EXECUTION ORIGINAL
COMPANY OPTION AGREEMENT
THIS COMPANY OPTION AGREEMENT (this "Agreement") is made and entered
into as of January 18, 2000, by and among ▇▇▇▇▇ Associates Incorporated, a New
York corporation ("Parent"), and Specialty Catalog Corp., Inc., a Delaware
corporation (the "Company").
WHEREAS, the Stockholders desire that Parent, Catalog Acquisition
Corp., a Delaware corporation and currently a wholly owned subsidiary of Parent
("Sub"), and the Company enter into an Agreement and Plan of Recapitalization
and Merger, dated as of the date hereof (as the same may be amended or
supplemented, the "Merger Agreement") with respect to the acquisition of the
Company by Parent or its affiliates, by way of merger of Sub with and into the
Company, or otherwise (the "Merger"); and
WHEREAS, the Company is executing this Agreement as an inducement to
Parent to enter into and execute, and to cause Parent and Sub to enter into and
execute, the Merger Agreement;
NOW, THEREFORE, in consideration of the execution and delivery by
Parent and Sub of the Merger Agreement and the mutual covenants, conditions and
agreements contained herein and therein, the parties agree as follows:
1. Representations and Warranties. The Company represents and warrants
to Parent as follows:
(a) This Agreement has been duly authorized, executed and
delivered by, and constitutes a valid and binding agreement of, the
Company, enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws of general application
respecting creditors' rights and by general equitable principles.
(b) Neither the execution and delivery of this Agreement nor
the consummation by the Company of the transactions contemplated hereby
will result in a violation of, or a default under, or conflict with,
any contract, trust, commitment, agreement, understanding, arrangement
or restriction of any kind to which the Company is a party or bound or
to which the Option Shares (as defined in Section 2) are subject.
Consummation by the Company of the transactions contemplated hereby
will not violate, or require any consent, approval, or notice under,
any provision of any judgment, order, decree, rule or regulation
applicable to the Company or the Option Shares, except as may be noted
in Section 2.3 of the Company Disclosure Letter (as defined in the
Merger Agreement).
(c) The Company has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from
the date hereof through the termination of this Agreement in accordance
with its terms will have reserved for issuance upon the exercise of the
Option (as defined in Section 2), that number of shares of the
Company's Common Stock, par value $.01 per share ("Common Stock"),
equal to the maximum number of shares of Common Stock at any time and
from time to time issuable hereunder, and all such shares, upon
issuance pursuant hereto, will be duly authorized, validly issued,
fully paid, nonassessable, and will be delivered free and clear of all
claims, liens, encumbrance and security interests and not subject to
any preemptive rights.
2. Option to Acquire Shares.
(a) In the event that the Merger Agreement is terminated by
the Parent and Sub in accordance with Section 6.1(c) of the Merger
Agreement, or by the Company in accordance with Section 6.1(d) of the
Merger Agreement, at the option of the Parent exercised at any time
during the term hereof, the Company shall issue to the Parent or any
Affiliate (as defined in the Merger Agreement) of the Parent 500,000
unregistered shares of Common Stock (the "Option Shares"), or such
portion thereof as may be selected by the Parent and Sub at any time,
at a purchase price equal to the Per Share Merger Consideration (as
defined in the Merger Agreement). This right of the Parent to acquire
shares of Common Stock is sometimes referred to in this Agreement as
the "Option" and the entity purchasing such Option Shares is sometimes
referred to as the "Option Share Purchaser". In the event that the
Parent is entitled to and wishes to purchase all or some of the Option
Shares, within sixty (60) days following the termination of the Merger
Agreement the Parent shall give the Company written notice (the date of
which being herein referred to as the "Notice Date") specifying (i) the
total number of Option Shares it will purchase, and (ii) a place and
date not later than thirty (30) business days from the Notice Date for
the closing of such purchase, subject to acceleration of such date on
notice given by Parent or Sub (the "Closing"); provided that the Parent
may, in the written notice referred to above, make the sale and
purchase of the Option Shares contingent on the occurrence of the
consummation of the transaction that is the subject of the Acquisition
Proposal (as defined in the Merger Agreement) or Superior Proposal (as
defined in the Merger Agreement) relating to any termination pursuant
to Section 6.1(c) or Section 6.1(d) of the Merger Agreement, or any
similar announced sale or restructuring of the Company, in which case
(i) the Parent may defer the sale and purchase referred to be
immediately prior to, or simultaneous and contingent on, the
consummation of such other transaction and (ii) if not actually
consummated under such conditions, such Option shall expire on the one
year anniversary of the termination of the Merger Agreement. The term
"business day" for purposes of this Agreement means any day, excluding
Saturdays, Sundays and any other day that is a legal holiday in the
State of New York or a day on which banking institutions in the State
of New York are authorized by law or executive order to close. At the
Closing, the Option Share Purchaser shall pay to the Company the
aggregate purchase price for the Shares purchased from the Company
pursuant to this Section 2 in immediately available funds by a wire
transfer to a bank account designated by the Company. At such Closing,
simultaneously with the delivery of immediately available funds as
provided in this Section 2, the Company shall deliver to the Option
Share Purchaser the certificate or certificates representing the number
of Option Shares to be purchased and any other documents reasonably
requested by the Option Share Purchaser to effect the issuance of the
Option Shares to the Option Share Purchaser. Upon the giving by the
Parent to the Company of the written notice of exercise of the Option
and the tender of the applicable purchase price in immediately
available funds, the Option Share Purchaser shall be deemed to be the
holder of record of the shares of Common Stock issuable upon such
exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Option Share
Purchaser. The Company shall pay all expenses, and any and all United
States federal, state and local taxes and other charges that may be
payable in connection with the preparation, issue and delivery of stock
certificates under this Section 2 in the name of the Option Share
Purchaser or its assignee, transferee or designee.
(b) Certificates for Option Shares delivered at the Closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"The shares represented by this certificate are subject to
resale restrictions arising under the Securities Act of 1933,
as amended, and may not be sold or transferred except in
compliance with the Act and the rules and regulations
promulgated thereunder."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933
Act"), in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the Option Share Purchaser (or
its transferee) shall have delivered to the Company a copy of a letter
from the staff of the Securities and Exchange Commission ("SEC"), or an
opinion of counsel, in form and substance reasonably satisfactory to
the Company, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions to this
Agreement in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the Option Shares
have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of
such reference; and (iii) the legend shall be removed in its entirety
if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend
as may be required by law.
(c) The Company agrees: (i) that it shall at all times
maintain, free from preemptive rights, sufficient authorized but
unissued or treasury shares of Common Stock so that the Option may be
exercised without additional authorization of Common Stock after giving
effect to all other options, warrants, convertible securities and other
rights to purchase Common Stock; (ii) that it will not, by charter
amendment or through reorganization, consolidation, merger, dissolution
or sale of assets, or by any other voluntary act, avoid or seek to
avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by the
Company; and (iii) promptly to take all action as may from time to time
be required (including complying with all premerger notification,
reporting and waiting period requirements specified in 15 U.S.C. Sec.
18a and regulations promulgated thereunder or to any other federal or
state regulatory authority that is necessary before the Option may be
exercised, cooperating fully with the Parent in preparing such
applications or notices and providing such information to such federal
or state regulatory authority as they may require) of the Company as
issuer in order to permit the Option Share Purchaser to exercise the
Option and in order to permit the Company to duly and effectively issue
shares of Common Stock pursuant hereto.
(d) The number of shares of Common Stock purchasable upon the
exercise of the Option and the purchase price for the Option Shares
shall be subject to adjustment from time to time as provided in this
paragraph (d). In the event of any change in, or distributions in
respect of, the Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, subdivisions, conversions,
exchanges of shares, distributions on or in respect of the Common Stock
that would be prohibited under the terms of the Merger Agreement
(whether or not then in effect), or the like, the type and number of
shares of Common Stock purchasable upon exercise hereof and the
purchase price for the Option Shares shall be appropriately adjusted in
such manner as shall fully preserve the economic benefits provided
hereunder and proper provision shall be made in any agreement governing
any such transaction to provide for such proper adjustment and the full
satisfaction of the Company's obligations hereunder.
3. Registration.
(a) As used in this Agreement, "Registrable Securities" means
each of the Option Shares issued to the Option Share Purchaser
hereunder or shares of Common Stock acquired upon exercise of the
option granted pursuant to the Stockholder Agreement (as defined in the
Merger
Agreement) and any other securities issued in exchange for, or issued
as dividends or otherwise on or in respect of, any of such Option
Shares or such other shares of Common Stock.
(b) At any time or from time to time within two years of the
first Closing, the Option Share Purchaser may make one written request
to the Company for registration under and in accordance with the
provisions of the 1933 Act with respect to all or any part of the
Registrable Securities (a "Demand Registration"). As soon as reasonably
practicable after the Option Share Purchaser's request for a Demand
Registration, the Company shall file one registration statement on any
appropriate form with respect to all of the Registrable Securities
requested to be so registered; provided that the Company will not be
required to file any such registration statement during any period of
time (not to exceed 60 days after such request in the case of clause
(i) below or 90 days in the case of clauses (ii) or (iii) below) when
(i) the Company is in possession of material non-public information
which it reasonably believes would be detrimental to be disclosed at
such time and, in the written opinion of outside counsel to the
Company, such information would have to be disclosed if a registration
statement were filed at that time, (ii) the Company is required under
the 1933 Act to include audited financial statements for any period in
such registration statement that are not yet available for inclusion
therein, or (iii) the Company determines, in its reasonable judgment,
that such registration would interfere with any material financing,
acquisition or other material transaction involving the Company or any
of its affiliates. The Company shall use its best efforts to have the
Demand Registration declared effective as soon as reasonably
practicable after such filing and to keep the Demand Registration
continuously effective for a period of at least ninety days following
the date on which the Demand Registration is declared effective;
provided that, if for any reason the effectiveness of any Demand
Registration is suspended, the required period of effectiveness shall
be extended by the aggregate number of days of each such suspension;
and provided, further, that the effectiveness of any Demand
Registration may be terminated if and when all of the Registrable
Securities covered thereby shall have been sold. The Option Share
Purchaser shall be entitled to one Demand Registration. The Option
Share Purchaser shall have the right to select the managing
underwriter, if any, which shall be reasonably acceptable to the
Company and the Company shall enter into an underwriting agreement in
customary form.
(c) If at any time within two years of the first Closing, the
Company proposes to file a registration statement under the 1933 Act
with respect to any shares of any class of its equity securities to be
sold for the account of the Company, and the registration form to be
used may be used for the registration of Registrable Securities, the
Company shall in each case give written notice of such proposed filing
to the Option Share Purchaser at least twenty days before the
anticipated filing date, and the Option Share Purchaser shall have the
right to include in such registration such number of Registrable
Securities as the Option Share Purchaser may request (such request to
be made by written notice to the Company within fifteen days following
the Option Share Purchaser's receipt from the Company of such notice of
proposed filing). The Company shall use its best efforts to cause the
managing underwriter of any proposed underwritten offering to permit
the Option Share Purchaser to be included in such offering on the same
terms and conditions as any similar securities of the Company included
therein. Notwithstanding the foregoing, if the managing underwriter of
such offering advises the Company that, in the reasonable opinion of
such underwriter, the amount of Registrable Securities which the Option
Share Purchaser requests to be included in such offering would
materially and adversely affect the success of such offering, then the
amount of Registrable Securities to be offered shall be reduced to the
extent necessary to reduce the total amount of securities to be
included in such offering to the amount recommended by such
underwriter; provided, however, that if the amount of Registrable
Securities shall be so reduced, the Company shall not be permitted to
include in such registration any securities of the Company other than
securities to be issued by the Company or the securities of other
persons legally entitled to have demanded such registration and
Registrable Securities.
(d) In the event that Registrable Securities are included in a
"piggyback" registration statement pursuant to paragraph (c) hereof,
the Option Share Purchaser agrees not to effect any public sale or
distribution of the issue being registered or a similar security of the
Company, or any securities convertible into or exchangeable or
exercisable for such securities, including a sale pursuant to Rule 144
under the 1933 Act, during the ten business days prior to, and during
the 90-day period beginning on, the effective date of such registration
statement (except as part of such registration), if and to the extent
timely notified in writing by the managing underwriter. In the event
that the Option Share Purchaser requests a Demand Registration or if
Registrable Securities are included in a "piggyback" registration
pursuant to paragraph (c) hereof, the Option Share Purchaser agrees not
to effect any public sale or distribution of the issue being registered
or a similar security of the Company, or any securities convertible
into or exchangeable or exercisable for such securities, during the
period from such request until 90 days after the effective date of such
registration statement (except as part of such registration statement
or pursuant to a registration of securities on Form S-4 or Form S-8 or
any successor form).
(e) The registration effected under this Section 3 shall be
effected at the Company's expense except for underwriting commissions
and SEC filing fees allocable to the Registrable Securities. The Option
Share Purchaser shall provide all information reasonably requested or
required by the Company for inclusion in the registration statement.
The Company shall indemnify and hold harmless the Option Share
Purchaser, its affiliates and controlling persons and their respective
officers, directors, agents and representatives from and against any
and all losses, claims, damages, liabilities and expenses (including,
without limitation, all out-of-pocket expenses, investigative expenses,
expenses incurred with respect to any judgment and fees and
disbursements of counsel and accountants) arising out of or based upon
any statements contained in or omission or alleged omissions from, each
registration statement (and related prospectus) filed pursuant to this
Section 3; provided, however, that the Company shall not be liable in
any such case to the Option Share Purchaser or any affiliate or
controlling person of the Option Share Purchaser or any of their
respective officers, directors, agents or representatives to the extent
that any such loss, claim, damage, liability (or action or preceding in
respect thereof) or expense arises out of or is based upon an untrue
statement or omission or alleged omission made in such registration
statement or prospectus in reliance upon, and in conformity with,
written information furnished to the Company specifically for use in
the preparation thereof by the Option Share Purchaser, such affiliate,
controlling person, officer, director, agent or representative, as the
case may be.
4. Further Assurances. The Company and the Option Share Purchaser
shall, upon request of the other party, execute and deliver any additional
documents and take such further actions as may reasonably be deemed by the
applicable party to be necessary or desirable to carry out the provisions of
this Agreement.
5. Termination. This Agreement, and all rights and obligations of the
parties hereunder shall terminate, and the Option shall expire, upon the
termination of the Merger Agreement pursuant to and in accordance with Section
6.1(a), 6,1(b) or 6.1(e) thereof or upon consummation of the Merger (as defined
in the Merger Agreement). In the event of a any other termination of the Merger
Agreement, this Agreement and the rights and obligations of the parties
hereunder shall terminate if the Option is not timely exercised pursuant to
Section 2 and (ii) this Agreement and the rights and obligations of the parties
hereunder shall survive and remain in full force and effect if the Option is
timely exercised pursuant to Section 2.
6. Enforcement Costs. If any party institutes an action for the
enforcement of this Agreement, the prevailing party shall be entitled to
reimbursement on delivered of all costs and expenses of such action including
reasonable legal fees.
7. Miscellaneous.
(a) Capitalized terms used and not otherwise defined in this
Agreement shall have the respective meanings assigned to them in the
Merger Agreement.
(b) All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be
deemed given if delivered personally or sent by overnight courier
(providing proof of delivery) to the parties at the following addresses
(or at such other address for a party as shall be specified by like
notice).
(c) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(d) This Agreement may be executed in two or more
counterparts, each of which shall be considered an original hereof and
one and the same agreement.
(e) This Agreement (including the documents and instruments
referred to herein) constitutes the entire agreement, and supersedes
all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof. This Agreement
shall be binding upon and shall inure to the benefit of the parties'
respective successors and assigns.
(f) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, regardless of the
laws that might otherwise govern under applicable principles of
conflicts of laws thereof.
(g) Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise, by any of the parties without
the prior written consent of the other parties, except that the Parent
or Sub may assign its rights to any Affiliate, and the rights of an
Option Share Purchaser may be assigned in connection with a transfer of
the Option Shares. Any assignment in violation of the foregoing shall
be void.
(h) The Company agrees that irreparable damage would occur and
that Parent would not have any adequate remedy at law in the event that
any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that Parent shall be entitled to seek an injunction
or injunctions to prevent breaches by the Company of this Agreement and
to enforce specifically the terms and provisions of this Agreement in
any court, this being in addition to any other remedy to which they are
entitled at law or in equity. In addition, each of the parties hereto
(i) consents to submit such party to the personal jurisdiction of any
Federal court located in the State of New York or any New York state
court in the event any dispute arises out of this Agreement or any of
the transactions contemplated hereby, (ii) agrees that such party will
not attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court and (iii) agrees that such
party will not bring any action relating to this Agreement or any of
the transactions contemplated hereby in any court other than a Federal
court sitting in the State of
New York or a New York state court. The foregoing remedies are in
addition to, and not in lieu of, any payment required to be made by the
Company pursuant to the terms of the Merger Agreement.
(i) If any term, provision, covenant or restriction herein, or
the application thereof to any circumstance, shall, to any extent, be
held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions herein and the application thereof to any other
circumstances, shall remain in full force and effect, shall not in any
way be affected, impaired or invalidated, and shall be enforced to the
fullest extent permitted by law.
(j) No amendment, modification or waiver in respect of this
Agreement shall be effective against any party unless it shall be in
writing and signed by such party.
IN WITNESS WHEREOF, the undersigned parties have executed and delivered
this Agreement as of the day and year first above written.
▇▇▇▇▇ ASSOCIATES INCORPORATED
By:----------------------------------------
Name:
Title:
SPECIALTY CATALOG CORP.
By:----------------------------------------
Name:
Title:
