Exhibit 4.4
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This instrument and the rights and obligations
evidenced hereby are subordinate in the manner and to the
extent set forth in that certain Subordination and
Intercreditor Agreement (as amended, supplemented or otherwise
modified from time to time, the "Intercreditor Agreement")
dated as of April 9, 2002, among ▇▇▇▇▇▇▇ ▇▇▇▇, as Collateral
Trustee, Factory Card & Party Outlet Corp. (f/k/a Factory Card
Outlet Corp.) and Factory Card Outlet of America Ltd.
(collectively, the "Debtors" and ▇▇▇▇▇ Fargo Retail Finance,
LLC, as Arranger, Collateral Agent and Administrative Agent
(the "Agent"), to the indebtedness (including interest) owed
by the Debtors pursuant to that certain Loan and Security
Agreement dated as of April 9, 2002, between Factory Card
Outlet of America Ltd. and the Agent and certain Lenders and
various other agreements, documents and instruments, as such
Loan and Security Agreement and other agreements, documents
and instruments have been and hereafter may be amended,
supplemented or otherwise modified from time to time and to
indebtedness refinancing the indebtedness under that agreement
as contemplated by the Subordination Agreement; and each
holder of this instrument, by its acceptance hereof,
irrevocably agrees to be bound by the provisions of the
Intercreditor Agreement.
TRADE CONVERSION NOTE
---------------------
New York, New York
April 9, 2002
FOR VALUE RECEIVED, the undersigned, FACTORY CARD & PARTY
OUTLET CORP. (f/k/a Factory Card Outlet Corp.), a Delaware corporation, and
FACTORY CARD OUTLET OF AMERICA LTD., an Illinois corporation (collectively, the
"Debtors" or the "Makers") hereby jointly and severally promise to pay to the
order of CSS INDUSTRIES, INC., a Trade Conversion Participant under and as
defined in the Plan, as defined below (the "Payee"; capitalized terms used and
not otherwise defined herein having herein their respective meanings as set
forth in the Plan), at the office of the Payee located at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at such other place as may be
designated in writing by the holder hereof (the "Holder"), in lawful money of
the United States of America, the principal amount of $250,000 payable in full
on April 9, 2006, together with all unpaid interest accrued thereon.
The Makers jointly and severally promise to pay interest to
the order of the Payee at said office or place, in like money, on the unpaid
principal amount of this Trade Conversion Note (this "Note") annually in arrears
on the last day of each twelve (12) month period commencing April 9, 2003 at a
rate of six percent (6.0%) per annum from the date hereof until paid in full.
During the three year period immediately following the date of
this Note, the Makers may, at their option, issue additional Trade Conversion
Notes in lieu of cash interest, i.e., pay-in-kind Trade Conversion Notes ("PIK
Notes"). The PIK Notes shall contain the same terms and conditions as this Note
except for the issuance date and the amount.
In the event that the Makers have Excess Availability in any
of fiscal years 2002, 2003 or 2004, then on May 31st of the fiscal year
immediately following any such fiscal year, the Makers shall make a mandatory
prepayment on the aggregate principal amount of the Trade Conversion Notes equal
to the Contingent Prepayment for the immediately preceding fiscal year,
provided, however that such aggregate mandatory prepayment shall be allocated
pro rata among all of the Trade Conversion Notes outstanding on such Prepayment
Date based on their respective principal amounts outstanding.
For purposes hereof, the following definitions apply:
Availability means, for any fiscal year, the average of the
amount available to be borrowed by the Makers as of the end of each month during
such fiscal year, or part thereof following the Effective Date (based on a
borrowing base certificate or other similar document), exclusive of letters of
credit, under the Makers' Working Capital Facility (assuming the Makers are able
to meet all conditions to borrowing thereunder).
Contingent Prepayment means, for any fiscal year, the
mandatory prepayment of the Trade Conversion Notes due in respect of such fiscal
year, which amount shall, in the aggregate for all Trade Conversion Notes, equal
the product of (i) the amount of Excess Availability for such fiscal year
multiplied by (ii) a fraction, the numerator of which shall be the outstanding
principal amount of all of the Trade Conversion Notes outstanding as of the
applicable Prepayment Calculation Date and the denominator of which shall equal
the sum of (A) the numerator plus (B) the outstanding principal amount of the
Extended Creditor Payment Amount as of the applicable Prepayment Calculation
Date; provided, however, that the maximum amount of the Contingent Prepayment
that is paid shall not exceed (x) for the first year following the Effective
Date, $970,000 less any optional prepayments of the Trade Conversion Notes made
during that year, (y) for the second year following the Effective Date $923,000
less any optional prepayments of the Trade Conversion Notes made during that
year and (z) for the third year following the Effective Date, $876,000 less any
optional prepayments of the Trade Conversion Notes made during that year.
Excess Availability means, for any fiscal year, 40% of the
amount, if any, by which the Reorganized Debtors' average Availability during
such fiscal year exceeds $12 million ($12,000,000).
2
Prepayment Date means the thirty-first day of May in any
fiscal year immediately following any fiscal year in which the Makers have
Excess Availability.
Prepayment Calculation Date means the anniversary date of the
Effective Date in any fiscal year immediately following any fiscal year in which
the Makers have Excess Availability.
The Makers shall have the right to prepay the principal amount
of this Note at any time, in whole or in part, without premium or penalty,
provided, that partial prepayments shall be in the minimum amount of $50,000 or
integral multiples thereof.
The Holder of this Note is entitled, at its option, at any
time on or after the third anniversary of the Effective Date and on or before
the close of business on fourth anniversary of the Effective Date, or if this
Note is called for prepayment in whole or in part on or after the third
anniversary of the Effective Date and on or before the close of business on
fourth anniversary of the Effective Date, then in respect of this Note or the
portion thereof so called for prepayment until and including, but (if payment
thereof has been duly provided for) not after, the close of business on the
business day immediately preceding the date of prepayment (such date of
conversion, the "Conversion Date"), to convert this Note (or any portion thereof
which is $500 or an integral multiple of $500) at the Maker's offices, into
fully paid and non-assessable shares of Common Stock, par value $.10 per share
(the "Common Stock"), of Factory Card & Party Outlet Corp. (f/k/a Factory Card
Outlet Corp.) (the "Company") at the Conversion Price (as defined below) as of
such Conversion Date for each share of Common Stock, or at the adjusted
conversion price in effect at the Conversion Date determined as provided in this
Note, all in accordance with the terms and provisions of this Note, including,
without limitation, Annex A thereto. No interest accruing after April 9, 2005
shall be allowed to or be credited in converting this Note into Common Stock and
all such accrued interest shall be forgiven upon conversion of this Note.
Conversion Price means, as of any Conversion Date, (x) $3,727,880 divided by (y)
the product of (i) 0.415428167021 and (ii) the sum of the total number of shares
of Common Stock issuable under the Plan as of the Effective Date (1,500,000
shares) and the shares of Common Stock issued in respect of all New Equity
Warrants, New Management Warrants and options issued under the New Employee
Stock Option on or prior to such Conversion Date. As provided in this Note,
including, without limitation, Annex A thereto, the Conversion Price is also
subject to adjustment in certain cases as set forth therein. No adjustment is to
be made on conversion for interest accrued hereon from and after the third
anniversary of the Effective Date. The Company will not issue fractional shares
upon any such conversion, but shall make adjustment therefor in cash on the
basis of the current market value of such fractional interest (computed as
provided in this Note), all as provided in this Note. Such conversion right
shall be in accordance with the terms and provisions set forth on Annex A to
this Note.
This Note has been issued pursuant to the Debtors' Joint
Amended Plan of Reorganization under Chapter 11 of the United States Bankruptcy
Code dated February 5, 2002 which was confirmed by order of the United States
3
Bankruptcy Court for the District of Delaware (Chapter 11 Case Nos. 99-685 (EIK)
and 99-686 (EIK), said Plan, as amended, supplemented or modified, the "Plan").
This Note is secured by a second priority lien upon and
security interest in certain of the assets of the Makers which secure the
Working Capital Facility, as set forth in the Security Agreement of even date
herewith, and is subject to the terms of the Intercreditor Agreement, dated on
or about the date hereof, between the Working Capital Facility lender and the
Collateral Trustee.
If any payment on this Note becomes due and payable on a day
other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day, and with respect to payment of principal, interest
thereon shall be payable at the then applicable rate during any such extension.
Upon the occurrence of any of the following events (each an
"Event of Default"):
(a) either Maker fails to pay when due any principal or
interest payable hereunder and such failure shall
continue unremedied for more than five (5) Business
Days; or
(b) either Maker fails to pay when due at maturity the
Extended Creditor Payment Obligation, or the Extended
Creditor Payment Obligation becomes due prior to its
stated maturity, or any amount due in respect of the
Extended Creditor Payment Obligation is not paid for
more than five (5) Business Days after demand by the
Collateral Trustee therefor; or
(c) either Maker fails to pay when due any Obligations
(as defined in the Collateral Trust Agreement) other
than the Obligations referred to in sub-paragraphs
(a) and (b) of this paragraph, and such failure shall
continue unremedied for more than five (5) Business
Days; or
(d) any representation or warranty of either Maker
contained herein or of either Maker contained in any
other Class 8/Trade Conversion Document (as defined
in the Collateral Trust Agreement) shall prove to
have been false in any material respect when made,
unless the fact resulting in such breach of
representation or warranty is capable of cure and is
cured within fifteen (15) days of such breach; or
(e) breach by either Maker of any material covenant
contained in this Note or in any other Class 8/Trade
Conversion Document (other than the covenants
referred to in sub-paragraph (a), (b) and (c) above)
or any written agreement entered into in connection
with this Note between either or both of the Makers
and the Payee and/or the Collateral Trustee, or
4
delivered by either or both of the Makers and the
Payee and/or the Collateral Trustee in connection
herewith, if such breach shall not have been remedied
within thirty (30) days such breach; or
(f) for any reason (other than as a result of an act or
failure to act on the part of the Collateral Trustee
in the Collateral) any Class 8/Trade Conversion
Document shall cease to be in full force and effect
or any security interest intended or purported to be
created thereby with respect to any part of the
Collateral (as defined in the Collateral Trust
Agreement) shall cease to be or is not valid and
perfected (to the extent such security interest can
be perfected by filing), or if, for any reason (other
than as a result of an act or failure to act on the
part of the Collateral Trustee), any such security
interest or obligations shall not have the priority
contemplated by the Class 8/Trade Conversion
Documents and the Intercreditor Agreement; or
(g) the occurrence of an "Event of Default" under and as
defined in the Loan and Security Agreement, dated on
or about the date hereof, by and among Factory Card
Outlet of America Ltd., ▇▇▇▇▇ Fargo Retail Finance
LLC, as Agent, and the other Senior Lenders (as
therein defined) (as the same may now exist or may
hereafter be amended, modified, supplemented,
extended, renewed, restated, or replaced, the "Senior
Credit Agreement") and the Senior Lenders shall have
caused the obligations thereunder to become due prior
to their stated maturity; or
(h) an involuntary case under any applicable bankruptcy,
insolvency or similar law now or hereafter in effect
shall be commenced against either Maker and the
petition shall not be dismissed within forty-five
(45) days after the commencement of the case, or a
court having jurisdiction in the premises shall enter
a decree or order for relief in respect of either
Maker in an involuntary case, under any applicable
bankruptcy, insolvency or other similar law now or
hereafter in effect, or any other similar relief
shall be granted under any applicable federal or
state law, or a decree or order of a court having
jurisdiction in the premises for the appointment of a
receiver, liquidator, trustee, custodian or other
officer having similar powers over either Maker or
over all or a substantial part of the property of
such Maker shall be appointed or a warrant of
attachment, execution or similar process against any
substantial part of the property of either Maker
shall be issued and any such event shall not be
stayed, dismissed, bonded or discharged within
forty-five (45) days of entry, appointment or
issuance; or
5
(i) either Maker shall have an order for relief entered
with respect to it or commence a voluntary case under
any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or shall
consent to the entry of an order in an involuntary
case, or to the conversion of an involuntary case to
a voluntary case, under any such law, or shall
consent to the appointment of or taking possession by
a receiver, trustee or other custodian for all or a
substantial part of its property; or either Maker
shall make an assignment for the benefit of creditors
or shall admit in writing its inability generally to
pay its debts as such debts become due; or the board
of directors of either Maker (or any committee
thereof) shall adopt any resolution or otherwise
authorize any action to approve any of the foregoing;
then, and in any such event, in addition to all the rights and remedies of the
Payee under the Collateral Documents (as defined in the Collateral Trust
Agreement), applicable law and otherwise, the Payee, may, subject to the
provisions of the Collateral Trust Agreement and the Intercreditor Agreement,
declare the unpaid principal balance of this Note together with all interest
accrued thereon, and all other Obligations of the Makers to the Payee, to be due
and payable, whereupon the unpaid balance hereof, together with all interest
accrued thereon, and all such other Obligations, shall forthwith become due and
payable, together with interest accruing thereafter at the then applicable rate
as stated above, until the indebtedness evidenced by this Note is paid in full;
provided, however, that if the Event of Default is one of the events listed in
subparagraph (h) or (i) of this paragraph, then, upon the occurrence thereof,
all Obligations shall automatically and immediately become due and payable
without demand or notice of any kind, which are expressly waived by the Makers.
If this Note is not paid when due and if it is placed with an
attorney for collection, the Makers jointly and severally agree to pay all costs
of collection, including reasonable attorneys' fees which shall be added to the
amount due under this Note.
Each Maker waives presentment, notice of dishonor, protest and
any other notice or formality with respect to this Note. The Holder may extend
the time of payment of this Note, postpone the enforcement hereof, grant any
other indulgences, add or release any party primarily or secondarily liable
hereon and/or permit substitutions, exchanges or releases of Collateral, in
whole or in part, and the Holder may do any or all of the foregoing without
affecting or diminishing the Holder's right of recourse against the Makers or
either of them, which right is expressly reserved.
The Holder shall not be required to look to any collateral
security for this Note and may proceed against the Makers or either of them in
such manner as it deems desirable. No right or remedy of the Holder hereunder is
to be deemed waived or affected by any failure or delay to exercise the same.
6
IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS NOTE, EACH
MAKER WAIVES (TO THE EXTENT PERMITTED BY LAW) THE RIGHT TO A TRIAL BY JURY, ALL
RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS AND CROSS-CLAIMS (UNLESS
SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM COULD NOT, BY REASON OF ANY APPLICABLE
FEDERAL OR STATE PROCEDURAL LAWS, BE INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER
ACTION).
EACH MAKER HEREBY IRREVOCABLY CONSENTS TO THE NON-EXCLUSIVE
JURISDICTION OF THE SUPREME COURT OF THE STATE OF ILLINOIS AND OF ANY FEDERAL
COURT LOCATED IN THE CITY OF CHICAGO IN CONNECTION WITH ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS NOTE. IN ANY SUCH ACTION OR PROCEEDING, EACH
MAKER WAIVES (TO THE EXTENT PERMITTED BY LAW) PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS AND AGREES THAT THE SERVICE THEREOF MAY BE MADE BY
CERTIFIED OR REGISTERED MAIL. EACH MAKER HEREBY WAIVES (TO THE EXTENT PERMITTED
BY LAW) THE DEFENSES OF FORUM NON CONVENIENS AND IMPROPER VENUE.
This Note may not be modified or amended except by an
agreement in writing signed by the party to be charged.
7
This Note shall be governed by, and interpreted in accordance
with, the laws of the State of New York and shall be binding upon the successors
and assigns of the Maker and inure to the benefit of the Payee and its
successors, endorsees and assigns.
ATTEST: FACTORY CARD & PARTY OUTLET
CORP.
(f/k/a Factory Card Outlet Corp.)
By: /s/ ▇▇▇▇ ▇▇▇▇
------------------------------------
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ Title: President
--------------------------------- ---------------------------------
Secretary
[Corporate Seal]
ATTEST: FACTORY CARD OUTLET OF
AMERICA LTD.
By: /s/ ▇▇▇▇ ▇▇▇▇
------------------------------------
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ Title: President
--------------------------------- ---------------------------------
Secretary
[Corporate Seal]
8
ANNEX A
CONVERSION OF NOTES
-------------------
1. Subject to and, upon compliance with the provisions of this
Annex A, at the option of the Holder, this Note, or any portion of the principal
amount thereof which is $500 or an integral multiple of $500, may, at any time
on or after the third anniversary of the Effective Date and or before the close
of business on the fourth anniversary of the Effective Date, or in case this
Note or portion thereof shall have been called for the payment prior to the
fourth anniversary of the Effective Date, then in respect of this Note or
portion thereof until and including the close of business on the business day
immediately preceding the payment date, be converted at the principal amount
thereof, or such portion thereof, into fully paid and non-assessable shares of
Common Stock of the Company, at the conversion price, determined as hereinafter
provided, in effect at the time of conversion.
The price at which shares of Common Stock shall be delivered
upon conversion (herein called the "conversion price") shall be the price, per
share of Common Stock set forth in the foregoing Note. The conversion price,
shall be reduced in certain instances as provided in paragraphs (1) and (7) of
Section 4 of this Annex A, and shall be increased in certain instances as
provided in paragraph (7) of Section 4 of this Annex A.
2. In order to exercise the conversion privilege, the holder
of this Note shall surrender such Note to the Company at the Makers' principal
office, and shall give written notice (in the form of the Conversion Notice that
is part of this Annex A) to the Company at said office that the Holder elects to
convert this Note or, if less than the entire principal amount of this Note is
to be converted, the portion thereof to be converted. Such notice shall also
state the name or names (with addresses) in which the certificate or
certificates for shares of Common Stock which shall be issuable on such
conversion shall be issued and registered. The Note shall, if required by the
Company, be accompanied by proper assignments thereof to the Company or in blank
for transfer. As promptly as practicable after the receipt of such notice and
the surrender of this Note as aforesaid, the Company shall issue and shall
deliver at said office to the Holder, or on his written order, a certificate or
certificates for the number of full shares issuable upon the conversion of such
Note in accordance with the provisions of this Annex A and cash, as provided in
Section 3 hereof, in respect of any fraction of a share of Common Stock issuable
upon such conversion. Such conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which such notice
shall have been received at said office and this Note shall have been
surrendered as aforesaid, and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become on said date the holder or
holders of record of the shares represented thereby. The Company covenants that
the books for the transfer of any such shares of Common Stock shall not be
closed during any period which includes a record date for a dividend or other
distribution on any such shares of Common Stock. If this Note is converted in
part only, the Company shall execute and deliver to the Holder, at the expense
A-1
of the Company, a new Note in principal amount equal to the unconverted portion
of this Note.
3. The Company shall not issue fractions of shares of Common
Stock upon conversions of this Note. If any fractional interest in a share of
Common Stock would otherwise be deliverable upon the conversion of this Note,
the Company shall pay a cash adjustment in respect of such fractional interest
in an amount equal to the current market value of such fractional interest
computed on the basis of the last reported sale price of Common Stock on the
principal national stock exchange or the NASDAQ National Market (collectively
"Exchange") on which the Common Stock is then listed (or the quoted closing bid
price if there be no sales on such Exchange) at the close of business on the
Conversion Date (or, if such day is not a trading day on such Exchange, on the
next preceding day on which such Exchange was open for business). If the Common
Stock of the Company shall not be listed on an Exchange on such Conversion Date,
such current market value shall be the average of the quoted closing bid price
on the Conversion Date on the over-the-counter securities market as determined
by the Company. If the Common Stock of the Company is not then traded on the
over-the-counter securities market, such current market value shall be
determined by the Company. Any determination made by the Company in this Section
3, if made in good faith, shall be conclusive and shall bind the Holder.
4. (1) If the Company shall at any time or from time to time
issue or sell any Additional Shares of Common Stock (as hereinafter defined) for
a consideration per share less than the conversion price in effect immediately
prior to the issuance or sale of such shares, or without consideration, then,
and thereafter successively upon each such issuance or sale the conversion price
in effect immediately prior to each such issuance or sale shall forthwith be
reduced to a price (calculated to the nearest cent) determined by dividing:
(i) a sum equal to (a) 1,500,000 (being the total
number of shares of Common Stock outstanding at the date of
this Note) multiplied by the initial conversion price set
forth on this Note, plus (b) the aggregate of the amounts of
all consideration received by the Company upon the issuance of
Additional Shares of Common Stock (as hereinafter defined),
minus (c) the aggregate of the amounts of all dividends and
other distributions that have been paid or made after the date
of this Note on Common Stock of the Company, other than in
cash out of its earned surplus or in Common Stock of the
Company, by
(ii) the sum of (a) 1,500,000 and (b) the number of
Additional Shares of Common Stock that shall have been issued,
but the Company shall not be required to make any reduction of the conversion
price pursuant to paragraph (1) of this Section 4 unless and until the aggregate
effect of all such adjustments since the last conversion price became effective
results in a reduction in the conversion price of at least twenty-five cents
A-2
(25(cent)), which amount shall be subject to adjustment as provided in paragraph
(7) of this Section 4, and such amount (or such amount as theretofore adjusted)
is referred to in such paragraph (7) as the `Differential Amount ".
(2) The term "Additional Shares of Common Stock" as used in
this Section 4 shall mean all shares of Common Stock issued by the Company after
the Effective Date (including shares deemed to be "Additional Shares of Common
Stock" pursuant to paragraphs (6) and (7) of this Section 4), whether or not
subsequently reacquired or retired by the Company, other than:
(i) shares issued upon conversion of this Note and
other Trade Conversion Notes being issued simultaneously with
the issuance of this Note;
(ii) shares issued by way of dividend or other
distribution on shares of Common Stock excluded from the
definition of Additional Shares of Common Stock by the
foregoing clause (i) or this clause (ii) or on shares of
Common Stock resulting from any subdivision or combination of
shares of Common Stock so excluded; and
(iii) (without double counting of such shares by
virtue of the paragraph of this Note providing for conversion)
any shares issued pursuant to the Plan, including shares
issued in respect of the Equity Warrants, the New Management
Warrants, the New Management Stock or the New Employee Stock
Option Plan.
The sale or other disposition of any shares of Common Stock or other securities
held in the Company's treasury, or of any securities resulting from any
reclassification or reclassifications of such shares or other securities that
were effected while they were held in the Company's treasury, shall not be
deemed an issuance thereof.
(3) In case of the issuance of Additional Shares of Common
Stock for a consideration part or all of which shall be in cash, the amount of
the cash consideration therefor shall be deemed to be the amount of cash
received by the Company for such shares (or, if such Additional Shares of Common
Stock are offered by the Company for subscription, the subscription price, or,
if such Additional Shares of Common Stock are sold to underwriters or dealers
for public offering without a subscription offering, the initial public offering
price), without deducting therefrom any compensation or discount in the sale,
underwriting or purchase thereof by underwriters or dealers or others performing
similar services or for any expenses incurred in connection therewith.
(4) In case of the issuance (otherwise than as a dividend or
other distribution on any stock of the Company or upon conversion or exchange of
other securities of the Company) of Additional Shares of Common Stock for a
consideration part or all of which shall be other than cash, the amount of the
A-3
consideration other than cash therefor shall be deemed to be the value of such
consideration as determined by the Board of Directors, irrespective of the
accounting treatment thereof. The reclassification of securities other than
Common Stock into securities including Common Stock shall be deemed to involve
the issuance for a consideration other than cash of such Common Stock
immediately prior to the close of business on the date fixed for the
determination of stockholders entitled to receive such Common Stock.
(5) Additional Shares of Common Stock issuable by way of
dividend or other distribution on any class of capital stock of the Company
shall be deemed to have been issued without consideration immediately prior to
the close of business on the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution.
A dividend or other distribution in cash or in property
(including any dividend or distribution in securities other than Common Stock)
shall be deemed to have been paid or made immediately prior to the close of
business on the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution and the amount of such dividend or
other distribution in property shall be deemed to be the value of such property
as of the date of the adoption of the resolution declaring such dividend or
other distribution, as determined by the Board of Directors at or as of that
date. In the case of any such dividend or other distribution on Common Stock
which consists of securities which are convertible into or exchangeable for
shares of Common Stock, such securities shall be deemed to have been issued for
a consideration equal to the value thereof as so determined.
If, upon the payment of any dividend or other distribution in
cash or in property (excluding Common Stock but including all other securities),
outstanding shares of Common Stock are cancelled or required to be surrendered
for cancellation on a pro rata basis, the excess of the number of shares of
Common Stock outstanding immediately prior thereto over the number to be
outstanding immediately thereafter (less that portion of such excess
attributable to the cancellation or surrender of shares excluded from the
definition of Additional Shares of Common Stock by clauses (i) or (ii) of
paragraph (2) of this Section 4) shall be deducted from the sum computed
pursuant to clause (ii) of paragraph (1) of this Section 4 for the purposes of
all determinations under such paragraph made immediately prior to the close of
business on the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution or at any time thereafter.
The reclassification of Common Stock into securities other
than Common Stock (including such a reclassification resulting from a merger or
consolidation in which the Company is the continuing corporation) shall be
deemed to involve (a) a distribution on Common Stock of such securities other
than Common Stock made immediately prior to the close of business on the
effective date of the reclassification, and (b) a combination or subdivision, as
the case may be, of the number of shares of Common Stock outstanding immediately
A-4
prior to such reclassification into the number of shares of Common Stock
outstanding immediately thereafter.
(6) In case of the issuance of any securities convertible into
Common Stock or the grant of any warrants, rights or options to subscribe for or
purchase Common Stock or securities convertible into Common Stock, such issue or
grant shall be deemed to be an issue or sale of Additional Shares of Common
Stock at the time the Common Stock becomes issuable upon conversion or exercise
thereof (even though no such conversion or sale is or may then be made) for a
cash consideration equal to (i) the consideration received or receivable by the
Company for the issuance of such convertible securities or the grant of such
warrants, rights or options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the conversion or exercise thereof
(except in adjustment of interest or dividends), the amount of such
consideration being determined as provided in paragraphs (3), (4) and (5) of
this Section 4, divided by (ii) the maximum number of shares of Common Stock
issuable upon the conversion or exercise of all such convertible securities,
warrants, rights or options; but if such convertible securities, warrants,
rights or options shall by their terms provide for an increase or increases at
later dates in the amount of additional consideration payable to the Company
upon conversion or exercise thereof, forthwith upon any such increase becoming
effective a readjustment, calculated in the manner provided in this paragraph,
shall then be made to reflect such increase; and provided further that if all or
any of such conversion rights, warrants, rights or options shall terminate or
expire prior to conversion or exercise, forthwith a readjustment shall be made
so that the effect will be the same as if any adjustment made upon the initial
issuance or grant of the convertible securities, warrants, rights or options had
been made upon the basis that the only issuance or grant had been of such
securities, warrants, rights or options as in fact had been converted or
exercised or for which the right to convert or exercise has not yet terminated
or expired upon the date of such readjustment. Readjustments pursuant to this
paragraph (6) shall not have any retroactive effect with respect to any portion
of this Note theretofore converted.
(7) If outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the conversion price and the
Differential Amount in effect at the opening of business on the day following
the day upon which such subdivision becomes effective shall be proportionately
reduced, and, conversely, if outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common Stock, the conversion price
and the Differential Amount in effect at the opening of business on the day
following the day upon which such combination becomes effective shall be
proportionately increased, such reductions or increases to be effected as
provided below and shall become effective immediately after the opening of
business on the day following the day upon which such subdivision or combination
becomes effective. In the event of any such subdivision, the number of shares of
Common Stock outstanding immediately thereafter, to the extent of the excess
thereof over the number outstanding immediately prior thereto (less that portion
of such excess attributable to the subdivision of shares excluded from the
definition of Additional Shares of Common Stock by clauses (i) or (ii) of
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paragraph (2) of this Section 4) shall be deemed to be "Additional Shares of
Common Stock" and to have been issued immediately after the opening of business
on the day following the day upon which such subdivision shall have become
effective and without consideration. In the event of any such combination, the
excess of the number of shares of Common Stock outstanding immediately prior
thereto over the number outstanding immediately thereafter (less that portion of
such excess attributable to the combination of shares excluded from the
definition of Additional Shares of Common Stock by clauses (i), (ii), (iii),
(iv) or (v) of paragraph (2) of this Section 4) shall be deducted from the sum
computed pursuant to clause (ii) of paragraph (1) of this Section 4 for the
purposes of all determinations under such paragraph made on any day after the
day upon which such combination becomes effective. For the purposes of this
paragraph (7), the number of shares of Common Stock at any time outstanding
shall include shares held in the treasury of the Company.
(8) In case of any consolidation of the Company with, or
merger of the Company into, another corporation (other than a consolidation in
which the Company is the continuing corporation) or in case of any sale or
transfer to another corporation of the assets of the Company as an entirety or
substantially as an entirety, the holder of this Note shall have the right to
convert this Note into the kind and amount of shares of stock and other
securities and property receivable upon such consolidation, merger, sale or
transfer by a holder of the number shares of Common Stock into which this Note
might have been converted immediately prior to such consolidation, merger, sale
or transfer. Adjustments shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Annex A. The foregoing provisions of this
paragraph (8) shall similarly apply to successive consolidations, mergers, sales
or transfers.
5. Whenever the conversion price is adjusted as herein
provided, the Company shall compute the adjusted conversion price in accordance
with Section 4 and shall prepare a certificate signed by its Treasurer or
Assistant Treasurer on its behalf setting forth the adjusted conversion price
and showing in detail the facts upon which such adjustment is based, including a
statement of the consideration received or to be received by the Company for,
and the amount of, any Additional Shares of Common Stock issued since the last
such adjustment, and such certificate shall forthwith be mailed by the Company
to the Holder.
6. In case:
(a) the Company shall declare a dividend or any other
distribution on its Common Stock payable otherwise than in cash out of its
earned surplus; or
(b) the Company shall authorize the granting to the holders of
its Common Stock of rights to subscribe for or purchase any shares of capital
stock of any class or of any other rights; or
(c) of any reclassification of the Company's capital stock, or
of any consolidation or merger to which the Company is a party and for which
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approval of any stockholders of the Company is required, or of the conveyance of
all or substantially all of the Company's assets; or
(d) of the Company's voluntary or involuntary dissolution,
liquidation or winding-up of the Company; then the Company shall cause to be
mailed to the Holder, at least twenty days (or ten days in any case specified in
clauses (a), (b) or (c) of this Section 6) prior to the applicable record date
hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution or rights, or, if a record
is not to be taken, the date as of which the holders of Common Stock of record
to be entitled to such dividend, distribution or rights are to be determined, or
(y) the date on which such reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up is expected to become effective, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding-up.
7. The Company shall at all times reserve and keep available,
free from pre-emptive rights, out of its authorized but unissued Common Stock,
for the purpose of effecting the conversion of the Trade Conversion Notes, the
full number of shares of Common Stock then deliverable, at any time upon the
conversion of all outstanding the Trade Conversion Notes; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all said outstanding the Trade Conversion Notes, the
Company will take such corporate action as may in the opinion of its counsel be
necessary to increase its authorized but unissued Common Stock to such number of
shares as shall be sufficient for that purpose.
8. The Company will pay any and all taxes that may be payable
in respect of the issue or delivery of shares of Common Stock on conversion of
this Note. The Company shall not, however, be required to pay any tax that may
be payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that of the Holder, and no such
issue or delivery shall be made unless and until the person requesting such
issue has paid to the Company the amount of any such tax, or has established to
the Company's satisfaction, that such tax has been paid.
9. The Company covenants that all shares of Common Stock that
may be issued upon conversion of this Note will on issue be fully paid and
non-assessable and, except as provided in Section 8, the Company will pay all
taxes, liens and charges with respect to the issue thereof.
10. All Trade Conversion Notes delivered for conversion shall
be canceled by the Company.
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[FORM OF CONVERSION NOTICE]
To Factory Card & Party Outlet Corp. (f/k/a Factory Card Outlet Corp.)
The undersigned holder of this Note hereby irrevocably
exercises the option to convert this Note, or the portion of this Note
designated below, into shares of Common Stock of Factory Card & Party Outlet
Corp. (f/k/a Factory Card Outlet Corp.) in accordance with the terms of this
Note, and directs that the shares issuable and deliverable upon the conversion,
together with any check in payment for fractional shares, be issued and
delivered to the undersigned unless a different name has been indicated below.
If shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto.
Dated ______________________, 200_.
------------------------------
Signature
FILL IN FOR REGISTRATION OF SHARES
_________________________________ Please Insert Social Security
NAME or Other Identifying Number
---------------------------------
---------------------------------
ADDRESS
---------------------------------
Portion to be converted
(if less than all):
$------------
Please print name and address
(including zip code number)
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