STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of December 11, 1997, among ▇▇▇▇▇▇▇▇
CONVERTIBLES, INC., a Delaware corporation (the "Company"), and KLAUSSNER
FURNITURE INDUSTRIES, INC. (the "Purchaser"). Except as otherwise indicated
herein, capitalized terms used herein are defined in Section 7 hereof.
The parties hereto agree as follows:
SECTION 1. - CLOSING.
1A. PURCHASE AND SALE OF THE SERIES A PREFERRED. At the Closing, the
Company shall sell to the Purchaser and, subject to the terms and conditions set
forth herein, the Purchaser shall purchase from the Company, for a purchase
price of $5,000,000, 10,000 shares of convertible preferred stock (the
"Preferred Stock") convertible into an aggregate of 1,424,500 shares, par value
$0.01 per share (the "Common Stock") (approximately $3.51) per share, subject to
adjustment as set forth in the Certificate of Designations (the "Certificate")
of the Preferred Stock in the form attached hereto as Exhibit A.
1B. THE CLOSING. The closing of the purchase and sales of the Preferred
Stock pursuant to paragraph 1A (the "Closing") shall take place at the offices
of Squadron, Ellenoff, Plesent & ▇▇▇▇▇▇▇▇▇, LLP, in New York, New York at 10:00
a.m. on the date hereof, or at such other place or on such other date as may be
mutually agreeable to the Company and the Purchaser. At the Closing, the Company
shall deliver to the Purchaser stock certificates evidencing the Preferred Stock
to be purchased by such Purchaser, registered in such Purchaser's or its
nominee's name, upon payment of the purchase price thereof by a cashier's or
certified check, or by wire transfer of the purchase price (net of amounts to be
used pursuant to Section 2F) immediately available funds to the Company's
account as directed by the Company.
SECTION 2. - CONDITIONS OF THE PURCHASER'S OBLIGATION AT THE CLOSING. The
obligation of the Purchaser to purchase and pay for the Preferred Stock at the
Closing is subject to the satisfaction as of the Closing of the following
conditions:
2A. REPRESENTATIONS AND WARRANTIES; COVENANTS. The representations and
warranties contained in Section 5 hereof shall be true and correct at and as of
the Closing, except to the extent of changes caused by the transactions
expressly contemplated herein, and the Company shall have performed in all
material respects all of the covenants required to be performed by it hereunder
prior to the Closing.
2B. CLOSING DOCUMENTS. The Company shall have delivered to the
Purchaser all of the following documents:
1
(i) a duly executed Registration Rights Agreement (the
"Registration Rights Agreement") in the form of Exhibit B hereto;
(ii) certified copies of the resolutions duly adopted by the
Board authorizing the execution, delivery and performance of this Agreement, and
the consummation of all other transactions contemplated by this Agreement.
(iii) certified copies of the Certificate and the Company's
Certificate of Incorporation and bylaws, each as in effect at the
Closing; and
(iv) such other documents relating to the transactions
contemplated by this Agreement as any Purchaser or its special counsel
may reasonably request.
2D. PROCEEDINGS. All corporate and other proceedings taken or required
to be taken by the Company in connection with the transactions contemplated
hereby to be consummated at or prior to the Closing and all documents incident
thereto shall be reasonably satisfactory in form and substance to the Purchaser
and its special counsel.
2E. AUDITORS OPINION. The opinion of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ & Company as to
the Company's financial statements for the fiscal year ended August 30, 1997
shall be no more qualified than the opinion given for the prior fiscal year and
shall not contain a "going concern" qualification.
2F. USE OF PROCEEDS. At the Closing, the Company shall use a portion of
the proceeds to pay all obligations to the Purchaser and its affiliates and
subsidiaries that, as of the Closing have been billed and outstanding for more
than 60 days (as reflected on their books and records, but without waiving any
dispute the Company may have as to the amounts so reflected).
SECTION 3. - RIGHT OF FIRST REFUSAL
3A. So long as the Purchaser owns at least 10% of the outstanding
Common Stock of the Company or Preferred Stock convertible into at least 10% of
such outstanding Common Stock, the Purchaser shall have the right (the "Right")
of first refusal to purchase any shares of Common Stock (or debt or equity
securities convertible into or exercisable for Common Stock, hereinafter called
"Equivalents") if the sale price of such Common Stock or effective sale price of
the Common Stock underlying such Equivalents (after giving effect to the price
paid for such Equivalents together with any additional consideration to be paid
to the Company on exercise or conversion) is less than $3.51 per share (as
appropriately adjusted to reflect stock splits, stock dividends and similar
events). If the Company proposes to make any such sale, it shall first give the
Purchaser written notice (the "Offer Notice") of the terms of such proposed sale
by the Company, including the type of security to be sold, the sale price or
effective sale price and the amount to be sold. The Purchaser may elect to
exercise the Right to purchase all or a portion of the securities described in
the Offer Notice on the terms described in the Offer Notice by providing written
notice (the "Exercise Notice") to the Company within 15 days after its has
received the Offer Notice, specifying the amount of the securities it intends to
purchase. If the Purchaser does not exercise the Right or exercises it in part,
the Company shall be entitled to sell up to the number of securities set forth
in the Offer Notice (or
2
the remaining balance after giving effect to the exercise of the Right) at a
price no less favorable to the Company than the price set forth in the Offer
Notice. If the Purchaser exercises the Right in whole or in part, the closing of
the sale of securities contemplated thereby shall take place on the 15th day
after the Exercise Notice is received the Company at the offices of the Company
or at such other time and place as the parties mutually agree, provided that if
the Exercise Notice is for the purchase of less than all of the securities set
forth in the Offer Notice the Company may, by written notice to the Purchaser,
decline to sell such portion, but in such event shall have no right to sell any
such securities to any third party. Notwithstanding the foregoing, the Purchaser
shall not have the Right with respect to options and warrants outstanding on the
date hereof and the grant of additional options (the "Exempt Options") to
employees or consultants to purchase up to 50,000 shares of Common Stock,
provided that if the Company grants any Exempt Options it will simultaneously
grant the Purchaser options, on the same terms, to purchase such number of
shares of Common Stock as would be necessary to preserve the Purchaser's
percentage beneficial ownership of the outstanding Common Stock assuming the
exercise of the Exempt Options so granted. The reduction of the exercise price
of any outstanding option shall be treated as a new grant of such option.
SECTION 4. - TRANSFER OF RESTRICTED SECURITIES; REGISTRATION RIGHTS.
4A. GENERAL PROVISIONS. The Purchaser agrees that the Preferred Stock
and the underlying Common Stock (collectively, the "Securities") constitute
restricted securities transferable only pursuant to (i) registration under the
Securities Act, (ii) Rule 144 or Rule 144A of the Securities and Exchange
Commission (or any similar rule or rules then in force) if such rule is
available and (iii) subject to the conditions specified in paragraph 4B below,
any other legally available means of transfer.
4B. OPINION DELIVERY. In connection with the transfer of any Securities
(other than a transfer described in Section 4A(i) or (ii) above), the holder
thereof shall deliver written notice to the Company describing in reasonable
detail the transfer or proposed transfer, together with an opinion of Squadron,
Ellenoff, Plesent & ▇▇▇▇▇▇▇▇▇, LLP or other counsel which (to the Company's
reasonable satisfaction) is knowledgeable in securities law matters to the
effect that such transfer of Securities may be effected without registration of
such Securities under the Securities Act. In addition, if the holder of the
Securities delivers to the Company an opinion of Squadron, Ellenoff, Plesent &
▇▇▇▇▇▇▇▇▇, LLP or such other counsel that no subsequent transfer of such
Securities shall require registration under the Securities Act and has delivered
the original certificate or certificates representing such Securities to the
Company, the Company shall promptly upon such contemplated transfer deliver new
certificates for such Securities which do not bear the Securities Act legend set
forth in Section 6. If the Company is not required to deliver new certificates
for such Securities not bearing such legend, the holder thereof shall not
transfer the same until the prospective transferee has confirmed to the Company
in writing its agreement to be bound by the conditions contained in this Section
paragraph and Section 6.
4C. RULE 144A. Upon the request of the Purchaser, the Company shall
promptly supply to such Purchaser or its prospective transferees, at such
Purchaser's cost, all information regarding the Company required to be delivered
in connection with a transfer pursuant to Rule 144A of the Securities and
Exchange Commission.
3
4D. LEGEND REMOVAL. If any Securities become eligible for sale pursuant
to Rule 144(k), the Company shall, upon the request of the holder of such
Securities and receipt of evidence sufficient in the reasonable judgment of the
Company's counsel that the Securities are so eligible, remove the legend set
forth in Section 6 from the certificates for such Securities.
4E. REGISTRATION RIGHTS. At the Closing, the Company shall enter into
the Registration Rights Agreement providing certain demand registration rights
as to the Securities.
4F. AGREEMENT NOT TO DISPOSE. The Purchaser hereby agrees not to sell,
transfer or otherwise dispose of any of Preferred Stock until September 1, 1999,
provided, however, that the Purchaser may transfer Securities to an affiliate of
the Purchaser which agrees, in writing, to be bound by the provisions of this
Section 4F and, provided, further that nothing herein shall be deemed to prevent
Purchaser from converting the Preferred Stock to Common Stock earlier than
September 1, 1999 pursuant to Section 4 of the Certificate or from selling,
transferring or disposing of any Common Stock received upon such conversion.
SECTION 5. - REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to the Purchaser that:
5A. ORGANIZATION, CORPORATE POWER AND LICENSES. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and is qualified to do business in
every jurisdiction in which the failure to so qualify has had or would
reasonably be expected to have a material adverse effect on the financial
condition, operating results, assets, operations or business prospects of the
Company and its Subsidiaries taken as a whole. The Company possesses all
requisite corporate power and authority and all material licenses, permits and
authorizations necessary to own and operate its properties, to carry on its
businesses as now conducted and presently proposed to be conducted and to carry
out the transactions contemplated by this Agreement.
5B. CAPITAL STOCK AND RELATED MATTERS.
(i) Immediately prior to the Closing, the authorized capital
stock of the Company shall consist of (a) 1,000,000 shares of preferred
stock, of which no shares shall be outstanding (but certain of which
are contemplated to be issued and outstanding pursuant to the class and
derivative action settlement agreement) and (b) 10,000,000 shares of
Common Stock, of which 5,700,725 shares shall be issued and
outstanding. As of the Closing, the Company shall not have outstanding
any stock or securities convertible or exchangeable for any shares of
its capital stock or containing any profit participation features, nor
shall it have outstanding any rights or options to subscribe for or to
purchase its capital stock or any stock or securities convertible into
or exchangeable for its capital stock or any stock appreciation rights
or phantom stock plans, except as set forth on the attached
"Capitalization Schedule." As of the Closing, all of the outstanding
shares of the Company's capital stock, including the Preferred Stock,
shall be validly issued, fully paid and nonassessable.
(ii) There are no statutory or contractual stockholders
preemptive rights or rights
4
of refusal with respect to the issuance of the Securities hereunder.
Assuming the representations of the Purchaser in Section 6 are
accurate, the offer, sale and issuance of the shares of Preferred Stock
hereunder do not require registration under the Securities Act or any
applicable state securities laws.
5C. AUTHORIZATION: NO BREACH. The execution, delivery and performance
of this Agreement and all other agreements contemplated hereby to which the
Company is a party, have been duly authorized by the Company. Assuming the due
and valid execution by the other parties thereto, this Agreement and all other
agreements contemplated hereby to which the Company is a party each constitutes
a valid and binding obligation of the Company enforceable in accordance with its
terms, subject to the effect of bankruptcy, insolvency, reorganization,
fraudulent conveyance or other similar laws, and to general principles of equity
(whether considered in proceedings at law or in equity). The execution and
delivery by the Company of this Agreement and all other agreements contemplated
hereby to which the Company is a party, the offering, sale and issuance of the
Preferred Stock and the fulfillment of and compliance with the respective terms
hereof and thereof by the Company, do not and shall not (i) conflict with or
result in a breach of the terms, conditions or provisions of, (ii) constitute a
default under, (iii) result in the creation of any lien, security interest,
charge or encumbrance upon the Company's or any Subsidiary's capital stock or
assets pursuant to, (iv) give any third party the right to modify, terminate or
accelerate any obligation under, (v) result in a violation of, or (vi), except
as required in connection with a registration under the Securities Act as
contemplated by the Registration Rights Agreement, require any authorization,
consent, approval, exemption or other action by or notice or declaration to, or
filing with, any court or administrative or governmental body or agency pursuant
to, the charter or bylaws of the Company or any Subsidiary or any law, statute,
rule or regulation to which the Company or any Subsidiary is subject, or any
agreement, instrument, order, judgment or decree to which the Company or any
Subsidiary is subject.
5D. BROKERAGE. Assuming the Purchaser's representations in Section 6
are accurate, there are no claims for brokerage commissions, finders' fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement binding upon the Company. The
Company shall pay, and hold the Purchaser harmless against, any liability, loss
or expense (including, without limitation, reasonable attorneys' fees and
out-of-pocket expenses) arising in connection with any such claim.
5E. GOVERNMENTAL CONSENT, ETC. No permit, consent, approval or
authorization of, or declaration to or filing with, any governmental authority
is required in connection with the execution, delivery and performance by the
Company of this Agreement or the other agreements contemplated hereby, or the
consummation by the Company of any other transactions contemplated hereby or
thereby, except as expressly contemplated herein or therein.
5F. PUBLIC FILINGS. To the best of the Company's knowledge, neither the
1996 10-K nor any filing made by the Company with the Securities and Exchange
Commission ("SEC") thereafter contained, as of the date filed, any untrue
statement of a material fact or omitted, as of the date filed, any material fact
necessary to make any statements contained therein not misleading under the
circumstances given and the Company has not received any request from the SEC to
amend or
5
modify any such filing.
5G. LITIGATION. Attached as Schedule 5G is a description of all
litigation, investigations and claims pending against the Company, other than
routine matters in the ordinary course of business.
SECTION 6. - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to the Company the following:
(i) The Purchaser hereby represents that it is acquiring the
Preferred Stock purchased hereunder or acquired pursuant hereto for its
own account with the present intention of holding such securities for
purposes of investment, and that it has no intention of selling such
securities in a public distribution in violation of the federal
securities laws or any applicable state securities laws; provided that
nothing contained herein shall prevent the Purchaser and subsequent
holders of Preferred Stock from transferring such securities in
compliance with the provisions of Section 4 hereof. Each certificate or
instrument representing Preferred Stock shall be imprinted with a
legend in substantially the following form:
"The securities represented by this certificate were
originally issued on December __, 1997, and have not
been registered under the Securities Act. The
transfer of the securities represented by this
certificate is subject to the conditions specified
in the Purchase Agreement, dated as of December __,
1997 and as amended and modified from time to time,
between the issuer (the "Company") and the
Purchaser, and the Company reserves the right to
refuse the transfer of such securities until such
conditions have been fulfilled with respect to such
transfer. A copy of such conditions shall be
furnished by the Company to the holder hereof upon
written request and without charge."
Certificates representing the Common Stock underlying the Preferred Stock shall
be imprinted with a substantially similar legend.
(ii) The Purchaser represents and warrants that it is
an "accredited investor" as that term is defined in Regulation
D promulgated under the Securities Act. The Purchaser
acknowledges that it has been given the opportunity to ask
questions and receive satisfactory answers concerning the
terms and conditions of the Preferred Stock and obtain
additional information in order to evaluate the merits and
risks of an investment in the Preferred Stock and to verify
the accuracy of the information contained in this Agreement.
The Purchaser represents and warrants that it is a
sophisticated investor with such knowledge and experience in
business and financial matters as will enable the Purchaser to
evaluate the merits and risks of investment in the Preferred
Stock and is able to bear the economic risks and lack of
liquidity of an investment in the Preferred Stock.
6
SECTION 7. - DEFINITIONS.
7A. DEFINITIONS. For the purposes of this Agreement, the following
terms have the meanings set forth below:
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Officer's Certificate" means a certificate signed by the Company's
president or its chief financial officer, stating that (i) the officer signing
such certificate has made or has caused to be made such investigations as are
reasonably necessary in order to permit him to verify the accuracy of the
information set forth in such certificate and (ii) to the best of such officer's
knowledge, such certificate does not misstate any material fact and does not
omit to state any fact necessary to make the certificate not misleading.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal law then in force.
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability company, partnership, association or other business entity.
SECTION 8. - MISCELLANEOUS.
8A. CONSENT TO AMENDMENTS. Except as otherwise expressly provided
herein, the provisions of this Agreement may be amended, only if the Company and
the Purchaser have amended this Agreement in writing. No other course of dealing
between the Company and the Purchaser or any delay in exercising any rights
hereunder shall operate as a waiver of any rights of the Purchaser.
7
8B. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by
either party without the other's written consent except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto whether so expressed
or not.
8C. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
8D. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together shall constitute one
and the same Agreement.
8E. DESCRIPTIVE HEADINGS: INTERPRETATION. The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
8F. GOVERNING LAW. The corporate law of the State of Delaware shall
govern all issues and questions concerning the relative rights and obligations
of the Company and its stockholders. All other issues and questions concerning
the construction, validity, enforcement and interpretation of this Agreement and
the exhibits and schedules hereto shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to any
choice of law or conflict of law rules or provisions (whether of the State of
New York or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of New York. In furtherance of the
foregoing, the internal law of the State of New York shall control the
interpretation and construction of this Agreement (and all schedules and
exhibits hereto), even though under that jurisdiction's choice of law or
conflict of law analysis, the substantive law of some other jurisdiction would
ordinarily apply.
8G. NOTICES. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable overnight courier service (charges
prepaid), mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid or sent to the recipient by facsimile.
Such notices, demands and other communications shall be sent to the offices of
the Company at ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention:
Chief Executive Officer, with a copy to Squadron, Ellenoff, Plesent & ▇▇▇▇▇▇▇▇▇,
LLP, Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq., at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇ and to the Purchaser at the address indicated below:
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
8
with a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇, Esq.
▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇ L.L.P.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
8H. NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the parties hereto and their
respective successors and permitted assigns.
8I. NO WAIVER OR MODIFICATION OF EXISTING AGREEMENTS. Nothing contained
herein shall be deemed in any respect to modify or waive any provision of the
other agreements between the parties hereto, including without limitation, the
Credit and Security Agreement, dated as of March 1, 1996, as amended.
8J. EXPENSES. The parties shall bear their respective expenses in
connection with this transaction except that the Company will bear up to $25,000
of the legal fees incurred by the Purchaser in connection herewith.
9
IN WITNESS WHEREOF, the parties hereto have executed this Common Stock
Purchase Agreement on the date first written above.
▇▇▇▇▇▇▇▇ CONVERTIBLES, INC.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
----------------------------------------------
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Chief Executive Officer
KLAUSSNER FURNITURE INDUSTRIES, INC.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------------------
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Senior Vice President
10