EXHIBIT 4.1.1
EXECUTION COPY
CONVERTIBLE DEBENTURE EXCHANGE AGREEMENT
This CONVERTIBLE DEBENTURE EXCHANGE AGREEMENT ("Agreement") is made and
entered into as of this 2nd day of January, 2004, by and among Special
Situations Private Equity Fund, L.P., Special Situations Cayman Fund, L.P.,
Special Situations Fund III, L.P., Xxxxxx Xxxxxx, The Crown Advisors, LLC, Crown
Investment Partners, L.P., and SWB Holdings, Inc. (each of which may sometimes
be referred to herein as an "Exchangor" and all of which may sometimes be
referred to herein as the "Exchangors") and Bakers Footwear Group, Inc., a
Missouri corporation ("the Company").
RECITALS
WHEREAS, each Exchangor is the holder of a Subordinated Convertible
Debenture, dated April 2, 2002, of the Company (collectively, the "2002
Debentures") pursuant to a Debenture Purchase Agreement, dated as of April 4,
2002 among the Company and the Exchangors (the "Debenture Purchase Agreement");
WHEREAS, the Debenture Purchase Agreement by its terms provides that it
may be amended only by a writing signed by the Company and the Required
Purchasers (as defined therein), and this Agreement is intended to modify,
effective as of the date hereof and without retroactive effect, the Company's
continued covenants and agreements under the Debenture Purchase Agreement so
that such covenants and agreements apply only to the New Debentures (as defined
below) without duplication and without affecting any rights, powers or
obligations of a Purchaser existing on the date hereof with respect to the 2002
Debentures;
WHEREAS, in connection with entering into the Debenture Purchase
Agreement and the making and issuance of the 2002 Debentures by the Company, the
parties to the Debenture Purchase Agreement entered into a Registration Rights
Agreement, dated April 4, 2002 (the "2002 Registration Rights Agreement");
WHEREAS, in connection with the foregoing, the Company, Fleet Retail
Finance Inc. ("Fleet") and each of the Purchasers entered into a separate
Intercreditor and Subordination Agreement, dated as of April 4, 2002
(collectively, the "2002 Intercreditor Agreements"), whereby each Purchaser, as
Subordinated Creditor, among other things, acknowledged that the 2002 Debenture
held by such Purchaser would be subordinate in order of priority of payment to
all loans made by Fleet to the Company pursuant to the Loan and Security
Agreement, dated as of January 18, 2000, between the Company and Fleet;
WHEREAS, the Company will derive substantial benefits from exchanging
all of the 2002 Debentures for new convertible debentures, dated as of the date
hereof, in the form of Exhibit A hereto and having the terms described herein
(each, a "New Debenture") and from modifying or ratifying the terms, subject to
certain conditions, of the 2002 Registration Rights Agreement and the 2002
Intercreditor Agreements (collectively, the "2002 Agreements");
WHEREAS, the Exchangors desire to exchange their 2002 Debentures for
New Debentures and to modify and restate the 2002 Agreements, subject to certain
conditions, on the terms and conditions set forth in this Agreement; and
WHEREAS, on December 4, 2003, the Company filed Pre-Effective Amendment
No. 2 to its Registration Statement on Form S-1 (No. 333-86322, the
"Registration Statement") with the Securities and Exchange Commission in
connection with the Company's planned firm commitment initial public offering of
shares of its common equity (but not including any of the Debenture Shares (as
defined below)).
NOW, THEREFORE, in consideration of the premises and the agreements set
forth below, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
SECTION 1. EXCHANGE
1.1. The Exchange. Upon the terms and subject to the conditions of
this Agreement, at the Closing (as defined herein), each Exchangor shall
transfer and convey to the Company for cancellation the 2002 Debenture held by
such Exchangor, and the Company shall acquire from each Exchangor and cancel
such 2002 Debenture, and in exchange therefor shall issue a New Debenture equal
in aggregate principal amount to the unpaid principal amount of the 2002
Debenture so exchanged. No payment of accrued but unpaid interest to and
including the date of the Closing shall be paid on the 2002 Debentures so
exchanged at the Closing, but the New Debentures shall provide for the payment
without duplication of such interest for the entire quarterly period ended March
31, 2004.
1.2. Closing. The closing is anticipated to take place on the date
hereof, at the offices of Xxxxx Xxxx LLP, One Metropolitan Square, Suite 3600,
St. Louis, Missouri or on such other date and at such other place as the parties
may agree in writing ("Closing"). At Closing, each Exchangor shall deliver or
cause to be delivered to the Company the 2002 Debenture held by such Exchangor,
and the Company shall cancel such 2002 Debenture and issue in its place a New
Debenture equal in aggregate principal amount to the unpaid principal amount of
the 2002 Debenture so delivered, to the Exchangor.
1.3. Other Agreements. At Closing, the Company and the Exchangors
shall enter into the Second Registration Rights Agreement and the Amended and
Restated Intercreditor and Subordination Agreements, each substantially in the
form attached to this Agreement as Exhibit B and Exhibit C, respectively.
1.4. Closing Deliveries. At Closing, the following documents shall
be delivered:
(a) The New Debentures;
(b) The 2002 Debentures;
(c) The Second Registration Rights Agreement;
(d) The Amended and Restated Intercreditor and
Subordination Agreements;
(e) The Lock-Up Agreements in the form attached as
Exhibit B to the Second Registration Rights
Agreement;
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(f) A Certificate, executed on behalf of the Company by
its Secretary, dated as of the Closing Date,
certifying the resolutions adopted by the Board of
Directors of the Company approving the transactions
contemplated by this Agreement and the other
Transaction Documents and the issuance and exchange
of the New Debentures for the 2002 Debentures,
certifying the current versions of the Articles of
Incorporation and Bylaws of the Company and
certifying as to the signatures and authority of
persons signing the Transaction Documents and related
documents on behalf of the Company; and
(g) An opinion from Xxxxx Xxxx LLP, the Company's
counsel, dated as of the Closing Date, in
substantially the form of Exhibit D attached hereto.
SECTION 2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
In order to induce the Exchangors to enter into this Agreement and to
exchange the 2002 Debentures for New Debentures, the Company hereby represents,
warrants and agrees that, except as disclosed in the Registration Statement.
2.1. Corporate Status. The Company (i) has been duly organized and
is a validly existing corporation in good standing under the laws of the State
of Missouri; (ii) has the power and authority (corporate and other) to own its
property and assets and to transact the business in which it is engaged; and
(iii) is duly qualified as a foreign corporation and in good standing in each
jurisdiction where the ownership, leasing or operation of property or the
conduct of its business requires such qualification. The Company does not own,
directly or indirectly, any equity interest in any other Person.
2.2. Power and Authority; Legal Capacity. The Company has the power
and authority (corporate and other) to execute, deliver and perform the terms
and provisions of the Transaction Documents and to issue and exchange the
Securities and has taken all necessary corporate action to authorize the
execution, delivery and performance by it of each of this Agreement and the New
Debentures. The Company has duly executed and delivered the Transaction
Documents, and each Transaction Document constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms.
2.3. Issuance of Securities. The Debenture Shares have been duly
authorized and reserved for issuance and, upon the due conversion of the New
Debentures, the Debenture Shares shall be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances; provided, however,
that the Debenture Shares may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein or as otherwise required by
such laws at the time a transfer is proposed. The issuance and sale of the
Securities is not subject to any preemptive rights, rights of first refusal or
other similar rights.
2.4. Issuance. Assuming the accuracy of the representations and
warranties of the Exchangors contained in Section 3 hereof, the issuance and
exchange of the Securities is and will be exempt from the registration and
prospectus delivery requirements of the 1933 Act, and have been
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registered or qualified (or are exempt from registration and qualification)
under the registration, permit, or qualification requirements of all applicable
state securities laws.
2.5. No Conflict or Violation. The execution and delivery of the
Transaction Documents by the Company, the performance by the Company of its
obligations thereunder (including the issuance and exchange of the Securities)
does not (i) conflict with or violate the Articles of Incorporation or By-laws
of the Company (both as in effect as of the date hereof, true and complete
copies of which have been delivered to the Exchangors), (ii) result in a breach
or violation of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any properties or assets of the Company under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company is a party or by which the Company is bound or to which any of
the properties or assets of the Company is subject, or (iii) violate any
statute, rule, regulation or other law, or any order or judgment, of any court
or governmental agency or body having jurisdiction over the Company or any of
its properties, except, in the case of clauses (ii) and (iii) only, to such
extent as, individually or in the aggregate, does not and could not reasonably
be expected to have a Material Adverse Effect, provided that the Company is
required to obtain, and has received, written consent to the exchange of the New
Debentures hereunder from the lender under the Company's revolving credit
facility. No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the execution, delivery and performance of this Agreement, the
Second Registration Rights Agreement, or the New Debentures, or the issuance of
common stock pursuant to the New Debentures, or the consummation of the
transactions contemplated hereby or thereby, other than as referred to in
Sections 2.3 and 2.4.
2.6. Financial Statements. Included in the Registration Statement
are (i) the audited balance sheets of the Company as of January 5, 2002 and
January 4, 2003 and the related statements of operations, shareholders' equity
(deficit), and cash flows for the two fiscal years ended January 4, 2003, and
all notes and schedules thereto and (ii) the unaudited balance sheets of the
Company as of October 5, 2002 and October 4, 2003 and the related unaudited
statements of operations, shareholders' equity (deficit), and cash flows for the
nine-month periods then ended (collectively, the "Financial Statements"). The
Financial Statements for each of the two fiscal years in the period ended
January 4, 2003 have been audited by Ernst & Young, LLP. The Financial
Statements (i) are true, complete, and correct, (ii) present fairly, in all
material respects, the financial position, results of operations, and cash flows
of the Company at the dates and for the periods indicated, and (iii) have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except that the unaudited financial statements omit notes
and certain customary year-end adjustments which should not be material in the
aggregate).
2.7. No Material Adverse Change. Since October 4, 2003, except as
identified and disclosed on Schedule 2.7, there has not been:
(a) any change in the consolidated assets, liabilities,
financial condition or operating results of the
Company from that reflected in the Financial
Statements, except for changes in the ordinary course
of business and which have not and could not
reasonably be expected to have a Material Adverse
Effect, individually or in the aggregate;
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(b) any declaration or payment of any dividend, or any
authorization or payment of any distribution, on any
of the capital stock of the Company, or any
redemption or repurchase of any securities of the
Company;
(c) any material damage, destruction or loss, whether or
not covered by insurance to any assets or properties
of the Company;
(d) any waiver, not in the ordinary course of business,
by the Company of a material right or of a material
debt owed to it;
(e) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the
Company, except for those done in the ordinary course
of business and which have not or could not
reasonably be expected to have a Material Adverse
Effect, individually or in the aggregate;
(f) any change or amendment to the Company's Articles of
Incorporation or by-laws, or material change to any
material contract or arrangement by which the Company
is bound or to which any of its assets or properties
is subject;
(g) any material labor difficulties or labor union
organizing activities with respect to employees of
the Company;
(h) any material transaction entered into by the Company
other than in the ordinary course of business;
(i) the loss of the services of any key employee, or
material change in the composition or duties of the
senior management of the Company;
(j) the loss or threatened loss of any customer which has
had or could reasonably be expected to have a
Material Adverse Effect; or
(k) any other event or condition of any character that
has had or could reasonably be expected to have a
Material Adverse Effect.
2.8. Broker and Finder. The Company has not engaged, and owes no
payment or success fee to, any broker or finder in connection with the issuance
and exchange of the New Debentures, including without limitation any commission
or other remuneration paid directly or indirectly for soliciting such exchange.
2.9. Capitalization. The authorized capital stock of the Company
consists solely of 3,000,000 shares of Class A common stock, par value $0.001
per share, 500,000 shares of Class B common stock, par value $0.001 per share,
and 1,500,000 shares of Class C common stock, par value $0.001 per share, of
which 1,693,244.92 shares of Class A common stock, 271,910 shares of Class B
common stock and no shares of Class C common stock are outstanding as of the
date hereof (collectively, the issued and outstanding Class A common stock,
Class B common stock and Class C common stock are referred to herein as the
"Shares"). All the Shares were duly authorized and validly issued and are fully
paid and nonassessable, and were issued in compliance with applicable law and
any preemptive, subscription or other similar rights which have not been waived.
Except as contemplated by this Agreement or on Schedule 2.9, there are no
outstanding warrants,
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options, convertible securities or other rights, agreements or arrangements of
any character under which the Company is or may be obligated to issue any equity
securities of any kind and the Company is not currently in negotiations for the
issuance of any equity securities of any kind. Except as disclosed on Schedule
2.9 and except for the Second Registration Rights Agreement and the 2002
Registration Rights Agreement, there are no voting agreements, buy-sell
agreements, option or right of first purchase agreements or other agreements of
any kind among the Company and any of the securityholders of the Company
relating to the securities of the Company held by them. Except as disclosed on
Schedule 2.9 and except for the Second Registration Rights Agreement and the
2002 Registration Rights Agreement, the Company has not granted any Person the
right to require the Company to register any securities of the Company under the
1933 Act, whether on a demand basis or in connection with the registration of
securities of the Company for its own account or for the account of any other
Person. The issuance and sale of the Securities will not result in any
antidilution or similar adjustment in any outstanding securities of the Company.
Except as disclosed on Schedule 2.9, the Company does not have outstanding
shareholder purchase rights or any similar arrangement in effect giving any
Person the right to purchase any equity interest in the Company upon the
occurrence of certain events.
2.10. S Election. The Company has made a valid election to be
treated as an S Corporation within the meaning of Section 1361 of the Internal
Revenue Code, and such election has been in effect for each taxable year of the
Company commencing January 1, 1984. The Company has qualified and will qualify
as an S Corporation at all times from the effective date of election up to and
including the date hereof.
2.11. Tax Matters. The Company has timely prepared and filed all tax
returns required to have been filed by the Company with all appropriate
governmental agencies and timely paid all taxes shown thereon or otherwise owed
by it, except to the extent that failure to do so would not have a Material
Adverse Effect, individually or in the aggregate. Except as disclosed on
Schedule 2.11, The charges, accruals and reserves on the books of the Company in
respect of taxes for all fiscal periods are adequate in all material respects,
and there are no material unpaid assessments against the Company nor, to the
Company's Knowledge, any basis for the assessment of any additional taxes,
penalties or interest for any fiscal period or audits by any federal, state or
local taxing authority except for any assessment which is not material to the
Company. All taxes and other assessments and levies that the Company is required
to withhold or to collect for payment have been duly withheld and collected and
paid to the proper governmental entity or third party when due. There are no tax
liens or claims pending or, to the Company's Knowledge, threatened against the
Company any of its assets or property. There are no outstanding tax sharing
agreements or other such arrangements between the Company and any Subsidiary or
other corporation or entity.
2.12. Title to Properties. Except as disclosed in Schedule 2.12, the
Company has good and marketable title to all real properties and all other
properties and assets owned by it, free from liens, encumbrances and defects
that would materially affect the value thereof or materially interfere with the
use made or currently planned to be made thereof by them; and except as
disclosed in Schedule 2.12, the Company holds any leased real or personal
property under valid and enforceable leases, except to the extent that such
failure to so hold would not have a Material Adverse Effect, individually or in
the aggregate.
2.13. Certificates, Authorities and Permits. The Company possesses
all required certificates, authorities, licenses or permits issued by
appropriate governmental agencies or bodies
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necessary to conduct the business now operated by it, and the Company has not
received any notice of proceedings relating to the revocation or modification of
any such certificate, authority, license or permit that, if determined adversely
to the Company, could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate.
2.14. No Labor Disputes. No material labor dispute with the
employees of the Company exists or, to the Company's Knowledge, is imminent.
2.15. Intellectual Property. Except as disclosed in Schedule 2.15:
(a) All Intellectual Property of the Company is currently
in compliance with all legal requirements (including
timely filings, proofs and payments of fees) and is
valid and enforceable. No Intellectual Property of
the Company which is necessary for the conduct of
Company's business as currently conducted or as
currently proposed to be conducted has been or is now
involved in any cancellation, dispute or litigation,
and, to the Company's Knowledge, no such action is
threatened. No patent of the Company has been or is
now involved in any interference, reissue,
re-examination or opposition proceeding.
(b) All of the licenses and sublicenses and consent,
royalty or other agreements concerning Intellectual
Property which are necessary for the conduct of
Company's business as currently conducted or as
currently proposed to be conducted to which the
Company is a party or by which any of its assets or
properties are bound (other than generally
commercially available, non-custom, off-the-shelf
software application programs having a retail
acquisition price of less than $10,000 per license)
(collectively, "License Agreements") are valid and
binding obligations of the Company and, to the
Company's Knowledge, the other parties thereto,
enforceable in accordance with their terms, except to
the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws affecting
the enforcement of creditors' rights generally, and
there exists no event or condition which will result
in a material violation or breach of or constitute
(with or without due notice or lapse of time or both)
a default by the Company under any such License
Agreement.
(c) The Company owns or has the valid right to use all of
the Intellectual Property that is necessary for the
conduct of Company's business as currently conducted
or as currently proposed to be conducted and for the
ownership, maintenance and operation of the Company's
properties and assets, free and clear of all liens,
encumbrances, adverse claims or obligations to
license all such owned Intellectual Property, other
than licenses entered into in the ordinary course of
the Company's business. The Company has a valid and
enforceable right to use all other Intellectual
Property used or held for use in the Company's
business. The Company has the right to use all of the
owned and licensed Intellectual Property which is
necessary for the conduct of Company's business as
currently conducted or as currently
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proposed to be conducted in all jurisdictions in
which it conducts its business.
(d) The Company has taken reasonable steps to maintain,
police and protect the Intellectual Property which it
owns and which is necessary for the conduct of its
business as currently conducted or as currently
proposed to be conducted, including the execution of
appropriate confidentiality agreements and
intellectual property and work product assignments
and releases. The conduct of the Company's business
as currently conducted does not infringe or otherwise
impair or conflict with (collectively, "Infringe")
any Intellectual Property rights of any third party,
and, to the Company's Knowledge, the Intellectual
Property rights of the Company which are necessary
for the conduct of Company's business as currently
conducted or as currently proposed to be conducted
are not being Infringed by any third party. There is
no litigation or order pending or outstanding or, to
the Company's Knowledge, threatened or imminent, that
seeks to limit or challenge or that concerns the
ownership, use, validity or enforceability of any
Intellectual Property of the Company or the Company's
use of any Intellectual Property owned by a third
party, and, to the Company's Knowledge, there is no
valid basis for the same.
(e) The consummation of the transactions contemplated
hereby will not result in the alteration, loss,
impairment of or restriction on the Company's
ownership or right to use any of the Intellectual
Property which is necessary for the conduct of
Company's business as currently conducted or as
currently proposed to be conducted.
(f) All software owned by the Company, and, to the
Company's Knowledge, all software licensed from third
parties by the Company, (i) is free from any material
defect, bug, virus, or programming, design or
documentation error; (ii) operates and runs in a
reasonable and efficient business manner; and (iii)
conforms in all material respects to the
specifications and purposes thereof.
(g) The Company has taken reasonable steps to protect the
Company's rights in its confidential information and
trade secrets. Except under confidentiality
obligations, there has been no material disclosure of
any of the Company's confidential information or
trade secrets to any third party.
2.16. Environmental Matters. The Company is not in violation of any
statute, rule, regulation, decision or order of any governmental agency or body
or any court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or restoration of
the environment or human exposure to hazardous or toxic substances
(collectively, "Environmental Laws"), owns or operates any real property
contaminated with any substance that is subject to any Environmental Laws, is
liable for any off-site disposal or contamination pursuant to any Environmental
Laws, and is subject to any claim relating to any Environmental Laws, which
violation, contamination, liability or claim has had or could reasonably be
expected to have a Material Adverse Effect, individually or in the aggregate;
and there is no pending or, to the Company's Knowledge, threatened investigation
that might lead to such a claim.
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2.17. Litigation. Except as described on Schedule 2.17, there are no
pending actions, suits or proceedings against or affecting the Company or any of
its assets or properties; and to the Company's Knowledge, no such actions, suits
or proceedings are threatened or contemplated.
2.18. Insurance Coverage. The Company maintains in full force and
effect insurance coverage that is customary for comparably situated companies
for the business being conducted and properties owned or leased by the Company,
and the Company reasonably believes such insurance coverage to be adequate
against all liabilities, claims and risks against which it is customary for
comparably situated companies to insure.
2.19. No Registration. The issuance of the New Debentures to the
Exchangors as contemplated hereby is exempt from the registration requirements
of the 1933 Act pursuant to Section 3(a)(9) thereof.
2.20. Questionable Payments. Neither the Company nor, to the
Company's Knowledge, any of its current or former shareholders, directors,
officers, employees, agents or other Persons acting on behalf of the Company,
has on behalf of the Company or in connection with its business since June 23,
1999: (a) used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity; (b)
made any direct or indirect unlawful payments to any governmental officials or
employees from corporate funds; (c) established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; (d) made any false or
fictitious entries on the books and records of the Company; or (e) made any
unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful
payment of any nature.
2.21. Transactions with Affiliates. Except as disclosed on Schedule
2.21, to the Company's Knowledge, none of the officers or directors of the
Company and, to the Company's Knowledge, none of the employees of the Company is
presently a party to any transaction with the Company or to a presently
contemplated transaction (other than for services as employees, officers and
directors) that would be required to be disclosed pursuant to Item 404 of
Regulation S-K promulgated under the 0000 Xxx.
2.22. Suppliers. Except as set forth in Schedule 2.22, since October
4, 2003, (i) the Company has not entered into or made any contract or commitment
for the purchase of merchandise other than in the ordinary course of business
consistent with past practice, and (ii) there has not been (A) any material
adverse change in the business relationship of the Company with any of its
suppliers or (B) any change in any material term (including credit terms) of the
supply agreements or related arrangements with any such suppliers.
2.23. Customers. Except as set forth in Schedule 2.23, since October
4, 2003, there has not been (i) any material adverse change in the business
relationship of the Company with any customer (ii) any change in any material
term (including credit terms) of the sales agreements or related agreements with
any customer, except for such changes as have not and could not reasonably be
expected to result in a Material Adverse Effect, individually or in the
aggregate.
2.24. Disclosure. Except as set forth on Schedule 2.24, no
representation or warranty of the Company contained in this Agreement or in any
other Transaction Document, and no statement contained in any document,
certificate or Schedule furnished or to be furnished by or on behalf of the
Company to the Exchangors or any of their representatives pursuant to this
Agreement
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(excluding the forward-looking statements and assumptions set forth in "Recent
Corporate Action," "Revocation and Termination of Prior S Corporation Status,"
"Management" and "Underwriting" in the Registration Statement, which at the time
made were based upon good faith estimates but which contain affirmative
statements relating to events that have not occurred as of this date and will be
amended prior to the effectiveness of the Registration Statement due to passage
of time) contains any untrue statement of a material fact or omits to state any
material fact necessary, in light of the circumstances under which it was made,
in order to make the statements herein or therein not misleading.
SECTION 3. REPRESENTATIONS OF THE EXCHANGORS.
Each Exchangor severally, and not jointly, hereby represents and
warrants to and agrees with Company as follows with respect only to such
Exchangor and its exchange of the 2002 Debenture held by it and acquisition of
the New Debentures:
3.1. Ownership of 2002 Debenture; Legal Power. Such Exchangor is
the lawful owner of the 2002 Debenture registered in its name, free and clear of
all liens, encumbrances, restrictions and claims of every kind, except those
created pursuant to the Debenture Purchase Agreement, the 2002 Registration
Rights Agreement and the 2002 Intercreditor Agreements and those arising under
applicable securities laws. Such Exchangor has the requisite legal right, power
and authority to enter into this Agreement, to exchange its 2002 Debenture
hereunder, and to carry out and perform the Exchangor's obligations under the
terms of this Agreement and the Transaction Documents.
3.2. Due Execution. This Agreement has been, and upon execution and
delivery thereof, the other Transaction Documents to which such Exchangor is a
party will be, duly authorized, executed and delivered by such Exchangor, and,
upon due execution and delivery by the Company, this Agreement will be a valid
and binding agreement of such Exchangor, enforceable against such Exchangor in
accordance with its terms.
3.3. Investment Representations.
(a) This Agreement is made with such Exchangor in
reliance upon the representation of such Exchangor to
the Company, and by its execution and acceptance
hereof such Exchangor hereby confirms, that the
Securities are being and will be acquired for
investment for such Exchangor's own account, not as a
nominee or agent, and not with a view to the sale or
distribution of any part thereof in violation of the
1933 Act, and that it has no present intention of
selling, granting participation in, or otherwise
distributing the same in violation of the 1933 Act.
By executing this Agreement, such Exchangor further
represents that such Exchangor does not have any
contract, undertaking, agreement, or arrangement with
any person to sell, transfer, or grant participations
to such person, or to any third person, with respect
to any of the Securities in violation of the 1933
Act.
(b) Such Exchangor understands that the issuance of the
Securities are not, and will not be, registered under
the 1933 Act on the ground that the acquisition
provided for in this Agreement and the issuance of
the Securities hereunder
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is exempt from registration under the 1933 Act and
that the Company's reliance on such exemption is
predicated on the Exchangor's representations set
forth herein. The Exchangor realizes that the basis
for the exemption may not be present if,
notwithstanding such representations, the Exchangor
has in mind merely acquiring the Securities for a
fixed or determinable period in the future. The
Exchangor hereby confirms that it has no such
intention, subject to the right of the Exchangor to
dispose of its assets as it determines in its sole
discretion, subject to the provisions of applicable
law.
(c) Such Exchangor represents that:
(1) if such Exchangor is a corporation,
Massachusetts or similar business trust, or
partnership, that (X) it is not formed for
the purpose of acquiring the Securities and
that it has total assets in excess of
$5,000,000, or (Y) all of the equity owners
of such entity satisfy the criteria in
Section 3.3(c)(1)(X) or Section 3.3(c)(2);
or
(2) if such Exchangor is a natural person:
(A) he or she has individual (or has
jointly with such person's spouse)
net worth that exceeds $1,000,000;
or
(B) he or she had individual income in
excess of $200,000 (or together
with such person's spouse had joint
income in excess of $300,000) in
each of the two most recent years
and has a reasonable expectation of
reaching the same income level in
the current year,
and therefore that such Exchangor is an "accredited investor"
within the meaning of Regulation D promulgated pursuant to the
1933 Act, and that such Exchangor is experienced in evaluating
and investing in companies such as the Company, is able to
fend for itself in the transactions contemplated by this
Agreement, has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and
risks of its investment and has the ability to bear the
economic risks of its investment. Such Exchangor further
represents that it has had, during the course of the
transaction and prior to its acquisition of the Securities,
the opportunity to ask questions of, and receive answers from,
the Company concerning the terms and conditions of the
offering and to obtain additional information necessary to
verify the accuracy of any information furnished to it or to
which it had access. Neither such inquiries nor any other due
diligence investigation conducted by such Exchangor shall
modify, amend or affect such Exchangor's right to rely on the
Company's representations and warranties contained in this
Agreement and in the other Transaction Documents.
(d) Such Exchangor understands that the Securities may
not be sold, transferred or otherwise disposed of
without registration under the 1933 Act or an
exemption therefrom, and that in the absence of an
effective registration statement covering the
Securities or an available exemption from
registration
11
under the 1933 Act, the Securities must be held
indefinitely. In particular, such Exchangor is aware
that the Securities may not be sold pursuant to Rule
144 promulgated under the 1933 Act unless all of the
conditions of that Rule are met. Among the conditions
for use of Rule 144 is the availability of current
information to the public about the Company.
(e) Such Exchangor understands that the New Debentures
may be treated for tax purposes as having been issued
with Original Issue Discount ("OID"), and that the
effect of OID treatment would require the Exchangor
to recognize income, for tax purposes, in excess of
cash paid as interest by the Company on the New
Debentures in early periods (including but not
limited to when no cash interest is paid at all), and
to receive cash interest payments in excess of income
recognized in later periods. Such Exchangor has
consulted such Exchangor's own tax counsel with
respect to this and all other implications under the
tax laws of an investment in the New Debentures.
(f) Such Exchangor, if the Exchangor is domiciled in
Missouri, agrees and acknowledges that the Securities
are not registered and may be disposed of only
through a licensed broker-dealer. It is a felony to
sell securities in violation of the Missouri
Securities Act.
(g) Such Exchangor's domicile is accurately set forth on
the signature page hereof.
(h) Such Exchangor, if such Exchangor is domiciled in New
York, represents and warrants that such Exchangor is
an "institutional buyer" for purposes of Section
359-e.1(a) of the Xxxxxx Act, as amended, under
Article 23-A of Chapter 20 of the New York General
Business Law.
3.4. Legends; Stop Transfer.
(a) All certificates evidencing the Securities shall bear
the following legend:
THE SECURITIES REPRESENTED HEREBY MAY NOT BE
TRANSFERRED UNLESS (i) SUCH SECURITIES HAVE BEEN
REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF
1933, AS AMENDED, (ii) SUCH SECURITIES MAY BE SOLD
PURSUANT TO RULE 144(k), OR (iii) THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT
THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR
QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.
(b) The certificates for the Securities shall also bear
any legend required by any applicable state
securities law.
(c) In addition, the Company shall make a notation
regarding the restrictions on transfer of the
Securities in its stock books and the Securities
shall be transferred on the books of the Company only
if transferred or sold pursuant to an effective
registration statement under the 1933 Act covering
such
12
shares or pursuant to and in compliance with the
legend described in Section 3.4(a).
(d) Upon the earlier of (i) registration for resale
pursuant to the Second Registration Rights Agreement
or 2002 Registration Rights Agreement, as applicable,
and receipt by the Company of the Exchangor's written
confirmation that such Securities will not be
disposed of except in compliance with the prospectus
delivery requirements of the 1933 Act or (ii) Rule
144(k) becoming available the Company shall, upon an
Exchangor's written request, revoke any stop transfer
instructions in effect with respect to such
Securities (except as provided in the Second
Registration Rights Agreement with respect to the
lock-up agreement) and shall promptly cause
certificates evidencing the Securities to be replaced
with certificates which do not bear such restrictive
legends, and Debenture Shares subsequently issued in
respect of the New Debentures shall not bear such
restrictive legends provided the provisions of either
clause (i) or clause (ii) above, as applicable, are
satisfied with respect to such Debenture Shares. When
the Company is required to cause unlegended
certificates to replace previously issued legended
certificates, if unlegended certificates are not
delivered to an Exchangor within three (3) Business
Days of submission by that Exchangor of legended
certificate(s) to the Company or its transfer agent,
as applicable, together with a representation letter
in customary form, the Company shall be liable to the
Exchangor for a penalty equal to 1% of the aggregate
purchase price of the Securities evidenced by such
certificate(s) for each thirty (30) day period (or
portion thereof) beyond such three (3) Business Day
period that the unlegended certificates have not been
so delivered; provided that the Company shall not be
subject to such penalty if, at least three (3)
Business Days prior to receiving the Exchangor's
written request to remove such legend, the Company
shall have notified the Exchangor that it would
voluntarily remove the legend and the Exchangor shall
have decided not to have such legend removed at that
earlier time.
SECTION 4. DEBENTURE PURCHASE AGREEMENT.
4.1. Covenants. The Company hereby affirms its obligations under
and undertakes to perform each of the covenants and agreements set forth in
Section 4 of the Debenture Purchase Agreement, the entirety of which Section 4
is hereby incorporated herein by this reference, with full force and effect as
if set forth herein, except that all references therein to the "Purchasers" and
"Debentures" shall be to the Exchangors and the New Debentures, respectively,
and the terms "Agreement" and "Transaction Documents" as used therein shall have
the meanings herein that are ascribed to those terms in this Agreement.
4.2. Termination of Covenants under Debenture Purchase Agreement.
Upon the exchange contemplated by Section 1 of this Agreement, the Company and
the Exchangors agree and acknowledge that all ongoing obligations under Section
4 of the Debenture Purchase Agreement with respect to exchanged 2002 Debentures
are terminated. Except as otherwise provided herein, the Debenture Purchase
Agreement shall otherwise be unmodified hereby and shall remain in full
13
force and effect in accordance with its terms.
SECTION 5. INDEMNIFICATION.
5.1. Survival. All representations, warranties, covenants and
agreements contained in this Agreement shall be deemed to be representations,
warranties, covenants and agreements as of the date hereof and shall survive the
execution and delivery of this Agreement for a period of three (3) years from
the date of this Agreement; provided, however, that the provisions contained in
Section 4 hereof shall survive in accordance therewith.
5.2. Indemnification. The Company agrees to indemnify and hold
harmless, on an after-tax and after insurance recovery basis, each Exchangor and
its Affiliates and their respective directors, officers, employees and agents
from and against any and all losses, claims, damages, liabilities and expenses
(including without limitation reasonable attorney fees and disbursements and
other expenses incurred in connection with investigating, preparing or defending
any action, claim or proceeding, pending or threatened and the costs of
enforcement hereof) (collectively, "Losses") to which such Person may become
subject as a result of any breach of representation, warranty, covenant or
agreement made by or to be performed on the part of the Company under the
Transaction Documents, and will reimburse any such Person for all such amounts
as they are incurred by such Person.
5.3. Conduct of Indemnification Proceedings. Promptly after receipt
by any Person (the "Indemnified Person") of notice of any demand, claim or
circumstances which would or might give rise to a claim or the commencement of
any action, proceeding or investigation in respect of which indemnity may be
sought pursuant to Section 5.2, such Indemnified Person shall promptly notify
the Company in writing and the Company shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Person, and shall assume the payment of all fees and expenses; provided,
however, that the failure of any Indemnified Person so to notify the Company
shall not relieve the Company of its obligations hereunder except to the extent
that the Company is materially prejudiced by such failure to notify. In any such
proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless: (i) the Company and the Indemnified Person shall
have mutually agreed to the retention of such counsel; or (ii) in the reasonable
judgment of counsel to such Indemnified Person representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them. The Company shall not be liable for any settlement of
any proceeding effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with such consent, or if there be a final
judgment for the plaintiff, the Company shall indemnify and hold harmless such
Indemnified Person from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. Without the prior written
consent of the Indemnified Person, which consent shall not be unreasonably
withheld, the Company shall not effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Person from all liability arising out of such proceeding.
14
SECTION 6. MISCELLANEOUS.
6.1. Notices. All notices and other communications hereunder shall
be made in writing and shall be deemed given upon personal delivery during
regular business hours or three (3) days after mailing if mailed by first class
mail, postage prepaid, to the following addresses:
To Company:
Bakers Footwear Group, Inc.
0000 Xxxxx Xxxxxx
Xx. Xxxxx, Xxxxxxxx 00000
Attn: Xxxxx X. Xxxxxx, Chairman of the Board and Chief Executive
Officer
with copies to:
Xxxxx Xxxx LLP
One Metropolitan Square
000 X. Xxxxxxxx Xxx. 0000
Xx. Xxxxx, Xxxxxxxx 00000
Attn: J. Xxxx Xxxxxx
To Exchangor:
See Exhibit D
with copies to:
Xxxxxxxxxx Xxxxxxx PC
00 Xxxxxxxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxxxx 00000
Attn: Xxxx X. Xxxxxxxx
6.2. Governing Law; Consent to Jurisdiction. This Agreement shall
be governed by, and construed in accordance with, the internal laws of the State
of New York without regard to the choice of law principles thereof. Each of the
parties hereto irrevocably submits to the exclusive jurisdiction of the courts
of the State of New York located in New York County and the United States
District Court for the Southern District of New York for the purpose of any
suit, action, proceeding or judgment relating to or arising out of this
Agreement and the transactions contemplated hereby. Service of process in
connection with any such suit, action or proceeding may be served on each party
hereto anywhere in the world by the same methods as are specified for the giving
of notices under this Agreement. Each of the parties hereto irrevocably consents
to the jurisdiction of any such court in any such suit, action or proceeding and
to the laying of venue in such court. Each party hereto irrevocably waives any
objection to the laying of venue of any such suit, action or proceeding brought
in such courts and irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
6.3. Counterparts. This Agreement may be executed in counterparts
each of which when so executed and delivered shall be in an original, but which
shall together constitute one and the same instrument.
15
6.4. Headings Descriptive. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
6.5. Amendment or Waiver. The terms of this Agreement may not be
changed, waived, discharged or terminated unless such change, waiver, discharge
or termination is in writing signed by the Company and the Required Exchangors.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any Securities purchased under this Agreement at the
time outstanding, each future holder of all such securities, and the Company.
6.6. Successors and Assigns. This Agreement may not be assigned by
a party hereto without the prior written consent of the Company or the Required
Exchangors, as applicable, provided, however, an Exchangor may assign its rights
and delegate its duties hereunder in whole or in part to an Affiliate or to a
third party (which affiliate or third party agrees to be bound hereby and by the
Debentures) acquiring some portion or all of its Securities in a transaction in
accordance with applicable law, without the prior written consent of the Company
or the other Exchangors, after notice duly given by such Exchangor to the
Company and the other Exchangors, provided, that no such assignment or
obligation shall affect the obligations of such Exchangor hereunder. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the respective permitted successors and assigns of the parties. 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.
6.7. Expenses. The parties hereto shall pay their own costs and
expenses in connection herewith, except that the Company shall pay the
reasonable fees and expenses of counsel to the Exchangors at the Closing, but
not in excess of Ten Thousand Dollars ($10,000) in the aggregate. The Company
shall reimburse the Exchangors upon demand for all reasonable out-of-pocket
expenses incurred by the Exchangors, including without limitation reimbursement
of attorneys' fees and disbursements, in connection with any amendment,
modification or waiver of this Agreement or the other Transaction Documents. In
the event that legal proceedings are commenced by any party to this Agreement
against another party to this Agreement in connection with this Agreement or the
other Transaction Documents, the party or parties which do not prevail in such
proceedings shall severally, but not jointly, pay their pro rata shares of the
reasonable attorneys' fees and other reasonable out-of-pocket costs and expenses
incurred by the prevailing party in such proceedings.
6.8. Publicity. No public release or announcement concerning the
transactions contemplated hereby shall be issued by the Company or the
Exchangors without the prior consent of the Company (in the case of a release or
announcement by the Exchangors) or Special Situations Fund III, L.P. ("SSF") (in
the case of a release or announcement by the Company) (which consents shall not
be unreasonably withheld), except as such release or announcement may be
required by law or the applicable rules or regulations of any securities
exchange or securities market, in which case the Company or the Exchangors, as
the case may be, shall allow SSF or the Company, as applicable, to the extent
reasonably practicable in the circumstances, reasonable time to comment on such
release or announcement in advance of such issuance.
6.9. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or
16
unenforceability without invalidating the remaining provisions hereof but shall
be interpreted as if it were written so as to be enforceable to the maximum
extent permitted by applicable law, and any such prohibition or unenforceability
in any jurisdiction shall not invalidate or render unenforceable such provision
in any other jurisdiction. To the extent permitted by applicable law, the
parties hereby waive any provision of law which renders any provision hereof
prohibited or unenforceable in any respect.
6.10. Entire Agreement. This Agreement and the other Transaction
Documents constitute the entire agreement among the parties hereof with respect
to the subject matter hereof and thereof and supersede (except as expressly
incorporated by reference herein) all prior agreements and understandings, both
oral and written, between the parties with respect to the subject matter hereof
and thereof.
6.11. Further Assurances. The parties shall execute and deliver all
such further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
6.12. Word Meanings. The words such as "herein," "hereinafter,"
"hereof," and "hereunder" refer to this Agreement as a whole and not merely to a
subdivision in which such words appear unless the context otherwise requires.
The singular shall include the plural, and vice versa, unless the context
otherwise requires. The masculine shall include the feminine and neuter, and
vice versa, unless the context otherwise requires.
SECTION 7. DEFINITIONS.
In addition to those terms defined elsewhere in this Agreement, for the
purposes of this Agreement, the following terms shall have the meanings here set
forth:
"Affiliate" means, with respect to any Person, any other Person which
directly or indirectly Controls, is controlled by, or is under common control
with, such Person.
"Business Day" means a day, other than a Saturday or Sunday, on which
banks in New York City are open for the general transaction of business.
"Common Stock" means the Class A common stock, par value $0.001 per
share, of the Company and any security into which the common stock may be
reclassified.
"Company's Knowledge" means the actual knowledge of the executive
officers of the Company, after reasonable inquiry. The executive officers of the
Company shall be Xxxxx X. Xxxxxx, Xxxxxxx X. Bergerac and Xxxxxxxx X. Xxxxxxx,
Xx.
"Control" means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"Debenture Shares" means the shares of Common Stock issuable upon
exercise of or otherwise pursuant to the New Debentures.
"Intellectual Property" means all of the following: (i) patents, patent
applications, patent disclosures and inventions (whether or not patentable and
whether or not reduced to practice); (ii)
17
trademarks, service marks, trade dress, trade names, corporate names, logos,
slogans and Internet domain names, together with all goodwill associated with
each of the foregoing; (iii) copyrights and copyrightable works; (iv)
registrations, applications and renewals for any of the foregoing; (v) trade
secrets, confidential information and know-how (including but not limited to
ideas, formulae, compositions, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, business and marketing plans, and customer and supplier lists and
related information); and (vi) proprietary computer software (including but not
limited to data, data bases and documentation).
"Material Adverse Effect" means a material adverse effect on the
assets, liabilities, results of operations, condition (financial or otherwise),
business, or prospects of the Company.
"Person" means an individual, corporation, partnership, limited
liability company, trust, business trust, association, joint stock company,
joint venture, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
"Required Exchangors" means the Exchangors agreeing to acquire a
majority of the New Debentures being issued pursuant to this Agreement.
"Securities" means the New Debentures and the Debenture Shares.
"Transaction Documents" means this Agreement, the New Debentures, the
Second Registration Rights Agreement and the Amended and Restated Intercreditor
and Subordination Agreements.
"1933 Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
[Next Page is Signature Page]
18
IN WITNESS WHEREOF, each of the Parties hereto has caused this
Agreement to be executed as of the date first above written.
BAKERS FOOTWEAR GROUP, INC.
By: /s/ Xxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxx X. Xxxxxx
---------------------------------
Title: Chairman and CEO
--------------------------------
EXCHANGORS:
SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.
By: /s/ Xxxxxx Xxxxx
----------------------------------------
Name: Xxxxxx Xxxxx
Title (if applicable):
Address:
Principal Amount of New Debentures:
SPECIAL SITUATIONS CAYMAN FUND, L.P.
By: /s/ Xxxxxx Xxxxx
----------------------------------------
Name: Xxxxxx Xxxxx
Title (if applicable):
Address:
Principal Amount of New Debentures:
SPECIAL SITUATIONS FUND III, L.P.
By: /s/ Xxxxxx Xxxxx
-----------------------------------------
Name: Xxxxxx Xxxxx
Title (if applicable):
Address:
Principal Amount of New Debentures:
/s/ Xxxxxx Xxxxxx
--------------------------------------------
Name: Xxxxxx Xxxxxx
Address: 0 Xx. Xxxxxxx Xx., Xx. Xxxxx, XX 00000
Principal Amount of New Debentures:
THE CROWN ADVISORS, LLC
By: /s/ Xxxxx X. Xxxxx
------------------------------------------
Name: Xxxxx X. Xxxxx
Title (if applicable): President
Address: 000 Xxxxxxxxx Xxxxxx Xx., Xxx 000, Xx. Xxxxx, XX 00000
Principal Amount of New Debentures:$400,000 = $150,000 for The Crown Advisors #2
$150,000 for The Crown Advisors #3
$100,000 for The Crown Advisors #4
CROWN INVESTMENT PARTNERS, LP
By: /s/ Xxxxx X. Xxxxx
------------------------------------------
Name: Xxxxx X. Xxxxx
Title (if applicable): Managing Member of the General Partner
Address: 000 Xxxxxxxxx Xxxxxx Xx., Xxx 000, Xx. Xxxxx, XX 00000
Principal Amount of New Debentures: $500,000
SWB HOLDINGS, INC.
By: /s/ Xxxxxx X. Xxxxxxx
-----------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title (if applicable):
Address: 000 Xxxxx Xxxxxxx Xxxxxx, Xxxxxxx, XX 00000
Principal Amount of New Debentures: $500,000
[Disclosure Schedules and Exhibits B, C and D omitted. The Registrant undertakes
to furnish supplementally a copy of such omitted schedules and exhibits to the
Commission upon request.]
EXHIBIT A
THIS SUBORDINATED CONVERTIBLE DEBENTURE AND THE INDEBTEDNESS EVIDENCED HEREBY
ARE SUBORDINATE, IN THE MANNER AND TO THE EXTENT SET FORTH IN THE AMENDED AND
RESTATED INTERCREDITOR AND SUBORDINATION AGREEMENT (AS AMENDED, SUPPLEMENTED OR
OTHERWISE MODIFIED FROM TIME TO TIME, THE "SUBORDINATION AGREEMENT") DATED AS OF
JANUARY __, 2004 BY AND AMONG BAKERS FOOTWEAR GROUP, INC. (THE "COMPANY"), THE
INITIAL HOLDER OF THIS DEBENTURE (THE "SUBORDINATED CREDITOR") AND THE SENIOR
LENDER NAMED THEREIN, TO ALL INDEBTEDNESS OWED BY THE MAKER OF THIS SUBORDINATED
CONVERTIBLE DEBENTURE TO THE SENIOR LENDER, AND THE HOLDER OF THIS SUBORDINATED
CONVERTIBLE DEBENTURE, BY ITS ACCEPTANCE HEREOF, SHALL BE BOUND BY THE
PROVISIONS OF THE SUBORDINATION AGREEMENT.
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT. FURTHERMORE, THIS
DEBENTURE MAY BE SOLD OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN THE DEBENTURE PURCHASE AGREEMENT (AS HEREINAFTER
DEFINED), A COMPLETE AND CORRECT COPY OF WHICH IS AVAILABLE FOR INSPECTION AT
THE PRINCIPAL CORPORATE OFFICES OF THE SELLER AND WILL BE FURNISHED WITHOUT
CHARGE TO THE HOLDER OF THIS DEBENTURE UPON WRITTEN REQUEST.
SUBORDINATED CONVERTIBLE DEBENTURE
$____ January , 2004
SECTION 1. General.
(a) Bakers Footwear Group, Inc., a Missouri corporation (the
"Company"), for value received, hereby promises to pay to the order of
________________, or its registered assigns (the initial "Holder") the principal
sum of _______________ Dollars ($_____________), on April 4, 2007 ("Maturity
Date"), in such coin or currency of the United States of America as at the time
of payment shall be legal tender therein for the payment of public and private
debt. Interest shall accrue on the unpaid principal amount, at the rate of seven
percent (7%) per annum, which rate shall increase to nine percent (9%) per annum
on January 1, 2004, and to eleven percent (11%) per annum on January 1, 2005.
Such interest shall be calculated on the basis of a 360-day year composed of
twelve months of 30 days each, and shall be payable quarterly, in arrears, on
March 31, June 30, September 30 and December 31, commencing March 31, 2004;
provided, however, that the interest payment which shall be due and payable on
March 31, 2004 shall be calculated as if this Debenture had been outstanding on
January 1, 2004, it being the intent of the Company that such interest payment
should include that interest accrued to the date hereof, but not yet paid, on a
note equal in aggregate principal amount and bearing interest at the same rate
and on the same terms as aforesaid, for which this Debenture was exchanged on
the date set forth above pursuant to the Exchange Agreement (as defined below).
(b) This Debenture is one of the "New Debentures" issued pursuant to
that certain Convertible Debenture Exchange Agreement dated as of the date of
this Debenture (the "Exchange Agreement"), by and among the Company and the
Exchangors named therein, including the initial Holder of this Debenture, each
of whom is both subject to, and entitled to the benefits of, the Exchange
Agreement. In addition, the Company and the initial Holder have entered into the
Subordination Agreement (as defined in Section 14) dated as of the date hereof
with the Senior Lender (as defined in Section 14) pursuant to which the Company
and the initial Holder have agreed to subordinate the Company's obligations
under this Debenture to those owed by the Company to Senior Lender as set forth
in the Subordination Agreement. Any subsequent Holder of the Debenture, by its
acceptance hereof, assumes the obligations of the initial Holder under the
Exchange Agreement with respect to the conditions and procedures for transfer of
this Debenture and agrees that this Debenture and all obligations hereunder
shall be subject to the terms of the Subordination Agreement. Reference to the
Exchange Agreement shall in no way impair the absolute and unconditional
obligation of the Company to pay the unpaid principal balance as provided
herein.
SECTION 2. Terms of Payment.
(a) The principal balance of this Debenture shall be due and payable on
the Maturity Date. The maturity of this Debenture may be accelerated following
an Event of Default (as defined in Section 3 hereof).
(b) Seller shall have the right to prepay the Debentures, in whole but
not in part, with the consent of the holders of at least 50% of the then
outstanding aggregate principal amount of the Debentures (the "Requisite
Holders"). Seller shall have the right to prepay, subject to the Subordination
Agreement, any Debenture issued under the Exchange Agreement, in whole or in
part, if the holder thereof consents.
SECTION 3. Events of Default. The following events shall constitute
"Events of Default" hereunder:
(a) Default in the payment of the principal of the Debenture when
due and payable, whether on the Maturity Date, upon acceleration or otherwise,
or the failure to make any payment of interest within 5 days of when due and
payable; or
(b) The Company shall fail to observe or perform any covenant or
obligation set forth herein, in the Exchange Agreement or in either the Second
Registration Rights Agreement or the 2002 Registration Rights Agreement (each,
as defined in the Exchange Agreement), as applicable, and such failure shall
continue for a period of 30 days after receipt of notice thereof; or
(c) The Company shall have failed to pay when due any amount due
and owing under any indebtedness of the Company for borrowed money, or any other
default or event of default shall have occurred (and shall have continued beyond
the expiration of any applicable grace period) under any indebtedness of the
Company for borrowed money which permitted the holder thereof to accelerate the
maturity thereof, and in either case, there shall have been an acceleration of
the stated maturity of such indebtedness; or
(d) The institution by the Company of proceedings to be
adjudicated as bankrupt or insolvent, or the consent by it to institution of
bankruptcy or insolvency proceedings against it or the filing by it of a
petition or answer or consent seeking reorganization or release under the
federal Bankruptcy Act of 1978, as amended, or any other applicable federal or
state law, or the consent by it to the filing of any such petition or the
appointment of a receiver, liquidator, assignee, trustee or other similar
official of the Company, or of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or the taking of
corporate action by the Company in furtherance of any such action; or
(e) If, within sixty (60) days after the commencement of an action
against the Company (and service of process in connection therewith on the
Company) seeking any bankruptcy, insolvency, reorganization, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, such action shall not have been resolved in favor of the Company or
all orders or proceedings thereunder affecting the operations or the business of
the Company stayed, or if the stay of any such order or proceeding shall
thereafter be set aside, or if, within sixty (60) days after the appointment
without the consent or acquiescence of the Company of any trustee, receiver or
liquidator of the Company or of all or any substantial part of the properties of
the Company, such appointment shall not have been vacated; or
(f) Any representation or warranty made by the Company in any
Transaction Document (as defined in the Exchange Agreement) or any other
certificate or instrument delivered in connection therewith shall have been
untrue in any material respect when made.
If any Event of Default (other than the type described in clauses (d)
and (e)) has occurred, the Requisite Holders, may demand (by written notice
delivered to the Company), subject to the terms of the Subordination Agreement,
immediate payment of all or any portion of the outstanding principal amount of
this Debenture. Upon such demand, the Company will immediately pay to the Holder
the entire principal amount of this Debenture plus accrued and unpaid interest
hereon. If an Event of Default of the type described in clauses (e) or (f) above
has occurred, then subject to the terms of the Subordination Agreement all of
the outstanding principal amount of the Debenture shall automatically be
immediately due and payable without any action on the part of the Holder.
SECTION 4. Subordination.
(a) By its acceptance of this Debenture, the Holder (including the
initial and any subsequent Holder) acknowledges and agrees that all its right,
title and interest in and to this Debenture, including but not limited to its
right to receive payment in respect of principal or interest, or the Mandatory
Redemption Amount (as defined in Section 8 hereof) as provided herein, shall be
subordinate to any and all Senior Indebtedness (as defined in Section 14 hereof)
of the Seller. The Holder agrees to execute any and all agreements, including
but not limited to an intercreditor and subordination agreement, which the
holders of Senior Indebtedness may require to reflect such subordination. The
Holder covenants and agrees for the benefit of the holders of Senior
Indebtedness that it will not take any security interest, lien or other
encumbrance on the assets of the Seller as collateral security for the Seller's
obligations under this Debenture without such holders' prior written consent.
The Holder acknowledges that the Seller will not make, and the Holder shall not
accept, any payments of principal, interest, or the Mandatory Redemption Amount,
on this Debenture after the holder's receipt of written notice of the occurrence
of and during the continuation of a default under a Senior Indebtedness
agreement. If the Holder shall at any time
receive any payment which is prohibited by any Senior Indebtedness agreement and
receive notice of same from any holder of Senior Indebtedness, the Holder will
hold such payment in trust and immediately turn it (or an amount of money equal
to it) over to the holder of Senior Indebtedness for application in payment of
the outstanding Senior Indebtedness.
(b) This Debenture and all the obligations of the Company
hereunder are direct, unsecured obligations of the Company, without preference
or priority among the other Debentures (as defined in the Exchange Agreement)
and shall rank pari passu with all other existing and future unsecured
Indebtedness of the Company from time to time outstanding, other than Senior
Indebtedness.
(c) The provisions of this Section 4, and the Subordination
Agreement, are for the purpose of defining the relative rights of the Senior
Lender, on the one hand, and the Holder, on the other hand, with respect to the
enforcement of rights and remedies and priority of payment of the Senior
Indebtedness and the Debentures. Nothing herein shall impair, as between the
Company and the Holder, the obligations of the Company, which are unconditional
and absolute, to pay to the Holder the principal and interest hereon and any
other liabilities encompassed herein in accordance with the terms hereof,
subject to Section 4 and the Subordination Agreement.
SECTION 5. Holder. The Company may deem and treat the registered holder
of this Debenture as the absolute owner of this Debenture for the purpose of
exchanging this Debenture for Conversion Shares (as described in Section 6
hereof) or receiving payment hereon and for all other purposes, and the Company
shall not be affected by any notice to the contrary.
SECTION 6. Conversion of Debenture.
(a) This Debenture shall be convertible into the Company's Class A
common stock, par value $0.001 per share ("Conversion Shares"), under, and only
under, the circumstances set forth below in Sections 6(b) or 6(c), adjusted as
provided in Section 7 hereof. The conversion price for the Debentures shall be
equal to $7.50, adjusted as provided in Section 7 hereof ("Conversion Price").
(b) The entire principal amount of this Debenture shall be
automatically converted into the right to receive Conversion Shares, at the
Conversion Price, upon the consummation, prior to the Maturity Date, of a firm
commitment underwritten initial public offering of the Company's common equity
pursuant to a registration statement filed by the Company under the Act (other
than such an offering on Form S-4 or Form S-8, or any successor forms, an
"IPO").
(c) The entire principal amount of this Debenture may be
converted, in whole but not in part, at the option of the holder hereof, into
the right to receive Conversion Shares, at the Conversion Price then in effect,
at any time prior to the Maturity Date.
(d) To receive the Conversion Shares after the automatic
conversion provided in Section 6(b), or to elect conversion pursuant to Section
6(c), Holder shall surrender this Debenture at the office of the Company,
accompanied by a written instrument executed by the holder of this Debenture
requesting such conversion and stating the name and address of the person or
persons in whose name the certificate or certificates for Conversion Shares are
to be issued. At its expense, the Company shall, within three (3) Business Days
thereafter, issue and deliver to such Holder
certificates for the number of Conversion Shares to which the Holder shall be
entitled (bearing such legends as are required by the Exchange Agreement and
applicable laws in the opinion of counsel to the Company), together with any
other securities and property to which the Holder is entitled upon such
conversion under the terms of this Debenture. Upon such surrender, the Holder
shall be treated as a shareholder of the Company for all purposes, including but
not limited to the right to vote or the right to receive dividends or
distributions, regardless of the actual date such certificates are issued.
(e) The Company shall pay any and all issue and other taxes that
may be payable in respect of any issue or delivery of Conversion Shares pursuant
hereto; provided, however, that the Company shall not be obligated to pay any
transfer taxes resulting from any transfer requested by any holder in connection
with any such conversion.
(f) The Company shall keep reserved at all times the number and
type of Conversion Shares into which this Debenture would then be convertible.
(g) No fraction of a Conversion Share shall be issued upon the
conversion of this Debenture. All Conversion Shares (including fractions
thereof) issuable upon conversion of this Debenture by a Holder shall be
aggregated for purposes of determining whether the conversion would result in
the issuance of any fractional share. If, after the aforementioned aggregation,
the conversion would result in the issuance of a fraction of a Conversion Share,
the Company shall, in lieu of issuing any fractional share, pay the holder a sum
in cash equal to the public offering price in the IPO multiplied by such
fraction.
SECTION 7. Adjustments to Conversion Price and Conversion Shares.
Subject and pursuant to the provisions of this Section 7, the Conversion Price
and number of Conversion Shares subject to this Debenture shall be subject to
adjustment from time to time as set forth hereinafter.
(a) If the Company shall, at any time or from time to
time while this Debenture is outstanding, pay a dividend or make a distribution
on its Conversion Shares in shares of Conversion Shares, subdivide its
outstanding shares of Conversion Shares into a greater number of shares or
combine its outstanding shares of Conversion Shares into a smaller number of
shares or issue by reclassification of its outstanding shares of Conversion
Shares any shares of its capital stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
corporation not otherwise covered by Section 8), then the number of Conversion
Shares purchasable upon conversion of the Debenture and the Conversion Price in
effect immediately prior to the date upon which such change shall become
effective, shall be adjusted by the Company so that the Holder thereafter
converting the Debenture shall be entitled to receive the number of Conversion
Shares or other capital stock which the Holder would have received if the
Debenture had been converted immediately prior to such event upon payment of a
Conversion Price that has been adjusted to reflect a fair allocation of the
economics of such event to the Holder. Such adjustments shall be made
successively whenever any event listed above shall occur.
(b) If any capital reorganization, reclassification of
the capital stock of the Company, consolidation or merger of the Company with
another corporation in which the Company is not the survivor (not otherwise
covered by Section 8), or sale, transfer or other disposition of all or
substantially all of the Company's assets to another corporation shall be
effected (not otherwise covered by Section 8), then, as a condition of such
reorganization, reclassification, consolidation, merger, sale, transfer or other
disposition, lawful and adequate provision shall be made whereby each Holder
shall thereafter have the right to purchase and receive upon the basis and upon
the terms and conditions herein specified and in lieu of the Conversion Shares
immediately theretofore issuable upon conversion of the Debenture, such shares
of stock, securities or assets as would have been issuable or payable with
respect to or in exchange for a number of Conversion Shares equal to the number
of Conversion Shares immediately theretofore issuable upon conversion of the
Debenture, had such reorganization, reclassification, consolidation, merger,
sale, transfer or other disposition not taken place, and in any such case
appropriate provision shall be made with respect to the rights and interests of
each Holder to the end that the provisions hereof (including, without
limitation, provision for adjustment of the Conversion Price) shall thereafter
be applicable, as nearly equivalent as may be practicable in relation to any
shares of stock, securities or properties thereafter deliverable upon the
conversion thereof. The Company shall not effect any such consolidation, merger,
sale, transfer or other disposition without the consent or waiver of the Holder
unless prior to or simultaneously with the consummation thereof the successor
corporation (if other than the Company) resulting from such consolidation or
merger, or the corporation purchasing or otherwise acquiring such assets or
other appropriate corporation or entity shall assume the obligation to deliver
to the Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such Holder may be entitled to purchase, and the other
obligations under this Debenture. The provisions of this paragraph (b) shall
similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales, transfers or other dispositions.
(c) In case the Company shall fix a payment date for the
making of a distribution to all holders of Conversion Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) of evidences of indebtedness or assets
(other than cash dividends or cash distributions payable out of consolidated
earnings or earned surplus as such terms are computed for tax purposes, or
dividends or distributions referred to in Section 7(a)), or subscription rights
or warrants, the Conversion Price to be in effect after such payment date shall
be determined by multiplying the Conversion Price in effect immediately prior to
such payment date by a fraction, the numerator of which shall be the total
number of shares of Conversion Shares outstanding multiplied by the Market Price
(as defined below) per share of Conversion Shares immediately prior to such
payment date, less the fair market value (as determined by the Company's Board
of Directors in good faith) of said assets or evidences of indebtedness so
distributed, or of such subscription rights or warrants, and the denominator of
which shall be the total number of shares of Conversion Shares outstanding
multiplied by such Market Price per share of Conversion Shares immediately prior
to such payment date. "Market Price" as of a particular date (the "Valuation
Date") shall mean the following: (a) if the Conversion Shares are then listed on
a national stock exchange, the closing sale price (regular way) of one share of
Conversion Shares on such exchange on the last trading day prior to the
Valuation Date; (b) if the Conversion Shares are then quoted on The NASDAQ Stock
Market, Inc. ("Nasdaq"), the closing sale price of one share of Conversion
Shares on Nasdaq on the last trading day prior to the Valuation Date or, if no
such closing sale price is available, the average of the high bid and the low
asked price quoted on Nasdaq on the last trading day prior to the Valuation
Date; or (c) if the Conversion Shares are not then listed on a national stock
exchange or quoted on Nasdaq, the market value of one Conversion Share as of the
Valuation Date, shall
be determined in good faith by the Board of Directors of the Company and the
Requisite Holders. The Board of Directors of the Company shall respond promptly,
in writing, to an inquiry by the Holder prior to the conversion of this
Debenture as to the market value of a Conversion Share as determined by the
Board of Directors of the Company. In the event that the Board of Directors of
the Company and the Requisite Holders are unable to agree upon the market value
in respect of subpart (c) hereof, the Company and the Requisite Holders shall
jointly select an appraiser, who is experienced in such matters. The decision of
such appraiser shall be final and conclusive, and the cost of such appraiser
shall be borne evenly by the Company and the Requisite Holders. Such adjustment
shall be made successively whenever such a payment date is fixed.
(d) For the term of this Debenture, in addition to the
provisions contained above, the Conversion Price shall be subject to adjustment
as provided below. An adjustment to the Conversion Price shall become effective
immediately after the payment date in the case of each dividend or distribution
and immediately after the effective date of each other event which requires an
adjustment.
(e) In the event that, as a result of an adjustment made
pursuant to this Section 7, the Holder shall become entitled to receive any
shares of capital stock of the Company other than Conversion Shares, the number
of such other shares so receivable upon conversion of this Debenture shall be
subject thereafter to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the
Conversion Shares contained in this Debenture.
(f) Except as provided in subsection (g) hereof, if and
whenever the Company shall issue or sell, or is, in accordance with any of
subsections (f)(1) through (f)(7) hereof, deemed to have issued or sold, any
Conversion Shares for a consideration per share less than the lesser of (x)
$5.00 per share or (y) the Conversion Price in effect immediately prior to the
time of such issue or sale, then and in each such case (a "Trigger Issuance")
the then-existing Conversion Price, shall be reduced, as of the close of
business on the effective date of the Trigger Issuance, to a price determined as
follows:
Adjusted Conversion Price = (A x B) + D
-----------
A+C
where
"A" equals the number of Conversion Shares
outstanding, including Additional Shares (as defined below) deemed to be issued
hereunder, immediately preceding such Trigger Issuance;
"B" equals the Conversion Price in effect
immediately preceding such Trigger Issuance;
"C" equals the number of Additional Shares
issued or deemed issued hereunder as a result of the Trigger Issuance; and
"D" equals the aggregate consideration, if
any, received or deemed to be received by the Company upon such Trigger
Issuance.
provided, however, that in no event shall the Conversion Price after giving
effect to such Trigger Issuance be greater than the Conversion Price in effect
prior to such Trigger Issuance.
For purposes of this subsection (f), "Additional Shares" shall
mean all Conversion Shares issued by the Company or deemed to be issued pursuant
to this subsection (f), other than Excluded Issuances (as defined in subsection
(g) hereof).
For purposes of this subsection (f), the following subsections
(f)(1) to (f)(6) shall also be applicable (subject, in each such case, to the
provisions of subsection (g) hereof) and to each other subsection contained in
this subsection (f):
(f)(1) Issuance of Rights or Options. In
case at any time the Company shall in any manner grant
(directly and not by assumption in a merger or otherwise) any
warrants or other rights to subscribe for or to purchase, or
any options for the purchase of, Conversion Shares or any
stock or security convertible into or exchangeable for
Conversion Shares (such warrants, rights or options being
called "Options" and such convertible or exchangeable stock or
securities being called "Convertible Securities") whether or
not such Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and the
price per share for which Conversion Shares are issuable upon
the exercise of such Options or upon the conversion or
exchange of such Convertible Securities (determined by
dividing (i) the sum (which sum shall constitute the
applicable consideration) of (x) the total amount, if any,
received or receivable by the Company as consideration for the
granting of such Options, plus (y) the aggregate amount of
additional consideration payable to the Company upon the
exercise of all such Options, plus (z), in the case of such
Options which relate to Convertible Securities, the 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 Conversion Shares issuable upon the exercise of such
Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
Options) shall be less than the Conversion Price in effect
immediately prior to the time of the granting of such Options,
then the total number of Conversion Shares issuable upon the
exercise of such Options or upon conversion or exchange of the
total amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to have been issued
for such price per share as of the date of granting of such
Options or the issuance of such Convertible Securities and
thereafter shall be deemed to be outstanding for purposes of
adjusting the Conversion Price. Except as otherwise provided
in subsection 7(f)(3), no adjustment of the Conversion Price
shall be made upon the actual issue of such Conversion Shares
or of such Convertible Securities upon exercise of such
Options or upon the actual issue of such Conversion Shares
upon conversion or exchange of such Convertible Securities.
(f)(2) Issuance of Convertible Securities.
In case the Company shall in any manner issue (directly and
not by assumption in a merger or otherwise) or sell
any Convertible Securities, whether or not the rights to
exchange or convert any such Convertible Securities are
immediately exercisable, and the price per share for which
Conversion Shares are issuable upon such conversion or
exchange (determined by dividing (i) the sum (which sum shall
constitute the applicable consideration) of (x) the total
amount received or receivable by the Company as consideration
for the issue or sale of such Convertible Securities, plus (y)
the aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange
thereof, by (ii) the total number of Conversion Shares
issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the Conversion
Price in effect immediately prior to the time of such issue or
sale, then the total maximum number of shares of Conversion
Shares issuable upon conversion or exchange of all such
Convertible Securities shall be deemed to have been issued for
such price per share as of the date of the issue or sale of
such Convertible Securities and thereafter shall be deemed to
be outstanding for purposes of adjusting the Conversion Price,
provided that (a) except as otherwise provided in subsection
7(f)(3), no adjustment of the Conversion Price shall be made
upon the actual issuance of such Conversion Shares upon
conversion or exchange of such Convertible Securities and (b)
no further adjustment of the Conversion Price shall be made by
reason of the issue or sale of Convertible Securities upon
exercise of any Options to purchase any such Convertible
Securities for which adjustments of the Conversion Price have
been made pursuant to the other provisions of subsection 7(f).
(f)(3) Change in Option Price or Conversion
Rate. Upon the happening of any of the following events,
namely, if the purchase price provided for in any Option
referred to in subsection 7(f)(1) hereof, the additional
consideration, if any, payable upon the conversion or exchange
of any Convertible Securities referred to in subsections
7(f)(1) or 7(f)(2), or the rate at which Convertible
Securities referred to in subsections 7(f)(1) or 7(f)(2) are
convertible into or exchangeable for Conversion Shares shall
change at any time (including, but not limited to, changes
under or by reason of provisions designed to protect against
dilution), the Conversion Price in effect at the time of such
event shall forthwith be readjusted to the Conversion Price
which would have been in effect at such time had such 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 termination of any Option for which any
adjustment was made pursuant to this subsection 7(f) or any
right to convert or exchange Convertible Securities for which
any adjustment was made pursuant to this subsection 7(f)
(including without limitation upon the redemption or purchase
for consideration of Convertible Securities by the Company),
the Conversion Price then in effect hereunder shall forthwith
be changed to the Conversion Price which would have been in
effect at the time of such termination had such Option or
Convertible Securities, to the extent outstanding immediately
prior to such termination, never been issued.
(f)(4) Stock Dividends. Subject to the
provisions hereof, in case the Company shall declare a
dividend or make any other distribution upon any stock of the
Company (other than the Conversion Shares) payable in
Conversion Shares,
Options or Convertible Securities, then any Conversion Shares,
Options 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.
(f)(5) Consideration for Stock. In case any
Conversion Shares, Options or Convertible Securities shall be
issued or sold for cash, the consideration received therefor
shall be deemed to be the net amount received by the Company
therefor, after deduction therefrom of any expenses incurred
or any underwriting commissions or concessions paid or allowed
by the Company in connection therewith. In case any Conversion
Shares, Options or Convertible Securities shall be issued or
sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company shall be
deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the
Company, after deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the
Company in connection therewith. In case any Options shall be
issued in connection with the issue and sale of other
securities of the Company, together comprising one integral
transaction in which no specific consideration is allocated to
such Options by the parties thereto, such Options shall be
deemed to have been issued for such consideration as
determined in good faith by the Board of Directors of the
Company. If Conversion Shares, Options or Convertible
Securities shall be issued or sold by the Company and, in
connection therewith, other Options or Convertible Securities
(the "Additional Rights") are issued, then the consideration
received or deemed to be received by the Company shall be
reduced by the fair market value of the Additional Rights (as
determined using the Black-Scholes option pricing model or
another method mutually agreed to by the Company and the
Holder). In the event that the Board of Directors of the
Company and the Holder are unable to agree upon the fair
market value of the Additional Rights, the Company and the
Holder shall jointly select an appraiser, who is experienced
in such matters. The decision of such appraiser shall be final
and conclusive, and the cost of such appraiser shall be borne
evenly by the Company and the Holder.
(f)(6) Record Date. In case the Company
shall take a record of the holders of its Conversion Shares
for the purpose of entitling them (i) to receive a dividend or
other distribution payable in Conversion Shares, Options or
Convertible Securities or (ii) to subscribe for or purchase
Conversion Shares, Options or Convertible Securities, then
such record date shall be deemed to be the date of the issue
or sale of the Conversion Shares deemed to have been issued or
sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
(f)(7) Treasury Shares. The number of
Conversion Shares outstanding at any given time shall not
include shares owned or held by or for the account of the
Company or any of its wholly-owned subsidiaries, and the
disposition of any such shares (other than the cancellation or
retirement thereof) shall be considered an issue or sale of
Conversion Shares for the purpose of this subsection (f).
(g) Anything herein to the contrary notwithstanding, the
Company shall not be required to make any adjustment of the Conversion Price
pursuant to Section 7(f) in the case of the issuance of (A) capital stock,
Options or Convertible Securities issued to directors, officers, employees or
consultants of the Company in connection with their service as directors of the
Company, their employment by the Company or their retention as consultants by
the Company pursuant to an equity compensation program approved by the Board of
Directors or the shareholders of the Company, (B) Conversion Shares upon the
conversion or exercise of Options or Convertible Securities issued prior to the
date hereof, (C) capital stock, Options or Convertible Securities issued with
the approval of the Requisite Holders, (D) any capital stock, Options or
Convertible Securities which results in an adjustment pursuant to any section of
this Section 7 other than Section 7(f), or (E) any capital stock, Options or
Convertible Securities issued in connection with a Sale Transaction as defined
in Section 8(a) (collectively, "Excluded Issuances").
(h) Upon any adjustment to the Conversion Price pursuant
to Section 7(f) above, the number of Conversion Shares purchasable hereunder
shall be adjusted by multiplying such number by a fraction, the numerator of
which shall be the Conversion Price in effect immediately prior to such
adjustment and the denominator of which shall be the Conversion Price in effect
immediately thereafter.
SECTION 8. Mandatory Redemption.
(a) In the event that an IPO is not completed prior to the earlier
of (i) a Sale Date (as defined herein) or (ii) one month prior to the Maturity
Date (and the Holder shall have not exercised its option to convert this
Debenture pursuant to Section 6(c)), the Company shall pay, subject to the terms
of the Subordination Agreement, the Holder an amount of cash equal to the
Mandatory Redemption Amount, as calculated in accordance with paragraph (b) or
(c) of this Section 8, as applicable. For purposes of this Agreement, the Sale
Date shall be the date the Company consummates a merger, reorganization, stock
sale, sale of substantially all assets or similar transaction, or related series
thereof, following which holders of the common equity of the Company prior to
such transaction hold 50% or less of the common equity of the Company or any
successor entity following such transaction ("Sale Transaction"). It is
understood that no issuance of stock by the Company in a capital raising
transaction or pursuant to the exercise of any employee stock option, shall be
considered a Sale Transaction or any part thereof.
(b) In the event of a Sale Transaction, the Mandatory Redemption
Amount shall be, at the option of the Holder (i) the unpaid principal balance
hereof plus accrued but unpaid interest, or (ii) the cash, securities or other
property that the Holder would have been entitled to receive had the Holder
converted this Debenture into the Conversion Shares at the Conversion Price then
in effect immediately prior to the consummation of the Sale Transaction. This
obligation shall be assumed by any successor to the Company in a Sale
Transaction.
(c) Following the date that is one month prior to the Maturity
Date (and assuming a Sale Transaction does not occur prior to the Maturity
Date), the Mandatory Redemption Amount shall be the greater of (1) the unpaid
principal balance hereof plus accrued but unpaid interest to the date of payment
or (2) the Market Price of the Conversion Shares into which the Debenture would
be converted, but for the failure of an IPO to be completed prior to the
Maturity Date, at the Conversion Price then in effect.
The Company shall pay the Market Price to the Holder one month following such
determination, and the Maturity Date shall be extended until such date.
SECTION 9. Expenses. The Company shall pay the reasonable out-of-pocket
expenses of the Holder (including reasonable fees and disbursements of counsel)
incurred by the Holder in enforcing its rights hereunder, whether or not
litigation is initiated in connection therewith.
SECTION 10. Waiver. The Company waives presentment, demand, notice of
protest and nonpayment and diligence in taking any action to collect sums owing
under this Debenture. Time is of the essence with respect to every provision
hereof.
SECTION 11. Section Headings. The Section headings contained herein are
for the purpose of convenience of reference only and are not intended to define
or limit the contents of any such Section.
SECTION 12. Severability. In the event that one or more of the
provisions of this Debenture shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Debenture, but this Debenture shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein.
SECTION 13. Governing Law; Consent to Jurisdiction. This Debenture
shall be governed by, and construed in accordance with, the internal laws of the
State of New York without regard to the choice of law principles thereof. The
Company and, by accepting this Debenture, the Holder each irrevocably submits to
the exclusive jurisdiction of the courts of the State of New York located in New
York County and the United States District Court for the Southern District of
New York for the purpose of any suit, action, proceeding or judgment relating to
or arising out of this Debenture and the transactions contemplated hereby.
Service of process in connection with any such suit, action or proceeding may be
served on each party hereto anywhere in the world by the same methods as are
specified for the giving of notices under the Exchange Agreement. The Company
and, by accepting this Debenture, the Holder each irrevocably consents to the
jurisdiction of any such court in any such suit, action or proceeding and to the
laying of venue in such court. The Company and, by accepting this Debenture, the
Holder each irrevocably waives any objection to the laying of venue of any such
suit, action or proceeding brought in such courts and irrevocably waives any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.
SECTION 14. Definitions.
For purposes of this Debenture, the following terms have the meanings
set forth below.
"Business Day" means any day which is not a Saturday, Sunday
or other day on which banking institutions doing business in St. Louis, Missouri
and New York, New York, are authorized or obligated by law or required by
executive order to be closed.
"Indebtedness" means any indebtedness (including without
limitation, Senior Indebtedness), whether or not contingent, in respect of
borrowed money or evidenced by bonds, notes, debentures, guarantees or similar
instruments or letters of credit (or reimbursement
agreements in respect thereof) or representing the deferred and unpaid balance
of the purchase price of any property (including pursuant to capital leases),
and any financial hedging obligations, if and to the extent such indebtedness
(other than a financial hedging obligation) would appear as a liability upon a
balance sheet of such person prepared on a consolidated basis in accordance with
generally accepted accounting principles, other than a trade payable or accrued
expense.
"Senior Indebtedness" means the principal, interest, premium,
if any, fees (including without limitation, any commitment, agency, facility,
structuring, restructuring or other fee), costs, expenses, indemnities, and
other amounts due on or in connection with any Indebtedness of the Company to
banks, commercial finance lenders, insurance companies or other financial
institutions regularly engaged in the business of lending money, which is for
money borrowed by the Company (whether or not secured), and any amendments,
modifications, deferrals, renewals or extensions of such Indebtedness, and any
amounts owed in respect of any Indebtedness incurred in refinancing, replacing
or refunding the foregoing (including any refinancing, replacing or refunding
with new lenders), unless the terms of such Indebtedness expressly provide that
such Indebtedness is not Senior Indebtedness with respect to this Debenture.
"Senior Lender" shall mean, initially, Fleet Retail Finance
Inc., and subsequently, any lender of Senior Indebtedness to the Company.
"Subordination Agreement" shall mean, initially, the Amended
and Restated Intercreditor and Subordination Agreement dated the date hereof (as
amended, modified or replaced from time to time) between and among the Company,
the Holder, and Fleet Retail Finance Inc., and subsequently, any intercreditor
and subordination agreement the Holder is required to enter into by Section
4(a).
SECTION 15. Amendment. This Debenture may be amended with the consent
of the Requisite Holders to cure any ambiguity, and to make any other change if
(X) all Debentures are treated equally, (Y) such amendment does not reduce the
principal amount hereof or interest rate hereon, or alter when payments of
principal or interest are due and payable and (Z) such amendment does not change
the calculation of the Conversion Price in a way that is materially adverse to
the Holder. Any Debenture issued under the Exchange Agreement may be amended
with the consent of its holder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
BAKERS FOOTWEAR GROUP, INC.
BY: _______________________________________
Xxxxx Xxxxxx, Chief Executive Officer
Accepted and Agreed:
HOLDER
Name (if not an individual):
By: _______________________________________
Name:
Title (if applicable)
