EXHIBIT 10
================================================================================
SERIES A CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
by and among
GOOD TIMES RESTAURANTS INC.
and
THE ▇▇▇▇▇▇ COMPANY
Dated as of May 31, 1996
===============================================================================
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
THE PREFERRED SHARES.......................................................... 1
SECTION 1.01 Issuance, Sale and Delivery of the Preferred Shares............. 1
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................. 2
SECTION 2.01 Organization, Qualifications and Corporate Power................ 2
SECTION 2.02 Authorization of Agreements, Etc................................ 2
SECTION 2.03 Validity........................................................ 3
SECTION 2.04 Authorized Capital Stock........................................ 3
SECTION 2.05 Litigation; Compliance with Law................................. 4
SECTION 2.06 Subsidiaries.................................................... 4
SECTION 2.07 Loans and Advances.............................................. 5
SECTION 2.08 Assumptions, Guaranties, Etc, of Indebtedness of Other Person... 5
SECTION 2.09 Governmental Approval........................................... 5
SECTION 2.10 Agreements...................................................... 5
SECTION 2.11 Undisclosed Liabilities......................................... 6
SECTION 2.12 Disclosure...................................................... 6
SECTION 2.13 Offering of the Preferred Shares................................ 6
SECTION 2.14 Brokers......................................................... 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER............................... 7
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER................................ 8
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY.................................. 3
ARTICLE VI
COVENANTS OF THE COMPANY...................................................... 13
SECTION 6.01 Financial Statements, Reports, Etc.............................. 13
SECTION 6.02 Right of Participation.......................................... 14
SECTION 6.03 Reserve for Conversion Shares................................... 15
SECTION 6.04 Corporate Existence............................................. 16
SECTION 6.05 Properties, Business, Insurance................................. 16
SECTION 6.06 Inspection, Consultation and Advice............................. 16
SECTION 6.07 Restrictive Agreements Prohibited............................... 16
i
SECTION 6.08 Transactions with Affiliates.................................... 16
SECTION 6.09 Use of Proceeds................................................. 17
SECTION 6.10 Board of Directors Meeting...................................... 17
SECTION 6.11 Compensation Committee.......................................... 17
SECTION 6.12 Capital Expenditures............................................ 18
SECTION 6.13 Employment...................................................... 18
SECTION 6.14 Investments..................................................... 18
SECTION 6.15 Maintenance of Properties....................................... 18
SECTION 6.16 D&O Insurance................................................... 18
SECTION 6.17 By-laws......................................................... 18
SECTION 6.18 Activities of Subsidiaries...................................... 18
SECTION 6.19 Compliance with Laws............................................ 19
SECTION 6.20 Keeping of Records and Books of Account......................... 19
SECTION 6.21 Change in Nature of Business.................................... 19
ARTICLE VII
BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS........................... 19
SECTION 7.01 Redemption...................................................... 19
ARTICLE VIII
MISCELLANEOUS................................................................. 19
SECTION 8.01 Survival of Agreements.......................................... 19
SECTION 8.02 Brokerage....................................................... 19
SECTION 8.03 Parties in Interest............................................. 20
SECTION 8.04 Assignment...................................................... 20
SECTION 8.05 Notices......................................................... 21
SECTION 8.06 Entire Agreement................................................ 21
SECTION 8.07 Counterparts.................................................... 21
SECTION 8.08 Amendments...................................................... 21
SECTION 8.09 Severability.................................................... 21
SECTION 8.10 Titles and Subtitles............................................ 21
SECTION 8.11 Governing Law................................................... 21
SCHEDULE I Disclosure Schedule
SCHEDULE II Other Securities
SCHEDULE III Security Holders
INDEX TO EXHIBITS
Exhibit A Form of Registration Rights Agreement
Exhibit B Articles and all amendments thereto
ii
THIS SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this
"Agreement"), dated as of May __, 1996, is by and between Good Times Restaurants
Inc., a Nevada corporation (the "Company"), and The ▇▇▇▇▇▇ Company, a Colorado
limited partnership ("Purchaser").
WHEREAS, the Company wishes to issue and sell to the Purchaser an
aggregate of 1,000,000 shares (the "Preferred Shares") of the authorized but
unissued Series A Convertible Preferred Stock, $0.01 par value, of the Company
(the "Series A Convertible Preferred Stock"); and
WHEREAS, the Purchaser wishes to purchase the Preferred Shares on the
terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
ARTICLE I
THE PREFERRED SHARES
SECTION 1.01 Issuance, Sale and Delivery of the Preferred Shares.
---------------------------------------------------
The Company agrees to issue and sell to the Purchaser, and the Purchaser hereby
agrees to purchase from the Company, an aggregate of 1,000,000 Preferred Shares
at the purchase price of $1.00 per share for an aggregate purchase price of
$1,000,000 (the "Purchase Price"). Purchaser shall purchase from the Company,
and the Company shall sell to Purchaser, the Preferred Shares in three
installments (the "Installments") as follows: (i) on the later to occur of June
1, 1996 and the first day of the month immediately following the approval by the
Company's shareholders of the transactions contemplated hereby (the "First
Installment Date"), Purchaser shall purchase 500,000 of the Preferred Shares for
$250,000 in cash by applying the proceeds from the collection of the $250,000
owed by the Company to Purchaser pursuant to that certain Promissory Note made
by the Company and payable to Purchaser dated March 1, 1996 (the "Note");
(ii) on the date that is three (3) months after the First Installment Date (the
"Second Installment Date"), Purchaser shall buy 250,000 of the Preferred Shares
for $250,000; and (iii) on the date that is three (3) months after the Second
Installment Date (the "Third Installment Date"), Purchaser shall buy 250,000 of
the Preferred Shares for $250,000 (each, an "Installment Date"). On each
Installment Date, the Company shall issue and deliver to the Purchaser a stock
certificate or certificates in definitive form, registered in the name of the
Purchaser or its designee, representing the Preferred Shares being purchased at
such time. As payment in full for the Preferred Shares being purchased by
Purchaser on each Installment Date and against delivery of the stock certificate
or certificates therefor, the Purchaser shall transfer to the account of the
Company by wire transfer or other immediately available funds the portion of the
Purchase Price attributable to such Installment.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser that, except as
set forth in the Disclosure Schedule attached as Schedule I (which Disclosure
-------------
Schedule makes explicit reference to the particular representation or warranty
as to which exception is taken, which in each case shall constitute the sole
representation and warranty as to which such exception shall apply):
SECTION 2.01 Organization, Qualifications and Corporate Power.
------------------------------------------------
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Nevada and is duly licensed
or qualified to transact business as a foreign corporation and is in good
standing in each jurisdiction in which the nature of the business transacted by
it or the character of the properties owned or leased by it requires such
licensing or qualification. The Company has the corporate power and authority
to own and hold its properties and to carry on its business as now conducted and
as proposed to be conducted, to execute, deliver and perform this Agreement and
the Registration Rights Agreement with the Purchaser in the form attached hereto
as Exhibit A (the "Registration Rights Agreement"), and all agreements ancillary
---------
thereto, to issue, sell and deliver the Preferred Shares and to issue and
deliver the shares of Common Stock, $0.001 par value, of the Company ("Common
Stock") issuable upon conversion of the Preferred Shares (the "Conversion
Shares").
(b) Except for Good Times Drive Thru Inc. (the "Subsidiary"), the
Company does not (i) own of record or beneficially, directly or indirectly, (A)
any shares of capital stock or securities convertible into capital stock of any
other corporation or (B) except as disclosed on Schedule II, any participating
interest in any partnership, joint venture or other non-corporate business
enterprise, or (ii) control, directly or indirectly, any other entity.
SECTION 2.02 Authorization of Agreements, Etc.
---------------------------------
(a) Other than obtaining shareholder approval for the transactions
contemplated hereby, which the Company shall make a good faith effort to obtain
prior to the first Installment, the execution and delivery by the Company of
this Agreement and the Registration Rights Agreement, and the performance by the
Company of its obligations hereunder and thereunder, the issuance, sale and
delivery of the Preferred Shares and the issuance and delivery of the Conversion
Shares, have been duly authorized by all requisite corporate action and will not
violate any provision of law, any order of any court or other agency of
government, the Articles of Incorporation of the Company, as amended (the
"Articles"), or the By-laws of the Company, as amended, or any provision of any
indenture, agreement or other instrument to which the Company, or any of its
properties or assets is bound, or conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge,
2
restriction, claim or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company.
(b) If the shareholders of the Company approve the transactions
contemplated hereby, the Preferred Shares will be duly authorized and, when
issued in accordance with this Agreement, will be validly issued, fully paid and
nonassessable shares of Series A Convertible Preferred Stock with no personal
liability attaching to the ownership thereof and will be free and clear of all
liens, charges, restrictions, claims and encumbrances imposed by or through the
Company except as set forth in the Registration Rights Agreement. If the
shareholders of the Company approve the transactions contemplated hereby, the
Conversion Shares will be duly reserved prior to the first Installment for
issuance upon conversion of the Preferred Shares and, when so issued, will be
duly authorized, validly issued, fully paid and nonassessable shares of Common
Stock with no personal liability attaching to the ownership thereof and will be
free and clear of all liens, charges, restrictions, claims and encumbrances
imposed by or through the Company except as set forth in the Registration Rights
Agreement. Neither the issuance, sale or delivery of the Preferred Shares nor
the issuance or delivery of the Conversion Shares is subject to any preemptive
right of stockholders of the Company or to any right of first refusal or other
right in favor of any person.
SECTION 2.03 Validity. This Agreement has been duly executed and
--------
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms. The Registration
Rights Agreement, when executed and delivered in accordance with this Agreement,
will constitute the legal, valid and binding obligation of the Company,
enforceable in accordance with its respective terms.
SECTION 2.04 Authorized Capital Stock. If the shareholders of the
------------------------
Company approve the transactions contemplated hereby, as of the First
Installment Date the authorized capital stock of the Company shall consist of
(i) 10,000,000 shares of Series A Convertible Preferred Stock which is the only
class of preferred stock of the Company, and (ii) 10,000,000 shares of Common
Stock. As of the date hereof, 6,314,824 shares of Common Stock are validly
issued and outstanding, fully paid and nonassessable with no personal liability
attaching to the ownership thereof and no shares of Preferred Stock have been
issued. The holders of subscriptions, warrants, options, convertible
securities, and other rights (contingent or other) to purchase or otherwise
acquire equity securities of the Company, and the number of shares of Common
Stock and the number of such subscriptions, warrants, options, convertible
securities, and other such rights held by each, are as set forth in the attached
Schedule III. If the shareholders of the Company approve the transactions
------------
contemplated hereby, the designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of each class and series
of authorized capital stock of the Company will be, as of the First Installment
Date, as set forth in the Articles, a copy of which is attached hereto as
Exhibit B, and all such designations, powers, preferences, rights,
---------
qualifications, limitations and restrictions are valid, binding and enforceable
and in accordance with all applicable laws. Except as set forth in the attached
Schedule III, (i) no subscription, warrant, option, convertible security, or
------------
other right (contingent
3
or other) to purchase or otherwise acquire equity securities of the Company is
authorized or outstanding, and (ii) except as provided herein there is no
commitment by the Company to issue shares, subscriptions, warrants, options,
convertible securities, or other such rights or to distribute to holders of any
of its equity securities any evidence of indebtedness or asset. Except as
provided for in the Articles or as set forth in the attached Schedule III, the
------------
Company does not have any obligation (contingent or other) to purchase, redeem
or otherwise acquire any of its equity securities or any interest therein or to
pay any dividend or make any other distribution in respect thereof. There are
no voting trusts or agreements, stockholders' agreements, pledge agreements,
buy-sell agreements, rights of first refusal, preemptive rights or proxies
relating to any securities of the Company. All of the outstanding securities of
the Company were issued in compliance with all applicable Federal and state
securities laws.
SECTION 2.05 Litigation; Compliance with Law. There is no (i)
-------------------------------
action, suit, claim, proceeding or investigation pending or, to the best
knowledge of the Company, threatened against or affecting the Company or any
principal of any of the foregoing, at law or in equity, or before or by any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, (ii) arbitration
proceeding relating to the Company pending under collective bargaining
agreements or otherwise, or (iii) governmental inquiry pending or, to the best
of the knowledge of the Company, threatened against or affecting the Company
(including without limitation any inquiry as to the qualification of the Company
to hold or receive any license or permit), and to the best of the Company's
knowledge there is no basis for any of the foregoing. The Company has not
received any opinion or memorandum or legal advice from legal counsel to the
effect that it is exposed, from a legal standpoint, to any liability or
disadvantage which may be material to its business, prospects, financial
condition, operations, property or affairs. The Company is not in default with
respect to any order, writ, injunction or decree known to or served upon the
Company of any court or of any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign. There is no action or suit by the Company pending or threatened
against others. The Company has complied with all laws, rules, regulations and
orders applicable to its business, operations, properties, assets, products and
services the noncompliance with which would have a material adverse effect on
the Company; the Company has all necessary permits, licenses and other
authorizations required to conduct its business as conducted and as proposed to
be conducted; and the Company has been operating its business pursuant to and in
compliance with the terms of all such permits, licenses and other
authorizations. There is no existing law, rule, regulation or order, and the
Company after due inquiry is not aware of any proposed law, rule, regulation or
order, whether Federal, state, county or local, which would prohibit or restrict
the Company from, or otherwise materially adversely affect the Company in,
conducting its business in any jurisdiction in which it is now conducting
business or in which it proposes to conduct business.
SECTION 2.06 Subsidiaries. The Subsidiary is a corporation duly
------------
incorporated, validly existing and in good standing under the laws of the State
of Colorado and is duly licensed or qualified to transact business as a foreign
corporation and is in good standing in each jurisdiction
4
in which it is required to be licensed or qualified. The authorized stock of
the Subsidiary consists of 10,000,000 shares of common stock, 999,900 shares of
which are issued and outstanding. All of the issued and outstanding shares of
its common stock have been duly authorized and are validly issued, fully paid
and non-assessable. The Company owns all of the issued and outstanding shares
of common stock of the Subsidiary, free and clear of any restrictions on
transfer (other than restrictions under the Securities Act and state securities
laws). There are no outstanding or authorized options, warrants, purchase
rights, subscription rights, conversion rights, exchange rights, or other
contracts or commitments that could require the Subsidiary to issue, sell, or
otherwise cause to become outstanding any of its own capital stock. There are no
outstanding stock appreciation, phantom stock, profit participation, or similar
rights with respect to the Subsidiary. There are no voting trusts, proxies, or
other agreements or understandings with respect to the voting of any capital
stock of the Subsidiary.
SECTION 2.07 Loans and Advances. Except as set forth in the Schedule
------------------ --------
I, the Company does not have any outstanding loans or advances to any person and
-
is not obligated to make any such loans or advances.
SECTION 2.08 Assumptions, Guaranties, Etc, of Indebtedness of Other
------------------------------------------------------
Person. The Company has not assumed, guaranteed, endorsed or otherwise become
------
directly or contingently liable on any indebtedness of any other person,
business or entity (including, without limitation, liability by way of
agreement, contingent or otherwise, to purchase, to provide funds for payment,
to supply funds to or otherwise invest in the debtor, or otherwise to assure the
creditor against loss), except for guaranties by endorsement of negotiable
instruments for deposit or collection in the ordinary course of business.
SECTION 2.09 Governmental Approval. Subject to the accuracy of the
---------------------
representations and warranties of the Purchaser set forth in Article III of this
Agreement, no registration or filing with, or consent or approval of or other
action by, any Federal, state or other governmental agency or instrumentality is
or will be necessary for the valid execution, delivery and performance by the
Company of this Agreement or the Registration Rights Agreement, the issuance,
sale and delivery of the Preferred Shares or, upon conversion thereof, the
issuance and delivery of the Conversion Shares, other than (i) filings pursuant
to state securities laws (all of which filings have been made by the Company,
other than those which are required to be made after the date hereof and which
will be duly made on a timely basis) in connection with the sale of the
Preferred Shares, and (ii) with respect to the Registration Rights Agreement,
the registration of the shares covered thereby with the Securities and Exchange
Commission (the "Commission") and filings pursuant to state securities laws.
SECTION 2.10 Agreements. Consummation of the transactions
----------
contemplated hereby (i) will not affect the validity of any material contract,
agreement, commitment, license or other understanding or arrangement
(collectively, "Contracts") to which the Company is a party; and (ii) will not
entitle any parties related to the Company (including without limitation
officers and directors of the Company) to any payments, bonus or other benefits
that may be considered
5
"golden parachute" payments ("Golden Parachute Payments") or any payments or
other benefits made or granted in connection with the transactions contemplated
hereby. The payment by the Company of Golden Parachute Payments, if any, shall
be subordinate to any and all payments to the holders of the Preferred Shares.
Notwithstanding the foregoing, the Company shall be free to perform its
obligations pursuant to its current agreement with ▇▇▇▇ ▇. ▇▇▇▇▇▇ if ▇▇. ▇▇▇▇▇▇
is terminated by the Company without "cause", unless such termination occurs
within 60 days of a determination by the Board of Directors of the Company to
dissolve the Company; provided, however, this Section 2.10 shall not in any way
modify or alter the Company's agreement with ▇▇. ▇▇▇▇▇▇.
SECTION 2.11 Undisclosed Liabilities. Neither the Company or the
-----------------------
Subsidiary has any liability (whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued or unaccrued) except
for (i) liabilities set forth on the Company's most recent balance sheet and
(ii) liabilities which have arisen after the date of the most recent balance
sheet in the ordinary course of business (none of which results from, arises out
of, relates to, or was caused by any breach of contract).
SECTION 2.12 Disclosure. To the best of the Company's knowledge (i)
----------
neither this Agreement, nor any Schedule or Exhibit to this Agreement, or
ancillary agreements hereto or thereto (the "Acquisition Documents ") contains
an untrue statement of a material fact or omits a material fact necessary to
make the statements contained herein or therein not misleading, (ii) none of the
statements, documents, certificates or other items prepared or supplied by the
Company with respect to the transactions contemplated hereby contains an untrue
statement of a material fact or omits a material fact necessary to make the
statements contained therein not materially misleading, and (iii) there is no
fact which the Company has not disclosed to the Purchaser and its counsel in
writing and of which the Company is aware which materially and adversely affects
or could materially and adversely affect the business, financial condition,
operations, property or affairs of the Company. The financial projections and
other estimates provided to Purchaser by the Company were prepared by the
Company based on the Company's experience in the industry and on assumptions of
fact and opinion as to future events which the Company, at the date of their
preparation, believed to be reasonable. As of the date hereof no facts have
come to the attention of the Company which would, in its opinion, require it to
revise or amplify the assumptions underlying such projections and other
estimates or the conclusions derived therefrom.
SECTION 2.13 Offering of the Preferred Shares. Neither the Company
--------------------------------
nor any person authorized or employed by the Company as agent, broker, dealer or
otherwise in connection with the offering or sale of the Preferred Shares, or
any security of the Company similar to the Preferred Shares, has offered the
Preferred Shares or any such similar security for sale to, or solicited any
offer to buy the Preferred Shares or any such similar security from, or
otherwise approached or negotiated with respect thereto with, any person or
persons so as to subject the offering, issuance or sale of the Preferred Shares
to the registration provisions of the Securities Act; and neither the Company
nor any person acting on its behalf has taken or will take any other
6
action (including, without limitation, any offer, issuance or sale of any
security of the Company under circumstances which might require the integration
of such security with Preferred Shares under the Securities Act or the rules and
regulations of the Commission thereunder), so as to subject the offering,
issuance or sale of the Preferred Shares to the registration provisions of the
Securities Act.
SECTION 2.14 Brokers. The Company does not have any contract,
-------
arrangement or understanding with any broker, finder or similar agent with
respect to the sale of the Preferred Shares contemplated by this Agreement.
For purposes of this Article II, "knowledge of the Company" means that
nothing has come to the attention of either the Company that (i) gives the
Company actual knowledge, or (ii) is sufficient to put the Company on notice of,
or cause the Company to make further inquiry into, the existence or absence of
any material information or fact bearing on the matter.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company that:
(a) it is an "accredited investor" within the meaning of Rule 501
under the Securities Act and was not organized for the specific purpose of
acquiring the Preferred Shares;
(b) it has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of development
so as to be able to evaluate the risks and merits of its investment in the
Company and it is able financially to bear the risks thereof;
(c) it has had an opportunity to discuss the Company's business,
management and financial affairs with the Company's management;
(d) except as permitted by the Registration Rights Agreement, the
Preferred Shares being purchased by it are being acquired for its own account
and for the purpose of investment and not with a view to or for sale in
connection with any distribution thereof;
(e) it understands that (i) the Preferred Shares and the Conversion
Shares have not been registered under the Securities Act by reason of their
issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated
under the Securities Act, (ii) the Preferred Shares and, upon conversion
thereof, the Conversion Shares must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
such registration, (iii) the Preferred Shares and the Conversion Shares will
bear a legend to such effect, and (iv) the Company will make a notation on its
transfer books to such effect; and
7
(f) if it sells any Conversion Shares pursuant to Rule 144A
promulgated under the Securities Act, it will take all necessary steps in order
to perfect the exemption from registration provided thereby, including (i)
obtaining on behalf of the Company information to enable the Company to
establish a reasonable belief that the purchaser is a qualified institutional
buyer and (ii) advising such purchaser that Rule 144A is being relied upon with
respect to such resale.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
The obligation of the Purchaser to purchase and pay for the Preferred
Shares being purchased by it on each Installment Date is, at its option, subject
to the satisfaction, on or before such Installment Date, of the following
conditions:
(a) Opinions of Counsel. The Purchaser shall have received from
-------------------
counsel for the Company on or before June 5, 1996 an opinion dated as of the
date hereof, in form and scope satisfactory to Purchaser and its counsel, to the
effect that:
(i) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. The Company is duly licensed or qualified to transact
business as a foreign corporation and is in good standing in each
jurisdiction in which it owns or leases real property. The Company has
the corporate power and authority to own and hold its properties and
to carry on its business as currently conducted and as proposed to be
conducted. The Company has the corporate power and authority to
execute, deliver and perform this Agreement and the Registration
Rights Agreement, to issue, sell and deliver the Preferred Shares and,
upon conversion thereof, to issue and deliver the Conversion Shares.
(ii) This Agreement and the Registration Rights Agreement have
been duly authorized, executed and delivered by the Company and
constitute the legal, valid and binding obligations of the Company,
enforceable in accordance with their respective terms (subject, as to
enforcement of remedies, to the discretion of courts in awarding
equitable relief and to applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting the rights of
creditors generally), except that such counsel need not express any
opinion as to the validity or enforceability of the indemnification
and contribution provisions of the Registration Rights Agreement.
(iii) The execution and delivery by the Company of this
Agreement and the Registration Rights Agreement, the performance by
the Company of its obligations hereunder and thereunder, the issuance,
sale and delivery of the Preferred Shares and, upon conversion
thereof, the issuance and delivery of the Conversion Shares, will not
violate any provision of law, the Articles or By-laws, each as
amended, of the Company, any order of any court or other agency of
government or any indenture, agreement or other instrument known to
such counsel to which the Company, or any of their respective
8
properties or assets is bound, or conflict with, result in a breach of
or constitute (with due notice or lapse of time or both) a default
under any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge, restriction, claim or
encumbrance of any nature whatsoever upon any of the properties or
assets of the Company. In rendering the foregoing opinion, such
counsel may assume full disclosure to Purchaser of all material facts
and, with respect to performance by the Company of its obligations
under the Registration Rights Agreement, may assume compliance by the
Company at such time with the registration requirements of the
Securities Act and with applicable state securities laws and may
disclaim any opinion as to the validity or enforceability of the
indemnification and contribution provisions of the Registration Rights
Agreement.
(iv) The authorized capital stock of the Company consists of (i)
10,000,000 shares of Series A Convertible Preferred Stock which is the
only class of preferred stock of the Company, and (ii) 10,000,000
shares of Common Stock. As of the date hereof, 6,314,824 shares of
Common Stock are validly issued, fully paid and nonassessable with no
personal liability attaching to the ownership thereof and no shares of
Preferred Stock have been issued, except as provided for herein. As of
the date hereof, holders of record of subscriptions, warrants,
options, convertible securities, and other rights (contingent or
other) to purchase or otherwise acquire equity securities of the
Company, and the number of shares of Common Stock and the number of
such subscriptions, warrants, options, convertible securities, and
other such rights held by each, are as set forth in Schedule III. The
------------
designations, powers, preferences, rights, qualifications, limitations
and restrictions in respect of each class or series of authorized
capital stock of the Company are as set forth in the Articles, and all
such designations, powers, preferences, rights, qualifications,
limitations and restrictions are valid, binding and enforceable and in
accordance with all applicable laws (subject, as to enforcement, to
the discretion of courts in awarding equitable relief and to
applicable bankruptcy, reorganization, insolvency, moratorium and
similar laws affecting the rights of creditors generally). Except as
set forth in Schedule III, to the knowledge of such counsel, but
------------
without independent investigation, as of the date hereof no
subscription, warrant, option, convertible security, or other right
(contingent or other) to purchase or acquire equity securities of the
Company is authorized or outstanding and there is no commitment by the
Company to issue shares, subscriptions, warrants, options, convertible
securities, or other such rights or to distribute to holders of any of
its equity securities any evidence of indebtedness or asset. Except as
set forth in Schedule III or as provided for in the Articles, to the
------------
knowledge of such counsel, but without independent investigation, the
Company has no obligation (contingent or other) to purchase, redeem or
otherwise acquire any of its equity securities or any interest therein
or to pay any dividend or make any other distribution in respect
thereof.
(v) The Preferred Shares and the Conversion Shares have been duly
authorized. The issuance, sale and delivery of the Preferred Shares
and the issuance and
9
delivery of the Conversion Shares upon conversion of the Preferred
Shares have been duly authorized by all required corporate action; the
Preferred Shares have been validly issued, are fully paid and
nonassessable with no personal liability attaching to the ownership
thereof and, to the knowledge of such counsel, are free and clear of
all liens, charges, restrictions, claims and encumbrances imposed by
or through the Company except as set forth in the Registration Rights
Agreement; and the Conversion Shares have been duly reserved for
issuance upon conversion of the Preferred Shares and, when so issued,
will be validly issued, fully paid and nonassessable with no personal
liability attaching to the ownership thereof and, to the knowledge of
such counsel, will be free and clear of all liens, charges,
restrictions, claims and encumbrances imposed by or through the
Company except as set forth in the Registration Rights Agreement.
Neither the issuance, sale or delivery of the Preferred Shares nor the
issuance or delivery of the Conversion Shares is subject to any
preemptive right of stockholders of the Company arising under law or
the Articles or By-laws of the Company, each as amended, or, to the
knowledge of such counsel, to any contractual right of first refusal
or other right in favor of any person.
(vi) Except as described in Schedule I, to the knowledge of such
----------
counsel, but without independent investigation, as of the date hereof
there is no material (A) action, suit, claim, proceeding or
investigation pending or threatened against or affecting the Company,
at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (B) arbitration proceeding
relating to the Company pending under collective bargaining
agreements, or (C) governmental inquiry pending or threatened against
or affecting the Company. To the knowledge of such counsel, but
without independent investigation, the Company is not in default with
respect to any order, writ, injunction or decree known to such counsel
of any court or of any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign.
(vii) Assuming the accuracy of the representations and
warranties of the Purchaser set forth in Article II of this Agreement,
no registration or filing with, and no consent or approval of, or
other action by any Federal, state or other governmental agency or
instrumentality is or will be necessary for the valid execution,
delivery and performance by the Company of this Agreement and the
Registration Rights Agreement, the issuance, sale and delivery of the
Preferred Shares or, upon conversion thereof, the issuance and
delivery of the Conversion Shares, other than filings pursuant to
federal and state securities laws (all of which filings, other than
those which are required to be made after the date hereof, have been
made by the Company). In rendering the foregoing opinion with respect
to performance by the Company of its obligations under the
Registration Rights Agreement, such counsel may assume compliance by
the Company at such time with the registration requirements of the
Securities Act and with applicable
10
state securities laws and may disclaim any opinion as to the validity
or enforceability of the indemnification and contribution provisions
of the Registration Rights Agreement.
(b) Representations and Warranties to be True and Correct. The
-----------------------------------------------------
representations and warranties contained in Article II of this Agreement shall
be true, complete and correct in all material respects on and as of the date
hereof and the President and Treasurer of the Company shall have certified to
such effect to the Purchaser in writing.
(c) Performance. The Company shall have performed and complied in all
-----------
material respects with all agreements contained herein required to be performed
or complied with by it prior to or at the date hereof, and as of each
Installment Date, as applicable, and the President and Treasurer of the Company
shall have certified to the Purchaser in writing as of each Installment Date to
such effect and to the further effect that all of the conditions set forth in
this Article IV have been satisfied.
(d) All Proceedings to be Satisfactory. As of the First Installment
----------------------------------
Date, all corporate and other proceedings to be taken by the Company in
connection with the transactions contemplated hereby and all documents incident
thereto shall be reasonably satisfactory in form and substance to the Purchaser
and its counsel, and the Purchaser and its counsel shall have received all such
counterpart originals or certified or other copies of such documents as they
reasonably may request.
(e) Supporting Documents. As of the First Installment Date, the
--------------------
Purchaser and its counsel shall have received copies of the following documents
and all changes, amendments or modifications thereto:
(i) (A) the Articles, certified as of a recent date by the
Secretary of State of the State of Nevada, (B) a certificate of said
Secretary dated as of a recent date as to the due incorporation and
good standing of the Company, the payment of all excise taxes by the
Company and listing all documents of the Company on file with said
Secretary, and (C) the By-laws of the Company;
(ii) a certificate of the Secretary or an Assistant Secretary of
the Company dated as of the Installment Date and certifying: (A) that
attached thereto is a true and complete copy of the By-laws of the
Company as in effect on the date of such certification; (B) that
attached thereto is a true and complete copy of all resolutions
adopted by the Board of Directors or the stockholders of the Company
authorizing the execution, delivery and performance of this Agreement
and the Registration Rights Agreement, the issuance, sale and delivery
of the Preferred Shares and the reservation, issuance and delivery of
the Conversion Shares, and that all such resolutions are in full force
and effect and are all the resolutions adopted in connection with the
transactions contemplated by this Agreement and the Registration
Rights Agreement; (C) that the Articles have not been amended since
the date of the last amendment referred to in the
11
certificate delivered pursuant to clause (i)(B) above; and (D) to the
incumbency and specimen signature of each officer of the Company
executing this Agreement and the Registration Rights Agreement, the
stock certificates representing the Preferred Shares and any
certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the incumbency
and signature of the officer signing the certificate referred to in
this clause (ii); and
(iii) such additional supporting documents and other
information with respect to the operations and affairs of the Company
as the Purchaser or its counsel reasonably may request.
(f) Certificates. As of each subsequent Installment Date, Purchaser
------------
shall have received a certificate of the Secretary or an Assistant Secretary of
the Company dated as of the Installment Date and certifying that (A) neither the
Articles nor the By-laws were amended, revised or modified in any way that could
adversely affect the Preferred Shares since the First Installment Date; (B) that
the resolutions of the Board of Directors or the stockholders of the Company
authorizing the execution, delivery and performance of the Agreement and the
Registration Rights Agreement, the issuance, sale and delivery of the Preferred
Shares and the reservation, issuance and delivery of the Conversion Shares
delivered to Purchaser are in full force and effect and have not been
effectively altered or changed by subsequent action by the Board of Directors or
shareholders of the Company.
(g) Approval. The Board of Directors of Purchaser shall have approved
--------
the transactions contemplated hereby on or before May 31, 1996.
(h) Registration Rights Agreement. The Company shall have executed
-----------------------------
and delivered the Registration Rights Agreement.
(i) Articles. The Articles shall read in their entirety as set forth
--------
in Exhibit B. The Articles shall have been duly amended, if necessary, to
---------
provide that: (i) all directors of the Company shall be indemnified against, and
absolved of, liability to the Company and its stockholders to the maximum extent
permitted under the laws of the State of Nevada, and (ii) the number of shares
of authorized Common Stock of the Company may be increased or decreased (but not
below the number then outstanding) by the affirmative vote of the holders of
two-thirds of the outstanding shares of capital stock of the Company entitled to
vote thereon, voting together as a single class.
(j) By-Laws. The Company's By-laws shall have been amended, if
-------
necessary, to provide that (i) unless otherwise required by the laws of the
State of Nevada, (A) any two directors and (B) any holder or holders of at least
25% of the outstanding shares of Series A Convertible Preferred Stock, shall
have the right to call a meeting of the Board of Directors or stockholders of
the Company, and (ii) the number of directors fixed in accordance therewith
shall
12
in no event conflict with any of the terms or provisions of the Series A
Convertible Preferred Stock as set forth in the Articles.
(k) Election of Directors. The number of directors constituting the
---------------------
entire Board of Directors shall have been fixed at seven (7) and the following
persons shall have been elected as the directors and shall each hold such
position as of the date hereof: ▇▇▇ ▇. ▇▇▇▇▇, III, ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇ ▇. ▇▇▇▇▇.
(l) Lenders. Purchaser's performance hereunder shall not materially
-------
conflict with or result in a breach of any of its obligations or agreements
existing as of the date hereof with any of its lenders.
(m) Solvency. As of the date of such performance, neither Purchaser
--------
nor the Company shall have (i) filed a voluntary petition in bankruptcy or been
adjudged bankrupt or insolvent, (ii) made an assignment for the benefit of
creditors, (iii) applied to or petitioned any tribunal for the appointment of a
receiver, intervenor or trustee for all or a substantial part of its assets, or
(iv) been involved in a proceeding under any bankruptcy law or statute which was
commenced and not dismissed within 60 days.
All such documents shall be reasonably satisfactory in form and substance to the
Purchaser and its counsel.
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
The obligation of the Company to sell the Preferred Shares hereunder
is subject to (i) the Company receiving, on or before the First Installment
Date, approval of the shareholders of the Company of the transactions
contemplated hereby as required by the Articles, Bylaws or applicable law; and
(ii) the approval of the Company's Board of Directors of the transactions
contemplated hereby on or before June 14, 1996.
ARTICLE VI
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Purchaser that prior to the
issuance of the Preferred Shares, and for as long as any of the Preferred Shares
are outstanding:
SECTION 6.01 Financial Statements, Reports, Etc. The Company shall
----------------------------------
furnish to the Purchaser:
(a) within 105 days after the end of each fiscal year of the Company,
any and all documents that the Company is required to file with the Securities
and Exchange Commission;
13
and comparative statements for the prior fiscal year and the budget for the
fiscal year then ended showing comparisons on a monthly basis;
(b) at the time of delivery of each annual financial statement
pursuant to Section 6.01(a), a certificate executed by the President or Chief
Financial Officer of the Company stating that such officer has caused this
Agreement and the Series A Convertible Preferred Stock to be reviewed and has no
knowledge of any default by the Company (or such subsidiary, as the case may be)
in the performance or observance of any of the provisions of this Agreement or
the Series A Convertible Preferred Stock or, if such officer has such knowledge,
specifying such default and the nature thereof;
(c) no later than sixty (60) days prior to the start of each fiscal
year, consolidated capital and operating expense budgets, cash flow projections
and income and loss projections for the Company and each of its subsidiaries in
respect of such fiscal year, all itemized in reasonable detail and prepared on a
monthly basis, and, promptly after preparation, any revisions to any of the
foregoing;
(d) promptly following receipt by the Company, each audit response
letter, accountant's management letter and other written report submitted to the
Company or any subsidiary of the Company by its independent public accountants
in connection with an annual or interim audit of the books of the Company or any
of its subsidiaries;
(e) promptly after the commencement thereof, notice of all actions,
suits, claims, proceedings, investigations and inquiries of the type described
in Section 2.07 that could materially adversely affect the Company individually
or any of its subsidiaries or the Company and all of its subsidiaries taken as a
whole;
(f) promptly upon sending, making available or filing the same, all
press releases, reports and financial statements that the Company or any
subsidiary of the Company sends or makes available to its stockholders or
directors or files with the Commission; and
(g) promptly, from time to time, such other information regarding the
business, prospects, financial condition, operations, property or affairs of the
Company and its subsidiaries as Purchaser reasonably may request.
SECTION 6.02 Right of Participation. (a) The Company shall, prior to
----------------------
any proposed issuance by the Company of any of its securities (other than debt
securities with no equity feature), offer to the Purchaser by written notice the
right, for a period of fifteen (15) days, to purchase for cash at an amount
equal to the price or other consideration for which such securities are to be
issued, a number of such securities so that, after giving effect to such
issuance (and the conversion, exercise and exchange into or for (whether
directly or indirectly) shares of Common Stock of all such securities that are
so convertible, exercisable or exchangeable), the Purchaser will continue to
maintain its same proportionate equity ownership in the Company represented
14
by the Preferred Shares and the Conversion Shares that it owns, if any, as of
the date of such notice (treating the Purchaser, for the purpose of such
computation, as the holder of the number of shares of Common Stock which would
be issuable to the Purchaser upon conversion, exercise and exchange of all
securities (including but not limited to the Preferred Shares) held by such
Purchaser on the date such offer is made, that are convertible, exercisable or
exchangeable into or for (whether directly or indirectly) shares of Common Stock
and assuming the like conversion, exercise and exchange of all such other
securities held by other persons); provided, however, that the participation
rights of the Purchaser pursuant to this Section 6.02 shall not apply to
securities issued (A) upon conversion of any of the Preferred Shares, (B) as a
stock dividend or upon any subdivision of shares of Common Stock, provided that
the securities issued pursuant to such stock dividend or subdivision are limited
to additional shares of Common Stock, (C) pursuant to subscriptions, warrants,
options, convertible securities, or other rights which are listed in Schedule
--------
III as being outstanding on the date of this Agreement, (D) solely in
---
consideration for the acquisition (whether by merger or otherwise) by the
Company or any of its subsidiaries of all or substantially all of the stock or
assets of any other entity, (E) pursuant to a firm commitment public offering.
The Company's written notice to the Purchaser shall describe the securities
proposed to be issued by the Company and specify the number, price and payment
terms. (The number of shares that the Purchaser is entitled to purchase under
this Section 6.02 shall be referred to as its "Pro Rata Share." The total number
of shares that the Purchaser is entitled to purchase under this Section 6.02
shall be referred to as "Offered Shares").
(b) The Purchaser may accept the Company's offer as to the full number
of securities offered to it or any lesser number, by written notice thereof
given by it to the Company prior to the expiration of the aforesaid fifteen (15)
day period, in which event the Company shall sell and the Purchaser shall buy,
upon the terms specified, the number of securities agreed to be purchased by
Purchaser. The Company shall then be free at any time prior to ninety (90) days
after the date of its notice of offer to the Purchaser, to offer and sell to any
third party or parties the remainder of such securities proposed to be issued by
the Company (including but not limited to the securities not agreed by the
Purchaser to be purchased by it), at a price and on payment terms no less
favorable to the Company than those specified in such notice of offer to the
Purchaser. However, if such third party sale or sales are not consummated
within such ninety (90) day period, the Company shall not sell such securities
as shall not have been purchased within such period without again complying with
this Section 6.02.
SECTION 6.03 Reserve for Conversion Shares. The Company shall at all
-----------------------------
times reserve and keep available out of its authorized but unissued shares of
Common Stock, for the purpose of effecting the conversion of the Preferred
Shares and otherwise complying with the terms of this Agreement, such number of
its duly authorized shares of Common Stock as shall be sufficient to effect the
conversion of the Preferred Shares from time to time outstanding or otherwise to
comply with the terms of this Agreement. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of the Preferred Shares or otherwise to comply with the terms of
this Agreement, the Company will forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common
15
Stock to such number of shares as shall be sufficient for such purposes. The
Company will obtain any authorization, consent, approval or other action by or
make any filing with any court or administrative body that may be required under
applicable federal and state securities laws in connection with the issuance of
shares of Common Stock upon conversion of the Preferred Shares.
SECTION 6.04 Corporate Existence. The Company shall maintain, and
-------------------
except as otherwise permitted by Section 6.18 cause each of its subsidiaries to
maintain, their respective corporate existence, rights and franchises in full
force and effect.
SECTION 6.05 Properties, Business, Insurance. The Company shall
-------------------------------
maintain and cause each of its subsidiaries to maintain as to their respective
properties and business, with financially sound and reputable insurers,
insurance against such casualties and contingencies and of such types and in
such amounts as is customary for companies similarly situated, which insurance
shall be deemed by the Company to be sufficient.
SECTION 6.06 Inspection, Consultation and Advice. The Company shall
-----------------------------------
permit and cause each of its subsidiaries to permit the Purchaser and such
persons as it may designate, at Purchaser's expense, to visit and inspect any of
the properties of the Company and its subsidiaries, examine their books and take
copies and extracts therefrom, discuss the affairs, finances and accounts of the
Company and its subsidiaries with their officers, employees and public
accountants (and the Company hereby authorizes said accountants to discuss with
Purchaser and its designees such affairs, finances and accounts), and consult
with and advise the management of the Company and its subsidiaries as to their
affairs, finances and accounts, all at reasonable times and upon reasonable
notice.
SECTION 6.07 Restrictive Agreements Prohibited. Neither the Company
---------------------------------
nor any of its subsidiaries shall become a party to any agreement which by its
terms restricts the Company's performance of this Agreement, the Registration
Rights Agreement or the Articles. The Company shall not become party to any
agreement which by its terms restricts the Company's right to pay dividends on
the Preferred Shares or to meet the redemption rights of the Preferred Shares.
SECTION 6.08 Transactions with Affiliates. Except for transactions
----------------------------
(i) contemplated by this Agreement, or (ii) with Purchaser or its affiliates,
neither the Company nor any of its subsidiaries shall enter into any transaction
with any director, officer, employee or holder of more than 5% of the
outstanding capital stock of any class or series of capital stock of the Company
or any of its subsidiaries, member of the family of any such person, or any
corporation, partnership, trust or other entity in which any such person, or
member of the family of any such person, is a director, officer, trustee,
partner or holder of more than 5% of the outstanding capital stock thereof,
except for transactions on customary terms related to such person's employment.
16
SECTION 6.09 Use of Proceeds. The Company shall spend an amount
---------------
equal to or greater than the proceeds from the sale of the Preferred Shares for
the development of new Good Times restaurants on or before December 31, 1997,
unless the Board of Directors unanimously directs otherwise.
SECTION 6.10 Board of Directors Meeting. The Company shall use its
--------------------------
best efforts to ensure that meetings of its Board of Directors are held at least
once each quarter. The Company shall permit Purchaser, for so long as Purchaser
holds of record or beneficially any Preferred Shares and/or Conversion Shares,
or its designee to have one representative attend each meeting of the Board of
Directors of the Company and each meeting of any Committee thereof and to
participate in all discussions during each such meeting. The Company shall send
to the Purchaser and designee the notice of the time and place of such meeting
in the same manner and at the same time as it shall send such notice to its
directors or committee members, as the case may be. The Company shall also
provide to the Purchaser and designee copies of all notices, reports, minutes
and consents at the time and in the manner as they are provided to the Board of
Directors or committee, except for information reasonably designated as
proprietary information by the Board of Directors.
SECTION 6.11 Compensation Committee. The Company shall establish and
----------------------
maintain a Compensation Committee of the Board of Directors, which shall consist
of three (3) directors, one of whom shall be a director elected by the holders
of the Preferred Stock voting as a separate series. The Compensation Committee
shall have as its functions the approval of any employee's compensation over
$75,000 per year and overall approval of employee stock option grants. No
compensation or other remuneration at an annual rate in excess of $75,000
(inclusive of salary and bonus arrangement) shall be paid to, and no capital
stock of the Company shall be issued or granted to, any director, officer or
employee of, or any consultant or adviser to, the Company or any of its
subsidiaries, without the approval of the Compensation Committee. No employee
stock option plan, employee stock purchase plan, employee restricted stock plan
or other employee stock plan shall be established without the approval of the
Compensation Committee, other than those already in existence. Notwithstanding
the foregoing, the Company shall not, without the unanimous consent of the Board
of Directors, (i) issue, grant or sell any stock options, warrants or other
securities convertible into Common Stock to any director, officer or employee
of, or a consultant or advisor to, the Company or any of its subsidiaries to the
extent that such issuance, grant or sale would result in there being outstanding
options and other securities convertible into Common Stock held by directors,
officers and employees of, and consultants and advisors to, the Company
constituting in the aggregate in excess of 15% of the outstanding capital stock
of the Company (assuming for purposes of such computation the conversion,
exercise and exchange of all securities of the Company that are convertible,
exercisable or exchangeable into or for shares of Common Stock), or (ii) modify
any terms of any options, warrants or other securities convertible into Common
Stock except that, in the case of the Company's publicly held warrants and other
convertible securities, the Board of Directors may extend the exercise date
thereof.
17
SECTION 6.12 Capital Expenditures. Without the prior approval of the
--------------------
Board of Directors, the Company shall not make any capital expenditure,
including expenditures for capitalized leases, in an amount in excess of 120% of
the budget for such items approved by the Board of Directors.
SECTION 6.13 Employment. The Company shall not hire, or commit
----------
itself to hire, any individual whose annual compensation, in salary and
benefits, is in excess of $75,000, without the prior approval of the Board of
Directors.
SECTION 6.14 Investments. The Company shall not make any investment
-----------
in, or loans or advances to, or guarantees of the obligations of, any person or
entity, except as approved by the Board of Directors.
SECTION 6.15 Maintenance of Properties. The Company shall maintain
-------------------------
its properties in good condition and operating repair.
SECTION 6.16 D&O Insurance. The Company shall, if required by the
-------------
stockholders holding two-thirds of the Preferred Shares and if not prohibitively
expensive as determined in good faith of the Board of Directors, purchase and
maintain adequate liability insurance coverage for the directors of the Company.
SECTION 6.17 By-laws. The Company shall at all times cause its By-
-------
laws to provide that, (a) unless otherwise required by the laws of the State of
Nevada, (i) any two directors or (ii) any holder or holders of at least 25% of
the outstanding shares of Series A Convertible Preferred Stock, shall have the
right to call a meeting of the Board of Directors or stockholders, and (b) the
number of directors fixed in accordance therewith shall in no event conflict
with any of the terms or provisions of the Series A Convertible Preferred Stock
as set forth in the Articles. The Company shall at all times maintain
provisions in its By-laws and/or Articles indemnifying all directors against
liability and absolving all directors from liability to the Company and its
stockholders to the maximum extent permitted under the laws of the State of
Nevada.
SECTION 6.18 Activities of Subsidiaries. The Company shall not,
--------------------------
without the affirmative vote by holders of two-thirds of the Preferred Shares,
permit any subsidiary to consolidate or merge into or with or sell or transfer
all or substantially all its assets, except that any subsidiary may (i)
consolidate or merge into or with or sell or transfer assets to any other
subsidiary, or (ii) merge into or sell or transfer assets to the Company. The
Company shall not sell or otherwise transfer any shares of capital stock of any
subsidiary, except to the Company or another subsidiary, or permit any
subsidiary to issue, sell or otherwise transfer any shares of its capital stock
or the capital stock of any subsidiary, except to the Company or another
subsidiary. The Company shall not permit any subsidiary to purchase or set aside
any sums for the purchase of, or pay any dividend or make any distribution on,
any shares of its stock, except for dividends or other distributions payable to
the Company or another subsidiary.
18
SECTION 6.19 Compliance with Laws. The Company shall comply, and
--------------------
cause each subsidiary to comply, with all applicable laws, rules, regulations
and orders, noncompliance with which could materially adversely affect its
business or condition, financial or otherwise.
SECTION 6.20 Keeping of Records and Books of Account. The Company
---------------------------------------
shall keep, and cause each subsidiary to keep, adequate records and books of
account, in which complete entries will be made in accordance with generally
accepted accounting principles consistently applied, reflecting all financial
transactions of the Company and such subsidiary, and in which, for each fiscal
year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
SECTION 6.21 Change in Nature of Business. The Company shall not, and
----------------------------
shall not permit any subsidiary to, engage in any business other than the
restaurant business without the unanimous approval of the Board of Directors.
ARTICLE VII
BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 7.01 Redemption. In the event the Company materially
----------
breaches any of its representations, warranties or covenants contained herein
and the Company (i) fails to remedy such breach within 14 days after receiving
notice of such breach or (ii) if such breach cannot reasonably be cured within
14 days, and the Company commences to remedy such breach within 14 days of
notice continuously and diligently proceeds to remedy such breach, fails to
remedy such breach within 30 days after receiving notice thereof, the Company
shall, at the election of Purchaser, redeem some or all of the Preferred Shares
held by Purchaser for a price equal to the Redemption Price for each share so
redeemed. The Company shall redeem such shares within 30 days after its receipt
of Purchaser's notice stating the number of Preferred Shares that Purchaser
desires to have redeemed pursuant to this Section 7.01.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 Survival of Agreements. All covenants, agreements,
----------------------
representations and warranties made herein or in the Registration Rights
Agreement or any certificate or instrument delivered to the Purchaser pursuant
to or in connection with this Agreement or the Registration Rights Agreement
shall survive the execution and delivery of this Agreement and the Registration
Rights Agreement, the issuance, sale and delivery of the Preferred Shares, and
the issuance and delivery of the Conversion Shares, and all statements contained
in any certificate or other instrument delivered by the Company hereunder or
thereunder or in connection herewith or therewith shall be deemed to constitute
representations and warranties made by the Company.
SECTION 8.02 Brokerage. Each party hereto will indemnify and hold
---------
harmless the other against and in respect of any claim for brokerage or other
commissions relative to this
19
Agreement or to the transactions contemplated hereby, based in any way on
agreements, arrangements or understandings made or claimed to have been made by
such party with any third party (including, without limitation, amounts paid to
any shareholder, officer, director or affiliate of such party).
SECTION 8.03 Parties in Interest. All representations, 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. Without limiting the
generality of the foregoing, all representations, covenants and agreements
benefiting Purchaser shall inure to the benefit of any and all subsequent
holders from time to time of Preferred Shares or Conversion Shares.
SECTION 8.04 Assignment. (a) Purchaser may not assign this Agreement
----------
or any of its rights and obligations hereunder (including the Preferred Shares)
to any person, business or entity without the prior written approval of the
Company which approval shall not be unreasonably withheld; provided, however,
Purchaser may assign this Agreement, any and all of its rights and obligations
hereunder and the Preferred Shares (i) to any person, business or entity that is
affiliated with Purchaser or The Erie County Investment Co. and (ii) to any
member of the Control Group (as defined below) if the Control Group in the
aggregate is affiliated with Purchaser. For purposes of this agreement, (i) an
"affiliate" of, or a person "affiliated" with, a specified person, is a person
that directly, or indirectly, controls, is controlled by or is under common
control with, the person specified; (ii) the term "control" (including the terms
"controlling", "controlled by" and "under common control with") means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person, whether through the ownership
(beneficial or otherwise) of voting securities, by contract or otherwise; and
(iii) "Control Group" shall mean ▇▇▇▇ ▇. ▇▇▇▇▇▇, his spouse, children and
grandchildren. The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of Purchaser.
(b) Purchaser shall not offer or agree to sell or otherwise transfer
any or all of its Preferred Shares to a third party (other than any person,
business or entity affiliated with Purchaser, or to any officer, director,
shareholder or partner of Purchaser or The Erie County Investment Co.), without
first offering (the "Offer") to sell such Preferred Shares to the Company or its
designee by delivering written notice thereof to the Company which notice shall
include the price, terms and conditions of the Offer. The Company shall have
fourteen days after its receipt thereof (the "Offer Period") to accept the Offer
by delivering written notice of its acceptance thereof to Purchaser. If the
Company fails to deliver its acceptance within the Offer Period, Purchaser shall
be free (subject to the terms of Section 8.04(a) above) to sell or otherwise
transfer such Preferred Shares to a third party for a period of 90 days after
the end of the Offer Period at a price and on terms and conditions no less
favorable to the Purchaser than those offered to the Company.
20
SECTION 8.05 Notices. All notices, requests, consents and other
-------
communications hereunder shall be in writing and shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier or telex, addressed as follows:
(a) if to the Company: Good Times Restaurants Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇, President
(b) if to the Purchaser: The Erie County Investment Co.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
SECTION 8.06 Entire Agreement. This Agreement, including the
----------------
Schedules and Exhibits hereto, constitutes the sole and entire agreement of the
parties with respect to the subject matter hereof. All Schedules and Exhibits
hereto are hereby incorporated herein by reference.
SECTION 8.07 Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 8.08 Amendments. This Agreement may not be amended or
----------
modified, and no provisions hereof may be waived, without the written consent of
the Company and the holders of at least two-thirds of the outstanding shares of
Common Stock issued or issuable upon conversion of the Preferred Shares.
SECTION 8.09 Severability. If any provision of this Agreement shall
------------
be declared void or unenforceable by any judicial or administrative authority,
the validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 8.10 Titles and Subtitles. The titles and subtitles used in
--------------------
this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
SECTION 8.11 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Colorado.
21
IN WITNESS WHEREOF, the Company and the Purchaser have executed this
Series A Convertible Preferred Stock Purchase Agreement as of the day and year
first above written.
GOOD TIMES RESTAURANTS, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
Title: President
-------------------------------
PURCHASER:
THE ▇▇▇▇▇▇ COMPANY,
a Colorado limited partnership
By: The Erie County Investment Co.,
as General Partner
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
----------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
22