Exhibit 3
SECURITIES PURCHASE AGREEMENT
DATED February __, 1999
BY AND AMONG
XXX XXXXXX, INC.,
XXXXXX, XXXXXXX STRATEGIC PARTNERS FUND, L.P.,
STRATEGIC ASSOCIATES, L.P.
AND
X. XXXX PRICE RECOVERY FUND II, L.P.
TABLE OF CONTENTS
Page
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SECTION 1 Definitions 2
1.1 Defined Terms 2
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1.2 Other Defined Terms 4
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SECTION 2 Authorization and Sale of Series D Stock, Issuance of Warrants and Revised
Debentures and Exchange of Debentures 4
2.1 Authorization of Securities 4
2.2 Sale and Purchase of Preferred Stock and Closing Warrants. 4
2.3 Exchange of Debentures. 5
2.4 Issuance of Debenture Warrants at the First Closing. 5
2.5 Issuance of Additional Debenture Warrants. 5
SECTION 3 Closings; Delivery 6
3.1 Closing Dates 6
3.2 Delivery 6
3.3 Use of Proceeds. 6
SECTION 4 Representations and Warranties of the Company 7
4.1 Organization, Good Standing and Qualification 7
4.2 Capitalization 7
4.3 Subsidiaries 8
4.4 Partnerships, Joint Ventures 9
4.5 Authorization 9
4.6 Governmental Consents 9
4.7 Company SEC Reports and Financial Statements 9
4.8 Changes 10
4.9 Accuracy of Prior Representations and Warranties 11
4.10 Conformity with Law; Absence of Litigation. 11
4.11 Disclosure. 12
4.12 FINOVA Credit Facility. 12
4.13 IRS Dispute. 12
4.14 U.S. Real Property Holding Corporation. 12
SECTION 5 Representations and Warranties of the Purchasers 12
5.1 Accredited Investor; Experience; Risk 12
5.2 Authorization 13
5.3 Governmental Consents 13
5.4 Organization, Good Standing and Qualification 13
Page
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SECTION 6 Conditions to Closing of Purchasers 14
6.1 Representations and Warranties Correct 14
6.2 Covenants 14
6.3 Opinion of Company's Counsel 14
6.4 No Material Adverse Change 14
6.5 Statement of Rights and Preferences 14
6.6 State Securities Laws 14
6.7 Issuance of Shares , Warrants and Revised Debentures 14
6.8 Certificates 14
6.9 Registration Rights Agreement 15
6.10 Consents 15
6.11 Revised FINOVA Facility. 15
6.12 Delivery of Financial Information. 15
SECTION 7 Conditions to Closing of the Company 15
7.1 Representations 15
7.2 Purchase Price 15
7.3 Certificate 16
7.4 State Securities Laws 16
7.5 Registration Rights Agreement 16
SECTION 8 Covenants of the Company 16
8.1 Information. 16
8.2 Communication 18
8.3 Access 18
8.4 Directors' and Officers' Insurance 18
8.5 Confidentiality 18
8.6 Restrictive Covenant. 19
8.7 Foreign Corrupt Practices. 19
8.8 Payment of Expenses. 19
SECTION 9 Miscellaneous 19
9.1 Amendment; Waiver 19
9.2 Notices 19
9.3 Severability 21
9.4 Successors and Assigns 21
9.5 Survival of Representations, Warranties and Covenants 21
9.6 Entire Agreement 21
9.7 Choice of Law 21
9.8 Counterparts 21
9.9 Costs and Expenses 21
9.10 No Third-Party Beneficiaries 22
9.11 Indemnification 22
9.12 Dispute Resolution 23
XXX XXXXXX, INC
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is dated as of
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February __, 1999, by and among XXX XXXXXX, INC., a Washington corporation (the
"Company"), XXXXXX, XXXXXXX STRATEGIC PARTNERS FUND, L.P., a limited partnership
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organized under the laws of the State of Delaware, STRATEGIC ASSOCIATES, L.P., a
limited partnership organized under the laws of the State of Delaware, and X.
XXXX PRICE RECOVERY FUND II, L.P., a limited partnership organized under the
laws of the State of Delaware (each a "Purchaser" and collectively the
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"Purchasers.").
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W I T N E S S E T H
WHEREAS, the Company has issued and outstanding the shares of capital stock
described in Section 4.2 hereof and the Company has reserved for issuance
additional shares of capital stock upon the exercise of the outstanding
convertible securities, including rights, options and warrants, identified in
Section 4.2; and
WHEREAS, the Company proposes to issue and sell, and the Purchasers desire
to purchase from the Company, severally and in the amounts set forth on Exhibit
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A hereto, shares of the Company's Series D Preferred Stock, par value $.01 per
-
share, on the terms and subject to the conditions set forth herein; and
WHEREAS, in connection with the sale of such shares of Series D Stock, the
Company proposes to issue to the Purchasers, severally and in the amounts set
forth on Exhibit A hereto, certain warrants to purchase shares of Common Stock
---------
of the Company on the terms and subject to the conditions set forth herein; and
WHEREAS, the Company and the Purchasers desire to enter into a registration
rights agreement of even date herewith (which agreement shall restate and
supersede certain other registration rights agreements of the Company), pursuant
to which the Purchasers have, among other rights, certain registration rights;
and
WHEREAS, the Company and the Purchasers wish to amend certain terms of the
Company's 14% Subordinated Convertible Debentures issued on March 11, 1998 (the
"Original Debentures") and the Company will issue new debentures with revised
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terms (the "New Debentures") and the holders of the Original Debentures will
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exchange the Original Debentures for New Debentures and additional warrants to
purchase shares of Common Stock of the Company on the terms and subject to the
conditions set forth herein; and
WHEREAS, the Company and the Purchasers wish to amend certain terms of the
Company's outstanding warrants issued on March 11, 1998 (the "Original
--------
Warrants") and the Company will issue revised warrants and the holders of the
Original Warrants will exchange the Original Warrants for such revised Warrants;
and
WHEREAS, at the First Closing (as defined in Section 3.1), the Purchasers
shall cause to be paid to FINOVA Capital Corporation ("FINOVA") the sum of $
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____________, such amount to reduce the indebtedness of the Company to FINOVA
and such payment to be deemed a payment of the purchase price for the Shares (as
defined in Section 1.1) to be purchased at the First Closing.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
SECTION 1
Definitions
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1.1 Defined Terms. The following terms are defined as follows:
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"Affiliate" means, with respect to any Person, (i) any Person that holds
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direct or indirect beneficial ownership (as defined in Rule 13d-3 under the
Exchange Act) of voting securities or other voting interests representing at
least 5% of the outstanding voting power of a Person or equity securities or
other equity interests representing at least 5% of the outstanding equity
securities or equity interests in a Person, (ii) any brother, sister, parent,
child or spouse of such Person or any Person described in clause (i), and (iii)
any Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such entity.
"Closing Warrants" means the warrants issued to the Purchasers as part of
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the consideration for entering into this Agreement, which may be exercised to
purchase in the aggregate 1,918,743 shares of the Company's common Stock which
constitute on the Closing Date twenty-five percent (25%) of the Company's issued
and outstanding stock on a fully diluted basis.
"Debenture Warrants" means the Warrants that (i) are issued at the First
------------------
Closing in replacement of prior warrants as described in Section 2.4, (ii) are
issued at the First Closing to the Purchasers pursuant to Section 2.1(d)(ii) of
the Debenture Purchase Agreement, dated as of March 11, 1998 ("Debenture
---------
Purchase Agreement"), which in the aggregate may be exercised to purchase three
------------------
percent (3%) of the Common Stock on a fully diluted basis or (iii) are issuable
to the holders of New Debentures on January 1 of each year for so long as the
New Debentures remain outstanding.
"Common Stock" means the Company's Common Stock, par value $.01 per share.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Knowledge" or derivations thereof shall mean information that is known or,
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in the exercise of reasonable diligence, should have been known by the officers
of the Company.
"Lien" means any lien, pledge, mortgage, deed of trust, security interest,
----
claim, lease, charge, option, right of first refusal, easement, servitude,
transfer restriction under any shareholder or similar agreement, encumbrance or
any other restriction or limitation whatsoever.
"Management Option Plan" means the Xxx Xxxxxx, Inc. 1998 Stock Incentive
----------------------
Plan as adopted by the Board of Directors of the Company on December 3, 1997.
"Material Adverse Effect" means any materially adverse effect on the
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business, assets, liabilities, condition (financial or otherwise), results of
operations or prospects of the Company.
"Permits" means any approvals, authorizations, consents, licenses, permits
-------
or certificates.
"Person" means an individual, partnership, limited liability company,
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corporation, joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.
"Preferred Stock" means any of the Series A Stock, the Series B Stock, the
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Series C Stock or the Series D Stock.
"Registration Rights Agreement" means the Registration Rights Agreement of
-----------------------------
even date herewith by and between the Company, the Purchasers and others in the
form attached hereto as Exhibit B.
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"SEC" means the United States Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended.
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"Series A Stock" means the Series A Preferred stock of the Company, $.01
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par value per share.
"Series B Stock" means the Series B Preferred Stock of the Company, $.01
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par value per share.
"Series C Stock" means the Series C Preferred Stock of the Company, $.01
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par value per share.
"Series D Stock" means the Series D Preferred Stock of the Company, $.01
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par value per share.
"Shares" means the Series D Stock to be sold to the Purchasers hereunder.
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"Subsidiaries" means each corporation in which the Company owns or
------------
controls, directly or indirectly, capital stock or other equity interests
representing at least 50% of the outstanding voting stock or other equity
interests, and includes without limitation J.J. Distribution Company, a
Washington corporation.
"Warrants" means collectively, the Closing Warrants and the Debenture
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Warrants. The Warrants shall have the rights, preferences, privileges and
restrictions and be substantially in the form of Warrant Certificate attached
hereto as Exhibit D. All Warrants shall have a Termination Date (as defined
therein) five years from the date of their issuance, provided, however, that
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Warrants issued in replacement of other warrants shall have a Termination Date
five years from the date of issuance of the original warrants.
1.2 Other Defined Terms. Additional capitalized terms shall have the
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meanings assigned to them in the text of this Agreement. Terms defined in the
singular shall have a comparable meaning when used in the plural and vice versa.
SECTION 2
Authorization and Sale of Series D Stock,
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Issuance of Warrants and Revised Debentures and Exchange of Debentures
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2.1 Authorization of Securities. At the First Closing, the Company
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will have authorized:
(a) the issuance and sale to each Purchaser of the number of shares of
Series D Stock set forth opposite its name in Exhibit A. The Series D
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Stock will have the rights, preferences, privileges and restrictions set
forth in the Statement of Rights and Preferences attached to this Agreement
as Exhibit C hereto (the "Statement of Rights and Preferences");
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(b) the issuance to each Purchaser of the number of Closing Warrants and
Debenture Warrants set forth opposite its name in Exhibit A; and
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(c) the issuance to the holders of the Original Debentures (each of which
is a Purchaser) of an equal principal amount of the Company's New
Debentures substantially in the form set forth at Exhibit E.
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2.2 Sale and Purchase of Preferred Stock and Closing Warrants. In
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reliance on the representations and warranties of the Company contained herein
and subject to the terms and conditions hereof, at the First Closing, each
Purchaser agrees to purchase from the Company, severally, the number of Shares
of Series D Stock set forth opposite its name on Exhibit A hereto to be
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purchased at the First Closing, and the Company agrees to sell to each
Purchaser, such number of shares of Series D Stock and to issue to each
purchaser the number of Closing Warrants set forth opposite its name on
Exhibit A hereto. The Closing Warrants shall have an exercise price equal to the
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Fair Market Value (as defined in the Warrant) for the 15 trading days prior to
the First Closing, subject to adjustment as provided in Exhibit D. If the
Company and the Purchasers so agree, the Purchasers may purchase from the
Company and the Company may issue and sell to the Purchasers additional Shares
(up to a maximum of 20,000 total Shares) at one or more Additional Closings. At
each Additional Closing, in reliance on the representations and warranties of
the Company contained herein and subject to the terms and conditions hereof,
each Purchaser will purchase from the Company, severally, its pro rata share,
based on its share of the Shares purchased at the First Closing, of the number
of Shares of Series D Stock to be purchased by the Purchasers at such Additional
Closing, and the Company agrees to sell to each Purchaser, such number of shares
of Series D Stock. The aggregate purchase price for all of the Series D Stock to
be sold to the Purchasers at the First Closing shall be Two Million Dollars
($2,000,000), reduced by the amount the expenses of Purchasers associated with
the transactions contemplated hereby, up to and including the First Closing. The
purchase price payable at any Additional Closings shall be based on the same
price per Share as the Shares purchased and sold at the First Closing and shall
be reduced by the amount of any further expenses of Purchasers associated with
the transactions contemplated hereby, up to and including such Closing.
2.3 Exchange of Debentures. At the First Closing, the Company agrees
----------------------
to issue to each holder of Original Debentures, and subject to and in reliance
upon the representations, warranties, terms and conditions of this Agreement,
each holder of Original Debentures agrees to exchange the Original Debentures
held by such person for an equal principal amount of New Debentures. At the
First Closing, each holder of Original Debentures will deliver to the Company,
severally and not jointly, the Original Debentures to be exchanged by it for New
Debentures.
2.4 Issuance of Debenture Warrants at the First Closing. At the First
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Closing:
(a) The Company agrees to issue to each holder of Original Warrants, and
subject to and in reliance upon the representations, warranties, terms and
conditions of this Agreement, each holder of Original Warrants agrees to
exchange the Original Warrants held by such person for an equal number of
Debenture Warrants. The
Debenture Warrants so issued will have an exercise price equal to $0.15 per
share, subject to adjustment as provided in Exhibit D. At the First
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Closing, each holder of Original Warrants will deliver to the Company,
severally and not jointly, certificates representing the Original Warrants
to be exchanged by it for Debenture Warrants; and
(b) Pursuant to the terms of the Debenture Agreement, the Company shall
also issue to each Purchaser the number of additional Debenture Warrants
set forth opposite its name on Exhibit A, which in the aggregate entitle
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the Purchasers to acquire three percent (3%) of the Common Stock on a fully
diluted basis and giving effect to the transactions contemplated hereby
(other than the issuance of those additional Debenture Warrants as provided
in Section 2.5). The Debenture Warrants so issued will have an exercise
price equal to $0.15 per share, subject to adjustment as provided in
Exhibit D.
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2.5 Issuance of Additional Debenture Warrants. Until the New
-----------------------------------------
Debentures are repaid in full, the holders of the New Debentures shall receive
additional Debenture Warrants on January 1 of each year to purchase two percent
(2%) of the shares of the Company's Common Stock then outstanding, on a fully
diluted basis. The Debenture Warrants so issued will have an exercise price
equal to the average Fair Market Value (as defined in the Debenture Warrant) for
the 15 days prior to the issuance of such Debenture Warrant, subject to
adjustment as provided in Exhibit D. Prior to each issuance, the Company will
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reserve a sufficient number of shares of Common Stock for issuance upon exercise
of these Debenture Warrants.
SECTION 3
Closings; Delivery
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3.1 Closing Dates. The first closing of the purchase and sale of the
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Series D Stock (the "First Closing") shall be held at the offices of Stoel
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Xxxxx, LLP, 000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxxxx 00000 on
February 1, 1999, or on such other date or at such other place as the Purchasers
and the Company shall mutually agree. Any other closings that occur pursuant to
the terms hereof ("Additional Closings") shall be held on such dates and at such
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times as the parties shall mutually agree. Any of the date of the First Closing
and any Additional Closing is referred to herein as a "Closing Date."
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3.2 Delivery. At the First Closing and any Additional Closings, the
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Company shall: (a) deliver to each Purchaser a certificate or certificates
evidencing the Shares being purchased by such Purchaser, and, at the First
Closing, the Warrants being issued to such Purchaser, registered in such
Purchaser's name against delivery to the Company or FINOVA, as the case may be,
of payment in an amount equal to the full purchase price of the Shares being
purchased by such Purchaser by certified check or wire transfer to an
account designated by the Company or, in the case of any payment to FINOVA, to
an account designated by FINOVA; (b) at the First Closing, deliver the Original
Debentures in exchange for the Revised Debentures and the Warrants and (c) make
such other deliveries as may be required under the terms of this Agreement.
3.3 Use of Proceeds. The Company agrees to use the full proceeds from
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the First Closing solely to repay a portion of the existing borrowing under the
FINOVA line of credit and the Purchaser's expenses associated with the
transactions contemplated hereby. The proceeds of Additional Closings, if any,
shall be designated by the Purchasers, in their sole discretion, but shall not
exceed the scope or the amounts set forth below:
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Purpose Maximum Amount
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Bring certain obligations to $1,300,000
merchandise vendors that are
past due to current status
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Payment of past due taxes $ 100,000
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Payment of past due rents $ 100,000
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TOTAL $1,500,000
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The proceeds of a subsequent Additional Closing, the maximum amount of
which shall be $500,000, shall be designated by the Purchasers in their sole
discretion.
SECTION 4
Representations and Warranties of the Company
---------------------------------------------
The Company hereby represents and warrants to, and agrees with, the
Purchasers as follows:
4.1 Organization, Good Standing and Qualification. Each of the
---------------------------------------------
Company and its Subsidiaries (i) is an entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization,
(ii) has all requisite power and authority to carry on its business, (iii) is
duly qualified to transact business and is in good standing in all jurisdictions
where its ownership, lease or operation of property or the conduct of its
business requires such qualification, except where the failure to do so would
not be material to the Company. The Company and each of the Subsidiaries has the
corporate power and authority and is in possession of all material franchises,
grants, authorizations, licenses, permits, easements, consents, certificates,
approvals and orders (i) to own, lease and operate its properties and to carry
on its business as now being conducted and (ii) in the case of the Company, to
execute and deliver this Agreement and the documents and instruments
contemplated hereby and to consummate the transactions contemplated hereby.
4.2 Capitalization.
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4.2.1 The authorized capital stock of the Company is 25,000,000 shares,
consisting of 20,000,000 shares of common stock, par value $.01 per share
("Common Stock") of which 549,220 shares are issued and outstanding and
------------
no shares are held in treasury, and 5,000,000 shares of Preferred Stock.
Of the authorized shares of Preferred Stock, 46,000 shares have been
designated as Series A Preferred Stock, of which 46,000 shares are issued
and outstanding; 25,000 shares have been designated as Series B Preferred
Stock, of which 25,000 shares are issued and outstanding; and 20,000
shares have been designated as Series C Preferred Stock, none of which
shares are issued and outstanding. Upon the filing with the Secretary of
State of Washington of the Statement of Rights and Preferences, there
will have been designated a series of preferred stock, consisting of
40,000 shares of Series D Stock, none of which will have been issued or
outstanding. Subject to the terms and conditions hereof, the Company has
authorized the issuance at the First Closing of 20,000 shares of Series D
Stock. Schedule 4.2 lists all options, warrants or other rights of any
------------
kind granted by the Company to purchase or otherwise acquire capital
stock of the Company issued and outstanding prior to Closing. The Company
has duly and validly reserved for issuance 1,146,774 shares of Common
Stock upon exercise or conversion of rights, options, warrants and other
convertible securities currently outstanding or issued under the
Management Option Plan. The Company has reserved or, prior to the
Closing, will reserve 2,203,112 shares of Common Stock for issuance upon
exercise of the Warrants other than those Debenture Warrants issuable
pursuant to Section 2.5. Except as set forth in this Section 4.2.1 or
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as listed on Schedule 4.2 or Schedule 4.3, there are outstanding (a) no
------------
shares of capital stock or other voting stock of the Company or any
Subsidiary, (b) no securities of the Company, any Subsidiary or any
Person convertible into or exchangeable for shares of capital stock or
voting securities of the Company or any Subsidiary, (c) no options,
warrants or other rights to acquire from the Company or any Subsidiary
(including any rights issuable or issued under any shareholder rights
plan or similar arrangement), and no obligations, contingent or
otherwise, of the Company or any Subsidiary to issue any capital stock,
voting securities or securities convertible into or exchangeable for
capital stock or voting securities of the Company or any Subsidiary, (d)
no equity equivalent in the earnings or ownership of the Company, any
Subsidiary or any Person or any similar rights to share earnings or
ownership, and (e) no outstanding obligations of the Company to
repurchase, redeem or otherwise acquire any of its securities or to make
any investment (by loan, capital contribution or otherwise) in any entity
or Person. All outstanding options, rights and warrants have been duly
and validly issued and are in full force and effect. All shares of
capital stock subject to issuance upon
exercise of any options, rights or warrants or otherwise, upon issuance
pursuant to the instruments under which they are issuable, shall be duly
authorized, validly issued, fully paid for and non-assessable and free of
all preemptive rights. No outstanding options, warrants or other
securities exercisable for or convertible into shares of capital stock of
the Company require anti-dilution adjustments by reason of the
consummation of the transactions contemplated hereby.
4.2.2 The issued and outstanding shares of capital stock of the Company are
duly authorized, validly issued, fully paid and non-assessable. The
shares of Series D Stock to be issued pursuant to this Agreement, upon
delivery to the Purchasers of certificates therefor against payment in
accordance with the terms of this Agreement, and the shares of Common
Stock to be issued upon exercise of the Warrants, (i) will be validly
issued, fully paid and non-assessable, (ii) will be free and clear of all
Liens, and (iii) assuming that the representations of the Purchasers in
Section 5 hereof are true and correct, will be issued in compliance with
all applicable federal and state securities laws.
4.3 Subsidiaries. Schedule 4.3 sets forth a complete and accurate
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list of all Subsidiaries of the Company, showing (as to each such Subsidiary)
the date of its incorporation, the jurisdiction of its incorporation, the number
of shares of its authorized capital stock, the number and class of shares
thereof duly issued and outstanding, the names of all stockholders of such
Subsidiaries and the number and percentage of the outstanding shares of each
such class owned, directly or indirectly, by all such stockholders, including
the Company. At Closing, all of the outstanding capital stock of, or other
ownership interests in, each Subsidiary, will be owned by the Company, directly
or indirectly, free and clear of any Lien or any other limitation or restriction
(including restrictions on the right to vote). All outstanding shares of the
capital stock of the Company and any Subsidiary have been duly authorized,
validly issued, fully paid and non-assessable and are free of any preemptive
rights. There are no outstanding securities of any Subsidiary convertible into
or evidencing the right to purchase or subscribe for any shares of capital stock
of any Subsidiary, there are no outstanding or authorized options, warrants,
calls, subscriptions, rights, commitments or any other agreements of any
character obligating any Subsidiary to issue any shares of its capital stock or
any securities convertible into or evidencing the right to purchase or subscribe
for any shares of such stock, and there are no agreements or understandings with
respect to the voting, sale, transfer or registration of any shares of capital
stock of any Subsidiary.
4.4 Partnerships, Joint Ventures. Neither the Company nor any
----------------------------
Subsidiary is a party to, or holds, any equity interests in any partnership,
limited partnership, limited liability company or other joint venture of any
kind.
4.5 Authorization. The Company has all requisite corporate power and
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authority to execute and deliver this Agreement and each agreement, document or
instrument adopted, entered into or delivered by it as contemplated herewith
(the
"Transaction Documents") and to perform its obligations hereunder and
---------------------
thereunder. The execution, delivery and performance of the Agreement and the
transactions contemplated hereby have been duly authorized by all necessary
corporate, including shareholder (if required), action on the part of the
Company. Each Transaction Document to which it is a party has been duly and
validly executed and delivered by the Company and constitutes the legal, valid
and binding obligation of the Company, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity).
4.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, or local governmental authority on the part of
the Company is required in connection with the valid execution and delivery by
the Company of the Transaction Documents to which it is a party, or the
consummation by the Company of the transactions contemplated by the Transaction
Documents to which it is a party, except for (i) filings pursuant to federal or
state securities laws and (ii) the filing of registration statements with the
SEC and any applicable state securities commission.
4.7 Company SEC Reports and Financial Statements.
--------------------------------------------
4.7.1 The Company has made available to Purchasers true and complete copies of
all periodic reports, statements and other documents that the Company has
filed with the SEC under the Exchange Act for the past three years
(collectively, the "Company SEC Reports"), each in the form (including
-------------------
exhibits and any amendments thereto) required to be filed with the SEC.
As of their respective dates, each of the Company's SEC Reports (i)
complied in all respects with all applicable requirements of the
Securities Act and the Exchange Act, and the rules and regulations
promulgated thereunder, respectively, provided, however, that no
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representation is made with respect to the timely filing of any such
reports prior to December 5, 1997, and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
None of the Subsidiaries is required to file any forms, reports or other
documents with the SEC.
4.7.2 Each of the audited consolidated financial statements of the Company
(including any related notes and schedules thereto) included (or
incorporated by reference) in its Annual Report on Form 10-K for the
fiscal year ended January 31, 1998, is accurate and complete and presents
fairly, in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved
----
(except as may be noted therein), and in conformity with the SEC's
Regulation S-X, the consolidated financial position of the Company and
its
consolidated subsidiaries as of its date and the consolidated results of
operations and changes in financial position for the period then ended.
Each of the unaudited consolidated financial statements of the Company
(including any related notes and schedules thereto) included (or
incorporated by reference) in its Quarterly Report on Form 10-Q for the
quarter and nine-month period ended October 31, 1998, is accurate and
complete and fairly presents, in conformity with GAAP applied on a
consistent basis throughout the periods involved (except as may be noted
therein), and in conformity with the SEC's Regulation S-X, the
consolidated financial position of the Company and its consolidated
subsidiaries as of its date and the consolidated results of operations
and changes in financial position for the periods then ended.
4.7.3 Except as and to the extent set forth (or incorporated by reference) in
the Company's Quarterly Report on Form 10-Q for the quarter ended October
31, 1998 (the "Balance Sheet Date"), none of the Company or any of its
------------------
Subsidiaries has incurred any liability or obligation of any nature
whatsoever (whether due or to become due, accrued, fixed, contingent,
liquidated, unliquidated or otherwise) that would be required by GAAP to
be accrued on, reflected on, or reserved against it on, a consolidated
balance sheet (the "Balance Sheet") (or in the applicable notes thereto)
-------------
of the Company or any of its Subsidiaries prepared in accordance with
GAAP consistently applied as of the date and for the period required.
4.8 Changes. Except as set forth on Schedule 4.8, since the Balance
------- ------------
Sheet Date, there has not been:
4.8.1 any material change in the assets, liabilities, financial condition or
operating results of the Company or any of its Subsidiaries, except
changes in the ordinary course of business;
4.8.2 any material damage, destruction or loss to real or personal property,
whether or not covered by insurance;
4.8.3 any waiver by the Company or any of its Subsidiaries of a material legal
or contractual valuable right or of a debt owed to it outside of the
ordinary course of business;
4.8.4 any satisfaction or discharge of any Lien or payment of any obligation by
the Company or any of its Subsidiaries other than (i) in respect of
normal operating obligations in the ordinary course of business, and (ii)
payments to FINOVA under the FINOVA line of credit;
4.8.5 any change or amendment to a contract or arrangement by which the Company
or any of its Subsidiaries or any of their respective assets or
properties is bound or subject;
4.8.6 other than in the ordinary course of business, any material increase in
excess of $15,000 annually in any compensation arrangement or agreement
with any employee of the Company or any of its Subsidiaries receiving
compensation;
4.8.7 any events or circumstances (other than losses from operations in the
ordinary course of business) that otherwise could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect; and
4.8.8 none of the Company or any of its Subsidiaries has (i) declared or paid
any dividends, or authorized or made any distribution upon or with
respect to any class or series of its capital stock or equity interests,
(ii) incurred any indebtedness for money borrowed in excess of $15,000,
(iii) made any loans or advances to any Person, other than ordinary
advances for travel expenses not exceeding $15,000, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights for
consideration in excess of $15,000 in any one transaction or series of
related transactions.
4.9 Accuracy of Prior Representations and Warranties. Each of the
------------------------------------------------
representations and Warranties regarding the Company set forth in (i) Section 4
of the Preferred Stock Purchase Agreement, dated as of December 5, 1997 (the
"Preferred Agreement"); and (ii) Section 5 of the Subordinated Debenture
Purchase Agreement, dated as of March 11, 1998, each by and between the parties
hereto and other parties named therein, was true, complete and accurate in all
material respects when made. Except as set forth on Schedule 4.9, or as is
------------
evident from the Company SEC Reports filed since December 5, 1997, since the
dates on which such representations and warranties were made, no event has
occurred that has had a Material Adverse Effect and that would cause any such
representation or warranty, if made as of the date of this Agreement, to be
materially false.
4.10 Conformity with Law; Absence of Litigation. The Company has not
------------------------------------------
violated any law or regulation or any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over it which would have a Material Adverse
Effect. Except as set forth in Schedule 4.10, there are no claims, actions,
-------------
suits, proceedings or investigations pending or, to its Knowledge, threatened,
nor, to its Knowledge, are there any facts which with the passage of time, the
giving of notice or both, would likely result in any such claims, actions,
suits, proceedings or investigations against the Company or any of its
Subsidiaries, or any properties or rights of the Company or its Subsidiaries,
before any court, arbitrator or administrative, governmental or regulatory
authority or body, domestic or foreign, which would have a Material Adverse
Effect.
4.11 Disclosure. All written agreements, lists, schedules,
----------
instruments, exhibits, documents, certificates, reports, statements and other
writings furnished to the Purchasers pursuant hereto or in connection with this
Agreement or the transactions contemplated hereby, are and will be complete and
accurate in all material respects. No representation or warranty by the Company
contained in this Agreement, in the schedules attached hereto or in any
certificate furnished or to be furnished by the Company to the Purchasers in
connection herewith will omit to state any material fact necessary in order to
make any statement contained herein or therein not misleading. There is no fact
known to the officers and directors of the Company that has specific application
to the Company and that materially adversely affects or, as far as such officers
and directors can reasonably foresee, materially threatens, the assets,
business, prospects, financial condition, or results of operations of the
Company that is required to be and has not been set forth in this Agreement or
any schedule hereto.
4.12 FINOVA Credit Facility. Attached hereto at Schedule 4.12(a) is a
---------------------- ----------------
true, complete and accurate copy of the Loan and Security Agreement, dated as of
June 2, 1998, as amended, between FINOVA and the Company (the "FINOVA
Facility"). Upon giving effect to that certain Amendment No. 2 and Limited
Waiver and Consent to Loan and Security Agreement, substantially in the form
attached as Schedule 4.12(b), no event of default will exist under the FINOVA
----------------
Facility.
4.13 IRS Dispute. The Company SEC Reports, as updated by Schedule
-----------
4.13, attached hereto, fairly describe the status of the Company's dispute with
the Internal Revenue Service.
4.14 U.S. Real Property Holding Corporation. The Company is not now
--------------------------------------
and has never been a "United States real property holding corporation" as
defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the Internal Revenue Service, and the Company has
filed with the Internal Revenue Service all statements, if any, wit its United
States income tax returns which are required under Section 1.897(h) of such
Regulations.
SECTION 5
Representations and Warranties of the Purchasers
------------------------------------------------
Each of the Purchasers (severally and not jointly), hereby represents and
warrants to and agrees with the Company, as follows:
5.1 Accredited Investor; Experience; Risk.
-------------------------------------
5.1.1 Such Purchaser is an accredited investor and has been advised and
understands that the Series D Stock and the Warrants have not been
registered under the
Securities Act, on the basis that no distribution or public offering of
the Series D Stock or Warrants is to be effected, except in compliance
with the applicable securities laws and regulations or pursuant to an
exemption therefrom; provided, however, that nothing in this
-------- -------
Section 5.1 shall limit the Purchaser's right to exercise the Warrants.
5.1.2 Such Purchaser is purchasing the Series D Stock and Warrants for
investment purposes, for its own account and not with a view to, or for
sale in connection with, any distribution thereof in violation of federal
or state securities laws.
5.1.3 Such Purchaser has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of
the purchase of the Series D Stock and Warrants pursuant to this
Agreement.
5.1.4 The certificates representing the Series D Stock, the Warrants and any
securities issuable on exercise of the Warrants shall bear a legend
evidencing such restriction on transfer substantially in the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
SOLD OR TRANSFERRED EXCEPT PURSUANT TO REGISTRATION UNDER THE ACT OR AN
EXEMPTION THEREFROM."
5.2 Authorization. Such Purchaser has all requisite power and
-------------
authority to execute and deliver this Agreement and each of the Transaction
Documents and to perform its obligations hereunder and thereunder. The
execution, delivery and performance of the Agreement and the transactions
contemplated hereby have been duly authorized by all necessary, action on the
part of such Purchaser. Each Transaction Document to which it is a party has
been duly and validly executed and delivered by such Purchaser and constitutes
the legal, valid and binding obligation of such Purchaser, enforceable against
it in accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
5.3 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, or local governmental authority on the part of
such Purchaser is required in connection with the valid execution and delivery
by such Purchaser of the Transaction Documents to which it is a party, or the
consummation by such Purchaser of the transactions contemplated by the
Transaction Documents to which it is a party, except for such filings as have
been made prior to the Closing.
5.4 Organization, Good Standing and Qualification. Such Purchaser (i)
---------------------------------------------
is an entity duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, (ii) has all requisite power and
authority to carry on its business, (iii) is duly qualified to transact business
and is in good standing in all jurisdictions where its ownership, lease or
operation of property or the conduct of its business requires such
qualification, except where the failure to do so would not be material to the
Purchaser.
SECTION 6
Conditions to Closing of Purchasers
-----------------------------------
Each Purchaser's obligation to purchase Shares at the First Closing or any
Additional Closing is, at the option of such Purchaser, subject to the
fulfillment to such Purchaser's reasonable satisfaction on or prior to such
Closing of the following conditions:
6.1 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Company in Section 4 hereof shall be true and correct
when made, and shall be true and correct on the date of such Closing with the
same force and effect as if they had been made on and as of such date.
6.2 Covenants. All covenants, agreements and conditions contained in
---------
this Agreement to be performed by the Company on or prior to the date of such
Closing shall have been performed or complied with in all respects.
6.3 Opinion of Company's Counsel. The Purchasers shall have received
----------------------------
at the First Closing from Stoel Rives LLP, counsel to the Company, an opinion
addressed to the Purchasers, dated the Closing Date, in the form set forth on
Exhibit F.
---------
6.4 No Material Adverse Change. There shall not have occurred since
--------------------------
the date of this Agreement any events or circumstances that could reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect.
6.5 Statement of Rights and Preferences. The Company's Articles of
-----------------------------------
Incorporation shall have been duly amended by the Company to include the Series
D Stock Statement of Rights and Preferences and filed with the Washington
Secretary of State.
6.6 State Securities Laws. All registrations, qualifications and
---------------------
Permits required under applicable state securities laws, if any, shall have been
obtained for the lawful execution, delivery and performance of this Agreement at
such Closing.
6.7 Issuance of Shares, Warrants and Revised Debentures. The Company
----------------------------------------------------
shall have issued and delivered to the Purchasers the Shares, Warrants and
Revised Debentures required to be so delivered at such Closing pursuant to this
Agreement.
6.8 Certificates. Each of the Purchasers shall have received a
------------
certificate of the Chief Executive Officer or Chief Financial Officer of the
Company, dated the date of such Closing, to the effect set forth in Sections
6.1, 6.2 and 6.4.
6.9 Registration Rights Agreement. The Company and all other parties
-----------------------------
thereto shall have executed and delivered the Registration Rights Agreement to
Purchasers.
6.10 Consents. The Company shall have obtained all written consents
--------
necessary for the Company to complete the transactions contemplated hereby,
including, without limitation, the consent of FINOVA.
6.11 Revised FINOVA Facility. The Company and FINOVA shall have
-----------------------
executed an Amendment and Waiver Agreement with respect to the FINOVA Facility,
substantially in the form of Schedule 4.12(b).
6.12 Delivery of Financial Information. The Company shall have
---------------------------------
delivered the following financial information (i) calculation of loan
covenant(s) in default on November 30, 1998 and December 31, 1998, (ii) Fiscal
Year 2000 financial projections on a monthly basis of Income Statement, Balance
Sheet, Cash Flows and Borrowing Capacity on the same format as previous internal
projections (which shall be based on the revised Fiscal Year 2000 projections
provided to FINOVA on December 23, 1998), (iii) monthly analysis for Fiscal Year
1999 of actual Income Statement, Balance Sheet, Cash Flows and Borrowing
Capacity on the same format as the Fiscal year 1999, 2000 and 2001 projections
(with the December 1998 and January 1999 amounts in projection form); (iv)
detailed aging of accounts payable as of the periods ended November and December
1998, (v) detailed analysis of sales delineated between men's and women's lines
and major category of goods, for the months of November 1998 and December 1998,
together with beginning and ending inventories for each such category, (vi)
updated summary of the estimated cost of new computer hardware and software
giving effect to new projected numbers of stores for Fiscal Year 2000, and (vii)
listing of cost saving measures, estimate amount saved and timetables for
implementation.
SECTION 7
Conditions to Closing of the Company
------------------------------------
The Company's obligation to issue and sell Shares or Warrants at the First
Closing or any Additional Closing is, at the option of the Company, subject to
the fulfillment of the following conditions:
7.1 Representations. The representations and warranties made by the
---------------
Purchasers in Section 5 hereof shall be true and correct when made, and shall be
true and correct on the date of such Closing with the same force and effect as
if they had been made on and as of such date.
7.2 Purchase Price. The Purchasers shall have tendered the purchase
--------------
price for the shares to be purchased at such Closing.
7.3 Certificate. The Company shall have received a certificate from
-----------
the Purchasers to the effect set forth in Section 7.1.
7.4 State Securities Laws. All registrations, qualifications and Permits
---------------------
required under applicable state securities laws, if any, shall have been
obtained for the lawful execution, delivery and performance of this Agreement.
7.5 Registration Rights Agreement. The Purchasers and the Company
-----------------------------
shall have executed and delivered the Registration Rights Agreement to the
Company.
SECTION 8
Covenants of the Company
------------------------
Unless waived by the holders of not less than 75% of the Series D Stock
then outstanding:
8.1 Information. Following the First Closing and continuing so long as
-----------
any shares of Series D Stock remain outstanding (or such earlier time as
provided below), the Company shall deliver to each of the Purchasers the
information specified in this Section 8.1 unless any such Purchaser at any time
specifically requests that such information not be delivered to it:
8.1.1 Quarterly Financial Statements. As soon as available, but in any event
------------------------------
not later than forty-five (45) days after the end of each quarterly
fiscal period (other than the last quarterly fiscal period in any fiscal
year of the Company), the unaudited consolidated balance sheet of the
Company and its Subsidiaries as at the end of each such period and the
related unaudited consolidated statements of income and cash flows of the
Company and its Subsidiaries for such period and for the elapsed period
in such fiscal year, all in reasonable detail and stating in comparative
form (i) the figures as of the end of and for the comparable periods of
the preceding fiscal year and (ii) the figures reflected in the operating
budget (if
any) for such period as specified in the financial plan of the Company.
All such financial statements shall be prepared in accordance with GAAP
applied on a consistent basis throughout the periods reflected therein
except as stated therein.
8.1.2 Annual Financial Statements. As soon as available, but in any event
---------------------------
within one hundred twenty (120) days after the end of each fiscal year of
the Company, a copy of the audited consolidated balance sheets of the
Company and its Subsidiaries as at the end of such fiscal year and the
related audited consolidated statements of operations, stockholders'
equity and cash flows of the Company and its Subsidiaries for such fiscal
year, all in reasonable detail and stating in comparative form the
figures as at the end of and for the immediately preceding fiscal year,
accompanied (in the case of the audited consolidated financial
statements) by an opinion of an accounting firm of recognized national
standing selected by the Company, which opinion shall state that such
accounting firm's audit was conducted in accordance with generally
accepted auditing standards. All such financial statements shall be
prepared in accordance with GAAP applied on a consistent basis throughout
the periods reflected therein except as stated therein.
8.1.3 Other Financial Information. Not less often than monthly, (i) financial
---------------------------
statements in the form internally generated by the Company, (ii) a roll-
forward activity report under the FINOVA line of credit, (iii) a detailed
aging of vendor payables, (iv) an "open to buy" report and (v) weekly or
monthly inventory status and sales reports by store;
8.1.4 Material Litigation. Within twenty (20) days after the Company learns of
-------------------
the commencement or written threat of commencement of any litigation or
proceeding against the Company, any of its Subsidiaries or any of the
Partnerships or any of their respective assets that could reasonably be
expected to have a Material Adverse Effect, written notice of the nature
and extent of such litigation or proceeding.
8.1.5 Material Agreements. Within five (5) days after the expiration of the
-------------------
applicable cure period, if any, or if no such cure period exists within
five (5) days after the receipt by the Company of written notice of a
default by the Company or any of its Subsidiaries under any material
contract, agreement or document to which it is a party or by which it is
bound, written notice of the nature and extent of such default.
8.1.6 Other Reports and Statements. Promptly upon (i) any distribution to its
----------------------------
stockholders generally, to its directors or to the financial community of
an annual report, quarterly report, proxy statement, registration
statement or other similar report or communication, (ii) filing by the
Company with the SEC or with The National Market System, Inc., the
National Association of Securities Dealers, Inc.
or any national securities exchange or other market system of any and all
regular and other reports or applications, or (iii) the issuance of any
press release or other communication to the general public, a copy of
each such report, application release or other communication.
8.1.7 Accountants' Management Letters, Etc. Promptly after receipt by the
-------------------------------------
Company, copies of all accountants' management letters and all management
and board responses to such letters, and copies of all certificates as to
compliance, defaults, material adverse changes, material litigation or
similar matters relating to the Company and its Subsidiaries, which shall
be prepared by the Company or its officers and delivered to the third
parties.
8.1.8 Stockholders' Lists. Within sixty (60) days after the end of each fiscal
-------------------
year, a stockholders' list, showing the authorized and outstanding shares
by class (including the Common Stock equivalents of any convertible
security), the holders of all outstanding shares (both before giving
effect to dilution and on a fully diluted basis) and all outstanding
options, warrants and convertible securities, and detailing all options
and warrants granted, exercised or lapsed (including in each case,
without limitation, all option and warrant exercise prices, stock
issuance prices' and other terms) and all shares issued or sold (whether
to directors or managers, in connection with financing or otherwise).
8.1.9 Annual Budget. Promptly after management presents an annual budget to
-------------
the Board of Directors, a copy of such annual budget, but in no event
later than 30 days before year-end.
8.2 Communication. At the request of any Purchaser that continues to
-------------
hold Series D Stock, the Company shall hold weekly status meetings among the
Company's management group and such Purchasers to discuss items proposed by such
Purchasers.
8.3 Access. So long as the Purchasers hold at least fifteen percent
------
(15%) of the Series D Stock purchased hereunder, upon the written request of the
Purchasers, the Company shall afford the Purchasers and its accountants, counsel
and other representatives, full access during normal business hours to all of
its properties, books, contracts, commitments and records, permit them to copy
or make extracts therefrom and, the Company shall furnish promptly to Purchasers
all information concerning its business, properties and personnel as Purchasers
may reasonably request; provided, however, that no investigation pursuant to
-------- -------
this Section 8.3 shall affect any representations or warranties of either party
hereunder.
8.4 Directors' and Officers' Insurance. So long as the Purchasers
----------------------------------
hold at least fifteen percent (15%) of the Series D Stock purchased hereunder,
the Company shall maintain a directors' and officers' liability insurance policy
providing coverage in the amount of not less than One Million Dollars
($1,000,000) and having such other terms as are reasonably acceptable to
Purchasers.
8.5 Confidentiality. From and after the date of this Agreement, each
---------------
of the Company and Purchasers agree to hold, and will cause its employees,
agents and representatives to hold, in confidence, unless compelled to disclose
by judicial or administrative process or, in the written opinion of their
counsel, by other requirements of law, information furnished by the Company, on
the one hand, to Purchasers and information furnished by Purchasers, on the
other hand, to the Company in connection with the transactions contemplated by
this Agreement, and each of such persons agree that they shall not release or
disclose such information to any other person, except their respective officers,
directors, partners, employees, auditors, attorneys, financial advisors and
other consultants, advisors and representatives who need to know such
information and who have been informed of the confidential nature of such
information and have been directed to treat such information as confidential.
The foregoing provisions of this Section 8.5 shall not apply to any such
information which (i) becomes generally available to the public other than as a
result of a disclosure by any person bound hereunder, (ii) was available to a
person bound hereunder on a non-confidential basis prior to its disclosure
hereunder, (iii) becomes available to any person bound hereunder on a non-
confidential basis by virtue of the disclosure thereof by a source other than
the party providing such information in reliance upon the protection of
confidentiality reposed hereby, or (iv) is required to be disclosed pursuant to
an order of a court of competent jurisdiction, provided that if disclosure is so
required, the disclosing party shall provide notice of the same to each other
party hereto.
Notwithstanding anything herein to the contrary, from and after the date of
this Agreement, if either party to this Agreement or any agreement contemplated
herein shall be required by law to file as part of any public record this
Agreement or the agreements relating to any transactions contemplated hereby,
both parties shall jointly identify those provisions, if any, of such agreements
that shall remain confidential and shall request and seek confidential treatment
of those provisions in accordance with the applicable provisions of any
applicable law, rule or regulation, and shall take all reasonable actions
necessary to secure such confidential treatment.
8.6 Restrictive Covenant. Without the consent of the holders of 75%
--------------------
of the Series D Stock then outstanding, the Company may not fail to use the
proceeds of the sale of any Shares as required under the terms of any agreement
that was a condition of any such sale.
8.7 Foreign Corrupt Practices. Neither the Company nor any Subsidiary
-------------------------
will offer or agree to offer anything of value to any governmental official,
political party or candidate for government office nor will it otherwise take
any action that would cause the Company to be in violation of the U.S. Foreign
Corrupt Practices Act or any law of similar effect.
8.8 Payment of Expenses. At each Closing, the purchasers may deduct
-------------------
from the Purchase Price otherwise payable for the Shares being purchased at such
Closing, the amount of their reasonable expenses associated with the
transactions contemplated hereby and not earlier paid.
8.9 Additional Warrants. As long as the New Debentures remain
-------------------
outstanding, on each anniversary of January 1, the Company shall issue to the
holders of New Debentures additional Debenture Warrants to acquire two percent
(2%) of the then outstanding shares of Common Stock of the Company, on a fully
diluted basis. The Debenture Warrants so issued will have an exercise price
equal to the average Fair Market Value (as defined in the Debenture Warrant) for
the 15 days prior to the issuance of such Debenture Warrant. The Company will
reserve a sufficient number of additional shares of Common Stock prior to each
subsequent issuance of Debenture Warrants.
SECTION 9
Miscellaneous
-------------
9.1 Amendment; Waiver. Neither this Agreement nor any provision
-----------------
hereof may be amended, modified, supplemented or waived, except by a written
instrument executed by (i) the Company and (ii) the Purchasers.
9.2 Notices. Any notices or other communications required or
-------
permitted hereunder shall be sufficiently given if in writing and delivered in
Person, transmitted by facsimile transmission (fax) or sent by registered or
certified mail (return receipt requested) or recognized overnight delivery
service, postage pre-paid, addressed as follows, or to such other address has
such party may notify to the other parties in writing:
9.2.1 if to the Company:
Xxx Xxxxxx, Inc.
0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxxxx, Xx.
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
with a copy to:
Stoel Rives, LLP
000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxx X. Xxxxx, Esq.
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
9.2.2 if to the Purchasers:
c/x Xxxxxx, Xxxxxxx & Company, LLC
Xxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxx X. Xxxxxx
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
with a copy to:
Xxxxxx, Xxxxxx & Xxxxxxxxx
0000 X Xx. XX
Xxxxxxxxxx, X.X. 00000
Attn: Xxxxxx X. Xxxxxx, Esq.
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
and a copy to:
X. Xxxx Price Associates
000 Xxxx Xxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxxx, XX 00000
Attn: Xxx Xxxxxx
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
and a copy to:
Xxxxx Xxxxxxx & Xxxxxxxxx, LLP
High Street Tower
000 Xxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxxxxxx Xxxxxxx, Esq.
Facsimile No.: 000-000-0000
A notice or communication will be effective (i) if delivered in Person or by
overnight courier, on the business day it is delivered, (ii) if transmitted by
telecopier or EMail, on the business day of actual confirmed receipt by the
addressee thereof, and (iii) if sent by registered or certified mail, three (3)
business days after dispatch.
9.3 Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
9.4 Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors and permitted assigns of the parties hereto. No party hereto may
assign its rights or delegate its obligations under this Agreement without the
prior written consent of the other parties hereto.
9.5 Survival of Representations, Warranties and Covenants. All
-----------------------------------------------------
representations and warranties made in, pursuant to or in connection with this
Agreement shall survive the execution and delivery of this Agreement, any
investigation at any time made by or on behalf of any Purchaser, and the sale
and purchase of the Series D Stock and payment therefor for a period of two (2)
years. All covenants shall survive as long as any of the Purchasers hold any
shares of Series D Stock.
9.6 Entire Agreement. This Agreement and the other documents
----------------
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subject matter hereof and
thereof and supersede and cancel all prior representations, alleged warranties,
statements, negotiations, undertakings, letters, acceptances, understandings,
contracts and communications, whether verbal or written, among the parties
hereto and thereto or their respective agents with respect to or in connection
with the subject matter hereof.
9.7 Choice of Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the laws of the State of Delaware, without regard to
principles of conflict of laws.
9.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
9.9 Costs and Expenses. The Company shall pay all reasonable fees
------------------
and expense of the Purchasers. The Purchasers shall have the right to reduce
the amount of the purchase price to offset any amounts payable for their costs
and expenses associated with the transactions contemplated hereby.
9.10 No Third-Party Beneficiaries. Nothing in this Agreement will
----------------------------
confer any third party beneficiary or other rights upon any Person (specifically
including any employees of the Company and its Subsidiaries) or entity that is
not a party to this Agreement.
9.11 Indemnification.
---------------
9.11.1 The Company agrees to indemnify and hold harmless the Purchasers and
their Affiliates, and their respective partners, co-investors, officers,
directors, employees, agents, consultants, attorneys and advisers (each,
an "Indemnified Party"), from and against any and all actual losses,
-----------------
claims, damages, liabilities, costs and expenses (including, without
limitation, environmental liabilities, costs and expenses and all
reasonable fees, expenses and disbursements of counsel), joint or
several (hereinafter collectively referred to as a "Loss"), which may be
----
incurred by or asserted or awarded against any Indemnified Party in
connection with or in any manner arising out of or relating to any
investigation, litigation or proceeding or the preparation of any
defense with respect thereto, arising out of or in connection with or
relating to this Agreement, the other Transaction Documents or the
transactions contemplated hereby or thereby or any use made or proposal
to be made with the proceeds of the Purchasers' purchase of the Series D
Stock pursuant to this Agreement, whether or not such investigation,
litigation or proceeding is brought by the Company, any of its
Subsidiaries, shareholders or creditors, whether or not any of the
transactions contemplated by this Agreement or the other Transaction
Documents are consummated, except to the extent such Loss is found in a
final judgment by a court of competent jurisdiction to have resulted
from such Indemnified Party's gross negligence or willful misconduct.
9.11.2 An Indemnified Party shall give written notice to the Company of any
claim with respect to which it seeks indemnification within ten (10)
days after the discovery by such parties of any matters giving rise to a
claim for indemnification pursuant to Section 9.11(a); provided that the
--------
failure of any Indemnified Party to give notice as provided herein shall
not relieve the Company of its obligations under this Section 9.11,
except to the extent that the Company is actually prejudiced by such
failure to give notice. In case any such action or claim is brought
against any Indemnified Party, the Company shall be entitled to
participate in and, unless in the reasonable good faith judgment of the
Indemnified Party a conflict of interest between such Indemnified Party
and the Company may exist in respect of such action or claim, to assume
the defense thereof, with counsel satisfactory to the Indemnified Party
and after notice from the Company to the Indemnified Party of its
election so to assume the defense thereof, the Company shall not be
liable to such Indemnified Party for any legal or other expenses
subsequently incurred by the latter in connection with the defense
thereof other than reasonable costs of investigation. In any event,
unless and until the Company elects in writing to assume and does so
assume the defense of any such action or claim the Indemnified Party's
costs and expenses arising out of the defense, settlement or compromise
of any such action or claim shall be Losses subject to
indemnification hereunder. If the Company elects to defend any such
action or claim, then the Indemnified Party shall be entitled to
participate in such defense with counsel of its choice at its sole cost
and expense. The Company shall not be liable for any settlement of any
action or claim effected without its written consent. Anything in this
Section 9.11 to the contrary notwithstanding, the Company shall not,
without the Indemnified Party's prior written consent, settle or
compromise any claim or consent to entry of any judgment in respect
thereof that imposes any future obligation on the Indemnified Party or
that does not include, as an unconditional term thereof, the giving by
the claimant or the plaintiff to the Indemnified Party, a release from
all liability in respect of such claim.
9.12 Dispute Resolution. Any dispute, controversy or claim arising
------------------
out of or relating to this Agreement, or the breach termination validity
thereof, shall be settled by arbitration in accordance with the American
Arbitration Association (AAA) Commercial Rules as at present in force. The
number of arbitrators shall be one. The arbitrator shall be neutral and
appointed by the AAA. The place of arbitration shall. commence no later than
thirty (30) days after the Arbitrator has been appointed. The losing party
shall be responsible for the costs and expenses incurred by both sides with
respect to the arbitration.
[The remainder of this page is intentionally blank.]
SECURITIES PURCHASE AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the Company and the Purchasers have caused this
Agreement to be executed effective as of the date first above written.
XXX XXXXXX, INC.
By:_____________________________________
Xxx Xxxxx Xxxxxxx
President and Chief Executive Officer
XXXXXX, XXXXXXX STRATEGIC
PARTNERS FUND, L.P.
By: Xxxxxx, Xxxxxxx Strategic Partners, L.P., its
general partner
By:_____________________________________
Xxxxxx X. Xxxxxx, a general partner
STRATEGIC ASSOCIATES, L.P.
By: Xxxxxx, Xxxxxxx & Company, LLC, its general partner
By:_____________________________________
Xxxxxx X. Xxxxxx, a managing member
X. XXXX PRICE RECOVERY FUND II, L.P.
By: X. Xxxx Price Recovery Fund II Associates, LLC,
its general partner
By:_____________________________________
Xxx X. Xxxxxx, its managing director
Exhibit A
---------
Name
----
Xxxxxx, Xxxxxxx Strategic Partners Fund, L.P. 12,180 $1,218,000
Strategic Associates, L.P. 680 68,000
X. Xxxx Price Recovery Fund II, L.P. 7,140 714,000
Total 20,000 $2,000,000
Number of Shares of
Number of Shares of Common Stock Underlying
Common Stock Underlying Debenture Warrants
Closing Warrants to be Issued at Closing
------------------------------------------ ------------------------------- -----------------------------
Xxxxxx, Xxxxxxx Strategic Partners Fund, L.P. 1,168,514 105,166
Strategic Associates, L.P. 65,237 5,872
X. Xxxx Price Recovery Fund II, L.P. 684,991 61,649
Total 1,918,743 172,687
Exhibit B
---------
Registration Rights Agreement
Exhibit C
---------
Statement of Rights and Preferences of Series D Stock
Exhibit D
---------
Form of Warrant Certificate
Exhibit E
Form of New Debentures
Exhibit F
Form of Stoel Rives LLP Opinion
SCHEDULE 4.2
OUTSTANDING SECURITIES AND RIGHTS
1. Attached hereto is current list of outstanding options to purchase Common
Stock.
2. The following warrants to acquire Common Stock are currently outstanding:
Name Number of Warrant Shares
---------------------------------------------------- ------------------------
Xxxxxx, Xxxxxxx Strategic Partners Fund, L.P. 68,013
Strategic Associates, L.P. 3,797
X. Xxxx Price Recovery Fund II, L.P. 39,870
SCHEDULE 4.3
SUBSIDIARIES
J.J. Distribution Company
Date of Incorporation: February 16, 1993
Jurisdiction: Washington
Shares of Authorized Capital Stock: 10,000
Shares of Issued and Outstanding Stock: 10,000
Stockholders: J.J. Distribution Company is a
wholly-owned subsidiary of the
Company
Liens: Pursuant to the FINOVA Facility,
all issued and outstanding capital
stock of J.J. Distribution Company
is pledged in favor of FINOVA.
SCHEDULE 4.8
RECENT CHANGES
None.
SCHEDULE 4.9
UPDATE OF PRIOR REPRESENTATIONS AND WARRANTIES
1. To the extent the representations and warranties contained in Section 4 of
this Agreement are inconsistent with the representations and warranties
contained in Section 4 of the Preferred Agreement or Section 5 of the
Debenture Purchase Agreement, the representations and warranties contained
in Section 4 of the Purchase Agreement and Section 5 of the Debenture
Purchase Agreement are hereby qualified and are superseded by the
representations and warranties contained in Section 4 of this Agreement.
2. The disclosure of the Company with respect to Schedule 4.11 of the
Preferred Agreement is amended to read as follows:
1. J.J. Distribution Company is a wholly-owned subsidiary of the
Company.
2. ADP Prototype 401(k) Plan Administrative Services Agreement and
Trust Agreement dated February 2, 1996.
3. The Company's Insurance Summary (attached hereto).
4. The Preferred Agreement and all agreements associated therewith.
5. The Debenture Purchase Agreement and all agreements associated
therewith.
6. The FINOVA Facility.
7. Agreement with SPS Payment Systems, dated April __, 1998.
3. The disclosure of the Company with respect to Schedule 4.13 of the
Preferred Agreement is amended to include the Registration Rights
Agreement, dated as of March 11, 1998, between the Company and the
Purchasers.
4. The disclosure of the Company with respect to Schedule 4.15 of the
Preferred Agreement is amended to reflect the changes to the number and
composition of the Company's stores, a current listing of which is attached
hereto.
5. The disclosure of the Company with respect to Schedule 4.16(c) of the
Preferred Agreement is amended to (i) delete the security interests created
by the Revolving Credit Loan to the Company by General Electric Capital
Corporation, and (ii) include the security interests created by the FINOVA
Facility.
6. The disclosure of the Company with respect to Schedule 4.21 of the
Preferred Agreement and Schedule 5.8 of the Debenture Purchase Agreement is
amended by the attached disclosure relating to payments over 30 days past
due by the Company.
SCHEDULE 4.10
LITIGATION
None, except as set forth at Schedule 4.13.
SCHEDULE 4.12(a)
FINOVA FACILITY
Attached hereto.
SCHEDULE 4.12(b)
FINOVA AMENDMENT AND WAIVER
Attached hereto.
SCHEDULE 4.13
UPDATE OF IRS STATUS
At January 7, 1999, additional requests for information regarding the
Company's filings for the fiscal year ended January, 1996 had been received by
the Company from the IRS auditor. An audit conference is not expected until
late spring or summer of 1999.
