EXHIBIT III
DEBENTURE EXCHANGE AGREEMENT
Debenture Exchange Agreement dated as of August 20, 1997, by and
between TOPS APPLIANCE CITY, INC., a New Jersey corporation ("Tops"), having an
address at 00 Xxxxxxxxx Xxxxxx, XX 00, Xxxxxx, Xxx Xxxxxx 00000 and BEA
ASSOCIATES, a New York partnership ("BEA"), having an address at 000 Xxxx 00xx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
WHEREAS, pursuant to an indenture (the "Indenture") dated as of
November 30, 1993 by and between Tops and Midlantic National Bank as Trustee,
Tops issued $40,000,000 in principal amount of its 6 1/2 Convertible
Subordinated Debentures due 2003 (the "Debentures"); and
WHEREAS, BEA, on behalf of itself and the accounts it manages, is
the registered and beneficial owner of $15,375,000 in principal amount of the
Debentures (the "BEA Debentures"); and
WHEREAS, BEA has agreed to exchange the BEA Debentures for a new
debenture (the "New Debenture") having the terms and conditions set forth in
this Agreement, all on the terms and conditions set forth in this Agreement; and
WHEREAS, Tops has agreed to issue the New Debentures to BEA in
exchange for the BEA Debentures, all on terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, Tops and BEA agree as follows:
1. Effective September 1, 1997 (the "Effective Date"), BEA will
sell, transfer and assign all of its right, title and interest in and to the BEA
Debentures to Tops in exchange for the consideration set forth in paragraph 2 of
this Agreement. BEA will deliver to Tops certificate(s) representing the BEA
Debentures along with bond powers or similar transfer instrument, duly endorsed
for transfer, or take such other steps as may be reasonably appropriate and
necessary in order to effect the transfer and assignment of the BEA Debentures
to Tops.
2. In consideration of the purchase of the BEA Debentures from
BEA, on the Effective Date, Tops will issue and deliver to BEA a certificate or
certificates representing New Debentures in the principal amount of Seven
Million Six Hundred Eighty Seven Thousand Five Hundred and No/00 ($7,687,500.00)
Dollars. The New Indenture shall be in form of Exhibit A attached to this
Agreement.
3. The New Debentures will be freely tradeable and have the same
terms and conditions as the Debentures, including without limitation the same
interest rate and interest payment dates, subject to the following exceptions:
a. The conversion price of the New Debentures will be One and
75/00 Dollars ($1.75) per share of Tops common stock; provided that the
New Debentures may not be converted to common stock prior to February
28, 1999; and provided further that if, upon conversion BEA owns 12.5%
of the outstanding common stock of Tops, it shall have the right to
designate one director, and if BEA owns 25% of such outstanding stock,
it shall have the right to designate two directors; and
b. The New Debentures will rank pari passu with the
Debentures in respect of the payment of principal and interest; and
c. Tops will have no right to effect an optional
redemption of the New Debentures; and
d. In the event a third party offers to purchase all of the
common stock of Tops or the securities held by BEA at a price in excess
of $1.75 per share and Tops' Board of Directors rejects such an offer,
BEA may convert its New Debentures and sell to such third party, subject
to a right of first refusal in favor of Tops for thirty (30) days.
4. On or before October 31, 1997, Tops will prepare, execute and
file with the Securities and Exchange Commission a registration statement on
Form S-3 or such other form as Tops may be qualified to use for the purpose of
registering the New Debentures and the common stock of Tops issuable upon
conversion of the New Debentures under the Securities Act of 1933, as amended
(the "Act"), and will thereafter cause such registration statement to become
effective under the Act.
5. Tops hereby represents to BEA that the execution, delivery and
performance of this Agreement has been duly authorized by all necessary and
appropriate corporate action by Tops, that this Agreement constitutes the legal
and binding obligation of Tops, enforceable against Tops in accordance with its
terms, and that the New Debentures have been duly authorized and will be validly
issued by Tops and will constitute the valid and binding obligation of Tops in
accordance with their terms.
6. BEA represents to Tops that the execution, delivery and
performance of this Agreement has been duly authorized and approved by all
necessary corporate action on the part of BEA and that this Agreement
constitutes the binding obligation of BEA, enforceable against BEA in accordance
with its terms.
7. The parties acknowledge that, if required, Tops will take all
appropriate action to offer to all other holders of Debentures the right to
receive New Debentures on the same terms and conditions as applied to BEA
pursuant to this Agreement. Such action will be taken in accordance with all
requirements of the Indenture, the Act and any other agreement, statute, law or
regulation binding upon or applicable to Tops. Tops agrees that it will provide
to any such holder terms no more favorable to such holder than the terms
applicable to BEA and the New Debentures under this Agreement. To the extent
necessary or appropriate, if Tops issues additional New Debentures pursuant to
an indenture or other agreement, BEA agrees to execute (if applicable) and be
bound by the terms of such indenture or agreement, provided that such terms are
no more burdensome or detrimental to BEA than the terms of this Agreement.
8. This Agreement constitutes the entire agreement between Tops
and BEA relating to the subject matter hereof, shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns; may be amended only in writing signed by the parties hereto, and shall
be governed by the laws of the State of New Jersey, excluding the conflicts law
provisions of such state.
IN WITNESS WHEREOF, this Agreement has been executed and
delivered as of the date first written above.
TOPS APPLIANCE CITY, INC.
by: /s/ Xxxxxx Xxxxx
--------------------------
Name: Xxxxxx Xxxxx
Title: Chairman/CEO
BEA ASSOCIATES
by: /s/ Xxxx X. Xxxx
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Name: Xxxx X. Xxxx
Title: Senior Vice President
