BAY HARBOUR MANAGEMENT L.C.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
January 4, 2000
Tops Appliance City, Inc.
00 Xxxxxxxxx Xxxxxx
Xxxxxx, Xxx Xxxxxx 00000
Gentlemen:
Reference is made to that certain Share Purchase Agreement, dated July
16, 1998 (the "Agreement"), between Tops Appliance City, Inc. ("Tops") and Bay
Harbour Management L.C., for its managed accounts ("Bay Harbour"). The purpose
of this Letter Agreement is to confirm our agreement concerning the provisions
of Section 5 of the Agreement, which provides for certain purchase price
adjustments. It is hereby agreed as follows:
1. In full satisfaction of Tops' obligation to make additional cash
payments or issue additional shares of Tops common stock to Bay Harbour, Tops
shall issue an aggregate of 4,500,000 shares of a new Series A Preferred Stock
of Tops (the "Series A Stock") to the managed accounts of Bay Harbour set forth
on Exhibit A hereto and in the amounts set forth on such Exhibit. The terms of
the Series A Stock shall be as set forth in the Certificate of Designation
annexed hereto as Exhibit B (the "Certificate of Designation"). Upon such
issuance of the Series A Stock, the provisions of Section 5 of the Agreement
shall be terminated and of no further force or effect, subject, however, to the
provisions of Section 3 hereof.
2. Within fifteen (15) business days after the date hereof, Tops shall
file the Certificate of Designation with the Treasurer of the State of New
Jersey and deliver to Bay Harbour properly executed stock certificates for the
Series A Stock.
3. Tops agrees that it will seek and use its best efforts to obtain
stockholder approval of the conversion provisions of the Series A Stock at its
Annual Meeting of Stockholders in 2000. Subject to obtaining such stockholder
approval, Tops will arrange to list the shares of Tops common stock issuable
upon conversion of the Series A Stock on the Nasdaq Stock Market and it will
reserve such shares for issuance upon such conversion. If for any reason (other
than Bay Harbour's failure to vote in favor of such approval) such requisite
approval of Tops' stockholders is not obtained by June 30, 2000, or, if earlier,
is not obtained at Tops' 2000 Annual Meeting, Bay Harbour shall have the option
to rescind and cancel this Letter Agreement by written notice to Tops within
thirty (30) days after it has the right to do so. Bay Harbour shall return to
Tops the Series A Stock issued hereunder if it so elects to cancel this Letter
Agreement, and the provisions
NY2:\861003\01
of Section 5 of the Agreement shall be reinstated and thereafter remain in full
force and effect.
4. The existing registration rights agreements between Bay Harbour and
Tops shall also apply to the common stock issuable upon conversion of the Series
A Stock to be issued to Bay Harbour.
5. Tops represents to Bay Harbour that (i) this Letter Agreement and the
Certificate of Designation have been duly authorized by its Board of Directors;
(ii) this Letter Agreement has been duly executed and delivered by Tops and
constitutes a valid, binding and enforceable obligation of Tops; and (iii) the
Series A Stock, upon its issuance pursuant hereto, will be duly authorized,
validly issued, fully paid and non-assessable and will not have been issued in
violation of any pre-emptive rights or agreements to which Tops is a party.
6. All notices hereunder shall be given as provided in the Agreement.
7. Tops agrees to reimburse Bay Harbour for its reasonable attorney's fees
in connection with the preparation of this Letter Agreement and the transactions
contemplated hereby.
8. This Letter Agreement shall be governed by, construed and enforced in
accordance with, the laws of the State of New York, without regard to its
conflict of laws principles.
9. This Letter Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original and all of which together shall
be deemed to be one and the same agreement.
Kindly confirm your agreement to the foregoing by signing below where
indicated and returning a signed copy to the undersigned.
Very truly yours,
BAY HARBOUR MANAGEMENT L.C.
for its managed accounts
By: /s/ Xxxxxxx X. Xxxxxxxxxx
------------------------------------
Name: Xxxxxxx X. Xxxxxxxxxx
Title: Managing Principal
CONFIRMED AND AGREED TO:
TOPS APPLIANCE CITY, INC.
By: /s/ Xxxxxxx X. Xxxxx
-----------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Chief Executive Officer
Exhibit A
---------
Number of Shares of
Name of Managed Account Series A Stock
----------------------- --------------
Bay Harbour Partners, Ltd. 1,773,450
Bay Harbour 90-1, Ltd. 1,182,150
Trophy Hunter Investments, Ltd. 1,048,050
Mellon Bank N.A., as Trustee for Dominion Resources
Retirement Fund 496,350
EXHIBIT B
---------
TOPS APPLIANCE CITY, INC.
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED STOCK
AND QUALIFICATIONS, LIMITATIONS AND
RESTRICTIONS THEREOF
------------------------
Pursuant to Section 14A:9-4 of the
New Jersey Business Corporation Act
------------------------
Tops Appliance City, Inc. (the "Company"), a corporation organized and
existing under the laws of the State of New Jersey, hereby certifies that
pursuant to the provisions of Section 14A:9-4 of the New Jersey Business
Corporation Act, its Board of Directors, pursuant to a unanimous written consent
dated as of January , 2000 adopted the following resolution, which resolution
remains in full force and effect as of the date hereof:
WHEREAS, the Board of Directors of the Company is authorized, within
the limitations and restrictions stated in the Certificate of Incorporation, to
fix by resolution or resolutions the designation of preferred stock and the
powers, preferences and relative participating, optional or other special rights
and qualifications, limitations or restrictions thereof, including, without
limiting the generality of the foregoing, such provisions as may be desired
concerning voting, redemption, dividends, dissolution or the distribution of
assets, conversion or exchange, and such other subjects or matters as may be
fixed by resolution or resolutions of the Board of Directors under the New
Jersey Business Corporation Act; and
WHEREAS, it is the desire of the Board of Directors of the Company,
pursuant to its authority as aforesaid, to authorize and fix the terms of the
preferred stock to be designated the Series A Convertible Preferred Stock of the
Company and the number of shares constituting such preferred stock;
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized the
Series A Convertible Preferred Stock on the terms and with the provisions herein
set forth:
NY2:\861009\01
TERMS, PREFERENCES, RIGHTS AND LIMITATIONS
of
SERIES A CONVERTIBLE PREFERRED STOCK
of
TOPS APPLIANCE CITY, INC.
The relative rights, preferences, powers, qualifications, limitations
and restrictions granted to or imposed upon the Series A Convertible Preferred
Stock or the holders thereof are as follows:
1. Definitions. For purposes of this Designation, the following
definitions shall apply:
"Board" shall mean the Board of Directors of the Company.
"Business Day" shall mean any day other than a Saturday, Sunday, or a
day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Common Stock" shall mean the Common Stock, no par value per share, of
the Company.
"Company" shall mean Tops Appliance City, Inc., a New Jersey
corporation.
"Conversion Ratio" has the meaning set forth in Section 7 hereof.
"Current Market Price," when used with reference to shares of Common
Stock or other securities on any date, shall mean the average of the daily
market prices for 30 consecutive Trading Days commencing 45 days before such
date. The daily market price for each such Trading Day shall be (i) the last
sale price on such day on the principal stock exchange or the NASDAQ Stock
Market on which such Common Stock is then listed or admitted to trading, (ii) if
no sale takes place on such day on any such exchange or market, the average of
the last reported closing bid and asked prices on such day as officially quoted
on any such exchange or market, (iii) if the Common Stock is not then listed or
admitted to trading on any stock exchange or such market, the average of the
last reported closing bid and asked prices on such day in the over-the-counter
market, as furnished by NASDAQ or the National Quotation Bureau, Inc., (iv) if
neither such corporation at the time is engaged in the business of reporting
such prices, as furnished by any similar firm then engaged in such business, or
(v) if there is no such firm, as furnished by any member of the National
Association of Securities Dealers ("NASD") selected mutually by the Required
Holders and Company or, if they cannot agree upon
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such selection, as selected by two such members of the NASD, one of which shall
be selected by the Required Holders and one of which shall be selected by
Company.
"Liquidation Preference" shall mean $.01 per share.
"Organic Change" shall mean (A) any sale, lease, exchange or other
transfer of all or substantially all of the property and assets of the Company,
or (B) any merger or consolidation to which the Company is a party and which the
holders of the voting securities of the Company immediately prior thereto own
less than a majority of the outstanding voting securities of the surviving
entity immediately following such transaction.
"Original Issue Date" shall mean the date of the original issuance of
shares of Convertible Preferred Stock.
"Person" shall mean any individual, firm, corporation or other entity,
and shall include any successor (by merger or otherwise) of such entity.
"Required Holders" shall mean the holders of at least of a majority of
the outstanding shares of Convertible Preferred Stock.
"Trading Day" shall mean a Business Day or, if the Common Stock is
listed or admitted to trading on any national securities exchange or NASDAQ
Stock Market, a day on which such exchange or market is open for the transaction
of business.
2. Designation: Number of Shares. The designation of the preferred
stock authorized by this resolution shall be "Series A Convertible Preferred
Stock" and the number of shares of Convertible Preferred Stock authorized hereby
shall be 4,500,000 shares.
3. Dividends.
(a) So long as any shares of Convertible Preferred Stock shall be
outstanding, (i) if any dividend whatsoever shall be paid or declared, or any
distribution shall be made, on account of any Common Stock (including, without
limitation, any distribution of stock or other securities or property or rights
or warrants to subscribe for securities of the Company or any of its
Subsidiaries by way of dividend or spinoff) an equivalent additional dividend or
distribution shall simultaneously by declared and paid on the Convertible
Preferred Stock based on the number of shares of Common Stock into which it is
then convertible, whether or not the conditions for conversion have been
satisfied at that time.
4. Liquidation Rights of Convertible Preferred Stock.
(a) In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the holders of Convertible Preferred
Stock then outstanding shall be entitled to be paid out of the assets of the
Company available
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for distribution to its stockholders, whether such assets are capital, surplus
or earnings, before any payment or declaration and setting apart for payment of
any amount shall be made in respect of any shares of Common Stock or any share
of any other class or series of the Company's preferred stock ranking junior to
the Convertible Preferred Stock with respect to the payment of dividends or
distribution of assets on liquidation, dissolution or winding up of the Company,
an amount equal to the Liquidation Preference plus all declared and unpaid
dividends in respect of any liquidation, dissolution or winding up consummated.
(b) If upon any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the assets to be distributed among the holders
of Convertible Preferred Stock shall be insufficient to permit the payment to
such stockholders of the full preferential amounts aforesaid, then the entire
assets of the Company to be distributed shall be distributed ratably among the
holders of Convertible Preferred Stock, based on the full preferential amounts
for the number of shares of Convertible Preferred Stock held by each holder.
(c) After payment to the holders of Convertible Preferred Stock of the
amounts set forth in Section 4(a) hereof, the entire remaining assets and funds
of the Company legally available for distribution, if any, shall be distributed
among the holders of any Company stock entitled to a preference over the Common
Stock in accordance with the terms thereof and, thereafter, to the holders of
Common Stock and the holders of the Convertible Preferred Stock based on the
number of shares of Common Stock into which it is then convertible, whether or
not the conditions for conversion have been satisfied at that time.
5. Voting Rights. In addition to any voting rights provided by law, the
affirmative vote of the Required Holders, voting together as a class, in person
or by proxy, at a special or annual meeting of stockholders called for the
purpose, or pursuant to a written consent of stockholders shall be necessary to
authorize, adopt or approve an amendment to the Certificate of Incorporation of
the Company which would alter or change in any manner the terms, powers,
preferences or special rights of the shares of Convertible Preferred Stock or
grant waivers thereof, or which would otherwise adversely affect the rights of
the Convertible Preferred Stock, provided that no such modification or amendment
may, without the consent of each holder of Convertible Preferred Stock affected
thereby, (A) reduce the liquidation rights or dividend rights of the Convertible
Preferred Stock; (B) adversely affect any of the conversion features of the
Convertible Preferred Stock set forth in Section 7 hereof; or (C) reduce the
percentage of outstanding Convertible Preferred Stock necessary to modify or
amend the terms thereof or to grant waivers thereof.
6. No Redemption of Convertible Preferred Stock. The Company shall not
have any right to redeem or repurchase the Convertible Preferred Stock.
7. Conversion. (a) Subject to the provisions for adjustment hereinafter
set forth and to the satisfaction of the conditions set forth below, each share
of
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Convertible Preferred Stock shall be convertible at any time and from time to
time, at the option of the holder thereof (a "Conversion") into fully paid and
nonassessable shares of Common Stock. The number of shares of Common Stock
deliverable upon conversion of a share of Convertible Preferred Stock, adjusted
as hereinafter provided, is referred to herein as the "Conversion Ratio." The
Conversion Ratio shall initially be one (1), subject to adjustment from time to
time pursuant to paragraph (e) of this Section 7. No fractional shares shall be
issued upon the conversion of any shares of Convertible Preferred Stock. All
shares of Common Stock (including fractions thereof) issuable upon conversion of
more than one share of Convertible Preferred Stock by a holder thereof shall be
aggregated for purposes of determining whether conversion would result in the
issuance of any fractional share. If, after the aforementioned aggregation, the
conversion would result in the issuance of a fraction of a share of Common
Stock, the Company shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to the Current
Market Price of such fraction on the date of conversion . The following
conditions must be satisfied before any shares of Convertible Preferred Stock
may be so converted: (i) the stockholders of the Company shall have approved the
right of the holders of the Convertible Preferred Stock to convert such shares
into Common Stock, and (ii) the issuance of Common Stock to the holder effecting
a Conversion would not result in a Change of Control constituting a Redemption
Event pursuant to the provisions of Section 14.3(d)(i) of that certain
Indenture, dated November 30, 1993, between the Company and Midlantic National
Bank, as Trustee, relating to a change in control, so long as such Indenture is
outstanding, nor result in such holder beneficially owing more than 49% of the
outstanding Common Stock so long as such provision of the Indenture is
applicable.
(b) (i) A Conversion of the Convertible Preferred Stock may be effected
by any such holder upon the surrender to the Company at the principal office of
the Company of the certificate for such Convertible Preferred Stock to be
converted accompanied by a written notice stating that such holder elects to
convert all or a specified number of such shares (which may be fractional
shares) in accordance with the provisions of this Section 7 and specifying the
name or names in which such holder wishes the certificate or certificates for
shares of Common Stock to be issued.
(ii) In case the written notice specifying the name or name in which
such holder wishes the certificate or certificates for shares of Common Stock to
be issued shall specify a name or names other than that of such holder, such
notice shall be accompanied by payment of all transfer taxes payable upon the
issuance of shares of Common Stock in such name or names. Other than such taxes,
the Company will pay any and all issue and other taxes (other than taxes based
on income) that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Convertible Preferred Stock pursuant hereto. As
promptly as practicable, and in any event within five Business Days after the
surrender of such certificate or certificates and the receipt of such notice
relating thereto and, if applicable, payment of all transfer taxes (or the
demonstration to the satisfaction of the Company that such taxes have been
paid), the Company shall deliver or cause to be delivered (i) certificates
representing the
5
number of validly issued, fully paid and nonassessable full shares of Common
Stock to which the holder of shares of Convertible Preferred Stock being
converted shall be entitled and (ii) if less than the full number of shares of
Convertible Preferred Stock evidenced by the surrendered certificate or
certificates is being converted, a new certificate or certificates, of like
tenor, for the number of shares evidenced by such surrendered certificate or
certificates less the number of shares being converted.
(iii) A Conversion, shall be deemed to have been made at the close of
business on the date of giving the written notice referred to in the first
sentence of (b)(i) above and of such surrender of the certificate or
certificates representing the shares of Convertible Preferred Stock to be
converted so that the rights of the holder thereof as to the shares being
converted shall cease except for the right to receive shares of Common Stock in
accordance herewith, and the person entitled to receive the shares of Common
Stock shall be treated for all purposes as having become the record holder of
such shares of Common Stock at such time.
(c) The Conversion Ratio shall be subject to adjustment from time to
time in certain instances as hereinafter provided.
(d) The Company shall at all times reserve, and keep available for
issuance upon the conversion of the Convertible Preferred Stock, such number of
its authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the conversion of all outstanding shares of Convertible
Preferred Stock, and shall take all action required to increase the authorized
number of shares of Common Stock if necessary to permit the conversion of all
outstanding shares of Convertible Preferred Stock.
(e) In case the Company shall at any time or from time to time after
the Original Issue Date (A) pay a dividend, or make a distribution, on the
outstanding shares of Common Stock in shares of Common Stock, (B) subdivide the
outstanding shares of Common Stock, (C) combine the outstanding shares of Common
Stock into a smaller number of shares or (D) issue by reclassification of the
shares of Common Stock any shares of capital stock of the Company, then, and in
each such case, the Conversion Ratio in effect immediately prior to such event
or the record date therefor, whichever is earlier, shall be adjusted so that the
holder of any shares of Convertible Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares of Common Stock or
other securities of the Company which such holder would have owned or have been
entitled to receive after the happening of any of the events described above,
had such shares of Convertible Preferred Stock been surrendered for conversion
immediately prior to the happening of such event or the record date therefor,
whichever is earlier. An adjustment made pursuant to this paragraph (e) shall
become effective (x) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of shares of Common Stock entitled to receive such dividend or
distribution, or (y) in the case of such subdivision, reclassification or
combination, at the close of business on the day upon which such corporate
action
6
becomes effective. No adjustment shall be made pursuant to this paragraph (e) in
connection with any transaction to which paragraph (f) applies.
(f) In case of any Organic Change (or any other merger or consolidation
to which the Company is a party, which for purposes of this paragraph (f) shall
be deemed an Organic Change), each share of Convertible Preferred Stock then
outstanding shall thereafter be convertible into, in lieu of the Common Stock
issuable upon such conversion prior to consummation of such Organic Change, the
kind and amount of shares of stock and other securities and property receivable
(including cash) upon the consummation of such Organic Change by a holder of
that number of shares of Common Stock into which one share of Convertible
Preferred Stock was convertible immediately prior to such Organic Change without
regard to the conditions for conversion (including, on a pro rata basis, the
cash, securities or property received by holders of Common Stock in any tender
or exchange offer that is a step in such Organic Change). In case securities or
property other than Common Stock shall be issuable or deliverable upon
conversion as aforesaid, then all references in this Section 7 shall be deemed
to apply, so far as appropriate and nearly as may be, to such other securities
or property.
(g) In case at any time or from time to time the Company shall pay any
stock dividend or make any other non-cash distribution to the holders of its
Common Stock, or shall offer for subscription pro rata to the holders of its
Common Stock any additional shares of stock of any class or any other right, or
there shall be any capital reorganization or reclassification of the Common
Stock of the Company or consolidation or merger of the Company with or into
another corporation, or any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, or there
shall be a voluntary or involuntary dissolution, liquidation or winding up of
the Company, then, in any one or more of said cases, the Company shall give at
least 20 days' prior written notice to the registered holders of the Convertible
Preferred Stock at the addresses of each as shown on the books of the Company as
of the date on which (i) the books of the Company shall close or a record shall
be taken for such stock dividend, distribution or subscription rights or (ii)
such reorganization, reclassification, consolidation, merger, sale or
conveyance, dissolution, liquidation or winding up shall take place, as the case
may be, provided that in the case of any Organic Change to which paragraph (f)
applies the Company shall give at least 30 days' prior written notice as
aforesaid. Such notice shall also specify the date as of which the holders of
the Common Stock of record shall participate in said dividend, distribution or
subscription rights or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale or conveyance or participate in
such dissolution, liquidation or winding up, as the case may be. Failure to give
such notice shall not invalidate any action so taken.
8. Reports as to Adjustments. Upon any adjustment of the Conversion
Ratio then in effect and any increase or decrease in the number of shares of
Common Stock issuable upon the operation of the conversion set forth in Section
7, then, and in each such case, the Company shall promptly deliver to each
holder of the Convertible Preferred Stock, a certificate signed by the President
or a Vice President and by the
7
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
of the Company setting forth in reasonable detail the event requiring the
adjustment and the method by which such adjustment was calculated and specifying
the Conversion Ratio then in effect following such adjustment and the increased
or decreased number of shares issuable upon the conversion granted by Section 7,
and shall set forth in reasonable detail the method of calculation of each and a
brief statement of the facts requiring such adjustment. Where appropriate, such
notice to holders of the Convertible Preferred Stock may be given in advance.
9. Certain Covenants. Any registered holder of Convertible Preferred
Stock may proceed to protect and enforce its rights and the rights of such
holders by any available remedy by proceeding at law or in equity to protect and
enforce any such rights, whether for the specific enforcement of any provision
in this Certificate of Designation or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
10. No Reissuance of Preferred Stock. No Convertible Preferred Stock
acquired by the Company by reason of purchase or otherwise shall be reissued,
and all such shares shall be cancelled, retired and eliminated from the shares
which the Company shall be authorized to issue.
11. Notices. All notices to the Company permitted hereunder shall be
personally delivered or sent by first class mail, postage prepaid, addressed to
its principal office located at 00 Xxxxxxxxx Xxxxxx, Xxxxxx, Xxx Xxxxxx 00000,
or to such other address at which its principal office is located and as to
which notice thereof is similarly given to the holders of the Convertible
Preferred Stock at their addresses appearing on the books of the Company.
IN WITNESS WHEREOF, Tops Appliance City, Inc. has caused this
Certificate to be signed by its President and Secretary, respectively, on this
____ day of January, 2000.
-------------------------
President
-------------------------
Secretary
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