or
cause Indebtedness for Money Borrowed with an outstanding aggregate principal
amount of at least $2,000,000 to become due and payable prior to its scheduled
maturity; or
(f) a final judgment or judgments entered by a court of
competent jurisdiction for the payment of money in excess of $1,000,000 in the
aggregate shall be rendered against the Company and shall remain in force
undischarged and unstayed for a period of more than 60 days; or
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(g) the Company or any Subsidiary shall commence a
voluntary case under any chapter of the Federal Bankruptcy Code as now or
hereafter in effect; or
(h) the Company or any Subsidiary shall institute
proceedings for liquidation, rehabilitation, readjustment or composition (or
for any related or similar purpose) under any law (other than the Federal
Bankruptcy Code, as now or hereafter in effect) relating to financially
distressed debtors, their creditors or property, or shall consent to (or fail
to controvert in a timely manner) the institution of any such proceedings
against the Company or any Subsidiary; or
(i) the Company or any Subsidiary shall be unable, or
shall admit in writing its inability, to pay its debts as they become due, or
shall make an assignment for the benefit of creditors or enter into any
arrangement for the adjustment or composition of debts or claims; or
(j) a court or other governmental authority or agency
having jurisdiction in the premises shall enter a decree or order (i) for the
appointment of a receiver, liquidator, assignee, trustee or sequestrator (or
other similar official) of the Company or its Subsidiary or of any part of its
property, or for the winding-up or liquidation of its affairs or (ii) for the
sequestration or attachment of any material part of the property of the Company
or any Subsidiary without its unconditional return to the possession of the
Company or any Subsidiary, or its unconditional release from such sequestration
or attachment, within 60 days thereafter; or
(k) a court having jurisdiction in the premises shall
enter an order for relief in any involuntary case commenced against the Company
or its Subsidiary under the Federal Bankruptcy Code and the order remains
unstayed and in effect for 60 days; or
(l) a court or other governmental authority or agency
having jurisdiction in the premises shall enter a decree or order approving or
acknowledging as properly filed or commenced against the Company or its
Subsidiary a petition or proceedings for liquidation, rehabilitation,
readjustment or composition (or for any related or similar purpose) under any
law (other than the Federal Bankruptcy Code, as now or hereafter in effect)
relating to financially distressed debtors, their creditors or property, and
any such decree or order shall remain in force undischarged and unstayed for a
period of more than 60 days;
(m) CJI shall default in the due and punctual performance
of or compliance with any covenant, condition or agreement to be performed or
observed by it under any provision of any Conversion Agreement and the holders
of more than 50% of the aggregate principal amount of Notes then outstanding
notify CJI of such default and any such default shall continue unremedied for
30 days after receipt of such notice; or
(n) the Company or CJI shall fail to comply in any
material respect with any of its agreements or covenants in the Registration
Rights Agreement.
then (i) upon the occurrence and continuance of any of the Events of Default
set forth in subsections (g) through (l), inclusive, of this Section 13.1, the
Notes shall automatically mature and
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become due and payable without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived, together with interest and
premium, if any, accrued thereon, without presentment, demand, protest or
notice of any kind, all of which are hereby waived; (ii) upon the occurrence
and continuance of any of the Events of Default set forth in subsections (a) or
(b) of this Section 13.1, any holder or holders of Notes may, in respect of the
Notes then held by such holder or holders, at any time (unless all defaults
shall theretofore have been waived or remedied) at its or their option by
written notice or notices to the Company declare the Notes held by such holder
or holders to be due and payable whereupon the same shall mature and become due
and payable, together with interest and premium, if any, accrued thereon,
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived; or (iii) upon the occurrence and continuance of any of
the Events of Default set forth in subsections (a) through (f), inclusive, and
subsection (m), of this Section 13.1, the holder or holders of more than 50% of
the aggregate outstanding principal amount of the Notes may, in respect of all
the Notes, at its or their option by written notice or notices to the Company,
declare all of the Notes to be due and payable whereupon the same shall mature
and become due and payable, together with interest and premium, if any, accrued
thereon, without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived.
Section 13.2 DEFAULT REMEDIES. If an Event of Default
shall occur and be continuing, the holder of any Note then outstanding may
exercise any right, power or remedy permitted to it by law, either by suit in
equity or by action at law, or both, whether for specific performance of any
covenant or agreement contained in this Agreement or in such Note or in aid of
the exercise of any power granted in this Agreement or in such Note, or may
proceed to enforce payment of such Note or to enforce any other legal or
equitable right of the holder of such Note. No remedy herein conferred upon
any holder of a Note is intended to be exclusive of any other remedy and each
and every remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law, in equity, by
statute or otherwise. No course of dealing on the part of any holder of any
Note, or any delay or failure on the part of any holder of any Note to exercise
any right or power, shall operate as a waiver of such right or Power or
otherwise prejudice the rights, powers and remedies of such holder or of any
other holder. No failure to insist upon strict compliance with any covenant,
term, condition or other provision of this Agreement or the Notes shall
constitute a waiver by any holder of any of the Notes of any such covenant,
term, condition or other provision or of any Default or Event of Default in
connection therewith. To the extent effective under applicable law, the
Company hereby agrees to waive, and does hereby absolutely and irrevocably
waive and relinquish, the benefit and advantage of any valuation, stay,
appraisement, extension or redemption laws now existing or that may hereafter
exist that, but for this provision, might be applicable to any sale made under
any judgment, order or decree of any court, or otherwise, based on the Notes or
on any claim for interest on the Notes. If an Event of Default shall occur,
the Company will pay to the holders of the Notes, to the extent not prohibited
by applicable law, such further amount as shall be sufficient to cover the
reasonable costs and expenses of collection and of the taking of remedial
actions, the maintenance of enforcement proceedings and the analysis and
assessment of the rights and remedies available to the holders of the Notes,
including, without limitation, reasonable attorneys' fees and expenses. All
sums payable by the Company under the Notes shall
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be paid without counterclaim, setoff, deduction or defense and without
abatement, suspension, deferment, diminution or reduction.
Section 13.3 NOTICE OF DEFAULT. If the holder of any Note
or of any other evidence of Indebtedness of the Company shall give any notice
or take any other action with respect to a claimed Default, the Company shall
forthwith give written notice thereof to all holders of Notes then outstanding
describing the notice or action and the nature of the claimed Default.
Section 13.4 ANNULMENT OF ACCELERATION OF NOTES. If
notice is delivered (a) pursuant to clause (ii) of Section 13.1 hereof by any
holder or holders of a Note or Notes, then such holder or each of such holders,
as the case may be, may, by written instrument filed with the Company, rescind
and annul its respective declaration and the consequences thereof; or (b)
pursuant to clause (iii) of Section 13.1 hereof, by any holder or holders of a
Note or Notes, then the holders of more than 50% of the Notes then outstanding
may, in respect of all the Notes, by written instrument filed with the Company,
rescind and annul such declaration and the consequences thereof or of such
Event of Default pursuant to this Agreement; provided, however, that at the
time of an annulment and rescission pursuant to the foregoing clause (a) or (b)
of this Section 13.4:
(i) no judgment or decree shall have
been entered for payment of any monies due pursuant to the Notes or
this Agreement;
(ii) all arrears of principal, premium
and interest upon all the Notes and all other sums payable under the
Notes and this Agreement (including reasonable costs and expenses of
the holders incurred in connection with such notice under Section 15.1
hereof or annulment under this Section 13.4, but excluding any
principal of or interest on the Notes that shall have become due and
payable by reason of such notice under Section 13.1 hereof or
occurrence of such Event of Default) shall have been duly paid; and
(iii) each and every other Default and
Event of Default hereunder shall have been waived pursuant to Section
13.4 hereof or cured;
and provided, further, that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right or power
consequent thereon.
SECTION 14. INTERPRETATION OF AGREEMENT AND NOTES.
Section 14.1 DEFINITIONS. Except as the context shall
otherwise require, the following terms shall have the following meanings for
all purposes of this Agreement (the definitions to be applicable to both the
singular and the plural form of the terms defined, where either such form is
used in this Agreement):
The term "Affiliate," with respect to any Person (hereinafter
"such Person"), shall mean any other Person (a) which directly or indirectly
through one or more intermediaries
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controls, or is controlled by, or is under common control with, such Person or
another Affiliate of such Person, (b) which beneficially owns or holds 10% or
more of the shares of any class of the Voting Stock of such Person, or (c) 10%
or more of the shares of any class of Voting Stock of which is beneficially
owned or held by such Person or any Affiliate of such Person. The term
"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 Stock, by contract or otherwise. The term
"Affiliate," when used herein without reference to any Person, shall mean an
Affiliate of the Company.
The term "Bank Agent" shall mean LaSalle National Bank, as
agent for the banks party to the Bank Loan Agreement, and any successor
thereto, replacement thereof and assignee thereof under the Bank Loan Agreement.
The term "Bank Loan Agreement" shall mean the Loan and
Security Agreement dated as of October 15, 1996 between the Company and LaSalle
National Bank, as agent, as amended, supplemented or otherwise modified from
time to time.
The term "Board Of Directors" when used herein without
reference to any particular Person shall mean the Board of Directors of the
Company.
The term "Business Day" shall mean any day on which commercial
banks are not authorized or required to close in San Francisco, California and
Atlanta, Georgia.
The term "Capital Lease" shall mean any lease which is
required to be capitalized on a balance sheet of the lessee in accordance with
generally accepted accounting principles.
The term "Capitalized Lease Obligations" shall mean the
aggregate amount which, in accordance with generally accepted accounting
principles, is required to be reported as a liability on the balance sheet of
any Person at such time in respect of such Person's interest as lessee under a
Capital Lease.
The term "Capital Stock" of any Person (and when used herein
and without reference to any particular Person shall mean the Capital Stock of
the Company) means any and all shares, interests, participations or other
equivalents (however designated) of corporate stock or any other equity
interest of such Person. Indebtedness which is convertible into equity
securities shall not be deemed to constitute Capital Stock.
The term "CJI" shall mean Crescent Jewelers Inc., a Delaware
corporation, the parent company of Crescent Jewelers.
The term "CJ Morgan Corporation" shall mean CJ Morgan
Corporation, a Delaware corporation and general partner of CJ Morgan Limited
Partnership.
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The term "CJ Morgan Limited Partnership" shall mean CJ Morgan
Limited Partnership, a Delaware limited partnership the general partner of
which is CJ Morgan Corporation.
The term "Class A Common Stock" shall mean the Class A Common
Stock of CJI.
The term "Closing Date" shall have the meaning set forth in
Section 1.2 hereof.
The term "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time.
The term "Commission" and/or "SEC" shall mean the Securities
and Exchange Commission.
The term "Company" shall mean Crescent Jewelers, a California
corporation.
The term "Consolidated Funded Indebtedness" shall mean, for
any period, the Funded Indebtedness of the Company and its Subsidiary
consolidated for such period determined in accordance with generally accepted
accounting principles applied on a consistent basis after eliminating all
offsetting debits and credits between the Company and its Subsidiary and other
items to be eliminated in accordance with generally accepted accounting
principles.
The term "Consolidated Net Income (or Net Loss)" shall mean,
for any period, the consolidated net income (or net loss) of the Company and
its Subsidiary for such period determined in accordance with generally accepted
accounting principles applied on a consistent basis after eliminating all
offsetting debits and credits between the Company and its Subsidiary and other
items to be eliminated in accordance with generally accepted accounting
principles, but, in any event, excluding:
(a) the proceeds from any life insurance policy;
(b) net gains or losses on the sale or other disposition
of investments or fixed or capital assets and any tax deductions or credits on
account of any such excluded losses;
(c) all items properly classified as extraordinary in
accordance with generally accepted accounting principles;
(d) net earnings of any Person (other than a Subsidiary)
in which the Company or any Subsidiary has an ownership interest except to the
extent such net earnings shall have actually been received by the Company or
any Subsidiary in the form of cash distributions;
(e) any portion of the net earnings of any Subsidiary
which for any reason is unavailable for payment of dividends to the Company;
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(f) any gain arising from the acquisition of any Capital
Stock or other securities of the Company or any Subsidiary;
(g) any gain resulting from any reappraisal, regulation
or write-up of assets;
(h) net earnings and losses of any Person (other than a
Subsidiary), substantially all the assets of which have been acquired by the
Company or any Subsidiary in any manner, realized by such Person prior to the
date of acquisition; and
(i) net earnings and losses of any Person (other than a
Subsidiary) which shall have been merged into or consolidated with the Company
or any Subsidiary prior to the date of such merger or consolidation.
The term "Consolidated Net Worth" of any Person shall mean as
of any date the total amount of common shareholders' equity and the aggregate
liquidation preference of any preferred stock which would appear on a
consolidated balance sheet of such Person as of such date in accordance with
generally accepted accounting principles.
The term "Consolidated Tangible Assets" shall mean, as of the
date of determination thereof, the aggregate of the Tangible Assets of the
Company and its Subsidiary determined on a consolidated basis eliminating all
offsetting debits and credits between the Company and its Subsidiary and all
other items to be eliminated in accordance with generally accepted accounting
principles.
The term "Consolidated Tangible Net Worth" shall mean as of
the date of determination thereof, the Company's shareholders' equity
(including retained earnings) less the book value of all intangible assets as
determined solely by the Bank Agent on a consistent basis plus the amount of
any LIFO reserve plus the amount of any debt subordinated to Agent and Lenders
all as determined under generally accepted accounting principles applied on a
basis consistent with the financial statement of the Company dated July 31,
1996.
The term "Control Persons" shall mean, collectively, (i)
Morgan Schiff & Company, Inc. and any directors, officers and employees thereof
and (ii) Affiliates of the foregoing.
The term "Conversion Agreement" shall mean, with respect to a
holder, the Conversion Agreement by and among the Company, CJI and such holder
setting forth the terms and conditions on which such holder may convert all or
a portion of the unpaid principal amount of the Notes held by such holder into
Class A Common Stock.
The term "Default" shall mean an event which, with the passage
of time or the giving of notice, or both, would become an Event of Default.
The term "Designated Senior Indebtedness" shall mean
Indebtedness consisting of (i) revolving credit or other bank loans incurred by
the Company for general working capital
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purposes and (ii) the Indebtedness and other amounts owing under the Senior
Loan Documents and the Friedman's Loan Documents (each as defined on Schedule Y
hereto) incurred in accordance with Section 9.16 hereof.
The term "Designated Subsidiary" during any period means any
direct or indirect Subsidiary of the Company, if the Company has outstanding
guarantees with respect to the payment of, or has otherwise become liable in
respect of, any amount payable in respect of the Indebtedness of such
Subsidiary.
The term "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time.
The term "ERISA Affiliate" shall mean any Person which is
under "common control" with the Company within the meaning of Section 4001(b)
of ERISA.
The term "Event of Default" shall have the meaning assigned
thereto in Section 13.1 hereof.
The term "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended from time to time.
The term "Existing Debt Agreements" shall mean the following:
(i) the Loan Agreements; the (ii) Note Agreements and (iii) any promissory
note, security agreement, pledge agreement, guaranty or any other document,
instrument or agreement executed by the Company, its Subsidiary or any
shareholder of the Company in connection with any of the foregoing.
The term "Financial Statements" shall have the meaning set
forth in Section 2.4 hereof.
The term "Fiscal Quarter" shall mean each of the four
consecutive quarterly periods collectively forming a Fiscal Year.
The term "Fiscal Year" shall mean any period of four
consecutive Fiscal Quarters ending on the closest Friday to July 31 of each
year.
The term "Friedman's" shall mean Friedman's Inc., a Delaware
corporation.
The term "Friedman's Loan Agreement" shall mean the Loan and
Security Agreement dated as of October 15, 1996 between the Company and
Friedman's, as amended, supplemented or otherwise modified from time to time.
The term "Funded Indebtedness," with respect to any Person,
shall mean, as of the date of any determination thereof, all Indebtedness for
Money Borrowed of such Person having a final maturity of at least one year from
the date of creation thereof (including that portion of the principal of such
Indebtedness for Money Borrowed of such Person having a final maturity,
duration or payment date within one year from such date) which, pursuant to the
terms of a
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revolving credit or similar agreement or otherwise, may be renewed or extended
at the option of such Person for more than one year from such date, whether or
not theretofore renewed or extended.
The term "generally accepted accounting principles" or "GAAP"
shall mean, as of the date of any determination with respect thereto, generally
accepted accounting principles as used by the Financial Accounting Standards
Board and/or the American Institute of Certified Public Accountants,
consistently applied and maintained throughout the periods indicated.
The term "guaranty," with respect to any Person, shall mean
all obligations of such Person guaranteeing or in effect guaranteeing any
Indebtedness, dividend or other obligation or investment of any other Person
(the "primary obligor") in any manner, whether directly or indirectly,
including obligations incurred through an agreement, contingent or otherwise,
by such Person (a) to purchase such Indebtedness, obligation or investment or
any property or assets constituting security therefor; (b) to advance or supply
funds (i) for the purchase or payment of such Indebtedness, obligation or
investment or (ii) to maintain working capital or equity capital, or otherwise
to advance or make available funds for the purchase or payment of such
Indebtedness, obligation or investment; (c) to purchase property, securities or
services primarily for the purpose of assuring the owner of such Indebtedness,
obligation or investment of the ability of the primary obligor to make payment
of such Indebtedness, obligation or investment; or (d) otherwise to assure the
owner of such Indebtedness, obligation or investment against loss in respect
thereof.
The terms "hereof," "herein," "hereunder" and other words of
similar import shall be construed to refer to this Agreement as a whole and not
to any particular Section or other subdivision.
The term "holder," with respect to any Note, shall mean the
Person in whose name such Note shall be registered.
The term "Incapacity," with respect to any Person, shall mean
the adjudication of incompetence or insanity or the death of such Person.
The term "Indebtedness," with respect to any Person, shall
mean all items (other than Capital Stock, capital surplus, retained earnings
and deferred credits) which, in accordance with GAAP, would be included in
determining total liabilities as shown on the liability side of a balance sheet
as at the date on which indebtedness is to be determined. The term
"Indebtedness" shall also include, whether or not so reflected, (a)
indebtedness, obligations and liabilities secured by any Lien on property of
such Person whether or not the indebtedness secured thereby shall have been
assumed by such Person, (b) all obligations in respect of Capital Leases and
(c) all guaranties.
The term "Indebtedness for Money Borrowed," with respect to
any Person, shall mean and include the aggregate amount of, without
duplication: (a) all obligations of such Person for borrowed money; (b) all
obligations of such Person evidenced by bonds, debentures, notes, or
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other similar instruments; (c) all Capitalized Lease Obligations of such
Person; (d) all obligations or liabilities of others secured by a Lien on any
asset owned by such Person, irrespective of whether such obligation or
liability is assumed, to the extent of the lesser of such obligation or
liability or the fair market value of such asset; (e) all Indebtedness for
property or services acquired by such Person, except accounts payable and
accrued liabilities arising in the ordinary course of business that are not
overdue by more than 90 days or that are being contested in good faith; and (f)
any guarantee of Indebtedness described in any of clauses (a) through (f)
above, including obligations in respect of letters of credit.
The term "Initial Public Offering" shall mean the first public
offering and sale after the date hereof of such number of shares of Class A
Class A Common Stock of CJI equal to at least 10% of the Class A Common Stock
of CJI then outstanding (after giving effect to such public offering and sale)
pursuant to an effective registration statement under the Securities Act (other
than on Forms S-4 and S-8 or a similar form) or pursuant to an effective
registration statement under the Exchange Act.
The term "Institutional Investor" shall mean any one or more
of the following Persons: (a) any bank, savings institution, trust company or
national banking association, acting for its own account or in a fiduciary
capacity; (b) any charitable foundation; (c) any insurance company or Affiliate
thereof or fraternal benefit association; (d) any pension, retirement or
profit-sharing trust or fund; or (e) any public employees' pension or
retirement system or any other governmental agency supervising the investment
of public funds.
The term "Interest Expense" shall mean, for any period,
without duplication, the aggregate of all interest paid or accrued by the
Company and its Subsidiary during such period for Indebtedness of the Company
or its Subsidiary owed to any Person other than the Company or any Subsidiary,
on a consolidated basis, including, without limitation, interest payable with
respect to the Notes and the interest portion of Capital Lease payments, all as
determined in accordance with GAAP.
The term "Interest Payment Date" shall have the meaning set
forth in Section 1.1 hereof.
The term "Investment" shall mean, as applied to any Person
(and when used herein without reference to any particular person shall mean the
Company), any direct or indirect purchase or other acquisition by such Person
of stock or other securities of, or partnership or other equity interests in,
any other Person, or any direct or indirect advance or capital contribution by
such Person to any other Person.
The term "Lien" shall mean any interest in property securing
an obligation owed to, or a claim by, any Person other than the owner of the
property, whether such interest shall be based on the common law, statute or
contract, whether or not such interest shall be recorded or perfected and
whether or not such interest shall be contingent upon the occurrence of some
future event or events or the existence of some future circumstance or
circumstances, and including the lien or security interest arising from a
mortgage, encumbrance, pledge, adverse claim or charge, conditional sale or
trust receipt, or from a lease, consignment or bailment for security purposes.
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The term "Lien" shall also include reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases and other
title exceptions and encumbrances affecting property. For the purposes of this
Agreement, a Person shall be deemed to be the owner of any property that such
Person shall have acquired or shall hold subject to a conditional sale
agreement or other arrangement (including a leasing arrangement) pursuant to
which title to the property shall have been retained by or vested in some other
Person for security purposes.
The term "Loan Agreements" shall mean the Bank Loan Agreement
and the Friedman's Loan Agreement.
The term "Note Agreements" shall mean the following: (i) the
Note Purchase Agreement, dated as of April 13, 1990, with Teachers Insurance
and Annuity Association of America, as amended, restated, supplemented or
otherwise modified from time to time, relating to the issuance of $5,000,000 in
aggregate principal amount of the Company's 9% Convertible Subordinated Notes
due April 15, 2000; (ii) the Indenture, dated as of January 15, 1989, as
amended, restated, supplemented or otherwise modified from time to time,
relating to the issuance of $5,000,000 in aggregate principal amount of the
Company's 13 1/2% Subordinated Notes due 1999; (iii) the Indenture, dated as of
January 15, 1989, as amended, restated, supplemented or otherwise modified from
time to time, relating to the issuance of $28,500,000 in aggregate principal
amount of the Company's 14 1/2% Subordinated Notes due 1999; and (iv) this
Agreement.
The term "Noteholder" shall mean each holder from time to time
of an outstanding Note.
The term "Notes" shall have the meaning set forth in Section
1.1 hereof.
The term "Officer's Certificate" shall mean a certificate
executed on behalf of a corporation by any of its Chief Executive Officer,
President, Vice President of Finance or Chief Financial Officer.
The term "Operative Event" shall have the meaning set forth in
Section 7.2 hereof.
The term "Optional Prepayment Date" shall have the meaning set
forth in Section 7.1(b) hereof.
The term "outstanding," with respect to the Notes, shall mean,
as of the date of determination, all Notes theretofore delivered pursuant to
this Agreement, except Notes theretofore cancelled or delivered for
cancellation and Notes in exchange or replacement for which other Notes have
been delivered pursuant to this Agreement; provided, however, that in
determining whether the holders of the requisite aggregate unpaid principal
amount of Notes outstanding have given any notice or taken any action
hereunder, Notes held or owned, directly or indirectly, by the Company, its
Subsidiary or any Affiliate of the Company (other than Friedman's and any of
its Affiliates) shall be disregarded and deemed not to be outstanding.
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The term "Payment Blockage Period" shall have the meaning set
forth in Section 10.2 hereof.
The term "PBGC" shall mean the Pension Benefit Guaranty
Corporation or any successor thereof.
The term "Person" shall mean any individual, corporation,
partnership, joint venture, association, joint stock company, trust, estate,
unincorporated organization or government (or any agency or political
subdivision thereof).
The term "Preferred Stock" shall mean shares of stock of the
Company (whether or not such shares are designated preferred stock, preference
stock or the like) that shall be entitled to preference or priority over any
other shares of stock of the Company in respect of either the payment of
dividends or the distribution of assets upon liquidation.
The term "Prepayment Purchase Price", with respect to the Note
to be prepaid, as of the prepayment date, shall be an amount equal to the
product of (a) 15, multiplied by (b) the greater of (i) Consolidated Net Income
for the twelve-month period ended on such prepayment date or (ii) Consolidated
Net Income for the twenty-four-month period ended on such prepayment date
divided by two, multiplied by (c) the percentage of Voting Common Stock which
the holder of such Note would have been entitled to receive had such Note been
converted into Voting Common Stock on the date that the Company shall have
given notice of such prepayment.
The term "Purchase Price" shall have the meaning set forth in
Section 1.2 hereof.
The term "Refinancing Transactions" shall mean the
transactions effected on or prior to the date hereof by the Company and CJI and
their stockholders and creditors, relating to the transactions described on
Schedule Y attached hereto.
The term "Registration Rights Agreement" shall mean that
certain Registration Rights Agreement dated as of October 15, 1996, by and
between the Company, CJI, Friedman's and certain other holders of CJI's capital
stock.
The term "Required Noteholders" shall mean the holders of more
than 50% of the aggregate outstanding principal amount of the Notes.
The term "Restricted Capital Stock" shall mean (i) any
preferred stock now in existence or hereafter issued by any Subsidiary of the
Company or (ii) any preferred stock now in existence or hereafter issued by the
Company which by its terms is mandatorily redeemable, redeemable at the option
of the holder thereof or exchangeable into Indebtedness or Restricted Capital
Stock prior to the final maturity of the Notes.
The term "Restricted Investment" shall mean any Investment
other than:
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(i) loans and investments existing on the date
hereof and set forth in Schedule 14.1-A hereto;
(ii) trade credits extended to suppliers of the
Company and other similar credits and investments made in the ordinary
course of business and under usual and customary terms;
(iii) loans to and investments in Subsidiaries;
(iv) any certificate of deposit with a final
maturity of one year or less issued by any bank or trust company
incorporated in the United States or any subdivision thereof whose
obligations are rated AA or its equivalent or better by at least one
recognized rating service and which has combined capital, surplus and
undivided profits, at the end of its most recent fiscal year, in
excess of $100,000,000;
(v) any direct obligations of the United States
of America or obligation of the United States of America or obligation
of any instrumentality or agency thereof the payment of the principal
and interest on which is unconditionally guaranteed by the United
States of America; provided, however, that any such obligation shall
have a final maturity date not more than one year after the
acquisition thereof; and
(vi) commercial paper of any corporation
incorporated in the United States of America maturing not more than
270 days from the date of issuance thereof and rated "A-1" or better
by Standard & Poor's Investor Service, Inc. ("S&P") or "P-1" or better
by Moody's Investor Service, Inc. ("Moody's").
The term "Restricted Payment" shall mean (a) any dividend or
other distribution, direct or indirect, in respect of any shares of the Capital
Stock or any partnership interests of the Company or any Subsidiary (except
dividends payable to the Company or in shares of its Capital Stock) or (b) any
purchase, redemption, retirement or other acquisition of any shares of Capital
Stock of the Company or any Subsidiary, now or hereafter outstanding, or of any
warrants, rights or options evidencing a right to purchase or acquire any such
shares or partnership interests (except in exchange for other shares of Capital
Stock or warrants, rights or options evidencing a right to purchase or acquire
any such shares).
The term "SEC" and/or "Commission" shall mean the Securities
and Exchange Commission and any successor organization.
The term "Securities Act" shall mean the Securities Act of
1933, as amended from time to time.
The term "Selling Noteholder" shall have the meaning assigned
to it in Section 6.5 hereof.
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<PAGE> 56
The term "Seller Take-Back Paper" shall mean any Indebtedness
of the Company incurred in connection with the acquisition of any property,
which Indebtedness is owed to the Person or any Affiliate thereof from which
such property was acquired.
The term "Senior Indebtedness" shall mean, as of any date, (i)
the principal of, and any accrued and unpaid interest on, Designated Senior
Indebtedness, and (ii) all other amounts owing to the holders of the Designated
Senior Indebtedness in connection with such Indebtedness; provided, however,
that "Senior Indebtedness" shall not include: (a) any Indebtedness if the
terms of the instrument creating or evidencing such Indebtedness provides that
such Indebtedness is not senior in right of payment to the Notes, including
without limitation, all Indebtedness, accrued interest and other amounts owing
under or in respect of each Indenture and Note Agreement (and the related
promissory notes) described in any of clauses (i) through (iii) of the
definition of the term "Note Agreements"); (b) any Indebtedness of the Company
to an Affiliate thereof (unless such Indebtedness is Designated Senior
Indebtedness); (c) any Indebtedness consisting of accounts payable or accrued
liabilities arising in the ordinary course of business; (d) the Notes; and (e)
Seller Take-Back Paper.
The term "Subsidiary," with respect to any Person, shall mean
any corporation or partnership (including any joint venture) organized under
the laws of the United States of America or a jurisdiction thereof at least 50%
of the outstanding shares of Voting Stock or similar interest of which are
owned, directly or indirectly, by such Person. The term "Subsidiary," when
used herein without reference to any particular Person, shall mean Diamond
Insurance Company, a Cayman Islands corporation.
The term "Tangible Assets," with respect to any Person, shall
mean, as of the date of any determination thereof, all assets of such Person
valued at the lower of fair market value and depreciated cost (taking into
account depreciation, depletion, obsolescence, amortization and all other
reserves with respect to the value thereof properly established in accordance
with generally accepted accounting principles), except (a) goodwill (whether
representing the excess of cost over book value of assets acquired or
otherwise), patents, trade names, trademarks, copyrights, franchises, research
and development expense, organization expense, unamortized debt discount and
expense, deferred assets other than prepaid insurance, prepaid taxes and
deferred taxes, the excess of cost of shares acquired over book value of
related assets and such other assets as are properly classified as "intangible
assets" in accordance with generally accepted accounting principles, (b)
treasury stock of such Person, (c) cash set apart and held in any sinking fund
or similar or analogous fund for the purpose of redeeming or otherwise retiring
stock of such Person, and (d) any write-up of the book value of any assets of
such Person resulting from reevaluation thereof (other than reevaluation upon
acquisition of such assets) subsequent to July 31, 1989.
The term "TIA" shall mean the Trust Indenture Act of 1939, as
amended (15 U.S. Code Section Section 77aaa-77bbb), as in effect on the date
hereof.
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<PAGE> 57
The term "this Agreement" shall mean this Note Purchase
Agreement (including the annexed Exhibits and Schedules), as it may from time
to time be amended, supplemented or modified in accordance with its terms.
The terms "you" and "your" shall mean a Purchaser and when
used herein without reference to any particular Purchaser shall mean each
Purchaser.
The term "Voting Common Stock" shall mean Class A Common Stock
which is also Voting Stock.
The term "Voting Stock," with respect to a corporation, shall
mean the stock of such corporation the holders of which are ordinarily, in the
absence of contingencies, entitled to elect members of the Board of Directors
(or other governing body) of such corporation, and, with respect to any
partnership, any partnership interest entitling the holder thereof to share in
distributions of partnership income or capital or to make decisions binding
such partnership in accordance with the partnership agreement or other
governing instrument or applicable law.
The term "Wholly Owned Designated Subsidiary" means, with
respect to any person, any Designated Subsidiary 100% of the outstanding voting
Capital Stock of which shall at the time be owned by such person and/or one or
more of such person's Wholly Owned Subsidiaries.
The term "Wholly Owned Subsidiary" means, with respect to any
person, any Subsidiary 100% of the outstanding voting Capital Stock of which
shall at the time be owned by such person and/or one or more of such person's
Wholly Owned Subsidiaries
Section 14.2 DIRECTLY OR INDIRECTLY. Any provision in
this Agreement referring to action to be taken by any Person, or that such
Person is prohibited from taking, shall be applicable whether such action is
taken directly or indirectly by such Person.
Section 14.3 ACCOUNTING TERMS. All accounting terms used
herein that are not otherwise expressly defined shall have the respective
meanings given to them in accordance with generally accepted accounting
principles at the particular time.
Section 14.4 GOVERNING LAW. This Agreement and the Notes
shall be governed by and construed in accordance with the law of the State of
Georgia.
Section 14.5 HEADINGS. The headings of the Sections and
other subdivisions of this Agreement have been inserted for convenience of
reference only, and shall not be deemed to constitute a part hereof.
Section 14.6 INDEPENDENCE OF COVENANTS. Each covenant
made by the Company herein is independent of each other covenant so made. The
fact that the operation of any such covenant permits a particular action to be
taken or condition to exist does not mean that such
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<PAGE> 58
action or condition is not prohibited, restricted or conditioned by the
operation of the provisions of any other covenant herein.
SECTION 15. MISCELLANEOUS.
Section 15.1 NOTICES. (a) All communications under this
Agreement or the Notes shall be in writing and shall be delivered or mailed (i)
if to you, to you at your address set forth in Schedule I hereto, marked for
attention as there indicated, or at such other address as you may have
furnished to the Company in writing, (ii) if to any other holder of a Note, to
it at its address listed in the books for the registration and registration of
transfer of Notes required to be maintained by the Company pursuant to Section
8.1 hereof, or at such other address as such holder shall have furnished to the
Company in writing, and (iii) if the Company, to it at the address shown at the
head of this Agreement, or at such other address as it shall have furnished in
writing to you and all other holders of the Notes at the time outstanding.
(b) Any written communication so addressed and mailed by
certified mail, return receipt requested, shall be deemed to have been given
when so mailed. All other written communications shall be deemed to have been
given upon receipt thereof.
Section 15.2 SURVIVAL. All representations, warranties
and covenants made by the Company herein or by the Company or any Subsidiary in
any certificate or other instrument delivered under or in connection with this
Agreement shall be considered to have been relied upon by you and shall survive
the delivery to you of the Notes regardless of any investigation made by you or
on your behalf. All statements in any such certificate or other instrument
shall constitute representations and warranties of the Company hereunder.
Section 15.3 SUCCESSORS AND ASSIGNS. This Agreement shall
be binding upon the parties hereto and their respective successors and assigns,
and shall inure to the benefit of and be enforceable by the parties hereto and
their respective successors and assigns permitted hereunder; provided, however,
that you shall not have any obligation to purchase Notes of any Person other
than the Company. Whether or not expressly so stated and subject to the
restrictions set forth therein, the provisions of Sections 5 through 15 of this
Agreement are intended to be for your benefit and for the benefit of all
holders from time to time of the Notes, and shall be enforceable by you and any
other such holder whether or not an express assignment to such holder of rights
under this Agreement shall have been made by you or your successors or assigns;
and provided, further, that the provisions of Section 5 and Sections 6.2, 6.3,
9.1 and 9.4 hereof shall also be for the benefit of, and shall be enforceable
by, any Person who shall no longer be a holder of any Note but who shall have
incurred any expense or been subjected to any liability referred to therein
while, or on the basis of being, such a holder.
Section 15.4 AMENDMENT AND WAIVER. This Agreement and the
Notes may be amended or supplemented, and the observance of any term hereof or
thereof may be waived, with the written consent of the Company and (i) on or
prior to the Closing Date, you, and (ii) after the Closing Date, the Required
Noteholders; provided, however, that no such amendment,
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<PAGE> 59
supplement or waiver shall, without the written consent of the holders of all
the Notes then outstanding, (a) change, with respect to the Notes, the amount
or time of any required prepayment or payment of principal or premium or the
rate or time of payment of interest, or change the funds in which any
prepayment or payment on the Notes is required to be made; (b) amend or
supplement any provision of Sections 13.1-13.4 hereof (except an amendment of
Section 13.1 hereof for the purpose of adding additional Events of Default); or
(c) amend or supplement, or waive any default arising by reason of the failure
of the Company to comply with, this Section 15.4; and provided, further, that
the Company will not increase the rate of interest on any Note held by any
holder, or otherwise grant any other holder of a Note any additional payment or
other benefit, for or in connection with (i) any amendment or waiver proposed
to be effected pursuant to this Section 15.4 or (ii) any other action the
Company requests such holder to take, unless such increase in interest or other
payment or benefit is extended upon the same terms ratably to all holders of
the Notes at the time outstanding. Any amendment or waiver effected in
accordance with this Section 15.4 shall be binding upon each holder of any Note
at the time outstanding, each future holder of any Note and the Company.
Section 15.5 COUNTERPARTS. This Agreement may be executed
and delivered to you simultaneously in one or more counterparts, each of which
shall be deemed an original, but all such counterparts shall together
constitute but one and the same instrument.
Section 15.6 REPRODUCTION OF DOCUMENTS. This Agreement,
and all documents relating hereto (other than the Notes), including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by you at the closing of your purchase of the
Notes, and (c) financial statements, certificates and other information
heretofore or hereafter furnished to you, may be reproduced by you by any
photographic or other similar process and you may destroy any original document
so reproduced. The Company agrees and stipulates that, to the extent permitted
by applicable law and court or agency rules, any such reproduction shall be
admissible in evidence as the original itself in any judicial or administrative
proceeding (whether or not the original is in existence and whether or not such
reproduction was made by you in the regular course of business) and that any
enlargement, facsimile or further reproduction of such reproduction shall be
admissible in evidence to the same extent.
[Signatures on Next Page]
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If the foregoing is satisfactory to you, please sign the form
of acceptance on the enclosed counterparts hereof and return the same to the
Company, whereupon this Note Purchase Agreement, as so accepted, shall become a
binding contract between you and each of the undersigned.
Very truly yours,
CRESCENT JEWELERS
By:
-------------------------------------
Title:
[Signatures of Purchaser(s) on Following Page(s)]
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<PAGE> 61
[ATTACHED TO AND FORMING A PART OF THE NOTE PURCHASE AGREEMENT DATED
[FIRST ISSUE DATE] OF CRESCENT JEWELERS RELATING TO ITS 10%
CONVERTIBLE SENIOR SUBORDINATED NOTES]
The foregoing Note Purchase
Agreement is hereby accepted.
[PURCHASER]
By:
--------------------------------
Title:
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<PAGE> 62
SCHEDULE I
CRESCENT JEWELERS
$8,000,000 IN AGGREGATE PRINCIPAL AMOUNT
OF 10.0% CONVERTIBLE SENIOR SUBORDINATED NOTES
DUE OCTOBER 15, 2006
NAME AND ADDRESS PRINCIPAL AMOUNT
OF PURCHASER OF NOTES TO BE PURCHASED
[PURCHASER] $___________
(1) In the case of all payments on account of the Notes:
(2) In the case of all notices with respect to payments:
(3) In the case of all other communications:
I-1
<PAGE> 63
SCHEDULE 2.7
LIST OF DEFAULTS ON PROPERTY
<PAGE> 64
SCHEDULE 2.12
LIST OF LITIGATION
<PAGE> 65
SCHEDULE 14.1A
LIST OF EXISTING LOANS AND INVESTMENTS
LOANS TO EMPLOYEES AND OFFICERS:
INVESTMENTS:
<PAGE> 66
EXHIBIT A
CRESCENT JEWELERS
10.0% CONVERTIBLE SENIOR SUBORDINATED NOTE
DUE OCTOBER 15, 2006
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT"), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED
UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT COVERING
SUCH NOTE OR THE COMPANY RECEIVES AN OPINION OF COUNSEL, FOR THE HOLDER OF THE
NOTE REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF THE 1933 ACT.
THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE
SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973 AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT
TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
R-___ ____________, 19__
$________________
Crescent Jewelers (the "Company"), a California corporation,
for value received, hereby promises to pay to _____________________ or
registered assigns, the principal sum of _________________ DOLLARS
($____________) on October 15, 2006, and to pay interest (computed on the basis
of a 360-day year of twelve 30-day months) on the unpaid principal balance
thereof from the date of this Note at the rate of 10.0% per annum, adjusted as
provided below, semi-annually on each April 1 and October 1 commencing
[April][October] 1, 199_, until the principal amount hereof shall become due
and payable, and to pay, on demand, interest on any overdue principal,
including any overdue prepayment of principal, and premium, if any, and (to the
extent permitted by applicable law) on any overdue installment of interest, at
the rate of 2% per annum above the rate of interest payable hereunder at the
time any such amount shall be overdue. If the Company shall have paid any
interest or premium on this Note in excess of that permitted by law, then it is
the express intent of the Company and the holder hereof that all excess amounts
previously collected by the Company be credited on the principal balance of
this Note, and the provisions hereof immediately be deemed reformed and the
amounts thereafter collectable hereunder reduced, without the necessity of the
execution of any new document, so as to comply with the then applicable law,
but so as to permit the recovery of the fullest amount otherwise called for
hereunder.
A-1
<PAGE> 67
Payment of principal, premium, if any, and interest shall be
made to the registered holder hereof in such coin or currency of the United
States of America as at that time of payment shall be legal tender for the
payment of public and private debts, at the office of the Company at 315
Eleventh Street, Oakland, California 94607 or at such other location designated
pursuant to Section 9.1 of the Note Purchase Agreement referred to below, in
each case subject to the right of the registered holder hereof under the Note
Purchase Agreement referred to below to receive direct payment in immediately
available funds.
This Note is one of the 10.0% Convertible Senior Subordinated
Notes issued in the aggregate principal amount of up to $8,000,000 pursuant to
the Note Purchase Agreement, dated as of [First Issue Date], between the
Company and the purchasers of the Notes set forth in Schedule I thereto (the
"Note Purchase Agreement"; all capitalized terms not otherwise defined herein
having the meaning set forth therein) and is entitled to the benefits thereof.
As and to the extent provided in the Note Purchase Agreement,
this Note is subject to prepayment, in whole or in part, in certain cases
without premium and in other cases with premium. The Company agrees to make
required prepayments on account of this Note in accordance with the provisions
of the Note Purchase Agreement.
Under certain circumstances, at specified in the Note Purchase
Agreement, the principal of and accrued interest on this Note may be declared
due and payable in the manner and with the effect provided in the Note Purchase
Agreement.
This Note has not been registered under the Securities Act of
1933, as amended, or the laws of any state and may be transferred in whole or
in part only pursuant to an effective registration statement under such Act and
applicable state laws or under an exemption from such registration available
under such Act and applicable state law. Subject to the foregoing, transfers
of this Note shall be registered upon registration books maintained for such
purpose by or on behalf of the Company as provided in the Note Purchase
Agreement. Prior to presentation of this Note for registration of transfer,
the Company shall treat the registered holder hereof as the owner and holder of
this Note for the purpose of receiving all payments of principal and interest
hereon and for all other purposes whatsoever, whether or not this Note shall be
overdue, and the Company shall not be affected by notice to the contrary.
The payment of the principal of and interest on this Note is
expressly subordinated, in the manner and to the extent provided in the Note
Purchase Agreement, to the payment of certain other indebtedness of the Company
(as more fully described in the Note Purchase Agreement), and by acceptance of
this Note the holder agrees, expressly for the benefit of the present and
future holders of such indebtedness, to be bound by the provisions of the Note
Purchase Agreement.
The Company agrees to perform and observe duly and punctually
each of the covenants and agreements set forth in the Note Purchase Agreement.
Further, as provided in the Conversion Agreement, if any, to which the holder
hereof is a party, this Note may be converted
A-2
<PAGE> 68
into certain shares of capital stock of CJI on the terms and conditions set
forth therein. The holder of such shares has the right to require CJI to
register such shares on the terms and conditions set forth in the Registration
Rights Agreement. All such covenants and agreements are incorporated by
reference in this Note, and this Note shall be interpreted and construed as if
all such covenants and agreements were set forth in full in this Note at this
place.
This Note shall be governed by and construed in accordance
with the law of the State of Georgia.
IN WITNESS WHEREOF, Crescent Jewelers has caused this Note to
be duly executed under seal.
CRESCENT JEWELERS
By:
-------------------------------------
Name:
Title:
A-3
<PAGE> 1
EXHIBIT 10.5
Execution Copy
CONVERSION AGREEMENT
This Conversion Agreement, dated as of October 15, 1996, is by and
among Friedman's Inc., a Delaware corporation (the "Holder"), Crescent
Jewelers, Inc., a Delaware corporation ("CJI") and Crescent Jewelers, a
California corporation (the "Company").
WHEREAS, the Holder has entered into that certain Loan and Security
Agreement, dated October 15, 1996, by and between the Holder and the Company
(the "Senior Note"), pursuant to which the Holder has made a term loan to the
Company in the amount of $20,000,000; and
WHEREAS, the Holder, CJI and the Company have entered into that
certain Standby Purchase Agreement, dated October 15, 1996 (the "Standby
Purchase Agreement"), pursuant to which the Holder can be required by the
Company to purchase up to $5,000,000 of Senior Subordinated Convertible Notes
(the "Senior Subordinated Notes" and together with the Senior Note, the
"Notes") for a period of up to eighteen months, pursuant to that certain form
of Note Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, receipt of which is hereby acknowledged, the
parties do hereby agree as follows:
SECTION 1. CONVERSION OF NOTES.
Section 1.1 STOCK CONVERSION PRIVILEGES.
(a) First Conversion Privilege. Up to one-half of the
unpaid principal amount of the Senior Note or any lesser portion thereof and
the entire unpaid principal amount of the Senior Subordinated Note or any
lesser portion thereof:
(A) may be converted, at the election of the Holder,
at any time on or after the date hereof to and including the
close of business on the maturity date of the respective Notes
(or any extension thereof or delinquency period related
thereto) but prior to an Initial Public Offering, by written
notice to the Company (which notice shall specify the date of
such conversion, which shall be not less than 10 days nor more
than 30 days after the date of such notice), at a conversion
price of $3.68 per share, as such conversion price may be
adjusted from time to time in accordance with this Section 1
(such conversion price, as so adjusted and as in effect at any
time, being herein called the "Conversion Price"), into the
number of fully paid and nonassessable shares of Class A
Common Stock determined by dividing the principal amount of
the Note so to be converted by the Conversion Price in effect
at the time of such conversion;
(B) shall be converted, upon an Initial Public
Offering, following written notice of the Initial Public
Offering by the Company to the Holder (the "IPO
<PAGE> 2
Notice") (which IPO Notice shall be provided not less than 30
days prior to the anticipated effective date of the
registration statement filed with the Commission in connection
with the Initial Public Offering), at the Conversion Price
into the number of fully paid and non-assessable shares of
Class A Common Stock determined by dividing the principal
amount of the Note so to be converted by the Conversion Price
in effect at the time of such conversion; provided that such
conversion shall not be required unless the Initial Public
Offering Price is equal to or greater than 150% of the
Conversion Price; and
(C) may be converted, if not automatically converted
pursuant to the terms of Section 1.1(a)(B) above, at the
election of the Holder, by written notice to the Company at
any time on or after an Initial Public Offering to and
including the close of business on the maturity date of the
respective Notes (or any extension thereof or delinquency
period related thereto), (which notice shall specify the date
of such conversion, which shall be not less than 10 days nor
more than 30 days after the date of such notice), at the
Conversion Price into the number of fully paid and
nonassessable shares of Class A Common Stock determined by
dividing the principal amount of the Note so to be converted
by the Conversion Price in effect at the time of such
conversion.
(b) Second Conversion Privilege. Up to one-half of the
unpaid principal amount of the Senior Note or any lesser portion thereof may be
converted, at the election of the Holder, at any time on or after an Initial
Public Offering (notice of which shall be provided by the Company to the Holder
not less than 30 days prior to the anticipated effective date of the
registration statement filed with the Commission in connection with the Initial
Public Offering) to and including the close of business on the maturity date of
the respective Notes (or any extension thereof or delinquency period related
thereto), by written notice to the Company (which notice shall specify the
date of such conversion, which shall be not less than 10 days nor more than 30
days after the date of such notice) at the Initial Public Offering Price into
the number of fully paid and nonassessable shares of Class A Common Stock
determined by dividing the principal amount of the Senior Note so to be
converted by the Initial Public Offering Price.
Section 1.2 MANNER OF CONVERSION; PARTIAL CONVERSION, ETC.
(a) The Notes may be converted pursuant to the terms
Sections 1.1(a)(A) and (C) and Section 1.1(b) in full or in part by the
Holder by written notice of conversion to the Company at its principal
executive office. Such notice shall designate the applicable subsection of
Section 1.1 pursuant to which conversion is elected. Upon the partial
conversion of any Note, the Company at its expense will forthwith issue and
deliver to the Holder a new Note in an aggregate principal amount equal to the
unpaid and unconverted portion of such surrendered Note, dated the date to
which interest on the Note so surrendered shall have been paid or, if no
interest shall have yet been so paid, dated the date of the Note so surrendered
and registered in the name of such Person or Persons as shall have been
designated in writing by the Holder. Each conversion shall be deemed to have
been effected on the date specified in the Holder's notice of conversion or on
the date of the Initial Public Offering, as applicable; and at such time, the
Person or Persons in whose
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<PAGE> 3
name or names any certificate or certificates for shares of Common Stock (or
Other Securities) shall be issuable upon such conversion shall become the
holder or holders of record thereof.
(b) Upon the conversion of any Note, payment of all
unpaid accrued interest on the principal amount of the Note through and
including the date of conversion shall be payable on the date of conversion in
immediately available funds.
(c) The Company and CJI will, at the time of conversion
of any Note in full or in part upon the request of the Holder, acknowledge in
writing its continuing obligation to afford to the Holder any rights to which
the Holder shall continue to be entitled after such conversion in accordance
with the provisions of the Senior Note or the Senior Subordinated Note;
provided, however, that if the Holder shall fail to make any such request, such
failure shall not affect the continuing obligation of the Company to afford to
the Holder all such rights.
Section 1.3 DELIVERY OF STOCK CERTIFICATES; FRACTIONAL SHARES.
As promptly as practicable after the conversion of any Note in full or in part,
and in any event within five Business Days thereafter, CJI at its expense
(including the payment by it of any applicable issue taxes) will cause to be
issued and delivered to the Holder, or as the Holder may direct, a certificate
or certificates for the number of full shares of Common Stock (or Other
Securities) issuable upon such conversion, plus, in lieu of any fractional
share to which such holder would otherwise be entitled, cash in an amount equal
to the same fraction of the Conversion Price or the Initial Public Offering
Price, as applicable, of one full share on the Business Day next preceding the
date of such conversion.
Section 1.4 ADJUSTMENTS TO CONVERSION PRICE.
Section 1.4.1 ISSUANCE OF ADDITIONAL SHARES OF COMMON
STOCK. In case CJI shall at any time or from time to time after the date of
this Agreement issue or sell, or be deemed under any provision of this
Agreement to have issued or sold, any additional shares of its Common Stock,
whether or not subsequently reacquired or retired by CJI, without consideration
or for a consideration per share less than the Conversion Price in effect
immediately prior to such issue or sale, then and in each such case the
Conversion Price in effect immediately prior to such issue or sale shall be
reduced, effective concurrently with such issue or sale, to a price (calculated
to the nearest .01 of a cent) determined by multiplying the Conversion Price
by a fraction of which
(a) the numerator shall be the sum of (i) the number of
shares of Common Stock outstanding immediately prior to such issue or
sale, including, without duplication, those deemed to have been issued
under any provision of this Agreement plus (ii) the number of shares
of Common Stock which the aggregate consideration received by CJI for
such additional shares would purchase at the Conversion Price in
effect immediately prior to such issue or sale; and
(b) the denominator shall be the number of shares of
Common Stock of CJI outstanding immediately after such issue or sale,
including, without duplication, those deemed to have been issued under
any provision of this Agreement.
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No adjustment of the Conversion Price, however, shall be made in an amount less
than one tenth of one percent (.1%) of the Conversion Price then in effect, but
any such lesser adjustment shall be carried forward and shall be made at the
time of and together with the next subsequent adjustment, which together with
any adjustments so carried forward shall amount to one tenth of one percent
(.1%) of the Conversion Price then in effect or more.
Section 1.4.2 FURTHER ADJUSTMENT PRINCIPLES. For purposes
of the adjustment provided for in Section 1.4.1 hereof, the following shall
also be applicable:
(a) Issuance of Rights or Options. In case at any time
CJI shall in any manner grant (whether directly or by assumption in a
merger or otherwise) any rights to subscribe for or to purchase, or
any options for the purchase of, Common Stock or any stock or
securities convertible into or exchangeable for Common Stock (such
convertible or exchangeable stock or securities being herein called
"Convertible Securities"), whether or not such rights or options or
the right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common
Stock is issuable upon the exercise of such rights or options or upon
conversion or exchange of such Convertible Securities (determined by
dividing (i) the total amount, if any, received or receivable by CJI
as consideration for the granting of such rights or options, plus the
minimum aggregate amount of additional consideration, if any, payable
to CJI upon the exercise of all such rights or options, plus, in the
case of such rights or options which relate to Convertible Securities,
the minimum aggregate amount of additional consideration, if any,
payable upon the issue or sale of such Convertible Securities and upon
the conversion or exchange thereof, by (ii) the total maximum number
of shares of Common Stock issuable upon the exercise of such rights or
options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such rights or options) shall
be less than the Conversion Price, determined as of the date of
granting such rights or options, then the total maximum number of
shares of Common Stock issuable upon the exercise of such rights or
options or upon conversion or exchange of all such Convertible
Securities issuable upon the exercise of such rights or options shall
(as of the date of granting of such rights or options) be deemed to be
outstanding and to have been issued for such price per share. Except
as provided in Section 1.4.2(c) hereof, no further adjustment of the
Conversion Price shall be made upon the actual issue of such Common
Stock or of such Convertible Securities upon exercise of such rights
or options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.
(b) Issuance of Convertible Securities. In case at any
time CJI shall in any manner issue (whether directly or by assumption
in a merger or otherwise) or sell any Convertible Securities, whether
or not the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by dividing (i)
the total amount received or receivable by CJI as consideration for
the issue or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to CJI
upon
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the conversion or exchange thereof, by (ii) the total maximum number
of shares of Common Stock issuable upon the conversion or exchange of
all such Convertible Securities) shall be less than the Conversion
Price, determined as of the date of such issue or sale of such
Convertible Securities, then the maximum number of shares of Common
Stock issuable upon conversion or exchange of all such Convertible
Securities shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and to have been
issued for such price per share; provided, however, that
(A) except as otherwise provided in Section
1.4.2(c) hereof, no further adjustment of the Conversion Price shall
be made upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities; and
(B) if any such issue or sale of such Convertible
Securities is made upon exercise of any rights to subscribe for or to
purchase or any option to purchase any such Convertible Securities for
which adjustments of the Conversion Price have been or are to be made
pursuant to other provisions of this Section 1.4.2, no further
adjustment of the Conversion Price shall be made by reason of such
issue or sale.
(c) Change in Option Price or Conversion Rate; Expiration,
etc. Upon the happening of any of the following events, namely, if the
purchase price provided for in any right or option referred to in
Section 1.4.2(a) hereof, the additional consideration, if any, payable
upon the conversion or exchange of any Convertible Securities referred
to in Section 1.4.2(a) or Section 1.4.2(b) hereof, or the rate at which
any Convertible Securities referred to in Section 1.4.2(a) or Section
1.4.2(b) hereof are convertible into or exchangeable for Common Stock
shall change (other than under or by reason of provisions designed to
protect against dilution), the Conversion Price then in effect
hereunder shall forthwith be readjusted (increased or decreased, as the
case may be) to the Conversion Price which would have been in effect at
such time had such rights, options or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold. On the expiration of any such
option or right referred to in Section 1.4.2(a) hereof or the
termination of any such right to convert or exchange any such
Convertible Securities referred to in Section 1.4.2(a) or Section
1.4.2(b) hereof, or on the exercise, conversion or exchange of any such
right, option or Convertible Securities if, and only if, the shares of
Common Stock issued or sold are issued or sold for a consideration per
share not less than the Conversion Price at the time of such issue or
sale, the Conversion Price then in effect hereunder shall forthwith be
increased to the Conversion Price which would have been in effect at
the time of such expiration, termination, exercise, conversion or
exchange had such right, option or Convertible Security, to the extent
outstanding immediately prior to such expiration, termination,
exercise, conversion or exchange, never been granted, issued or sold,
and the Common Stock issuable thereunder shall, in the case of any such
expiration or termination, no longer be deemed to be outstanding. If
the purchase price provided for in any such right or option referred to
in Section 1.4.2(a) hereof, the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Security
referred to in Section 1.4.2(a) or Section 1.4.2(b) hereof, or the rate
at which any Convertible Securities referred to in Section 1.4.2(a) or
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Section 1.4.2(b) hereof are convertible into or exchangeable for Common
Stock shall be reduced at any time under or by reason of provisions
with respect thereto designed to protect against dilution, then in case
of the delivery of shares of Common Stock upon the exercise of any such
right or option or upon conversion or exchange of any such Convertible
Securities, the Conversion Price then in effect hereunder shall
forthwith be adjusted to such amount as would have obtained had such
right, option or Convertible Securities never been issued as to such
shares of Common Stock and had adjustments been made only upon the
issuance of the shares of Common Stock delivered as aforesaid, but only
if as a result of such adjustment the Conversion Price then in effect
is hereunder thereby reduced.
(d) Stock Dividends. In case at any time CJI shall
declare a dividend or make any other distribution upon any class or
series of its stock payable in shares of Common Stock or Convertible
Securities, any shares of Common Stock or Convertible Securities, as
the case may be, issuable in payment of such dividend or distribution
shall be deemed to have been issued or sold without consideration.
(e) Consideration for Stock. In case at any time any
shares of Common Stock or Convertible Securities or any rights or
options to purchase any such Common Stock or Convertible Securities
shall be issued or sold for cash, the consideration received therefor
shall be deemed to be the amount received by CJI therefor in the form
of such cash, without deduction therefrom of any expenses paid or
incurred or any underwriting commissions, concessions or discounts paid
or allowed by CJI in connection therewith. In case at any time any
shares of Common Stock or Convertible Securities or any rights or
options to purchase any such shares of Common Stock or Convertible
Securities shall be issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by CJI shall
be deemed to be the fair value of such consideration at the time of
such issue or sale as determined reasonably and in good faith by the
Board of Directors of CJI, without deduction of any expenses incurred
or any underwriting commissions or concessions paid or allowed by CJI
in connection therewith. In case at any time any shares of Common
Stock or Convertible Securities or any rights or options to purchase
such shares of Common Stock or Convertible Securities shall be issued
in connection with any merger or consolidation in which CJI is the
surviving corporation (other than a transaction to which Section 1.7
hereof shall be applicable), the amount of consideration received
therefor shall be deemed to be the fair value, as determined reasonably
and in good faith by the Board of Directors of CJI, of such portion of
the assets and business of the non-surviving entity as such Board may
determine to be attributable to such shares of Common Stock,
Convertible Securities, rights or options, as the case may be. In case
at any time any rights or options to purchase any shares of Common
Stock or Convertible Securities shall be issued in connection with the
issue and sale of other securities of CJI, together comprising one
integral transaction in which no consideration is allocated to such
rights or options by the parties thereto, such rights or options shall
be deemed to have been issued for an amount of consideration equal to
the fair value thereof as determined reasonably and in good faith by
the Board of Directors of CJI.
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<PAGE> 7
(f) Record Date. In case CJI shall take a record of the
holders of Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in shares of Common
Stock or Convertible Securities, or (ii) to subscribe for or purchase
shares of Common Stock or Convertible Securities, then such record date
shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold as a result of the
declaration of such dividend or the making of such other distribution
or the granting of such right of subscription or purchase, as the case
may be.
(g) Treasury Shares. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or
held by or for the account of CJI or any of its Subsidiaries, and the
disposition of any such shares shall be considered a sale of Common
Stock of the purposes of this Section 1.4.
(h) Excluded Shares. The following issuances shall be
excluded from the adjustment set forth in this Section 1.4 and shall
not be deemed to be issued pursuant thereto: (i) shares of Class A
Common Stock issued upon conversion of shares of Class B Common Stock,
or the Company's currently outstanding 9% Convertible Subordinated
Notes due 2000 and up to $8 million aggregate principal amount of the
Company's 10% Convertible Subordinated Notes due 2006; (ii) shares of
Class A Common Stock issued pursuant to this Agreement; (iii) shares of
Class A Common Stock issued pursuant to those certain Refinancing
Agreements dated as of October 15, 1996, between the Company, CJI and
certain of the Company's trade creditors; (iv) shares of Class B Common
Stock issued in exchange for CJI's Common Stock in connection with the
amendment and restatement of its Certificate of Incorporation as filed
on October 15, 1996, with the Secretary of State of the State of
Delaware; (v) shares of Class A Common Stock issued pursuant to that
certain Interest Repayment Agreement dated October 15, 1996 by and
among CJI, the Company and certain holders of the Company's
indebtedness; (vi) shares of Class A Common Stock issued pursuant to
the Second Amendment to the Note Purchase Agreement relating to the
Company's 9% Convertible Subordinated Notes due 2000, the Second
Supplement to the Indenture relating to the Company's 13 1/2% Senior
Subordinated Note due 1999 and the Second Supplement to the Indenture
relating to the Company's 14 1/2% Senior Subordinated Note due 1999;
(vii) up to 800,000 shares of Class B Common Stock to be issued upon
exercise of stock options; and (viii) shares of Class A Common Stock
issued pursuant to those certain warrants, dated as of the date hereof,
to purchase 407,000 (subject to adjustment as set forth therein) shares
of Class A Common Stock issued to Teachers Insurance and Annuity
Association and certain other holders of the Company's indebtedness.
Section 1.5 EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. In case
CJI at any time or from time to time shall declare, order, pay or make a
dividend or other distribution (including, without limitation, any distribution
of other or additional stock or other securities or property or options by way
of dividend or spin-off, reclassification, recapitalization or similar
corporate rearrangement) on the Common Stock, other than (i) a dividend payable
in shares of Common
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Stock or Convertible Securities or (ii) a dividend payable in cash or other
property out of the consolidated earnings or consolidated earned surplus
(determined in accordance with GAAP, including the making of appropriate
deductions for minority interests, if any, in Subsidiaries), then, and in each
such case, subject to the last paragraph of Section 1.4.1 hereof, the
Conversion Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of any class of securities
entitled to receive such dividend or distribution shall be reduced, effective
as of the close of business on such record date, to a price (calculated to the
nearest tenth of a cent) determined by multiplying such Conversion Price by a
fraction, (x) the numerator of which shall be the Market Price in effect on
such record date or, if the Common Stock trades on an ex-dividend basis, on the
date prior to the commencement of ex-dividend trading, less the aggregate
amount of such dividend or distribution (as determined in good faith by the
Board of Directors of CJI) applicable to one share of Common Stock, and (y) the
denominator of which shall be such Market Price.
Section 1.6 SUBDIVISION OR COMBINATION OF STOCK. In case CJI
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately prior to
such subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Conversion Price in effect immediately prior to such combination
shall be proportionately increased.
Section 1.7 ADJUSTMENTS FOR CONSOLIDATION, MERGER, SALE OF
ASSETS, REORGANIZATION, ETC. In case CJI (a) shall consolidate with or merge
into any other Person and shall not be the continuing or surviving corporation
of such consolidation or merger, or (b) shall permit any other Person to
consolidate with or merge into CJI and CJI shall be the continuing or surviving
Person but, in connection with such consolidation or merger, the Common Stock
(or Other Securities) shall be changed into or exchanged for stock or other
securities of any other Person or cash or any other property, or (c) shall
transfer all or substantially all of its properties or assets to any other
Person, or (d) shall effect a capital reorganization or reclassification of the
Common Stock (or Other Securities) (other than a capital reorganization or
reclassification resulting in the issue of additional shares of Common Stock
for which adjustment in the Conversion Price is provided in Section 1.4
hereof), then, and in each such case, proper provisions shall be made so that,
upon the basis and the terms and in the manner provided in this Agreement, the
Holder, upon the conversion of any Note at any time after the consummation of
such consolidation, merger, transfer, reorganization or reclassification, shall
be entitled to receive (at the aggregate Conversion Price in effect at the time
of such consummation for all Common Stock (or Other Securities) issuable upon
such conversion immediately prior to such consummation), in lieu of the Common
Stock (or Other Securities) issuable upon such conversion prior to such
consummation, the stock and other securities, cash and property to which the
Holder would have been entitled upon such consummation if the Holder had
converted the Note immediately prior thereto, subject to adjustments
(subsequent to such corporate action) as nearly equivalent as possible to the
adjustments provided for in Sections 1.4 through 1.6 hereof. Nothing contained
in this Section 1.7 or otherwise herein shall be deemed to authorize CJI or the
Company to enter into any transaction not otherwise permitted by this
Agreement.
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Section 1.8 NOTICE OF ADJUSTMENT. Upon the occurrence of any
event requiring an adjustment of the Conversion Price, then and in each such
case the Company shall promptly cause CJI to obtain the opinion of its regular
independent auditors or another firm of independent public accountants of
recognized national standing selected by the Company or CJI who are
satisfactory to the Holder, which opinion shall state the Conversion Price
resulting from such adjustment and the increase or decrease, if any, in the
number of shares of Common Stock (or Other Securities) issuable upon conversion
of the Notes, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. The Company will promptly
mail, or will cause CJI to promptly mail, a copy of such accountant's opinion
to the Holder.
Section 1.9 OTHER NOTICES. In case at any time:
(a) CJI shall declare or pay to the holders of Common
Stock any dividend other than a regular periodic cash dividend or any periodic
cash dividend in excess of one hundred and fifteen percent (115%) of the cash
dividend for the comparable fiscal period in the immediately preceding fiscal
year;
(b) CJI shall declare or pay any dividend upon the Common
Stock payable in stock or make any special dividend or other distribution
(other than regular cash dividends) to the holders of Common Stock;
(c) CJI shall offer for subscription pro rata to the
holders of Common Stock any additional shares of stock of any class or other
rights;
(d) there shall be any capital reorganization, or
reclassification of the capital stock of CJI, or consolidation or merger of CJI
with, or sale of all or substantially all of its assets to, another corporation
or other entity; or
(e) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of CJI;
then, in any one or more of such cases, the Company shall give, or cause CJI to
give, to the Holder (i) at least 15 days' prior written notice in the case of
any event referred to in clause (a) or (b) above, and at least 30 days' prior
written notice in any other case referred to above, of the date on which the
books of CJI shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in
respect of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up and (ii) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, at least 30 days' prior written notice of the date
(or, if not then known, a reasonable approximation thereof by the Company or
CJI) when the same shall take place. Such notice in accordance with the
foregoing clause (i) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Common
Stock shall be entitled thereon, and such notice in accordance with the
foregoing clause (ii) shall also specify the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
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consolidation, merger, sale, dissolution, liquidation or winding-up, as the
case may be. Such notice shall also state that the action in question or the
record date is subject to the effectiveness of a registration statement under
the Securities Act or to a favorable vote of such security holders, if either
is required.
Section 1.10 CERTAIN EVENTS. If any event occurs as to which, in
the good faith judgment of the Company, the other provisions of this Section 1
are not strictly applicable or if strictly applicable would not fairly protect
the conversion rights of the Holder in accordance with the essential intent and
principles of such provisions, then the Company shall appoint its (or cause CJI
to appoint its) regular independent auditors or another firm of independent
public accountants of recognized national standing who are satisfactory to the
Holder which shall give their opinion upon the adjustment, if any, on a basis
consistent with such essential intent and principles, necessary to preserve,
without dilution, the rights of the Holder. Upon receipt of such opinion, the
Company shall forthwith make the adjustments described therein; provided,
however, that no such adjustment shall have the effect of increasing the
Conversion Price as otherwise determined pursuant to this Section 1 except as
contemplated in Section 1.4.2(c) or Section 1.6 hereof and then in no event to
an amount larger than the Conversion Price as adjusted pursuant to Section
1.4.2(c) or Section 1.6, as the case may be. The Company may make such
reductions in the Conversion Price as it deems advisable, including any
reductions necessary to ensure that any event treated for federal income tax
purposes as a distribution of stock or stock rights not be taxable to
recipients.
Section 1.11 PROHIBITION OF CERTAIN ACTIONS. Each of the Company
and CJI will not, by amendment of its charter or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company or CJI, but will at all times in good faith assist in the carrying out
of all the provisions of this Agreement and in the taking of all such action as
may reasonably be requested by the Holder in order to protect the conversion
privileges of the Holder against dilution or other impairment, consistent with
the tenor and purpose of this Agreement. Without limiting the generality of
the foregoing, CJI will (a) not increase the par value of any shares of Common
Stock (or Other Securities) receivable upon the conversion of the Notes above
the Conversion Price then in effect, (b) take all such action as may be
necessary or appropriate in order that CJI may validly and legally issue fully
paid and nonassessable shares of Common Stock (or Other Securities) upon the
conversion in full of all Notes from time to time outstanding, (c) not take any
action which results in any adjustment of the Conversion Price if the total
number of shares of Common Stock (or Other Securities) issuable after the
action upon the conversion of all of the Notes would exceed the total number of
shares of Common Stock (or Other Securities) then authorized by CJI's charter
and available for the purpose of issue upon such conversion, and (d) not issue
any capital stock of any class which has the right to more than one vote per
share or which is preferred as to dividends or as to the distribution of assets
upon voluntary or involuntary dissolution, liquidation or winding-up, unless
the rights of the holders thereof shall be limited to a fixed sum or percentage
of par value or stated value in respect of participation in dividends and in
any such distribution of assets.
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Section 1.12 COVENANTS OF CJI. CJI hereby covenants and agrees
to, at all times, reserve and keep available out of the authorized Common Stock
(or Other Securities), solely for the purpose of issue upon the conversion of
Notes as herein provided, such number of shares of Common Stock (or Other
Securities) as shall then be issuable upon the conversion of all outstanding
Notes, and will maintain at all times all other rights and privileges
sufficient to enable it to fulfill all its obligations and the obligations of
the Company hereunder. CJI hereby covenants and agrees that all shares of
Common Stock (or Other Securities) which shall be so issuable shall, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable,
free from preemptive or similar rights on the part of the holders of any shares
of capital stock or securities of CJI or the Company or any other Person, and
free from all taxes, liens and charges with respect to the issue thereof; and
without limiting the generality of the foregoing, CJI will from time to time,
take all action as may be required to assure that the par value, if any, per
share of the Common Stock (or Other Securities) is at all times equal to or
less than the then effective Conversion Price. CJI hereby covenants and agrees
to take all such action as may be necessary to assure that such shares of
Common Stock (or Other Securities) may be so issued without violation of any
applicable law or regulation, or of any requirements of the National
Association of Securities Dealers, Inc. and of any domestic securities exchange
upon which the Common Stock (or Other Securities) may be listed.
Section 1.13 ISSUE TAX. The issuance of certificates for shares
of Common Stock (or Other Securities) upon conversion of Notes shall be made
without charge to the Holder for any issuance tax in respect thereto; provided,
however, that neither the Company nor CJI shall be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the Holder.
Section 1.14 CLOSING OF BOOKS. CJI will never close its transfer
books against the transfer of any Note or of any shares of Common Stock (or
Other Securities) issued or issuable upon the conversion of any Note in any
manner that interferes with the timely conversion of such Note.
Section 1.15 NO RIGHTS OR LIABILITIES AS STOCKHOLDERS. No Note
shall entitle the Holder to any of the rights of a stockholder of the Company
or CJI, except as expressly contemplated by this Section 1. No provision of
this Agreement or of any Note, in the absence of the actual conversion of such
Note or any part thereof by the Holder into Common Stock (or Other Securities)
issuable upon such conversion, shall give rise to any liability on the part of
the Holder as a stockholder of the Company or CJI, whether such liability shall
be asserted by the Company or CJI, or by creditors of the Company or CJI.
SECTION 2. SECURITIES LAWS.
Section 2.1 COVENANTS OF HOLDER. The Holder hereby covenants and
agrees that (i) the Class A Common Stock obtainable upon conversion of the
Notes pursuant to Section 1.4 hereof have not been registered under the
Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act; (ii) that the Class A Common Stock received
by the Holder upon
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such conversion must be held by the Holder, unless a subsequent disposition
thereof is registered under the Securities Act or is exempt from such
registration; (iii) that each certificate representing the Class A Common Stock
obtained upon conversion may be endorsed with the following, or a similar,
legends, where applicable:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT"), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE 1933 ACT COVERING SUCH SECURITIES OR THE
COMPANY RECEIVES AN OPINION OF COUNSEL, FOR THE HOLDER OF THE
SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING
THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE 1933 ACT.
THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON
PARAGRAPH (13) OF CODE SECTION 10-5-9 OF THE GEORGIA
SECURITIES ACT OF 1973 AND MAY NOT BE SOLD OR TRANSFERRED
EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR
PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT."
and (iv) transfer agent may be instructed not to register the transfer of any
of the shares of Class A Common Stock obtained upon conversion unless the
conditions specified in the foregoing legend are satisfied.
The Holder further covenants and agrees that it is aware of the
provisions of Rule 144 promulgated under the Securities Act which permits
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the
existence of a public market for the shares, the availability of certain
current public information about the company whose shares are to be sold, the
resale occurring not less than two years after a party has purchased and paid
for the security to be sold, the sale being through a "broker's transaction",
or in transactions directly with a "market maker" (as provided by Rule 144(f))
and the number of shares being sold during any three-month period not exceeding
specified limitations (unless the sale is within the requirements of Rule
144(k)). The Holder covenants that, in the absence of an effective
registration statement covering the stock in question, the Holder will sell,
transfer, or otherwise dispose of the Class A Common Stock obtained upon
conversion of the Notes only in a manner consistent with its representations
and covenants set forth in this Section 2. In connection therewith, the Holder
acknowledges that a notation will be made on the books of CJI regarding the
restrictions on transfers set forth in this Section 2 and will transfer such
securities only to the extent not inconsistent therewith.
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<PAGE> 13
SECTION 3. INTERPRETATION OF AGREEMENT.
Section 3.1 DEFINITIONS. Except as the context shall otherwise
require, the following terms shall have the following meanings for all purposes
of this Agreement (the definitions to be applicable to both the singular and
the plural form of the terms defined, where either such form is used in this
Agreement):
The term "Board Of Directors" when used herein without
reference to any particular Person shall mean the Board of Directors of the
Company.
The term "Business Day" shall mean any day on which the
commercial banks are not authorized or required to close in New York City and
Atlanta, Georgia.
The term "CJI" shall mean Crescent Jewelers, Inc., a Delaware
corporation, the parent company of Crescent Jewelers.
The term "Class A Common Stock" shall mean the Class A common
stock, $.01 par value per share, of CJI.
The term "Class B Common Stock" shall mean the Class B common
stock, $.01 par value per share, of CJI.
The term " Conversion Price" shall have the meaning set forth
in Section 1.1 hereof.
The term "Commission" shall mean the Securities and Exchange
Commission.
The term "Common Stock" shall mean the Class A Common Stock
and the Class B Common Stock.
The term "Company" shall mean Crescent Jewelers, a California
corporation.
The term "Convertible Securities" shall have the meaning set
forth in Section 1.4.2(a) hereof.
The term "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended from time to time.
The term "GAAP" shall mean generally accepted accounting
principles as enunciated from time by the Financial Accounting Standards Board.
The terms "hereof," "herein," "hereunder" and other words of
similar import shall be construed to refer to this Agreement as a whole and not
to any particular Section or other subdivision.
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<PAGE> 14
The term "Holder" shall mean Friedman's Inc., a Delaware
corporation.
The term "holder," with respect to any Note, shall mean the
Person in whose name such Note shall be registered.
The term "Initial Public Offering" shall mean the initial
offering by CJI of shares of Common Stock to the public pursuant to a
registration statement filed with the Commission.
The term "Initial Public Offering Price" shall mean, with
respect to a share of Class A Common Stock, the price per share at which the
Class A Common Stock was offered to the public in the Initial Public Offering,
less the underwriter's discount per share.
The term "Market Price" when referring to the Class A Common
Stock at any time shall mean (i) the closing sales price (or last sale price,
if applicable) for a share of Class A Common Stock (or Other Securities) as
officially reported on the principal national securities exchange or domestic
over-the-counter market on which the Class A Common Stock (or Other Securities)
is at the time listed or quoted at the date of determination of such Market
Price, or (ii) if such Class A Common Stock (or Other Securities) is not at
such time listed on a national securities exchange or quoted in the domestic
over-the-counter market, the fair market value as determined by the Board of
Directors of CJI in good faith after review of all relevant factors.
The term "Notes" shall mean the Senior Notes and the Senior
Subordinated Notes.
The term "Other Securities" shall mean, with reference to the
conversion privileges of the holders of the Notes, any stock and any other
securities of the Company, CJI or any other person (corporate or otherwise)
which the holders of the Notes at any time shall be entitled to receive, or
shall have received, upon the conversion or partial conversion of the Notes, in
lieu of or in addition to Common Stock, or which at any time shall be issuable
or shall have been issued in exchange for or in replacement of Common Stock (or
Other Securities) pursuant to Section 1.4 hereof or otherwise
The term "Person" shall mean any individual, corporation,
partnership, joint venture, association, joint stock company, trust, estate,
unincorporated organization or government (or any agency or political
subdivision thereof).
The terms "register", "registered" and "registration" shall
mean a registration effected by preparing and filing a registration statement
in compliance with the Securities Act (and any post-effective amendments filed
or required to be filed) and the declaration or ordering of effectiveness of
such registration statement;
The term "Securities Act" shall mean the Securities Act of
1933, as amended from time to time.
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<PAGE> 15
The term "Senior Note" shall mean the Loan and Security
Agreement dated as of October 15, 1996 between the Company and Friedman's Inc.,
as amended, supplemented or otherwise modified from time to time.
The term "Senior Subordinated Note" shall mean any Note issued
pursuant to the Note Purchase Agreement, as amended, supplemented or otherwise
modified from time to time, as required by the Standby Purchase Agreement dated
October 15, 1996 between the Company and Friedman's Inc.
The term "Subsidiary," with respect to any Person, shall mean
any corporation or partnership (including any joint venture) at least 50% of
the outstanding shares of voting stock or similar interest of which are owned,
directly or indirectly, by such Person.
The term "this Agreement" shall mean this Conversion Agreement
(including any Exhibits and Schedules), as it may from time to time be amended,
supplemented or modified in accordance with its terms.
Section 3.2 DIRECTLY OR INDIRECTLY. Any provision in this
Agreement referring to action to be taken by any Person, or that such Person is
prohibited from taking, shall be applicable whether such action is taken
directly or indirectly by such Person.
Section 3.3 ACCOUNTING TERMS. All accounting terms used herein
that are not otherwise expressly defined shall have the respective meanings
given to them in accordance with generally accepted accounting principles at
the particular time.
Section 3.4 GOVERNING LAW. This Agreement and the Notes shall be
governed by and construed in accordance with the law of the State of Georgia.
Section 3.5 HEADINGS. The headings of the Sections and other
subdivisions of this Agreement have been inserted for convenience of reference
only and shall not be deemed to constitute a part hereof.
Section 3.6 INDEPENDENCE OF COVENANTS. Each covenant made by the
Company or CJI herein is independent of each other covenant so made. The fact
that the operation of any such covenant permits a particular action to be taken
or condition to exist does not mean that such action or condition is not
prohibited, restricted or conditioned by the operation of the provisions of any
other covenant herein.
SECTION 4. MISCELLANEOUS.
Section 4.1 NOTICES.
(a) All communications under this Agreement shall be in
writing and shall be delivered or mailed to the address set forth below, or at
such other address as furnished in writing.
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<PAGE> 16
If to the Holder:
Friedman's Inc.
4 West State Street
Savannah, Georgia 31401
Attn: Robert S. Morris
If to the Company:
Crescent Jewelers
315 11th Street
Oakland, California 94607
If to CJI:
Crescent Jewelers, Inc.
315 11th Street
Oakland, California 94607
(b) Any written communication so addressed and mailed by
certified mail, return receipt requested, shall be deemed to have been given
when so mailed. All other written communications shall be deemed to have been
given upon receipt thereof.
Section 4.2 SURVIVAL. All representations, warranties and
covenants made by the Company or CJI herein or by the Company, CJI or any
Subsidiary in any certificate or other instrument delivered under or in
connection with this Agreement shall be considered to have been relied upon by
the Holder and shall survive the delivery to the Holder of the Common Stock (or
Other Securities) regardless of any investigation made by the Holder or on its
behalf. All statements in any such certificate or other instrument shall
constitute representations and warranties of the Company or CJI hereunder.
Section 4.3 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon the parties hereto and their respective successors and assigns,
and shall inure to the benefit of and be enforceable by the parties hereto and
their respective successors and assigns permitted hereunder.
Section 4.4 AMENDMENT AND WAIVER. This Agreement may be amended
or supplemented, and the observance of any term hereof or thereof may be
waived, with the written consent of the Company, CJI and the Holder. Any
amendment or waiver effected in accordance with this Section 4.4 shall be
binding upon each holder of any Note at the time outstanding, each future
holder of any Note, the Company and CJI.
Section 4.5 COUNTERPARTS. This Agreement may be executed and
delivered to you simultaneously in one or more counterparts, each of which
shall be deemed an original, but all such counterparts shall together
constitute but one and the same instrument.
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<PAGE> 17
IN WITNESS WHEREOF, the undersigned have caused their names to be
signed hereto by the respective officers thereunto duly authorized as of the
day and year first above written.
CRESCENT JEWELERS (THE "COMPANY")
By: /s/ Joseph M. Donaghy
----------------------------------------
Joseph M. Donaghy
Chief Financial Officer
CRESCENT JEWELERS, INC. ("CJI")
By: /s/ Joseph M. Donaghy
----------------------------------------
Joseph M. Donaghy
Chief Financial Officer
FRIEDMAN'S INC. (THE "HOLDER")
By: /s/ Robert S. Morris
----------------------------------------
Robert S. Morris
President and Chief Operating Officer
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<PAGE> 1
EXHIBIT 10.6
CRESCENT JEWELERS INC.
REGISTRATION RIGHTS AGREEMENT
October 15, 1996
<PAGE> 2
TABLE OF CONTENTS
Page
----
1. Registration Rights .......................................... 2
1.1 Definitions .......................................... 2
1.2 Request for Registration .............................. 3
1.3 Company Registration .................................. 5
1.4 Obligations of the Company ............................ 5
1.5 Furnish Information ................................... 6
1.6 Expenses of Demand Registration ....................... 7
1.7 Expenses of Company Registration ...................... 7
1.8 Underwriting Requirements ............................. 7
1.9 Indemnification ....................................... 8
1.10 Reports Under Securities Exchange Act of 1934 ......... 10
1.11 Assignment of Registration Rights ..................... 11
1.12 Limitations on Subsequent Registration Rights ......... 11
1.13 "Market Stand-Off" Agreement .......................... 11
1.14 Termination of Registration Rights .................... 12
2. Miscellaneous ................................................ 12
2.1 Successors and Assigns ................................ 12
2.2 Governing Law ......................................... 13
2.3 Counterparts .......................................... 13
2.4 Titles and Subtitles .................................. 13
2.5 Notices ............................................... 13
2.6 Expenses .............................................. 13
2.7 Amendments and Waivers ................................ 13
2.8 Severability .......................................... 13
2.9 Aggregation of Stock .................................. 14
2.10 Entire Agreement; Amendment; Waiver ................... 14
Schedule A Schedule of Investors
i
<PAGE> 3
EXHIBIT 10.6
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of the 15th day of October,
1996, by and between Crescent Jewelers Inc., a Delaware corporation (the
"Company"), and the investors listed from time to time on Schedule A hereto,
each of which is herein referred to as an "Investor."
RECITALS
WHEREAS, the Company's subsidiary (the "Subsidiary") and the Investors
have previously entered into: (i) the 9% Convertible Subordinated Note Purchase
Agreement due April 15, 2000, as amended by a First Amendment thereto dated as
of July 19, 1994 (the "9% Note"), (ii) an Indenture, dated as of January 15,
1989, as amended by a First Supplemental Indenture dated as of July 14, 1994
(the "14 1/2% Indenture"), relating to the issuance of the Company's 14 1/2%
Senior Subordinated Notes due in 1999, and/or (iii) an Indenture dated as of
January 15, 1989, as amended by a First Supplemental Indenture dated as of July
14, 1994 (the "13 1/2% Indenture") relating to the issuance of the Company's 13
1/2% Senior Subordinated Note due in 1999 (the "Financing Documents");
WHEREAS, in connection with the restructuring of the Subsidiary's debt,
the Subsidiary, the Investors and/or the Company have or will enter into: (i)
the Convertible Note Purchase Agreement relating to up to $8 million in
aggregate principal amount of the Subsidiary's 10% Convertible Notes (the "10%
Note"), (ii) the $20 million Convertible Note of even date herewith (the "$20
million Note"), (iii) the Conversion Agreement of even date herewith relating
to $5 million in aggregate principal amount of the 10% Note and the $20 million
Note (the "Conversion Agreement"), (iv) the Second Amendment to the 9% Note of
even date herewith, (v) the Second Supplemental Indenture to the 13 1/2%
Indenture of even date herewith, (vi) the Second Supplemental Indenture to the
14 1/2% Indenture of even date herewith, (vii) the Interest Repayment Agreement
of even date herewith relating to the 13 1/2% and 14 1/2% Indentures and the 9%
Note and (viii) warrants to purchase up to 407,000 shares of Class A Common
Stock (subject to adjustment as set forth therein) issued as of the date hereof
(the "Warrants") to certain of the Investors (the "Refinancing Transaction");
WHEREAS, in order to induce the Investors to enter into the Refinancing
Transaction, the Investors and the Company hereby agree that this Agreement
shall govern the rights of the Investors to cause the Company to register
shares of Class A Common Stock issuable to the Investors as contemplated in the
Refinancing Transaction and certain other matters as set forth herein;
<PAGE> 4
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights.
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Class A Common Stock" means the Class A Common Stock, $.01
par value, of the Company.
(c) The term "Form S-3" means such form under the Act as in effect on the
date hereof or any registration form under the Act subsequently adopted by the
SEC which permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.13 hereof.
(e) The term "1934 Act" shall mean the Securities Exchange Act of 1934,
as amended.
(f) The term "register", "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(g) The term "Registrable Securities" means (1) (a) the Class A Common
Stock issued upon conversion of the 10% Note, (b) the Class A Common Stock
issued upon conversion of the $20 million Note, (c) the Class A Common Stock
issued upon conversion of the 9% Note, (d) the Class A Common Stock issued
pursuant to Section III (f) of the Second Amendment to the 9% Note, (e) the
Class A Common Stock issued pursuant to Section III (f) of the Second
Supplemental Indenture to the 14 1/2% Indenture, (f) the Class A Common Stock
issued pursuant to Section III (f) of the Second Supplemental Indenture to the
13 1/2% Indenture, (g) the Class A Common Stock issued pursuant to the Interest
Repayment Agreement, (h) the Class A Common Stock issued pursuant to the
Conversion Agreement and (i) the Class A Common Stock issued upon exercise of
the Warrants and (2) any Class A Common Stock of the Company issued as a
dividend or other distribution with respect to, or in exchange for or in
replacement of the shares referenced in (1) above, excluding in all cases,
however, any Registrable Securities sold by a person in a transaction in which
his rights under this Section 1 are not assigned.
2
<PAGE> 5
(h) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Registrable Securities
outstanding and the number of shares of Registrable Securities issuable
pursuant to then exercisable or convertible securities.
(i) The term "SEC" shall mean the Securities and Exchange Commission.
(j) "Friedmans" shall mean Friedman's Inc., a Delaware corporation, and
its successors and permitted assigns.
(k) "Teachers" shall mean Teachers Insurance and Annuity Association of
America, and its successors and permitted assigns.
1.2 Request for Registration.
(a) If the Company shall receive at any time after the earlier of (i)
December 31, 1999 or (ii) six (6) months after the effective date of the first
registration statement for a public offering of securities of the Company
(other than a registration statement relating either to the sale of securities
to employees of the Company pursuant to a stock option, stock purchase or
similar plan or a SEC Rule 145 transaction), a written request, given in
accordance with Section 2.5 hereof, from either Friedmans or Teachers (provided
that each of such persons shall be entitled to only one such request on its
own) that the Company file a registration statement under the Act covering the
registration of at least twenty-five percent (25%) of the Registrable
Securities then outstanding (or any lesser percent if the anticipated aggregate
offering price, net of underwriting discounts and commissions, would exceed
$7,500,000), then the Company shall:
(i) within ten (10) days of the receipt thereof, give written
notice, in accordance with Section 2.5 hereof, of such request to all Holders;
and
(ii) effect as soon as practicable, and in any event within 60 days
of the receipt of such request, the registration under the Act of all
Registrable Securities which the Holders request to be registered, subject to
the limitations of subsection 1.2(b), within twenty (20) days of the mailing of
such notice by the Company in accordance with Section 2.5.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to subsection 1.2(a) and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be a reputable nationally or regionally
recognized firm selected by a majority in interest of the Initiating Holders
and reasonably acceptable to the Company. In such event, the right of any
Holder to include his Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided
3
<PAGE> 6
herein. All Holders proposing to distribute their securities through such
underwriting shall (together with the Company as provided in subsection 1.4(e))
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting. Notwithstanding any other
provision of this Section 1.2, if the underwriter advises the Initiating Holders
in writing that the inclusion of Registrable Securities in such underwriting
would materially and adversely affect such underwriting, then the Initiating
Holders shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company requested to be registered by each Holder; provided, however, that
the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
detrimental to the Company or its stockholders for such registration statement
to be filed at that time, the Company shall have the right to defer taking
action with respect to such filing for a period of not more than 120 days after
receipt of the request of the Initiating Holders; provided, however, that the
Company may not utilize this right more than once in any twelve-month period.
(d) In addition, the Company shall not be obligated to effect, or to take
any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected two registrations pursuant
to this Section 1.2 and such registrations have been declared or ordered
effective; or
(ii) During the period starting with the date sixty (60) days
prior to the Company's good faith estimate of the date of filing of, and ending
on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(e) The Company shall not effect any registration of its equity
securities (except on Form S-8 or Form S-4, or any successor forms to such
forms), whether on its own account or for the account of any Holder of
Registerable Securities from the date of a request to register Registrable
Securities pursuant to and in accordance with this Section 1.2 until the earlier
of (i) ninety (90) days after the date on which all securities covered by such
demand registration have been sold or (ii) one hundred eighty (180) days after
the effective date of such demand registration, unless the Company shall have
first notified in writing the holders of Registrable Securities covered by such
registration statement of its intention to do so, and the holders of a
4
<PAGE> 7
majority of such Registrable Securities or the managing underwriter, if
any, shall have consented thereto in writing.
1.3 Company Registration. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely
to the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities) the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company in accordance with Section 2.5, the Company shall,
subject to the provisions of Section 1.8, cause to be registered under the Act
all of the Registrable Securities that each such Holder has requested to be
registered.
1.4 Obligations of the Company. Whenever required under this Section 1
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect
to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred eighty (180)
days or until the distribution contemplated in the Registration Statement has
been completed.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required
by the Act.
5
<PAGE> 8
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Furnish the Holder, its special counsel and each managing
underwriter, if any, without charge, at least one conformed copy of the
registration statement and each post-effective amendment thereto, including
financial statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits (including those previously
furnished or incorporated by reference).
(h) Use its best efforts to cause all Registrable Securities covered by
such registration statement to be (i) listed on each securities exchange, if
any, on which equity securities issued by the Company are then listed, or (ii)
authorized to be quoted on Nasdaq or the Nasdaq National Market if the
securities so qualify; in each case, if requested by the holders of a majority
of the Registrable Securities covered by such registration statement or the
managing underwriters, if any.
1.5 Furnish Information.
(a) It shall be a condition precedent to the obligations of the Company
to take any action pursuant to this Section 1 with respect to the Registrable
Securities of any selling Holder that such Holder shall furnish to the Company
such information regarding itself, the Registrable Securities held by it, and
the intended method of disposition of such securities as shall be required to
effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any registration
requested pursuant to Section 1.2 if, due to the operation of subsection 1.5(a),
the number of shares or the anticipated aggregate offering price of the
Registrable Securities to be included in the registration does not equal or
exceed the number of shares or the anticipated aggregate offering price required
to originally trigger the Company's obligation to initiate such registration
as specified in subsection 1.2(a). If a registration requested pursuant to
Section 1.2 is withdrawn pursuant to this provision, such request shall not be
deemed forfeited.
6
<PAGE> 9
1.6 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company
(including fees and disbursements of counsel for the Company in its capacity as
counsel to the selling Holders hereunder; if Company counsel does not make
itself available for this purpose, the Company will pay the reasonable fees and
disbursements of one counsel for the selling Holders selected by them) shall be
borne by the Company; provided, however, that the Company shall not be required
to pay for any expenses of any registration proceeding begun pursuant to Section
1.2 if the registration request is subsequently withdrawn at the request of the
Holders of a majority of the Registrable Securities to be registered (in which
case all participating Holders shall bear such expenses), unless the Holders of
a majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 1.2.
1.7 Expenses of Company Registration. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to Section
1.3 for each Holder (which right may be assigned as provided in Section 1.12),
including (without limitation) all registration, filing, and qualification fees,
printers and accounting fees relating or apportionable thereto and the fees and
disbursements of counsel for the Company in its capacity as counsel to the
selling Holders hereunder; if Company counsel does not make itself available for
this purpose, the Company will pay the reasonable fees and disbursements of one
counsel for the selling Holders selected by them, but excluding underwriting
discounts and commissions relating to Registrable Securities.
1.8 Underwriting Requirements. In connection with any offering involving
an underwriting of shares of the Company's capital stock, the Company shall not
be required under Section 1.3 to include any of the Holders' securities as the
underwriters determine in their reasonable discretion will not jeopardize the
success of the offering by the Company. Notwithstanding anything to the
contrary herein, the Company shall not be required under Section 1.3 to include
any of the Holders' securities in its initial underwritten offering of equity
securities registered under the Act so long as no stockholders of the Company
are participating in such offering. If the underwriters advise the Company in
writing that marketing factors require a limitation of the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
which the underwriters determine in their reasonable discretion will not
jeopardize the success of the offering (the securities so included to be
apportioned pro rata among the selling stockholders according to the total
amount of securities requested to be included therein by each selling
Stockholder or in such other proportions as shall mutually be agreed to by such
selling stockholders). For purposes of the preceding parenthetical concerning
apportionment, for any selling stockholder which is a holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners and stockholders of such holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
7
<PAGE> 10
the foregoing persons shall be deemed to be a single "selling stockholder", and
any pro-rata reduction with respect to such "selling stockholder" shall be
based upon the aggregate amount of shares carrying registration rights owned by
all entities and individuals included in such "selling stockholder", as defined
in this sentence.
1.9 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, any underwriter (as defined in the Act) for such Holder,
each person, if any, who controls such Holder or underwriter within the meaning
of the Act or the 1934 Act, and each officer, director, employee and agent of
such Holder or underwriter against any losses, claims, damages, or liabilities
(joint or several) to which they may become subject under the Act, the 1934 Act
or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation") by the Company: (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, the 1934 Act or any state securities law;
and the Company will pay to each such Holder, underwriter or controlling
person, as incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.9(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter, controlling person, officer,
director, employee or agent.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
has signed the registration statement, each person, if any, who controls the
Company within the meaning of the Act, any underwriter, any other Holder selling
securities in such registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages, or liabilities
(joint or several) to which any of the foregoing persons may become subject,
under the Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereto) arise
out of or are based upon any Violation, in each case to the extent (and only to
the extent) that such Violation is an act of such Holder or occurs in reliance
upon and in conformity with written information furnished by such Holder
expressly for use in
8
<PAGE> 11
connection with such registration; and each such Holder will pay, as incurred,
any legal or other expenses reasonably incurred by any person intended to be
indemnified pursuant to this subsection 1.9(b), in connection with investigating
or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this subsection 1.9(b) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Holder, which consent shall not be unreasonably withheld; provided, that, in no
event shall any indemnity under this subsection 1.9(b) exceed the gross proceeds
from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section 1.9
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 1.9, deliver to the indemnifying party
a written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party (together with all other indemnified parties
which may be represented without conflict by one counsel) shall have the right
to retain one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall to
such extent relieve such indemnifying party of any liability to the indemnified
party under this Section 1.9, but the omission so to deliver written notice to
the indemnifying party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 1.9.
(d) If the indemnification provided for in this Section 1.9 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the
other in connection with the statements, omissions or act that resulted in such
loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the Violation relates to information supplied or action taken or not
taken by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information, and opportunity to correct
or prevent such Violation.
9
<PAGE> 12
(e) The obligations of the Company and Holders under this Section 1.9
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.10 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration, the
Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Act and the 1934 Act (at any time after it
has become subject to such reporting requirements), (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration.
1.11 Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Section 1 may be assigned
(but only with all related obligations) by a Holder to a transferee or assignee
of such securities who, after such assignment or transfer, holds at least
50,000 shares of Registrable Securities (subject to appropriate adjustment for
stock splits, stock dividends, combinations and other recapitalizations),
provided: (a) the Company is, within a reasonable time after such transfer,
furnished with written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned; (b) such transferee or assignee agrees in writing to be bound by
and subject to the terms and conditions of this Agreement, including without
limitation the provisions of Section 1.13 below; and (c) such assignment shall
be effective only if immediately following such transfer the further disposition
of such securities by the transferee or assignee is restricted under the Act.
For the purposes of determining the number of shares of Registrable Securities
held by a transferee or assignee, the holdings of transferees and assignees of a
partnership who are partners or retired partners of such partnership (including
spouses and ancestors, lineal descendants and siblings of such partners or
spouses who acquire Registrable Securities by gift, will or intestate
succession) shall be aggregated together and with the partnership; provided that
all assignees and transferees who would not qualify individually for
10
<PAGE> 13
assignment of registration rights shall have a single attorney-in-fact for the
purpose of exercising any rights, receiving notices or taking any action under
this Section 1.
1.12 Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any
securities of the Company which would allow such holder or prospective holder
(a) to include such securities in any registration filed under Section 1.2
hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of his securities will not reduce the amount of the
Registrable Securities of the Holders which is included or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of either of the dates set forth in subsection
1.2(a) or within one hundred twenty (120) days after the effective date of any
registration effected pursuant to Section 1.2.
1.13 "Market Stand-Off" Agreement. Each Holder hereby agrees that,
during the period of duration specified by the Company and an underwriter of
common stock or other securities of the Company, following the effective date of
a registration statement of the Company filed under the Act, it shall not, to
the extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except common stock included in such
registration; provided, however, that:
(a) such agreement shall be applicable only to the first two such
registration statements of the Company which covers common stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
(b) all officers and directors of the Company and all other persons with
registration rights (whether or not pursuant to this Agreement) enter into
similar agreements as requested by the Company and an underwriter;
(c) such market stand-off time period shall not exceed 180 days; and
(d) such agreement shall be inapplicable to any Holder which,
immediately prior to such effective date, beneficially owned less than one
percent (1%) of the outstanding common stock of the Company.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
11
<PAGE> 14
Notwithstanding the foregoing, the obligations described in this Section
1.14 shall not apply to a registration relating solely to employee benefit
plans on Form S-8 or similar forms which may be promulgated in the future, or a
registration relating solely to a Commission Rule 145 transaction on Form S-4
or similar forms which may be promulgated in the future.
1.14 Termination of Registration Rights.
(a) No Holder shall be entitled to exercise any right provided for in
this Section 1 with respect to Registrable Securities that are capable of being
sold pursuant to Rule 144(k), or any successor Rule thereto, under the
Securities Act.
(b) In addition, the right of any Holder to request registration or
inclusion in any registration pursuant to Section 1.3 shall terminate if all
shares of Registrable Securities held or entitled to be held upon conversion by
such Holder may be sold under Rule 144 during any 90-day period.
2. Miscellaneous.
2.1 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
2.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Delaware as applied to agreements among Delaware
residents entered into and to be performed entirely within Delaware.
2.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
2.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon delivery to the party to be notified either in person or
through a next business day delivery service or upon deposit with the United
States Post Office, by registered or certified mail, postage prepaid and
addressed to the party to be notified at the address indicated for such party
on the signature page
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<PAGE> 15
hereof, or at such other address as such party may designate by ten (10)
days' advance written notice to the other parties.
2.6 Expenses. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
2.7 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
2.8 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
2.9 Aggregation of Stock. All shares of Registrable Securities held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
2.10 Entire Agreement; Amendment; Waiver. This Agreement (including the
Exhibits hereto, if any) constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
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<PAGE> 16
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
CRESCENT JEWELERS INC.,
a Delaware corporation
By: /s/ Joseph M. Donaghy
-----------------------------------
Address: 315 11th Street
Oakland, CA 94607
INVESTOR:
FRIEDMANS INC.
By: /s/ John G. Call
-----------------------------------
Its: Senior Vice President and
----------------------------------
Chief Financial Officer
----------------------------------
Address: 4 West State Street
------------------------------
Savannah, GA 31401
------------------------------
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: /s/ Estelle D. Simsolo
----------------------------------
Its: Director - Special Loans
----------------------------------
Address: 730 Third Avenue
------------------------------
New York, NY 10017-3206
------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 17
CHRYSLER CAPITAL CORPORATION
By: /s/ Michael O. Peterson
----------------------------------
Its: Vice President
---------------------------------
Address: 225 High Ridge Road
-----------------------------
Stamford, CT 06905
-----------------------------
CS FIRST BOSTON
SECURITIES CORPORATION
By: /s/
---------------------------------
Its: Vice President
---------------------------------
Address: 555 52nd Street
-----------------------------
New York, NY 10055
-----------------------------
THE TRAVELERS INSURANCE COMPANY
By: /s/ A. William Carnduff
----------------------------------
Its: 2nd Vice President
---------------------------------
Address: One Tower Square
-----------------------------
Hartford, CT 06183-2030
-----------------------------
THE TRAVELERS INDEMNITY COMPANY
By: /s/ A. William Carnduff
----------------------------------
Its: 2nd Vice President
---------------------------------
Address: One Tower Square
-----------------------------
Hartford, CT 06183-2030
-----------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 18
THE TRAVELERS LIFE AND
ANNUITY COMPANY
By: /s/ H. William Carnduff
----------------------------------
Its: 2nd Vice President
---------------------------------
Address: One Tower Square
-----------------------------
Hartford, CT 06183-2030
-----------------------------
ADDITIONAL PURCHASERS OF THE 10% NOTE SHALL
BE ADDED AS SIGNATORIES UPON THEIR
EXECUTION OF THE NOTE PURCHASE AGREEMENT
RELATING THERETO
The undersigned has read and hereby
consents to the foregoing Registration
Rights Agreement.
CRESCENT JEWELERS, a California corporation
and a wholly-owned subsidiary of the
Company and debtor with respect to each of
the debt securities referred to herein
By: /s/ Joseph M. Donaghy
-------------------------------------
315 11th Street
Oakland, CA 94607
[Signature Page to Registration Rights Agreement]
<PAGE> 19
Schedule A
Schedule of Investors
<TABLE>
<CAPTION>
NAME OF INVESTOR SECURITY HELD
<S> <C>
FRIEDMANS INC. 10% Note
4 West State Street $20 million Note
Savannah, Georgia 31401
(912) 233-9333 (tel)
(912) 234-1031 (fax)
TEACHERS INSURANCE AND
ANNUITY ASSOCIATION
OF AMERICA 9% Note
730 Third Avenue 13 1/2% Note
New York, NY 10017-3206 14 1/2% Note
(212) 916-5725 (tel) Warrants
(212) 916-6140 (fax)
CHRYSLER CAPITAL CORPORATION 14 1/2% Note
225 High Ridge Road Warrants
Stamford, CT 06905-3000
(203) 975-3355 (tel)
(203) 975-3907 (fax)
CS FIRST BOSTON SECURITIES CORPORATION 14 1/2% Note
55 East 52nd Street Warrants
New York, NY 10055
(212) 909-2000 (tel)
(212) 318-0659 (fax)
The Travelers Insurance Company 14 1/2% Note
The Travelers Indemnity Company Warrants
The Travelers Life and Annuity Company
c/o Travelers
Insurance Company
Travelers Plaza Building, 9th Floor
Hartford, CT 06183-0001
(203) 279-9510 (tel)
(203) 954-5243 (fax)
ADDITIONAL PURCHASERS OF THE 10% NOTE WILL 10% Note
"INVESTORS" UPON THEIR EXECUTION OF THE
NOTE PURCHASE AGREEMENT RELATING THERETO
</TABLE>
