EXHIBIT 10.3
WARRANT PURCHASE AGREEMENT
FACTORY CARD OUTLET CORP.
2727 Diehl Road
Naperville, Illinois 60563
July 17, 1998
To the Participants Listed on the Schedule of Participants
Ladies and Gentlemen:
The undersigned, Factory Card Outlet Corp., a Delaware corporation (hereafter, with its successors and assigns, the "COMPANY"), proposes to sell to the persons listed on the Schedule of Participants attached hereto (individually referred to herein as a "PARTICIPANT", and collectively referred to herein as the "PARTICIPANTS") a Common Stock Purchase Warrant of the Company in the form of Exhibit A hereto, on and subject to the terms and conditions set forth in this Agreement.
Accordingly, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, including, without limitation, the entry into a loan agreement, the parties hereto hereby agree as follows:
1. DEFINITIONS.
In addition to those terms defined elsewhere in this Agreement, for all purposes of this Agreement the following terms shall have the meanings set forth herein or elsewhere in the provisions hereof:
Affiliate shall mean any Person directly or indirectly controlling, controlled by or under direct or indirect common control with the Company (or other specified Person) and shall include (a) any Person who is an Executive Officer, director or direct or indirect beneficial holder of, or who has the right to acquire, at least 20% of any voting class of the then outstanding capital stock (or other shares of beneficial interest) of the Company (or other specified Person) and Family Members of any such Person, (b) any Person of which the Company (or other specified Person) or an Affiliate (as defined in clause (a) above) of the Company (or other specified Person) shall, directly or indirectly, either beneficially own or have the right to acquire at least 20% of any voting class of the then outstanding capital stock (or other shares of beneficial interest) or constitute at least a 20%
equity participant, and (c) in the case of a specified Person who is an individual, Family Members of such Person; provided, however, that neither the Participants, nor any Affiliate of the Participants, shall be an Affiliate of the Company for the purposes of this Agreement.
BBC. Back Bay Capital, LLC.
Bank Affiliate. See Section 9.1 hereof.
Bank Holding Company Act. See Section 9.1 hereof.
Call Right. See Section 7.12.
Charter shall include the articles or certificate of incorporation, statute, constitution, joint venture or partnership agreement or articles or other organizational document of any Person other than an individual, each as from time to time amended or modified.
Closing. See Section 2.2.
Closing Date. See Section 2.2.
Commission shall mean the Securities and Exchange Commission.
Common Stock shall mean, the Common Stock, $0.01 par value, of the Company and, in addition, any capital stock or other securities into which or for which Common Stock shall have been converted or exchanged pursuant to any recapitalization, reorganization or merger of the Company and any other securities constituting "Common Stock" under the Warrant.
Company. See preamble.
Demand Registration. See Section 7.2.
Executive Officer shall mean a president, vice president, treasurer, or chief financial officer, controller or principal accounting officer, and any Person routinely performing corresponding functions with respect to any Person.
Exercise Price. As defined in the Warrant.
Family Members shall mean, as applied to any individual, any spouse, any ancestor or descendent, or any other relative (by blood, adoption, or marriage), within the third degree of such individual, and each trust created for the benefit of one or more of such Persons and each custodian of a property of one or more such Persons.
Fair Market Value. As defined in the Warrant.
Financing Agreements shall include this Agreement, the Securities, that certain Term Loan and Security Agreement dated of even date herewith between the Participants and Factory Card Outlet of America, Ltd., and agreements and certificates executed and delivered to any of the Participants by any Person in connection therewith.
Holder. See Section 7.1.
Lien shall mean (a) any encumbrance, mortgage, pledge, lien, charge or other security interest of any kind upon any property or assets of any character, or upon the income or profits therefrom; or (b) any acquisition of or agreement to have an option to acquire any property or assets upon conditional sale or other title retention agreement, device or arrangement (including a capitalized lease); or (c) any sale, assignment, pledge or other transfer for security of any accounts, general intangibles, or chattel paper, with or without recourse.
Participant and Participants. See Preamble.
Person shall mean an individual, partnership, corporation, limited liability company, association, trust, joint venture, unincorporated organization, and any government, governmental department or agency or political subdivision thereof.
Piggyback Registration. See Section 7.3.
Public Sale shall mean any sale of Common Stock to the public (a) pursuant to a public offering registered under the Securities Act, (b) through a broker or market-maker pursuant to the provisions of Rule 144 (or any successor rule) adopted under the Securities Act, or (c) pursuant to any other public offering not required to be registered under the Securities Act.
register, registered and registration. See Section 7.1.
Registrable Securities. See Section 7.1.
Registration Expenses. See Section 7.7.
Securities shall mean, collectively, the Warrants and the shares of Warrant Stock.
Securities Act shall mean the Securities Act of 1933, as amended, or any successor federal statute or code, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.
Small Business Act shall mean the Small Business Investment Act of 1958, as amended, or any successor federal statute, and the rules and regulations of the Small Business Administration thereunder, all as the same shall be in effect from time to time.
Transfer Notice. See Section 10.3.
Underwriters' Maximum Number. See Section 7.1.
Warrant(s) shall mean each Common Stock Purchase Warrant of the Company issued to the Participants pursuant to Section 2.1 hereof and any other warrants transferred to any other holders pursuant to Section 10 hereof or otherwise delivered in exchange or in substitution therefor.
Warrant Stock shall mean the shares of Common Stock issuable upon exercise of the Warrant and any capital stock or other securities into which or for which such Common Stock shall have been converted or exchanged pursuant to any recapitalization, reorganization or merger of the Company.
2. SALE AND PURCHASE OF WARRANT.
2.1. Sale and Purchase of Warrants. At the Closing hereunder, the Company will issue and sell to the Participants, and, subject to all of the terms and conditions hereof and in reliance on the representations and warranties of the Company set forth or referred to herein, the Participants each agree to accept from the Company, a Common Stock Purchase Warrant evidencing the right to purchase the number of shares of Common Stock set forth opposite said Participant's name on the Schedule of Participants (in the aggregate the Common Stock Purchase Warrants shall evidence the right to purchase 215,000 shares of Common Stock, subject to adjustment), at a purchase price upon exercise of $7.50 per share, with such number of shares and such purchase price being subject to adjustment as provided therein. Each such Common Stock Purchase Warrant shall be substantially in the form of Exhibit A attached hereto.
2.2. Closing. The closing of the purchase and sale of the Warrants (the "Closing") will take place at the offices of Riemer & Braunstein, Three Center Plaza, Boston,
Massachusetts at 10:00 a.m. on July , 1998, or at such other time, date and place as the parties hereto may agree upon (the "Closing Date"). At the Closing, the Company will (among other things) deliver to the Participants, the Warrants. The Warrants will be issued to the Participants or any nominee specified by the Participants on or before the Closing Date and registered in the Participant's name or the name of such specified nominee in the Company's records.
3. REPRESENTATIONS AND WARRANTIES.
In order to induce the Participants to enter into this Agreement and to acquire the Warrants, the Company hereby represents and warrants as follows:
3.1. Organization and Good Standing. The Company is duly organized and existing in good standing in the State of Delaware and is duly qualified as a foreign corporation and authorized to do business in all other jurisdictions in which the nature of its business or property makes such qualification necessary. The Company has the corporate power to own its properties and to carry on its business as now conducted and as proposed to be conducted, except where the failure to be qualified or authorized would not have a material adverse effect on the Company and its subsidiaries, taken as a whole.
3.2. Authorization, The execution, delivery and performance by the Company of this Agreement, and the issuance and sale by the Company of the Securities hereunder, (a) are within the Company's corporate power and authority, (b) have been duly authorized by all necessary corporate proceedings, and (c) do not conflict, with or result in any breach of any provision of or the creation of any Lien upon any of the property of the Company under, or require any consent or approval pursuant to, the Charter or bylaws of the Company, or any law, regulation, order, judgment, writ, injunction, license, permit, agreement or instrument.
3.3. Enforceability. The execution and delivery by the Company of this Agreement, and the issuance and sale by the Company of the Securities hereunder, will result in legally binding obligations of the Company, enforceable against the Company in accordance with the respective terms and provisions hereof and thereof, except to the extent that (a) such enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, (b) the availability of the remedy of specific performance or in injunctive or other equitable relief is subject to the discretion of the court before which any proceeding therefor may be brought, and (c) the enforceability of the indemnities and contribution provisions contained in Section 7 hereof may be limited under federal securities laws.
3.4. Governmental Approvals. The execution, delivery and performance by the Company of this Agreement and the issuance and sale of the Securities hereunder, do not require the approval or consent of, or any filing with, any governmental authority or agency, other than a filing with National Market System of the National Association of Securities Dealers, Inc.
3.5. Capitalization.
(1) At Closing, the authorized capital stock of the Company will be as set forth on Schedule 3.5(a) hereto. A description of the Common Stock and any other class or series of securities of the Company and of the voting powers, rights and privileges thereof are set forth in the Charter.
(2) At Closing, the Company has approximately 7,400,000 shares of Common Stock issued and outstanding. All of the shares of Common Stock have been duly and validly issued, are presently outstanding and are fully paid and non-assessable.
(3) Options, Etc. Other than as created pursuant to this Agreement or as disclosed on Schedule 3.5(b) hereto, the Company has no outstanding rights (either preemptive or other) or options to subscribe for, or purchase from the Company, and no warrants or other agreements providing for or requiring the issuance by the Company of, any capital stock or any securities convertible into or exchangeable for its capital stock.
(4) Reservation, Etc. Sufficient shares of authorized but unissued Common Stock have been reserved by appropriate corporate action in connection with the prospective exercise of the Warrant and any other agreements disclosed on Schedule 3.5(b). The issuance of the Warrant
or the shares of Warrant Stock upon the exercise of the Warrant will not require any further corporate action by the stockholders or directors of the Company, will not be subject to preemptive rights in any present or future stockholders of the Company and will not conflict with any provision of any agreement to which the Company is a party or by which it is bound, and such Common Stock, when issued upon exercise of the Warrant in accordance with its terms or upon conversion, will be duly authorized, validly issued, fully paid and non-assessable.
3.6. Governmental Regulations. The Company is not a "holding company", or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935; nor is the Company a "registered investment company", or an "affiliated person" or a "principal underwriter" of a "registered investment company", as such terms are defined in the Investment Company Act of 1940, as amended.
4. INVESTMENT REPRESENTATION.
Each Participant represents and warrants to the Company that it is (a) an "accredited investor" within the meaning of Rule 501(a) promulgated under the Securities Act, and (b) acquiring the Securities for investment and not with a view to selling or otherwise distributing the Securities; provided, however, that the disposition of a Participant's property shall at all times be and remain in the Participant's control, subject to the provisions of Section 10 hereof.
5. CONDITIONS TO PURCHASE
The Participants' obligation to acquire the Warrants pursuant to this Agreement is subject to compliance by the Company with its agreements herein contained, and to the satisfaction, on or prior to the Closing Date, of the following conditions:
5.1. Charter Documents; Good Standing Certificate. The Participants shall have received from the Company a copy, certified by a duly authorized officer of the Company to be true and complete as of the Closing Date, of the Charter and the by-laws of the Company; and a certificate, dated a date satisfactory to the Participants, of the Secretary of State or other appropriate official of each state in which the Company is incorporated or qualified to do business, as to the Company's corporate good standing or qualification to do business in such state, as the case may be.
5.2. Proof of Corporate Action. The Participants shall have received from the Company copies, certified by a duly authorized officer thereof to be true and complete as of the Closing Date, of the records of all corporate action taken to authorize the execution, delivery and performance of this Agreement.
5.3. Incumbency Certificate. The Participants shall have received from the Company an incumbency certificate, dated the Closing Date, signed by a duly authorized officer thereof and giving the name and bearing a specimen signature of each individual who shall be authorized to sign,
in the name and on behalf of the Company, this Agreement, and to give notices and to take other action on behalf of the Company under each of such documents.
5.4. Legal Opinion. The Participants shall have received from counsel to the Company their favorable opinion covering such matters with respect to the transactions contemplated by this Agreement as the Participants may reasonably request.
5.5. Representations and Warranties; Officers' Certificates. The representations and warranties contained herein shall be true and correct on and as of the Closing Date. The Company shall have performed and complied with all conditions and agreements required to be performed or complied with by it prior to the Closing; and the Participants shall have received on the Closing Date a certificate to these effects signed by an authorized officer of the Company.
5.6. Legality; Governmental Authorization. The purchase of the Securities shall not be prohibited by any law or governmental order or regulation, and shall not subject the Participants to any penalty, special tax, or other onerous condition. All necessary consents, approvals, licenses, permits, orders and authorizations of, or registrations, declarations and filings with, any governmental or administrative agency or of or with any other Person, with respect to any of the transactions contemplated by this Agreement or any of the Financing Agreements shall have been duly obtained or made and shall be in full force and effect.
5.7. SBIC Documentation. The Company shall have executed and delivered to the Participants all documents required by the Participants in connection with the investment contemplated hereby under the rules and regulations applicable to any Participant by virtue of its status as a "small business investment company".
5.8. General. All instruments and legal, governmental, administrative and corporate proceedings in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory in form and substance to the Participants, and the Participants shall have received copies of all documents, including, without limitation, records of corporate or other proceedings, opinions of counsel, consents, licenses, approvals, permits and orders which the Participants may have requested in connection therewith.
6. SUBSEQUENT HOLDERS OF SECURITIES.
Whether or not any express assignment has been made in this Agreement, the provisions of this Agreement that are for a Participant's benefit as the holder of any Securities are also for the benefit of, and enforceable by, all subsequent holders of Securities.
7. REGISTRATION RIGHTS.
7.1. Definitions. As used in this Section 7:
Holder means each Participant and all Persons to whom any Registrable Securities are transferred in accordance with the provisions hereof. A Holder shall, for all purposes of this Section 7, unless the context shall otherwise require, be deemed to hold, at any particular time, all shares of Warrant Stock issuable upon exercise of the Warrants held of record by such Holder at such time.
register, registered and registration refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and the declaration or ordering by the Commission of effectiveness of such registration statement.
Registrable Securities means, at any particular time, all shares of Warrant Stock (a) issuable upon exercise of the Warrants at such time, or (b) issued and outstanding at such time. As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (a) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (b) they shall have been sold to the public pursuant to Rule 144 (or any successor provision) under the Securities Act, (c) they shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and, in the opinion of counsel reasonably satisfactory to the Company, subsequent public distribution of them shall not require registration or qualification of them under the Securities Act or any similar state law then in force, or (d) they shall have ceased to be outstanding.
Underwriters' Maximum Number means for any Piggyback Registration, Demand Registration or other registration which is an underwritten registration, that number of securities to which such registration should, in the opinion of the managing underwriters of such registration in the light of marketing factors, be limited.
7.2. Demand Registration.
(1) Request for Demand Registration.
(1) Subject to the limitations contained in the following paragraphs
of this Section 7.2, the Holders of 51% or more of all Registrable
Securities at any time outstanding may at any time give to the Company,
pursuant to this clause (i), a written request for the registration by the
Company under the Securities Act of all or any part of the Registrable
Securities of such Holders (such registration being herein called a Demand
Registration). Within 10 days after the receipt by the Company of any such
written request, the Company will give written notice of such registration
request to all Holders of Registrable Securities.
(2) Subject to the limitations contained in the following paragraphs
of this Section 7.2, after the receipt of such written request for a Demand
Registration, (A) the Company will be obligated and required to include in
such Demand Registration all Registrable Securities with respect to which
the Company shall receive from Holders of Registrable Securities, within 30
days after the date on which the Company shall have given to all Holders a
written notice of registration request pursuant to Section 7.2(a)(i)
hereof, the
written requests of such Holders for inclusion in such Demand Registration,
and (B) the Company will use its best efforts in good faith to effect
promptly the registration of all such Registrable Securities. All written
requests made by Holders of Registrable Securities pursuant to this clause
(ii) will specify the number of shares of Registrable Securities to be
registered and will also specify the intended method of disposition
thereof. Such method of disposition shall, in any case, be an underwritten
offering if an underwritten offering is requested by Holders of 51% or more
of the Registrable Securities to be included in such Demand Registration.
(2) Limitations on Demand Registration.
(1) The Holders of Registrable Securities shall jointly be entitled
to require the Company to effect a Demand Registration pursuant to Section
7.2(a) hereof on only two (2) occasions.
(2) Any registration initiated by Holders of Registrable Securities
as a Demand Registration pursuant to Section 7.2(a) hereof shall not count
as a Demand Registration for purposes of Section 7.2(b)(i) hereof unless
and until such registration shall have become effective [AND 51% OR MORE OF
THE REGISTRABLE SECURITIES REQUESTED TO BE INCLUDED IN SUCH REGISTRATION
SHALL HAVE BEEN ACTUALLY SOLD (PROVIDED, THAT IF ANY SUCH SECURITIES ARE
VOLUNTARILY WITHDRAWN FROM SALE BY A HOLDER THEN SUCH HOLDER'S SECURITIES
THAT ARE WITHDRAWN SHALL BE DEEMED TO HAVE BEEN ACTUALLY SOLD FOR PURPOSES
OF THIS SECTION)].
(3) The Company shall not be obligated or required to effect the
Demand Registration of any Registrable Securities pursuant to Section
7.2(a) hereof during the period commencing on the date falling 60 days
prior to the Company's estimated date of filing of, and ending on the date
180 days following the effective date of, any registration statement
pertaining to any underwritten registration initiated by the Company, for
the account of the Company, if the written request of Holders for such
Demand Registration pursuant to Section 7.3(a)(i) hereof shall have been
received by the Company after the Company shall have given to all Holders
of Registrable Securities a written notice stating that the Company is
commencing an underwritten registration initiated by the Company; provided,
however, that the Company will use its best efforts in good faith to cause
any such registration statement to be filed and to become effective as
expeditiously as shall be reasonably possible.
(3) Priority on Demand Registrations. If the managing underwriters in any Demand Registration shall give written advice to the Company and the Holders of Registrable Securities to be included in such registration of an Underwriters' Maximum Number, then: (i) the Company will be obligated and required to include in such registration that number of Registrable Securities requested by the Holders thereof to be included in such registration which does not exceed the Underwriters' Maximum Number, and such number of Registrable Securities shall be allocated pro rata among the Holders of such Registrable Securities on the basis of the number of Registrable Securities requested to be included therein by each such Holder; (ii) if the Underwriters' Maximum
Number exceeds the number of Registrable Securities requested by the Holders thereof to be included in such registration, then the Company will be entitled to include in such registration that number of securities which shall have been requested by the Company to be included in such registration for the account of the Company and which shall not be greater than such excess; and (iii) if the Underwriters' Maximum Number exceeds the sum of the number of Registrable Securities which the Company shall be required to include in such Demand Registration and the number of securities which the Company proposes to offer and sell for its own account in such registration, then the Company may include in such registration that number of other securities which persons (other than the Holders as such) shall have requested be included in such registration and which shall not be greater than such excess. Neither the Company nor any of its securityholders (other than Holders of Registrable Securities) shall be entitled to include any securities in any underwritten Demand Registration unless the Company or such securityholders (as the case may be) shall have agreed in writing to sell such securities on the same terms and conditions as shall apply to the Registrable Securities to be included in such Demand Registration.
(4) Selection of Underwriters. If any Demand Registration or any registration effected pursuant to Section 7.2 hereof is an underwritten offering, or a best efforts underwritten offering, the investment bankers and managing underwriters in su ...