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EXHIBIT 10.4
SECURITIES PURCHASE AGREEMENT
Among
ACCESSORIES ASSOCIATES, INC.
WESTON PRESIDIO CAPITAL II, L.P.
AND CERTAIN OTHER INVESTORS
As of May 31, 1996
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TABLE OF CONTENTS
1. DEFINITIONS.................................................................1
2. SALE AND PURCHASE OF SECURITIES.............................................7
2.1. Investor Securities....................................................7
2.2. Agreement to Sell and Purchase.........................................8
2.3. Closing................................................................8
2.4. Use of Proceeds........................................................8
3. CONDITIONS TO PURCHASE......................................................8
3.1. Investor Agreements....................................................9
3.2. Accountants Report.....................................................9
3.3. Legal Opinion..........................................................9
3.4. Representations and Warranties; Officer's Certificate..................9
3.5. Issuance of Investor Securities........................................9
3.6. SBA Compliance.........................................................9
3.7. Key Executive Insurance...............................................10
3.8. Legality; Governmental Authorization..................................10
3.9. General...............................................................10
4. REPRESENTATIONS AND WARRANTIES.............................................10
4.1. Material Agreements...................................................10
4.2. Organization and Subsidiaries; Business...............................11
4.2.1. The Company......................................................11
4.2.2. Subsidiaries.....................................................11
4.2.3. Conduct of Business..............................................11
4.3. Capitalization........................................................11
4.3.1. Capital Stock of the Company.....................................12
4.3.2. Options, etc.....................................................12
4.3.3. Capital Stock of the Subsidiaries................................12
4.3.4. Subsidiary Options, etc..........................................12
4.4. Reports, Financial Statements and Other Documents.....................12
4.5. Changes in Condition..................................................13
4.5.1. Material Adverse Effect..........................................13
4.5.2. Extraordinary Transactions, etc..................................13
4.6. Solvency..............................................................14
4.7. Contractual Obligations, etc..........................................14
4.7.1. Certain Contracts................................................14
4.7.2. Nature of Contracts..............................................15
4.7.3. Charter or By-Laws...............................................15
4.7.4. Insurance........................................................15
4.7.5. Transactions with Affiliates.....................................15
4.8. Operations in Conformity With Law, etc................................15
4.9. Environmental Matters.................................................16
4.10. Employee Benefit Plans...............................................16
4.11. Labor Relations......................................................16
4.12. Taxes................................................................17
4.13. Litigation...........................................................17
4.14. Violation of Other Instruments.......................................17
4.15. Filings, Broker's Fees, etc..........................................18
4.16. SBA Matters..........................................................18
4.17. Governmental Regulation..............................................18
4.18. Margin Stock.........................................................18
4.19. Real Property Holding Corporation....................................18
4.20. Disclosure...........................................................18
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5. GENERAL COVENANTS..........................................................18
5.1. Covenants Relating to the Company's Board of Directors................18
5.1.1. Board of Directors.................................................19
5.1.2. Directors Expenses.................................................19
5.1.3. Indemnity..........................................................19
5.2. Information and Reports to be Furnished...............................19
5.2.1. Annual Statements..................................................19
5.2.2. Quarterly Reports..................................................20
5.2.3. Monthly Reports....................................................20
5.2.4. Annual Budgets.....................................................20
5.2.5. Officers' Certificates.............................................20
5.2.6. Notice of Litigation, Defaults, etc................................20
5.2.7. Notices under Material Agreements..................................21
5.2.8. Information Provided to Stockholders...............................21
5.2.9. Information Provided to Banks......................................21
5.2.10. Other Information.................................................21
5.2.11. Interview Rights..................................................21
5.3. Conduct of Business...................................................21
5.3.1. Type of Business.................................................21
5.3.2. Maintenance of Properties, etc...................................22
5.3.3. Compliance with Laws.............................................22
5.3.4. Insurance........................................................22
5.3.5. Foreign Qualification............................................22
5.4. Charter Amendment, etc................................................22
5.5. Merger, Consolidation and Sale of Assets..............................23
5.6. Indebtedness..........................................................23
5.7. Guarantees............................................................23
5.8. Liens.................................................................24
5.9. Investments and Acquisitions..........................................25
5.10. Distributions........................................................25
5.11. Capital Expenditures.................................................26
5.12. Lease Obligations....................................................26
5.13. Compensation, etc....................................................26
5.14. Stock Issuance, Etc..................................................27
5.15. Closing Costs........................................................27
5.16. Amendment of Material Agreements, etc................................27
5.17. Replacement of Chief Executive.......................................27
5.18. Ownership of Subsidiary Stock........................................28
5.19. Transactions with Affiliates........................................28
5.21. SBA Requirements.....................................................28
5.21.1. Information......................................................28
5.21.2. Compliance; Rescission Right.....................................28
5.22. Annual Meeting.......................................................29
5.23. Listing of Shares....................................................29
5.24. Real Property Holding Corporation...................................29
5.25. Regulatory Compliance Cooperation....................................29
6. INVESTOR SECURITIES; RESTRICTIONS ON TRANSFER.............................30
6.1. Representations and Warranties of the Investors.......................30
6.2. Home Office Payment...................................................31
6.3. Replacement of Lost Securities........................................31
6.4. Transfer, Exchange and Conversion of Capital Stock....................31
6.5. Restrictions on Transfer.................................................32
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6.5.1. Restrictive Legend..................................................32
6.5.2. Transfer Restrictions; Notice of Proposed Transfer;
Opinions of Counsel................................................32
6.5.3. Termination of Restrictions........................................33
7. EXPENSES, ETC..............................................................33
7.1. Expenses.............................................................33
7.2. Indemnification......................................................33
7.3. Survival.............................................................34
8. NOTICES....................................................................34
9. CONFIDENTIALITY............................................................34
10. AMENDMENTS AND WAIVERS....................................................34
11. SURVIVAL AND TERMINATION OF COVENANTS.....................................35
12. SERVICE OF PROCESS........................................................35
13. WAIVER OF JURY TRIAL......................................................35
14. GENERAL...................................................................36
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EXHIBITS
1 Investors, Preferred Stock and Purchase Price
2.1A Warrant
2.1B Investor Note
2.1C Certificate of Designation
2.4 Use of Proceeds on Closing Date
3.3 Opinion of Counsel to the Company
4.1.1 Stock Option Plan
4.1.2 Employment Agreements
4.2.2 Subsidiaries
4.3.1 Capitalization and Stock Ownership
4.3.3 Capital Stock of Subsidiaries
4.4 Pro Forma Balance Sheet and Projections
4.5.2 Extraordinary Transactions
4.7 Contracts, etc.
4.9 Environmental Matters
4.10 Employee Benefit Plans
4.12 Taxes
4.15 Filings, Broker's Fees, etc.
5.7 Guarantees
5.13 Compensation
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SECURITIES PURCHASE AGREEMENT
This Agreement, dated as of May 31, 1996, is among Accessories
Associates, Inc., a Rhode Island corporation (the "COMPANY"), Weston Presidio
Capital II, L.P. and the other Investors set forth in Exhibit 1 hereto. The
parties agree as follows:
1. Certain capitalized terms are used in this Agreement as
specifically defined below in this Section 1. Except as the context otherwise
explicitly requires, (a) the capitalized term "Section" refers to sections of
this Agreement, (b) the capitalized term "Exhibit" refers to exhibits to this
Agreement, (c) references to a particular Section include all subsections
thereof, (d) the word "including" shall be construed as "including without
limitation", (e) accounting terms not otherwise defined herein have the meaning
provided under GAAP, (f) references to a particular statute or regulation
include all rules and regulations thereunder and any successor statute,
regulation or rules, in each case as from time to time in effect and (g)
references to a particular Person include such Person's successors and assigns
to the extent not prohibited by this Agreement and the other Investor Documents.
References to "the date hereof" mean the date first set forth above.
1.1. "AFFILIATE" means any Person directly or indirectly
controlling, controlled by or under direct or indirect common control with the
Company (or other specified Person) and shall include (a) any Person who is an
officer, director or beneficial holder of at least 10% of the outstanding
capital stock of the Company (or other specified Person), (b) any Person of
which the Company (or other specified Person) or an Affiliate (as defined in
clause (a) above) of the Company (or other specified Person) shall, directly or
indirectly, either beneficially own at least 10% of the outstanding equity
securities or constitute at least a 10% participant, and (c) in the case of a
specified Person who is an individual, Members of the Immediate Family of such
Person; PROVIDED, HOWEVER, that the Investors shall not be Affiliates of the
Company for purposes of this Agreement.
1.2. "BALANCE SHEET" is defined in Section 4.4.
1.3. "BY-LAWS" means all written rules, regulations, procedures and
by-laws and all other similar documents, relating to the management, governance
or internal regulation of a Person other than an individual, or interpretive of
the Charter of such Person, each as from time to time amended or modified.
1.4. "CAPITAL EXPENDITURES" means amounts which should in
accordance with GAAP be added to the fixed assets account on the consolidated
balance sheet of the Company and its Subsidiaries, in respect of (a) the
acquisition, construction, improvement or replacement of assets or leaseholds,
and (b) to the extent related to and not included in clause (a) above,
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expenditures on account of materials, contract labor and director labor
(excluding expenditures properly chargeable to repairs and maintenance in
accordance with GAAP).
1.5. "CAPITALIZED LEASE" means any lease which is or should be
capitalized on the balance sheet of the lessee in accordance with GAAP and
Statement No. 13 of the Financial Accounting Standards Board.
1.6. "CERTIFICATE OF DESIGNATION" is defined in Section 2.1.
1.7. "CFR" is defined in Section 4.16.
1.8. "CHARTER" means the articles of organization, certificate of
incorporation, statute, constitution, joint venture or partnership agreement,
management agreement or other charter of any Person other than an individual,
each as from time to time amended or modified.
1.9. "CLOSING" is defined in Section 2.3.
1.10. "CLOSING COSTS" means the sum of expenses recognized in the
Company's fiscal year ending in December 1996 for amortization of transaction
expenses, including investment banker's fees and legal fees and expenses
relating to the financings contemplated by this Agreement and the Investor
Agreements.
1.11. "CLOSING DATE" is defined in Section 2.3.
1.12. "CODE" means the federal Internal Revenue Code of 1986.
1.13. "COMMON STOCK" means the common stock, $0.01 par value, of
the Company.
1.14. "COMMISSION" means the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act, the
Exchange Act or both.
1.15. "COMPANY" is defined in the Preamble.
1.16. "COMPENSATION" as applied to any Person means the aggregate
of all salaries, compensation, remuneration or bonuses of any character,
retirement or pension benefits of any kind, or other payments of any kind
whatsoever (other than health and medical benefits made available to employees
generally and advances and reimbursements of business expenses) made directly or
indirectly by the Company, any of its Subsidiaries or other specified Persons to
such Person and Affiliates of such Person.
1.17. "CONSOLIDATED", when used with reference to any term, means
that term as applied to the accounts of the Company or other indicated Person
and each of its respective
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Subsidiaries, consolidated or combined in accordance with GAAP after eliminating
all inter-company items and with appropriate deductions for minority interests
in Subsidiaries.
1.18. "CONTRACTUAL OBLIGATION" means, with respect to any Person,
any contracts, agreements, deeds, mortgages, leases, licenses, other
instruments, commitments, undertakings, arrangements or understandings, written
or oral, or other documents, including any Charter or By-law provisions and any
document or instrument evidencing Indebtedness, to which any such Person is a
party or otherwise subject to or bound by or to which any asset of any such
Person is subject.
1.19. "DISTRIBUTION" means (a) the declaration or payment of any
dividend on or in respect of any shares of any class of capital stock of the
Company, any of its Subsidiaries or other specified Person, other than dividends
payable solely in shares of the common stock of the payor; (b) the purchase,
redemption or other retirement of any shares of any class of capital stock of
the Company, any of its Subsidiaries or other specified Person directly, or
indirectly through a Subsidiary or otherwise; or (c) any other distribution on
or in respect of any shares of any class of capital stock of the Company, any of
its Subsidiaries or other specified Person.
1.20. "EMPLOYEE BENEFIT PLAN" means each "employee benefit plan" as
defined in section 3(3) of ERISA, maintained or contributed to by the Company,
any of its Affiliates of any of their respective predecessors, or in which the
Company, any of its Affiliates or any of their respective predecessors
participates or participated and which provides benefits to employees of the
Company or their spouses or covered dependents or with respect to which the
Company has or may have a material liability, including, (i) any such plans that
are "employee welfare plans" as defined in section 3(1) of ERISA and (ii) any
such plans that are "employee pension benefit plans" as defined in section 3(2)
of ERISA.
1.21. "ERISA" means the federal Employee Retirement Income Security
Act of 1974.
1.22. "ERISA GROUP", with respect to any entity, means any Person
which is a member of the same "controlled group" or under "common control",
within the meaning of section 414(b) or (c) of the Code or section 4001(b)(1) of
ERISA, with such entity.
1.23. "EXCHANGE ACT" means the federal Securities Exchange Act of
1934.
1.24. "GAAP" means generally accepted accounting principles, as in
effect from time to time, applied on a basis consistent with that used in
preparation of the financial statements referred to in Section 4.4, consistently
applied.
1.25. "GUARANTEE" means (a) any guarantee of the payment or
performance of, or any contingent obligation in respect of, any Indebtedness or
other obligation of any other Person, (b) any other arrangement whereby credit
is extended to one obligor on the basis of any promise
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or undertaking of another Person (i) to pay the Indebtedness of such obligor,
(ii) to purchase any obligation owed by such obligor, or (iii) to maintain the
capital, working capital, solvency or general financial condition of such
obligor, whether or not such arrangement is disclosed in the balance sheet of
such other Person or is referred to in a footnote thereto or appears in a "keep
well" agreement, "comfort letter" or "take or pay" agreement, and (c) any
liability of the Company or any of its Subsidiaries as general partner of a
partnership or as a venturer in a joint venture in respect of Indebtedness or
other obligations of such partnership or venture; PROVIDED, HOWEVER, that in no
event shall Guarantees include product warranties given in the ordinary course
of business.
1.26. "HAZARDOUS MATERIAL" is defined in Section 4.9.
1.27. "INDEBTEDNESS" means (a) all debt for borrowed money and
similar monetary obligations evidenced by bonds, notes, debentures, capitalized
lease obligations, deferred purchase price of property (other than ordinary
trade payables) or otherwise, whether direct or indirect; and (b) all
liabilities secured by any Liens existing on property owned or acquired, whether
or not the liability secured thereby shall have been assumed.
1.28. "INVESTMENT" means (a) any share of capital stock, evidence
of Indebtedness or other security issued by any other Person, (b) any loan,
advance, or extension of credit to, or contribution to the capital of, any other
Person, (c) any purchase of the securities or assets constituting a business or
a division or similar portion of the business of any other Person, (d) any
commitment or option to make such an investment if, in the case of an option,
the consideration therefor exceeds $100,000, and (e) any other investment;
PROVIDED, HOWEVER, that the term "Investment" shall not include (i) current
trade and customer accounts receivable arising in the ordinary course of
business and payable in accordance with customary trade terms or prepaid assets
arising in the ordinary course of business, (ii) advances to employees for
travel expenses, drawing accounts and similar expenditures, (iii) stock or other
securities acquired in connection with the satisfaction or enforcement of
Indebtedness or claims due to the Company or any of its Subsidiaries or as
security for any such Indebtedness or claim or (iv) demand deposits in banks or
trust companies. The amount of an Investment outstanding at any time shall be
determined in accordance with GAAP; PROVIDED, HOWEVER, that no Investment shall
be increased as a result of an increase in the undistributed retained earnings
of the Person in whom an Investment was made or decreased as a result of an
equity in the losses of any such Person.
1.29. "INVESTOR AGREEMENTS" is defined in Section 3.1.
1.30. "INVESTOR NOTES" means the $2,000,000 aggregate principal
amount 7.04% notes due 2002 issued by the Company to the Investors on the
Closing Date in substantially the form of Exhibit 2.1B.
1.31. "INVESTOR SECURITIES" is defined in Section 2.1.
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1.32. "INVESTORS" means the holders of Investor Securities, the
original holders of which are listed in Exhibit 1.
1.33. "LEGAL REQUIREMENT" means any federal, state, local or
foreign law, statute, standard, ordinance, code, order, rule, regulation,
resolution, promulgation or any final order, judgment or decree of any court,
arbitrator, tribunal or governmental authority, or any license, franchise,
permit or similar right granted under any of the foregoing.
1.34. "LIEN" means (a) any mortgage, pledge, lien, charge, security
interest or other similar encumbrance upon any property or assets of any
character, or upon the income or profits therefrom; or (b) any conditional sale
or other title retention agreement or arrangement (including a capitalized
lease); or (c) any sale, assignment, pledge or other transfer for security of
any accounts, general intangibles, or chattel paper, with or without recourse.
1.35. "MANAGEMENT NOTES" means, collectively, (a) the $3,000,000
aggregate principal amount 7.04% notes due 2006 issued by the Company to its
existing stockholders on the Closing Date in the form previously furnished to
the Investors and (b) the notes in an aggregate principal amount equal to the
excess, if any, of the "accumulated adjustments account" (as defined in section
1368(e) of the Code) of the Company as of the Closing Date over $13,000,000 and
issued by the Company to its existing stockholders (other than the Investors) in
the form previously furnished to the Investors.
1.36. "MARGIN STOCK" means "margin stock" within the meaning of any
regulation, interpretation or ruling of the Board of Governors of the Federal
Reserve System, all as from time to time in effect.
1.37. "MATERIAL AGREEMENTS" is defined in Section 4.1.
1.38. "MATERIAL ADVERSE EFFECT" means a material adverse effect
upon the business, assets, financial condition, income or prospects of the
Company and its Subsidiaries on a Consolidated basis.
1.39. "MEMBERS OF THE IMMEDIATE FAMILY," as applied to any
individual, means each parent, spouse, child, brother, sister or the spouse of a
child, brother or sister of the individual, and each trust created for the
benefit of one or more of such persons and each custodian of a property of one
or more such persons.
1.40. "PENSION PLAN" means each pension plan (as defined in section
3(2) of ERISA) established or maintained, or to which contributions are or were
made, by the Company or any of its Subsidiaries or former Subsidiaries, or any
Person which is a member of the same ERISA Group with any of the foregoing.
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1.41. "PERSON" means an individual, partnership, corporation,
company, association, trust, joint venture, unincorporated organization,
business trust, limited liability company and any governmental department or
agency or political subdivision.
1.42. "PREFERRED DIRECTOR" is defined in Section 5.1.1.
1.43. "PREFERRED STOCK" means the Series A Redeemable Convertible
Preferred Stock, par value $0.01 per share, of the Company.
1.44. "PRINCIPAL HOLDER" means each original holder of Preferred
Stock set forth on Exhibit 1 (and their Affiliates) so long as it holds any
Investor Securities originally purchased at an aggregate cost of at least $1
million and any other Person holding Preferred Stock originally purchased at an
aggregate cost of $1 million or more.
1.45. "PROJECTIONS" is defined in Section 4.4.
1.46. "QUALIFIED PUBLIC OFFERING" is defined in section 8.2 of the
Certificate of Designation.
1.47. "REGISTRATION RIGHTS AGREEMENT" is defined in Section 3.1.
1.48. "REGULATED INVESTOR" means BancBoston Ventures, Inc.,
National City Capital Corporation, St. Paul Fire and Marine Insurance Company
and any other Investor subject to regulation by a Regulatory Agency.
1.49. "REGULATORY AGENCY" means the U.S. Small Business
Administration (or any successor body or agency), the Board of Governors of the
Federal Reserve System (or any successor body or agency) or any other
governmental body or agency charged with the administration of the federal Small
Business Investment Act of 1958, the federal Holding Company Act of 1956 or any
similar, related or successor laws regulating banks, bank holding companies,
insurance companies, insurance holding companies, SBICs and their respective
subsidiaries.
1.50. "REGULATORY PROBLEM" means the assertion by any Regulatory
Agency (or the reasonable belief by a Regulated Investor that a substantial risk
of such assertion exists) that a Regulated Investor is not entitled to hold, or
exercise any significant right with respect to, the Investor Securities.
1.51. "REQUIRED HOLDERS" means the holders at the relevant time
(excluding the Company or any of its Subsidiaries) of two thirds or more of the
voting power of all classes and types of capital stock constituting Investor
Securities (calculated to give pro forma effect to the conversion of all
Preferred Stock), voting together as a single class.
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1.52. "SBA" is defined in Section 3.6.
1.53. "SBIC" means a small business investment company licensed by
the SBA pursuant to the Small Business Investment Act.
1.54. "SECURITIES ACT" means the federal Securities Act of 1933.
1.55. "SHAREHOLDERS' EQUITY" means, at any date, stockholders'
equity of the Company and its Subsidiaries determined in accordance with GAAP on
a consolidated basis, excluding the effect of any foreign currency translation
adjustment.
1.56. "SMALL BUSINESS INVESTMENT ACT" is defined in Section 4.16.
1.57. "STOCK OPTION PLAN" is defined in Section 4.1.1.
1.58. "SUBSIDIARY" means any Person of which the Company or other
specified Person now or hereafter shall at the time (a) own directly or
indirectly through a Subsidiary at least 50% of the outstanding capital stock
(or other shares of beneficial interest) entitled to vote generally or (b)
constitute a general partner.
1.59. "TAG-ALONG AGREEMENT" is defined in Section 3.1.
1.60. "WARRANTS" is defined in Section 2.1.
1.61. "WELFARE PLAN" means each welfare plan as defined in section
3(1) of ERISA) established or maintained, or to which any contributions are or
were made, by the Company or any of its Subsidiaries or any Person which is a
member of the same ERISA Group with any of the foregoing.
1.62. "WPC" means Weston Presidio Capital II, L.P.
2. SALE AND PURCHASE OF SECURITIES.
2.1. The following securities are referred to collectively as the
"INVESTOR SECURITIES": (a) the Preferred Stock being purchased by the Investors
hereunder, together with any securities issued with respect thereto, upon
exercise, conversion or transfer thereof or in exchange therefor, including the
Common Stock issuable upon conversion of the Preferred Stock and the Warrants in
substantially the form of Exhibit 2.1A (the "WARRANTS") (and the Common Stock
issuable upon exercise of the Warrant), (b) the Common Stock being purchased by
the Investors hereunder and (c) the Investor Notes being purchased by the
Investors hereunder in substantially the form of Exhibit 2.1B; PROVIDED,
HOWEVER, that once any such securities have been sold in a Qualified Public
Offering they shall cease to be Investor Securities for all purposes of this
Agreement. The powers, preferences and rights of the Preferred Stock are
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set forth in Article Fourth of the Company's Articles of Incorporation, as
amended as of May 30, 1996 in the form set forth in Exhibit 2.1C (the
"CERTIFICATE OF DESIGNATION").
2.2. AGREEMENT TO SELL AND PURCHASE. Based on the Investors'
representations and warranties contained in Section 6, the Company agrees to
issue and sell to the Investors and, subject to all of the terms and conditions
hereof and in reliance on the representations and warranties of the Company set
forth or referred to herein, the Investors severally, and not jointly or jointly
and severally, agree to purchase at the Closing the number of shares of
Preferred Stock and Common Stock, and the principal amount of Investor Notes,
all specified in Exhibit 1 for each Investor at the purchase price, payable by
wire transfer or Investor check, so specified in such Exhibit. The Company shall
have the right to terminate this Agreement without recourse or liability if the
total purchase price set forth in Exhibit 1 is not delivered for any reason.
2.3. CLOSING. The closing of the purchase and sale of Investor
Securities (the "CLOSING") shall take place in Boston, Massachusetts at the
offices of Ropes & Gray on May 31, 1996 or at such other place and on such other
date as the Company and the Required Holders may agree upon (the "CLOSING
DATE"). At the Closing the Company will delivery to the Investors certificates
and promissory notes evidencing the respective Investor Securities set forth in
Exhibit 1 against payment of the purchase price therefor in immediately
available funds.
2.4. USE OF PROCEEDS. The Company covenants that it will apply the
cash proceeds of the Investor Securities solely for the following lawful
purposes: (a) repayment of its existing debt, (b) paying its stockholders a
dividend not exceeding $10,500,000 and other Distributions permitted by Section
5.10, (c) transaction costs and (d) working capital. No portion of such proceeds
will be used: (i) to acquire or maintain Margin Stock, (ii) to provide capital
to a corporation licensed under the Small Business Investment Act, (iii) outside
the United States (except (A) to acquire abroad materials and industrial
property rights for a domestic operation or (B) for transfer to a controlled
foreign subsidiary, so long as at least 51% of the assets and activities of the
Company will remain within the United States), or (iv) for any purpose contrary
to the public interest (including activities which are in violation of law) or
inconsistent with free competitive enterprise, in each case, within the meaning
of 13 CFR ' 107.901. The Company's primary business activity does not involve,
directly or indirectly, providing funds to others, the purchase or discounting
of debt obligations, factoring or long-term leasing of equipment with no
provision for maintenance or repair, and the Company is not classified under
Major Group 65 (Real Estate) of the federal Standard Industrial Code Manual.
Exhibit 2.4 sets forth the specific use of proceeds to be disbursed on or about
the Closing Date.
3. CONDITIONS TO PURCHASE. The Investors' several obligations to
purchase the Investor Securities pursuant to this Agreement on the Closing Date
are subject to the satisfaction, on or prior to such Closing Date, of the
following conditions:
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3.1. INVESTOR AGREEMENTS. The Company and the stockholders
(other than the Investors) party thereto shall have duly authorized, executed
and delivered to WPC the following agreements:
(a) Tag-Along, Transfer Restriction and Voting Agreement
dated as of the Closing Date among the Company, the Investors and
certain other stockholders of the Company (as from time to time in
effect, the "TAG-ALONG AGREEMENT").
(b) Registration Rights Agreement dated as of the Initial
Closing Date among the Company, the Investors and certain other
stockholders of the Company (as from time to time in effect, the
"REGISTRATION RIGHTS AGREEMENT").
The Investor Agreements referred to in Section 3.1 shall be in full
force and effect in the respective forms referred to in Section 3.1 with no term
or condition thereof having been amended, modified or waived without the prior
written consent of the Required Holders. All material covenants and conditions
contained in the Investor Agreements which are to be performed or complied with
by the Company and its Subsidiaries at or prior to closing under the Investor
Agreements shall have been performed, complied with or waived prior thereto.
3.2. ACCOUNTANTS REPORT. The Investors have received a report
about the Company's financial condition and the Projections prepared by
independent accountants selected by the Investors, which report is satisfactory
in all respects to the Investors.
3.3. LEGAL OPINION. On the Closing Date, the Investors shall
have received from Hinckley, Allen & Snyder, counsel to the Company and its
Subsidiaries, their opinion in substantially the form of Exhibit 3.3.
3.4. REPRESENTATIONS AND WARRANTIES; OFFICER'S CERTIFICATE.
The representations and warranties contained herein shall be true and correct on
and as of the Closing Date with the same force and effect as though made on and
as of such Closing Date; between the Balance Sheet Date and such Closing Date,
no Material Adverse Effect shall have occurred (in the judgment of the Required
Holders); the Company shall have performed all obligations required to be
performed by it under this Agreement, the Certificate of Designation and the
Investor Agreements; and the Investors shall have received on the Closing Date a
certificate to these effects signed by the Chairman and the President of the
Company.
3.5. ISSUANCE OF INVESTOR SECURITIES. The Company shall have
issued to the Investors shown on Exhibit 1 the number of shares of Preferred
Stock and Common Stock, and the principal amount of Investor Notes, shown
opposite their names in Exhibit 1 for an aggregate consideration as shown in
Exhibit 1.
3.6. SBA COMPLIANCE. The Company shall have furnished to the
Investors that are SBICs all forms which such Investors shall have informed the
Company are required by the Small
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15
Business Administration ("SBA") in connection with the transactions contemplated
hereby, including a Size Status Declaration on SBA Form 480, an Assurance of
Compliance on SBA Form 652D and a Portfolio Financing Report on SBA Form 1031,
which forms shall be in proper form for filing with the SBA.
3.7. KEY EXECUTIVE INSURANCE. The Company will have received
from its existing stockholders the life insurance policies on its existing
stockholders in effect on the Closing Date, including a policy covering the life
of Gerald Cerce in an amount of at least $1,000,000, the proceeds of all of
which shall be payable to the Company.
3.8. LEGALITY; GOVERNMENTAL AUTHORIZATION. The purchase of the
Investor Securities shall not be prohibited by any law or governmental order or
regulation, and shall not subject the Investors to any penalty or special tax
(other than a penalty or special tax that has been reimbursed by the Company).
All necessary consents, approvals, licenses, permits, orders and authorizations
of, or registrations, declarations or filings with, any governmental or
administrative agency or of any other Person, if any, with respect to any of the
transactions contemplated by this Agreement or the Investor Agreements, the
absence of which could have a Material Adverse Effect, shall have been duly
obtained or made and shall be in full force and effect.
3.9. GENERAL. All instruments and legal and corporate
proceedings in connection with the transactions contemplated by this Agreement
and the Investor Agreements shall be reasonably satisfactory in form and
substance to the Required Holders, and the Investors shall have received copies
of all documents, including records of corporate proceedings and officers
certificates, which the Required Holders may have reasonably requested in
connection therewith.
4. REPRESENTATIONS AND WARRANTIES. In order to induce the Investors to
enter into this Agreement and to purchase the Investor Securities hereunder, the
Company represents and warrants that:
4.1. MATERIAL AGREEMENTS. The Company has furnished to the
Investors correct and complete copies of the documents listed below which have
been executed on or prior to the date hereof and any amendments thereto,
modifications thereof or waivers granted thereunder as of the date hereof. The
documents listed below, are referred to collectively as the "MATERIAL
AGREEMENTS". References to any of the Material Agreements mean the Material
Agreements in the form so furnished to the Investors, without regard to any
amendment, modification, waiver or termination of such document which is made or
otherwise becomes effective after the date hereof, unless such amendment,
modification, waiver or termination has been consented to in writing by the
Required Holders:
4.1.1. Stock Option Plan and the related form of Stock
Option Agreement in substantially the form of Exhibit 4.1.1 (the
"STOCK OPTION PLAN"), indicating the allocation of at least 5% of
the shares of Common Stock to be reserved for options to be granted
to outside directors, directors selected by the Company's
management
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(which directors are not also employees or officers of the Company)
or other employees approved by the Board of Directors.
4.1.2. Employment Agreements and non-competition
agreements dated on or about the date hereof between the Company
and Gerald F. Cerce, Felix A. Porcaro, Jr., John H. Flynn, Jr.,
Duane DeSisto and Robert V. Lallo, respectively, in substantially
the form of Exhibit 4.1.2.
4.1.3. Revolving Term and Loan Agreement dated November
5, 1991 between the Company and Fleet Precious Metals, Inc., as
amended.
Other than customary subscription agreements with respect to the
issuance of shares of Common Stock to the stockholders listed in Exhibit 4.3.1
or as otherwise set forth in Exhibit 4.3.1, neither the Company nor any of its
Subsidiaries is a party to or bound by any agreement or understanding affecting
the capital stock of the Company or its Subsidiaries or the voting thereof which
is not a Material Agreement or contemplated by or referred to in the Material
Agreements.
4.2. ORGANIZATION AND SUBSIDIARIES; BUSINESS.
4.2.1. THE COMPANY. The Company is a duly organized and
validly existing corporation in good standing under the laws of
Rhode Island. The Company has all necessary corporate power and
authority to enter into and perform this Agreement and the Investor
Agreements to which it is party, to issue and sell the Investor
Securities to be issued and sold by it hereunder, and to carry on
the businesses now conducted or presently proposed to be conducted
by it. The Company has taken all corporate action necessary to
authorize the Investor Agreements to which it is party and the
issuance of the Investor Securities to be issued and sold by it
hereunder. The Investor Agreements to which the Company is party
and the Investor Securities to be issued and sold by the Company
hereunder have been duly executed and delivered by the Company and
are the legal, valid and binding obligations of the Company,
enforceable in accordance with their terms.
4.2.2. SUBSIDIARIES. The Company does not own or control,
directly or indirectly, or have an interest in, any other
corporation, partnership, association or business entity, except
for the corporations described in Exhibit 4.2.2.
4.2.3. CONDUCT OF BUSINESS. The Company has conducted no
business other than developing, manufacturing, distributing and
marketing consumer jewelry and accessory products.
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4.3. CAPITALIZATION.
4.3.1. CAPITAL STOCK OF THE COMPANY. The authorized
capital stock of the Company is set forth in Exhibit 4.3.1. On the
Closing Date, after giving effect to the issuance of the Investor
Securities and the consummation of the Investor Agreements, the
Company will have no outstanding capital stock except for the
shares of Common Stock and Preferred Stock owned beneficially and
of record as set forth in Exhibit 4.3.1, all of which will be
validly issued, fully paid, nonassessable and, to the best
knowledge of the Company, subject to no lien or restriction on
transfer, except restrictions on transfer imposed by the Investor
Agreements and applicable securities laws or as otherwise set forth
in Exhibit 4.3.1.
4.3.2. OPTIONS, ETC. Other than as set forth in Exhibit
4.3.1 or in the Investor Agreements, the Company does not have
outstanding (a) any rights (either preemptive or otherwise) or
options to subscribe for or purchase, or any warrants or other
agreements providing for or requiring the issuance of, any capital
stock or any securities convertible into or exchangeable for its
capital stock, (b) any obligation to repurchase or otherwise
acquire or retire any of its capital stock, any securities
convertible into or exchangeable for its capital stock or any
rights, options or warrants with respect thereto, (c) any rights to
require the Company to register the offering of any of its
securities under the Securities Act or (d) any restrictions on
voting any of the Company's securities.
4.3.3. CAPITAL STOCK OF THE SUBSIDIARIES. The authorized
capital stock of each Subsidiary of the Company is set forth in
Exhibit 4.3.3. Each such Subsidiary has no outstanding capital
stock except for shares of capital stock owned beneficially and of
record by the Company, all of which will be validly issued, fully
paid, nonassessable and subject to no lien or restriction on
transfer, except restrictions on transfer imposed by the Investor
Agreements, the Material Agreements and applicable securities laws
and Liens.
4.3.4. SUBSIDIARY OPTIONS, ETC. Except as set forth in
Exhibit 4.3.3, none of the Company's Subsidiaries has outstanding
(a) any rights (either preemptive or otherwise) or options to
subscribe for or purchase, or any warrants or other agreements
providing for or acquiring the issuance of, any capital stock or
any securities convertible into or exchangeable for its capital
stock, (b) any obligation to repurchase or otherwise acquire or
retire any of its capital stock, any securities convertible into or
exchangeable for its capital stock or any rights, options or
warrants with respect thereto, (c) any rights to require the
Subsidiary to register the offering of any of its securities under
the Securities Act or (d) any restrictions on voting any of the
Subsidiary's securities.
4.4. REPORTS, FINANCIAL STATEMENTS AND OTHER DOCUMENTS. The
Investors have been furnished with complete and correct copies of the following:
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(a) Audited consolidated balance sheet (the "BALANCE
SHEET") of the Company and its Subsidiaries as of December 31, 1995
(the "BALANCE SHEET DATE"), together with the related statements of
income, cash flows and stockholders' equity for the year then
ended, accompanied by the audit report of Arthur Andersen & Co.
(b) Balance sheet of the Company and its Subsidiaries as
of March 31, 1996, together with the related statement of income
for the three-month period then ended.
(c) Pro forma opening balance sheet, operating budget and
three-year projections, including income statements, balance sheets
and cash flow statements, set forth in Exhibit 4.4 (the
"PROJECTIONS").
The financial statements referred to in clauses (a) and (b) above
have been prepared in accordance with GAAP and fairly present the financial
condition of the Company and its Subsidiaries at the dates thereof and the
results of their operations for the periods covered thereby, subject to normal
year-end adjustments in the case of the financial statements referred to in
clause (b) above. Except as set forth in Exhibit 4.4, neither the Company nor
any of its Subsidiaries has any material liabilities, contingent or otherwise,
which are not referred to in the Balance Sheet.
The Projections were based on (i) assumptions and accounting
methods consistent with the historical financial statements described in
paragraph (a) above and (ii) the financings contemplated hereby. To the best
knowledge of the Company the Projections constitute a reasonable basis for
assessing the future performance of the Company and its Subsidiaries, but no
representation or warranty is made that the Company and its Subsidiaries can
actually achieve the results set forth in the Projections.
4.5. CHANGES IN CONDITION. Since the Balance Sheet Date:
4.5.1. MATERIAL ADVERSE EFFECT. No Material Adverse
Effect has occurred.
4.5.2. EXTRAORDINARY TRANSACTIONS, ETC. Other than as set
forth in Exhibit 4.5.2, neither the Company nor any of its
Subsidiaries has (a) declared any dividend or other distribution on
any shares of its capital stock, (b) made any payment (other than
compensation of its directors, officers and employees at rates in
effect prior to the Balance Sheet Date or for bonuses accrued in
accordance with normal practice prior to the Balance Sheet Date) to
any of its Affiliates, (c) increased the Compensation, including
bonuses, payable or to be payable to any of its directors,
officers, employees or Affiliates by more than 10%, or (d) entered
into any Contractual Obligation, or entered into or performed any
other transaction, not in the ordinary and usual course of business
and consistent with past practice, other than as specifically
contemplated by this Agreement.
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4.6. SOLVENCY. After giving effect to the financing
contemplated hereby, the Company is solvent (within the meaning contemplated by
section 548 of Title 11 of the United States Code and any similar state statutes
which may be applicable).
4.7. CONTRACTUAL OBLIGATIONS, ETC.
4.7.1. CERTAIN CONTRACTS. Exhibit 4.7 contains,
together with a reference to the subparagraph pursuant to which
each item is being disclosed, a correct and complete list of all
Contractual Obligations of the Company and its Subsidiaries of the
types described below:
(a) All collective bargaining agreements; all
employment, profit sharing, profit participation,
deferred compensation, bonus, stock option, stock
purchase, pension, retainer, consulting, retirement,
welfare or incentive plans or agreements; and all plans,
agreements or practices which constitute "fringe
benefits" to any of the employees of the Company or its
Subsidiaries, including vacation programs, sick leave
programs, group medical insurance, group life insurance,
disability insurance and related benefits.
(b) All Contractual Obligations under which the
Company or its Subsidiaries are restricted from carrying
on any business, venture or other activities anywhere in
the world.
(c) All Contractual Obligations (including
options) to sell or lease (as lessor) any of the
properties or assets of the Company or its Subsidiaries
except in the ordinary course of business.
(d) All Contractual Obligations pursuant to
which the Company or its Subsidiaries guarantees any
liability of any Person, or pursuant to which any Person
guarantees any liability of the Company or its
Subsidiaries.
(e) All Contractual Obligations with any
Affiliate of the Company or its Subsidiaries.
(f) All Contractual Obligations constituting
license agreements, consulting agreements and employment
agreements.
(g) All Contractual Obligations under which the
Company or any of its Subsidiaries leases real property
or is obligated to lease or purchase real property.
(h) All Contractual Obligations of the Company
or any of its Subsidiaries relating to the borrowing of
money or to the mortgaging or pledging of, or otherwise
placing a lien on, any asset of the Company or any
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of its Subsidiaries (except liens imposed by operation of
law in favor of landlords, suppliers, mechanics or others
who provide services to the Company).
4.7.2. NATURE OF CONTRACTS. All of the Contractual
Obligations of the Company and its Subsidiaries at the Closing are
enforceable against the Company and, to its knowledge, the other
parties thereto in accordance with their terms, except for
Contractual Obligations the failure of which to be so enforceable
does not and will not result in a Material Adverse Effect. To the
Company's knowledge, neither the Company nor any of its
Subsidiaries is now in default under, nor are there any liabilities
arising from any breach or default by any Person prior to the date
of this Agreement of, any provision of any such Contractual
Obligation.
4.7.3. CHARTER OR BY-LAWS. Neither the Company nor any of
its Subsidiaries is in violation of, or in default under, any
provision of its Charter or By-Laws and the Investors have been
furnished with copies of such Charter and By-Laws.
4.7.4. INSURANCE. Each of the Company and its
Subsidiaries has insurance policies in full force and effect,
written by reputable insurers licensed to write insurance in the
states in which the Company and its Subsidiaries conduct their
business, which insurance contracts provide for coverages which are
usual and customary in their respective businesses as to amount and
scope.
4.7.5. TRANSACTIONS WITH AFFILIATES. Other than as set
forth in Exhibit 4.7, no Affiliate of the Company or its
Subsidiaries is a competitor, customer or supplier of, or is party
to any Contractual Obligation with, the Company or any of its
Subsidiaries.
4.8. OPERATIONS IN CONFORMITY WITH LAW, ETC. The operations of
the Company and its Subsidiaries as now conducted are not in violation of, nor
is the Company or its Subsidiaries in default under, any Legal Requirements
presently in effect, except for such violations and defaults as do not and will
not, in the aggregate, have a Material Adverse Effect. The Company has received
no notice of any such violation or default and has no knowledge of any basis on
which the operations of the Company or its Subsidiaries, when conducted as
currently proposed to be conducted after the Closing Date, would be held so as
to violate or to give rise to any such violation or default. The Company and its
Subsidiaries have all franchises, licenses, permits or other authority presently
necessary for the conduct of their business as now conducted. Based on the facts
presently known to the Company, all future expenditures on the part of the
Company or its Subsidiaries required to meet the provisions of any presently
existing Legal Requirement (including Legal Requirements relating to employment
practices or to occupational or health standards or to environmental
considerations) will not, in the aggregate, have a Material Adverse Effect.
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4.9. ENVIRONMENTAL MATTERS. Except as set forth in Exhibit
4.9, to its knowledge, each of the Company and its Subsidiaries is in compliance
in all material respects with all applicable published rules and regulations of
the United States Environmental Protection Agency and similar agencies in states
in which the Company or its Subsidiaries conducts its business. No suit, claim,
action or proceeding is now pending before any court, governmental agency or
board or other forum or threatened by any Person for, and the Company and its
Subsidiaries have received no written correspondence from any federal, state or
local governmental authority with respect to, (a) noncompliance by the Company
or its Subsidiaries with any environmental law, rule or regulation, (b) personal
injury, wrongful death or other tortious conduct relating to materials,
commodities or products used, sold, transferred or manufactured by the Company
or its Subsidiaries (including products containing or incorporating asbestos,
lead or other hazardous materials) or (c) the release into the environment by
the Company or its Subsidiaries of any pollutant, toxic or hazardous material or
waste (including any "hazardous substance" or "pollutant" or "contaminant" as
defined in section 101(14) of the Comprehensive Environmental Response,
Compensation and Liability act, as amended) (collectively, "HAZARDOUS MATERIAL")
generated by the Company or its Subsidiaries whether or not occurring at or on a
site owned, leased or operated by the Company or its Subsidiaries. Exhibit 4.9
lists all waste disposal or dump sites, if any, at which any material amount of
Hazardous Material generated by either the Company or its Subsidiaries have been
disposed of or finally came to be located or lists the hauler who has taken such
Hazardous Material from the Company for disposal, indicates all such sites which
have been included (including as a potential or suspect site) in any published
federal, state or local "superfund" or other list of hazardous or toxic waste
sites and lists any material amount of Hazardous Material present at the
Company's or any of its Subsidiaries' facilities. Except as set forth in Exhibit
4.9, to the Company's knowledge, but without having conducted special boring or
drilling, no material amount of Hazardous Material is present in any real
property currently or formerly owned or leased by it or its Subsidiaries.
4.10. EMPLOYEE BENEFIT PLANS. Exhibit 4.10 sets forth a
complete list of all Employee Benefit Plans and all Welfare Plans applicable to
the Company's and its Subsidiaries' employees. To the knowledge of the Company,
each Employee Benefit Plan and Welfare Plan has been administered in substantial
compliance with its terms and all applicable laws, including, the Code and
ERISA, to the extent that failure to do so would have a Material Adverse Effect.
The Company and its Subsidiaries have no obligation under any Welfare Plan to
provide for the continuation of benefits (other than disability payments and
medical benefits incurred for illness arising in the course of employment) for
more than one year after retirement or other termination of employment. No
"reportable events" within the meaning of section 4043 of ERISA have occurred
with respect to any Employee Benefit Plan. No Pension Plan is a "multiemployer
plan" as defined in ERISA. The present value of benefits liabilities as
described in Title IV of ERISA of Employee Benefit Plans does not exceed the
current value of such Employee Benefit Plans assets allocable to such benefits
liabilities by more than $100,000.
4.11. LABOR RELATIONS. None of the employees of the Company or
any of its Subsidiaries is presently represented by a labor union, and no
petition has been filed or
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proceedings instituted by any employee or group of employees with any labor
relations board seeing recognition of a bargaining representative. No
controversies or disputes are pending between the Company or any of its
Subsidiaries and any of its employees, except for such controversies and
disputes as do not and will not, in the aggregate, have a Material Adverse
Effect.
4.12. TAXES. Since January 1, 1993, each of the Company and its
Subsidiaries has filed all material tax and information which are required to be
filed by it with taxing authorities of the United States government and of the
states of Rhode Island, New York and any other state in which the Company and
its Subsidiaries owns or leases real property and has paid, or made adequate
provision for the payment of, all taxes which have or may become due pursuant to
such returns or to any assessment received by it. Except as set forth in Exhibit
4.12, neither the Company nor any of its Subsidiaries has knowledge of any
material additional assessments from such taxing authorities or any basis
therefor. The Company reasonably believes that the charges, accruals and
reserves on the Financial Statements in respect of taxes or other governmental
charges are adequate.
4.13. LITIGATION. No litigation or proceeding before, or
investigation by, any foreign, federal, state or municipal board or other
governmental or administrative agency or any arbitrator, is pending or to the
knowledge of the Company threatened (or to the knowledge of the Company does any
basis exist therefor), against the Company or its Subsidiaries or, to the
Company's knowledge, any officer of the Company or its Subsidiaries, which in
the aggregate could result in any material liability or which may otherwise
result in a Material Adverse Effect, or which seeks rescission of, seeks to
enjoin the consummation of, or which questions the validity of, this Agreement
or any other Investor or Material Agreement or any of the transactions
contemplated hereby or thereby. Neither the Company nor its Subsidiaries has
been charged, nor to the Company's knowledge is it threatened to be charged,
with infringement of any trademark, trade name, service mark, copyright, patent,
patent right or other proprietary right of any Person.
4.14. VIOLATION OF OTHER INSTRUMENTS. Neither the execution and
delivery of this Agreement or any other Investor Agreement by the Company or its
Subsidiaries party thereto, nor the consummation of any of the transactions
contemplated hereby or thereby, will (a) constitute a breach of or a default
under any Contractual Obligation of the Company or its Subsidiaries or, to the
Company's knowledge, any officer of the Company or its Subsidiaries, (b) result
in acceleration in the time for performance of any obligation of the Company or
its Subsidiaries under any such Contractual Obligation, (c) result in the
creation of any Lien upon any asset of the Company or its Subsidiaries, (d)
require any consent, waiver or amendment to any such Contractual Obligation that
has not been obtained, (e) give rise to any severance payment, right of
termination, securities repurchase right or other right under any such
Contractual Obligation, or (f) violate or give rise to a default under any Legal
Requirement, except for events or conditions described in clauses (a) through
(f) above which will not in the aggregate have any Material Adverse Effect.
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4.15. FILINGS, BROKER'S FEES, ETC. No approval, consent,
authorization or other order of, and no declaration, filing, registration,
qualification or recording with, any governmental authority or any other Person
is required to be made by or on behalf of the Company or its Subsidiaries in
connection with the execution, delivery or performance of this Agreement or any
other Investor Agreement, or any of the transactions contemplated hereby or
thereby, other than filing the Certificate of Designation with the Rhode Island
Secretary of State. Other than as provided on Exhibit 4.15, neither the Company
nor any of its Subsidiaries is obligated to pay any broker's fee, finder's fee,
investment banker's fee or other similar transaction fee in connection with any
Investor Agreement or the transactions contemplated hereby or thereby.
4.16. SBA MATTERS. The Company is a "small business concern"
within the meaning of the federal Small Business Investment Act of 1958 (the
"SMALL BUSINESS INVESTMENT ACT"), and Part 121 of Title 13 of the United States
Code of Federal Regulations ("CFR") by virtue of having net worth of less than
$18,000,000 as of the end of its last fiscal year and average net income (after
federal taxes) for its last two fiscal years of less than $6,000,000. The
information set forth on SBA Forms 480, 652D and 1031 previously furnished by
the Company to the Investors that are SBICs is complete and correct in all
material respects.
4.17. GOVERNMENTAL REGULATION. Neither the Company nor its
Subsidiaries is subject to regulation under the Investment Company Act of 1940,
or subject to any statute or regulation which regulates the incurring of
indebtedness by the Company for borrowed money.
4.18. MARGIN STOCK. Neither the Company nor its Subsidiaries
owns any Margin Stock.
4.19. REAL PROPERTY HOLDING CORPORATION. Neither the Company
nor its Subsidiaries is a "United States real property holding corporation," as
defined in section 897(c)(2) of the Code and Treasury Regulation section
1.897-2(b).
4.20. DISCLOSURE. To the best knowledge of the Company, neither
this Agreement, nor any agreement, certificate, statement or document furnished
in writing by or on behalf of the Company to the Investors in connection
herewith or therewith, contains any untrue statement of material fact or omits
to state a material fact necessary in order to make the statements contained
herein or therein not misleading in any material respect (except that no
representation or warranty is made as to the Projections).
5. GENERAL COVENANTS. The Company covenants that, until the earlier
to occur of (a) the closing of a Qualified Public Offering or (b) such time as
less than 25% of the shares of Preferred Stock outstanding on the Closing Date
remain outstanding, it will comply, and will cause each of its Subsidiaries to
comply, with the following provisions:
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5.1. COVENANTS RELATING TO THE COMPANY'S BOARD OF DIRECTORS.
5.1.1. BOARD OF DIRECTORS. Except to the extent provided
to the contrary in the Certificate of Designation, the Board of
Directors of the Company shall consist of seven members, including
two representatives of the Investors who shall be elected by a
majority of the holders of Preferred Stock (the "PREFERRED
DIRECTORS"). The Board of Directors of the Company, (a) shall meet
at least quarterly and each Principal Holder shall be notified at
least 10 days in advance of such meetings of the Board of Directors
and each Principal Holder shall have the right to have a
representative attend all such meetings in a nonvoting observer
capacity, and (b) shall establish and maintain an Audit Committee
and a Compensation Committee, each of which committees shall
include as a member a Preferred Director. The Company shall approve
all replacements of the initial Preferred Directors who are not
general partners of WPC, such approval not to be unreasonably
withheld.
5.1.2. DIRECTORS EXPENSES. The Company will pay all
direct out-of-pocket expenses reasonably incurred by any director
of the Company who is nominated by the Investors in attending each
meeting of the Board of Directors, or any committee thereof. All
other Director fees and incentives shall be subject to the approval
of a majority of the Board of Directors, which majority shall
include the Preferred Directors.
5.1.3. INDEMNITY. The Company and each of its
Subsidiaries will adopt and maintain in their respective Charter or
Bylaws provisions indemnifying the directors of each such Person to
the fullest extent permitted by applicable law and will also adopt
the provisions of section 7-1.1 -- 4.1 of the Rhode Island Business
Corporation Act] or any similar provisions of the laws of other
states applicable to any such subsidiary.
5.2. INFORMATION AND REPORTS TO BE FURNISHED. The Company and
its Subsidiaries will maintain a system of accounting, consistent with the
Company's past practice, in which correct and complete entries will be made of
all dealings and transactions in relation to their business and affairs in
accordance with GAAP. The Company's internal financial control systems will at
all times be reasonably satisfactory to the Required Holders. Until a Qualified
Public Offering occurs, the Company will furnish the following information to
each Principal Holder:
5.2.1. ANNUAL STATEMENTS. As soon as available, and in
any event within 90 days after the end of each fiscal year of the
Company, the audited consolidated balance sheet of the Company and
its Subsidiaries as of the end of such fiscal year and the audited
consolidated statements of income, stockholders' equity and cash
flows for such year of the Company and its Subsidiaries, together
with the consolidated figures for the preceding fiscal year, if any
(all in reasonable detail), such statements being accompanied by
the unqualified reports thereon of Arthur Andersen & Co. or other
independent certified public accountants, reasonably satisfactory
to the Required
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Holders, to the effect that such consolidated financial statements
have been prepared in accordance with GAAP and present fairly in
all material respects the financial position of the Company and its
Subsidiaries as of the dates specified and the results of their
operations and changes in financial position with respect to the
periods specified.
5.2.2. QUARTERLY REPORTS. As soon as available, and in
any event within 45 days after the end of each of the first three
fiscal quarters in each fiscal year of the Company, the unaudited
consolidated balance sheets of the Company and its Subsidiaries as
of the end of such quarter and the consolidated statements of
income, stockholders' equity and cash flows for such quarter and
the portion of the fiscal year then ended of the Company and its
Subsidiaries, together with comparative consolidated figures for
the corresponding periods of the preceding fiscal year (all in
reasonable detail).
5.2.3. MONTHLY REPORTS. As soon as practicable, and in
any event within 30 days after the end of each calendar month, the
financial statements of the Company and its Subsidiaries as of the
end of such month in the form customarily prepared by management
for internal use.
5.2.4. ANNUAL BUDGETS. Not later than the end of each
fiscal year of the Company a proposed month by month operating and
capital budget for the following fiscal year of the Company,
including projected cash flows.
5.2.5. OFFICERS' CERTIFICATES. Together with delivery of
financial statements of the Company and its Subsidiaries pursuant
to Sections 5.2.1 and 5.2.2 above as of the end of each fiscal
quarter of the Company, a certificate of the Chief Executive
Officer or the Chief Financial Officer of the Company, that such
statements have been prepared in accordance with GAAP and present
fairly in all material respects the financial position of the
Company and its Subsidiaries as of the dates specified and the
results of their operations and cash flows with respect to the
periods specified (subject in the case of interim financial
statements only to normal year-end audit adjustments and the
addition of footnotes).
5.2.6. NOTICE OF LITIGATION, DEFAULTS, ETC. The Company
will promptly, and in any event within 30 days after the Company
has knowledge of such event, give written notice to the Preferred
Directors of (a) any litigation or any administrative proceeding to
which it or any of its Subsidiaries may hereafter become a party
which after giving effect to applicable insurance may result in a
charge against income in excess of $100,000, (b) any resignation of
or other change in senior management of the Company or any serious
illness of any member of such senior management, and (c) any offers
to purchase a majority (or greater) interest in the Company
(whether by means of purchase of securities or assets or
otherwise). The Company will promptly, and in any event within
seven days after any officer of the Company or any of its
Subsidiaries
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obtains knowledge of any material default by the Company under this
Agreement, any other Investor Agreement or any other Contractual
Obligation, furnish notice to each Principal Holder specifying the
nature of the material default and stating the action the Company
has taken or proposes to take with respect thereto. Promptly after
the receipt thereof, the Company will furnish to each Principal
Holder copies of any reports as to adequacies in accounting
controls submitted by independent accountants.
5.2.7. NOTICES UNDER MATERIAL AGREEMENTS. The Company
will furnish to its Board of Directors (including the Preferred
Directors) copies of all amendments, modifications, notices of
defaults, waivers and consents given to it or to any of its
Subsidiaries pursuant to any Material Agreement.
5.2.8. INFORMATION PROVIDED TO STOCKHOLDERS. Within 10
days after its release to stockholders, the Company will furnish
the holders of Investor Securities with copies of all information,
proxy statements, notices, reports and other stockholder material
mailed to stockholders.
5.2.9. INFORMATION PROVIDED TO BANKS. Within 10 days
after its release to its senior bank lender, the Company will
furnish the holders of Investor Securities with copies of all
required information sent to its senior bank lender.
5.2.10. OTHER INFORMATION. From time to time upon the
reasonable request of any authorized officer of any Principal
Holder, the Company will furnish to any such authorized officer
such information regarding the business, assets or financial
condition of the Company and its Subsidiaries as such officer may
reasonably request. Each such officer shall have the right during
normal business hours at reasonable intervals and upon reasonable
notice to examine the books and records of the Company and its
Subsidiaries, to make copies and notes therefrom, and to make an
independent examination of the books and records of the Company and
its Subsidiaries at the expense of such Principal Holder and in a
manner that does not interfere with the business operations of the
Company and its Subsidiaries.
5.2.11. INTERVIEW RIGHTS. For the purpose of conducting
independent investigations pursuant to Section 5.2.11, the Company
shall make available to an authorized officer of any Principal
Holder upon reasonable notice and at reasonable times (a) the Chief
Financial Officer or the Chief Executive Officer, and (b) any
officers, including accountants and internal control personnel. The
Company shall use its best efforts to make available any directors
of the Company who are not officers.
5.3. CONDUCT OF BUSINESS.
5.3.1. TYPE OF BUSINESS. The Company and its Subsidiaries
will engage only in the business of developing, manufacturing,
distributing and marketing ladies' and
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mens' soft line consumer products sold in retail stores, and in
lines of business ancillary or related thereto.
5.3.2. MAINTENANCE OF PROPERTIES, ETC. Each of the
Company and its Subsidiaries (a) will keep its properties and
assets in such repair, working order and condition, and will from
time to time make such repairs, renewals, replacements, additions
and improvements thereto, as its management deems reasonably
necessary and appropriate, and will comply at all times in all
material respects with the provisions of all Contractual
Obligations (including its Charter, Bylaws and Material Agreements)
applicable to it so as to prevent any loss or forfeiture thereof or
thereunder unless compliance therewith is being at the time
contested in good faith by appropriate proceedings, and (b) will do
all things necessary to preserve, renew and keep in full force and
effect and in good standing its corporate existence and authority
necessary to continue its business.
5.3.3. COMPLIANCE WITH LAWS. Each of the Company and its
Subsidiaries will comply in all material respects with all Legal
Requirements, as in effect from time to time, applicable to it,
except where compliance therewith shall at the time be contested in
good faith by appropriate proceedings.
5.3.4. INSURANCE. Each of the Company and its
Subsidiaries will keep its assets which are of an insurable
character insured against loss or damage by fire, explosion or
other hazards which may be insured against by extended coverage in
an amount sufficient to prevent it from becoming a co-insurer and
in any event not less than 80% of the insurable value of the
property insured, and will maintain insurance against liability to
persons and property and other hazards and risks to the extent and
in the manner customary for companies in similar businesses
similarly situated. All such insurance shall be provided by
reputable insurers licensed to write insurance in the jurisdiction
where the insured entity is located; PROVIDED, HOWEVER, that the
Company and its Subsidiaries may effect workers' compensation
insurance or similar coverage with respect to operations in any
particular state or other jurisdiction through an insurance fund
operated by such state or jurisdiction. The Company will maintain
in effect the key executive life insurance policy referred to in
Section 3.7.
5.3.5. FOREIGN QUALIFICATION. Each of the Company and its
Subsidiaries will be qualified as a foreign corporation in each
jurisdiction in which it is required to qualify, except for such
jurisdictions in which the failure to be so qualified could not
have a Material Adverse Effect.
5.4. CHARTER AMENDMENT, ETC. The Charter and By-laws of the
Company and its Subsidiaries shall not be amended without the express written
consent of the Required Holders.
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5.5. MERGER, CONSOLIDATION AND SALE OF ASSETS. Neither the
Company nor any of its Subsidiaries will become a party to or authorize any
merger or consolidation, or sell, lease, sublease or otherwise transfer or
dispose of any assets or enter into or authorize any such transaction or any
liquidation or dissolution, except the following:
5.5.1. The Company and any of its Subsidiaries may sell
or otherwise dispose of (a) inventory in the ordinary course of
business, (b) tangible assets to be replaced in the ordinary course
of business within 30 days by other tangible assets of equal or
greater value and (c) tangible assets that are no longer used or
useful in the ordinary course of business of the Company or such
Subsidiary
5.5.2. Any wholly owned Subsidiary of the Company may
merge or be liquidated into the Company or any other Wholly Owned
Subsidiary of the Company so long as after giving effect to any
such merger to which the Company is a party the Company shall be
the surviving or resulting Person.
5.5.3. Mergers constituting Investments permitted by
Section 5.9.
5.5.4. Sales or dispositions of assets made with the
prior written consent of the Required Holders.
5.5.5. Assets having an aggregate fair market value of
less than 25% of total assets of the Company and its Subsidiaries
as of the Balance Sheet Date on an aggregate basis since the date
hereof.
5.6. INDEBTEDNESS. Except with the prior written consent of
the Required Holders, neither the Company nor any of its Subsidiaries shall
incur or permit Indebtedness to exist or remain outstanding, except for:
5.6.1. Accounts payable for goods, services and taxes
incurred in the ordinary course of business.
5.6.2. Redemption obligations with respect to Preferred
Stock under the Certificate of Designation.
5.6.3. The Investor Notes and the Management Notes.
5.6.4. Other Indebtedness not in excess of 350% of
Shareholders' Equity at any one time outstanding.
5.7. GUARANTEES. Neither the Company nor any of its
Subsidiaries will make, have outstanding or otherwise become or remain liable
with respect to any Guarantee except for:
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5.7.1. Endorsements for collection or deposit in the
ordinary course of business.
5.7.2. Guarantees by the Company of any Indebtedness of
its wholly owned Subsidiaries.
5.7.3. Guarantees by the Company consisting of inventory
buyback credits and gross margin support arrangements with its
customers consistent with past practices and in the ordinary course
of business.
5.7.4. Guarantees described in Exhibit 5.7.
5.8. LIENS. Neither the Company nor any of its Subsidiaries
will create or incur or suffer to be created or incurred or to exist any Lien;
PROVIDED, HOWEVER, that the Company and its Subsidiaries may create or incur or
suffer to be created or incurred or to exist:
5.8.1. Liens created by the Material Agreements.
5.8.2. Purchase money Liens (including mortgages,
conditional sales, Capitalized Leases and any other title retention
or deferred purchase devices or similar Contractual Obligations) on
assets of the Company or any of its Subsidiaries existing or
created at the time of acquisition thereof, and Liens securing the
renewal, extension and refunding of Indebtedness secured by an
assets subject to such a Lien in an amount not exceeding the amount
thereof remaining unpaid; PROVIDED, HOWEVER, that the aggregate
principal amount of Indebtedness (including Indebtedness in respect
of Capitalized Lease Obligations) secured by Liens permitted by
this Section 5.8.2 shall not exceed the amount permitted by Section
5.6.3, Indebtedness secured by each such Lien in each asset shall
not exceed the cost of the asset subject thereto and such Lien
shall attach solely to the particular asset so acquired and any
additions or accessions thereto.
5.8.3. Liens to secure taxes, assessments and other
governmental charges or claims for labor, material or supplies
incurred in the ordinary course of business.
5.8.4. Deposits or pledges made in connection with, or to
secure payment of, workers' compensation, unemployment insurance,
old age pensions or other social security or in connection with
bids or contexts to the extent incurred in the ordinary course of
business.
5.8.5. Encumbrances in the nature of zoning restrictions,
easements, rights or restrictions of record on the use of real
property and landlord's and lessor's liens under leases on the
premises rented, which do not materially detract from the value of
such property or impair the use thereof in the business of the
Company or any of its Subsidiaries.
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5.9. INVESTMENTS AND ACQUISITIONS. Neither the Company nor any
of its Subsidiaries will have outstanding or acquire or commit itself to acquire
or hold any Investment (including the acquisition of any other business) except:
5.9.1. Investments of the Company and its Subsidiaries
in: (a) negotiable certificates of deposit, time deposits, money
market accounts and bankers' acceptances issued by any United
States bank or trust company, having a combined capital, surplus
and undivided profits of not less than $100,000,000; (b) short-term
corporate obligations rated Prime-1 by Moody's Investors Service
Inc. or A-1 by Standard & Poor's Ratings Group; (c) any direct
obligation of the United States of America or any agency or
instrumentality thereof (i) which has a remaining maturity at the
time of purchase of not more than one year or (ii) which is subject
to a repurchase agreement with a bank described in clause (a) above
exercisable within one year from the time of purchase; and (d) any
registered investment company substantially all of the assets of
which consist of Investments described in clauses (a), (b) and (c)
above.
5.9.2. Investments of the Company to acquire Subsidiaries
or make other acquisitions for an aggregate consideration not
exceeding 125% of the amount shown in the Projections through the
date of such Investment.
5.9.3. Loans and advances to employees not in excess of
$100,000 in the aggregate at any one time outstanding.
5.9.4. Investments in any of the Company's wholly owned
Subsidiaries.
5.9.5. Investments made with the prior written consent of
the Required Holders.
5.10. DISTRIBUTIONS. Neither the Company nor any of its
Subsidiaries shall make any Distribution except, so long as no Default shall
exist immediately after giving effect to such Distribution:
5.10.1. Any Subsidiary may make Distributions to the
Company or to any wholly owned Subsidiary which is its immediate
parent.
5.10.2. The Company may repurchase shares of Common Stock
in accordance with the Tag-Along and Stockholders Agreement.
5.10.3. The Company may pay dividends on the Preferred
Stock in accordance with its terms.
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5.10.4. The Company may repurchase shares of Common Stock
from its employees at cost or fair market value upon termination of
employment.
5.10.5. On or prior to the Closing Date the Company may
make a Distribution to its stockholders of up to $13,500,000, of
which $3,000,000 shall be used to acquire the Management Notes on
the Closing Date.
5.10.6. The Company may distribute to persons who were
its stockholders prior to the date hereof 40% of the amount of
additional deductions permitted to be taken by the Company after
the Closing Date for expenditures made by it prior to the Closing
Date on account of the resolution of the tax audit procedures
described in Exhibit 4.12.
5.11. CAPITAL EXPENDITURES. The Company and its Subsidiaries
will not make Capital Expenditures which exceed in any fiscal quarter 125% of
Capital Expenditures provided in the Projections (or in the capital budget
approved by the Board of Directors with the affirmative vote of the Preferred
Directors) for such quarter.
5.12. LEASE OBLIGATIONS. Neither the Company nor any of its
Subsidiaries shall be or become obligated as lessee under any lease except:
5.12.1. Capitalized Leases, if any, permitted by Section
5.6.2.
5.12.2. Leases expressly contemplated by the Projections,
except for leases entered into with the prior written consent (or
affirmative director votes) of the Preferred Directors.
5.13. COMPENSATION, ETC. The aggregate annual Compensation paid
by the Company and its Subsidiaries to the five most highly compensated officers
or employees of the Company and its Subsidiaries or their Affiliates shall not
exceed the amounts set forth in Exhibit 5.13, adjusted annually to provide for
cost of living increases corresponding to the Consumer Price Index, unless such
compensation is increased with the approval of the Compensation Committee of the
Board of Directors, which committee shall include a Preferred Director. At no
time shall the annual Compensation paid to any officer or other employee of the
Company or any of its Subsidiaries or to any of their Affiliates exceed
arm's-length Compensation, except with the approval of the Compensation
Committee, including the approval of the Preferred Director who is a member
thereof. Any severance arrangements with respect to any employee shall in no
event exceed one year salary except to the extent expressly approved by the
Compensation Committee or as set forth in Exhibit 5.13 or the Material
Agreements. The Company and its Subsidiaries shall not enter into written
employment or management contracts except as set forth on Exhibit 5.13. The
Company shall purchase disability insurance sufficient to cover its obligations
to pay disability compensation under the employment agreements included in the
Material Agreements.
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5.14. STOCK ISSUANCE, ETC. Except with the prior written
consent of the Required Holders, neither the Company nor any Subsidiary will (a)
issue, sell, give away, transfer, pledge, mortgage, assign or otherwise dispose
of, (b) grant any rights (either preemptive or other) or options to subscribe
for or purchase, or (c) enter into any agreements or issue any warrant providing
for the issuance of any of the capital stock of the Company or any stock or
securities convertible into or exchangeable for any of the capital stock of the
Company, other than as expressly contemplated by the Investor Agreements
(including Investments permitted by Section 5.9) or the Material Agreements. The
Company shall issue options for, or shares of, Common Stock only upon direction
of the Compensation Committee of the Company's Board of Directors, including the
approval of the Preferred Director who is a member thereof. Except as
contemplated by the Material Agreements, the Company shall not, or shall not
subject itself to any obligation to, repurchase or otherwise acquire or retire
any shares of the capital stock of the Company or any securities convertible
into or exchangeable for any of the capital stock of the Company.
5.15. CLOSING COSTS. Closing Costs shall not exceed $540,000 as
shown on the schedule previously furnished to the Investors.
5.16. AMENDMENT OF MATERIAL AGREEMENTS, ETC. Except with the
prior written consent of the Board of Directors, including the affirmative vote
of the Preferred Directors, the Company shall not agree to any amendment or
modification of, or grant any waiver or fail to enforce any of its rights
pursuant to, any of the Material Agreements if such amendment, modification,
waiver or failure has or could have, directly or indirectly, any Material
Adverse Effect or any adverse effect on any holder of any then outstanding
Investor Securities or on the rights, remedies or interests of such holder
hereunder or under any of the Material Agreements. Except to the extent
prohibited by the Company's principal senior bank credit facility as from time
to time in effect, neither the Company nor any of its Subsidiaries shall remain
or become a party to or be bound by any agreement, deed, lease or other
instrument which imposes any restriction or limitation on Distributions that are
required to be made by the Company on or in respect of the Investor Securities
or which restricts the ability of the Company's Subsidiaries to pay dividends or
to make advances to the Company; PROVIDED, HOWEVER, that the Company and its
Subsidiaries may become and remain party to the Material Agreements as in effect
on the date hereof, with such changes therein as the Board of Directors, with
the affirmative vote of the Preferred Directors may agree to in writing, and may
perform their respective obligations thereunder to the extent not otherwise
inconsistent with this Agreement. Except to the extent required by applicable
law, neither the Company nor any of its Subsidiaries shall transfer any of its
surplus to capital if as a result thereof the Company's ability to perform any
of the terms of the Investor Agreements would be impaired.
5.17. REPLACEMENT OF CHIEF EXECUTIVE. Upon the death,
resignation, retirement or removal of Gerald Cerce as Chief Executive Officer of
the Company, a majority of the Investors shall have the right to participate in
searching for, and to approve, his replacement.
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5.18. OWNERSHIP OF SUBSIDIARY STOCK. The Company shall not have
any Subsidiary that is not a wholly owned Subsidiary other than Subsidiaries for
which either (a) the Required Holders have provided their written consent, which
may not be unreasonably withheld or (b) the Board of Directors, with the
affirmative vote of the Preferred Directors, has provided its prior written
consent.
5.19. TRANSACTIONS WITH AFFILIATES. Except for transactions
expressly contemplated by the Investor Agreements, neither the Company nor any
of its Subsidiaries shall effect or remain obligated with respect to any
transaction with any Affiliate other than with the Company or any Wholly Owned
Subsidiary of the Company except on terms no less favorable to the Company or
any of its Subsidiaries than it could obtain in an arm's-length transaction with
an unrelated party.
5.20. COMPLIANCE WITH ERISA, ETC. The Company and its
Subsidiaries will meet all minimum funding requirements applicable to the
Pension Plans imposed by ERISA or the Code (without giving effect to any waivers
of such requirements or extensions of the related amortization periods which may
be granted) and will at all times comply in all material respects with all other
provisions of ERISA and the Code which are applicable to the Pension Plans and
the Employee Benefit Plans.
5.21. SBA REQUIREMENTS.
5.21.1. INFORMATION. The Company will promptly furnish to
the Investors that are SBICs upon request all forms that may be
required to be filed with the SBA from time to time in connection
with the transactions contemplated by this Agreement and such
Investors' ownership of Investor Securities and shall provide such
Investors and the SBA with such other information and forms
(including all information necessary for the Investors to prepare
SBA Form 468 and an accompanying assessment of economic impact
under 13 CFR ss. 107.304(c)) as such Investors, in their reasonable
discretion, or the SBA may from time to time request with respect
to the transactions contemplated by this Agreement and such
Investors' ownership of Investor Securities. The Company shall at
all times permit any Investor that is an SBIC and, if necessary, a
representative of the SBA, reasonable access to the Company's
records during normal business hours upon prior notice and the
Company shall provide such information as such Investor or the SBA
may reasonably request in order to verify compliance with this
Agreement, including an officer's certificate indicating such
compliance.
5.21.2. COMPLIANCE; RESCISSION RIGHT. The Company will
not engage in any discriminatory activities prohibited by 13 CFR
parts 112, 113 and 117. The Company will not use directly or
indirectly the proceeds of the issuance and sale of the Investor
Securities for any purpose for which an SBIC is prohibited from
providing funds under 13 CFR ss. 107.901. The Company shall not
change its business activity in any manner which, by reason of such
change in business activity, would render the Company
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ineligible as a "small business concern" under the Small Business
Investment Act. The Company agrees that (a) any diversion of the
proceeds from their intended use as specified in Section 2.5 or (b)
the Company's becoming ineligible as a "small business concern" by
reason of a change in the Company's business activity within one
year from the Closing Date, shall entitle any Investor that
constitutes an SBIC, upon demand, and in addition to any other
remedies that may exist, to immediate rescission of this Agreement
and repayment in full of the funds invested by it hereunder as
contemplated by 13 CFR ss. 107.305 and 13 CFR ss. 107.706.
5.22. ANNUAL MEETING. Within 90 days after the Company's annual
financial statements are required to be furnished in accordance with Section
5.2.1 and on not less than 10 days prior written notice, the Company will hold
an annual meeting for the benefit of its stockholders, including the holders of
Investor Securities. At such annual meeting the principal executive, financial
and operations officers of the Company and its Subsidiaries will present a
review of, and will discuss with those in attendance, in reasonable detail, the
general affairs, management, financial condition, results of operations and
business prospects of the Company and its Subsidiaries.
5.23. LISTING OF SHARES. If the shares of Common Stock issued
to the Investors hereunder (including Common Stock issuable upon conversion of
the Preferred Stock or upon exercise of the Warrants) require listing on any
national securities exchange or quotation system, the Company will, at its
expense and as expeditiously as possible, use its best efforts to cause such
shares to be listed or duly approved for listing on such national securities
exchange or quotation system, subject to official notice of issuance of such
shares.
5.24. REAL PROPERTY HOLDING CORPORATION. Neither the Company
nor any of its Subsidiaries shall become a "United States real property holding
corporation" as defined in section 897(c)(2) of the Code and Treasury Regulation
section 1.897-2(b).
5.25. REGULATORY COMPLIANCE COOPERATION.
5.25.1. EXCHANGE FOR NONVOTING SECURITIES. In the event
that any Regulated Investor determines that it has a Regulatory
Problem, the Company shall take such actions as are reasonably
requested by such Regulated Investor in order (a) to facilitate any
transfer by such Regulated Investor of any Investor Securities then
held by it to any Person designated by such Regulated Investor, (b)
to permit such Regulated Investor (or any of its Affiliates) to
exchange all or any portion of the voting Investor Securities then
held by it on a share-for-share basis for shares of a class of
nonvoting securities of the Company, which nonvoting securities
shall be identical in all respects to such voting Investor
Securities, except that such new securities shall be nonvoting and
shall be convertible into voting securities on such terms as are
reasonably requested by each Regulated Investor in light of
regulatory considerations then prevailing, and (c) to continue the
respective allocation of the voting interests with respect to the
Company
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and with respect to each Regulated Investor=s ownership of the
voting Investor Securities. Such actions may include, but shall not
necessarily be limited to:
(i) entering into such additional agreements as
are requested by each Regulated Investor to permit any
Person designated by it to exercise any voting power
which is relinquished by such Regulated Investor upon any
exchange of voting Investor Securities for nonvoting
securities of the Company; and
(ii) entering into such additional agreements,
adopting such amendments to the Certificate of
Incorporation and bylaws of the Company and taking such
additional actions as are reasonably requested by each
Regulated Investor in order to effectuate the intent of
the foregoing.
5.25.2. FUTURE SECURITIES ISSUANCES. In the Event a
Regulated Investor has the right to acquire any securities of the
Company (as the result of a preemptive offer, pro rata offer or
otherwise), at such Regulated Investor=s request the Company will
offer to sell to such Regulated Investor non-voting securities on
the same terms as would have existed had such Regulated Investor
acquired the securities so offered and immediately requested their
exchange for non-voting securities pursuant to Section 5.25.1. The
Company shall grant to any subsequent holder of Investor Securities
originally acquired by any Investor, upon such Person's request,
the same rights granted to the Regulated Investors pursuant to this
Section 5.25. In the event that any Subsidiary of the Company ever
offers to sell any of its securities, then the Company will cause
such Subsidiary to enter into agreements with the Regulated
Investors substantially similar to this Section 5.25.
6. INVESTOR SECURITIES; RESTRICTIONS ON TRANSFER
6.1. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each of
the Investors severally represents and warrants to the Company that:
(a) It is an "accredited investor" for purposes of
Regulation D under the Securities Act and that it is acquiring the
Investor Securities at the Closing for investment for its own
account, and not with a view to selling or otherwise distributing
the Investor Securities in violation of the Securities Act;
PROVIDED, HOWEVER, that nothing shall prevent the Investors from
transferring the Investor Securities in compliance with this
Section 6; and PROVIDED, FURTHER, that the disposition of the
Investors' property shall at all times remain in the Investors'
control.
(b) It has sufficient knowledge and experience in
investing in companies similar to the Company in terms of the
Company's stage of development so as to be
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able to evaluate the risks and merits of its investment in the
Company and it is able financially to bear the risks thereof.
(c) It has had an opportunity to discuss the Company,
business, management and financial affairs with the Company's
management and has received (or had made available to it) any
financial and business documents requested by it.
(d) It understands that (i) the shares of Investor
Securities purchased by it have not been registered under the
Securities Act by reason of their issuance in a transaction exempt
from the registration requirements of the Securities Act pursuant
to section 4(2) thereof or Rules 505 or 506 under the Securities
Act, (ii) such shares must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is
exempt from such registration, (iii) such shares will bear a legend
to such effect and (iv) the Company will make a notation on its
transfer books to such effect.
(e) All offers to purchase the Investor Securities were
made to it in The Commonwealth of Massachusetts or the State of
Rhode Island.
(f) It has no contract, arrangement or understanding with
any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
6.2. HOME OFFICE PAYMENT. All payments made in respect of the
Investor Securities held by the Investors shall be paid by Company check or
wired to the address shown on Exhibit 1, accompanied by sufficient information
to identify the source and application thereof or by such other method or at
such other address as the Investors shall have from time to time given timely
notice of to the Company.
6.3. REPLACEMENT OF LOST SECURITIES. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a security and, in the case of any such loss, theft or
destruction, upon delivery of an indemnity bond in such reasonable amount as the
Company may determine (or, in the case of a security held by the Investors or
any institutional holder or by the Investors or such institutional holder's
nominee, of an unsecured indemnity agreement from the Investors or such other
holder reasonably satisfactory to the Company), or, in the case of any such
mutilation, upon the surrender of the security for cancellation to the Company
at its principal office, the Company at its expense will execute and deliver in
lieu thereof, a new security of like tenor. Any security in lieu of which any
such new security has been so executed and delivered by the Company shall not be
deemed to be an outstanding security for any purpose.
6.4. TRANSFER, EXCHANGE AND CONVERSION OF CAPITAL STOCK. The
Company shall keep at its principal office a register in which shall be entered
the names and addresses of the holders of the capital stock of the Company and
particulars of the respective shares of Common
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Stock, Preferred Stock (including the classes thereof) and Warrants held by them
and of all transfers, exchanges, conversions and redemptions of such capital
stock. Upon surrender at such office or such other place as shall be duly
specified by the Company of any certificate representing shares of capital stock
for exchange or (subject to compliance with the applicable provisions of this
Agreement, including the conditions set forth in Section 6.5) transfer or for
exchange or conversion, the Company shall as appropriate issue, at its expense,
one or more new certificates in such denomination or denominations as may be
requested, and registered as such holder may request. Any certificate
representing shares of capital stock surrendered for registration or transfer
shall be duly endorsed, or accompanied by a written instrument of transfer duly
executed by the holder of such certificate or his attorney duly authorized in
writing. The Company will pay shipping and insurance charges, from and to each
holder's principal office, upon any transfer, exchange or conversion provided
for in this Section 6.4.
6.5. RESTRICTIONS ON TRANSFER. Investor Securities shall be
transferable only upon satisfaction of the applicable conditions specified in
this Section 6.5 or unless sold in an offering registered under the Securities
Act or pursuant to an exemption from the registration requirements of the
Securities Act.
6.5.1. RESTRICTIVE LEGEND. Except as otherwise permitted
by Section 6.5.3, each certificate representing shares of Investor
Securities shall bear a legend in substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended,
or under the securities laws of any state, and may not be
sold, or otherwise transferred, in the absence of such
registration or an exemption therefrom under such Act and
under any such applicable state laws. In addition, the
shares represented by this certificate are subject to
restrictions on transfer contained in a Securities
Purchase Agreement dated as of May 31, 1996, a copy of
which is available at the issuer's office and will be
furnished free of charge to the holder hereof"
6.5.2. TRANSFER RESTRICTIONS; NOTICE OF PROPOSED
TRANSFER; OPINIONS OF COUNSEL. Except for transfers (a) in
connection with the liquidation, termination, winding up or death
of a holder of Investor Securities or (b) pursuant to an effective
registration statement under the Securities Act or (c) to
Affiliates of such holder or (d) to other Investors, a holder of
Investor Securities may not transfer such securities to more than
three Persons except with the consent of the Company, which consent
may not be unreasonably withheld. Prior to any transfer of any
Investor Securities other than pursuant to an effective
registration statement under the Securities Act, the holder thereof
will give written notice to the Company of such holder's intention
to effect such transfer, describing in reasonable detail the manner
of the proposed transfer. If any such holder delivers to the
Company (a) an opinion of counsel in form and substance
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reasonably acceptable to the Company addressed to the Company to
the effect that the proposed transfer may be effected without
registration of such Investor Securities under the Securities Act
or applicable state securities laws (or a certificate of an officer
of such holder that the transfer is being made to a wholly owned
Subsidiary of the holder's corporate parent) and (b) the written
agreement of the proposed transferee to be bound by all of the
terms and conditions of this Agreement (including this Section 6.5)
and applicable to the Investors, such holder shall thereupon be
entitled, within 10 days thereafter, to transfer such Investor
Securities in accordance with the terms of this Agreement and the
notice delivered by such holder to the Company. Each certificate
representing such shares issued upon or in connection with such
transfer shall bear the restrictive legend set forth in Section
6.5.1, in each case unless the restrictions on transfer provided
for in Section 6.5 shall have ceased and terminated as to such
Investor Securities pursuant to Section 6.5.3.
6.5.3. TERMINATION OF RESTRICTIONS. The restrictions
imposed by Sections 6.5.1 and 6.5.2 upon the transferability of
Investor Securities shall terminate as to any particular Investor
Securities and any securities issued in exchange therefor or upon
transfer thereof when, in the opinion of counsel reasonably
acceptable to the Company, such restrictions are no longer required
in order to assure compliance with the Securities Act. Whenever any
of such restrictions shall terminate as to any Investor Securities,
the holder thereof shall be entitled to receive from the Company,
without expense, new certificates not bearing the legend set forth
in Section 6.5.1.
7. EXPENSES, ETC.
7.1. EXPENSES. The Company hereby agrees to pay on demand all
reasonable out-of-pocket expenses incurred by WPC in connection with the
transactions contemplated by this Agreement and by any Investors in connection
with any amendments or waivers (whether or not the same become effective) hereof
and all expenses incurred by the Investors or any holder of any Investor
Securities issued hereunder in connection with the enforcement in good faith of
any rights hereunder or under any other Investor or Material Agreement,
including (a) the reasonable fees, expenses and disbursements of WPC's special
counsel in connection with the transactions contemplated by this Agreement and
the other transactions consummated on or prior to the Closing Dates in an amount
not exceeding $45,000 through the Closing Date; (b) reasonable expenses up to
$16,000 in connection with the accountant's report as contemplated by Section
3.2; and (c) all taxes (other than taxes determined with respect to income),
including any recording fees and filing fees and documentary stamp and similar
taxes, at any time payable in respect of this Agreement, any other Investor
Agreement or the issuance of any of the Investor Securities.
7.2. INDEMNIFICATION. The Company shall indemnify and hold the
Investors and each of the Investors' partners, stockholders, officers,
directors, employees and agents free and harmless from and against all actions,
causes of action, suits, litigation, losses, liabilities and
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damages, investigations or proceedings instituted by any governmental agency or
any other Person and expenses in connection therewith, including reasonable
attorneys' fees and disbursements, incurred by the indemnitee or any of them as
a result of, or arising out of, or relating to (a) any transaction financed or
to be financed in whole or in part directly or indirectly with proceeds from the
sale by the Company of any of the Investor Securities, or (b) the execution,
delivery, performance or enforcement of this Agreement or any instrument
contemplated hereby by any of the indemnities, except in each such case for any
such indemnified liabilities arising on account of any indemnitee's gross
negligence or willful misconduct.
7.3. SURVIVAL. The obligations of the Company to the Investors
under this Section 7 shall survive the redemption, repurchase or transfer of any
or all of the Investor Securities.
8. NOTICES. Any notice or other communication in connection with this
Agreement or the Investor Securities shall be deemed to be delivered if in
writing addressed as provided below and if either (a) actually delivered at said
address, (b) in the case of a letter, seven business days shall have elapsed
after the same shall have been deposited in the United States mails, postage
prepaid and registered or certified, return receipt requested or (c) transmitted
to any address outside of the United States, by telecopy and confirmed by
overnight or two-day courier:
If to the Company, to it at 500 George Washington Highway,
Smithfield, RI 02197, telecopy: (401) 231-3212, telephone: (401) 231-3800 or at
such other address as the Company shall have specified by notice actually
received by the Principal Holders.
If to the Investors, to the Investors' respective addresses set
forth on Exhibit 1, or at such other address as the Investors shall have
specified by notice actually received by the Company, in each case with a copy
to WPC.
If to any other holder of record of any Investor Security, to it at
its address set forth in the registers of the Company.
9. CONFIDENTIALITY. Each Investor will maintain the confidential nature of
information obtained from the Company concerning the Company and its
Subsidiaries; PROVIDED, HOWEVER, that such Investor shall not be precluded from
making disclosure regarding such information: (a) to counsel for WPC or any such
Investor, accountants or other professional advisors on a need-to-know basis,
(b) to any other Investor, (c) as required by law or applicable regulation, (d)
to any participant in or assignee of any Investor Securities after notice to the
Company so long as such participant or assignee has agreed to be bound by this
Section 9 or (e) to the extent such information has become publicly available
other than as a result of the violation of this Section 9.
10. AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular
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instance and either retroactively or prospectively) only with the written
consent of the Required Holders. Any amendment or waiver effected in accordance
with this Section 10 shall be binding upon each holder of any Investor
Securities and the Company and each of its Subsidiaries.
11. SURVIVAL AND TERMINATION OF COVENANTS. All covenants, agreements,
representations and warranties made herein or in any closing certificate or
other certificate or written report delivered to the Investors pursuant to an
express requirement hereof shall be deemed to have been material and relied on
by the Investors, notwithstanding any investigation made by the Investors or on
the Investors' behalf, shall survive the execution and delivery to the Investors
hereof of the Investor Securities and shall terminate upon the closing of a
Qualified Public Offering.
12. SERVICE OF PROCESS. Each of the Company and the Investors (a)
irrevocably submits to the non-exclusive jurisdiction of the state courts of The
Commonwealth of Massachusetts and to the non-exclusive jurisdiction of the
United States District Court for the District of Massachusetts, for the purpose
of any suit, action or other proceeding arising out of or based upon this
Agreement or the subject matter hereof brought by any party hereto or such
party's successors or assigns, and (b) waives to the extent not prohibited by
law that cannot be waived, and agrees not to assert, by way of motion, as a
defense, or otherwise, in any such proceeding, any claim that it is not subject
personally to the jurisdiction of the above-named courts, that its property is
exempt or immune from attachment or execution, that any such proceeding brought
in one of the above-named courts is improper, or that this Agreement or the
Investor Securities, or the subject matter hereof or thereof, may not be
enforced in or by such court. Each of the Company and the Investors consents to
service of process in any such proceeding in any manner permitted by Chapter
223A of the General Laws of The Commonwealth of Massachusetts, and agrees that
service of process registered or certified mail, return receipt requested, at
its address specified in or pursuant to Section 8 is reasonably calculated to
give actual notice.
13. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE
LAW WHICH CANNOT BE WAIVED, THE INVESTORS AND THE COMPANY HEREBY WAIVE, AND
COVENANT THAT NEITHER THE COMPANY NOR THE INVESTORS WILL ASSERT, ANY RIGHT TO
TRIAL BY JURY ON ANY ISSUE IN ANY PROCEEDING, WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE, IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF OR IN
ANY WAY CONNECTED WITH, RELATED OR INCIDENTAL TO THE DEALINGS OF THE INVESTORS
AND THE COMPANY HEREUNDER, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING AND WHETHER IN TORT OR CONTRACT OR OTHERWISE. The Company acknowledges
that it has been informed by WPC that the provisions of this Section 13
constitute a material inducement upon which the Investors are relying and will
rely in entering into this Agreement and purchasing the Investor Securities
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41
pursuant hereto. Any of Investors or the Company may file an original
counterpart or a copy of this Section 13 with any court as written evidence of
the consent of the Investors and the Company to the waiver of its right to trial
by jury.
14. GENERAL. The invalidity or unenforceability of any term or
provision hereof shall not affect the validity or enforceability of any other
term or provision hereof. The headings in this Agreement are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof. This
Agreement, the other Investor Agreements and the other items referred to herein
or therein constitute the entire understanding of the parties hereto with
respect to the subject matter hereof and thereof and supersede all present and
prior agreements, whether written or oral. This Agreement is intended to take
effect as a sealed instrument and may be executed in any number of counterparts
which together shall constitute one instrument and shall be governed by and
construed in accordance with the laws (other than the conflict of laws rules) of
The Commonwealth of Massachusetts, and shall bind and inure to the benefit of
the parties hereto and their respective successors and assigns. Whether or not
any express assignment has been made of this Agreement, provisions of this
Agreement that are for the Investors' benefit as the holder of any Investor
Securities are also for the benefit of, and enforceable by, all subsequent
holders of Investor Securities.
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The undersigned have executed this Agreement under seal as of the
date first above written.
ACCESSORIES ASSOCIATES, INC.
By /s/ Gerald F. Cerce
--------------------------------
Title: Chairman
WESTON PRESIDIO CAPITAL II, L.P.
By: WESTON PRESIDIO CAPITAL
MANAGEMENT II, L.P.
By /s/ Michael F. Cronin
--------------------------
General Partner
BANCBOSTON VENTURES, INC.
By /s/ Charles Grant
--------------------------------
Title: Vice President
ST. PAUL FIRE AND MARINE
INSURANCE COMPANY
By /s/ Everett V. Cox
--------------------------------
Title: Authorized Representative
NATIONAL CITY CAPITAL CORPORATION
By /s/ Carl E. Baldassarre
--------------------------------
Title: Managing Director
43
EXHIBIT 1 TO SECURITIES
PURCHASE AGREEMENT
INVESTORS
Number Number Principal Aggregate
of Preferred of Common Amount Purchase
Shares Shares of Note Price
------------ --------- ---------- -----------
Name and Address
- ----------------
Weston Presidio 17,100 19,000 $1,000,000 $10,050,000
Capital II, L.P. $ (9,000,000)
40 William Street - Suite 300 $ (50,000)
Wellesley, MA 02181
Telephone: (617) 237-4700
Telecopy: (617) 237-6270
BancBoston Ventures, Inc. 6,840 7,600 400,000 $ 4,020,000
100 Federal Street - 31st Floor $ (3,600,000)
Boston, Massachusetts 02110 $ (20,000)
Telephone: (617) 434-2442
Telecopy: (617) 434-1153
St. Paul Fire and Marine Insurance 6,840 7,600 400,000 $ 4,020,000
Company $ (3,600,000) $ (20,000)
c/o St. Paul Venture Capital, Inc.
8500 Normandale Lake Blvd.
Suite 1940
Bloomington, Minnesota 55437
Telephone: (612) 830-7474
Telecopy: (612) 830-7475
National City Capital Corporation 3,420 3,800 200,000 $ 2,010,000
1965 E. 6th Street $ (1,800,000)
Suite 1010 $ (10,000)
Cleveland, OH 44114
Telephone: (216) 575-9482
Telecopy: (216) 575-9965
------------ --------- ---------- -----------
Total: 34,200 38,000 $2,000,000 $20,100,000
$(18,000,000) $(100,000)
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