REGULATION D SUBSCRIPTION AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES AUTHORITIES. THEY
MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION TO THE REGISTRATION REQUIREMENTS OF THOSE
SECURITIES LAWS.
THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED
HEREIN BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED
BY ANY FEDERAL, STATE OR FOREIGN SECURITIES AUTHORITIES, NOR HAVE ANY SUCH
AUTHORITIES REVIEWED OR DETERMINED THE ACCURACY OF THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. INVESTORS
MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT TERMS AND CONDITIONS OF
THE PROPOSED INVESTMENT AND THEIR OWN ASSESSMENT OF THE RISKS INVOLVED.
This Regulation D Securities Subscription Agreement (the "Agreement") is
executed by the undersigned (the "Subscriber") in connection with the offer to
the Subscriber of, and the subscription by the Subscriber for, shares of Series
D Preferred Stock, $1.00 par value per share (the "Preferred Stock"), of HARVEST
RESTAURANT GROUP, INC., a Texas corporation (the "Company") and warrants (the
"Warrants") to purchase shares of the Company's Common Stock, $.01 par value per
share (the "Common Stock"). The Preferred Stock shall be issued in exchange for
the 133.2 outstanding shares of Series B Preferred Stock and 200 outstanding
shares of Series C Preferred Stock of the Company and upon payment of the sums
stated below. Each share of Preferred Stock has a stated value (i.e., is in the
face amount) of One Thousand Dollars ($1,000.00).
1. Exchange of Outstanding Series B and C Preferred Stock.
1.1 Exchange of Outstanding Series B Preferred Stock. For each share
of Series B Preferred Stock exchanged, the holder thereof shall receive fifteen
(15) shares of Preferred Stock. Based on the $1,000 stated value per share of
the Preferred Stock, this exchange ratio values each share of Series B Preferred
Stock at Fifteen Thousand Dollars ($15,000), or One Hundred Fifty percent (150%)
of original issue price.
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1.2 Exchange of Outstanding Series C Preferred Stock. For each share
of Series C Preferred Stock exchanged, the holder thereof shall receive thirteen
(13) shares of Preferred Stock. Based on the $1,000 stated value of the
Preferred Stock, this exchange ratio values each share of Series B Preferred
Stock at Thirteen Thousand Dollars ($13,000), or One Hundred Thirty percent
(130%) of original issue price. (The shares of Preferred Stock issued in
exchange for the outstanding Series B Preferred Stock and Series C Preferred
Stock as provided in this Section 1 are sometimes referred to in this Agreement
as the "Exchange Shares.")
2. Offering Shares. The Company is also offering to qualified investors
(the "Offering") up to an aggregate stated value (face amount) of Preferred
Stock of Four Million Dollars Six Hundred Thousand Dollars ($ 4,600,000)
(representing 4,600 shares) for an aggregate purchase price of Four Million
Dollars ($4,000,000.00) (the "Offering"). The Preferred Stock issued for cash
shall be the "Offering Shares."
2.1 Subscription for 2,600 Shares of Preferred Stock for the Series C
Escrow Money. Two Million Dollars ($2,000,000; the "Series C Escrow Money") was
placed in escrow in July 1998 for the intended subsequent purchase of 200 shares
of Series C Preferred Stock. Because the conditions for the release of the
Series C Escrow Money from escrow were not met, the Series C Escrow Money was
never released from escrow and, accordingly, the 200 shares of Series C
Preferred Stock originally intended to be purchased with such funds were never
issued. In light of those circumstances, the Subscriber will be credited, for
purposes of the Subscriber's acquiring a portion of the Offering Shares, with
the portion of the Series C Escrow Money specified on the appropriate line in
Section 11 below (assuming the Series C Escrow Money is placed into escrow as
provided elsewhere in this Agreement), multiplied by One Hundred and Thirty
percent (130%). Therefore, the Subscriber shall receive, for each Ten Thousand
Dollar ($10,000) increment contributed from the Series C Escrow Money, thirteen
(13) shares of Preferred Stock having a stated value of One Thousand Dollars
($1,000) per share, or an aggregate stated value of Thirteen Thousand Dollars
($13,000).
2.2 Subscription for 2,000 Shares of Preferred Stock for $2,000,000
Not Previously Placed in Escrow. Upon funding of a Two Million Dollar
($2,000,000) portion of the subscription amount hereunder (and only upon such
funding) as herein provided, the shall receive, for each Ten Thousand Dollar
($10,000) increment funded by the Subscriber, ten (10) shares of Preferred Stock
having a stated value of One Thousand Dollars ($1,000) per share, or an
aggregated stated value of Ten Thousand Dollars ($10,000).
2.3 Warrants. Subscribers shall be given Warrants, the form of which
is attached hereto as Exhibit D, to purchase 100,000 shares of the Company's
Common Stock, for each $1,000,000 or pro-rata investment thereof, at a price of
$2.00 per share. Such Warrants are to be exercisable for five (5) years after
closing, and the Company shall register the shares underlying the Warrants in
the registration statement filed by the Company with the Securities and Exchange
Commission (the "SEC") to register, among other things, the shares of Common
Stock reasonably anticipated to be issuable upon conversion of the Preferred
Stock (the "Registration Statement").
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2.4 Terms of Preferred Stock - Statement of Resolution. The terms of
the Preferred Stock, including the terms on which the Preferred Stock may be
converted into Common Stock, are set forth in the Statement of Resolution of
Series D Preferred Stock (the "Statement of Resolution"), substantially in the
form attached hereto as Exhibit A. The solicitation of this Subscription by the
Company, and, if accepted by the Company, the sale of the shares of Preferred
Stock subscribed for, are being made in reliance upon the provisions of
Regulation D ("Regulation D") promulgated under the Securities Act of 1933, as
amended (the "Securities Act"). The Preferred Stock, the Shares issuable upon
conversion thereof (the "Conversion Shares"), the Warrants and the shares of
Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") are
sometimes referred to herein collectively as the "Securities."
The undersigned Subscriber and the Company, upon acceptance of this
Agreement, hereby covenant, warrant, represent, agree and acknowledge as
follows:
3. Offering.
3.1 Offer to Subscribe; Purchase Price and Closing; and Placement
Fees.
Subject to satisfaction of the conditions to the closing of a purchase and
sale of Preferred Stock as to each purchaser of Preferred Stock (the "Closing")
set forth in Section 3.4 below, the Subscriber hereby offers to subscribe for
and purchase shares of Preferred Stock, for the purchase price(s) set forth in
Section 11 of this Agreement and in exchange for the Series B Preferred Stock
and Series C Preferred Stock, all in accordance with the terms and conditions of
this Agreement.
3.2 Exchange Shares Closing.
As to the Exchange Shares, they shall be issued upon fulfillment of Section
3.4.
3.3 Offering Shares Closings. As to the Offering Shares:
(1) Assuming that funds representing the Series C Escrow Money,
together with subscription agreements for all of the shares of Preferred Stock
offered in this Offering (which subscription agreements have been accepted by
the Company), are deposited into the Company's designated escrow account for
this Offering (the "Escrow Account"), and that the general conditions set forth
in Section 3.4 have been satisfied, the Closing shall be deemed to occur when
this Agreement has been executed by both the Subscriber and the Company,, in
consideration for the Company's delivery of certificates representing the shares
of Preferred Stock so subscribed for at the times described herein.
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(2) Notwithstanding the foregoing, the Offering Shares proceeds
(or portions thereof, as applicable) shall not be released, nor the Offering
Shares delivered (or portions thereof delivered, as applicable), except as the
conditions in Section 3.5 are fulfilled.
The parties hereto acknowledge that ▇.▇. ▇▇▇▇▇ Securities Inc. is acting as
the placement agent (the "Placement Agent") for the placement of the Preferred
Stock and will be compensated by the Company in shares of Common Stock and
warrants to purchase Common Stock of the Company. The Placement Agent has acted
solely as placement agent and consultant in connection with the offer and sale
by the Company of the Preferred Stock pursuant to this Agreement and the
ancillary documents referenced herein or attached hereto as exhibits. The
information and data contained in the Disclosure Documents (as defined in
Section 6.2 hereof) have not been subjected to independent verification or
investigation by the Placement Agent, and no representation or warranty is made
by the Placement Agent as to the accuracy or completeness of the information
contained in the Disclosure Documents.
3.4 General Conditions to Subscriber's Obligations. The Subscriber's
obligations hereunder are conditioned upon the occurrence of all of the
following:
(a) the following documents shall have been deposited with the
Company's escrow agent for the Offering ("Escrow Agent"): the
Registration Rights Agreement, substantially in the form attached
hereto as Exhibit B (executed by the Company), and the Statement of
Resolution, substantially in the form attached hereto as Exhibit A
(together with evidence showing that it has been duly filed with the
Secretary of State of Texas);
(b) corresponding Subscription Agreement(s) accepted by the Company
have been received by the Escrow Agent;
(c) the escrow agreement ("Escrow Agreement") to which the Escrow
Agent is a party and which governs the Escrow Account shall have been
fully executed by all parties, and the Series C Escrow Money shall
have been funded into the Escrow Account by wire transfer in United
States Dollars ; and
(d) share certificates evidencing the 133.2 outstanding shares of
Series B Preferred Stock and 200 outstanding shares of Series C
Preferred Stock shall have been received by the Escrow Agent.
3.5 Conditions to Offering Shares Closings. The Subscriber's
obligations regarding the Offering Shares are conditioned upon the occurrence of
the following:
(a) Sections 3.3 and 3.4 are satisfied;
(b) One Million Dollars ($1,000,000.00) of the Series C Escrow Money
shall be released to the Company upon filing by the Company of a
preliminary proxy statement (the "Preliminary Proxy Statement") with
the SEC, one of the purposes of which will be to solicit shareholder
approval of an amendment to the Articles of Incorporation of the
Company to increase its number of authorized shares of common stock to
not less than 100,000,000, and upon such release, the Company shall
issue and deliver to the Subscribers in the Offering, based upon
instructions in Section 11 of the Subscribers' subscription
agreements, certificates evidencing an aggregate of One Thousand Three
Hundred (1,300) shares of Preferred Stock;
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(c) the remaining One Million Dollars ($1,000,000.00) of the Series C
Escrow Money shall be released to the Company upon mailing of the
definitive proxy statement (the "Definitive Proxy Statement") to the
shareholders of the Company, and upon such release, the Company shall
issue and deliver to the Subscribers in the Offering, based upon
instructions in Section 11 of the Subscribers' subscription
agreements, certificates evidencing an aggregate of One Thousand Three
Hundred (1,300) shares of Preferred Stock; and
(d) Two Million Dollars ($2,000,000) shall be funded by the
Subscribers directly to the Company upon the effective date of the
Registration Statement (of which effective date the Subscribers shall
be given not less than five (5) days' prior written notice) pursuant
to the Registration Rights Agreement attached as Exhibit B, and upon
such funding, the Company shall issue and deliver to the Subscribers
in the Offering, based upon instructions in Section 11 of the
Subscribers' subscription agreements, certificates evidencing an
aggregate of Two Thousand (2,000) shares of Preferred Stock.
4. Representations and Warranties of the Subscriber. The Subscriber hereby
represents and warrants to the Company as follows (which representations and
warranties shall be true as of the date of Closing):
4.1 Accredited Investor. The Subscriber hereby represents and warrants
to the Company that it is an "accredited investor," as defined in Rule 501 of
Regulation D, and has marked the applicable box set forth in Section 11 of this
Agreement signifying such status.
4.2 Investment Experience; Access to Information; Independent
Investigation.
4.2.1 Access to Information. The Subscriber or its professional
advisor has been granted the opportunity to ask questions of and receive answers
from representatives of the Company, and its officers, directors, employees and
agents concerning the terms and conditions of the Offering, and the Company and
its business and prospects, and to obtain any additional information which the
Subscriber or its professional advisor deems necessary to verify the accuracy of
the information received. The foregoing, however, does not limit or modify the
Subscriber's right to rely upon representations and warranties of the Company in
Section 6 of this Agreement.
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4.2.2 Ability to Evaluate. The Subscriber has such knowledge and
experience in financial and business matters that it is fully capable of
evaluating the merits and risks of an investment in the Company, including
without limitation those set forth in the Disclosure Documents (as defined below
in Section 6.2).
4.2.3 Disclosure Documents. The Subscriber has received and
reviewed the Disclosure Documents (as defined below in Section 6.2). The
foregoing, however, does not limit or modify the Subscriber's right to rely upon
the representations and warranties of the Company in Section 6 of this
Agreement.
4.2.4 Investment Experience; Fend for Self. The Subscriber has
substantial experience in investing in securities and has made investments in
securities other than those of the Company. The Subscriber acknowledges that it
is able to fend for itself in the transaction contemplated by this Agreement and
that it has the ability to bear the economic risk of its investment in the
Company. The Subscriber has not been organized for the purpose of investing in
securities of the Company, although such investment is consistent with its
purposes.
4.2.5 Not an Affiliate. The Subscriber is not an officer,
director or "affiliate" (as that term is defined in Rule 415 of the Securities
Act) of the Company.
4.3 Exempt Offering Under Regulation D
4.3.1 Investment; No Distribution. The Subscriber is acquiring
the shares of Preferred Stock subscribed for (the "Preferred Shares") and the
accompanying Warrants solely for investment purposes for the Subscriber's own
account (or for beneficiaries' accounts over which the Subscriber has investment
discretion but no discretionary authority as to voting or disposition) and not
with a view to a distribution of all or any part thereof. The Subscriber is
aware that there are legal and practical limits on its ability to sell or
dispose of the Securities, and therefore, that the Subscriber must bear the
economic risk of its investment for an indefinite period of time. The Subscriber
has adequate means of providing for its current needs and anticipated
contingencies and has no need for liquidity of this investment. The Subscriber's
commitment to illiquid investments is reasonable in relation to its net worth.
4.3.2 No General Solicitation. The Preferred Shares and the
accompanying Warrants were not offered to the Subscriber through, and the
Subscriber is not aware of, any form of general solicitation or general
advertising, including, without limitation, (i) any advertisement, articles,
notice or other communication published in any newspaper, magazine or similar
media or broadcast over television or radio, and (ii) any seminar or meeting
whose attendees have been invited by any general solicitation or general
advertising.
4.3.3 No Registration of Preferred Shares and Conversion Shares.
The Subscriber understands that neither the Preferred Shares nor the Conversion
Shares are not registered and therefore are "restricted securities" under the
federal securities laws inasmuch as they are being acquired from the Company in
a transaction not involving a public offering, and that, under such laws and
applicable regulations, such securities may not be transferred or resold without
registration under the Securities Act or pursuant to an exemption therefrom. In
this connection, the Subscriber represents that it is familiar with Rule 144
under the Securities Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act. The Subscriber further
understands, however, that the Company is obligated to register the resale of
the Conversion Shares within one hundred twenty (120) days after the
shareholders' meeting to which the Definitive Proxy statement relates.
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4.3.4 Disposition. Without in any way limiting the
representations set forth above, the Subscriber further agrees not to make any
disposition of all or any portion of the Securities unless and until:
(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition
is made in accordance with such Registration Statement; or
(b) The Subscriber shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition,
and (ii) if reasonably requested by the Company, the Subscriber shall
have furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require
registration of the Securities under the Securities Act. It is agreed
that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in extraordinary circumstances.
4.4 Due Authorization.
4.4.1 Authority. The Subscriber, if executing this Subscription
Agreement in a representative or fiduciary capacity, has full power and
authority to execute and deliver this Subscription Agreement and each other
document referred to herein for which a signature is required in such capacity
and on behalf of the subscribing individual, partnership, trust, estate,
corporation or other entity for whom or which the Subscriber is executing this
Subscription Agreement.
4.4.2 Due Authorization. The Subscriber is duly and validly
organized, validly existing and in good standing as such entity under the laws
of the jurisdiction of its organization, with full power and authority to
purchase the Preferred Shares and accompanying Warrants subscribed for and to
execute and deliver this Agreement.
5. Acknowledgements. The Subscriber is aware of the following:
5.1 Risks of Investment. The Subscriber recognizes that investment in
the Company involves certain risks, including the potential loss of the
Subscriber's investment herein. The Subscriber recognizes that this Agreement
and the exhibits hereto do not purport to contain all the information which
would be contained in a registration statement under the Securities Act;
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5.2 No Government Approval. The Subscriber acknowledges that no
federal, state or foreign agency has passed upon or reviewed the terms and
conditions of the Offering or made any finding or determination as to the
fairness of the Offering;
5.3 Restrictions on Transfer. The Subscriber may not sell, transfer,
assign, pledge or otherwise dispose of all or any portion of the Securities in
the absence of either an effective registration statement or an exemption from
the registration requirements of the Securities Act and applicable state
securities law;
5.4 Exempt Transaction. The Preferred Shares and accompanying Warrants
are being offered and sold in reliance on specific exemptions from the
registration requirements of federal and state law and the Subscriber's
representations, warranties, agreements, acknowledgements and applicability of
such exemptions and the suitability of the Subscriber to acquire Preferred
Shares.
5.5 Legends. It is understood that any certificates evidencing the
Preferred Shares and (prior to registration as provided in Section 7) the
Conversion Shares shall bear the following legend:
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities
laws, nor the securities laws of any other jurisdiction. They may not
be sold or transferred in the absence of an effective registration
statement under those securities laws or an opinion of counsel,
reasonable satisfactory to the Company, that the sale or transfer is
pursuant to an exemption to the registration requirements of those
securities laws."
5.6 Convertibility of Preferred Shares. The Subscriber acknowledges
that the Preferred Shares are not convertible until a date that will be no
sooner than 120 days after the shareholders approve an amendment to the
Company's Articles of Incorporation to increase the number of authorized shares
of Common Stock to not less than 100,000,000. Notwithstanding the provisions
hereof or of the Preferred Shares, in no event (except with respect to automatic
conversion date, set forth in the Statement of Resolution, upon the maturity of
the Preferred Shares) shall the holder be entitled to convert any Preferred
Shares to the extent after such conversion, the sum of (1) the number of Common
Stock beneficially owned and through the Subscriber and its (other than shares
of Common Stock which may be deemed beneficially owned through the ownership of
the unconverted portion of the Preferred Shares), and (2) the number of shares
of Common Stock issuable upon the conversion of the Preferred Shares with
respect to which the determination of this provision is being made, would result
in beneficial ownership by the Subscriber and its affiliates of more than 4.99%
of the outstanding shares of Common Stock. For purposes of this provision to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act (as defined below), except as
otherwise provided in clause 1) of such provision.
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6. Representations and Warranties of the Company. The Company hereby makes
the following representations and warranties to the Subscriber, except as
disclosed in the Disclosure Documents or otherwise disclosed to Subscriber,
which representations and warranties shall be true as of the date of acceptance
of this Agreement by the Company and as of Closing:
6.1 Organization, Good Standing, and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas, USA and has all requisite corporate power and authority
to carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on the business or properties of the Company and its subsidiaries taken
as a whole. The Company is not the subject of any pending or, to its knowledge,
threatened or contemplated investigation or administrative or legal proceeding
by the Internal Revenue Service, the taxing authorities of any state or local
jurisdiction, or the Securities and Exchange Commission, or any state securities
commission, or any other governmental entity, which have not been disclosed in
the Disclosure Documents (as defined in Section 6.2 below).
6.2 Corporate Condition. The Company has timely filed all forms, and
reports and documents with the Securities and Exchange Commission required to be
filed by it under the Securities ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, as amended (the "Exchange
Act") through the date hereof (collectively, the "SEC Reports"). Each of the SEC
Reports, at the time filed, complied in all material respects with the
requirements of the Exchange Act. The Company has made available to the
Subscriber a copy of the Company's Form 10-KSB/A for the fiscal year ended
December 28, 1997, and a copy of the Company's Forms 10-QSB, 8-K and S-3 filed
by the Company since January 1, 1998 (the "Most Recent Filings Report"). There
have been no material adverse changes in the Company's business, prospects,
operations or financial condition since the date of the Most Recent Filings
Report. The SEC Reports, the most Recent Filings Reports and any other report
furnished by the Company to the Subscriber are referred to collectively as the
"Disclosure Documents." The financial statements contained in the Disclosure
Documents have been prepared in accordance with generally accepted accounting
principles, consistently applied, and fairly present in all material respects
the consolidated financial condition of the Company as of the dates of the
balance sheets included therein and the consolidated results of its operations
and cash flows for the periods then ended. Without limiting the foregoing, there
are no material liabilities, contingent or actual that are not disclosed in the
Disclosure Documents (other than liabilities incurred by the Company in the
ordinary course of its business, consistent with its past practice, after the
periods covered by the Disclosure Documents). The Company has paid all material
taxes which are due, except for taxes which it reasonably disputes. There is no
material claim, litigation, or administrative proceeding pending, or, to the
best of the Company's knowledge, threatened or contemplated against the Company,
except as disclosed in the Disclosure Documents. This Agreement and the
Disclosure Documents do not contain any untrue statement of material fact and do
not omit to state any material fact required to be stated therein or herein
necessary to make the statements contained therein or herein not misleading in
the light of the circumstances under which they were made.
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6.3 Authorization. All corporate action on the part of the Company by
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations of
the Company hereunder and the authorization, issuance and delivery of the
Preferred Shares (and reservation for issuance), of the Conversion Shares
obtainable on conversion of the Preferred Shares and the Warrant Shares have
been taken, and this Agreement, the Statement of Resolution and the Registration
Rights Agreement constitute valid and legally binding obligations of the
Company, enforceable in accordance with their terms. The Company has obtained
all consents and approvals required for it to execute, deliver and perform this
Agreement and the Registration Rights Agreement.
6.4 Valid Issuance of Preferred Shares and Conversion Shares. The
Preferred Shares, when issued, sold and delivered in accordance with the terms
hereof, for the consideration expressed herein, will be validly issued, fully
paid and nonassessable and, based in part upon the representations of the
Subscriber in this Agreement, will be issued in compliance with all applicable
federal and state securities laws. The Conversion Shares when issued in
accordance with the terms of the Statement of Resolution shall be duly and
validly issued and outstanding, fully paid and nonassessable, and based in part
on the representations and warranties of the Subscriber, will be issued in
compliance with all applicable U.S. federal and state securities laws. The
Securities will be issued free of any preemptive rights. The Company is
currently preparing the Preliminary Proxy Statement so that the Company will
have a sufficient number of shares of Common Stock reserved and authorized for
issuance upon conversion of the Preferred Stock. The Company will use its best
efforts to file the Preliminary Proxy Statement with the SEC on a timely basis.
6.5 Compliance with Other Instruments. The Company is not in violation
or default of any provisions of its Articles of Incorporation or Bylaws as
amended and in effect on and as of the date of this Agreement or of any material
provision of any material instrument or contract to which it is a party or by
which it is bound or, to its knowledge, of any provision of any federal or state
judgment, writ, decree, order, statute, rule or governmental regulation
applicable to the Company, which would have a material adverse affect on the
Company's business or prospects, except as described in the Disclosure
Documents. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision, instrument
or contract or an event which results in the creation of any lien, charge or
encumbrance upon any assets of the Company. (Notwithstanding the foregoing, the
Company presently lacks enough authorized shares of Common Stock to support
conversion of its outstanding shares of Preferred Stock.)
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6.6 Reporting Company. The Company is subject to the reporting
requirements of the Exchange Act, and has a class of securities registered under
Section 12 or Section 15 of the Exchange Act. The Company undertakes to furnish
the Subscriber with copies of such publicly disclosable information as may be
reasonably requested by the Subscriber prior to consummation of this Offering
and thereafter as long as the Subscriber holds the Securities.
6.7 Capitalization; Authorized and Issued Shares. The authorized and
issued shares of Preferred Stock, Common Stock and warrants, options,
instruments convertible into Common Stock and rights to acquire Preferred or
Common Stock, as of the effective date of the merger of TRC Acquisition
Corporation into Hartan, Inc., a wholly owned subsidiary of the Company, are set
forth on Exhibit C.
6.8 Compliance with Laws. As of the date hereof, the conduct of the
business of the Company complies in all material respects with all material
statutes, laws, regulations, ordinances, rules, judgments, orders or decrees
applicable thereto. The Company has not received notice of any alleged violation
of any statute, law, regulations, ordinance, rule, judgment, order or decree
from any governmental authority. The Company shall comply with all applicable
securities laws with respect to the Offering.
6.9 No Rights of Participation. No person or entity, including, but
not limited to, current or former shareholders of the Company, underwriters,
brokers, agents or other third parties, has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the Offering which has not been waived.
6.10 Disclosures. There is no fact known to the Company (other than
general economic conditions known to the public generally) that has not been
disclosed in the Disclosure Documents that (a) could reasonably be expected to
have a material adverse effect on the business, financial condition or results
of operations of the Company, or which could reasonably be expected to
materially and adversely affect the properties or assets of the Company or (b)
could reasonably be expected to materially and adversely affect the ability of
the Company to perform its obligations pursuant to this Agreement and the
issuance of the Securities.
6.11 Representations True and Correct. The foregoing representations,
warranties and agreements are true, correct and complete in all material
respects, and shall survive the Last Closing and the issuance of the Preferred
Shares.
6.12 Underwriter's Fees and Rights of First Refusal. The Company is
not obligated to pay any compensation or other fees, costs or related
expenditures in cash or securities to any underwriter, broker, agent or other
representative other than the Placement Agent in connection with the Offering.
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7. Covenants of the Company.
7.1 Independent Auditors. The Company shall, until at least three (3)
years after the date of the Closing, maintain as its independent auditors an
accounting firm authorized to practice before the Securities and Exchange
Commission.
7.2 Corporate Existence and Taxes. The Company shall, until at least
three (3) years after the date of Closing, maintain its corporate existence in
good standing (provided, however, that the foregoing covenant shall not prevent
the Company from entering into any merger or corporate reorganization so long as
the surviving entity in such transaction, if not the Company, assumes all of the
Company's obligations with respect to the Securities) and shall pay all its
taxes when due, except for taxes which the Company disputes.
7.3 Registration of Conversion Shares and Warrant Shares. The Company
will register the Conversion Shares and the Warrant Shares on the terms of the
Registration Rights Agreement (substantially in the form attached as Exhibit B).
7.4 Rights of First Refusal. The Company shall not issue any debt or
equity securities for cash in private (non-registered) capital raising
transactions ("Future Offerings") for a period beginning on the date hereof and
ending one hundred eighty (180) days after the Closing without providing the
Placement Agent and the Subscriber the option to purchase the securities being
offered in the Future Offerings on the same terms as contemplated by such Future
Offerings.
7.5 Filings with Securities and Exchange Commission. Upon request, the
Company shall provide the Subscriber with copies of its annual reports on Form
10-KSB, quarterly reports on Form 10-QSB and current reports on Form 8-K for as
long as the Preferred Shares remain outstanding.
7.6 Payments for Late Conversion or Failure to Reserve Authorized but
Unissued Common.
7.6.1 Payments for Late Conversion. As set forth in the Statement
of Resolution, the Company shall use all reasonable efforts to issue and deliver
to the Subscriber or any party receiving Preferred Shares by transfer from the
Subscriber (together with the Subscriber, sometimes referred to herein as the
"Holder"), within three (3) business days (the "Deadline") after the Holder has
fulfilled all conditions and delivered all necessary documents duly executed and
in proper form, required for conversion pursuant to the Statement of Resolution,
including the original certificate(s) representing the Shares to be converted,
all in accordance with the subscription documents (or, in the case of lost or
stolen certificates, after provision of security or indemnification), a
certificate or certificates for the number of shares of Common Stock to which
the Holder shall be entitled upon submission of a notice of conversion. The
Company understands that a delay in the issuance of the Conversion Shares beyond
the Deadline could result in economic loss to the Holder. As compensation to the
Holder for such loss, the Company agrees to pay the Holder for late issuance of
Conversion Shares upon Conversion in accordance with the following schedule
(where "No Business Days Late" is defined as the number of business days beyond
the Deadline):
12
Late Payment
For Each Preferred
No. Business Days Late Share Being Converted
---------------------- ---------------------
3 $50
4 $100
5 $150
6 $200
7 $250
8 $300
9 $400
10 $500
greater than 10 $500 +$50 for each Business
Day Late beyond 10 days
The Company shall pay any late payments to Holder incurred under this
Section by check upon the earlier to occur of: (i) issuance of Conversion Shares
to the Holder or (ii) each monthly anniversary of the receipt by the Company of
such Holder's Notice of Conversion. Nothing herein shall limit the Holder's
right to pursue actual damages for the Company's failure to issue and delivery
Conversion Shares to the Subscriber in accordance with the terms of the
Statement of Resolution.
7.6.2 Payments for Failure to Reserve Authorized but Unissued
Common Stock. If, at any time a Holder or Holders of Shares submit a notice of
conversion and the Company does not have sufficient authorized but unissued
Conversion Shares available to effect, in full, a conversion of the Series D
Preferred Stock under Section 4 of the Statement of Resolution (a "Conversion
Default", the date of such default being referred to herein as the "Conversion
Default Date"), the Company shall issue to such Holder(s), pro rata, all of the
Conversion Shares of Common Stock which are available, and the notice of
conversion as to any Conversion Shares of Series D Preferred Stock requested to
be converted but not converted (the "Unconverted Preferred Conversion Shares")
shall become null and void. The Company shall provide notice of such Conversion
Default ("Notice of Conversion Default") to all Holders of outstanding Preferred
Stock, by facsimile, within one (1) business day of such default (with the
original delivered by overnight or two (2) day courier). No Holder may submit a
notice of conversion after receipt of a Notice of Conversion Default until the
13
date additional Conversion Shares are authorized by the Company. The Company
will use best efforts to authorize an appropriate number of additional shares as
soon as practicable. If the Company is unable to cure the Conversion Default
within forty-five (45) days, then the Company agrees to make to all Holders of
outstanding Preferred Shares a payment (the "Conversion Default Payments") for a
Conversion Default in the amount of (N/365) X .25 X the stated value (face
amount) of the outstanding Preferred Stock held by each Holder, where N=the
number of days from the Conversion Default Date to the date (the "Authorization
Date") that the Company authorizes a sufficient number of Conversion Shares to
effect conversion of all remaining shares of Preferred Stock. The Company shall
send notice ("Authorization Notice") via facsimile, with a copy by overnight or
two (2) day courier, to all Holders of outstanding Preferred Shares that
additional Conversion Shares have been authorized, the Authorization Date and
the amount of Holder's accrued Conversion Default Payments. The accrued
Conversion Default Payments for each calendar month shall be paid in cash or
shall be convertible into Common Stock in accordance with the Conversion
Formula, at the Holder's option, payable as follows: (i) in the event Holder
elects to take such payment in cash, cash payments shall be made to each Holder
of outstanding Preferred Shares by the fifth (5th) day of the following calendar
month or (ii) in the event the Holder elects to make such payment in stock, the
Holder may convert such payment amount into Common Stock in accordance with the
Conversion Formula at any time after the fifth (5th) day of the calendar month
following the month the Authorization Notice was received, until the automatic
conversion date set forth in the Statement of Resolution. Nothing herein shall
limit the Holder's right to seek actual damages for the Company's failure to
maintain a sufficient number of authorized Conversion Shares of Common Stock.
7.7 Removal of Legend Upon Registration. Restrictive legends will be
removed from the Common Stock when registered under the Registration Statement,
or, if registration is not timely, the legend may be removed or modified
appropriately when the Holder demonstrates entitlement to sell Conversion Shares
without registration and without the applicability of a restrictive legend.
7.8 Listing. The Company shall use its best efforts to list its Common
Stock on the Nasdaq Small Cap Market or another national securities exchange or
national quotation system.
8. Miscellaneous.
8.1 Representations and Warranties Survive the Closing; Severability.
The Subscriber's and the Company's representations and warranties shall survive
the Closing of the transaction provided for hereby notwithstanding any due
diligence investigation made by or on behalf of the party seeking to rely
thereon. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that no such severability shall be effective if it
materially changes the economic benefit of this Agreement to any party.
14
8.2 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Subscriber may assign its rights hereunder in connection with
any private sale of the Shares, so long as, as a condition precedent to such
transfer, the Transferee executes an acknowledgement agreeing to be bound by the
applicable provisions of this Agreement.
8.3 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Georgia without respect to conflict of laws.
8.4 Execution in Counterparts Permitted. This Agreement may be
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
8.5 Titles and Subtitles; Gender. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. The use in this Agreement of a
masculine, feminine or neither pronoun shall be deemed to include a reference to
the others.
8.6 Written Notices, Etc. Any notice, demand or request required or
permitted to be given by the Company or the Subscriber pursuant to the terms of
this Agreement shall be in writing and shall be deemed given when delivered
personally, or by facsimile (with a hard copy to follow by overnight or two (2)
day courier), addressed to the parties at the addresses and/or facsimile
telephone number of the parties set forth at the end of this Agreement or such
other address as a party may request by notifying the other in writing.
8.7 Expenses. Each of the Company and the Subscriber shall pay all
costs and expenses that it respectively incurs, with respect to the negotiation,
execution, delivery and performance of this Agreement.
8.8 Entire Agreement; Written Amendments Required. This Agreement, the
Statement of Resolution, the Preferred Stock certificates, the Registration
Rights Agreement and the other documents delivered pursuant hereto constitute
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and thereof, and no party shall be liable or bound to any
other party in any manner by any warranties, representations or covenants except
as specifically set forth herein. Neither this Agreement nor any terms hereof
may be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge or termination is sought.
9. Subscription and Wiring Instructions; Irrevocability.
15
9.1 Subscription
(a) Wire transfer of Subscription Funds. Subscriber shall send a
signed Subscription Agreement by facsimile to the Escrow Agent at
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attn.: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq. and its subscription funds by wire
transfer, to the Escrow Agent as follows:
Bank: First Union National Bank of Georgia
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
ABA Routing No.: #▇▇▇▇-▇▇▇▇-▇
Account No.: #2080000501679
ATTN: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Re: ▇▇▇▇▇▇'▇
Notify: (▇▇▇) ▇▇▇-▇▇▇▇
(b) Irrevocable Subscription. The Subscriber hereby acknowledges and
agrees, subject to the provisions of any applicable laws
providing for the refund of subscription amounts submitted by the
Subscriber, that this Agreement is irrevocable and that the
Subscriber is not entitled to cancel, terminate or revoke this
Agreement; provided, however, that if the conditions to Closing
are not satisfied or if the Disclosure Documents are discovered
prior to Closing to contain statements which are materially
inaccurate, or omit statements of material facts, the Subscriber
may revoke or cancel this Agreement.
(c) Company's Right to Reject Subscription. This Agreement shall be
accepted by the Company when the Company countersigns this
Agreement. The Subscriber hereby confirms that the Company has
full right in its sole discretion to accept or reject the
subscription of the Subscriber, in whole or in part, provided
that, if the Company decides to reject such subscription, the
Company must do so promptly and in writing. In the case of
rejection, the Company will promptly return any rejected payments
and (if rejected in whole) copies of all executed subscription
documents (including without limitation this Agreement) to
Subscriber.
9.2 Acceptance of Subscription. In the case of acceptance of this
subscription, ownership of the number of securities being purchased hereby will
pass to the Subscriber upon the Closing.
9.3 Subscriber to Forward Original Signed Subscription Agreement to
Company. The Subscriber agrees to courier to the Company its original inked
signed Subscription Agreement within three (3) days after faxing said signed
Agreement to the Placement Agent.
16
10. Indemnification. The Company agrees to indemnify and hold harmless the
Subscriber and the Placement Agent and each of their officers, directors,
employees and agents, and each person who controls Subscriber or the Placement
Agent within the meaning of the Act or the Exchange Act (each, a "Subscriber
Indemnified Party") against any losses, claims, damages or liabilities, joint or
several, to which it, they or any of them, may become subject and not otherwise
reimbursed arising from or due to any untrue statement of a material fact or the
omission to state any material fact required to be stated in order to make the
statements not misleading in any representation or warranty made by the Company
contained in this Agreement or in any statements contained in the Disclosure
Documents.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought, such
Indemnified Party will, if a claim in respect thereof is to be made against the
other party (hereinafter "Indemnitor") under this Section 10, deliver to the
Indemnitor a written notice of the commencement thereof and the Indemnitor shall
have the right to participate in and to assume the defense thereof with counsel
reasonably selected by the Indemnitor, provided, however, that an Indemnified
party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of such counsel to be paid by the Company, if
representation of such Indemnified party by the counsel retained by the
Indemnitor would be inappropriate due to actual or potential conflicts or
interest between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
Indemnitor within a reasonable time of the commencement of any such action, if
prejudicial to the Indemnitor's ability to defend such action, shall relieve the
Indemnitor of any liability to the Indemnified Party under this Section 10, but
the omission to so deliver written notice to the Indemnitor will not relieve it
of any liability that it may have to any Indemnified Party other than under this
Section 10 to the extent it is prejudicial.
17
11. Number of Shares and Purchase Price. The undersigned Subscriber hereby
subscribes for and agrees to purchase __________________ shares of Series D
Preferred Stock with a stated value of $1,000 per share , as follows:
Number of shares of Series B Preferred Stock exchanged by Subscriber
___________________, multiplied by 15 = _______________________, the number of
Exchange Shares to be received for Series B Preferred Stock.
Number of shares of Series C Preferred Stock exchanged by Subscriber
___________________, multiplied by 13 = _______________________, the number of
Exchange Shares to be received for Series C Preferred Stock.
Amount of the Series C Escrow Money deemed to be provided by Subscriber
$_____________, multiplied by 130% = $____________________, divided by $1,000 =
___________________, the number of Offering Shares to be received for the Series
C Escrow Money.
Number of Offering Shares subscribed for as provided in Section 3.5(d)
__________________, multiplied by $1,000 = $__________________________, the
amount Subscriber agrees to pay as provided in Section 3.5(d).
12. Accredited Investor. The Subscriber is (please check applicable box):
(a) [ ] a corporation, business trust, or partnership not formed for
the specific purpose of acquiring the securities offered,
with total assets in excess of $5,000,000.
(b) [ ] any trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated
person who has such knowledge and experience in financial
and business matters that he is capable of evaluating the
merits and risks of the prospective investment.
(c) [ ] an individual, who
[ ] is a director, executive officer or general partner of the
issuer of the securities being offered or sold or a
director, executive officer or general partner of a general
partner of that issuer.
[ ] has an individual net worth, or joint net worth with that
person's spouse, at the time of his purchase exceeding
$1,000,000.
18
[ ] had an individual income in excess of $200,000 in each of
the two most recent years or joint income with that person's
spouse in excess of $300,000 in each of those years and has
a reasonable expectation of reaching the same income level
in the current year.
(d) [ ] an entity owner of which is an entity described in (a) or
(b) above or is an individual who could check one (1) of the
first three (3) boxes under subparagraph (c) above.
13. Other Exemptions. The Subscriber and the Company acknowledge and agree
that the reliance on Regulation D as an exemption from registration is not
exclusive and shall not preclude the Company from claiming the availability of
any other exemption, nor shall it preclude the Subscriber from relying on any
exemption from registration with respect to the acquisition of the Securities or
any resale of the Securities.
The undersigned acknowledges that this Agreement and the subscription
represented hereby shall not be effective unless accepted by the Company as
indicated below.
IN WITNESS WHEREOF, the undersigned Subscriber does hereby execute this
Agreement this _______ day of ________________, 1998.
----------------------------- -----------------------------
Name of Company You Represent EXACT NAME IN WHICH YOU WANT
THE SECURITIES TO BE REGISTERED
(if applicable)
----------------------------- DELIVERY INSTRUCTIONS:
Your Signature Please type or print address where
your security is to be delivered
----------------------------- ATTN:
Your Name: Please Print -----------------------------
----------------------------- -----------------------------
Title/Representative Capacity Street Address
(if applicable)
----------------------------- -----------------------------
Place of Execution of this Agreement City, State or Province, Country,
Offshore Postal Code
-----------------------------
Telephone Number
-----------------------------
Facsimile Number
ACCEPTANCE BY COMPANY:
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY AND THE COMPANY AGREES TO BE
BOUND BY THE TERMS AND CONDITIONS THEREOF THIS _____ DAY OF
_______________________, 1998.
By:
Name:
Title:
Attest:
Name:
Title:
19
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Preferred
Stock)
The undersigned Holder hereby irrevocably elects to convert ___________
shares of Series D Preferred Stock, represented by stock certificate No(s).
______________ (the "Preferred Stock Certificates") into shares of common stock
("Common Stock") of Harvest Restaurant Group, Inc. (the "Company") according to
the conditions of the Statement of Resolution of Series D Preferred Stock, as of
the date written below, in connection with the resale of the underlying Common
Stock. If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such Certificates. With respect to those
shares to be issued in the name of a person other than the Holder, the Holder
should execute a Notice of Transfer or Assignment Form with the signature of the
Holder and the signature of each other person in whose name the shares are to be
issued guaranteed by a commercial bank or trust company in the United States or
a member firm of the New York Stock Exchange. No fee will be charged to the
Holder for any conversion, except for transfer taxes, if any. A copy of each of
the Preferred Stock Certificates being converted its attached hereto.
Date of Conversion:
Applicable Conversion Price:
Number of Shares of
Common Stock to be Issued:
Name of Holder:
By:
Title:
Address:
20
EXHIBIT "A"
-----------
FORM STATEMENT OF RESOLUTION
FOLLOWS DIRECTLY BEHIND THIS PAGE
21
EXHIBIT "B"
-----------
FORM REGISTRATION RIGHTS AGREEMENT
FOLLOWS DIRECTLY BEHIND THIS PAGE
22
EXHIBIT "C"
-----------
CAPITALIZATION
FOLLOWS DIRECTLY BEHIND THIS PAGE
23
EXHIBIT "D"
-----------
FORM OF WARRANT AGREEMENT WITH SUBSCRIBER
Follows Directly Behind This Page
24