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EXHIBIT 4.1
▇▇▇ ▇▇▇ ROO, INC.
_________________________
SECURITIES PURCHASE AGREEMENT
_________________________
SIX UNITS
EACH CONSISTING OF
$2 MILLION AGGREGATE PRINCIPAL AMOUNT OF
13% SENIOR NOTES
DUE AUGUST 15, 2000
AND
55,000 WARRANTS TO PURCHASE COMMON STOCK,
PAR VALUE $.01 PER SHARE,
OF
▇▇▇ ▇▇▇ ROO, INC.
Dated as of August 12, 1997
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TABLE OF CONTENTS
Section Page
ARTICLE I....................................................DEFINITIONS AND ACCOUNTING TERMS 1
1.1 Definitions.............................................................................. 1
1.2 Accounting Terms......................................................................... 21
ARTICLE II..........................................................PURCHASE AND SALE OF UNITS 21
2.1. Issuance of Units............................................................................ 21
2.2. Sale and Purchase of Units................................................................... 22
2.3. Closing of Sale of Units..................................................................... 22
ARTICLE III..............................................................CONDITIONS TO CLOSING 22
3.1 Conditions Precedent to Obligations of the Purchaser on the Closing Date..................... 22
3.2. Conditions Precedent to Obligations of the Company on the Closing Date....................... 25
ARTICLE IVREPRESENTATIONS AND WARRANTIES, ETC...................................................... 26
4.1. Organization and Qualification; Authority................................................... 27
4.2. Subsidiaries................................................................................ 27
4.3. Licenses.................................................................................... 27
4.4. Corporate and Governmental Authorization; Contravention..................................... 28
4.5. Validity and Binding Effect................................................................. 28
4.6. Capitalization.............................................................................. 28
4.7. Litigation; Defaults........................................................................ 29
4.8. Outstanding Debt............................................................................ 29
4.9. No Material Adverse Change.................................................................. 29
4.10. Employee Programs........................................................................... 30
4.11. Private Offering............................................................................ 31
4.12. Broker's or Finder's Commissions............................................................ 32
4.13. Disclosure.................................................................................. 32
4.14. Intentionally Omitted....................................................................... 32
4.15. Federal Reserve Regulations and Other Matters............................................... 32
4.16. Investment Company Act...................................................................... 33
4.17. Public Utility Holding Company Act.......................................................... 33
4.18. Interstate Commerce Act..................................................................... 33
4.19. Environmental Regulation, Etc............................................................... 33
4.20. Properties and Assets....................................................................... 34
4.21. Intentionally Omitted....................................................................... 34
4.22. Employment Practices........................................................................ 35
4.23. Financial Statements........................................................................ 35
(i)
4.24. Intellectual Property.............................................................................. 36
4.25. Taxes.............................................................................................. 37
4.26. Transactions with Affiliates....................................................................... 37
4.27. Limitation on Subsidiary Payment Restrictions...................................................... 37
4.28. No Other Business.................................................................................. 38
ARTICLE V..............................................PURCHASE FOR INVESTMENT; SOURCE OF FUNDS 38
5.1 Purchase for Investment.............................................................................. 38
5.2 Authority............................................................................................ 38
5.3 Information Provided................................................................................. 39
5.4 Company Reliance..................................................................................... 39
ARTICLE VI..................................................REDEMPTIONS AND OFFERS TO PURCHASE 39
6.1 Notice of Redemption............................................................................ 39
6.2 Selection of Senior Notes to be Redeemed or Purchased........................................... 39
6.3 Effect of Notice of Redemption.................................................................. 40
6.4 Payment of Redemption Price..................................................................... 40
6.5 Senior Notes Redeemed in Part................................................................... 40
6.6 Optional and Mandatory Redemption............................................................... 40
6.7 Mandatory Offers................................................................................ 41
ARTICLE VII..........................................................................COVENANTS 42
7.1 Payment of Senior Notes........................................................................ 42
7.2 Reports........................................................................................ 43
7.3 Compliance Certificate......................................................................... 43
7.4 Stay, Extension and Usury Laws................................................................. 44
7.5 Limitation on Restricted Payments.............................................................. 44
7.6 Corporate Existence............................................................................ 45
7.7 Limitation on Indebtedness..................................................................... 46
7.8 Limitation on Transactions with Affiliates..................................................... 48
7.9 Limitation on Liens............................................................................ 49
7.10 Payment of Taxes and Other Claims.............................................................. 50
7.11 Restrictions Against Limitations on Upstream Payments.......................................... 50
7.12 Change of Control.............................................................................. 51
7.13 Redemption from the Proceeds of Securities Sales and Mezzanine Debt Financings................. 51
7.14 Intentionally Omitted.......................................................................... 51
7.15 Maintenance of Properties...................................................................... 51
7.16 Maintenance of Insurance....................................................................... 52
7.17 Compliance with Laws........................................................................... 52
7.18 Limitation on Issuances and Dispositions of Capital Stock of Subsidiaries...................... 52
7.19 Limitation on Sale of Existing Assets.......................................................... 53
(ii)
ARTICLE VIII........................................................................SUCCESSORS 55
8.1 Merger or Consolidation......................................................................... 55
8.2 Surviving Person Substituted.................................................................... 56
ARTICLE IX...............................................................DEFAULTS AND REMEDIES 56
9.1 Events of Default............................................................................... 56
9.2 Acceleration.................................................................................... 57
9.3 Other Remedies.................................................................................. 58
9.4 Waiver of Past Defaults......................................................................... 58
9.5 Control by a Majority........................................................................... 58
9.6 Rights of Holders to Receive Payment............................................................ 58
9.7 Holders May File Proofs of Claim................................................................ 58
9.8 Undertaking for Costs........................................................................... 59
ARTICLE X................................................................ADDITIONAL AGREEMENTS 59
10.1 Mezzanine Debt Financing............................................................................ 59
10.2 Participation in D.C. Restaurants................................................................... 59
10.3 Management Rights; Confidentiality.................................................................. 60
ARTICLE XI
AMENDMENTS........................................................................................... 60
11.1 Amendments and Supplements Permitted Without Consent of Holders............................... 60
11.2 Amendments and Supplements Requiring Consent of Holders....................................... 61
11.3 Revocation and Effect of Consents............................................................. 62
11.4 Notation on or Exchange of Senior Notes....................................................... 62
11.5 Board Approval................................................................................ 62
ARTICLE XII............................................................................................... 62
THE SENIOR NOTES..................................................................................... 62
12.1 Form and Dating............................................................................... 62
12.2 Execution and Authentication.................................................................. 63
12.3 Transfer and Exchange......................................................................... 63
12.4 Replacement Senior Notes...................................................................... 64
12.5 Outstanding Senior Notes...................................................................... 64
12.6 Treasury Senior Notes......................................................................... 64
12.7 Temporary Senior Notes........................................................................ 64
12.8 Cancellation.................................................................................. 65
12.9 Defaulted Interest............................................................................ 65
12.10 Record Date................................................................................... 65
12.11 CUSIP Number.................................................................................. 65
12.12. Restrictive Legend........................................................................... 65
12.13. Separate Transferability of Senior Notes and Warrants........................................ 67
(iii)
12.14. Notice of Transfer; Opinions of Counsel...................................................... 67
ARTICLE XIII...................................................................INDEMNIFICATION 68
13.1. Indemnification; Expenses, Etc................................................................ 68
ARTICLE XIV............................................................................................... 69
MISCELLANEOUS........................................................................................ 69
14.1. Survival of Representations and Warranties; Severability...................................... 69
14.2. Notices, Etc.................................................................................. 70
14.3. Successors and Assigns........................................................................ 71
14.4. Descriptive Headings.......................................................................... 71
14.5. Satisfaction Requirement...................................................................... 71
14.6. Governing Law................................................................................. 71
14.7. Service of Process............................................................................ 71
14.8. Counterparts.................................................................................. 72
14.9. Disclosure to Other Persons................................................................... 72
14.10. No Adverse Interpretation of Other Agreements................................................. 73
14.11. Waiver of Jury Trial.......................................................................... 73
14.12. Merger........................................................................................ 73
14.13. Expenses...................................................................................... 73
(iv)
SCHEDULES
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SCHEDULE 4.1 - Qualified Jurisdictions
SCHEDULE 4.2 - Subsidiaries
SCHEDULE 4.4 - Approvals
SCHEDULE 4.6 - Agreements Affecting Securities
SCHEDULE 4.7 - Litigation; Defaults
SCHEDULE 4.8 - Debt and Other Liabilities
SCHEDULE 4.9 - Material Developments
SCHEDULE 4.10 - ERISA
SCHEDULE 4.19 - Environmental
SCHEDULE 4.20 - Liens; Material Financing Statements, Security Agreements
SCHEDULE 4.22 - Employment Matters
SCHEDULE 4.24 - Intellectual Property
SCHEDULE 4.25 - Taxes
SCHEDULE 4.26 - Transactions with Affiliates
SCHEDULE 4.27 - Subsidiary Payment Restrictions
SCHEDULE 7.5 - Investment Policy Statement
SCHEDULE 7.19 - Permitted Sales of Assets
SCHEDULE 10.2 - D.C. Restaurants
(v)
EXHIBITS
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EXHIBIT A - Form of Senior Note
EXHIBIT B - Form of Opinion of ▇▇▇▇▇▇▇ & ▇▇▇▇▇
EXHIBIT C - Form of Registration Rights Agreement
EXHIBIT D - Form of Warrant Agreement
(vi)
▇▇▇ ▇▇▇ ROO, INC.
SECURITIES PURCHASE AGREEMENT dated as of August 12, 1997, by and between
▇▇▇ ▇▇▇ Roo, Inc., a Delaware corporation (the "Company"), and the purchaser
listed on the signature page hereto (the "Purchaser"). Unless otherwise
defined, capitalized terms used in this Agreement are defined in Article I;
references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a
Schedule or an Exhibit attached to this Agreement; references to a "section" or
a "subdivision" are, unless otherwise specified, to a section or a subdivision
of this Agreement.
The Company in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, agrees with the Purchaser as
follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.1 Definitions. In addition to any terms defined elsewhere in this
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Agreement, unless otherwise specifically provided herein, the following terms
shall have the following meanings for all purposes when used in this Agreement,
and in any note, agreement, certificate, report or other document made or
delivered in connection with this Agreement:
"Acquired Indebtedness" means, with respect to any specified Person, (a)
Indebtedness of an Acquired Person existing at the time of such acquisition,
including Indebtedness issued in connection with, or in contemplation of, such
acquisition, and (b) Purchase Money Indebtedness incurred by such Person or its
subsidiaries the proceeds of which have been used to finance a Related Business
Investment.
"Acquired Person" means, with respect to any specified Person, any other
Person acquired by such specified Person, whether by purchase, merger,
consolidation, other business combination or otherwise.
"Affiliate" means, with respect to any specified Person, any other Person
(a) directly or indirectly controlling (including, but not limited to, all
directors and executive officers of such Person), controlled by or under direct
or indirect common control with such specified Person, or (b) that directly or
indirectly owns more than 10% of the voting securities of such Person. A Person
shall be deemed to control a corporation if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.
"Affiliate Transaction" has the meaning ascribed thereto in Section 7.8
hereof.
"Agreement" means this Agreement, as amended, modified or supplemented from
time to
time, together with any exhibits, schedules or other attachments thereto.
"Approvals" means each and every approval, consent, filing or registration
by, or with any Governmental Body, or any creditor or shareholder of the
Company, necessary (a) to authorize or permit the execution, delivery or
performance by the Company of the Transaction Documents, and (b) for the
validity or enforceability of any of such Transaction Documents against the
Company.
"Asset Disposition" means any sale, lease, transfer, conveyance or other
disposition (in one or series of related transactions), including any such
disposition by means of a merger, consolidation or similar transaction (in the
case of a Subsidiary of the Company and including any sale or other transfer or
issuance of shares of Capital Stock of a Subsidiary other than directors'
qualifying shares and other than shares of a Designated Subsidiary), Property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Subsidiaries, but excluding the
following: (a) a disposition by a Subsidiary to the Company or by the Company
or a Subsidiary to a Wholly Owned Subsidiary, (b) a disposition of tangible
property or assets which have become obsolete or are otherwise not used or
useful, so long as such disposition is at fair market value (as determined by
the Company in good faith) in the ordinary course of business, (c) a disposition
that constitutes a Public Offering or sold pursuant to Rule 144, and (d) a
disposition of inventory acquired and held for resale or consumption in the
ordinary course of business, in each case so long as effected in accordance with
all applicable provisions of this Agreement.
"Bankruptcy Law" means ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ Code, or any similar Federal
or state law for the relief of debtors.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or any committee of the Board of Directors of such
Person duly authorized, with respect to any particular matter, to exercise the
power of the Board of Directors of such Person.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Indebtedness arrangements
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person in accordance with GAAP. The stated
maturity of such obligation shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares of, or interests,
rights,
participations, and/or other equivalents in (however designated), corporate
stock or equity securities of such Person, including each class of common stock
and preferred stock of such Person and partnership or limited liability company
interests, whether general or limited, of such Person, and including any
securities convertible into or exercisable or exchangeable for, or any right to
acquire, any equity interest in such Person.
"Cash Equivalents" means: (a) marketable obligations issued or
unconditionally guaranteed by the United States government, in each case
maturing within 360 days after the date of acquisition thereof; (b) marketable
direct obligations issued by any state of the United States or any political
subdivision of any such state or any public instrumentality thereof maturing
within 360 days after the date of acquisition thereof and, at the time of
acquisition, having the highest rating obtainable from either Standard & Poor's
Corporation or ▇▇▇▇▇'▇ Investors Service, Inc.; (c) commercial paper maturing no
more than 360 days after the date of acquisition thereof, issued by a
corporation organized under the laws of any state of the United States or of the
District of Columbia and, at the time of acquisition, having a rating in one of
the two highest rating categories obtainable from either Standard & Poor's
Corporation or ▇▇▇▇▇'▇ Investors Service, Inc.; (d) money market funds whose
investments are made solely in securities described in clause (a) maturing
within 360 days after the date of acquisition thereof; (e) certificates of
deposit maturing within 360 days after the date of acquisition thereof, issued
by any commercial bank that is a member of the Federal Reserve System that has
capital, surplus and undivided profits (as shown on its most recent statement of
condition) aggregating not less than $100,000,000 and is rated A or better by
▇▇▇▇▇'▇ Investors Service, Inc. or Standard & Poor's Corporation;(f) repurchase
agreements entered into with any commercial bank of the nature referred to in
clause (e), secured by a fully perfected Lien in any obligation of the type
described in any of clauses (a) through (e), having a fair market value at the
time such repurchase agreement is entered into of not less than 100% of the
repurchase obligation thereunder of such commercial bank; and (g) any investment
made in compliance with the ▇▇▇▇▇ Fargo Bank Investment Policy attached hereto
as Schedule 7.5.
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"Change of Control" means any transaction or series of transactions in
which any of the following occurs: (a) any Person or group (within the meaning
of Rule 13d-3 under the Exchange Act and Sections 13(d) and 14(d) of the
Exchange Act), other than the Permitted Holder, becomes the direct or indirect
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of 25% or
more, or the Permitted Holder becomes the direct or indirect "beneficial owner"
of 50% or more, of the issued and outstanding shares of Capital Stock entitled
to vote in the election of directors of the Company or the Surviving Person (if
other than the Company); or (b) individuals who at the Closing constituted the
Board of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of at least a majority of the
directors of the Company then still in office who were either directors at the
Closing or whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the Board of Directors of the
Company then in office.
"Change of Control Trigger Date" has the meaning ascribed thereto in
Section 7.12 hereof.
3
"Charter Documents" has the meaning ascribed thereto in Section 4.1 hereof.
"Closing" has the meaning ascribed thereto in Section 2.3 hereof.
"Closing Date" has the meaning ascribed thereto in Section 2.3 hereof.
"Code" means the Internal Revenue Code of 1986, as the same may be amended
from time to time, or any successor thereto, and the rules and regulations
issued thereunder, as from time to time in effect.
"Commission" means the United States Securities and Exchange Commission or
any other Federal agency at the time administering the Securities Act.
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
"Common Stock Purchase Warrants" means the warrants of the Company issued
pursuant to the Warrant Agreement representing the right to purchase shares of
Common Stock at the exercise price set forth therein.
"Company" means the party named as such above until a successor replaces it
and thereafter means the successor.
"Consolidated" or "consolidated," when used with reference to any
accounting term, means the amount described by such accounting term, determined
on a consolidated basis in accordance with GAAP, after elimination of all
significant intercompany items.
"Consolidated EBIT" means, with respect to any Person, for any period, the
Consolidated Net Income of such Person and its consolidated subsidiaries for
such period, plus or minus (a) a provision for taxes based on income or profits,
to the extent such provision for taxes was included in computing such
Consolidated Net Income, plus (b) Consolidated Interest Expense for such period,
all as determined on a consolidated basis in accordance with GAAP.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the Consolidated EBIT of such Person and its consolidated subsidiaries for such
period, plus depreciation, amortization and all other non-cash charges, to the
extent such depreciation, amortization and other non-cash charges were deducted
in computing such Consolidated EBIT (including amortization of goodwill and
other intangibles), all as determined on a consolidated basis in accordance with
GAAP.
"Consolidated Interest Coverage Ratio" means, as of any date of
determination, the ratio of (a) the Consolidated EBITDA for the period of the
most recent four consecutive fiscal quarters for which financial statements are
available to (b) Consolidated Interest Expense for such four fiscal quarters;
provided, however, that (i) if the Company or any Subsidiary has issued any
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4
Indebtedness since the beginning of such period that remains outstanding or if
the transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio is an issuance of Indebtedness, or both, Consolidated EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Indebtedness as if such Indebtedness had
been issued on the first day of such period and with respect to the discharge of
any other Indebtedness refinanced, refunded, exchanged or otherwise discharged
with the proceeds of such new Indebtedness as if any such discharge had occurred
on the first day of such period, (ii) if since the beginning of such period the
Company or any Subsidiary shall have made any Asset Disposition, Consolidated
EBITDA for such period shall be reduced by an amount equal to the Consolidated
EBITDA (if positive) directly attributable to the assets which are the subject
of such Asset Disposition for such period, or increased by an amount equal to
the Consolidated EBITDA (if negative) directly attributable thereto for such
period and Consolidated Interest Expense for such period shall be reduced by an
amount equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Subsidiary refinanced, refunded, exchanged or
otherwise discharged with respect to the Company and its continuing Subsidiaries
in connection with such Asset Dispositions for such period (or if the Capital
Stock of any Subsidiary is sold, the Consolidated Interest Expense for such
period directly attributable to the Indebtedness of such Subsidiary to the
extent the Company and its continuing Subsidiaries are no longer liable for such
Indebtedness after such sale), and (iii) if since the beginning of such period
the Company or any Subsidiary (by merger or otherwise) shall have made an
Investment in any Subsidiary (or any person which becomes a Subsidiary) or an
acquisition of assets or stock, including any acquisition of assets or stock
occurring in connection with a transaction causing a calculation to be made
hereunder, which constitutes all of an operating unit of a business,
Consolidated EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the issuing of any
Indebtedness), as if such Investment or acquisition occurred on the first day of
such period. For purposes of this definition, whenever pro forma effect is to
be given to an acquisition of assets, the amount of income or earnings relating
thereto, and the amount of Consolidated Interest Expense associated with any
Indebtedness issued in connection therewith, the pro forma calculations shall be
determined in good faith by a responsible financial or accounting Officer of the
Company. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest on such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period.
"Consolidated Interest Expense" means, with respect to any Person, for any
period, (a) the total aggregate amount of interest expense (including
amortization of original issue discount and noncash interest payments or
accruals and the interest component of any Capital Lease Obligations, but
excluding any intercompany interest owed by any Subsidiary to any other
Subsidiary of such Person) of such Person and its consolidated subsidiaries,
determined on a consolidated basis in accordance with GAAP, (b) all fees,
commissions, discounts and other charges of such Person and its consolidated
subsidiaries with respect to letters of credit and bankers' acceptances,
determined on a consolidated basis in accordance with GAAP and (c) the product
of (i) the total amount of dividends declared on Disqualified Capital Stock
other than common stock (whether accrued or paid) of such Person and its
consolidated subsidiaries, times
5
(ii) a fraction, the numerator of which is one and the denominator of which is
one minus the then current combined federal, state and local effective income
tax rate of such Person, expressed as a decimal, in each case, on a consolidated
basis and in accordance with GAAP (after consideration of any deferred tax
assets of such Person then available including without limitation, any amounts
of available net operating loss carryover).
"Consolidated Net Income," means, with respect to any Person, for any
period, the aggregate of the net income (or loss) of such Person and its
consolidated subsidiaries for such period, before payment or accrual of
preferred dividends, on a consolidated basis, determined in accordance with
GAAP; provided that (a) the net income of any other Person in which such Person
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or any of its subsidiaries has an interest (which interest does not cause the
net income of such other Person to be consolidated with the net income of such
Person and its subsidiaries in accordance with GAAP) shall be included only to
the extent of the amount of dividends or distributions actually paid to such
Person or such Person's subsidiaries by such other Person in such period; (b)
the net income of any subsidiary of such Person that is subject to any Payment
Restriction shall be excluded to the extent such Payment Restriction actually
prevented the payment of an amount that otherwise could have been paid to, or
received by, such Person or a subsidiary of such Person not subject to any
Payment Restriction, provided, however, that with respect to the Consolidated
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Net Income of the Company, the Consolidated Net Income of the Company's
Subsidiaries shall not be so excluded, notwithstanding the existence of any such
Payment Restriction, so long as the terms of any such Payment Restriction
limiting the payment of dividends by the Company's Subsidiaries are not more
restrictive at the time of determination of Consolidated Net Income than the
Payment Restrictions limiting such payment of dividends in effect on the the
date hereof; (c) the net income (or loss) of any other Person shall not be
included for any periods during which such other Person is not a consolidated
subsidiary of such Person and the net income (or loss) of any successor to such
Person by consolidation or merger or transfer of all or substantially all assets
shall not be included for any periods prior to such consolidation, merger, or
transfer of all or substantially all assets; and (d) there shall be excluded the
following: (i) such Person's share, determined in accordance with GAAP, of the
net loss of any other Person in which such Person or any of its subsidiaries has
an interest (which interest does not cause the net loss of such other Person to
be consolidated with the net income or loss of such Person and its subsidiaries
in accordance with GAAP), (ii) the net income of any other Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition, (iii) all gains realized upon or in connection with or as a
consequence of the issuance of the Capital Stock of such Person or any of its
subsidiaries, any gains on pension reversions received by such Person or any of
its subsidiaries, or any proceeds from life insurance policies received by such
Person or any of its subsidiaries, (iv) all gains, together with any related
provision for taxes, realized in connection with any sale of assets by such
Person or any of its subsidiaries during such period (including, without
limitation, dispositions pursuant to sale and leaseback transactions), (v) all
gains realized in connection with the acquisition of debt securities for a cost
less than principal plus accrued interest, (vi) all extraordinary gains,
together with any related provision for taxes, realized by such Person or any of
its subsidiaries during such period, and (vii) the cumulative effect of a change
in accounting principles in the year of adoption of such change.
6
"Consolidated Net Worth" means, with respect to any Person, as of the date
of determination, the Net Worth of such Person and its consolidated
subsidiaries, determined in accordance with GAAP, as of the end of the most
recent fiscal quarter of such Person for which financial statements are
available prior to the taking of any action for the purpose of which the
determination is being made.
"Convertible Preferred Stock" means, with respect to the Company, the
Company's (a) 5% Series A Convertible Preferred Stock, liquidation preference
$25.00 per share, issued in March 1996, and (b) 6% Series B Convertible
Preferred Stock, liquidation preference $100.00 per share, issued in February
1997, and any such shares issued upon exercise of warrants outstanding on the
date hereof or as in-kind dividends in respect of shares of 6% Series B
Convertible Preferred Stock.
"Current Affiliate" has the meaning ascribed thereto in Section 4.10
hereof.
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator
or similar official under any Bankruptcy Law.
"D.C. Restaurants" means the three Hamburger Hamlet restaurants located in
Washington, D.C., which were purchased by the Company pursuant to a purchase
agreement, dated as of March 21, 1997, as more particularly described on
Schedule 10.2 hereof.
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"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Subsidiaries" means Color Me Mine, Inc., 1170060 Ontario
Limited and any Real Estate Partnership existing on or after the date hereof
which conducts a business that constitutes or would constitute a Related
Business.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets in one
transaction or a series of related transactions.
"Disqualified Capital Stock" means, (a) with respect to any Person, any
Capital Stock of such Person or its subsidiaries that, by its terms, by the
terms of any agreement related thereto or by the terms of any security into
which it is convertible, puttable or exchangeable, is, or upon the happening of
an event or the passage of time would be, required to be redeemed or repurchased
by such Person or its subsidiaries, including at the option of the holder, in
whole or in part, or has, or upon the happening of an event or passage of time
would have, a redemption or similar payment due, on or prior to the stated
maturity date of the Senior Notes, or (b) any other Capital Stock of such Person
or its subsidiaries designated as Disqualified Capital Stock by such Person at
the time of issuance; provided, however, that for the purposes of Section 7.7
and the definition
7
of Indebtedness as used therein, the Company's Convertible Preferred Stock, or
any similar series of preferred stock issued hereafter, shall not be deemed to
constitute "Disqualified Capital Stock" due solely to the inclusion in the
Certificate of Designations governing such preferred stock of a provision to the
effect of (i) Section 2 relating to redemption upon a change in control or (ii)
Section 4(m) relating to cash payments in the event shares of authorized but
unissued capital stock are not available.
"Dollars" and "$" mean lawful currency of the United States of America.
"Employee Program" has the meaning ascribed thereto in Section 4.10 hereof.
"Environment" means soil, surface waters, groundwaters, land, stream
sediments, surface or subsurface strata and ambient air.
"Environmental Law(s)" means and includes any applicable federal, state,
local or foreign statute, law, ordinance, rule, regulation, code, order, writ,
judgment, injunction, decree or judicial or agency interpretation, policy or
guidance relating to pollution or protection of the Environment, health, safety
or natural resources, including, without limitation, those relating to the use,
handling, transportation, treatment, storage, disposal, release or discharge of
Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, and the
rules and regulations promulgated thereunder, as amended from time to time.
"Event of Default" has the meaning ascribed thereto in Section 9.1 hereof.
"Excess Secured Acquired Indebtedness" has the meaning ascribed thereto in
Section 7.7 (c) (v) hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor statute, and the rules and regulations of the
Commission promulgated thereunder.
"Excess Proceeds" has the meaning ascribed thereto in Section 7.19(b).
"Excess Proceeds Date" has the meaning ascribed thereto in Section 7.19(d).
"Existing Assets" means assets of the Company and its Subsidiaries (other
than assets of any Designated Subsidiaries), existing at the date hereof (other
than cash, Cash Equivalents or inventory held for resale in the ordinary course
of business) relating to or comprising the ▇▇▇ ▇▇▇ Roo California Kitchen and
Hamburger Hamlet restaurants owned and operated by the Company and its
Subsidiaries identified on Schedule 4.20 hereto, and including proceeds of any
-------------
sale, transfer or other disposition of such assets and assets acquired in whole
or in part with proceeds from the sale, transfer or other disposition of any
such assets.
8
"Fair Market Value" or "fair market value" means, with respect to any
assets or properties, the amount at which such assets or properties would change
hands between a willing buyer and a willing seller, within a commercially
reasonable time, each having reasonable knowledge of the relevant facts, neither
being under a compulsion to sell or buy, as such amount is determined by (a) the
Company acting in good faith or (b) an appraisal or valuation firm of national
or regional standing selected by the Company, with experience in the appraisal
or valuation of properties or assets of the type for which Fair Market Value is
being determined.
"Financial Statements" has the meaning ascribed thereto in Section 4.23
hereof.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
entity as may be approved by a significant segment of the accounting profession,
which are applicable to the circumstances as of the date of determination, as in
effect from time to time.
"Governmental Body" means any governmental or quasi-governmental authority
including, without limitation, any federal, state, territorial, county,
municipal or other governmental or quasi-governmental agency, board, branch,
bureau, commission, court, department or other instrumentality or political unit
or subdivision, whether domestic or foreign.
"Gross Proceeds" means, when used with respect to a Public Offering or a
private offering of Capital Stock, the number of shares of Capital Stock sold in
such offering multiplied by the price paid for such shares by the purchasers
thereof.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing any Indebtedness of any other Person (the "Primary
Obligor") in any manner, whether directly or indirectly, and including, without
limitation, any obligation of such Person, (a) to purchase or pay (or advance or
supply funds, for the purchase or payment of) such Indebtedness or to purchase
(or to advance or supply funds for the purchase of) any security for the payment
of such Indebtedness, (b) to purchase property, securities or services for the
purpose of assuring the holder of such Indebtedness of the payment of such
Indebtedness, or (c) to maintain working capital, equity capital or other
financial statement, condition or liquidity of the Primary Obligor so as to
enable the Primary Obligor to pay such Indebtedness (and "Guaranteed,"
"Guaranteeing" and "Guarantor" shall have meanings correlative to the
foregoing); provided, however, that the Guarantee by any Person shall not
-------- -------
include endorsements by such Person for collection or deposit, in either case,
in the ordinary course of business.
"Hazardous Materials" means petroleum or petroleum products, by-products or
breakdown products, radioactive materials, asbestos-containing materials,
polychlorinated biphenyls and radon gas, and any other chemicals, materials or
substances designated, classified or regulated as hazardous or toxic or as a
pollutant or contaminant under any Environmental Law.
9
"Hazardous Waste" means and includes any hazardous waste as defined or
regulated under any Environmental Law.
"Holder" means a Person in whose name a Senior Note is registered.
"Illegal Transfer Notice" has the meaning ascribed thereto in Section 12.14
hereof.
"Incur" or "incur" means, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (by conversion, exchange or
otherwise), assume, Guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred," "Incurrable" and "Incurring" shall
have meanings correlative to the foregoing).
"Indebtedness" means, with respect to any Person, (a) all liabilities,
contingent or otherwise, of such Person (i) for borrowed money (whether or not
the recourse of the lender is to the whole of the assets of such Person or only
to a portion thereof and whether short-term or long-term, secured or unsecured),
(ii) evidenced by bonds, notes, debentures, drafts accepted or similar
instruments or letters of credit (including such liabilities representing the
balance deferred and unpaid of the purchase price of any property, other than
any such liability that represents an account payable or any other monetary
obligation to a trade creditor created, incurred, assumed or guaranteed by such
Person in the ordinary course of business in connection with obtaining goods,
materials or services), (iii) for the payment of money relating to Capital Lease
Obligations; or (iv) under the terms of any amendment, renewal, extension or
refunding of any liability of the types referred to in the preceding clauses
(i), (ii) or (iii); (b) the maximum fixed repurchase price of all Disqualified
Capital Stock of such Person or, if there is no such maximum fixed repurchase
price, the liquidation preference of such Disqualified Capital Stock, plus
accrued but unpaid dividends; (c) reimbursement obligations of such Person with
respect to letters of credit or bankers' acceptances issued for the benefit of
such Person; (d) net obligations of such Person with respect to Interest Rate or
Currency Protection Agreements; (e) all liabilities of others of the kind
described in the preceding clause (a), (b), (c) or (d) that such Person has
Guaranteed or that is otherwise its legal liability (except for any Guarantee of
Indebtedness incurred by a Designated Subsidiary provided that such Guarantee is
recourse only to the equity interest of the Company or a Subsidiary in such
----
Designated Subsidiary); and (f) all obligations of others secured by a Lien to
which any of the Property or assets of such Person are subject (other than
obligations of a lessor under any operating lease pursuant to which the Company
or any of its Subsidiaries leases Property, if such lessor grants a Lien on such
lease to secure such lessor's Indebtedness), whether or not the obligations
secured thereby shall have been assumed by such Person or shall otherwise be
such Person's legal liability (provided that if the obligations so secured have
--------
not been assumed by such Person or are not otherwise such Person's legal
liability, such obligations shall be deemed to be in an amount equal to the fair
market value of such Properties or assets, as determined in good faith by the
Board of Directors of such Person, which determination shall be evidenced by a
Board Resolution). For purposes of the preceding
10
sentence, the "maximum fixed repurchase price" of any Disqualified Capital Stock
that does not have a fixed repurchase price shall be calculated in accordance
with the terms of such Disqualified Capital Stock as if such Disqualified
Capital Stock were purchased on any date on which Indebtedness shall be required
to be determined pursuant to this Agreement, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock (or any
equity security for which it may be exchanged or converted), such fair market
value shall be determined in good faith by the Board of Directors of such
Person, which determination shall be evidenced by a Board Resolution. For
purposes hereof, Indebtedness incurred by any Person that is a general
partnership (other than non-recourse Indebtedness) shall be deemed to have been
incurred by the general partners of such partnership pro rata in accordance with
their respective interests in the liabilities of such partnership unless any
such general partner shall, in the reasonable determination of the Board of
Directors of the Company, be unable to satisfy its pro rata share of the
liabilities of the partnership, in which case the pro rata share of any
Indebtedness attributable to such partner shall be deemed to be incurred at such
time by the remaining general partners on a pro rata basis in accordance with
their interests.
"Indemnified Party" or "Indemnified Parties" has the meaning ascribed
thereto in Section 13.1(a) hereof.
"Independent Financial Advisor" means a reputable accounting, appraisal or
a nationally recognized investment banking firm that is, in the reasonable
judgment of the Board of Directors of the Company, qualified to perform the task
for which such firm has been engaged hereunder and disinterested and independent
with respect to the Company and its Affiliates.
"Insolvency or Liquidation Proceeding" means, with respect to any Person,
(a) any insolvency or bankruptcy or similar case or proceeding, or any
reorganization, receivership, liquidation, dissolution or winding up of such
Person, whether voluntary or involuntary, or (b) any assignment for the benefit
of creditors or any other marshaling of assets and liabilities of such Person.
"Intellectual Property" has the meaning ascribed thereto in Section 4.24(a)
hereof.
"Interest Payment Date" means each August 15, November 15, February 15 and
May 15.
"Interest Rate or Currency Protection Agreements" means any interest rate
swap agreement, interest rate cap agreement, currency swap agreement or other
financial agreement or arrangement designed to protect the Company or any
Subsidiary against fluctuations in interest rates or currency exchange rates and
which shall have a notional amount no greater than the payments due with respect
to Indebtedness being hedged thereby.
"Investment" means any investment by any Person in any other Person,
whether by a purchase of assets, in any transaction or series of related
transactions, individually or in the aggregate, purchase of Capital Stock,
capital contribution, loan, advance (other than reasonable loans and advances to
employees made in the ordinary course of business consistent with past
11
practice) or similar credit extension constituting Indebtedness of such other
Person.
"IRS" means the Internal Revenue Service or any successor agency.
"Issue Date" means the date of original issuance of the Senior Notes.
"Legal Holiday" means a Saturday, Sunday or a day on which banking
institutions in New York City, New York, or Boston, Massachusetts, or at such
place of payment, are not required to be open.
"License" or "Licenses" has the meaning ascribed thereto in Section 4.3
hereof.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property, or a security interest of any kind, whether or not filed, recorded or
otherwise perfected under applicable law (including any conditional sale or
other title retention agreement, any lease in the nature thereof, any option or
other agreement to sell which is intended to constitute or create a security
interest, mortgage, pledge or lien, and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction); provided that in no event shall an operating lease (as
--------
opposed to a Capital Lease Obligation) be deemed to constitute a Lien hereunder.
"Losses" has the meaning ascribed thereto in Section 13.1(a) hereof.
"Material Adverse Effect" means a material adverse effect on the business,
Property, operations or condition (financial or otherwise) of the Company and
its Subsidiaries taken as a whole.
"Mezzanine Debt Financing" means the issuance, transfer, conveyance, sale,
or other disposition for cash by the Company or any of its Subsidiaries of
unsecured Subordinated Indebtedness (other than Indebtedness that the Company is
permitted to incur under Section 7.7 hereof).
"Multiemployer Plan" has the meaning ascribed thereto in section 4.10
hereof.
"Net Cash Proceeds" means, with respect to (a) any Mezzanine Debt
Financing, (b) Securities Sale, or (c) an Asset Disposition, as the case maybe,
the aggregate amount of cash or Cash Equivalents actually received from time to
time (whether as initial consideration or through payment or disposition of
deferred consideration) by or on behalf of such Person in connection with such
transaction after deducting therefrom only (without duplication) (i) brokerage
commissions, underwriting fees and discounts, legal fees, finder's fees and
other similar transaction fees and commissions incurred in connection with such
transaction, and (ii) the amount of Taxes payable in connection with or as a
result of such transaction as determined in accordance with GAAP, but only to
the extent that the amounts so deducted are properly
12
attributable to such transaction and are, in the case of clause (i), at the time
of receipt of such cash, actually paid to a Person that is not an Affiliate of
such Person.
"Net Worth" means, with respect to any Person, the total of the amounts
shown on the balance sheet of such Person, determined in accordance with GAAP,
as of the end of the most recent fiscal quarter of such Person ending at least
45 days prior to the taking of any action for the purpose of which the
determination is being made, as (a) the par or stated value of all outstanding
Capital Stock of such Person plus (b) paid-in capital or capital surplus
relating to such Capital Stock plus (c) any retained earnings or earned surplus
less (i) any accumulated deficit, and (ii) any amounts attributable to (A)
unamortized debt discount, (B) capitalized expenses associated with the issuance
of Indebtedness if such Indebtedness is incurred after the date hereof, or (C)
write-ups of assets subsequent to the date hereof.
"Notice of Default" has the meaning ascribed thereto in Section 9.1(b)
hereof.
"Obligations" with respect to any instrument or agreement means any and all
principal, interest, penalties, premiums, fees, indemnifications,
reimbursements, damages and other charges, obligations and liabilities existing
from time to time under such instrument or agreement, whether direct or
indirect, joint or several, actual, absolute or contingent, matured or
unmatured, liquidated or unliquidated, secured or unsecured, arising by
contract, operation of law or otherwise, including any obligations or
liabilities to repay, redeem, repurchase, retire, acquire or defease any
Indebtedness under such instrument or agreement, or any obligation to establish
a sinking fund for any such purpose.
"Offer" means an irrevocable offer by the Company to repurchase for cash
Senior Notes after any Change of Control Trigger Date, Repayment Trigger Date or
Excess Proceeds Date.
"Officer" means, with respect to any Person, the Chief Executive Officer,
the President, any Vice President, the Chief Financial Officer, the Treasurer,
the Controller, or the Secretary of such Person.
"Officers' Certificate" means a certificate executed on behalf of the
Company by (a) two Officers of the Company or (b) or by an Officer and an
Assistant Secretary of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Purchaser, which counsel may be an employee of or
counsel to the Company.
"pari passu" means, when used with respect to the ranking of any
---- -----
Indebtedness of any Person in relation to other Indebtedness of such Person,
that each such Indebtedness (a) either (i) is not subordinated or junior in
right of payment to any other Indebtedness of such Person or (ii) is subordinate
in right of payment to the same Indebtedness of such Person as is the other and
is so subordinate to the same extent and (b) is not subordinate in right of
payment to the other or to any Indebtedness of such Person as to which the other
is not so subordinate.
13
"Pari Passu Indebtedness" means any Indebtedness of the Company, other than
the Senior Notes, whether outstanding on the date hereof or Incurred hereafter,
which (a) ranks pari passu with the Senior Notes and (b) by its terms, or by the
---- -----
terms of any agreement or instrument pursuant to which such Indebtedness is
Incurred, (i) does not provide for payments of principal of such Indebtedness at
the final stated maturity thereof or by way of a sinking fund applicable thereto
or by way of any mandatory redemption, retirement or repurchase thereof by the
Company (including any redemption, retirement or repurchase which is contingent
upon events or circumstances, but excluding any retirement required by virtue of
acceleration of such Indebtedness upon an event of default thereunder), in each
case prior to the final stated maturity of the Senior Notes and (ii) does not
permit redemption or other retirement (including pursuant to an offer to
purchase made by the issuer) of such other Indebtedness at the option of the
holder thereof prior to the final stated maturity of the Senior Notes, other
than a redemption or other retirement at the option of the holder of such
Indebtedness (including pursuant to an offer to purchase made by the issuer)
which is conditioned upon the change of control of the Company pursuant to
provisions substantially similar to those contained in Section 7.12 hereof.
"Payment Restriction" means, with respect to a subsidiary of any Person,
any encumbrance, restriction or limitation, whether by operation of the terms of
its charter or by reason of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation, on the ability of (a) such subsidiary
to (i) pay dividends or make other distributions on its Capital Stock or make
payments on any obligation, liability or Indebtedness owed to such Person or any
other subsidiary of such Person, (ii) make loans or advances to such Person or
any other subsidiary of such Person, or (iii) transfer any of its properties or
assets to such Person or any other subsidiary of such Person, or (b) such Person
or any other subsidiary of such Person to receive or retain any such (i)
dividends, distributions or payments, (ii) loans or advances, or (iii) transfers
of properties or assets.
"Permitted Disposition" means (a) any transfer, conveyance, sale, lease or
other disposition (a "sale") by the Company or any of its Subsidiaries of its
inventory in the ordinary course of its business; (b) any sale by the Company or
any of its Subsidiaries in the ordinary course of its business of its equipment
or other tangible Property that is obsolete or no longer useful or necessary to
its business; (c) any sale by the Company or any of its Subsidiaries in the
ordinary course of its business, and in a manner consistent with its customary
and usual cash management practices, of its Permitted Investments of the kind
described in clause (c) of the definition thereof; (d) the creation or
Incurrence of any Liens in any Property of the Company or any of its
Subsidiaries that are permitted by this Agreement and (e) any sale of Property
by or at the direction of a secured party holding a Lien on such Property, which
Lien is permitted by this Agreement, pursuant to the exercise by such secured
party of its rights as a creditor.
"Permitted Holder" means ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇, any member of the family of ▇▇.
▇▇▇▇, and any Affiliate of ▇▇. ▇▇▇▇ or such family member.
"Permitted Investment" by any Person means (a) any Investment in a Related
Business, (b) Investments in securities or other Property not constituting cash
or Cash Equivalents and
14
received in connection with an Asset Disposition, to the extent permitted
hereunder, or any other disposition of assets not constituting an Asset
Disposition, (c) Investments in cash and Cash Equivalents, (d) Investments
existing on the date hereof, (e) Investments by any Subsidiary in other
Subsidiaries, (f) Investments by the Company in any of its Subsidiaries required
by any instrument or agreement governing Indebtedness to the extent that such
Investments consist of (i) performance under Guarantees Incurred by the Company
in compliance with this Agreement with respect to Indebtedness of its
Subsidiaries not Incurred in violation of this Agreement or (ii) Liens securing
the Company's Obligations with respect to any Guarantee described in the
foregoing clause (i), (g) Investments by the Company in any Designated
Subsidiaries, (h) Investments in the form of accounts receivable arising from
sales of goods or services in the ordinary course of business, provided that for
--------
any accounts receivable that are more than 120 days overdue, appropriate
reserves or allowances have been established in accordance with GAAP and (i)
Investments in the form of advances or prepayments to suppliers or employees in
the ordinary course of business.
"Permitted Liens" shall mean (a) Liens for Taxes, assessments, and similar
governmental charges to the extent (i) not delinquent or (ii) being contested in
good faith by appropriate proceedings and as to which reserves have been set
aside on the books of the Company to the extent required by GAAP; (b) statutory
Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen
repairmen, or other like Liens arising in the ordinary course of business and
with respect to amounts not yet delinquent or being contested in good faith by
appropriate process of law, and for which a reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made on the
books of the Company; (c) pledges or deposits in the ordinary course of business
to secure lease obligations or nondelinquent obligations under workers'
compensation, unemployment insurance or other social security benefits; (d)
Liens to secure the performance of public statutory obligations that are not
delinquent, appeal bonds, performance bonds or other obligations of a like
nature (other than for borrowed money); (e) zoning restrictions, easements,
rights-of-way, restrictions, minor defects or irregularities in title and other
similar charges or encumbrances not interfering in any material respect with the
business of the Company or any Subsidiary incurred in the ordinary course of
business; (f) Liens in respect of purchase money Indebtedness Incurred pursuant
to Section 7.7(c)(viii) hereof, provided that the principal amount of the
Indebtedness secured by such Lien does not exceed the acquisition cost of such
assets, (g) Liens securing Indebtedness which secures assets leased pursuant to
Capital Lease Obligations, (h) Liens on any assets of any Acquired Person
securing Acquired Indebtedness which assets or Acquired Person are acquired by
the Company or a Subsidiary subsequent to the date of the Agreement, and which
Liens secure Indebtedness which may be assumed or incurred in compliance with
Section 7.7(c)(v), provided that such Liens are limited to the assets or
Acquired Person so acquired and the proceeds thereof, and (i) Liens imposed
pursuant to condemnation or eminent domain or substantially similar proceedings;
provided that in the case of clauses (f), (g) and (h), any Indebtedness secured
by such Liens was not Incurred in violation of Section 7.7.
"Person" means any individual, corporation, limited or general partnership,
limited liability company, or Governmental Body.
15
"Post-Petition Interest" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person in
accordance with and at the contract rate (including, without limitation, any
rate applicable upon default) specified in the agreement or instrument creating,
evidencing or governing such Indebtedness, whether or not, pursuant to
applicable law or otherwise, the claim for such interest is allowed as a claim
in such Insolvency or Liquidation Proceeding.
"Preferred Stock" as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Principal" of a debt security means the principal of the security
including the premium, if any, on the security.
"Property" or "property" means any assets or property of any kind or nature
whatsoever, real, personal, or mixed (including fixtures), whether tangible or
intangible.
"Public Offering," with respect to any Person, means a firm commitment
underwritten primary public offering of Capital Stock of such Person.
"Purchaser"has the meaning ascribed thereto in the introduction hereof.
"Purchase Money Indebtedness" means Indebtedness of any Person or its
subsidiaries to the extent that such Indebtedness (i) is incurred concurrently
with, or within 12 months after, the acquisition by such Person or its
Subsidiaries of the assets being acquired with the proceeds of such Indebtedness
(the "Subject Assets") or a Person (or interests in a Person) holding such
Subject Assets, or (ii) constitutes Refinancing Indebtedness so incurred; and
(iii) the Subject Assets are not Existing Assets and no Existing Assets or
proceeds from the sale, transfer or other disposition of Existing Assets were
used to acquire such Subject Assets.
"Purchaser's Special Counsel" means ▇▇▇▇▇▇▇, Procter & ▇▇▇▇ LLP, a
partnership including professional corporations, acting as special counsel to
the Purchaser in connection with the transactions contemplated hereunder.
"Qualified Capital Stock" means, with respect to any Person, any and all
Capital Stock issued by such Person after the date hereof that is not
Disqualified Capital Stock.
"Real Estate Partnership" has the meaning ascribed thereto in Section 7.11
hereof.
"Record Date" means a record date specified in the Senior Notes whether or
not such record date is a Business Day.
16
"Redemption Date" means, when used with respect to any Senior Note to be
redeemed, the date fixed for such redemption pursuant to this Agreement and the
Senior Notes.
"Redemption Price" means, when used with respect to any Senior Note to be
redeemed, the price fixed for such redemption pursuant to this Agreement and the
Senior Notes, which shall include, without duplication, in each case, accrued
and unpaid interest to the Redemption Date (subject to Section 6.4 hereof).
"Refinancing Indebtedness" means Indebtedness of the Company or any of its
Subsidiaries Incurred or given in exchange for, or the proceeds of which are
used to, extend, refinance, renew, replace, substitute, defease or refund any
other Indebtedness of the Company or any of its Subsidiaries (and related
interest, premium, penalties, breakage costs, fees, expenses and other amounts
owing in respect of such Indebtedness, to the extent permitted to be Incurred by
Section 7.7(c)(iii)) Incurred in accordance with the terms of this Agreement,
including Section 7.7.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated the Closing Date, by and between the Company and the Purchaser, as the
same may be amended, modified, or supplemented from time to time in accordance
with the terms thereof.
"Related Business" means the businesses conducted (or proposed to be
conducted) by the Company and its Subsidiaries as of the date hereof and any and
all businesses that in the good faith judgment of the Board of Directors of the
Company are materially related businesses. Without limiting the generality of
the foregoing, Related Business shall include the ownership, development,
franchise and operation of restaurants (including the production and sale of
coffee and coffee products).
"Release" means any releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, disposing, or
dumping into the Environment.
"Repayment Trigger Date" has the meaning ascribed thereto in Section 7.13
hereof.
"Restricted Payment" means, with respect to any Person, without
duplication: (a) any dividend or other distribution, whether in cash or in
Property or securities, declared or paid on any shares of such Person's Capital
Stock (other than (i) in the case of the Company, dividends or distributions
payable solely in shares of Qualified Capital Stock of the Company or options,
warrants or other rights to acquire Qualified Capital Stock of the Company and
(ii) any dividends, distributions or other payments in respect of any Capital
Stock made by any Subsidiary to the Company or a Wholly-Owned Subsidiary), or
the making by such Person or any of its subsidiaries of any other distribution
in respect of such Person's Capital Stock or any warrants, rights or options to
purchase or acquire shares of any class of such Capital Stock (other than
exchangeable or convertible Indebtedness of such person); (b) the redemption,
repurchase, retirement or other acquisition for value by such Person or any of
its subsidiaries, directly or indirectly, of such Person's Capital Stock (and,
in the case of a Subsidiary, Capital Stock of the
17
Company) other than Capital Stock owned by the Company or a Wholly-Owned
Subsidiary, or any warrants, rights or options to purchase or acquire shares of
any class of such Capital Stock (other than exchangeable or convertible
Indebtedness of such Person), and other than, in the case of the Company,
through the issuance in exchange therefor solely of Qualified Capital Stock of
the Company; (c) any payment to purchase, redeem, defease or otherwise acquire
or retire for value any Pari Passu Indebtedness or Subordinated Indebtedness
(other than with the proceeds of Refinancing Indebtedness permitted under this
Agreement), except in accordance with the mandatory redemption or repayment
provisions set forth in the original documentation governing such Indebtedness;
and (d) any Investment other than Permitted Investments.
"Restricted Security" has the meaning ascribed thereto in Section 12.14
hereof.
"Rule 144" means Rule 144 as promulgated by the Commission under the
Securities Act, and any successor rule or regulation thereto.
"Rule 144A" means Rule 144A as promulgated by the Commission under the
Securities Act, and any successor rule or regulation thereto.
"Sale" means any sale, lease, conveyance, exchange, transfer, assignment,
pledge, hypothecation or other disposition of any Property.
"SEC Reports" means the Company's Annual Report on Form 10-K under the
Exchange Act for the fiscal year ended December 31, 1996, as amended by
Amendment No. 1 thereto on Form 10-K/A, each as filed with the Commission,
together with each other registration statement, periodic report, proxy
statement, and other filing made by the Company with the Commission since
January 1, 1997.
"Securities" means, collectively, the Senior Notes and the Common Stock
Purchase Warrants.
"Securities Act" means the Securities Act of 1933, as amended from time to
time, or any successor statute, and the rules and regulations of the Commission
promulgated thereunder.
"Securities Sale" means the issuance or sale by the Company or any of its
Subsidiaries, for cash, of shares of Capital Stock (other than directors'
qualifying shares) or other ownership interests, or any securities convertible
into or exercisable or exchangeable for, or options, warrants, rights or any
other interests with respect to, any shares of Capital Stock or other ownership
interests of the Company or any such Subsidiary other than Color Me Mine, Inc.;
provided, however, that the exercise of (a) warrants (i) outstanding on the
-----------------
date hereof, (ii) issuable hereunder or (iii) issuable as placement agent
compensation with respect to the Securities, or (b) compensatory options to
purchase Capital Stock, shall not constitute a Securities Sale.
"Senior Indebtedness" means and includes all principal of, premium and
interest (including Post-Petition Interest) on and other Obligations with
respect to any Indebtedness of
18
the Company (other than as otherwise provided in this definition), whether
outstanding on the date hereof or hereafter Incurred, other than the Senior
Notes; provided, however, that the following shall not constitute Senior
-------- -------
Indebtedness: (a) any Indebtedness which by the terms of the instrument
creating or evidencing the same is pari passu, subordinated or junior in right
---- -----
of payment to the Senior Notes in any respect, (b) that portion of any
Indebtedness Incurred in violation of this Agreement, (c) any Preferred Stock,
or (d) any Indebtedness of the Company which is subordinated to or junior in
right of payment in any respect to any other Indebtedness of the Company.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include (i)
Indebtedness evidenced by the Senior Notes, (ii) Indebtedness which when
incurred and without respect to any election under Section 1111(b) of ▇▇▇▇▇ ▇▇,
▇▇▇▇▇▇ ▇▇▇▇▇▇ Code, is without recourse to the Company, (iii) any liability for
foreign, Federal, state, local or other Taxes owed or owing by the Company, (iv)
Indebtedness of the Company to the extent such liability constitutes
Indebtedness to a Subsidiary or any other Affiliate of the Company or any of
such Affiliate's subsidiaries, (v) Indebtedness for the purchase of goods or
materials in the ordinary course of business or (vi) Indebtedness owed by the
Company for compensation to employees or for services.
"Senior Notes" means the Company's 13% Senior Notes due August 15, 2000, as
amended or supplemented from time to time in accordance with the terms hereof,
that are issued pursuant to this Agreement and each Note delivered in
substitution or exchange for any such Note.
"Subordinated Indebtedness" means Indebtedness of the Company which is
subordinated or junior in right and priority of payment to the Senior Notes.
"Subsidiary" of any Person means any entity whether corporation,
association, partnership, joint venture or other business entity of which such
Person owns, either directly or indirectly, at least 25% of the issued and
outstanding capital stock or other units of interest in such entity. When used
herein without reference to any Person, Subsidiary means a Subsidiary of the
Company. When used in Articles VII, VIII and IX, Subsidiary and terms used
therein referencing a "Subsidiary" refer to a corporation with respect to which
more than 50% of the issued and outstanding shares of stock of each class having
ordinary voting power to elect a majority of the Board of Directors of such
corporation (irrespective of whether at the time capital stock of any other
class or classes of such corporation shall or might have voting power upon the
occurrence of any contingency) is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"Taxes" any present or future federal, state, county, local, foreign or
other income, Property, excise, franchise, sales, use, value added, employees'
income withholding, social
19
security, unemployment and other taxes, of any nature whatsoever now or
hereafter imposed, levied, collected, withheld, or assessed by any Governmental
Body, which have become due or payable by the Company or any of its
Subsidiaries, including any fines or penalties with respect thereto or interest
thereon.
"Threat of Release" means a substantial likelihood of a Release which
requires action to prevent or mitigate damage to the Environment which may
result from such Release.
"Transaction Documents" means, collectively, this Agreement, the Senior
Notes, the Common Stock Purchase Warrants, the Registration Rights Agreement and
the Warrant Agreement.
"Units" has the meaning ascribed thereto in Section 2.1(c) hereof.
"Warrant Agreement" means the Warrant Agreement of even date herewith by
and between the Company and the Purchaser, as amended, modified or supplemented
from time to time in accordance with the terms thereof.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment at final maturity, in respect thereof, with (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly-Owned Subsidiary" means, with respect to any Person, (a) with
respect to a Subsidiary that is a partnership or limited liability company or
similar entity, a Subsidiary whose equity interests are 99% or greater
beneficially owned by such Person, and (b) with respect to a Subsidiary that is
other than a partnership or limited liability company or similar entity, a
Subsidiary 100% of the equity interests in which (however measured) are owned by
such Person or a Wholly-Owned Subsidiary of such Person or such Person and one
or more Wholly-Owned Subsidiaries of such Person taken together, except in any
case for the minimum equity interest required to be held by directors, if any,
to satisfy the requirements of any applicable statute requiring that directors
own qualifying shares.
1.2 Accounting Terms. All accounting terms used and not defined in this
----------------
Agreement shall be construed in accordance with GAAP and all financial data
required to be delivered hereunder shall be prepared in accordance with such
principles.
ARTICLE II
PURCHASE AND SALE OF UNITS
20
2.1. Issuance of Units.
-----------------
(a) The Company has authorized the issuance and sale of up to
$12,000,000 aggregate principal amount of its Senior Notes, to be issued
pursuant to and in accordance with the terms of this Agreement. Each Senior
Note will be issued in the principal amount of $2,000,000 and integral multiples
thereof and will otherwise be substantially in the form of Senior Notes set
forth in Exhibit A hereto, with such changes thereto, if any, as may be approved
---------
by the Purchaser and the Company.
(b) The Company has authorized the issuance and sale of up to 330,000
Common Stock Purchase Warrants, each exercisable to purchase one share of the
Common Stock of the Company, to be acquired by the Purchaser in accordance with
the terms of this Agreement. The Common Stock Purchase Warrants will be
substantially in the form of the Warrant Certificate as set forth in Exhibit A
---------
of the Warrant Agreement, with such changes thereto, if any, as may be approved
by the Purchaser and the Company.
(c) The Senior Notes and the Common Stock Purchase Warrants will be
issued in attached units ("Units") each consisting of $2,000,000 principal
amount of Senior Notes and 55,000 Common Stock Purchase Warrants, subject to
detachment of the Common Stock Purchase Warrants from the Senior Notes upon the
terms and subject to the conditions set forth herein.
(d) The Company and the Purchaser hereby agree that for Federal income
tax purposes, including for purposes of determining original issue discount and
the issue price of the Senior Notes under sections 1271-1275 of the Internal
Revenue Code of 1986, as amended, and the regulations issued thereunder, the
$2,000,000 issue price of each Unit shall be allocated $967.55 to each $1,000 of
principal amount of the Senior Notes and $1.18 to each Common Stock Purchase
Warrant. The Company and the Purchaser hereby further agree that the allocation
of the issue price pursuant to the preceding sentence shall be binding on the
Company for purposes of any determination by the Company of the issue price of
the Senior Notes pursuant to the first sentence of Treasury Regulations section
1.1273-2(f)(2).
2.2. Sale and Purchase of Units. At the Closing provided for in Section
--------------------------
2.3, the Company will issue and sell to the Purchaser and, subject to the terms
and conditions of this Agreement, the Purchaser will purchase from the Company,
the Units at the purchase price of $2,000,000 per Unit payable in cash by wire
transfer of immediately available funds.
2.3. Closing of Sale of Units. The purchase and delivery of the Units to be
------------------------
purchased by the Purchaser shall take place at the offices of ▇▇▇▇▇▇▇, Procter &
▇▇▇▇ LLP, Exchange Place, Boston, Massachusetts, at a closing (the "Closing") on
August 28, 1997, or at such other place or on such other date as the Purchaser
and the Company may agree upon (such date on which the Closing shall have
actually occurred, the "Closing Date"). At the Closing, the Company will deliver
or cause to be delivered to the Purchaser the Units to be purchased by it
against payment of the purchase price therefor. Each of the Units to be
purchased hereunder
21
shall be in the form of a single Senior Note and a single Common Stock Purchase
Warrant certificate, in each case dated the date of the Closing and registered
in the Purchaser's name or (upon 48 hours' prior notification) that of its
nominee. If at the Closing the Company shall fail to tender to the Purchaser any
of the Units to be purchased by it as provided in this Article II, or any of the
conditions specified in Article III for the benefit of the Purchaser or the
Company, as the case may be, shall not have been satisfied or waived in writing
by the Purchaser or the Company, as applicable, the Purchaser or the Company, as
the case may be, shall, at its election, be relieved of all further obligations
under this Agreement, which shall thereupon be null and void.
ARTICLE III
CONDITIONS TO CLOSING
3.1 Conditions Precedent to Obligations of the Purchaser on the Closing
-------------------------------------------------------------------
Date. The Purchaser's obligation to purchase and pay for the Units to be sold to
----
it at the Closing is subject to the fulfillment to its satisfaction, prior to or
at the Closing, of the following conditions, provided that any or all of the
following conditions may be waived, in whole or in part, by the Purchaser with
respect to this Agreement in its sole and absolute discretion:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Company and its Subsidiaries contained in this Agreement and
in the other Transaction Documents shall be correct in all material respects
when made and at the time of the Closing, after giving effect to the sale of the
Units, except that any representations and warranties that relate to a
particular date or period shall be correct in all material respects only as of
such date or for such period.
(b) Performance; No Default. The Company shall have performed and
-----------------------
complied in all material respects with all agreements and conditions contained
in this Agreement and the other Transaction Documents required to be performed
or complied with prior to or at the Closing, and at the time of the Closing,
after giving effect to the sale of the Units, no Default or Event of Default
shall have occurred and be continuing.
(c) Compliance Certificate. The Company shall have delivered to the
----------------------
Purchaser an Officers' Certificate, dated the Closing Date, certifying on behalf
of the Company that the conditions specified in Sections 3.1(a) and (b) have
been fulfilled.
(d) Opinion of Counsel. The Purchaser shall have received from
------------------
▇▇▇▇▇▇▇ & ▇▇▇▇▇, counsel for the Company, a favorable opinion substantially in
the form set forth in
22
Exhibit B, addressed to the Purchaser, dated the Closing Date, and otherwise
---------
reasonably satisfactory in substance and form to the Purchaser.
(e) Legal Investment. On the Closing Date, the Purchaser's purchase
----------------
of the Units shall be permitted by the laws and regulations of the jurisdiction
to which the Purchaser is subject (including, without limitation, Section 5 of
the Securities Act or Regulations G, T, U, or X of the Board of Governors of the
Federal Reserve System), and credit controls (whether voluntary or mandatory) or
similar restraints applicable to the Purchaser shall not subject the Purchaser
to any tax, penalty, liability or other onerous condition under or pursuant to
any applicable law or governmental regulation, and shall not be enjoined
(temporarily or permanently) under, prohibited by or contrary to any injunction,
order or decree applicable to the Purchaser.
(f) Compliance With Securities Laws. The offering, issuance and sale
-------------------------------
of the Units under this Agreement shall have complied with all applicable
requirements of the Federal securities laws and the Purchaser shall have
received evidence, if any, of such compliance in form and substance reasonably
satisfactory to the Purchaser.
(g) Proceedings and Documents. All corporate and other proceedings
-------------------------
contemplated by this Agreement, including, without limitation, the matters set
forth in the Transaction Documents and all of the other documents and
instruments incident thereto, shall be reasonably satisfactory to the Purchaser
and the Purchaser's Special Counsel, and the Purchaser and the Purchaser's
Special Counsel shall have received all such counterpart originals or certified
or other copies of such documents as the Purchaser or the Purchaser's Special
Counsel may reasonably request.
(h) Completion of Other Transactions. Simultaneously with or prior to
--------------------------------
the issuance and sale to the Purchaser of the Units to be purchased by the
Purchaser at the Closing:
(i) the Company and the Purchaser shall have duly entered into
the Registration Rights Agreement substantially in the form of Exhibit C
---------
hereto, the Purchaser shall have received fully-executed counterparts of
the Registration Rights Agreement in such numbers reasonably requested by
it, such agreement shall be in full force and effect;
(ii) the Company and the Purchaser shall have duly entered into
the Warrant Agreement substantially in the form of Exhibit D hereto, the
---------
Purchaser shall have received fully-executed counterparts of the Warrant
Agreement in such numbers reasonably requested by it, such agreement shall
be in full force and effect; and
(iii) each of the other Transaction Documents and any other
agreements and documents contemplated thereby and in connection therewith
shall have been executed and delivered by all respective parties thereto
and shall be in full force and effect.
23
(i) Related Matters. As of the Closing, the Company's Charter
---------------
Documents shall not have been modified or amended since the date delivered to
the Purchaser by the Company.
(j) No Adverse U.S. Legislation, Action or Decision. No legislation,
-----------------------------------------------
order, rule, ruling or regulation shall have been enacted or made by or on
behalf of any governmental body, department or agency of the United States, nor
shall any decision of any court of competent jurisdiction within the United
States have been rendered which, in the Purchaser's reasonable judgment, could
materially and adversely affect any of the Units or any part thereof as an
investment. There shall be no action, suit, investigation or proceeding pending
or threatened in writing, against or affecting the Purchaser, any of its
properties or rights, or any of its Affiliates, associates, officers or
directors (in such capacity), before any court, arbitrator or administrative or
governmental body which (i) seeks to restrain, enjoin, prevent the consummation
of or otherwise affect the transactions contemplated by this Agreement and the
other Transaction Documents, or (ii) questions the validity or legality of any
such transactions or seeks to recover damages or to obtain other relief in
connection with any such transactions.
(k) Governmental and Third Party Permits, Consents, Etc. Except as
---------------------------------------------------
set forth on Schedule 4.4, the Company and its Subsidiaries shall have duly
applied for and obtained all Approvals from each federal, state and local
government and governmental agency, department or body, or pursuant to any
agreement to which the Company or any of its Subsidiaries is a party or to which
any of them or any of their assets is subject, which are required in connection
with this Agreement, the other Transaction Documents or any other agreements and
documents contemplated thereby and in connection therewith.
(l) Secretary's Certificate. The Purchaser shall have received a
-----------------------
certificate, dated the Closing Date, of the Secretary or Assistant Secretary of
the Company, on behalf of such entity, (i) certifying as true, complete and
correct its Charter Documents (as defined below) and resolutions relating to the
transactions contemplated hereby attached thereto, (ii) as to the absence of
proceedings or other action for dissolution, liquidation or reorganization of
the Company, (iii) as to the incumbency and specimen signatures of officers who
shall have executed instruments, agreements and other documents in connection
with the transactions contemplated hereby, and (iv) as to the effect that
certain agreements, instruments and other documents are in the form approved in
the resolutions referred to in clause (i) above, which certificates and
attachments thereto shall be reasonably satisfactory in form and substance to
such Purchaser.
(m) Payment of Fees. The Company shall have paid (i)
---------------
contemporaneously with the closing, the fees, expenses and disbursements of the
Purchaser's Special Counsel reflected in statements of such counsel rendered
prior to or on the Closing Date up to a maximum of $75,000 and (ii)
contemporaneously with the execution hereof, a commitment fee to the Purchaser
in the amount of $300,000 in consideration of Purchaser's execution of the
Transaction Documents.
3.2. Conditions Precedent to Obligations of the Company on the Closing
-----------------------------------------------------------------
Date. The
24
Company's obligation to issue the Units at the Closing is subject to the
fulfillment to its satisfaction, prior to or at the Closing, of the following
conditions, provided that any or all of the following conditions may be waived,
in whole or in part, by the Company with respect to this Agreement in its sole
and absolute discretion:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Purchaser contained in this Agreement and in the other
Transaction Documents shall be correct in all material respects when made and at
the time of the Closing, after giving effect to the sale of the Units, except
that any representations and warranties that relate to a particular date or
period shall be correct in all material respects only as of such date or for
such period.
(b) Performance; No Default. The Purchaser shall have performed and
-----------------------
complied in all material respects with all agreements and conditions contained
in this Agreement and the other Transaction Documents required to be performed
or complied with prior to or at the Closing, and at the time of the Closing,
after giving effect to the sale of the Units, no Default or Event of Default
shall have occurred and be continuing.
(c) Compliance With Securities Laws. The offering, issuance and sale
-------------------------------
of the Units under this Agreement shall have complied with all applicable
requirements of the Federal securities laws and the Company shall have received
evidence, if any, of such compliance in form and substance reasonably
satisfactory to the Company.
(d) Completion of Other Transactions. Simultaneously with or prior to
--------------------------------
the issuance and sale by the Company of the Units to be purchased by the
Purchaser at the Closing:
(i) the Company and the Purchaser shall have duly entered into
the Registration Rights Agreement substantially in the form of Exhibit C
---------
hereto, the Company shall have received fully-executed counterparts of the
Registration Rights Agreement in such numbers reasonably requested by it,
such agreement shall be in full force and effect;
(ii) the Company and the Purchaser shall have duly entered into
the Warrant Agreement substantially in the form of Exhibit D hereto, the
---------
Company shall have received fully-executed counterparts of the Warrant
Agreement, such agreement shall be in full force and effect; and
(iii) each of the other Transaction Documents and any other
agreements and documents contemplated thereby and in connection therewith
shall have been executed and delivered by all respective parties thereto
and shall be in full force and effect.
(h) Related Matters. Contemporaneously with the Closing, the Company
---------------
shall have received payment in full for the Units to be issued pursuant to this
Agreement.
25
(i) No Adverse U.S. Legislation, Action or Decision. No legislation,
-----------------------------------------------
order, rule, ruling or regulation shall have been enacted or made by or on
behalf of any governmental body, department or agency of the United States, nor
shall any decision of any court of competent jurisdiction within the United
States have been rendered which, in the Company's reasonable judgment, could
materially and adversely affect any of the Units or any part thereof as an
investment. There shall be no action, suit, investigation or proceeding pending
or threatened in writing, against or affecting the Company, any of its
properties or rights, or any of its Affiliates, associates, officers or
directors, before any court, arbitrator or administrative or governmental body
which (i) seeks to restrain, enjoin, prevent the consummation of or otherwise
affect the transactions contemplated by this Agreement and the other Transaction
Documents, or (ii) questions the validity or legality of any such transactions
or seeks to recover damages or to obtain other relief in connection with any
such transactions.
(j) Governmental and Third Party Permits, Consents, Etc. The
---------------------------------------------------
Purchaser and its Subsidiaries shall have duly applied for and obtained all
Approvals from each Federal, state and local government and governmental agency,
department or body, or pursuant to any agreement to which the Purchaser is a
party or to which its assets are subject, which may be required in connection
with this Agreement, the other Transaction Documents or any other agreements and
documents contemplated thereby and in connection therewith.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES, ETC.
In order to induce the Purchaser to purchase the Units, the Company
represents and warrants that the statements contained in this Article IV are
correct and complete as of the date of this Agreement and will be correct and
complete in all material respects as of the Closing Date (as though made and as
though the Closing Date were substituted for the date of this Agreement
throughout Article IV):
4.1. Organization and Qualification; Authority. The Company is a
-----------------------------------------
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has full corporate power and
authority to own and lease its properties and carry on its business as presently
conducted, is duly qualified, registered or licensed as a foreign corporation to
do business and is in good standing in each jurisdiction in which the ownership
or leasing of its properties or the character of its present operations makes
such qualification, registration or licensing necessary, except where the
failure so to qualify or be in good standing would not have a Material Adverse
Effect. The Company has heretofore delivered to Purchaser's Special Counsel
complete and correct copies of the Certificate of Incorporation and of the by-
laws of the Company, each as amended to date and as presently in effect
(collectively, "Charter Documents"). A list of all jurisdictions in the United
States in which the Company is qualified, registered or licensed to do business
as a foreign corporation is attached hereto as Schedule 4.1.
------------
26
4.2. Subsidiaries. The Company's Subsidiaries are set forth on Schedule
------------ --------
4.2 hereto. Each of the Subsidiaries is a corporation, limited liability
---
company or partnership duly incorporated or formed, validly existing and in good
standing under the laws of the jurisdiction of its organization, has full
corporate, limited liability company or partnership power and authority, as the
case may be, to own and lease its properties, and carry on its business as
presently conducted, is duly qualified, registered or licensed as a foreign
corporation, limited liability company or partnership to do business and is in
good standing in each jurisdiction in which the ownership or leasing of its
properties or the character of its present operations make such qualification,
registration or licensing necessary, except where the failure so to qualify or
be in good standing would not have a Material Adverse Effect. A list of all
jurisdictions in the United States in which each of the Subsidiaries is
qualified, registered or licensed to do business as a foreign corporation,
limited liability company or partnership is attached hereto as Schedule 4.2.
------------
Except as disclosed on Schedule 4.2, the Company owns, directly or indirectly,
------------
all of the outstanding shares of Capital Stock or other evidences of equity
ownership of each of its Subsidiaries free of any Lien, restriction (other than
restrictions generally applicable to securities under federal, provincial or
state securities laws) or encumbrance, and said shares have been duly issued and
are validly outstanding.
4.3. Licenses. The Company and its Subsidiaries hold all material
--------
licenses, franchises, permits, consents, registrations, certificates and other
approvals (including, without limitation, those relating to environmental
matters, public and worker health and safety, buildings, highways or zoning)
(individually, a "License" and collectively, "Licenses") required for the
conduct of its business as now being conducted, and is operating in substantial
compliance therewith, except where the failure to hold any such License or to
operate in compliance therewith would not have a Material Adverse Effect. The
Company and its Subsidiaries are in substantial compliance with all laws,
regulations, orders and decrees applicable to it, except in each case where the
failure so to comply would not have a Material Adverse Effect, or a material
adverse effect on the ability of the Company or any of its Subsidiaries to
perform on a timely basis any obligation that it has or will have under any
Transaction Document to which it is a party.
4.4. Corporate and Governmental Authorization; Contravention. Except as
-------------------------------------------------------
set forth on Schedule 4.4, the execution, delivery and performance by the
------------
Company of the Transaction Documents to which it is a party and all other
instruments or agreements to be executed at the Closing in connection therewith,
and the issuance and sale to the Purchaser of the Units pursuant to this
Agreement, are within the Company's corporate power, having been duly authorized
by all necessary corporate action on the part of the Company; do not require any
License, authorization, approval, qualification or formal exemption from, or
other action by or in respect of, or filing of a declaration or registration
with, any court, Governmental Body, agency or official or other Person (except
such as have been obtained or as may be required under the Securities Act or
state securities or Blue Sky laws); do not contravene or constitute a default
under or violation of (a) any provision of applicable law or regulation of any
Governmental Body, (b) the Charter Documents of the Company or any of its
Subsidiaries, (c) any agreement (or require the consent of any Person under any
agreement that has not been obtained) to which the Company or any of
27
its Subsidiaries is a party, or (d) any judgment, injunction, order, decree or
other instrument binding upon the Company, any of its Subsidiaries or any of
their respective properties, except where such contravention, default or
violation would not have a Material Adverse Effect; and do not and will not
result in the creation or imposition of any Lien on any asset of the Company or
any of its Subsidiaries, other than Permitted Liens.
4.5. Validity and Binding Effect. Each of the Transaction Documents has
---------------------------
been duly executed and delivered by the Company and is a valid and binding
agreement of the Company, enforceable against the Company in accordance with
their respective terms, except for (a) the effect upon the Transaction Documents
of bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting the rights of creditors generally, (b) limitations
imposed by a court of competent jurisdiction under general equitable principles
upon the specific
enforceability of any of the remedies, covenants or other provisions of the
Transaction Documents and upon the availability of injunctive relief or other
equitable remedies, and (c) any applicable laws relating to the maximum
permissible rate of interest.
4.6. Capitalization. Except as set forth in the SEC Reports or on Schedule
-------------- --------
4.6 hereto, there are no outstanding subscriptions, options, warrants, rights,
---
convertible or exchangeable securities or other agreements or commitments of any
character obligating the Company or its Subsidiaries to issue any securities.
Except as set forth in the SEC Reports or on Schedule 4.6, there are no voting
------------
trusts or other agreements or understandings to which the Company or its
Subsidiaries is a party with respect to the voting of the Capital Stock of the
Company or the Subsidiaries. Except as set forth in the SEC Reports or on
Schedule 4.6 or as contemplated by the Registration Rights Agreement, neither
------------
the Company nor any of its Subsidiaries has entered into any agreement to
register its equity or debt securities under the Securities Act.
4.7. Litigation; Defaults. Except as set forth on Schedule 4.7 or Schedule
-------------------- ------------ --------
4.19, there is no action, suit, proceeding or investigation pending or, to the
----
knowledge of the Company, threatened against or affecting the Company, any of
its Subsidiaries, or any properties of any of the foregoing, before or by any
court or arbitrator or any governmental body, agency or official which
(individually or in the aggregate) could reasonably be expected to (i) have a
Material Adverse Effect, or (ii) impair the ability of the Company or any
Subsidiary to perform fully on a timely basis any material obligation which the
Company or such Subsidiary has or will have under any Transaction Document to
which the Company or such Subsidiary is a party. Except as set forth on
Schedule 4.7 or Schedule 4.19, neither the Company nor any of its Subsidiaries
------------ -------------
is in violation of, or in default under (and there does not exist any event or
condition which, after notice or lapse of time or both, would constitute such a
default under), any term of its Charter Documents, or of any term of any
agreement, instrument, judgment, decree, order, statute, injunction,
governmental regulation, rule or ordinance (including, without limitation, those
relating to zoning, city planning or similar matters) applicable to the Company
or any of its Subsidiaries or to which the Company or any of its Subsidiaries is
bound, or to any properties of the Company or any of its Subsidiaries, except in
each case to the extent that such violations or defaults, individually or in the
aggregate, could not reasonably be expected to (a) affect the validity of any
Transaction Document, (b) have a Material Adverse Effect, or (c) impair the
28
ability of the Company to perform fully on a timely basis any material
obligation which the Company has or will have under any Transaction Document to
which the Company is a party.
4.8. Outstanding Debt. Except as set forth in the SEC Reports or on
----------------
Schedule 4.8 hereto, neither the Company nor any of its Subsidiaries will have
------------
outstanding any debt for borrowed money, or obligations or liabilities evidenced
by bonds, debentures, notes or other similar instruments or under capital leases
other than short-term debt incurred in the ordinary course of business.
Schedule 4.8 contains a complete and accurate list of all material guarantees,
------------
assumptions and similar agreements and arrangements whereby the Company or any
of its Subsidiaries is or may become directly or indirectly liable or
responsible for the indebtedness or other obligations of another Person other
than the Company or any of its Subsidiaries, except for negotiable instruments
endorsed for collection or deposit in the ordinary course of its business,
identifying, with respect to each of the respective parties, amounts and
maturities.
4.9. No Material Adverse Change. Except as set forth on Schedule 4.9 or in
-------------------------- ------------
the SEC Reports, since March 31, 1997, there has been (i) no material adverse
change in the condition (financial or other), assets, business, or results of
operations of the Company or any of its Subsidiaries, (ii) no obligation or
liability (contingent or other) incurred by the Company or any of its
Subsidiaries, other than obligations and liabilities incurred in the ordinary
course of business, and no mortgage, encumbrance or Lien placed on any of the
properties of the Company or any of its Subsidiaries which remains in existence
on the date hereof, other than Permitted Liens and liabilities and Liens
described on Schedule 4.20 hereto, and (iii) no acquisition or disposition of
-------------
any material assets by the Company or any of its Subsidiaries (or any contract
or arrangement therefor), or any other material transaction, otherwise than for
fair value in the ordinary course of business.
4.10. Employee Programs. Schedule 4.10 sets forth a list of every
----------------- -------------
Employee Program maintained by the Company or any Current Affiliate at any time
during the two-year period ending on the Closing Date or with respect to which a
liability of the Company or an Affiliate (as defined below) exists. Each
Employee Program (other than a Multiemployer Plan) which has been maintained by
the Company during the two-year period ending on the Closing Date and which has
been intended to qualify under Section 401(a) or Section 501(c)(9) of the Code
has received a favorable determination or approval letter from the Internal
Revenue Service regarding its qualification under such section or the remedial
amendment period under Section 401(b) of the Code has not yet expired with
respect to such Employee Program and, to the knowledge of the Company, nothing
has occurred that would adversely affect such qualification since the date of
such letter or application for a determination or approval letter has been
timely made and to the knowledge of the Company, no reason exists why a
favorable determination or approval shall not be granted. Except as set forth
on Schedule 4.10, the Company has no knowledge of any failure of any party to
-------------
comply with any laws applicable with respect to the Employee Programs that have
been maintained by the Company or any Current Affiliate, and no such failure
will result from completion of the transactions contemplated hereby. With
respect to any Employee Program ever maintained by the Company or an Affiliate,
there has been no "prohibited transaction," as defined in Section 406 of ERISA
or Code Section 4975, or breach of any duty under ERISA or other applicable law
or any agreement which in any such case could
29
subject the Company to material liability either directly or indirectly
(including, without limitation, through any obligation of indemnification or
contribution) for any damages, penalties, or taxes, or any other loss or
expense. No litigation or governmental administrative proceeding (or
investigation) or other proceeding (other than those relating to routine claims
for benefits) is pending or, to the knowledge of the Company, threatened with
respect to any such Employee Program (other than a Multiemployer Plan).
The Company and its Current Affiliates have not incurred any material
liability under title IV of ERISA which has not been paid in full prior to the
Closing. Neither the Company nor any of its Current Affiliates is liable for
any material "accumulated funding deficiency" (whether or not waived) with
respect to any Employee Program ever maintained by the Company or any Affiliate
and subject to Code Section 412 or ERISA Section 302. With respect to any
Employee Program subject to title IV of ERISA, there has been no (and the
transactions contemplated by this Agreement will not result in any) (a)
"reportable event," within the meaning of ERISA Section 4043 or the regulations
thereunder (for which the notice requirement is not waived under 29 C.F.R. Part
2615) or (b) other event or condition which presents a material risk of plan
termination or any other event that may cause the Company or any Current
Affiliate to incur material liability or have a material Lien imposed on its
assets under title IV of ERISA. All material payments and/or contributions
required to have been made by the Company and its Current Affiliates (under the
provisions of any agreements or other governing documents or applicable law)
with respect to all Employee Programs subject to title IV of ERISA ever
maintained by the Company or any Affiliate, for all periods prior to the
Closing, have been timely made. Except as described on Schedule 4.10, no
-------------
Employee Program maintained by the Company or an Affiliate and subject to title
IV of ERISA (other than a Multiemployer Plan) has any "unfunded benefit
liabilities" within the meaning of ERISA Section 4001(a)(18). Neither the
Company nor any Affiliate has ever maintained a Multiemployer Plan.
For purposes of this section:
(i) "Employee Program" means (A) any employee benefit plan
within the meaning of Section 3(3) of ERISA and employee benefit plans
(such as foreign or excess benefit plans) which are not subject to ERISA,
and (B) any stock option plans, bonus or incentive award plans, severance
pay policies or agreements, deferred compensation arrangements,
supplemental income arrangements, vacation plans, and all other employee
benefit plans, agreements, and arrangements not described in (A) above, and
(C) any trust used to fund benefits under the foregoing maintained by the
Company or any Affiliate.
(ii) For purposes of this Section 4.10, an entity is an
"Affiliate" of the Company if it would have ever been considered a single
employer with the Company under ERISA Section 4001(b) or part of the same
"controlled group" as the Company for purposes of ERISA Section
30
302(d)(8)(C); and each reference to the Company includes its Subsidiaries.
(iii) An entity "maintains" an Employee Program if such entity
sponsors, contributes to, or provides benefits under such Employee Program,
or has any obligation (by agreement or under applicable law) to contribute
to or provide benefits under such Employee Program, or if such Employee
Program provides benefits to or otherwise covers employees of such entity
(or, in respect of such employees, their spouses, dependents, or
beneficiaries).
(iv) "Multiemployer Plan" means a (pension or non-pension)
employee benefit plan to which more than one employer contributes and which
is maintained pursuant to one or more collective bargaining agreements.
4.11. Private Offering. No form of general solicitation or general
----------------
advertising, including, but not limited to, advertisements, articles, notices or
other communications, published in any newspaper, magazine or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising, was used
by the Company or any of its Subsidiaries or any of the Company's or such
Subsidiary's representatives, or, to the knowledge of the Company, any other
authorized Person acting on behalf of the Company or any of its Subsidiaries, in
connection with the offering of the Units being purchased under this Agreement.
During the six months prior to the Closing, neither the Company, any of its
Subsidiaries nor any Person acting on the Company's or such Subsidiary's behalf
has directly or indirectly offered the Units, or any part thereof or any other
similar securities, for sale to, or sold or solicited any offer to buy any of
the same from, or otherwise approached or negotiated in respect thereof with any
Person or Persons other than the Purchaser and other investors who the Company
reasonably believed had such knowledge and experience in financial and business
matters that they were capable of evaluating the merits and risks of purchasing
the Units. The Company further represents to the Purchaser that, assuming the
accuracy of the representations of the Purchaser as set forth in Section 5
hereof, neither the Company, any of its Subsidiaries nor any authorized Person
acting on the Company's or such Subsidiary's behalf has taken or will take any
action which would subject the issue and sale of the Units to the provisions of
Section 5 of the Securities Act, except as contemplated by the Registration
Rights Agreement. The Company has not sold the Units to anyone other than the
Purchaser designated in this Agreement. During the six months prior to the
Closing, no securities of the same class or series as the securities comprising
the Units or the Senior Notes have been issued and sold by the Company. Each
Senior Note and Common Stock Purchase Warrant certificate shall bear
substantially the same legend set forth in Section 12.12 hereof, as applicable,
for at least so long as such restrictions apply.
4.12. Broker's or Finder's Commissions.
--------------------------------
In addition to and not in limitation of any other rights
hereunder, the Company and its Subsidiaries agree that they will indemnify and
hold harmless the Purchaser from and against any and all claims, demands or
liabilities for broker's, finder's, placement agent's or other similar fees or
commissions payable or incurred or alleged to have been incurred by the Company
or any of its Subsidiaries or any Person acting or alleged to
31
have been acting on the Company's or such Subsidiary's behalf, in connection
with this Agreement or the issuance or sale of the Units.
4.13. Disclosure
----------
(a) The historical financial and operating information delivered to
the Purchaser has been derived from the consolidated books and records of the
Company and its Subsidiaries based upon reasonable methods as to allocations and
calculations of such financial information.
(b) There is no material fact known to the Company which the Company
has not disclosed to the Purchaser or Purchaser's Special Counsel in writing
which has or, insofar as the Company can reasonably foresee, may have or will
have a Material Adverse Effect or a material adverse effect on the ability of
the Company to perform its obligations under any of the Transaction Documents or
in respect of the Units or any document contemplated hereby or thereby.
4.14. Intentionally Omitted.
----------------------
4.15. Federal Reserve Regulations and Other Matters. Neither the Company
---------------------------------------------
nor any of its Subsidiaries will, directly or indirectly, use any of the
proceeds from the sale of the Units for the purpose, whether immediate,
incidental or ultimate, of buying any "margin stock," or of maintaining,
reducing or retiring any indebtedness originally incurred to purchase any stock
that is currently a "margin stock," or for any other purpose which might
constitute the transactions contemplated hereby a "purpose credit," in each case
within the meaning of Regulations G or U of the Board of Governors of the
Federal Reserve System (12 C.F.R. 207 and 221, as amended, respectively), or
otherwise take or permit to be taken any action which would involve a violation
of such Regulation G or Regulation U or of Regulations T or X of the Board of
Governors of the Federal Reserve System (12 C.F.R. 220 and 224, as amended,
respectively) or any other regulation of such Board. No indebtedness that may be
maintained, reduced or retired with the proceeds from the sale of the Units was
incurred for the purpose of purchasing or carrying any "margin stock" and
neither the Company nor any of its Subsidiaries own any such "margin stock" or
have any present intention of acquiring, directly or indirectly any such "margin
stock."
4.16. Investment Company Act. Neither the Company nor any of its
----------------------
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
4.17. Public Utility Holding Company Act. To the Company's knowledge,
----------------------------------
neither the Company nor any of its Subsidiaries is a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended.
32
4.18. Interstate Commerce Act. To the Company's knowledge, neither the
-----------------------
Company nor any of its Subsidiaries is, nor will be, a "rail carrier," or a
Person controlled by or affiliated with a "rail carrier," within the meaning of
Title 49, U.S.C. Neither the Company nor any of its Subsidiaries is a "carrier"
or other Person to which 49 U.S.C. Section 11301(b)(1) is applicable.
4.19. Environmental Regulation, Etc.
-----------------------------
(a) Except as set forth on Schedule 4.19, to the knowledge of the
-------------
Company without any independent inquiry of any third party, each of the Company
and its Subsidiaries (i) has no liability under any Environmental Law or common
law cause of action relating to or arising from environmental conditions which
could reasonably have expected to have a Material Adverse Effect, and any
property owned, operated, leased, or used by the Company and its Subsidiaries
and any facilities and operations thereon comply with all applicable
Environmental Laws except to the extent that failure to comply could have a
Material Adverse Effect; (ii) has not entered into or been subject to any
judgment, consent decree, compliance order, or administrative order with respect
to any environmental or health and safety matter or received any request for
information, notice, demand letter, administrative inquiry, or formal or
informal complaint or claim with respect to any environmental or health and
safety matter or the enforcement of any Environmental Law which could reasonably
be expected to have a Material Adverse Effect; and (iii) has no reason to
believe that any of the items enumerated in clause (ii) of this paragraph will
be forthcoming.
(b) Except as set forth on Schedule 4.19, to the knowledge of the
-------------
Company: (i) each of the Company and its Subsidiaries has not transported,
used, stored, treated, disposed of, or managed any Hazardous Waste, except in
accordance with applicable Environmental Laws except such noncompliance which
could not reasonably be expected to have a Material Adverse Effect; (ii) the
Company has no knowledge of any Release or Threat of Release of a Hazardous
Material at any site presently or formerly owned, operated, leased, or used by
the Company or any of its Subsidiaries which could reasonably be expected to
have a Material Adverse Effect; (iii) the Company and its Subsidiaries have
never had Hazardous Material transported from any site presently or formerly
owned, operated, leased, or used by the Company or any of its Subsidiaries for
treatment, storage, or disposal at any other place, except in accordance with
applicable Environmental Laws except such noncompliance which could not
reasonably be expected to have a Material Adverse Effect; (iv) the Company and
its Subsidiaries have never placed underground storage tanks on any site owned,
operated, leased or used by the Company or any of its Subsidiaries;; and (v) the
Company and its Subsidiaries have never had a Lien imposed by any Governmental
Body on any property, facility, machinery, or equipment owned, operated, leased,
or used by the Company or any of its Subsidiaries in connection with the
presence of any Hazardous Material.
4.20. Properties and Assets. The Company and its Subsidiaries have good
---------------------
record and marketable fee title to all real Property and all other Property and
assets, whether tangible or intangible, owned by them and reasonably necessary
in the conduct of business of the Company or such Subsidiaries, except defects
in title which do not and will not have a Material Adverse
33
Effect. All of the leases necessary in any material respect for the operation of
their respective properties and assets, under which the Company or any of its
Subsidiaries holds any Property or assets, real or personal, are valid,
subsisting and enforceable and afford peaceful and undisturbed possession of the
subject matter of the lease, and no material default by the Company or any of
its Subsidiaries exists under any of the provisions thereof. All buildings,
machinery and equipment of the Company and its Subsidiaries are in good repair
and working order, except for ordinary wear and tear, and except as would have a
Material Adverse Effect. All material current and proposed uses of such Property
or assets of the Company and its Subsidiaries are permitted as of right and no
such regulation or ordinance interferes with such current or proposed uses. To
the knowledge of the Company, there is no pending or formally proposed change in
any such laws, regulations and ordinances which would have a Material Adverse
Effect. Except as set forth on Schedule 4.20, no condemnation proceeding is
-------------
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries. All Property and assets of any kind (real or personal,
tangible or intangible) of the Company and its Subsidiaries are free from all
Liens except for (a) Liens which would not have a Material Adverse Effect; (b)
Liens disclosed on Schedule 4.20 hereto; and (c) Permitted Liens. Except as set
-------------
forth on Schedule 4.20 hereto, neither the Company nor any of its Subsidiaries
-------------
has signed any material financing statement, as debtor or lessee, or any
security agreement authorizing any secured party thereunder to file any such
financing statement.
4.21. Intentionally Omitted
---------------------
4.22. Employment Practices. Except as set forth on Schedule 4.22 hereto,
-------------------- -------------
neither the Company nor any of its Subsidiaries is a party to or in the process
of negotiating any collective bargaining or labor agreement or union contract.
As of the date of this Agreement, there is no (a) charge, complaint or suit
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries respecting employment, hiring for employment,
terminating from employment, employment practices, employment discrimination,
terms and conditions of employment, safety, wrongful termination, or wages and
hours, (b) unfair labor practice charge or complaint pending or, to the
knowledge of the Company, threatened against, or decision or order in effect and
binding on, the Company or any of its Subsidiaries before or of the National
Labor Relations Board, (c) grievance or arbitration proceeding arising out of or
under collective bargaining agreements pending or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries, (d) strike,
labor dispute, slow-down, work stoppage or other interference with work pending
or, to the knowledge of the Company, threatened against the Company or its
Subsidiaries, or (e) to the knowledge of the Company, union organizing
activities or union representation question threatened or existing with respect
to any groups of employees of the Company or any of its Subsidiaries, which in
the case of (a)-(e) above could be reasonably expected to have a Material
Adverse Effect.
4.23. Financial Statements
--------------------
(a) The consolidated financial statements contained in the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1997, and Annual Report on Form 10-K for the fiscal year ended December 31,
1996, as amended, together with the notes
34
thereto (the "Financial Statements") fairly present in all material respects the
financial position of the Company and its subsidiaries on a consolidated basis
on the dates of such statements and the results of their operations on the
applicable basis for the periods covered thereby in accordance with GAAP,
except, with respect to unaudited financial statements, the absence of notes
thereto and statements of cash flows and subject to customary year-end
adjustments; and have been prepared in accordance with GAAP consistently
applied, except as otherwise stated therein.
(b) As of December 31, 1996 and as of the date hereof and the
Closing Date, and except as set forth in the Schedules hereto or in the SEC
Reports, there are no material liabilities or claims relating to the Company or
its Subsidiaries of any nature, whether accrued, absolute, contingent or
otherwise, asserted or, to the Company's knowledge, unasserted, except
liabilities or claims stated or adequately reserved against in the Financial
Statements or liabilities or claims incurred in the ordinary course of the
Company's and its Subsidiaries' operations which are not required to be
reflected in the Financial Statements or in the notes thereto under GAAP.
Nothing has come to the attention of the Company since the date of the Financial
Statements which would indicate that the Financial Statements did not fairly
present in all material respects the financial position of the Company and its
Subsidiaries as of the respective dates thereof.
4.24. Intellectual Property
---------------------
(a) Except as described on Schedule 4.24, the Company and its
-------------
Subsidiaries have exclusive ownership of, or exclusive license to use, all
patent, copyright, trade secret, trademark, or other proprietary rights used in
the business of the Company or any of its Subsidiaries and material to the
Company and its Subsidiaries on a consolidated basis (collectively,
"Intellectual Property"). There are no claims or demands of any other Person
pertaining to any of such Intellectual Property and no proceedings have been
instituted, or are pending or, to the knowledge of the Company, threatened,
which challenge the rights of the Company or any of its Subsidiaries in respect
thereof the resolution of which could reasonably be expected to have a Material
Adverse Effect.
(b) All patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights which are owned by or
licensed to the Company or any of its Subsidiaries or used by the Company or any
of its Subsidiaries in their business as presently conducted, and which are
material to the Company and its Subsidiaries on a consolidated basis have been
duly registered in, filed in or issued by the United States Patent and Trademark
Office, the United States Register of Copyrights, or the corresponding offices
of other jurisdictions as identified on Schedule 4.24, and have been properly
-------------
maintained and renewed in accordance with all applicable provisions of law and
administrative regulations in the United States and each such jurisdiction.
(c) The Company and its Subsidiaries have no material licenses or
other agreements under which the Company or any of its Subsidiaries is granted
or has granted to others rights in Intellectual Property.
35
(d) The Company and its Subsidiaries have in the judgement of
their respective Officers taken all steps required in accordance with sound
business practice and business judgment to establish and preserve their
ownership of all material copyright, trade secret and other proprietary rights
with respect to their products and technology.
(f) To the knowledge of the Company, the present business,
activities and products of the Company or any of its Subsidiaries do not
infringe any intellectual property of any other Person, except where such
infringement would not have a Material Adverse Effect. No proceeding charging
the Company or any of its Subsidiaries with infringement of any adversely held
Intellectual Property has been filed or is, to the knowledge of the Company,
threatened to be filed. To the Company's knowledge, there exists no unexpired
patent or patent application which includes claims that would be infringed by or
otherwise have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is making unauthorized use of any confidential information or trade
secrets of any Person, including without limitation any former employer of any
past or present employee of the Company or any of its Subsidiaries, except where
such use would not have a Material Adverse Effect. Except as set forth on
Schedule 4.24, neither the Company or any of its Subsidiaries has any material
-------------
agreements or arrangements with any Persons other than the Company or any of its
Subsidiaries related to confidential information or trade secrets of such
Persons.
4.25. Taxes. The Company and its Subsidiaries have filed or obtained
-----
extensions of all material Tax returns heretofore required by law to be filed by
any of them and all material Taxes have been paid in full or are adequately
provided for in accordance with GAAP on the financial statements of the
applicable Person. All material deposits, Taxes and other assessments and levies
required by law to be made, withheld, collected or provided for by the Company
or any of its Subsidiaries including deposits with respect to Taxes constituting
employees' income withholding taxes, have been duly made, withheld, collected or
provided for and have been paid over to the proper federal, state or local
authority, or are held by the applicable Person for such payment. No Liens
arising from or in connection with Taxes have been filed and are currently in
effect against the Company or any of its Subsidiaries, except for Liens for
Taxes which are not yet due. Except as set forth on Schedule 4.25 hereto,
-------------
neither the Company nor any of its Subsidiaries has executed or filed with the
IRS or any other taxing authority any agreement or document extending, or having
the effect of extending, the period for assessment or collection of any Taxes.
The federal income tax returns of the Company and each of its Subsidiaries have
been examined by the IRS, or the statute of limitations with respect to federal
income taxes has expired, for all tax years to and including the fiscal year
ended December 31, 1994 and, except as set forth on Schedule 4.25, any
-------------
deficiencies have been paid in full or are being contested in good faith by
appropriate action or appropriate reserves therefor in accordance with GAAP have
been established on the Company's or applicable Subsidiaries' books. Except as
set forth on Schedule 4.25, neither the Company nor any of its Subsidiaries is a
-------------
party to any tax sharing agreement or arrangement. Except as set forth on
Schedule 4.25, no audits or investigations are pending or, to the knowledge of
-------------
the Company, threatened with respect to any tax returns or taxes of the Company
or any of its Subsidiaries, or any predecessor thereto.
36
4.26. Transactions with Affiliates. Except as disclosed in the SEC
----------------------------
Reports or set forth on Schedule 4.26, there are no material transactions,
-------------
agreements or understandings, existing, between or among the Company or any of
its Subsidiaries and any of its officers or directors or stockholders or any of
their Affiliates of the sort requiring disclosure under Item 404 of Regulation
S-K except for standard arrangements related to compensation of such persons as
officers or directors.
4.27. Limitation on Subsidiary Payment Restrictions. Except as set forth
---------------------------------------------
on Schedule 4.27 hereto, neither the Company nor any of its Subsidiaries is
-------------
subject to any consensual restriction on the ability of any such Subsidiary (a)
to pay dividends or make any other distributions on such Subsidiary's Capital
Stock to, or pay any indebtedness owing to, or repurchase or redeem any of such
Subsidiary's Capital Stock from, the Company or any other Subsidiary of the
Company, (b) to make any loans or advances to the Company or any other
Subsidiary of the Company, or (c) to transfer any of its Property or assets to
the Company or any other Subsidiary.
4.28. No Other Business. The Company is not currently engaged in any
-----------------
material respect in any business other than (i) the development, franchise and
operation of restaurants (including the production and sale of coffee and coffee
products), and (ii) the development, franchise and operation of paint-your-own
ceramics studios.
ARTICLE V
PURCHASE FOR INVESTMENT; SOURCE OF FUNDS
5.1 Purchase for Investment.
-----------------------
(a) The Purchaser acknowledges that it has been advised that (i)
the offering and sale of the Units is intended to be a transaction by an issuer
not involving any public offering and thereby exempt from registration under the
securities Act by virtue of Section 4(2) of the Securities Act and Regulation D
promulgated thereunder; (ii) the offering and sale of the Units is intended to
be exempt from qualification under the California Corporate Securities Law of
1968 and the Massachusetts Uniform Securities Act; (iii) that none of the Units
or shares of Common Stock into which the Common Stock Purchase Warrants are
exercisable may be transferred without (a) registration under the Securities Act
or a valid exception therefrom and from applicable state securities laws and (b)
compliance with the other restrictions contained in the Transaction Documents;
and (iv) there is substantial risks of loss of investment in the Units, the
investment in the Units is presently an illiquid investment and the Purchaser
may be required to bear the economic risk of the investment in the Units for a
substantial period of time.
(b) The Purchaser represents that (i) by reason of its business
and financial experience, and the business and financial experience of those
persons, if any, retained by it to advise it with respect to its investment in
the Units, such Purchaser together with such advisers
37
have such knowledge, sophistication and experience in business and financial
matters as to be capable of evaluating the merits and risk of the prospective
investment; (ii) it is an accredited investor as defined in Regulation D under
the Securities Act (iii) that it is purchasing the Units for its own account or
for one or more separate accounts maintained by it or for the account of one or
more institutional investors on whose behalf the Purchaser has authority to make
this representation for investment and not with a view to the distribution or
other disposition thereof or with any present intention of distributing or
selling any of the Units except in compliance with the Securities Act and any
applicable state securities laws; and (iv) it is an "Institutional Buyer" as
defined in Section 4.02(b)(8) of the regulations promulgated under the
Massachusetts Uniform Securities Act and as supplemented by 950 CMR 14.401(l).
5.2 Authority. The Purchaser represents that it has full power and
---------
authority and has taken all action necessary to authorize it to enter into and
perform its obligations under this Agreement and all other Transaction Documents
and other documents or instruments contemplated hereby or thereby. This
Agreement is the legal, valid and binding obligation of such Purchaser, and is
enforceable in accordance with its terms.
5.3 Information Provided. Any information that any Purchaser is
--------------------
furnishing in this Article V and on the signature pages to this Agreement with
respect to itself, including, without limitation, the tax identification
information set forth on the signature pages hereto, is true, correct and
complete as of the date of this Agreement.
5.4 Company Reliance. The Purchaser acknowledges that its
----------------
representations and warranties are being relied upon by the Company in order to
comply with the Federal and applicable state securities laws.
ARTICLE VI
REDEMPTIONS AND OFFERS TO PURCHASE
6.1 Notice of Redemption. If the Company elects or is required to
--------------------
redeem Senior Notes pursuant to Section 6.6 hereof, at least 10 days but not
more than 60 days before any Redemption Date, the Company shall mail by first
class mail a notice of redemption to the registered address of each Holder of
Senior Notes or portions thereof that are to be redeemed. With respect to any
redemption of Senior Notes, the notice shall identify the Senior Notes or
portions thereof to be redeemed and shall state: (i) the Redemption Date; (ii)
the Redemption Price for the Senior Notes and the amount of unpaid and accrued
interest on such Senior Notes as of the date of redemption; (iii) if any Senior
Note is being redeemed in part, the portion of the principal amount of such
Senior Note to be redeemed and that, after the Redemption Date, upon surrender
of such Senior Note, a new Senior Note or Senior Notes in principal amount equal
to the unredeemed portion will be issued; (iv) that Senior Notes called for
redemption must be surrendered to the Company to collect the Redemption Price
for, and any accrued and unpaid interest on, such Senior Notes; (v) that, unless
the Company defaults in making such redemption payment, interest on Senior Notes
called for redemption ceases to accrue on and after the Redemption Date and the
only remaining right of the Holders of such Senior Notes is to receive
38
payment of the Redemption Price upon surrender to the Company of the Senior
Notes redeemed; and (vi) if fewer than all the Senior Notes are to be redeemed,
the identification of the particular Senior Notes (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Senior Notes to be
redeemed and the aggregate principal amount of Senior Notes to be outstanding
after such partial redemption.
6.2 Selection of Senior Notes to be Redeemed or Purchased. If less than
-----------------------------------------------------
all outstanding Senior Notes are to be redeemed or if less than all Senior Notes
tendered pursuant to an Offer are to be accepted for payment, the Company shall
select the outstanding Senior Notes to be redeemed or accepted for payment in
compliance with the requirements of the principal national securities exchange,
if any, on which the Senior Notes are listed or, if the Senior Notes are not
listed on a securities exchange, on a pro rata basis, by lot or by any other
method that the Company deems fair and appropriate. The Company shall select for
redemption or purchase Senior Notes or portions of Senior Notes in principal
amounts of $1,000 or integral multiples thereof; except that if all of the
Senior Notes of a Holder are selected for redemption or purchase, the aggregate
principal amount of the Senior Notes held by such Holder, even if not a multiple
of $1,000, may be redeemed or purchased. Except as provided in the preceding
sentence, provisions of this Agreement that apply to Senior Notes called for
redemption or tendered pursuant to an Offer also apply to portions of Senior
Notes called for redemption or tendered pursuant to an Offer.
6.3 Effect of Notice of Redemption. Once notice of redemption is mailed
------------------------------
to the Holders, Senior Notes called for redemption become due and payable on the
Redemption Date at the Redemption Price. Upon surrender to the Company, the
Senior Notes called for redemption shall be paid at the Redemption Price.
6.4 Payment of Redemption Price. On or prior to any Redemption Date,
---------------------------
the Company shall segregate money sufficient to pay the Redemption Price of, and
accrued interest on, all Senior Notes to be redeemed on that date. Unless the
Company defaults in the payment of such Redemption Price, interest on the Senior
Notes to be redeemed will cease to accrue on such Senior Notes on the applicable
Redemption Date, whether or not such Senior Notes are presented for payment. If
a Senior Note is redeemed on or after an interest Record Date but on or prior to
the related Interest Payment Date, then any accrued and unpaid interest shall be
paid to the Person in whose name such Senior Note was registered at the close of
business on such Record Date. If any Senior Note called for redemption shall not
be so paid upon surrender for redemption, interest will be paid on the unpaid
principal, premium, if any, and interest from the Redemption Date until such
principal, premium and interest is paid, at the rate of interest provided in the
Senior Notes and Section 7.1. If a Redemption Date is a non-Business Day,
payment shall be made on the next succeeding Business Day and no interest shall
accrue for the period from the Redemption Date to such succeeding Business Day.
6.5 Senior Notes Redeemed in Part. Upon surrender of a Senior Note that
-----------------------------
is redeemed in part, the Company shall issue to the Holder thereof at the
Company's expense a new Senior Note equal in principal amount to the unredeemed
portion of the Senior Note surrendered.
39
6.6 Optional and Mandatory Redemption
---------------------------------
(a) The Senior Notes will be subject to redemption, in whole or
from time to time in part (in multiples of $1,000 of principal amount) at the
option of the Company, at 100% of the principal amount so repaid, plus any
accrued and unpaid interest to the Redemption Date.
(b) On the date which is eighteen months following the Closing
Date, the Company shall redeem $2.5 million in principal amount of the Senior
Notes (without prepayment penalty or premium), at 100% of the principal amount
so redeemed, plus any accrued and unpaid interest thereon to the Redemption
Date.
(c) Upon any partial prepayment or redemption of the Senior Notes,
the principal amount so prepaid or redeemed shall be allocated to all Senior
Notes at the time outstanding in proportion to the respective outstanding
principal amounts thereof, and a corresponding pro rata adjustment shall be made
in the minimum denomination of a Senior Note pursuant to Section 12.1.
6.7 Mandatory Offers
----------------
(a) Within 15 Business Days after any Change of Control Trigger
Date, any Repayment Trigger Date or any Excess Proceeds Date, the Company shall
mail a notice to each Holder containing all instructions and materials necessary
to enable such Holders to tender Senior Notes pursuant to the Offer and stating:
(i) that an Offer is being made pursuant to Section 7.12 or 7.13, as the case
may be, the length of time the Offer shall remain open, and the maximum
aggregate principal amount of Senior Notes that the Company is required to
purchase pursuant to such Offer; (ii) the purchase price for the Senior Notes
(as set forth in Section 7.12 or 7.13, as the case may be), the amount of
accrued and unpaid interest on such Senior Notes as of the purchase date, and
the purchase date (which shall be no earlier than 30 days nor later than 40 days
from the date such notice is mailed (the "Purchase Date"); (iii) that any Senior
Note not tendered will continue to accrue interest if interest is then accruing;
(iv) that, unless the Company defaults in the payment of the purchase price on
the Purchase Date, interest shall cease to accrue on such Senior Notes on the
Purchase Date; (v) that Holders electing to tender any Senior Note or portion
thereof will be required to surrender their Senior Note, with a form entitled
"Option of Holder to Elect Purchase" completed, to the Company at the address
specified in Section 14.2 hereof prior to the close of business on the Business
Day preceding the Purchase Date, provided that Holders electing to tender only a
--------
portion of any Senior Note must tender a principal amount of $1,000 or integral
multiples thereof; (vi) that Holders will be entitled to withdraw their election
to tender Senior Notes if the Company receives, not later than the close of
business on the second Business Day preceding the Purchase Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the Holder,
the principal amount of Senior Notes delivered for purchase, and a statement
that such Holder is withdrawing his election to have such Senior Notes
purchased; (vii) that Holders whose Senior Notes are accepted for payment in
part will be issued new Senior Notes equal in principal amount to the
unpurchased portion of Senior Notes
40
surrendered, provided that only Senior Notes in a principal amount of $1,000 or
--------
integral multiples thereof will be accepted for payment in part and (viii) if
the Offer is made with respect to a Change of Control, the circumstances and
relevant facts regarding such Change of Control.
(b) On the Purchase Date for any Offer, the Company shall (i) in the
case of an Offer resulting from a Change of Control, accept for payment all
Senior Notes or portions thereof tendered pursuant to such Offer, (ii) in the
case of an Offer resulting from one or more Securities Sales or Mezzanine Debt
Financings the aggregate Net Cash Proceeds of which exceed $20,000,000, accept
for payment all Senior Notes or portions thereof tendered pursuant to such
Offer, and (iii) in the case of an Offer resulting from an Asset Disposition
with respect to Existing Assets pursuant to which the Company or any Subsidiary
has Excess Proceeds, accept for payment the maximum principal amount of Senior
Notes that can be purchased out of such Excess Proceeds.
(c) With respect to any Offer, (i) if less than all of the Senior
Notes tendered pursuant to an Offer are to be accepted for payment by the
Company for any reason, the Company shall select on or prior to the Purchase
Date the Senior Notes or portions thereof to be accepted for payment pursuant to
Section 6.2; and (ii) unless the Company defaults in the payment of the purchase
price for such Senior Notes on the Purchase Date, interest shall cease to accrue
on such Senior Notes on the Purchase Date; provided, however, that if the
-------- -------
Company fails to purchase all Senior Notes accepted for payment, the Company
shall purchase on a pro rata basis all Senior Notes accepted for payment and
interest shall continue to accrue on all Senior Notes not purchased.
(d) Promptly after the Purchase Date with respect to an Offer, (i) the
Company shall mail to each Holder of Senior Notes or portions thereof accepted
for payment an amount equal to the purchase price for, plus any accrued and
unpaid interest on, such Senior Notes, (ii) with respect to any tendered Senior
Note not accepted for payment in whole or in part, the Company shall return such
Senior Note to the Holder thereof, and (iii) with respect to any Senior Note
accepted for payment in part, the Company shall authenticate and mail to each
such Holder a new Senior Note equal in principal amount to the unpurchased
portion of the tendered Senior Note.
(e) The Company will (i) publicly announce the results of the Offer on
or as soon as practicable after the Purchase Date, and (ii) comply with Rule
14e-1 under the Exchange Act and any other securities laws and regulations to
the extent such laws and regulations are applicable to any Offer.
(f) Notwithstanding Section 7.12 and Section 6.7, upon the occurrence
of a Change in Control Trigger Date, in lieu of repurchasing Senior Notes as
required by Section 7.12, the Company may elect, instead, to call for redemption
all Senior Notes pursuant to Section 6.1 provided that the related Notice of
Redemption is mailed to all holders not later than the last date that it would
be required to commence a Mandatory Offer pursuant to Section 6.7 in respect of
such Change in Control.
41
ARTICLE VII
COVENANTS
7.1 Payment of Senior Notes. The Company shall pay the principal of, and
-----------------------
premium, if any, and interest on, the Senior Notes on the dates and in the
manner provided in the Senior Notes. Holders must surrender their Senior Notes
to the Company to collect principal payments. Principal, premium, or interest
shall be considered paid on the date due if, by 2:00 p.m. Eastern Time on such
date, the Company shall have executed wire transfers in immediately available
funds designated for and sufficient to pay such principal, premium or interest.
To the extent lawful, the Company shall pay interest (including Post-Petition
Interest) on overdue principal, premium and interest (without regard to any
applicable grace period) at a rate equal to 1.0% per annum in excess of the then
applicable interest rate on the Senior Notes, compounded semiannually.
7.2 Reports.
-------
(a) To the extent permitted by applicable law or regulation, whether
or not the Company is subject to the requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall file with the Commission all quarterly and
annual reports and such other information, documents or other reports (or copies
of such portions of any of the foregoing as the Commission may by rules and
regulations prescribe) required to be filed pursuant to such provisions of the
Exchange Act. If the Company is not permitted by applicable law or regulations
to file the aforementioned reports, the Company (at its own expense) shall mail
to Holders at their addresses appearing in the register of Senior Notes at the
time of such mailing within 5 days after it would have been required to file
such information with the Commission, all information and financial statements,
including any notes thereto and with respect to annual reports, an auditors'
report by an accounting firm of established national reputation, and a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," comparable to the disclosure that the Company would have been
required to include in annual and quarterly reports, information, documents or
other reports, including, without limitation, reports on Forms 10-K, 10-Q and 8-
K, if the Company was subject to the requirements of such Section 13 or 15(d) of
the Exchange Act.
(b) At any time when the Company is not permitted by applicable law or
regulations to file the aforementioned reports, upon the request of a Holder of
a Senior Note, the Company will promptly furnish or cause to be furnished such
information as is specified pursuant to Rule 144A(d)(4) under the Securities Act
(or any successor provision thereto) to such Holder or to a prospective
purchaser of such Senior Note designated by such Holder, as the case may be, in
order to permit compliance by such Holder with Rule 144A under the Securities
Act.
42
7.3 Compliance Certificate.
----------------------
(a) The Company shall deliver to the Holders, within 135 days after
the end of each fiscal year of the Company, an Officers' Certificate stating
that (i) a review of the activities of the Company and its Subsidiaries during
the preceding fiscal year has been made to determine whether the Company has
kept, observed, performed and fulfilled all of its obligations under this
Agreement and the Senior Notes, (ii) such review was supervised by the Officers
of the Company signing such certificate, and (iii) that to the best knowledge of
each Officer signing such certificate, (A) the Company has kept, observed,
performed and fulfilled each and every covenant contained in this Agreement and
is not in default in the performance or observance of any of the terms,
provisions and conditions of this Agreement (or, if a Default or Event of
Default occurred, describing all such Defaults or Events of Default of which
each such Officer may have knowledge and what action the Company has taken or
proposes to take with respect thereto), and (B) no event has occurred and
remains in existence by reason of which payments on account of the principal of,
or premium, if any, or interest on, the Senior Notes are prohibited or if such
event has occurred, a description of the event and what action the Company is
taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the Officers' Certificate
delivered pursuant to Section 7.3(a) shall be accompanied by a written statement
of BDO ▇▇▇▇▇▇▇ LLP, the Company's independent public accountants (or another
independent accounting firm of established national reputation reasonably
satisfactory to the Holders), that in making the examination necessary for
certification of such financial statements nothing has come to their attention
that would lead them to believe that the Company has violated any provisions of
Sections 7.1, 7.5, 7.7, 7.10, 7.13, or Article VIII, or if any such violation
has occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company will, so long as any of the Senior Notes are
outstanding, deliver to the Holders, promptly after any Officer of the Company
becomes aware of (i) any Default or Event of Default, or (ii) any default or
event of default under any other mortgage, Agreement or instrument that could
result in an Event of Default under Section 9.1, an Officers' Certificate
specifying such Default, Event of Default or default and what action the Company
is taking or proposes to take with respect thereto.
7.4 Stay, Extension and Usury Laws. The Company covenants (to the extent
------------------------------
that it may lawfully do so) that it will not at any time insist upon, plead, or
in any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
that might affect the covenants or the performance of its obligations under this
Agreement and the Senior Notes; and the Company (to the extent it may lawfully
do so) hereby expressly waives all benefit or advantage of any such law, and
covenants
43
that it will not, by resort to any such law, hinder, delay or impede the
execution of any power granted to the Holders pursuant to this Agreement, but
will suffer and permit the execution of every such power as though no such law
has been enacted.
7.5 Limitation on Restricted Payments.
---------------------------------
(a) The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, make any Restricted Payment, except (i) payments,
prepayments, repurchases, redemptions and acquisitions with respect to
Indebtedness not incurred in violation of Section 7.7, and (ii) Restricted
Payments by the Company if (A) at the time of and after giving effect to the
proposed Restricted Payment no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof, (B) at the time of
and immediately after giving effect to the proposed Restricted Payment, the
Company could Incur at least $1.00 of additional Indebtedness pursuant to
Section 7.7(b) and (C) at the time of and immediately after giving effect to the
proposed Restricted Payment (the value of any such payment if other than cash,
as determined by the Board of Directors, whose determination shall be conclusive
and evidenced by a Board Resolution, provided that in the event such value
--------
exceeds $2,000,000 such determination shall be supported by a fairness opinion
of an Independent Financial Advisor) the aggregate amount of all Restricted
Payments (excluding all payments, investments, redemptions, repurchases,
retirements and other acquisitions described in clauses (ii), (iii) and (iv) of
Section 7.5(b) below) declared or made after the date hereof does not exceed an
amount equal to the sum of (A) 50% of the Consolidated Net Income accrued during
the period (treated as one accounting period) from the first day of the first
month of the fiscal quarter in which the Senior Notes were originally issued
through the last full fiscal quarter for which quarterly or annual financial
statements are available prior to the date of such Restricted Payment (or, in
case such Consolidated Net Income shall be a deficit, minus 100% of such
deficit), plus (B) an amount equal to 100% of the aggregate Net Cash Proceeds
received by the Company from the issuance and sale (other than to a Subsidiary
of the Company) of Qualified Capital Stock to the extent that such proceeds are
not used to redeem, repurchase, return or otherwise acquire Capital Stock or any
Indebtedness of the Company or any Subsidiary pursuant to clause (iii) of
Section 7.5(b).
(b) Notwithstanding Section 7.5(a), the following Restricted Payments
may be made: (i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of this Agreement; (ii) the payment of any dividend
on the Company's Convertible Preferred Stock in accordance with the dividend
provisions set forth in the respective Certificates of Designation for such
Convertible Preferred Stock as in effect on the date hereof; (iii) the
redemption, repurchase, retirement or other acquisition for value of any Capital
Stock or any Indebtedness of the Company or any Subsidiary in exchange for, or
out of the Net Cash Proceeds of, the substantially concurrent sale (other than
to the Company or a Subsidiary of the Company) of Qualified Capital Stock of the
Company; (iv) the redemption, repurchase, retirement, or other acquisition for
value of up to an aggregate of 1,000,000 shares of the Company's outstanding
Common Stock pursuant to the Company's stock repurchase program as in effect on
the date hereof, provided that as of the date hereof, the Company has redeemed,
--------
repurchased, retired, or otherwise acquired for
44
value 27,000 of such shares; and (v) any other Restricted Payments after the
date hereof up to $1,000,000 in the aggregate (on a cumulative basis).
7.6 Corporate Existence. Subject to Article VIII, the Company will do or
-------------------
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate existence of each of its
Subsidiaries in accordance with the respective organizational documents of each
of its Subsidiaries and the rights (charter and statutory), licenses and
franchises of the Company and each of its Subsidiaries; provided, however, that
-------- -------
the Company shall not be required to preserve any such right, license or
franchise, or the corporate existence of any Subsidiary, if the Company shall
determine in good faith that the preservation thereof is no longer desirable in
the conduct of the business of the Company and its Subsidiaries taken as a
whole.
7.7 Limitation on Indebtedness.
--------------------------
(a) Except as set forth in this Section 7.7, the Company shall not,
and shall not permit any Subsidiary, after the date hereof, directly or
indirectly, to Incur any Indebtedness (including Acquired Indebtedness). For
purposes of this Agreement, Indebtedness of any Acquired Person that is not a
Subsidiary, which Indebtedness is outstanding at the time such Person is
acquired by the Company or a Subsidiary or becomes, or is merged into or
consolidated with, a Subsidiary, shall be deemed to have been Incurred by the
Company or the acquiring Subsidiary at the time such Acquired Person becomes, or
is merged into or consolidated with, a Subsidiary.
(b) Notwithstanding Section 7.7(a) and in addition to Indebtedness
permitted to be Incurred under Section 7.7(c), the Company or any Subsidiary may
Incur Indebtedness if (i) no Default or Event of Default shall have occurred and
be continuing at the time or as a consequence of the Incurrence of such
Indebtedness and (ii) on the date of the Incurrence of such Indebtedness, the
Consolidated Interest Coverage Ratio of the Company and its Subsidiaries at the
time of such Incurrence, after giving pro forma effect thereto, is not less than
2.5 to 1.
(c) Notwithstanding Section 7.7(a) and in addition to Indebtedness
permitted to be Incurred under Section 7.7(b), the Company and its Subsidiaries
may Incur, after the date hereof, any of the following Indebtedness:
(i) Indebtedness outstanding at the date hereof as set forth on
Schedule 4.8, including the Indebtedness evidenced by the Senior Notes;
------------
(ii) Indebtedness to any Wholly-Owned Subsidiary or other
Designated Subsidiary of the Company or Indebtedness of any Subsidiary to
the Company (provided that such Indebtedness is at all times held by the
Company or a Wholly-Owned Subsidiary or other Designated Subsidiary of the
Company); provided, however, that for purposes of this Section 7.7, upon
-------- -------
either (A) the transfer or other
45
disposition by any such Wholly-Owned Subsidiary or other Designated
Subsidiary (except a Real Estate Partnership) of any Indebtedness so
permitted to a Person other than the Company or another Wholly-Owned
Subsidiary of the Company or (B) except as permitted by Section 7.18 hereof
or with respect to a Real Estate Partnership, the issuance, sale, lease,
transfer or other disposition of shares of Capital Stock (including by
consolidation or merger) of such Wholly-Owned Subsidiary or other
Designated Subsidiary to a Person other than the Company or another such
Wholly-Owned Subsidiary, the provisions of this clause (ii) shall no longer
be applicable to such Indebtedness and such Indebtedness shall be deemed to
have been Incurred by the Company at the time of such transfer or other
disposition;
(iii) Refinancing Indebtedness with respect to Indebtedness that
was Incurred prior to the date hereof or, if incurred after the date
hereof, was Incurred in compliance with the provisions of this Agreement;
provided, however, that (A) the principal amount of such Refinancing
-------- -------
Indebtedness shall not exceed the principal amount (or accreted value, in
the case of Indebtedness issued at a discount) of the Indebtedness so
extended, refinanced, renewed, replaced, substituted, defeased or refunded
(plus the amount of fees, costs and expenses incurred and the amount of any
premium, penalties, breakage costs and other similar amounts required to be
paid in connection with such refinancing pursuant to the terms of the
instrument governing the Indebtedness so extended, refinanced, renewed,
replaced, substituted, defeased or refunded or the amount of any premium
reasonably determined by the Company as necessary to accomplish a
refinancing by means of a tender offer or privately negotiated repurchase,
plus the fees, costs and expenses of such tender offer or repurchase); and
(B) the Refinancing Indebtedness shall (1) have a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of
the Indebtedness being extended, refinanced, renewed, replaced,
substituted, defeased or refunded; (2) not have a final scheduled maturity
earlier than the final scheduled maturity of the Indebtedness being
extended, refinanced, replaced, renewed, substituted, defeased or refunded;
(3) not permit redemption at the option of the holder earlier than the
earliest date of redemption at the option of the holder of the Indebtedness
being extended, refinanced, renewed, replaced, substituted, defeased or
refunded; and (4) rank no more senior or be at least as subordinated, as
the case may be, in right of payment to the Senior Notes as the
Indebtedness being extended, refinanced, replaced, renewed, substituted,
defeased or refunded;
(iv) With respect to the Company, contingent liabilities
associated with existing Investments in 1170060 Ontario Limited, if
incurred on a basis consistent with past practice;
(v) Acquired Indebtedness, including any related Guarantee by
the Company, in an aggregate amount not exceeding $75,000,000, if, (A) at
the time of Incurrence thereof, (1) with respect to Acquired Indebtedness
of the type described in clause (a) of the definition thereof, the
Consolidated Interest Coverage Ratio of the
46
Company calculated prior to giving pro forma effect to the Incurrence of
such Acquired Indebtedness and the transaction pursuant to which or in
connection with which the Company Incurred such Acquired Indebtedness is
less than the Consolidated Interest Coverage Ratio of the Company
calculated on a pro forma basis after giving effect to the Incurrence of
such Acquired Indebtedness and the transaction pursuant to which or in
connection with which the Company incurred such Acquired Indebtedness and
(2) with respect to Acquired Indebtedness of the type described in clause
(b) of the definition thereof, (x) the Consolidated Interest Coverage Ratio
of the Company calculated after giving pro forma effect to the Incurrence
of such Acquired Indebtedness and the transaction pursuant to which or in
connection with which the Company Incurred such Acquired Indebtedness (and
any Acquired Indebtedness incurred under (1) above in connection with the
same transaction) is positive, or (y) such Acquired Indebtedness
constitutes Pari Passu Indebtedness or Subordinated Indebtedness; (B) no
more than $25,000,000 of such Acquired Indebtedness is secured, provided,
--------
that to the extent any secured Acquired Indebtedness in excess of such
$25,000,000 limit is incurred ("Excess Secured Acquired Indebtedness") the
Senior Notes shall be equally and ratably secured with such Excess Secured
Acquired Indebtedness; and (C) no more than $50,000,000 of such Acquired
Indebtedness is incurred in connection with any single transaction or
series of related transactions;
(vi) Subordinated Indebtedness in an aggregate amount not
exceeding $50,000,000, provided such Subordinated Indebtedness shall (A)
have a Weighted Average Life to Maturity at least 30 days greater than the
Weighted Average Life to Maturity of the Senior Notes at the time such
Subordinated Indebtedness is Incurred; (B) not have a final scheduled
maturity earlier than the final scheduled maturity of the Senior Notes; and
(C) not permit redemption at the option of the holder earlier than the
earliest date of redemption at the option of the holder of the Senior
Notes;
(vii) Guarantees of Indebtedness Incurred by Subsidiaries or
Designated Subsidiaries of the Company, provided that the Indebtedness of
such Subsidiaries to which such Guarantees relate does not exceed an
aggregate of $3,000,000;
(viii) Indebtedness of the Company or any Subsidiary, whether or
not secured by a Lien, representing Capital Lease Obligations, mortgage
financings or purchase money Obligations, in each case Incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of assets or Property used in the business of
the Company or such Subsidiary, and with (A) respect to Indebtedness
Incurred prior to March 1, 1998, such Indebtedness is Incurred within 180
days of the date the related asset is first put into service and (B) with
respect to Indebtedness Incurred or after March 1, 1998, such Indebtedness
is Incurred prior to or at the time the related asset is first put into
service.
(ix) Indebtedness not otherwise permitted to be Incurred
pursuant to clauses (i) through (viii) above which, together with any other
outstanding Indebtedness
47
Incurred pursuant to this clause (ix), has an aggregate principal amount
not in excess of $5,000,000 at any one time outstanding.
7.8 Limitation on Transactions with Affiliates.
------------------------------------------
(a) Neither the Company nor any of its Subsidiaries shall enter into
any transaction or series of transactions to sell, lease, transfer, exchange or
otherwise dispose of any of its properties or assets to or to purchase any
property or assets from, or for the direct or indirect benefit of, an Affiliate
of the Company or of any Subsidiary of the Company, make any Investment in or
enter into any contract, agreement, understanding, loan, advance or Guarantee
with, or for the direct or indirect benefit of, an Affiliate of the Company or
of any Subsidiary of the Company (each, including any series of transactions
with one or more Affiliates, an "Affiliate Transaction"), unless the Board of
Directors of the Company or the relevant Subsidiary determines, as evidenced by
a Board Resolution, that the terms of such Affiliate Transaction are fair and
reasonable to the Company and no less favorable to the Company or the relevant
Subsidiary than those that could have been obtained at that time in a comparable
arms-length transaction by the Company or such Subsidiary with an unrelated
Person.
(b) Neither the Company nor any of its Subsidiaries shall enter into
an Affiliate Transaction involving or having a potential aggregate value of more
than $1,000,000 unless, in addition to the requirements of (a) above, (i) such
transaction has been approved by a majority of the Board of Directors of the
Company or the relevant Subsidiary who have no direct or indirect interest in
the Affiliate Transaction or in the Affiliate that is a party to the Affiliate
Transaction, or in any other party that is an Affiliate of any such Affiliate,
and (ii) the Company shall have delivered to the Holders an Officer's
Certificate certifying that the conditions set forth in clause (b)(i) above have
been satisfied.
(c) Neither the Company nor any of its Subsidiaries shall enter into
an Affiliate Transaction involving or having a potential aggregate value of more
than $2,000,000 unless, in addition to the requirements of (a) and (b) above,
the Board of Directors of the Company or the relevant Subsidiary shall first
have received a written opinion from an Independent Financial Advisor for the
benefit of the Company and the Holders, which firm is not receiving any
contingent fee or other consideration directly or indirectly related to the
successful completion of the Affiliate Transaction, to the effect that the
proposed Affiliate Transaction is fair to the Company from a financial point of
view.
(d) The provisions of this Section 7.8 shall not apply to (i) any
Restricted Payment that is made in compliance with the provisions of Section
7.5, (ii) the fees and compensation paid to or indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Subsidiary,
as determined by the Board of Directors of the Company or such Subsidiary or the
senior management thereof in good faith, (iii) transactions exclusively between
or among the Company and any Wholly-Owned Subsidiary or exclusively between or
among Wholly-Owned Subsidiaries provided such transactions are not otherwise
prohibited by this Agreement, (iv) any transaction with a Designated Subsidiary
not in violation
48
of this Agreement, and (v) any Affiliate Transaction in existence as of the date
hereof, the terms of which are described in the SEC Reports or on Schedule 4.26
-------------
hereof.
7.9 Limitation on Liens. The Company shall not, and shall not permit any
-------------------
of its Subsidiaries to, Incur, assume, suffer to exist, create or otherwise
cause to be effective any Lien on any asset now owned or hereafter acquired, or
any income or profits therefrom or assign or convey any right to receive income
therefrom to secure any Indebtedness except: (a) Permitted Liens, (b) Liens
existing as of the date hereof (and any extension, renewal or replacement Liens
upon the same Property subject to such Liens, provided the principal amount of
Indebtedness secured by each Lien constituting such an extension, renewal or
replacement Lien shall not exceed the principal amount of Indebtedness secured
by the Lien theretofore existing, plus amounts described in Section
7.7(c)(iii)(A) with respect to permitted Refinancing Indebtedness), (c) Liens
securing Indebtedness of any Subsidiary of the Company, provided that (i) such
--------
Liens are limited to Property or assets of such Subsidiary, (ii) the
Indebtedness secured by such Liens was not Incurred in violation of this
Agreement and (iii) the Indebtedness secured by such Liens is not subordinated
to or junior in right or priority of payment in any respect to any other
Indebtedness of such Subsidiary; and (d) Liens replacing, extending or renewing,
in whole or in part, any Lien described in the foregoing clauses (a) through
(c), including in connection with any refinancing of the Indebtedness, in whole
or in part, secured by any such Lien effected in accordance with Section 7.7,
provided that if any such clauses limit the amount secured by or the Property or
--------
assets subject to such Liens, no such replacement, extension or renewal shall
increase the amount of Indebtedness or the Property or assets subject to such
Liens.
7.10 Payment of Taxes and Other Claims. The Company shall, and shall cause
---------------------------------
each of its Subsidiaries to, pay or discharge, before the same shall become
delinquent, all Taxes, assessments and governmental charges levied or imposed
upon it or any of its Subsidiaries or properties of the Company or any of its
Subsidiaries; provided, however, that the Company shall not be required to pay
-------- -------
or discharge or cause to be paid or discharged any such Tax, assessment, charge
or claim if either (i) the amount, applicability or validity thereof is being
contested in good faith by appropriate proceedings and an adequate reserve has
been established therefor to the extent required by GAAP or (ii) the failure to
make such payment or effect such discharge (together with all other such
failures) would not have a Material Adverse Effect.
7.11 Restrictions Against Limitations on Upstream Payments. The Company
-----------------------------------------------------
will not, and will not permit any Subsidiary of the Company to, create or
otherwise cause or suffer to exist or to become effective any Payment
Restriction, except for such Payment Restrictions or encumbrances existing under
or by reason of: (i) any instrument governing Indebtedness of the Company or
any of its Subsidiaries not Incurred in violation of this Agreement, (ii)
applicable law, (iii) any instrument governing Indebtedness or Capital Stock of
a Person acquired by the Company or any of its Subsidiaries as in effect at the
time of such acquisition (except to the extent such Indebtedness was Incurred in
contemplation of or in connection with such acquisition), provided, that such
---------
restriction is not applicable to any Person, or the Property or assets of any
Person, other than the Acquired Person, (iv) non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices, (v) instruments
49
governing purchase money Indebtedness for Property acquired in the ordinary
course of business that only impose restrictions on the Property so acquired,
(vi) any agreement for the sale or disposition of the Capital Stock or assets of
such Subsidiary, provided that such restriction is only applicable to such
--------
Subsidiary or assets, as applicable, (vii) Refinancing Indebtedness permitted
under this Agreement with respect to Indebtedness described in clauses (iii),
(iv) or (v), provided that the restrictions contained in the agreements
--------
governing such Refinancing Indebtedness are no more restrictive in the aggregate
than those contained in the instrument governing the Indebtedness being
refinanced immediately prior to such refinancing. Notwithstanding the foregoing,
(A) Color Me Mine, Inc., a Subsidiary of the Company, may, in connection with a
Public Offering (or in connection with a private offering of its Capital Stock
in which the Gross Proceeds equal or exceed $3,000,000), create, or otherwise
cause or suffer to exist or to become effective, a Payment Restriction with
respect to the Net Cash Proceeds of such Public Offering or private offering,
and (B) in the event the Company organizes or enters into a limited partnership,
limited liability company or other entity for the purpose of financing Related
Businesses to be operated under the name of the Company or any Subsidiary or
Affiliate of the Company (a "Real Estate Partnership"), such Real Estate
Partnership may create, or otherwise cause or suffer to exist or to become
effective, a Payment Restriction.
7.12 Change of Control. Upon the occurrence of a Change of Control (such
-----------------
date being the "Change of Control Trigger Date"), each Holder will have the
right to require the Company to repurchase all or any part of such Holder's
Senior Notes pursuant to the Offer (but, with respect to any partial tender of
Senior Notes, the Company shall only be required to purchase principal amounts
in integral multiples of $1,000) at a purchase price in cash equal to 101% of
the aggregate principal amount thereof, plus accrued and unpaid interest to the
Purchase Date. The Offer shall be effected in accordance with Section 6.7 and
Article VI (to the extent applicable) and the provisions of this Section 7.12;
provided, however, that this Section 7.12 shall not apply if the Company instead
elects to redeem all Senior Notes as provided in Section 6.7(f).
7.13 Redemption from the Proceeds of Securities Sales and Mezzanine Debt
-------------------------------------------------------------------
Financings.
----------
(a) The Company will not, and will not permit any of its Subsidiaries
to, undertake any Securities Sale or any Mezzanine Debt Financing, unless: (i)
the Company or the applicable Subsidiary receives consideration, which, at the
time of such Securities Sale or Mezzanine Debt Financing, is at least equal to
the fair market value of the Capital Stock or other equity or debt securities
sold or otherwise disposed of (as determined in good faith by the Board
of Directors of the Company evidenced by a Board Resolution); and (ii) the Net
Cash Proceeds received by the Company or such Subsidiary, as the case may be,
from such Securities Sale or Mezzanine Debt Financing are applied in accordance
with this Section 7.13.
(b) As soon as practicable, but in no event later than 10 Business
Days after any date (with respect to both a Securities Sale or a Mezzanine Debt
Financing, a "Repayment Trigger Date") that the aggregate amount of Net Cash
Proceeds from all such Securities Sales or
50
Mezzanine Debt Financings occurring on or after the date hereof exceed
$20,000,000, the Company shall commence an Offer to purchase the maximum
principal amount of Senior Notes that may be purchased out of such Net Cash
Proceeds, at an offer price in cash equal to 100% of the principal amount
thereof, plus accrued and unpaid interest to the Purchase Date. The Offer shall
be effected in accordance with Section 6.7 and Article VI (to the extent
applicable) and the provisions of this Section 7.13. To the extent that any
such Net Cash Proceeds remain after completion of an Offer, the Company may use
the remaining amount for any purpose permitted by this Agreement.
7.14 Intentionally Omitted.
----------------------
7.15 Maintenance of Properties. The Company will use all reasonable
-------------------------
commercial efforts to cause all properties used or useful in the conduct of its
business or the business of any Subsidiary of the Company to be maintained and
kept in good condition, repair and working order, subject to normal wear and
tear, and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this Section 7.15 shall prevent
the Company from discontinuing the operation or maintenance of any of such
properties if such discontinuance is, as determined by the Company in good
faith, desirable in the conduct of its business or the business of any
Subsidiary.
7.16 Maintenance of Insurance. The Company shall, and shall cause its
------------------------
Subsidiaries to, (a) keep at all times all of their properties which are of an
insurable nature insured against loss or damage with financially sound and
reputable insurers to the extent that property of similar character is usually
so insured by corporations similarly situated and owning like properties in
accordance with good business practice, and (b) will maintain with financially
sound and reputable insurers insurance against other hazards and risks and
liability to persons and property to the extent and in a manner customary for
corporations in similar business similarly situated. The Company shall, and
shall cause its Subsidiaries to, use the proceeds from any such insurance policy
to repair, replace or otherwise restore the property to which such proceeds
relate, except to the extent that a different use of such proceeds is, as
determined by the Company, in good faith, desirable in the conduct of its
business or the business of any Subsidiary and not disadvantageous in any
material respect to the Holders.
7.17 Compliance with Laws. The Company shall comply, and shall cause each
--------------------
of its Subsidiaries to comply, with all applicable statutes, rules, regulations,
orders and restrictions of the United States of America, all states and
municipalities thereof, and of any governmental department, commission, board,
regulatory authority, bureau, agency and instrumentality of the foregoing, in
respect of the conduct of their respective businesses and the ownership of their
respective properties, except such as are being contested in good faith and by
appropriate proceedings and except for such noncompliance as would not in the
aggregate have a Material Adverse Effect.
51
7.18 Limitation on Issuances and Dispositions of Capital Stock of
------------------------------------------------------------
Subsidiaries. The Company (a) shall not, and shall not permit any Subsidiary
------------
to, transfer, convey, sell, or otherwise dispose of any Capital Stock, or
securities convertible into or exercisable or exchangeable for, or options,
warrants, rights or any other interest with respect to, Capital Stock of a
Subsidiary to any Person (other than the Company or a Wholly-Owned Subsidiary)
unless such transfer, conveyance, sale, lease or other disposition is of 100% of
the Capital Stock of such Subsidiary held by the Company and the Net Cash
Proceeds from such transfer, conveyance or sale are applied in accordance with
Section 7.19 hereof and (b) shall not permit any Subsidiary to issue shares of
its Capital Stock (other than directors' qualifying shares), or securities
convertible into or exercisable or exchangeable for, or options, warrants,
rights or any other interest with respect to, its Capital Stock to any Person
other than to the Company or a Wholly-Owned Subsidiary; provided, however, that
-------- -------
this Section 7.18 shall not prevent (i) the sale of less than 100% of the
Capital Stock of a Subsidiary of the Company if such Subsidiary accounted for 5%
or less of the Consolidated EBITDA for the four most recent full fiscal quarters
ending immediately prior to such transaction and is projected by the Company in
good faith (as set forth in an Officers' Certificate delivered to the Holders)
to account for less than 5% Consolidated EBITDA for the four quarters
immediately following such transaction, or (ii) the sale of less than 100% of
the Capital Stock of Color Me Mine, Inc.
7.19 Limitation on Sale of Existing Assets.
-------------------------------------
(a) The Company shall not, and shall not permit any of its
Subsidiaries (other than the Designated Subsidiaries) to undertake an Asset
Disposition with respect to its or such Subsidiaries' Existing Assets unless (i)
the Board of Directors of the Company or such Subsidiary, as applicable,
determines in good faith that the Company or such Subsidiary, as applicable,
receives consideration at the time of such Asset Disposition at least equal to
the Fair Market Value of such Existing Assets issued or sold or otherwise
disposed of, (ii) no Default or Event of Default would occur as a consequence of
(after giving effect, on a pro forma basis, to) such Asset Disposition, and
(iii) at least 75% of the consideration therefor received by the Company or such
Subsidiary is in the form of cash or Cash Equivalents; provided that for
purposes of this provision the amount of (A) any Indebtedness (other than Senior
Notes) that is required to be repaid or assumed (and is either repaid or assumed
by the transferee of the related assets) by virtue of such Asset Disposition and
which is secured by a Lien on the property or assets sold and (B) any securities
or other obligations received by the Company or any such Subsidiary from such
transferee that are immediately converted by the Company or such Subsidiary from
such transferee that are immediately converted by the Company or such Subsidiary
into cash (or as to which the Company or such Subsidiary has received at or
prior to the consummation of such Asset Disposition a commitment (which may be
subject to customary conditions) from a nationally recognized investment,
merchant or commercial bank to convert into cash within 90 days of the
consummation of such Asset Disposition and which are thereafter actually
converted into cash within such 90-day period, will be deemed to be cash.
(b) Within 270 days after the receipt of any Net Cash Proceeds from an
52
Asset Disposition with respect to Existing Assets, the Company may invest or
commit such Net Cash Proceeds, pursuant to a binding commitment subject only to
reasonable, customary closing conditions, to be invested (and providing such Net
Cash Proceeds are, in fact, so invested, within an additional 90 days) in assets
and Property (other than notes, bonds, obligations and securities of an entity
not wholly-owned by the Company) which in the good faith reasonable judgment of
the Company will immediately constitute or be part of a Related Business of the
Company or such Subsidiary (if it continues to be a Subsidiary) immediately
following such transaction. Pending the application of any such Net Cash
Proceeds as described above, the Company may invest such Net Cash Proceeds in
any manner that is not prohibited by this Agreement. Any Net Cash Proceeds from
an Asset Disposition with respect to Existing Assets that are not applied or
invested as provided in the first sentence of this paragraph (including any Net
Cash Proceeds which were committed to be invested as provided in such sentence
but which are not in fact invested within the time period provided) will be
deemed to constitute "Exceeds Proceeds."
(c) Notwithstanding the provisions of (a) and (b) above:
(i) the Company and such Subsidiaries may convey, sell, lease,
transfer assign, or otherwise dispose of Existing Assets pursuant to and in
accordance with Article VIII hereof;
(ii) the Company and such Subsidiaries may consummate sales
(including, without limitation, sale and leaseback transactions) of
Existing Assets or Properties of the Company and such Subsidiaries (i)
identified on Schedule 7.19 and (ii) having an aggregate Fair Market Value
-------------
of less than $3,500,000; and
(iii) the Company and such Subsidiaries may exchange Existing
Assets held by the Company or a Subsidiary for one or more Related
Businesses of any Person owning one or more Related Businesses; provided,
that the Board of Directors of the Company has determined that the terms of
any such exchange are fair and reasonable and the Fair Market Value of the
assets received by the Company are approximately equal to the Fair Market
Value of the Existing Assets exchanged by the Company.
(d) For purposes of this Section 7.19, "Excess Proceeds Date" means
each date on which the aggregate amount of Excess Proceeds exceeds $5,000,000.
Within 30 days after each Excess Proceeds Date, the Company will make an Offer
to each Holder to purchase, on a pro rata basis based on the respective
principal amounts of Senior Notes held by such Holders, the maximum principal
amount of Senior Notes then outstanding that may be purchased out of such Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest thereon to the Purchase Date.
The Offer shall be effected in accordance with Section 6.7 and Article VI (to
the extent applicable) and the provisions of this Section 7.19.
(e) If the amount required to acquire all Senior Notes tendered
pursuant to the Offer is less than the total Excess Proceeds, the Excess
Proceeds may be used by the
53
Company for general corporate purposes without restriction, unless otherwise
restricted by the other provisions of this Agreement. Upon commencement of any
Offer made in accordance with the terms of this Section 7.19, the amount of
Excess Proceeds existing at the time of the commencement of such Offer will be
reduced to zero irrespective of the amount of Senior Notes tendered pursuant to
the Offer.
ARTICLE VIII
SUCCESSORS
8.1 Merger or Consolidation.
-----------------------
(a) The Company shall not (i) consolidate with or merge into any
other Person; (ii) permit any other Person to consolidate with or merge into the
Company; (iii) permit any other Person to consolidate with, merge into or be
merged into by, any Subsidiary (in a transaction in which such Subsidiary (or
successor Person) remains (or becomes) a Subsidiary); and (iv) directly or
indirectly, transfer, convey, sell, lease or otherwise dispose of all or
substantially all of its properties and assets as an entirety (except for any
Permitted Disposition, or the merger or consolidation of any Subsidiary of the
Company with or into, or the disposition of all or substantially all of the
assets of any Subsidiary of the Company to, the Company or any Wholly-Owned
Subsidiary of the Company) unless, in any such transaction:
------
(1) in the event the Company shall consolidate with or merge into
another Person or shall directly or indirectly transfer, convey, sell,
lease or otherwise dispose of all or substantially all of its properties
and assets as an entirety, the Person formed by such consolidation or into
which the Company is merged or the Person which acquires by transfer,
conveyance, sale, lease or other disposition all or substantially all of
the properties and assets of the Company as an entirety (for purposes of
this Article VIII, a "Successor Company") shall be a corporation,
partnership or trust, shall be organized and validly existing under the
laws of the United States of America, any State thereof or the District of
Columbia and shall expressly assume pursuant to the terms and conditions of
this Agreement, in form reasonably satisfactory to the Holders, the due and
punctual payment of the principal of (and premium, if any) and interest on
all the Senior Notes and the performance of every covenant of this
Agreement on the part of the Company to be performed or observed;
(2) immediately before and after giving effect to such
transaction and treating any Indebtedness Incurred by the Company or a
Subsidiary of the Company as a result of such transaction as having been
Incurred by the Company or such Subsidiary at the time of such transaction,
no Default or Event of Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction, and
treating any Indebtedness Incurred by the Company or any Subsidiary as a
result of such
54
transaction as having been Incurred at the time of such transaction, the
Company or the Successor Company has a Consolidated Net Worth greater than
or equal to the Consolidated Net Worth of the Company immediately prior to
the closing of such transaction; and
(4) the Company has delivered to the Holders an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer, lease or acquisition and, if
the assumption of the obligations of the Company under this Agreement is
required in connection with such transaction, such documents effecting such
assumption, complies with this Article VIII and that all conditions
precedent herein for relating to such transaction have been complied with,
and, with respect to such Officers' Certificate, setting forth the manner
of determination of the Consolidated Net Worth of the Company or, if
applicable, the Successor Company.
(b) For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Capital Stock of which constitutes all or substantially
all of the properties and assets of the Company, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
8.2 Surviving Person Substituted. Upon any consolidation or merger, or
----------------------------
any transfer of assets in accordance with Section 8.1, the Surviving Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or to which such transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Agreement
with the same effect as if such Surviving Person had been named as the Company
herein. When a Successor Company assumes all of the obligations of the Company
hereunder and under the Senior Notes and agrees to be bound hereby and thereby,
the predecessor shall be released from such obligations.
ARTICLE IX
DEFAULTS AND REMEDIES
9.1 Events of Default.
-----------------
(a) Each of the following constitutes an "Event of Default": (i) the
Company shall fail to make any payment in respect of (A) the principal of or
premium, if any, on the Senior Notes as the same shall become due, whether at
maturity, upon acceleration, redemption or otherwise, or (B) interest on or in
respect of any Senior Notes as the same shall become due, and such failure shall
continue for a period of 15 Business Days; (ii) failure by the Company for 30
days after receipt of written notice from the Holders of at least 25% of the
55
principal amount of the outstanding Senior Notes to comply with any other
provisions of this Agreement or any Senior Notes; (iii) default under any
mortgage, Agreement or instrument under which there may be Incurred or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Subsidiaries) whether such Indebtedness now exists, or is
created after the date hereof if (A) such default results in the acceleration
of such Indebtedness prior to its express maturity or shall constitute a default
in the payment of such Indebtedness at final maturity of such Indebtedness, and
(B) the principal amount of any such Indebtedness that has been accelerated or
not paid at maturity, when added to the aggregate principal amount of all other
such Indebtedness that has been accelerated or not paid at maturity, exceeds
$1,500,000; (iv) failure by the Company or any of its Subsidiaries to pay final
judgments, the uninsured portion of which exceeds $1,500,000, which judgments
are not paid, discharged, bonded or stayed for a period of 90 days after the
date of entry thereof, (v) if under any Bankruptcy Law, (A) the Company or any
Subsidiary commences a voluntary case, consents to the entry of an order for
relief against it in an involuntary case, consents to the appointment of a
Custodian of it or for all or substantially all of its Property, or makes a
general assignment for the benefit of its creditors, or (B) a court of competent
jurisdiction enters an order or decree, and such order or decree remains
unstayed and in effect for 90 days, that is for relief against the Company or
any Subsidiary in an involuntary case, appoints a Custodian of the Company or
any Subsidiary or for all or substantially all of the Property of the Company or
any Subsidiary, or orders the liquidation of the Company or any Subsidiary; and
(vi) any representation or warranty contained in this Agreement shall have been
false in any material respect when made.
(b) Any notice of default delivered to the Company by the Holders of
Senior Notes must be in writing and must specify the Default, demand that it be
remedied and state that the notice is a "Notice of Default."
9.2 Acceleration.
------------
(a) If an Event of Default (other than an Event of Default under
Section 9.1(a)(vi)) occurs and is continuing, the Holders of at least 25% in
principal amount of the then outstanding Senior Notes may declare all
outstanding Senior Notes to be due and payable immediately and, upon such
declaration, the principal amount of, and premium, if any, and any accrued and
unpaid interest on, all such Senior Notes, to the date of payment shall be due
and payable immediately.
(b) Notwithstanding anything to the contrary in this Agreement, if an
Event of Default arises under Section 9.1(a)(v) the principal amount of, and
premium, if any, and any accrued and unpaid interest on, all outstanding Senior
Notes shall ipso facto become and be immediately due and payable without any
---- -----
declaration or other act on the part of any Holder.
(c) The Holders of a majority in aggregate principal amount of the
then
56
outstanding Senior Notes by notice to the Company may rescind any declaration of
acceleration of such Senior Notes and its consequences if (i) the rescission
would not conflict with any judgment or decree, (ii) if all existing Defaults
and Events of Default (other than the nonpayment of principal of, or premium, if
any, or interest on, the Senior Notes which shall have become due by such
declaration) shall have been cured or waived, and (iii) the Company has
delivered to the Holders an Officers' Certificate to the effect of clauses (i)
and (ii) above.
(d) In the event of a declaration of acceleration under this Agreement
because an Event of Default set forth in Section 9.1(a)(iii) has occurred and is
continuing, such declaration of acceleration shall be automatically rescinded
and annulled if either (i) the holders of the Indebtedness which is the subject
of such Event of Default have waived such failure to pay at maturity or have
rescinded the acceleration in respect of such Indebtedness within 10 days of
such maturity or declaration of acceleration, as the case may be, and no other
Event of Default has occurred during such 10-day period which has not been cured
or waived, or (ii) such Indebtedness shall have been discharged or the maturity
thereof shall have been extended such that it is not then due and payable, or
the underlying default has been cured within 10 days of such maturity or
declaration of acceleration as the case may be.
9.3 Other Remedies. If an Event of Default occurs and is continuing, the
--------------
Holders may pursue any available remedy to collect the payment of principal of,
or premium, if any, or interest on the Senior Notes or to enforce the
performance of any provision of the Senior Notes or this Agreement. A delay or
omission by any Holder in exercising any right or remedy accruing upon an Event
of Default shall not impair the right or remedy or constitute a waiver of or
acquiescence in the Event of Default. All remedies are cumulative to the extent
permitted by law.
9.4 Waiver of Past Defaults. Subject to the provisions of Sections 9.6
-----------------------
and 11.2 hereof, the Holders of a majority in aggregate principal amount of the
then outstanding Senior Notes by notice to the Company may on behalf of all
Holders waive any existing Default or Event of Default and its consequences
under this Agreement, except a continuing Default or Event of Default in the
payment of the principal of, or premium, if any, or interest on, any Note (which
may only be waived with the consent of each Holder affected). Upon any such
waiver, such Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured for every purpose of this
Agreement; provided that no such waiver shall extend to any subsequent or other
--------
Default or impair any right consequent thereon.
9.5 Control by a Majority. The Holders of a majority in principal amount
---------------------
of the Senior Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Holders.
9.6 Rights of Holders to Receive Payment. Notwithstanding any other
------------------------------------
provision of this Agreement, the right of any Holder of a Senior Note to receive
payment of principal of, and premium, if any, and interest on such Senior Note,
on or after the respective dates expressed in such Senior Note, or to bring suit
for the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of such Holder.
57
9.7 Holders May File Proofs of Claim. The Holders may file such proofs
--------------------------------
of claim and other papers or documents as may be necessary or advisable to have
the claims of the Holders allowed in any Insolvency or Liquidation Proceeding or
other judicial proceeding relative to the Company (or any other obligor upon the
Senior Notes), its creditors or its property.
9.8 Undertaking for Costs. In any suit for the enforcement of any right
---------------------
or remedy under this Agreement, a court in its discretion may require the filing
by any party litigant in the suit of an undertaking to pay the costs of the
suit, and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant.
ARTICLE X
ADDITIDONAL AGREEMENTS
10.1 Mezzanine Debt Financing. In the event that, during the period
------------------------
between the date hereof and the date which is one day prior to the first
anniversary of the date hereof, the Company completes a Mezzanine Debt Financing
the Gross Proceeds of which equal or exceed $10,000,000, the Company shall, not
later than 10 Business Days prior to the closing of such Mezzanine Debt
Financing, notify each Holder in writing of the contemplated issuance and the
terms, conditions, and proposed closing date thereof. Upon the request of any
such Holder (for purposes of this section only, a "Requesting Holder") given by
notice to the Company within 10 Business Days after the effectiveness of such
notice from the Company, such Requesting Holder shall be entitled to participate
in such Mezzanine Debt Financing in amounts and on terms and conditions
identical to the most favorable terms and conditions provided to any other
participant in such Mezzanine Debt Financing; provided, that the purchase price
--------
for Indebtedness issued in a Mezzanine Debt Financing to any Requesting Holder
may be paid in full by (a) cash or a certified check or a wire transfer in same
day funds, (b) delivery to the Company of Senior Notes held by such Holder the
aggregate outstanding principal amount of which, together with any accrued but
unpaid interest thereon, is equal to the purchase price, or (c) any combination
of (a) and (b) above.
10.2 Participation in D.C. Restaurants. The name and location of the
---------------------------------
D.C. Restaurants is set forth on Schedule 10.2 hereto. In the event that,
-------------
during the period between the date hereof and the third anniversary of the date
hereof, the Company enters into a binding agreement to make an Asset
Disposition, in one transaction or in a series of related transactions, with
respect to assets constituting all or substantially all of the assets of the
D.C. Restaurants, considered as a whole, or Capital Stock of a Subsidiary that
owns, directly or indirectly, all or substantially all of the assets of the D.C.
Restaurants, considered as a whole, to a third party for value, the Holders of
Senior Notes shall be entitled to receive, on the date which is no later than 10
Business Days after the Company's receipt of consideration from any such Asset
Disposition with respect to the D.C. Restaurants, an amount in cash equal to 20%
of the amount by which said consideration
58
exceeds $10,000,000 in value. This Section 10.2 shall not apply to any
transaction in the Capital Stock of the Company.
10.3 Management Rights; Confidentiality
----------------------------------
(a) In order to induce the Purchaser to actively assist the Company
in reviewing certain proposals and suggestions with respect to the Company's
business that may arise following the date hereof, subject to the provisions of
Section 10.3(c), the Company hereby covenants and agrees as follows:
(i) Purchaser shall have the right to discuss the business
operations, Properties, and financial and other condition of the Company
with the Company's management;
(ii) Purchaser shall have the right to submit proposals and
suggestions with respect to the Company's business to the Company's
management from time to time, and the Company's management shall discuss
such proposals or suggestions with Purchaser within a reasonable time after
such submission; and
(iii) Purchaser shall have the right, upon reasonable request,
to inspect the Company's books and records, to inspect its premises and
other Properties, to receive financial statements, operating reports,
budgets, or other financial reports of the Company, and to reasonably
request information at reasonable times and intervals concerning the
general status of the Company's financial condition and results of
operations.
(b) In consideration of the foregoing, the Purchaser hereby agrees
that, except as may otherwise be required by law, rule, regulation, legal
process, or regulatory authority, any non-public information received from the
Company pursuant to Section 10.3(a) above will be treated as strictly
confidential and will not be used by Purchaser or disclosed or made available to
any third party (other than any of Purchaser's directors, officers, employers,
attorneys, accountants, or other agents which Purchaser reasonably believes have
a need to know such information and which agree to be bound by the
confidentiality provisions set forth herein).
(c) The Company's agreements contained above in this Section 10.3 are
subject to the following: (i) the rights granted are personal to the Purchaser
and may not be assigned to any other Person; and (ii) the Company may condition
the delivery of any information upon receipt of a supplemental confidentiality
and non-disclosure agreement in customary form.
ARTICLE XI
AMENDMENTS
59
11.1 Amendments and Supplements Permitted Without Consent of Holders.
---------------------------------------------------------------
Notwithstanding Section 11.2, the Company may amend or supplement this Agreement
or the Senior Notes without the consent of any Holder to: (i) cure any
ambiguity, defect or inconsistency; provided that such amendment does not
adversely affect the rights of any Holder; (ii) provide for uncertificated
Senior Notes in addition to or in place of certificated Senior Notes; (iii)
provide for the assumption of the Company's obligations to the Holders in the
event of any Disposition involving the Company that is permitted under Article
VIII in which the Company is not the Surviving Person; or (iv) make any change
that would (A) provide any additional rights or benefits to Holders or (B) not
adversely affect the legal rights under this Agreement of any Holder.
11.2 Amendments and Supplements Requiring Consent of Holders
-------------------------------------------------------
(a) Except as otherwise provided in Sections 11.1 and 11.2(c), this
Agreement and the Senior Notes may be amended or supplemented with the written
consent of the Holders of at least a majority of the aggregate principal amount
of the then outstanding Senior Notes (including consents obtained in connection
with a tender offer or exchange offer for the Senior Notes), and any existing
Default or Event of Default or compliance with any provision of this Agreement
or the Senior Notes may be waived with the consent of Holders of at least a
majority of the aggregate principal amount of the then outstanding Senior Notes
(including consents obtained in connection with a tender offer or exchange offer
for the Senior Notes).
(b) Without the consent of each Holder affected, no amendment,
supplement or waiver to this Agreement shall: (i) reduce the principal amount
of Senior Notes whose Holders must consent to an amendment, supplement or
waiver, (ii) reduce the principal of or change the fixed maturity of any Senior
Note, or alter the provisions with respect to the redemption of the Senior Notes
in a manner adverse to the Holders, (iii) reduce the rate of or change the time
for payment of interest on any Senior Note, (iv) waive a Default or Event of
Default in the payment of principal of, or premium, if any, or interest on, the
Senior Notes (except that Holders of at least a majority in aggregate principal
amount of the then outstanding Senior Notes may (A) rescind an acceleration of
the Senior Notes that resulted from a non-payment default, and (B) waive the
payment default that resulted from such acceleration), (v) make any Senior Note
payable in money other than that stated in the Senior Notes, (vi) make any
change in the provisions of this Agreement relating to waivers of past Defaults
or the rights of Holders to receive payments of principal of, or premium, if
any, or interest on, the Senior Notes, (vii) waive a redemption payment with
respect to any Senior Note, or (viii) make any change in Section 9.4, Section
9.6 or this sentence.
(d) It shall not be necessary for the consent of the Holders under
this Section 11.2 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof. After an amendment, supplement or waiver under this Section 11.2
becomes effective, the Company shall mail to each Holder affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
60
the Company shall mail to each Holder affected thereby a notice briefly
describing the amendment, supplement or waiver. Any failure of the Company to
mail such notice, or any defect therein, shall not, however, in any way impair
or affect the validity of any such amended or supplemental Agreement or waiver.
11.3 Revocation and Effect of Consents.
---------------------------------
(a) Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Senior Note is a continuing consent by the Holder
and every subsequent holder of a Senior Note or portion of a Senior Note that
evidences the same Indebtedness as the consenting Holder's Senior Note, even if
notation of the consent is not made on any such Senior Note. However, any such
Holder or subsequent Holder may revoke the consent as to his or her Senior Note
or portion of a Senior Note if the Company receives the notice of revocation
before the date on which the Company mails to the Holders an Officers'
Certificate certifying that the Holders of the requisite principal amount of
Senior Notes have consented (and not theretofore revoked such consent) to the
amendment or waiver.
(b) The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the holders of Senior Notes entitled to consent
to any amendment or waiver. If a record date is fixed, then notwithstanding the
provisions of the immediately preceding paragraph, those Persons who were
holders of Senior Notes at such record date (or their duly designated proxies),
and only those Persons, shall be entitled to consent to such amendment or waiver
or to revoke any consent previously given, whether or not such Persons continue
to be holders of Senior Notes after such record date. No consent shall be valid
or effective for more than 90 days after such record date.
(c) After an amendment or waiver becomes effective it shall bind
every Holder, unless it is of the type described in Section 11.2(c), in which
case the amendment or waiver shall only bind each Holder that consented to it
and every subsequent holder of a Senior Note that evidences the same debt as the
consenting Holder's Senior Note.
11.4 Notation on or Exchange of Senior Notes. The Company may place an
---------------------------------------
appropriate notation about an amendment, supplement or waiver on any Senior Note
thereafter issued in exchange for any Senior Note issued as of the date of such
amendment, supplement or waiver. The Company in exchange for all Senior Notes
may issue new Senior Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Senior Note shall not
affect the validity and effect of such amendment, supplement or waiver.
11.5 Board Approval. The Company may not sign an amendment, supplement or
--------------
waiver with respect to this Agreement until the Board of Directors of the
Company approves it.
ARTICLE XII
THE SENIOR NOTES
61
12.1 Form and Dating. The Senior Notes shall be substantially in the form
---------------
of Exhibit A hereto, which exhibit is part of this Agreement. The Senior Notes
---------
may have notations, legends or endorsements required by law, stock exchange rule
or usage. The Company shall approve the form of the Senior Notes and any
notation, legend or endorsement on them. Subject to adjustment as provided in
Section 6.6(c) hereof, the Senior Notes shall be issued, and may be transferred
only, in denominations of $2,000,000 and integral multiples thereof. The terms
and provisions contained in the Senior Notes shall constitute, and are hereby
expressly made, a part of this Agreement and to the extent applicable, the
Company, by its execution and delivery of this Agreement, expressly agrees to
such terms and provisions and to be bound thereby.
12.2 Execution and Authentication. Two Officers of the Company (each of
----------------------------
whom shall have been duly authorized by all requisite corporate actions) shall
sign each Senior Note for the Company by manual or facsimile signature. If an
Officer whose signature is on a Senior Note no longer holds that office at the
time the Senior Note is issued, the Senior Note shall nevertheless be valid.
The Company's seal shall be reproduced on each Senior Note.
With respect to the sale and issuance of the Senior Notes, the Company
shall authorize for issuance, upon the execution and delivery of this Agreement,
Senior Notes in an aggregate principal amount up to $12,000,000. In no case
shall the aggregate principal amount of outstanding Senior Notes exceed
$12,000,000 at any time, except as provided in Section 12.5.
12.3 Transfer and Exchange.
---------------------
(a) When Senior Notes are presented to the Company with a request to
register a transfer or to exchange them for an equal principal amount of Senior
Notes of other authorized denominations, the Company shall register the
transfer or make the exchange if its requirements for such transaction are met;
provided, however, that any Senior Note presented or surrendered for
-------- -------
registration of transfer or exchange shall be duly endorsed or accompanied by a
written instruction of transfer in form satisfactory to the Company or duly
executed by the Holder of such Senior Note or by its attorney duly authorized in
writing.
(b) The Company shall not be required to issue, register the transfer
of or exchange any Senior Note (i) selected for redemption, in whole or in part,
except the unredeemed portion of any Senior Note being redeemed in part may be
transferred or exchanged, or (ii) during an Offer if such Senior Note is
tendered pursuant to such Offer and not withdrawn.
(c) No service charge shall be made for any registration of transfer
or exchange (except as otherwise expressly permitted herein), but the Company
may require payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any such
transfer tax or similar governmental charge payable
62
upon exchanges pursuant to Sections 11.4 or 12.7 which the Company shall pay).
(d) Prior to due presentment for registration of transfer of any
Senior Note, the Company may deem and treat the Person in whose name any Senior
Note is registered as the absolute owner of such Senior Note (whether or not
such Senior Note shall be overdue and notwithstanding any notation of ownership
or other writing on such Senior Note made by anyone other than the Company) for
the purpose of receiving payment of principal of, and premium, if any, and
interest on, such Senior Note and for all other purposes, and notice to the
contrary shall not affect the Company.
12.4 Replacement Senior Notes. If any mutilated Senior Note is surrendered
------------------------
to the Company, or if the Company receives evidence to its satisfaction of the
destruction, loss or theft of any Senior Note, the Company shall issue a
replacement Senior Note and each such replacement Senior Note shall be an
additional obligation of the Company. If the Company requires, the Holder must
supply an indemnity bond that is sufficient in the judgment of the Company to
protect the Company from any loss that any of them may suffer if a Senior Note
is replaced. The Company may charge for its reasonable expenses in replacing a
Senior Note.
12.5 Outstanding Senior Notes. The Senior Notes outstanding at any time
------------------------
are all the Senior Notes the Company has issued except for those it has
canceled, those delivered to it for cancellation, and those described in this
Section 12.5 as not outstanding. If a Senior Note is replaced pursuant to
Section 12.4 (other than a mutilated Note surrendered for replacement), it
ceases to be outstanding unless the Company receives proof satisfactory to it
that a bona fide purchaser holds the replaced Senior Note. A mutilated Senior
Note ceases to be outstanding upon surrender of such Senior Note and replacement
thereof pursuant to Section 12.5 hereof. If the entire principal of, and
premium, if any, and accrued interest on, any Senior Note is considered paid
under Section 6.1, it ceases to be outstanding and interest on it ceases to
accrue. Subject to Section 12.6, a Senior Note does not cease to be outstanding
because the Company or any Affiliate of the Company holds such Senior Note.
12.6 Treasury Senior Notes. In determining whether the Holders of the
---------------------
required principal amount of Senior Notes have concurred in any directions,
waiver or consent, Senior Notes owned by the Company or any Subsidiary or
Affiliate of the Company shall be considered as though they are not outstanding.
Notwithstanding the foregoing, Senior Notes that the Company or any Affiliate of
the Company offers to purchase or acquires pursuant to an exchange offer, tender
offer or otherwise shall not be deemed to be owned by the Company or any
Affiliate of the Company until legal title to such Senior Notes passes to the
Company or such Affiliate, as the case may be.
12.7 Temporary Senior Notes. Until definitive Senior Notes are ready for
----------------------
delivery, the Company may prepare and issue temporary Senior Notes. Temporary
Senior Notes shall be substantially in the form of definitive Senior Notes but
may have variations that the Company considers appropriate for temporary Senior
Notes. Without unreasonable delay, the Company shall prepare and issue
definitive Senior Notes in exchange for temporary Senior Notes. Until such
exchange, temporary Senior Notes shall be entitled to the same rights, benefits
and
63
privileges as definitive Senior Notes.
12.8 Cancellation. The Company shall cancel any Senior Notes surrendered
------------
to it for registration of transfer, exchange, replacement, payment (including
all Senior Notes called for redemption and all Senior Notes accepted for payment
pursuant to an Offer) or cancellation. The Company may not issue new Senior
Notes to replace any Senior Notes that have been canceled. If the Company or
any Affiliate of the Company acquires any Senior Notes (other than by redemption
pursuant to Section 6.6 or an Offer pursuant to Section 6.7), such acquisition
shall not operate as a redemption or satisfaction of the Indebtedness
represented by such Senior Notes unless and until such Senior Notes are canceled
pursuant to this Section 12.8.
12.9 Defaulted Interest. If the Company defaults in a payment of
------------------
interest on the Senior Notes, it shall pay the defaulted interest in any lawful
manner plus, to the extent lawful, interest payable on the defaulted interest,
to Holders on a subsequent special record date, in each case at the rate
provided in the Senior Notes and Section 7.1. The Company shall fix or cause to
be fixed each such special record date and payment date. At least 15 days before
the special record date, the Company shall mail a notice that states the special
record date, the related payment date and the amount of interest (including
interest, if any, on the defaulted interest) to be paid.
12.10 Record Date. The record date for purposes of determining the
-----------
identity of holders of Senior Notes entitled to vote or consent to any action by
vote or consent authorized or permitted under this Agreement shall be 10 days
prior to the first solicitation of such consent.
12.11 CUSIP Number. A "CUSIP" number will be printed on the Senior Notes,
------------
and the Company shall use the CUSIP number in notices of redemption, purchase or
exchange as a convenience to Holders, provided that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Senior Notes and that reliance may be
placed only on the other identification numbers printed on the Senior Notes.
The Company will promptly notify the Holders of any change in the CUSIP number.
12.12. Restrictive Legends. Except as otherwise permitted by this Section
-------------------
12.12, each Unit, and each constituent Senior Note and Common Stock Purchase
Warrant certificate (or Common Stock certificate issued on exercise thereof),
issued pursuant to this Agreement shall be stamped or otherwise imprinted with a
legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, NOR PURSUANT TO THE SECURITIES OR "BLUE
SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH
64
SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (ii)
RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii) ANY
OTHER EXEMPTION FROM REGISTRATION UNDER SUCH ACT
RELATING TO SUCH ACT, PROVIDED THAT, IF REQUESTED BY
THE COMPANY, AN OPINION OF COUNSEL REASONABLY
SATISFACTORY IN FORM AND SUBSTANCE IS FURNISHED TO
THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT IS AVAILABLE.
IN ADDITION, ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE
OR OTHER DISPOSITION OF THIS SECURITY IS RESTRICTED
BY, AND THE RIGHTS OF THE HOLDER OF SUCH SECURITY ARE
SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN, A
SECURITIES PURCHASE AGREEMENT DATED AS OF AUGUST 12,
1997, A COMPLETE AND CORRECT COPY OF THE FORM OF
WHICH WILL BE FURNISHED BY THE ISSUER TO THE HOLDER
HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE. SUCH
AGREEMENT, AMONG OTHER THINGS, RESTRICTS THE
DETACHMENT OF THIS SENIOR NOTE FROM THE COMMON STOCK
PURCHASE WARRANTS ATTACHED HERETO.
PURSUANT TO PROVISIONS OF THE INTERNAL REVENUE CODE
OF 1986 RELATING TO ORIGINAL ISSUE DISCOUNT AND
TREASURY REGULATIONS PUBLISHED THEREUNDER, THE
FOLLOWING INFORMATION IS PROVIDED: (1) THIS SECURITY
IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT IN THE
AMOUNT OF $32.45 PER $1,000 OF FACE AMOUNT; (2) THE
ISSUE PRICE OF THIS SECURITY IS $967.55 PER $1,000
FACE AMOUNT; (3) THE ISSUE DATE OF THIS SECURITY IS
AUGUST 28, 1997; AND (4) THE YIELD TO MATURITY OF
THIS SECURITY IS 14.367%.
The Company shall maintain a copy of this Agreement and any amendments
thereto on file in its principal office, and will make such copy available
during normal business hours for inspection to any party thereto or will provide
such copy to the Purchaser upon its request.
Whenever the legend requirement imposed by this Section 12.12 shall
terminate, as hereinabove provided, the respective holders of Securities for
which such legend requirements have terminated shall be entitled to receive from
the Company, at the Company's expense, Senior Notes or new Common Stock Purchase
Warrant certificates, as applicable, without such legend.
65
12.13. Separate Transferability of Senior Notes and Warrants. For a
-----------------------------------------------------
period of time beginning on the Closing Date and ending on the first anniversary
of the Closing Date, the Common Stock Purchase Warrants shall be attached to the
Senior Notes as a Unit and shall not be transferable separately from, and shall
be transferred upon any transfer of, the related Senior Notes; provided,
---------
however, that any Common Stock Purchase Warrants may be separately transferable
--------
from any related Senior Notes repaid, repurchased, or redeemed during such
period.
12.14. Notice of Transfer; Opinions of Counsel. The holder of each Senior
---------------------------------------
Note and Common Stock Purchase Warrant certificate (or Common Stock certificate
issued on exercise thereof) bearing the restrictive legend set forth in Section
12.12 above (a "Restricted Security") agrees in connection with any transfer of
such Restricted Security to give to the Company (a) written notice describing
the manner or circumstances of such transfer and (b) if requested by the
Company, an opinion of counsel, which is knowledgeable in securities law matters
(including in-house counsel or regular counsel to such Purchaser or its
investment advisor), in form and substance reasonably satisfactory to the
Company, to the effect that the proposed transfer of such Restricted Security
may be effected without registration of such Restricted Security under the
Securities Act. If for any reason the Company (after having been furnished with
the opinion required to be furnished pursuant to this Section 12.14) shall fail
to notify such holder within 5 days after such holder shall have delivered such
notice and/or opinion to the Company that, in its or its counsel's opinion, the
transfer may not be legally effective (the "Illegal Transfer Notice"), such
holders shall thereupon be entitled to consummate the transfer of the Restricted
Security as proposed; provided, however, that such procedure shall not be
-----------------
required, and any such attempted transfer shall not be effective, in respect of
a proposed transfer which is expressly prohibited by the terms of this Agreement
because it represents (i) an attempt to transfer Senior Notes in an aggregate
principal amount of less than $2 million (subject to adjustment) in
contravention of Section 12.1 hereof, or (ii) an attempt to detach the Common
Stock Purchase Warrants from the Senior Notes prior to the first anniversary of
the Closing Date in contravention of Section 12.13 hereof. If the holder of the
Restricted Security delivers to the Company an opinion of counsel (including in-
house counsel or regular counsel to such Purchaser or its investment adviser) in
form and substance reasonably satisfactory to the Company that subsequent
transfers of such Restricted Security will not require registration under the
Securities Act, or if the Company does not provide the holders with an Illegal
Transfer Notice as set forth above, the Company will promptly after such
contemplated transfer deliver new certificates for such Restricted Security
which do not bear the Securities Act legend set forth in Section 12.12 above.
The restrictions imposed by this Article XII upon the transferability of any
particular Restricted Security shall cease and terminate when such Restricted
Security has been sold pursuant to an effective registration statement under the
Securities Act or transferred pursuant to Rule 144 promulgated under the
Securities Act. The holder of any Restricted Security as to which such
restrictions shall have terminated shall be entitled to receive from the Company
a new security of the same type but not bearing the restrictive Securities Act
legend set forth in Section 12.12 and not containing any other reference to the
restrictions imposed by this Article XII. Notwithstanding any of the foregoing,
no opinion of counsel will be required to be rendered pursuant to this Section
12.14 with respect to the transfer of any Securities on which the restrictive
legend has
66
been removed in accordance with this Section 12.14. As used in this Section
12.14, the term "transfer" encompasses any sale, transfer or other disposition
of any Securities referred to herein.
ARTICLE XIII
INDEMNIFICATION
13.1. Indemnification; Expenses, Etc.
------------------------------
(a) In addition to any and all obligations of the Company to
indemnify the Purchaser hereunder or under the other Transaction Documents, the
Company agrees, without limitation as to time, to indemnify and hold harmless
the Purchaser, its Affiliates, and the employees, officers, directors, and
agents of the Purchaser and its Affiliates (individually, an "Indemnified Party"
and, collectively the "Indemnified Parties") from and against any and all
losses, claims, damages, liabilities, costs (including the reasonable costs of
preparation and attorneys' fees) and expenses (including expenses of
investigation) (collectively, "Losses") reasonably incurred or suffered by an
Indemnified Party (i) in connection with or arising out of any material breach
of any warranty, or the inaccuracy of any representation, as the case may be,
made by the Company, or the failure of the Company to fulfill any agreement or
covenant contained in this Agreement or (ii) in connection with any proceeding
against the Company or any Indemnified Party brought by any third party arising
out of or in connection with this Agreement or the transactions contemplated
hereby or any action taken in connection herewith, whether or not any
Indemnified Party is a formal party to any proceeding; provided, however, that
-------- -------
the Company shall not be liable for any losses resulting from action on the part
of any Indemnified Party which is finally determined in such proceeding to be
wrongful or which is an act of gross negligence, recklessness, or willful
misconduct by such Indemnified Party. The Company agrees promptly to reimburse
any Indemnified Party for all such Losses as they are incurred or suffered by
such Indemnified Party.
Except as otherwise provided herein, the Company agrees to pay, and to hold
the Purchaser harmless from and against, all costs and expenses (including,
without limitation, reasonable attorneys' fees, expenses and disbursements), if
any, reasonably incurred in connection with the enforcement against the Company
of this Agreement in any action in which the Purchaser shall prevail or in any
action in which the Purchaser shall in good faith assert any provision of any of
the foregoing as a defense.
The Company shall have no liability for any settlement or other payment for
which indemnification is sought without receipt of its prior written consent,
such consent not to be unreasonably withheld.
(b) If any Indemnified Party is entitled to indemnification
hereunder, such Indemnified Party shall give prompt notice to the Company of any
claim or of the commencement of any proceeding against the Company or any
Indemnified Party brought by any third party with respect to which such
Indemnified Party seeks indemnification pursuant hereto;
67
provided, however, that the failure so to notify the Company shall not relieve
-------- -------
the Company from any obligation or liability except to the extent the Company is
prejudiced by such failure. The Company shall have the right, exercisable by
giving written notice to an Indemnified Party promptly after the receipt of
written notice from such Indemnified Party of such claim or proceeding, to
assume, at the expense of the Company, the defense of any such claim or
proceeding with counsel reasonably satisfactory to such Indemnified Party. The
Indemnified Party or Parties will not be subject to any liability for any
settlement made without its or their consent (but such consent will not be
unreasonably withheld). The Company shall not consent to entry of any judgment
or enter into any settlement that does not include as an unconditional term
thereof the giving by claimant or plaintiff to such Indemnified Party or Parties
of a release, in form and substance reasonably satisfactory to the Indemnified
Party or Parties, from all liability in respect of such claim, litigation or
proceeding.
(c) In addition to any other obligations of the Company to indemnify
the Purchaser herein or pursuant to any of the Transaction Documents or any
other agreements or documents executed and delivered in connection herewith or
therewith, the Company will pay, and will save the Purchaser and each other
holder of any of the Securities harmless from liability for the payment of, all
expenses arising in connection with such transactions, including, without
limitation, the reasonable costs and expenses, including attorneys' fees,
incurred by the Purchaser in enforcing any rights under this Agreement or in
responding to any subpoena or other legal process issued in connection with this
Agreement or the transactions contemplated hereby or thereby or by reason of
such Purchaser's having acquired any of the Securities, including, without
limitation, costs and expenses incurred by such Purchaser in any bankruptcy
case.
ARTICLE XIV
MISCELLANEOUS
14.1. Survival of Representations and Warranties; Severability. All
--------------------------------------------------------
representations and warranties contained in this Agreement or the Transaction
Documents or made in writing by or on behalf of the Company in connection with
the transactions contemplated by this Agreement or the Transaction Documents
shall survive, for the duration of any statutes of limitation applicable
thereto, the execution and delivery of this Agreement, any investigation at any
time made by the Purchaser or on the Purchaser's behalf, the purchase of the
Units by the Purchaser under this Agreement and any disposition of or payment on
the Units. All statements contained in any certificate or other instrument
delivered to the Purchaser by or on behalf of the Company pursuant to this
Agreement or the Transaction Documents at the Closing shall be deemed
representations and warranties of the Company under this Agreement. Any
provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provisions
in any other jurisdiction.
68
14.2. Notices, Etc. Any notice or communication under this Agreement
------------
shall be duly given if in writing and delivered in person, mailed by registered
or certified mail, postage prepaid, return receipt requested or delivered by
telecopier or overnight air courier guaranteeing next day delivery to the
other's address:
If to the Company: ▇▇▇ ▇▇▇ Roo, Inc.
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: President
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇ ▇▇▇ Roo, Inc.
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: General Counsel
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Purchaser: DDJ Capital Management, LLC
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇-▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: General Counsel
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇, Procter & ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, P.C.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
The Company or the Purchaser by notice to the other may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; the date receipt is acknowledged, if mailed by registered or
certified mail; when answered back, if telecopied; and the next Business Day
after timely delivery to the courier, if sent by overnight air courier
guaranteeing next day delivery.
Any notice or communication to any other Holder shall be mailed by first-
class mail to his or her address shown on the register maintained by the
Company. Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other
69
Holders. If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
14.3. Successors and Assigns. Whenever in this Agreement any of the
----------------------
parties hereto are referred to, such reference shall be deemed to include the
successors and assigns of such party; and all covenants, promises and agreements
by or on behalf of the respective parties which are contained in this Agreement
shall bind and inure to the benefit of the successors and assigns of all other
parties. The terms and provisions of this Agreement and the other Transaction
Documents shall inure to the benefit of and shall be binding upon any assignee
or transferee of the Purchaser, and in the event of such transfer or assignment,
the rights and privileges herein conferred upon the Purchaser shall
automatically extend to and be vested in, and become an obligation of, such
transferee or assignee, all subject to the terms and conditions hereof. In
connection therewith, such transferee or assignee may disclose all documents and
information which such transferee or assignee now or hereafter may have relating
to the Securities, this Agreement, the other Transaction Documents, the Company,
any other Persons referred to herein or any of the business of any of the
foregoing entities, subject to full compliance with Section 14.9 hereof.
14.4. Descriptive Headings. The headings in this Agreement are for
--------------------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
14.5. Satisfaction Requirement. If any agreement, certificate or other
------------------------
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to the Purchaser or to the holders of a specified
portion of the principal amount of any class of the Securities, the
determination of such satisfaction shall be made by the Purchaser or such
holders, as the case may be, in the sole and exclusive judgment (exercised in
good faith) of the Person or Persons making such determination.
14.6. Governing Law. THIS AGREEMENT AND THE UNITS SHALL BE CONSTRUED AND
-------------
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAW.
14.7. Service of Process. The Company (a) hereby irrevocably submits
------------------
itself to the jurisdiction of the state courts of the State of New York and to
the jurisdiction of the United States District Court for the Southern District
of New York for the purpose of any suit, action or other proceeding arising out
of or based upon this Agreement, the Securities, the other Transaction Documents
or the subject matter hereof or thereof brought by the Purchaser or its
successors or assigns and (b) hereby waives, and agrees not to assert, by way of
motion, as a defense, or otherwise, in any such suit, action or proceeding, any
claim that it is not subject personally to the jurisdiction of the above-named
courts, that its property is exempt or immune from attachment or execution, that
the suit, action or proceeding is brought in an inconvenient forum, that the
venue of the suit, action or proceeding is improper or that this Agreement or
the subject matter hereof may not be enforced in or by such court, and (c)
hereby waives any offsets
70
or counterclaims in any such action, suit or proceeding (other than compulsory
counterclaims). The Company hereby consents to service of process by registered
mail at the address to which notices are to be given. The Company agrees that
its submission to jurisdiction and its consent to service of process by mail is
made for the express benefit of the Purchaser. Final judgment against the
Company in any such action, suit or proceeding shall be conclusive and may be
enforced in other jurisdictions (a) by suit, action or proceeding on the
judgment, a certified or true copy of which shall be conclusive evidence of the
fact and of the amount of any indebtedness or liability of the Company therein
described or (b) in any other manner provided by or pursuant to the laws of such
other jurisdiction; provided, however, that the Purchaser may at its option
-------- -------
bring suit or institute other judicial proceedings against the Company or any of
the Company's assets in any state or federal court of the United States or in
any country or place where the Company or such assets may be found.
14.8. Counterparts. This Agreement may be executed simultaneously in two
------------
or more counterparts, each of which shall be deemed an original, and it shall
not be necessary in making proof of this Agreement to produce or account for
more than one such counterpart.
14.9. Disclosure to Other Persons. The Purchaser agrees to keep
---------------------------
confidential any financial information delivered by the Company pursuant to this
Agreement (other than information that is publicly available) and such other
non-public proprietary information delivered by the Company that is clearly
designated in writing to be or otherwise known by the Purchaser to be
confidential; provided, however, that nothing herein shall prevent the Purchaser
-------- -------
from disclosing such information: (a) to any prospective purchaser who agrees
in writing to be bound by this Section 14.9 with notice to the Company given in
accordance with Section 14.2, (b) to any Affiliate, director, officer, employee,
agent and professional consultant of any prospective purchasers, in its capacity
as such or any actual purchaser, participant, assignee, or transferee of such
Purchaser's or prospective purchaser's rights under any Unit or any part thereof
that agrees in writing to be bound by this Section 14.9 with notice to the
Company given in accordance with Section 14.2, (c) upon order of any court or
administrative agency having jurisdiction over such party, (d) upon the request
or demand of any regulatory agency or authority having jurisdiction over such
party, (e) which has been publicly disclosed through no breach of Purchaser, (f)
which has been obtained from any Person that is not a party hereto or an
Affiliate of any such party, (g) in connection with the exercise of any remedy
hereunder, (h) to the certified public accountants for the Purchaser or as
required in summary financial or descriptive business information disclosed by
the Purchaser that is an investment fund as part of its regular reports to its
investors or partners, or (i) as otherwise expressly contemplated by this
Agreement. In order to permit the Company to remove or limit any order, request
or demand or to obtain confidential treatment for any disclosure pursuant to (c)
or (d) above, the Purchaser will use reasonable efforts to inform the Company of
any such request for disclosure prior to disclosure. Nothing in this Section
14.9 shall be construed to create or give rise to any fiduciary duty on the part
of the Purchaser to the Company.
14.10. No Adverse Interpretation of Other Agreements. This Agreement may
---------------------------------------------
not be used to interpret another agreement, indenture, loan or debt agreement of
the Company or any
71
Subsidiary. Any such agreement, indenture, loan or debt agreement may not be
used to interpret this Agreement.
14.11. Waiver of Jury Trial. THE PARTIES HERETO HEREBY WAIVE TRIAL BY
--------------------
JURY IN ANY LITIGATION, SUIT OR PROCEEDING, IN ANY COURT WITH RESPECT TO, IN
CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE SECURITIES, ANY OTHER
TRANSACTION DOCUMENTS, OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO THIS
AGREEMENT, THE SECURITIES OR ANY OTHER TRANSACTION DOCUMENTS, OR THE VALIDITY,
PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, PROVIDED,
--------
HOWEVER, THAT WITH RESPECT TO ANY COMPULSORY COUNTERCLAIM (I.E., A CLAIM BY ONE
-------
PARTY AGAINST ANOTHER PARTY WHICH IF NOT BROUGHT IN SUCH ACTION WOULD RESULT IN
THE PARTY BRINGING SUCH CLAIM BEING FOREVER BARRED FROM BRINGING SUCH CLAIM),
THE PARTY BRING SUCH CLAIM SHALL HAVE THE RIGHT TO RAISE SUCH COMPULSORY
COUNTERCLAIM IN ANY SUCH LITIGATION.
14.12. Merger. This Agreement and the Senior Notes constitute the entire
------
agreement of the Company and the Holders and express the entire understanding of
the Company and the Holders with respect to the Senior Notes.
14.13. Expenses. The Company agrees to pay, on demand, all reasonable out-
--------
of-pocket expenses incurred by the Holders, including, without limitation, legal
and accounting fees, in connection with the collection of amounts upon the
occurrence of an Event of Default hereunder.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
72
SECURITIES PURCHASE AGREEMENT
(UNITS OF 13% SENIOR NOTES AND COMMON STOCK PURCHASE WARRANTS)
If this Agreement is satisfactory, please so indicate by signing the
applicable attached signature page of this Agreement and delivering such
counterpart to the Company whereupon this Agreement will become binding among
the parties hereto in accordance with its terms.
B III CAPITAL PARTNERS, L.P.
a Delaware Limited Partnership
By: DDJ CAPITAL III, LLC
Its General Partner
By: DDJ CAPITAL MANAGEMENT, LLC
Its Manager
By: __________________________
Name:
Title:
73
▇▇▇ ▇▇▇ ROO, INC., a Delaware
corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President and Chief Financial Officer
74
SECURITIES PURCHASE AGREEMENT FOR UNITS OF SENIOR NOTES AND
COMMON STOCK PURCHASE WARRANTS
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the Aggregate Number and
date first written above: Purchase Price of Units
to be Purchased:
___________________________ Number of Units:______,
Comprised of:
Aggregate principal
By:__________________ amount of Senior Notes
Name: to be Purchased:
Title: $____
Address:___________________ Aggregate Number of
___________________ Shares of Common Stock
___________________ Purchase Warrants to
be Purchased: _____
Telephone: ( )
Telecopy: ( )
Nominee (name in which the Units are
to be registered, if different than
name of Purchaser): Purchase Price
$_____
______________
(Nominee's Name)
Tax I.D. Number:_______
(if acquired in the name of a nominee,
the taxpayer I.D. number of such nominee)
Designated Bank:
________________ ________________
Name ABA #
________________ ________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
________________ ________________
Account Number Attention
[FORM OF NOTE] EXHIBIT A
---------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE SECURITIES OR "BLUE
SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER
SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER
EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO SUCH ACT, PROVIDED THAT,
IF REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN
FORM AND SUBSTANCE IS FURNISHED TO THE COMPANY THAT AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
IN ADDITION, ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THIS
SECURITY IS RESTRICTED BY, AND THE RIGHTS OF THE HOLDER OF SUCH SECURITY ARE
SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN, A SECURITIES PURCHASE
AGREEMENT DATED AS OF AUGUST 12, 1997, A COMPLETE AND CORRECT COPY OF THE FORM
OF WHICH WILL BE FURNISHED BY THE ISSUER TO THE HOLDER HEREOF UPON WRITTEN
REQUEST AND WITHOUT CHARGE. SUCH AGREEMENT, AMONG OTHER THINGS, RESTRICTS THE
DETACHMENT OF THIS SENIOR NOTE FROM THE COMMON STOCK PURCHASE WARRANTS ATTACHED
HERETO.
PURSUANT TO PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986 RELATING TO ORIGINAL
ISSUE DISCOUNT AND TREASURY REGULATIONS PUBLISHED THEREUNDER, THE FOLLOWING
INFORMATION IS PROVIDED: (1) THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE
DISCOUNT IN THE AMOUNT OF $32.45 PER $1,000 OF FACE AMOUNT; (2) THE ISSUE PRICE
OF THIS SECURITY IS $967.55 PER $1,000 FACE AMOUNT; (3) THE ISSUE DATE OF THIS
SECURITY IS AUGUST 28, 1997; AND (4) THE YIELD TO MATURITY OF THIS SECURITY IS
14.367%.
▇▇▇ ▇▇▇ ROO, INC.
13% SENIOR NOTE DUE AUGUST 15, 2000
No. 1 $12,000,000
▇▇▇ ▇▇▇ Roo, Inc., a Delaware corporation (hereinafter called the
"Company", which term includes any successor entity under the Agreement
hereinafter referred to), for value received, hereby promises to pay to B III
CAPITAL PARTNERS, L.P., a Delaware limited partnership, or registered assigns,
the principal sum of Twelve Million Dollars on August 15, 2000.
Interest Payment Dates: August 15, November 15, February 15 and May 15
commencing November 15, 1997
Record Dates: August 1, November 1, February 1 and May 1.
Reference is hereby made to the further provisions of this Senior Note set
forth on the following four (4) pages, which further provisions shall for all
purposes have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Senior Note to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
seal to be affixed hereto or imprinted hereto.
▇▇▇ ▇▇▇ ROO, INC.
By:_____________________________
Name:
Title:
By:_____________________________
Name:
Title: Secretary
13% Senior Note due August 15, 2000
1. Interest. ▇▇▇ ▇▇▇ Roo, Inc. (the "Company") promises to pay interest
--------
on the principal amount of this Senior Note at the rate and in the manner
specified below. Interest on this Senior Note will accrue at 13% per annum from
the date this Senior Note is issued until maturity and will be payable quarterly
in cash on August 15, November 15, February 15 and May 15 of each year, or if
any such day is not a Business Day on the next succeeding Business Day (each an
"Interest Payment Date"), to the holder of record on the immediately preceding
August 1, November 1, February 1 or May 1, as the case maybe. Interest on this
Senior Note will accrue from the most recent date on which interest has been
paid or, if no interest has been paid, from August 28, 1997, provided that the
first Interest Payment Date shall be November 15, 1997. The Company shall pay
interest on overdue principal and premium, if any, from time to time on demand
at the rate of 1.0% per annum in excess of the interest rate then in effect and
shall pay interest on overdue installments of interest (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months .
2. Method of Payment. The Company will pay interest on this Senior Note
-----------------
(except defaulted interest) to the Person who is the registered Holder of this
Senior Note at the close of business on the record date for the next Interest
Payment Date even if such Senior Note is canceled after such record date and on
or before such Interest Payment Date. Holders must surrender Senior Notes to the
Company to collect principal payments on such Senior Notes. The Company will pay
principal, premium, if any, and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts.
However, the Company may pay principal, premium, if any, and interest by wire
transfer of Federal funds, or interest by check payable in such money, and any
such check may be mailed to a Holder's registered address.
3. Securities Purchase Agreement. The Company issued the Senior Notes
-----------------------------
pursuant to a Securities Purchase Agreement, dated as of August 12, 1997 (the
"Agreement"), by and among the Company, as issuer of the Senior Notes, and the
Purchaser named therein. The terms of the Senior Notes are those stated in the
Agreement and herein. The Senior Notes are subject to, and qualified by, all
such terms, certain of which are summarized herein, and Holders are referred to
the Agreement (all capitalized terms not defined herein shall have the meanings
assigned them in the Agreement). The Senior Notes are unsecured general
obligations of the Company limited to $12,000,000 in aggregate principal amount.
4. Redemption Provisions. The Senior Notes may be redeemed at the option
---------------------
of the Company at any time or from time to time, in whole or in part, at 100% of
the principal amount of the Senior Notes, plus any accrued and unpaid interest
to the Redemption Date.
Notwithstanding the foregoing, $2.5 million in aggregate principal amount
of Senior Notes originally issued under the Agreement shall be redeemed by the
Company on the date which is eighteen months following the date of original
issuance thereof, at a redemption price equal to 100% of the principal amount
thereof, together with accrued and unpaid interest to the date of redemption,
subject to certain conditions set forth in the Agreement.
In addition, if not previously redeemed, the Senior Notes will be subject
to redemption (a "Change of Control Redemption") at the option of the Holders,
in whole or in part, at any time within 30 days after the completion of an Offer
made as a result of a Change of Control, at a redemption price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest to the redemption
date, subject to certain conditions set forth in the Agreement.
In addition, the Senior Notes will be subject to redemption ("Securities
Sale Redemption") at the option of the Holders, in whole or in part, following a
Securities Sale or a Mezzanine Debt Financing, from the Net Cash Proceeds of
such Securities Sale or Mezzanine Debt Financing; provided that an Offer to make
a Securities Sale Redemption shall be made by the Company only if, and to the
extent that, the aggregate amount of Net Cash Proceeds from all such Securities
Sales or Mezzanine Debt Financings
occurring on or after the date hereof exceed $20,000,000. In the event of a
Securities Sale Redemption, the Senior Notes will be redeemable at 100% of the
principal amount thereof, plus any accrued and unpaid interest to the date of
redemption.
5. Mandatory Offers. (a) Within 30 days after any Change of Control
----------------
Trigger Date or within 10 Business Days after any Repayment Sale Trigger Date,
the Company shall mail a notice to each Holder stating a number of items as set
forth in Section 6.7 of the Agreement.
(a) Holders may tender all or, subject to Section 8 below, any
portion of their Senior Notes in an Offer by completing the form below entitled
"OPTION OF HOLDER TO ELECT PURCHASE."
(b) Promptly after consummation of an Offer, (i) the Company shall
mail to each Holder of Senior Notes or portions thereof accepted for payment an
amount equal to the purchase price for, plus any accrued and unpaid interest on,
such Senior Notes, (ii) with respect to any tendered Senior Note not accepted
for payment in whole or in part, the Company shall return such Senior Note to
the Holder thereof, and (iii) with respect to any Senior Note accepted for
payment in part, the Company shall authenticate and mail to each such Holder a
new Senior Note equal in principal amount to the unpurchased portion of the
tendered Senior Note.
(c) The Company will (i) publicly announce the results of the Offer
to Holders on or as soon as practicable after the Purchase Date, and (ii) comply
with Rule 14e-1 under the Securities Exchange Act of 1934, as amended, and any
other securities laws and regulations to the extent applicable to any Offer.
6. Notice of Redemption or Purchase. At least 10 days but not more than
--------------------------------
60 days before any Redemption Date the Company shall mail by first class mail a
notice of redemption to each Holder of Senior Notes or portions thereof that are
to be redeemed.
7. Senior Notes to be Redeemed or Purchased. The Senior Notes may be
----------------------------------------
redeemed or purchased in part, but only in whole multiples of $100,000 unless
all Senior Notes held by a Holder are to be redeemed or purchased. On or after
any date on which Senior Notes are redeemed or purchased, interest ceases to
accrue on the Senior Notes or portions thereof called for redemption or accepted
for purchase on such date.
8. Denominations, Transfer, Exchange. The Senior Notes are in registered
---------------------------------
form without coupons in denominations of $2,000,000 and integral multiples
thereof (subject to adjustment as provided in the Agreement). The transfer of
Senior Notes may be registered and Senior Notes may be exchanged as provided in
the Agreement. Holders seeking to transfer or exchange their Senior Notes may
be required, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted by
the Agreement. The Company need not exchange or register the transfer of any
Senior Note or portion of a Senior Note selected for redemption or tendered
pursuant to an Offer.
9. Persons Deemed Owners. The registered holder of a Senior Note may be
---------------------
treated as its owner for all purposes.
10. Amendments and Waivers.
----------------------
(a) Subject to certain exceptions, the Agreement and the Senior Notes
may be amended or supplemented with the written consent of the Holders of at
least a majority in aggregate principal amount of the then outstanding Senior
Notes, and any existing Default or Event of Default or compliance with any
provision of the Agreement or the Senior Notes may be waived with the consent of
the Holders of at least a majority in principal amount of the then outstanding
Senior Notes.
(b) Notwithstanding Section 10(a) above, the Company may amend or
supplement the Agreement or the Senior Notes without the consent of any Holder
to: cure any ambiguity, defect or
inconsistency; provide for uncertificated Senior Notes in addition to or in
place of certificated Senior Notes; provide for the assumption of the Company's
obligations to the Holders in the event of any Disposition involving the Company
that is permitted under Article VIII of the Agreement and in which the Company
is not the Surviving Person; or make any change that would provide any
additional rights or benefits to Holders or not adversely affect the legal
rights under the Agreement of any Holder.
(c) Certain provisions of the Agreement cannot be amended,
supplemented or waived without the consent of each Holder of Senior Notes
affected.
11. Defaults and Remedies. Events of Default include: (i) the Company's
---------------------
failure to make any payment in respect of (A) the principal of or premium, if
any, on the Senior Notes as the same shall become due, whether at maturity, upon
acceleration, redemption, or otherwise, or (B) interest on or in respect of any
Senior Notes as the same shall become due and such failure shall continue for a
period of 15 Business Days; (ii) failure by the Company for 30 days after
receipt of notice from the Holders of at least 25% of the outstanding Senior
Notes to comply with any other provisions of the Agreement or the Senior Notes;
(iii) default under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Subsidiaries) whether such
Indebtedness now exists, or is created after the date hereof, if (A) such
default results in the acceleration of such Indebtedness prior to its express
maturity or shall constitute a default in the payment of such Indebtedness at
final maturity of such Indebtedness, and (B) the principal amount of any such
Indebtedness that has been accelerated or not paid at maturity, when added to
the aggregate principal amount of all other such Indebtedness that has been
accelerated or not paid at maturity, exceeds $1,500,000; (iv) failure by the
Company or any of its Subsidiaries to pay final judgments, the uninsured portion
of which exceeds $1,500,000, which judgments are not paid, discharged, bonded or
stayed for a period of 90 days after the date of entry thereof, and (v) if under
any Bankruptcy Law, (A) the Company or any Subsidiary commences a voluntary
case, consents to the entry of an order for relief against it in an involuntary
case, consents to the appointment of a Custodian of it or for all or
substantially all of its property, or makes a general assignment for the benefit
of its creditors, or (B) a court of competent jurisdiction enters an order or
decree, and such order or decree remains unstayed and in effect for 90 days,
that is for relief against the Company or any Subsidiary in an involuntary case,
appoints a Custodian of the Company or any Subsidiary or for all or
substantially all of the Property of the Company or any Subsidiary, or orders
the liquidation of the Company or any Subsidiary.
12. No Recourse Against Others. No director, officer, employee,
--------------------------
incorporator or shareholder of the Company shall have any liability for any
obligation of the Company under the Agreement or the Senior Notes or for any
claim based on, in respect of, or by reason of, any such obligation or the
creation of any such obligation. Each Holder by accepting a Senior Note waives
and releases such Persons from all such liability, and such waiver and release
is part of the consideration for the Issuance of the Senior Notes.
13. Successor Substituted. Upon the merger, consolidation or other
---------------------
business combination involving the Company or upon the sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the Company's properties and assets, the Surviving Person (if other than the
Company) resulting from such Disposition shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under the Agreement
with the same effect as if such Surviving Person had been named as the Company
in the Agreement.
14. Governing Law. This Senior Note shall be governed by and construed in
-------------
accordance with the internal laws of the State of New York, without regard to
the conflict of laws provisions thereof.
15. CUSIP Numbers. The Company will use reasonable efforts to cause CUSIP
-------------
numbers to be printed on the Senior Notes and to use CUSIP numbers in notices of
redemption as a convenience to
Holders. No representation is made as to the accuracy of such numbers either as
printed on the Senior Notes or as contained in any notice of redemption and
reliance may be placed only on the other identification numbers printed on the
securities.
16. Copies of Agreement. The Company will furnish to any Holder upon
-------------------
written request and without charge a copy of the Agreement, which has in it the
text of this Senior Note. Requests may be made to: ▇▇▇ ▇▇▇ Roo, Inc., ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attn: President.
17. Certain Information Obligations. To the extent permitted by
-------------------------------
applicable law or regulation, whether or not the Company is subject to the
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file
with the Commission all quarterly and annual reports and such other information,
documents or other reports (or copies of such portions of any of the foregoing
as the Commission may by rules and regulations prescribe) required to be filed
pursuant to such provisions of the Exchange Act. At any time when the Company
is not permitted by applicable law or regulations to file the aforementioned
reports, the Company shall mail to the Holders, within five days after it would
have been required to file the same with the Commission, all information that
the Company would have had to provide to the Commission if the Company had been
subject to Section 13 or 15(d) of the Exchange Act. Also, at any time when the
Company is not permitted by applicable law or regulations to file the
aforementioned reports, upon the request of a Holder of a Senior Note, the
Company will promptly furnish or cause to be furnished such information as is
specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor
provision thereto) to such Holder or to a prospective purchaser of such Senior
Note, as the case may be, in order to permit compliance by such Holder with Rule
144A under the Securities Act.
ASSIGNMENT FORM
To assign this Senior Note, fill in the form below:
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s)
unto
_______________________________________________________________________
(Please insert social security or other identifying number of assignee)
at __________________________________________________________________________
(Please print or typewrite name and address including postal zip code of
assignee)
the within Senior Note and all rights thereunder, hereby irrevocably
constituting and appointing ________________________________________ to transfer
said Senior Note on the books of the Company. The agent may substitute another
to act for him.
Date:________________________
Your Signature:____________________
(Sign exactly as your name appears
on the other side of this Senior
Note)
Signature Guarantee: _________________________
OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Senior Note purchased by the Company pursuant to
Section 7.12 of the Agreement, check the box:
If you elect to have this Senior Note purchased by the Company pursuant to
Section 7.13 of the Agreement, check the box:
If you elect to have this Senior Note purchased by the Company pursuant to
Section 7.19 of the Agreement, check this box:
If you elect to have only part of this Senior Note purchased by the Company
pursuant to Section 7.12, 7.13 or 7.19 of the Agreement, state the amount
(multiples of $1,000 only):
$____________________
Date:_________________ Your Signature:___________________________
(Sign exactly as your name appears
on the other side of this Senior
Note)
Signature Guarantee: _________________________