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EXHIBIT 10.5
Execution Copy
CONVERSION AGREEMENT
This Conversion Agreement, dated as of October 15, 1996, is by and
among Xxxxxxxx'x 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
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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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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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(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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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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The term "Holder" shall mean Xxxxxxxx'x 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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The term "Senior Note" shall mean the Loan and Security
Agreement dated as of October 15, 1996 between the Company and Xxxxxxxx'x 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 Xxxxxxxx'x 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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If to the Holder:
Xxxxxxxx'x Inc.
0 Xxxx Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxxx 00000
Attn: Xxxxxx X. Xxxxxx
If to the Company:
Crescent Jewelers
000 00xx Xxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
If to CJI:
Crescent Jewelers, Inc.
000 00xx Xxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
(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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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/ Xxxxxx X. Xxxxxxx
----------------------------------------
Xxxxxx X. Xxxxxxx
Chief Financial Officer
CRESCENT JEWELERS, INC. ("CJI")
By: /s/ Xxxxxx X. Xxxxxxx
----------------------------------------
Xxxxxx X. Xxxxxxx
Chief Financial Officer
XXXXXXXX'X INC. (THE "HOLDER")
By: /s/ Xxxxxx X. Xxxxxx
----------------------------------------
Xxxxxx X. Xxxxxx
President and Chief Operating Officer
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