<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---------
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
___________
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-1954
KOO KOO ROO, INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-3132583
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
11075 Santa Monica Boulevard, Suite 225, Los Angeles, CA 90025
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(Address of principal executive offices) (Zip Code)
(310) 479-2080
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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As of November 1, 1997, the registrant had issued and outstanding
23,979,585 shares of common stock, $.01 par value per share.
Page 1 of 14
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FORM 10-Q
INDEX
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PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1996 and 1997 3
Condensed Consolidated Balance Sheets as of
December 31, 1996 and September 30, 1997 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1996 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 7-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 12
Item 2. Changes in Securities. 12
Item 3. Defaults Upon Senior Securities. 12
Item 4. Submission of Matters to a Vote of Security Holders. 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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Page 2 of 14
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PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
KOO KOO ROO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
September 30, September 30, September 30, September 30,
1996 1997 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Sales $10,206,588 $21,453,275 $26,225,851 $ 49,989,153
Interest and other 473,046 475,169 1,306,635 1,304,255
----------- ----------- ----------- -----------
Total revenues 10,679,634 21,928,444 27,532,486 51,293,408
Cost of sales 7,110,712 14,737,250 18,166,475 34,927,540
----------- ----------- ----------- -----------
Gross profit 3,568,922 7,191,194 9,366,011 16,365,868
Operating expenses 6,224,710 15,813,006 15,431,064 31,222,551
Interest Expense 12,127 227,661 12,127 354,827
----------- ----------- ----------- -----------
Loss before minority interest and joint ventures (2,667,915) (8,849,473) (6,077,180) (15,211,510)
Equity in net loss of joint ventures - (258,375) - (596,678)
Minority share of net loss 143,107 211,999 254,363 520,582
----------- ----------- ----------- -----------
Net loss (2,524,808) (8,895,849) (5,822,817) (15,287,606)
Dividends on preferred stock (355,982) (472,558) (780,182) (1,540,314)
Deemed dividends on preferred stock - (391,000) - (1,419,000)
----------- ----------- ----------- -----------
Net loss applicable to common stockholders $(2,880,790) $(9,759,407) $(6,602,999) (18,246,920)
=========== =========== =========== ===========
Per Common Share:
Net loss $ (0.17) $ (0.38) $ (0.40) $ (0.78)
Dividends on preferred stock (0.02) (0.04) (0.05) (0.15)
----------- ----------- ----------- -----------
Net loss per common share $ (0.19) $ (0.42) $ (0.45) $ (0.93)
=========== =========== =========== ===========
Weighted average number of common and
common equivalent shares 14,921,561 23,405,917 14,688,227 19,536,072
=========== =========== =========== ===========
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Page 3 of 14
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KOO KOO ROO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
December 31, 1997
ASSETS 1996 * (Unaudited)
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<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,591,318 $ 13,801,463
Marketable securities 5,220,452 5,642,350
Receivables 1,802,919 2,403,397
Inventories 814,830 1,342,408
Prepaid expenses 195,510 617,865
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Total current assets 12,625,029 23,807,483
Property and equipment 31,307,340 40,734,946
Investments in and advances to related entities 461,623 2,427,152
Notes Receivable - Long-term - 1,099,267
Intangibles and other assets 5,378,095 11,859,206
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$ 49,772,087 $ 79,928,054
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,263,706 $ 4,490,561
Accrued payroll 634,216 1,943,893
Other accrued liabilities 1,398,634 3,301,336
Current portion of long-term debt 220,166 311,321
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Total current liabilities 5,516,722 10,047,111
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Notes and loans payable, long-term 1,475,089 13,542,497
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Minority interest 230,622 192,392
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Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized; 1,027,193 and 217,618 shares
of Series A and 0 and 272,715 shares of Series B,
Adjustable Convertible Preferred Stock issued and outstanding
(aggregate liquidation preference $25,680,000 and $32,711,95 10,272 4,903
Common stock, $.01 par value, 50,000,000
shares authorized; 15,933,822 and 23,736,141
shares issued and outstanding 159,339 237,362
Additional paid-in capital 73,623,089 105,385,600
Accumulated deficit (30,607,536) (48,854,456)
Treasury stock, 72,512 and 100,012 shares at cost (2,123) (112,093)
Common stock issued for unearned compensation (633,387) (515,262)
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Total stockholders' equity 42,549,654 56,146,054
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$ 49,772,087 $ 79,928,054
============ ============
</TABLE>
* Derived from audited financial statements
Page 4 of 14
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KOO KOO ROO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Nine
Months Ended Months Ended
September 30, September 30,
1996 1997
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<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (5,822,817) $(15,287,606)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,862,333 4,472,821
Minority interest in net loss (254,363) (520,582)
Loss on writeoff or sale of assets 314,011 2,891,050
Common stock issued for expenses and other 132,499 -
Changes in operating assets and liabilities:
Inventories (267,352) (296,983)
Prepaid expenses and other assets (311,787) (403,222)
Accounts payable 640,921 (1,123,014)
Accrued expenses and other liabilities 939,775 (2,448,450)
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Net cash used in operating activities (1,766,780) (5,573,058)
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Cash Flows From Investing Activities:
Acquisition of property and equipment (13,697,701) (11,380,152)
Acquisition of Hamburger Hamlet - (10,476,955)
Purchase of marketable securities (12,344,165) (12,714,777)
Sale of marketable securities 6,822,430 12,292,880
Pre-opening costs (1,195,694) (759,718)
Payments on notes receivable - 903,333
Proceeds from sale/leaseback of store assets, net - 1,983,576
Notes and loans to employees and others (638,770) (753,078)
Lease acquisition and other (1,337,537) (298,109)
Investments in and advances to related entities (240,791) (1,835,942)
------------ ------------
Net cash used in investing activities (22,632,228) (23,038,942)
------------ ------------
Cash Flows From Financing Activities:
Proceeds from private placements, net 30,435,484 26,632,393
Net loan proceeds 1,600,000 11,755,756
Debt repayments (24,056) (174,994)
Minority capital contributions (distributions) (65,515) 102,765
Preferred Stock Dividends (49,200) (383,809)
Repurchase of Common Stock - (109,970)
Exercise of common stock options and warrants 380,143 5
------------ ------------
Net cash provided by financing activities 32,276,856 37,822,146
------------ ------------
Net Increase in Cash and Cash Equivalents 7,877,848 9,210,146
Cash and Cash Equivalents, beginning of period 3,501,815 4,591,318
------------ ------------
Cash and Cash Equivalents, end of period $11,379,663 $ 13,801,464
============ ============
</TABLE>
Page 5 of 14
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KOO KOO ROO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements include the accounts of the Company,
its majority-owned subsidiaries and limited partnerships in which the
Company has a controlling interest. All significant inter-company
transactions and balances have been eliminated.
2. The accompanying unaudited consolidated financial statements were prepared
on the accrual basis of accounting. In the opinion of management, all
adjustments (consisting only of normal, recurring accruals) which are
necessary for a fair presentation of the financial results for the periods
presented have been made. The interim period results of operations are not
necessarily indicative of the results of operations for the full year.
3. During the quarter ended September 30, 1997 the Company approved a 1997
Stock Option Plan for Restaurant Employees and Management. The plan
authorizes the issuance of options to purchase a maximum of 750,000 shares
of the Company's Common Stock.
4. During the quarter ended September 30, 1997, the Company approved a Section
401(k) Plan which permits eligible employees of the Company to defer up to
15% of their annual compensation, subject to certain limitations imposed by
the Internal Revenue Code of 1996, as amended (the "Code"). The employees's
elective deferrals are immediately vested and non-forfeitable upon
contribution to the Section 401(k) Plan. Employee deferrals may be invested,
at each employee's option, in one or all of certain publicly traded mutual
funds, guaranteed interest rate contracts or shares of the Company's Common
Stock. The Company currently does not intend to make matching contributions
to the Section 401(k) Plan; however, it reserves the right to do so in the
future. The Section 401 (k) Plan is effective November 1, 1997.
5. During the quarter ended September 30, 1997, 68,029 shares of the Company's
5% Series A Adjustable Convertible Preferred Stock (the "Series A
Convertible Preferred Stock") were converted into 447,828 shares of the
Company's Common Stock. In addition 14,010 shares of the Company's 6% Series
B Adjustable Convertible Preferred Stock (the "Series B Convertible
Preferred Stock") were converted into 270,819 shares of the Company's Common
Stock.
6. During the quarter ended September 30, 1997, the Company decided to exit
three markets: Colorado, New York and New Jersey. In connection with this
decision the Company closed its only restaurant in Colorado in July 1997 and
its only restaurants located in New York and New Jersey in early October
1997. The Company also closed its only restaurant in Los Angeles which did
not conform to the California Kitchen restaurant design. The charge related
to these closings was $2.7 million and is included in operating expenses on
the accompanying statement of operations.
7. In April 1997, the Company approved a plan for the repurchase of up to one
million shares of the Company's Common Stock. During the quarter ending
September 30, 1997 the Company did not repurchase any shares of Common
Stock.
8. On July 31, 1997, the Canadian joint venture in which the Company is a
partner completed a $5 million private placement which reduced the Company's
interest in the Canadian partnership to 28.4% from 40%.
9. On August 12, 1997, the Company executed a binding agreement related to the
issuance of $12 million in Senior Notes due 2000 (the "Senior Notes") to an
institutional investor in a private placement. The notes carry an interest
rate of 13% payable quarterly commencing November 15, 1997 and include
attached five-year warrants to purchase 330,000 shares of the Company's
Common Stock at a price of $5.375 per share. A mandatory prepayment of $2.5
million of the Senior Notes will be due 18 months after issuance and the
holder will have the right to require the repurchase of the Senior Notes
upon the completion by the Company of any equity or mezzanine financings of
more than $20 million, or upon a change in control of the Company. The
Company is required to file a shelf registration statement for the shares of
Common Stock issuable upon exercise of the warrants on or before May 25,
1998. The holders of teh Senior Notes received a $300,000 commitment fee and
the placement agents received a $300,000 placement fee and warrants to
purchase 60,000 shares of the Company's Common Stock at $5.375 per share.
The funding of the loan occurred on August 28, 1997.
10. As of September 30, 1997 cash and cash equivalents included $500,000 in
restricted cash associated with a $500,000 line of credit.
Page 6 of 14
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
HIGHLIGHTS FOR THE QUARTER ENDED SEPTEMBER 30, 1997
Koo Koo Roo, Inc. (the "Company") will be concentrating growth of its Koo
Koo Roo California Kitchen concept in California, Las Vegas, Nevada, the
Washington D.C. Beltway area and Florida, where it has multiple stores or
multiple stores planned. By concentrating its financial and human resources in
four areas it has multiple stores open or planned, the Company believes it can
improve its financial results with higher sales and restaurant operating profit
and containment of overhead costs required to manage these markets.
In September 1997, the Company streamlined its corporate structure and
eliminated a substantial number of corporate jobs which included consolidating
Hamburger Hamlet's corporate office with the Company's corporate headquarters
located in Los Angeles, California.
The Company began executing its three prong real estate strategy to reduce
capital requirements and gain operating efficiencies at the store level with the
opening of its first 750 square foot kiosk at National Airport in Washington,
D.C. in July 1997. In October the Company also opened its first 2,000 square
foot prototype store in Torrance, California. The 2,000 square foot prototype
store has a smaller, more efficient kitchen and approximately 50 seats and is
designed to enable the Company to open stores at a lower cost in areas with
lower population density. These two new formats are in addition to the larger,
original 3,500 square foot Koo Koo Roo California Kitchen design.
The Company signed nine leases for new Koo Koo Roo California Kitchen stores
in the third quarter and the Company ended the quarter with 46 opened or leased
stores in total, 34 opened or leased in the Southern California market and an
average of three stores opened or leased in each of its other markets. Two
stores were closed and two stores were opened subsequent to September 30, 1997.
As of November 7, 1997, the Company operated 45 restaurants, including 14
Hamburger Hamlets and one new Koo Koo Roo California Kitchen restaurant opened
during the quarter ended September 30, 1997.
As of November 7, 1997, the Company's Canadian joint venture partner
operated two restaurants in Toronto, Ontario. An additional location in Toronto
is scheduled to open in December 1997. Leases for three additional locations in
Toronto, Ontario have been executed.
Senior management at the Company's Color Me Mine subsidiary continues its
focus on franchising to accelerate corporate development and curtail capital
requirements. Also during the third quarter, the corporate offices of Color Me
Mine were relocated to its existing bisquareware factory located in Van Nuys,
California. The Company continues to investigate strategies that may lead to the
recapitalization, sale, spin-off or other restructuring of its interest in Color
Me Mine.
As of October 26, 1997, 33 Color Me Mine ceramics studios were open and
operating, including 11 ceramics studios owned and operated by the Company, ten
ceramic studios owned and operated by joint ventures and 12 franchised ceramics
studios. Since April 1, 1997, Color Me Mine has sold and received partial or
complete payment for 46 franchise units.
The Company has also renewed its retainer agreement with F.M. Roberts & Co.
for strategic counsel. Compensation has been restructured from a cash retainer
to contingent fees.
RESULTS OF OPERATIONS
The Company incurred a net loss of $8,896,000 during the three months ended
September 30, 1997 compared to a net loss of $2,525,000 for the quarter ended
September 30, 1996.
The net loss includes one time charges of $4.56 million associated with
restaurant operations and $460,000 associated with Color Me Mine. Restaurant
operations included a $2.7 million charge related to the decision during the
third quarter to close four restaurants, $330,000 related to streamlining its
corporate structure, $435,000 in preopening training costs related to delayed
store openings and attrition, $300,000 in reserves and write-offs related to
restaurant receivables and certain delinquent loans associated with former
employees, $250,000 in reserves for contract and legal settlements, $172,000 to
reduce the Company's investment in its two Florida joint venture partnerships,
$100,000 in site survey costs related to potential sites which were abandoned
and $278,000 associated with miscellaneous other reserves. The net loss for the
quarter, exclusive of one time charges included $3.47 million related to
restaurants, including $290,000 in losses related to stores that are now closed,
and $400,000 related to Color Me Mine. These losses are attributable to the cost
of the Company's corporate infrastructure which is designed to support a larger
number of Koo Koo Roo restaurants than were opened, losses attributable to
markets which the Company decided to exit in the third quarter and to new
markets which the Company continues to develop and to the cost of developing new
products and operating systems designed to lower restaurant operating costs. The
Company's
Page 7 of 14
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corporate overhead contemplates a greater number of stores than are currently
open and will support a greater rate of new development than is presently
occurring. Management is addressing this imbalance through cost control efforts
including the streamlining of overhead and an increase in lease signings which
increases planned openings.
Color Me Mine's new management team, which was put in place in April 1997,
continues to increase franchise sales and streamline operations. The majority of
its loss is attributable to management salaries, marketing materials, new
product development, factory expansion, corporate office relocation and sales
expenses associated with the development of Color Me Mine franchise sales and
support programs. During the quarter, agreements for 18 franchise units were
signed. As of September 30, 1997 Color Me Mine also had four signed letters of
intent representing up to 145 franchise units outside the United States;
however, there can be no assurance that these letters of intent will result in
definitive franchise agreements.
QUARTER-TO-QUARTER COMPARISON
RESTAURANT OPERATIONS
- ---------------------
Restaurant sales were $20,591,000 in the current quarter compared to
$9,794,000 in the same period of the prior year, an increase of 110%. Sales for
the current quarter were produced by 33 Koo Koo Roo restaurants and 14 Hamburger
Hamlet restaurants, compared to 24 Koo Koo Roo California Kitchen restaurants in
same quarter of the prior year. Hamburger Hamlet sales during the quarter
amounted to $7,299,000, approximately 35% of total restaurant sales. One new Koo
Koo Roo California Kitchen restaurant was opened during the current quarter in
National Airport, Washington, D.C. Average same store sales for the 17 mature
Koo Koo Roo restaurants (which are those open more than 18 months) increased
5.5%.
During the quarter the Company closed two locations and scheduled the
closing of two additional locations resulting in a $2.7 million charge for these
store closings.
Other income for the current quarter includes $215,000 in interest income.
During the prior year's quarter, the Company received $346,000 in interest
income. Interest income resulted from the investment of the net proceeds
(approximately $26.7 million) received from the private placement of the
Company's Series B Convertible Preferred Stock which occurred in February 1997
as well as interest income from the investment of the net proceeds
(approximately $11.3 million) received from the private placement of $12 million
in Senior Notes in August 1997.
Cost of sales were $14,107,000 in the current quarter compared to $6,877,000
in the same period of the prior year. As a percent of sales costs were flat for
Koo Koo Roo restaurants compared to the same period of the prior year. Combined
restaurant cost of sales, which includes Hamburger Hamlet, were 68.5% of sales
for the current quarter compared to 70.2% in the same period of the prior year,
an improvement of 1.7 points. As a result, gross profit as a percentage of sales
increased to 31.5% for the current quarter compared to 29.8% in the same period
of the prior year.
Operating expenses for combined restaurant operations amounted to
$14,708,000 in the current quarter compared to $5,837,000 in the prior year
quarter. Operating expenses as a percentage of sales increased to 71.4% from
59.6% in the same quarter of the prior year an increase of 11.8 points. This
increase is due to a $2.7 million charge related to closing four restaurants and
$1.9 million of other one-time charges (see "Results of Operations"). Occupancy
costs for the current quarter increased approximately $995,000 over the prior-
year quarter due to new Koo Koo Roo California Kitchen store openings and
occupancy costs associated with the operation of the Hamburger Hamlet
restaurants. Occupancy costs as a percent of sales increased to 8.7% for the
current quarter compared to 8.1% for the same quarter of the prior year.
Depreciation and amortization increased by $484,000 due to eight additional
store openings since the end of the second quarter of 1996 and to the
acquisition of the Hamburger Hamlet restaurants.
Interest expense of $228,000 for the current quarter relates to equipment
and leasehold financing for the two Florida joint venture restaurants and to the
$12 million in Senior Notes.
The Company paid a non-cash quarterly dividend to the holders of its Series
A Convertible Preferred Stock amounting to $69,000 in 14,018 shares of the
Company's Common Stock on September 30, 1997. In addition the Company issued
6,869 shares of its 6% Convertible Preferred Stock valued at $689,000 and $4,000
in cash in payment of its dividend payable on August 1, 1997 to Series B
Convertible Preferred Stockholders during the quarter. The Company also accrued
non-cash dividends on its Series B Convertible Preferred Stock in the amount of
$227,000 representing the value of dividends payable on November 1, 1997 and
$391,000 for the quarter representing an imputed dividend on the Series B
Convertible Preferred Stock although no shares were issued or cash paid. The
imputed dividend charge relates to the discount feature associated with the
Series B Convertible Preferred Stock
Page 8 of 14
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computed in accordance with the SEC's recent position on accounting for
preferred stock which is convertible at a discount to the market. The Company
has the option of paying the dividends on the Series A and Series B Convertible
Preferred Stock in cash or in shares of shares of Common Stock for the Series A
Convertible Preferred Stock or in additional shares of Series B Convertible
Preferred Stock for the Series B Convertible Preferred Stock.
The Company's present expansion plans contemplate a number of new store
openings during the balance of 1997 and into 1998. In connection with new store
openings, pre-opening costs (such as training of new employees and various site
costs) are capitalized until the store is opened at which time they are
amortized on a straight-line basis over the first twelve months of operations.
Pre-opening amortization and equipment and leasehold depreciation is expected to
increase as a result of an increase in store openings.
CERAMIC STUDIO OPERATIONS
- -------------------------
Sales were $862,000 in the quarter ended September 30, 1997 compared to
$412,000 in the quarter ended September 30, 1996. Sales for the quarter ended
September 30, 1997 were produced by 11 Color Me Mine ceramics studios owned and
operated by the Company compared to six ceramics studios owned and operated by
the Company during the quarter ended September 30, 1996. Franchise fees and
royalties for the quarter ended September 30, 1997 were $177,000 compared to
$10,000 for the quarter ended September 30, 1996.
Color Me Mine's net loss for the quarter ended September 30, 1997 amounted
to $959,000 compared to $54,000 for the quarter ending September 30, 1996. The
loss for the current quarter included $87,000 in charges related to closing its
location in Falls Church, Virginia, $171,000 associated with terminated joint
venture area development agreements, $115,000 in losses from its Florida joint
venture partnership and $87,000 in other reserves. Management expects
improvement in its financial performance during the fourth quarter due to the
opening of signed franchise studios, seasonality, and the results of cost
control efforts including conversion of certain company owned and joint venture
studios to franchise agreements.
NINE MONTH COMPARISON
RESTAURANT OPERATIONS
- ---------------------
Restaurant sales were $47,764,000 for the nine months ended September 30,
1997 compared to $25,259,000 for the same period of the prior year, an increase
of 89.1%. Sales for the nine months were produced by 34 Koo Koo Roo restaurants
and 14 Hamburger Hamlet restaurants which were operating during the nine months
ended September 30, 1997, compared to 24 stores open for the nine months ended
September 30, 1996. Seven new restaurants were opened during the nine months
ended September 30, 1997 in Burbank, West Hollywood, Aliso Viejo and Laguna
Hills, California, Westfield, New Jersey, Falls Church, Virginia and National
Airport, Washington, D.C.. During the nine months ended September 30, 1997 the
Company closed five locations. Two additional locations were closed in October
1997. One location opened in Torrance, California in October 1997 and a second
location in Torrance, California opened in November 1997.
Interest and other revenues for the current year includes $770,000 in
interest income. During the nine months ended September 30, 1996, the Company
received $872,000 in interest income.
Cost of sales were $33,306,000 for the current year compared to $17,683,000
for the same period of the prior year. These costs decreased to 69.7% of sales
compared to 70.0% in the same period of the prior year. As a result, gross
profit for the six months ended September 30, 1997, as a percentage of revenues,
increased to 30.3% compared with 30.0% in the same period of the prior year.
Operating expenses amounted to $27,686,000 for the current year compared to
$14,584,000 for the prior year. Operating expenses as a percentage of sales
increased to 58.0% from 57.7% in the same period of the prior year. This
increase was primarily due to the restaurant closings and other charges
discussed above. Occupancy costs increased by approximately $1,869,000 due to
new store openings and the addition of 14 Hamburger Hamlet restaurants.
Depreciation and amortization increased by $1,173,000 due to 10 additional store
openings since the end of the third quarter of 1996 and the acquisition of
Hamburger Hamlet in the second quarter of 1997.
CERAMIC STUDIO OPERATIONS
- -------------------------
Sales for the nine month period ended September 30, 1997 were $2,225,000
compared to $967,000 for the nine month period ended September 30, 1996.
Franchise and royalty revenues for the nine month period ended September 30,
1997 were $351,000 compared to $283,000 for the nine month period ended
September 30, 1996.
Page 9 of 14
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Color Me Mine's net loss for the nine months ended September 30, 1997
amounted to $2,671,000 compared to operating income of $80,000 for the nine
months ended September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY.
Total cash, cash equivalents and marketable securities at September 30, 1997
amounted to $19.4 million. The Company has been expending cash resources to fund
operations and to build new and remodeled Koo Koo Roo California Kitchen
restaurants and Color Me Mine studios. The Company completed the construction of
one restaurant during the quarter. As of September 30, 1997, there were seven
restaurants and one free standing Arrosto under construction which will require
approximately $3.3 million to complete. Purchases of property, equipment and
computer hardware and software together with costs for acquiring certain
locations for the nine months ended September 30, 1997 amounted to $ 11.6
million compared with $15.0 million during the same period of the prior year.
Corporate expenses for the development of the Koo Koo Roo California Kitchen
and Color Me Mine concepts, real estate development and the infrastructure
necessary to manage store growth have resulted, to date, in overall operating
losses. The Company's strategy is to control growth of overhead expense and
build a sufficient number of new stores to generate positive overall operating
cash flow as quickly as possible. This strategy requires acquisition and
development of successful new sites, and while management has been successful in
opening new Koo Koo Roo California Kitchen restaurants in the past, there can be
no assurance that this success will continue in the future.
CAPITAL RESOURCES
As of September 30, 1997, the Company has approximately $13.8 million of
long-term notes and loans payable consisting of $100,000 assumed with the
acquisition of Color Me Mine, $250,000 assumed with the acquisition of the 14
Hamburger Hamlet restaurants, $1.4 million in store-level debt financing,
$446,000 drawn against a $500,000 line of credit established by Color Me Mine
and $12 million in Senior Notes less $400,000 in original issue discounts. The
store-level financing represents two loans secured by leasehold mortgages and
first priority security interests in all of the furniture, fixtures and
equipment at the Company's two joint venture locations in Florida. The loans are
also guaranteed by the Company and its joint venture partner. The interest rate
on the loans is equal to one percent over the base rate established by Citibank,
N.A. from time to time. The loans mature in 2004.
On August 12, 1997, the Company executed a binding agreement related to the
issuance of $12 million in Senior Notes due 2000 (the "Senior Notes") to an
institutional investor in a private placement. The notes carry an interest rate
of 13% payable quarterly commencing November 15, 1997 and include attached five-
year warrants to purchase 330,000 shares of the Company's Common Stock at a
price of $5.375 per share. A mandatory prepayment of $2.5 million of the Senior
Notes will be due 18 months after issuance and the holder will have the right to
require the repurchase of the Senior Notes upon the completion by the Company of
any equity or mezzanine financings of more than $20 million, or upon a change in
control of the Company. The Company is required to file a shelf registration
statement for the shares of Common Stock issuable upon exercise of the warrants
on or before May 25, 1998. The holders of teh Senior Notes received a $300,000
commitment fee and the placement agents received a $300,000 placement fee and
warrants to purchase 60,000 shares of the Company's Common Stock at $5.375 per
share. The funding of the loan occurred on August 28, 1997.
On September 1, 1997 Color Me Mine executed a $500,000 line of credit to
fund working capital requirements. The line of credit is secured by a $500,000
certificate of deposit held by the Company. The interest rate on the loans is
equal to 6.35% per annum. The outstanding principal balance is due and payable
on September 1, 1998. As of September 30, 1997, $446,000 was outstanding under
the facility.
The Company intends to investigate store-level, asset-based financing of
fixtures, equipment and leasehold improvements as its expansion continues. The
Company has also entered into sale-leaseback agreements for the Burbank and
Aliso Viejo properties. The Burbank sale and leaseback was completed in May of
1997 and the Company received $1.4 million in gross proceeds. The Aliso Viejo
sale and leaseback was completed August of 1997 and the Company received $1.4
million in gross proceeds. To date, the development and expansion of Color Me
Mine has been financed by advances from Koo Koo Roo, Inc.: such advances totaled
approximately $8.3 million at September 30, 1997. Color Me Mine is focused on
becoming self-sustaining in its cash needs by the end of 1997 and the Company
also continues to investigate strategies that may lead to the recapitilization,
sale, spin-off or other restructuring of its interest in Color Me Mine.
Page 10 of 14
<PAGE>
The timing of future capital requirements will be affected by, among other
things, the number of stores opened, operating results, real estate development,
and potential other corporate opportunities. In the ordinary course of its
business, the Company regularly investigates and enters into negotiations
related to joint venture, acquisition, strategic development opportunities and
other strategic transactions. Management believes that the Company's existing
capital resources will be sufficient to fund its planned growth into 1998. If
the Company sustains its current rate of lease signings, the Company will seek
additional funds in 1998 which may include public or private offerings of debt
or equity, or may seek bank financing facilities. There can be no assurance that
the necessary additional capital will be available to the Company on favorable
terms or at all.
FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS
Many of the statements made in this Management's Discussion and Analysis of
Financial Condition and Results of Operations are forward looking and, among
other things, comment on the prospects for the Company to grow rapidly and
attain profitable operations. The Company has incurred net losses which have
been increasing as compared to prior years. Management presently anticipates
that net losses will continue to be incurred for some time, but that the net
loss (prior to one time charges) will decrease over the next 12 months both in
the aggregate and as a percentage of sales. The Company's current level of
overhead contemplates more restaurants and ceramics studios than are currently
opened, and control over the timing of the opening of the additional stores
necessary to achieve a volume level which would permit overall Company
profitability is subject to factors outside the control of management,
including, among other things, capital availability, site landlords which are in
negotiations with the Company, government permitting agencies, and other outside
parties and agencies including, but not necessarily limited to, contractors,
vendors, and government inspectors.
The forward-looking statements and comments contained in this Report
concerning, among other things, the prospects for the Company to grow rapidly
and attain profitable operations, are necessarily subject to risks and
uncertainties some of which are significant in scope and nature including real
estate leases and acquisition, construction and permitting, store openings,
operations and competition. Actual results will be dependent upon many factors
the outcome of which cannot be predicted as of the date of this Report. In
addition to the matters discussed herein, factors that should be considered are
included under the caption "Business Risks" in the Company's most recent Form
10-K and "Risk Factors" in its most recent Form S-3, each of which has been
filed with the Securities and Exchange Commission.
Page 11 of 14
<PAGE>
PART II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS.
The Company has become subject to various lawsuits, claims and other legal
matters in the ordinary course of conducting its business. As of the date of
this Report, management believes that there are no legal proceedings pending,
the adverse resolution of which is expected to have a material adverse financial
impact on the Company's consolidated financial position.
ITEM 2. CHANGES IN SECURITIES.
During the quarter ended September 30, 1997 the Company issued 447,828
shares of Common Stock in exchange for 68,029 shares of Series A Convertible
Preferred Stock and 270,819 shares of Common Stock in exchange for 14,010 shares
of Series B Convertible Preferred Stock. Such shares of Common Stock were issued
in reliance upon the exemption from registration provided in Section 3(a)(9) of
the Act. See Note 5 to the Condensed Consolidated Financial Statements. Also
during the quarter the Company issued $12 million aggregate principal amount of
Senior Notes, attached warrants to acquire 330,000 shares of Common Stock and
warrants issued to the placement agent. Such securities were issued in reliance
upon the exemption from registration provided in Section 4(2) of the Act and
Regulation D promulgated thereunder. See Note 9 to the condensed Consolidated
Financial Statements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
Page 12 of 14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS - Exhibit No. 4.1 Securities Purchase Agreement dated as
of August 12, 1997
- Exhibit No. 4.2 Warrant Agreement dated as of August 28,
1997
- Exhibit No. 4.3 Registration Rights Agreement dated as
of August 28, 1997
- Exhibit No. 27 Financial Data Schedule
(b) FORM 8-K -filed during the quarter ended September 30, 1997.
none
Page 13 of 14
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KOO KOO ROO, INC.
Date: November 12, 1997 /s/KENNETH BERG
----------------- ---------------
KENNETH BERG,
CHAIRMAN OF THE BOARD
Date: November 12, 1997 /s/ROBERT F. KAUTZ
------------------ ------------------
ROBERT F. KAUTZ,
PRESIDENT AND CHIEF FINANCIAL OFFICER
Page 14 of 14
<PAGE>
================================================================================
EXHIBIT 4.1
KOO KOO 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
KOO KOO ROO, INC.
Dated as of August 12, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<S> <C>
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
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
(iv)
<PAGE>
SCHEDULES
---------
<TABLE>
<S> <C>
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
</TABLE>
(v)
<PAGE>
EXHIBITS
--------
<TABLE>
<S> <C>
EXHIBIT A - Form of Senior Note
EXHIBIT B - Form of Opinion of McKenna & Stahl
EXHIBIT C - Form of Registration Rights Agreement
EXHIBIT D - Form of Warrant Agreement
</TABLE>
(vi)
<PAGE>
KOO KOO ROO, INC.
SECURITIES PURCHASE AGREEMENT dated as of August 12, 1997, by and between
Koo Koo 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
-----------
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
<PAGE>
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 Title 11, United States 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,
<PAGE>
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 Moody's 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 Moody's 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
Moody's 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 Wells Fargo Bank Investment Policy attached hereto
as Schedule 7.5.
-------------
"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
<PAGE>
"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
- -------- -------
4
<PAGE>
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
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(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
--------
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.
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<PAGE>
"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
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<PAGE>
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 Koo Koo 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
<PAGE>
"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.
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<PAGE>
"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
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<PAGE>
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
<PAGE>
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
<PAGE>
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
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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.
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"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 Mr. Kenneth Berg, any member of the family of Mr.
Berg, and any Affiliate of Mr. Berg 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
<PAGE>
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
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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
<PAGE>
"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 Goodwin, Procter & Hoar 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
<PAGE>
"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
<PAGE>
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
<PAGE>
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 Title 11,
United States 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
<PAGE>
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
<PAGE>
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 Goodwin, Procter &
Hoar 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
<PAGE>
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
------------------
McKenna & Stahl, counsel for the Company, a favorable opinion substantially in
the form set forth in
22
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
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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
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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
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<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
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<PAGE>
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 Seidman 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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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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
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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
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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
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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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
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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
<PAGE>
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
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<PAGE>
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
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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
<PAGE>
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
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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
<PAGE>
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
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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
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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.
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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
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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
<PAGE>
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
<PAGE>
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: Koo Koo Roo, Inc.
11075 Santa Monica Boulevard, Suite 225
Los Angeles, California 90025
Attn: President
Fax: (310) 479-4221
Tel: (310) 479-2080
With a copy to: Koo Koo Roo, Inc.
11075 Santa Monica Boulevard, Suite 225
Los Angeles, California 90025
Attn: General Counsel
Fax: (310) 479-4221
Tel: (310) 479-2080
If to the Purchaser: DDJ Capital Management, LLC
141 Linden Street, Suite S-4
Wellesley, Massachusetts 02181
Attn: General Counsel
Fax: (617) 283-8555
Tel: (617) 283-8500
With a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attn: Laura Hodges Taylor, P.C.
Fax: (617) 523-1231
Tel: (617) 570-1536
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
KOO KOO ROO, INC., a Delaware
corporation
By: /s/ Robert F. Kautz
------------------------------
Name: Robert F. Kautz
Title: President and Chief Financial Officer
74
<PAGE>
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 #
________________ ________________
Street Address
________________ ________________
Account Number Attention
<PAGE>
[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%.
KOO KOO ROO, INC.
13% SENIOR NOTE DUE AUGUST 15, 2000
No. 1 $12,000,000
Koo Koo 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.
KOO KOO ROO, INC.
By:_____________________________
Name:
Title:
By:_____________________________
Name:
Title: Secretary
<PAGE>
13% Senior Note due August 15, 2000
1. Interest. Koo Koo 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
<PAGE>
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
<PAGE>
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
<PAGE>
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: Koo Koo Roo, Inc., 11075
Santa Monica Boulevard, Los Angeles, California 90025, 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.
<PAGE>
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: _________________________
<PAGE>
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: _________________________
<PAGE>
================================================================================
EXHIBIT 4.2
WARRANT AGREEMENT
BY AND AMONG
KOO KOO ROO, INC.
AND
THE PURCHASER NAMED HEREIN
Dated as of August 28, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I - Warrant Certificates............................................................. 1
Section 1.1 Forms of Warrant Certificates............................................ 1
Section 1.2 Execution of Warrant Certificates........................................ 1
Section 1.3 Registration of Warrant Certificates..................................... 2
Section 1.4 Exchange and Transfer of Warrant Certificates............................ 2
Section 1.5 Lost, Stolen, Mutilated or Destroyed Warrant Certificates................ 2
Section 1.6 Cancellation of Warrant Certificates..................................... 2
ARTICLE II - Warrant Exercise Price and Exercise of Warrants................................. 3
Section 2.1 Exercise Price........................................................... 3
Section 2.2 Registration of Warrants and Warrant Shares.............................. 3
Section 2.3 Procedure for Exercise of Warrants....................................... 3
Section 2.4 Issuance of Common Stock................................................. 5
Section 2.5 Certificates for Unexercised Warrants.................................... 5
Section 2.6 Reservation of Shares.................................................... 5
Section 2.7 No Impairment............................................................ 5
ARTICLE III - Adjustments and Notice Provisions.............................................. 6
Section 3.1 Adjustment of Exercise Price............................................. 6
Section 3.2 No Adjustments to Exercise Price......................................... 7
Section 3.3 Adjustment of Number of Shares........................................... 8
Section 3.4 Reorganizations.......................................................... 8
Section 3.5 Verification of Computations............................................. 8
Section 3.6 Notice of Certain Actions................................................ 9
Section 3.7 Certificate of Adjustments............................................... 9
Section 3.8 Warrant Certificate Amendments........................................... 9
Section 3.9 Fractional Shares........................................................ 10
ARTICLE IV - Miscellaneous................................................................... 10
Section 4.1 Payment of Taxes and Charges............................................. 10
Section 4.2 Changes to Agreement..................................................... 10
Section 4.3 Assignment............................................................... 10
Section 4.4 Successor to Company..................................................... 11
Section 4.5 Notices.................................................................. 11
Section 4.6 Defects in Notice........................................................ 12
Section 4.7 Governing Law............................................................ 12
Section 4.8 Standing................................................................. 12
Section 4.9 Headings................................................................. 12
Section 4.10 Counterparts............................................................. 12
Section 4.11 Availability of the Agreement............................................ 12
Section 4.12 Entire Agreement......................................................... 12
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
COMPANY SIGNATURE PAGE....................................................................... 13
PURCHASER SIGNATURE PAGE..................................................................... 14
EXHIBIT A - FORM OF WARRANT CERTIFICATE...................................................... A-1
</TABLE>
(ii)
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of August 28, 1997 by and among KOO KOO ROO,
INC., a Delaware corporation (the "Company"), and the undersigned purchaser (the
"Purchaser").
WITNESSETH:
WHEREAS, the Company proposes to sell pursuant to a Securities Purchase
Agreement, dated as of August 12, 1997 (the "Securities Purchase Agreement"), by
and between the Company and the Purchaser, units consisting of Senior Notes in
the aggregate principal amount of $12 million (as defined in the Securities
Purchase Agreement) and warrants (each, a "Warrant", and collectively, the
"Warrants") to purchase up to an aggregate of 330,000 shares (subject to
adjustment) of the common stock, par value $.01 per share, of the Company (the
"Common Stock") (the Common Stock issuable upon exercise of the Warrants being
referred to herein as the "Warrant Shares");
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:
-1RT-1CLE - Warrant Certificates
Sect-1on I.1 Forms of Warrant Certificates. The warrant certificates
-----------------------------
(the "Warrant Certificates") shall be issued in registered form only and,
together with the form of the election to purchase (the "Election to Purchase"),
and assignment (the "Assignment") to be attached thereto, shall be substantially
in the form of Exhibit A attached hereto and, in addition, may have such
---------
letters, numbers or other marks of identification or designation and such
legends, summaries, or endorsements stamped, printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as, in any particular case, may be required in
the opinion of counsel for the Company, to comply with any law or with any rule
or regulation of any regulatory authority or agency, or to conform to customary
usage.
Sect-1on I.2 Execution of Warrant Certificates. The Warrant Certificates
---------------------------------
shall be executed on behalf of the Company by its Chairman or President or any
Vice President and attested to by its Secretary or Assistant Secretary, either
manually or by facsimile signature printed thereon. In case any authorized
officer of the Company who shall have signed any of the Warrant Certificates
shall cease to be an officer of the Company either before or after delivery
thereof by the Company to any Purchaser, the signature of such person on such
Warrant Certificates shall be valid nevertheless and such Warrant Certificates
may be issued and delivered to those persons entitled to receive the Warrants
represented thereby with the same force and effect as though the person who
signed such Warrant Certificates had not ceased to be an officer of the Company.
<PAGE>
PAGE
Sect-1on I.3 Registration of Warrant Certificates. The Company shall
------------------------------------
number and register the Warrant Certificates in a register as they are needed.
The Company may deem and treat the registered holder(s) of the Warrant
Certificates (the "Holders") as the absolute owner(s) thereof for all purposes.
Sect-1on I.4 Exchange and Transfer of Warrant Certificates. The Warrants
---------------------------------------------
(and any Warrant Shares issued upon exercise of the Warrants) shall bear such
restrictive legend or legends as may be required by the Securities Purchase
Agreement and as may be required by law and shall be transferable only in
accordance with the terms of this Agreement and the Securities Purchase
Agreement.
The Company may from time to time register the transfer of any outstanding
Warrant Certificates in a warrant register to be maintained by the Company upon
surrender thereof accompanied by a written instrument or instruments of transfer
in form satisfactory to the Company duly executed by the Holder or Holders
thereof or by the duly appointed legal representative thereof or by a duly
authorized attorney. Upon any such registration of transfer, a new Warrant
Certificate shall be issued to the transferee(s).
Warrant Certificates may be exchanged at the option of the Holder(s)
thereof, when surrendered to the Company at the address set forth in Section 4.5
hereof for another Warrant Certificate or Warrant Certificates of like tenor and
representing in the aggregate a like number of Warrant Shares: provided that the
--------
Company shall not be required to issue any Warrant Certificate representing any
fractional Warrant Shares.
Sect-1on I.5 Lost, Stolen, Mutilated or Destroyed Warrant Certificates.
---------------------------------------------------------
If any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the
Company shall issue, execute and deliver, in exchange and substitution for and
upon cancellation of a mutilated Warrant Certificate, or in lieu of or in
substitution for a lost, stolen or destroyed Warrant Certificate, a new Warrant
Certificate representing an equivalent number of Warrants or Warrant Shares. If
required by the Company, the Holder of the mutilated, lost, stolen or destroyed
Warrant Certificate must provide indemnity sufficient to protect the Company
from any loss which it may suffer if the Warrant Certificate is replaced. Any
such new Warrant Certificate shall constitute an original contractual obligation
of the Company, whether or not the allegedly lost, stolen, mutilated or
destroyed Warrant Certificate shall be at any time enforceable by anyone.
Sect-1on I.6 Cancellation of Warrant Certificates. Any Warrant
------------------------------------
Certificate surrendered upon the exercise of Warrants or for exchange or
transfer, or purchased or otherwise acquired by the Company, shall be cancelled
and shall not be reissued by the Company; and, except as provided in Section 2.5
hereof in case of the exercise of less than all of the Warrants evidenced by a
Warrant Certificate or in Section 1.4 in an exchange or transfer, no Warrant
Certificate shall be issued hereunder in lieu of such cancelled Warrant
Certificate. Any Warrant Certificate so cancelled shall be destroyed by the
Company.
2
<PAGE>
PAGE
-1RT-1CLE II - Warrant Exercise Price and Exercise of Warrants
Sect-1on II.1 Exercise Price. Each Warrant Certificate shall, when signed
--------------
by the Chairman or President or any Vice President and attested to by the
Secretary or Assistant Secretary of the Company, entitle the Holder thereof to
purchase from the Company, subject to the terms and conditions of this
Agreement, the number of fully paid and nonassessable Warrant Shares evidenced
thereby at a purchase price of $5.3750 per share (the "Initial Exercise Price")
or such adjusted number of Warrant Shares at such adjusted purchase price as may
be established from time to time pursuant to the provisions of Article III
hereof, payable in full in accordance with Section 2.3 hereof, at the time of
exercise of the Warrant. Except as the context otherwise requires, the term
"Exercise Price" as used in this Agreement shall mean the purchase price of one
share of Common Stock, reflecting all appropriate adjustments made in accordance
with the provisions of Article III hereof.
Sect-1on II.2 Registration of Warrants and Warrant Shares. The Company
-------------------------------------------
shall secure the effective registration of the Warrant Shares for resale under
the Securities Act upon the terms and subject to the conditions set forth in the
Registration Rights Agreement dated as of the date hereof (the "Registration
Rights Agreement") among the Company and the Purchaser. Promptly after a
registration statement under the Securities Act covering the Warrant Shares has
become effective, the Company shall cause notice thereof together with a copy of
the prospectus covering the Warrant Shares to be mailed to each registered
Holder.
Sect-1on II.3 Procedure for Exercise of Warrants. The Warrants may be
----------------------------------
exercised prior to the Expiration Date (as hereinafter defined) at the Exercise
Price at any time after (a) the first anniversary of the date hereof, (b) eleven
(11) business days following the commencement of a tender offer (as provided in
Rule 14d-2 of the Exchange Act (as defined below)) with respect to the Common
Stock pursuant to Regulation 14D promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), unless the Company has published, sent
or given to securityholders pursuant to Rule 14e-2(a) under the Exchange Act a
statement that the Company recommends rejection of such tender offer (a
"Rejection Recommendation"), (c) after a Rejection Recommendation, if and upon
the public announcement by the Company, a filing by the Company with the
Securities and Exchange Commission, or the sending by the Company to
securityholders of a statement pursuant to Rule 14e-2(b) under the Exchange Act,
in each case, which changes the Company's position with respect to such tender
offer to a recommendation of acceptance of such tender offer or an expression of
no opinion with respect to such tender offer, (d) immediately prior to
consummation by the Company of any consolidation or merger with any entity
(other than a wholly-owned subsidiary of the Company) other than a consolidation
or merger as a result of which each of the stockholders of the Company owns,
immediately after consummation of such consolidation or merger, directly or
indirectly, at least 67% of the percentage of the fully diluted capital stock of
the Company or the surviving entity of such consolidation or merger which such
stockholder owned immediately prior to the consummation of such consolidation or
merger, calculated without giving effect to the issuance as part of such
consolidation or merger of up to 330,000 shares of Common Stock upon exercise of
the
3
<PAGE>
PAGE
Warrants, or (e) the consummation by the Company of any sale, transfer or other
disposition of all or substantially all of its property, assets or business,
other than to a subsidiary of the Company in respect of which the Company owns
or controls, directly or indirectly, 67% or more of the outstanding voting
stock. The Warrants shall expire at 5:00 p.m., New York City time on August 28,
2002 (the "Expiration Date"). The Warrants may be exercised by surrendering the
Warrant Certificates representing such Warrants to the Company at its address
set forth in Section 4.5 hereof, together with the Election to Purchase duly
completed and executed, accompanied by payment in full, as set forth below, to
the Company of the Exercise Price for each Warrant Share in respect of which
such Warrants are being exercised. Such Exercise Price shall be paid in full by
(i) cash or a certified check or a wire transfer in same day funds in an amount
equal to the Exercise Price multiplied by the number of Warrant Shares then
being purchased or (ii) delivery to the Company of that number of shares of
Common Stock having a Fair Market Value (as hereinafter defined) equal to the
Exercise Price multiplied by the number of Warrant Shares then being purchased.
In the alternative, the Holder of a Warrant Certificate may exercise its right
to purchase some or all of the Warrant Shares subject to such Warrant
Certificate, on a net basis, such that, without the exchange of any funds, such
Holder receives that number of Warrant Shares subscribed to pursuant to such
Warrant Certificate less that number of shares of Common Stock having an
aggregate Fair Market Value at the time of exercise equal to the aggregate
Exercise Price that would otherwise have been paid by such Holder for the number
of Warrant Shares subscribed to pursuant to such Warrant Certificate
(hereinafter, a "Net Cashless Exercise").
As used herein: (a) the term "Fair Market Value," on a per share basis,
means the average of the daily Closing Prices (as hereinafter defined) of the
Common Stock for the ten (10) consecutive Trading Days (as hereinafter defined)
ending the Trading Day immediately preceding the Date of Exercise; (b) the term
"Date of Exercise" with respect to any Warrant means the date on which such
Warrant is exercised as provided herein; (c) the term "Closing Price" for any
date shall mean the last sale price reported in The Wall Street Journal regular
-----------------------
way or, in case no such reported sale takes place on such date, the average of
the last reported bid and asked prices regular way, in either case on the
principal national securities exchange on which the Common Stock is admitted to
trading or listed if that is the principal market for the Common Stock or, if
not listed or admitted to trading on any national securities exchange or if such
national securities exchange is not the principal market for the Common Stock,
the last sale price as reported by The Nasdaq Stock Market, Inc.'s National
Market ("Nasdaq") or its successor, if any, or if the Common Stock is not so
reported, the average of the reported bid and asked prices in the over-the-
counter market, as furnished by the National Quotation Bureau, Inc., or if such
firm is not then engaged in the business of reporting such prices, as furnished
by any similar firm then engaged in such business and selected by the Company
or, if there is no such firm, as furnished by any member of the National
Association of Securities Dealers, Inc. ("NASD") selected by the Company or, if
the Common Stock is not quoted in the over-the-counter market, the fair value
thereof determined in good faith by the Company's Board of Directors as of a
date which is within 15 days of the date as of which the determination is to be
made; and (d) the term "Trading Days" with respect to the Common Stock means (i)
if the Common Stock is quoted on
4
<PAGE>
PAGE
Nasdaq or any similar system of automated dissemination of quotations of
securities prices, days on which trades may be made on such system or (ii) if
the Common Stock is listed or admitted for trading on any national securities
exchange, days on which such national securities exchange is open for business.
Sect-1on II.4 Issuance of Common Stock. As soon as practicable after the
------------------------
Date of Exercise of any Warrants, the Company shall issue, or cause its transfer
agent to issue, a certificate or certificates for the number of full Warrant
Shares, registered in accordance with the instructions set forth in the Election
to Purchase, together with cash for fractional shares as provided in Section
3.9. All Warrant Shares issued upon the exercise of any Warrants shall be
validly authorized and issued, fully paid, non-assessable, free of preemptive
rights and (subject to Section 4.1 hereof) free from all taxes, liens, charges
and security interests in respect of the issuance thereof. Each person in whose
name any such certificate for Warrant Shares is issued shall, provided such
exercise complies in full with the applicable requirements of this Agreement, be
deemed for all purposes to have become the holder of record of the Common Stock
represented thereby on the Date of Exercise of the Warrants resulting in the
issuance of such shares, irrespective of the date of issuance or delivery of
such certificate for Warrant Shares.
Sect-1on II.5 Certificates for Unexercised Warrants. In the event that,
-------------------------------------
prior to the Expiration Date, a Warrant Certificate is exercised in respect of
fewer than all of the Warrant Shares issuable on such exercise a new Warrant
Certificate representing the remaining Warrant Shares shall be issued and
delivered pursuant to the provisions hereof; provided that the Company shall not
--------
be required to issue any Warrant Certificate representing any fractional Warrant
Shares.
Sect-1on II.6 Reservation of Shares. The Company shall at all times
---------------------
reserve and keep available, free from preemptive rights, for issuance upon the
exercise of Warrants, the maximum number of its authorized but unissued shares
or treasury shares, or both, of Common Stock which may then be issuable upon the
exercise in full of all outstanding Warrants. The Company shall from time to
time take all action which may be necessary or appropriate so that the Warrant
Shares, immediately upon their issuance following an exercise of Warrants, will
be listed or quoted, as the case may be, on the principal securities exchanges
or markets within the United States of America, if any, on which other shares of
the Common Stock are then listed.
Sect-1on II.7 No Impairment. The Company shall not by any action,
-------------
including, without limitation, amending its certificate of incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of the Warrants,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or appropriate to
protect the rights of the Holders against impairment. Without limiting the
generality of the foregoing, the Company will (a) not increase the par value of
any Warrant Shares receivable upon the exercise of the Warrants above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order that
the Company may validly
5
<PAGE>
PAGE
and legally issue fully paid and non-assessable Warrant Shares upon the exercise
of any Warrant, and (c) use its best efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
under the Warrants. Notwithstanding the foregoing paragraph, the Company shall
not be required to issue Warrant Shares upon the exercise of any Warrant unless
the Company is reasonably satisfied that any such issuance complies with all
applicable securities laws and would not result in a violation by the Company of
any such laws; provided, that, in the event the Company is not so satisfied, the
--------
Company may require any Holders of Warrant Certificates seeking to exercise such
Warrants to effect a Net Cashless Exercise.
-1RT-1CLE III - Adjustments and Notice Provisions
Sect-1on III.1 Adjustment of Exercise Price. Subject to the provisions of
----------------------------
this Article III, the Exercise Price in effect from time to time shall be
subject to adjustment, as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on the outstanding shares of its Common Stock in shares of its
Common Stock, (ii) subdivide or reclassify the outstanding shares of its Common
Stock into a greater number of shares, or (iii) combine or reclassify the
outstanding shares of its Common Stock into a smaller number of shares, the
Exercise Price in effect immediately after the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be adjusted so that it shall equal the price determined
by multiplying the Exercise Price in effect immediately prior thereto by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding immediately before such dividend, distribution, subdivision,
combination or reclassification, and of which the denominator shall be the
number of shares of Common Stock outstanding immediately after such dividend,
distribution, subdivision, combination or reclassification. Any shares of
Common Stock of the Company issuable in payment of a dividend shall be deemed to
have been issued immediately prior to the record date for such dividend for
purposes of calculating the number of outstanding shares of Common Stock of the
Company under Subsections 3.l(b) and 3.l(c) hereof. Such adjustment shall be
made successively whenever any event specified above shall occur.
(b) In case the Company shall fix a record date for the issuance of
rights, options, warrants or convertible or exchangeable securities to all
holders of its Common Stock entitling them (for a period which, by its express
terms, expires within forty-five (45) days after such record date) to subscribe
for or purchase shares of its Common Stock at a price per share less than the
Current Market Price (as such term is defined in Subsection 3.1(d) hereof) of a
share of Common Stock of the Company on such record date, the Exercise Price
shall be adjusted immediately thereafter so that it shall equal the price
determined by multiplying the Exercise Price in effect immediately prior thereto
by a fraction, of which the numerator shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares of Common Stock
which the aggregate offering price of the total number of shares of Common Stock
so offered would purchase at the Current Market Price per share, and of which
the
6
<PAGE>
PAGE
denominator shall be the number of shares of Common Stock outstanding on such
record date plus the number of additional shares of Common Stock offered for
subscription or purchase. Such adjustment shall be made successively whenever
such a record date is fixed. To the extent that any such rights, options,
warrants or convertible or exchangeable securities are not so issued or expire
unexercised, the Exercise Price then in effect shall be readjusted to the
Exercise Price which would then be in effect if such unissued or unexercised
rights, options, warrants or convertible or exchangeable securities had not been
issuable.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of shares of its Common Stock (i) of shares of any
class other than its Common Stock or (ii) of evidences of its indebtedness or
(iii) of assets (excluding cash dividends or distributions (other than
extraordinary cash dividends or distributions), and dividends or distributions
referred to in Subsection 3.1(a) hereof) or (iv) of rights, options, warrants or
convertible or exchangeable securities (excluding those rights, options,
warrants convertible or exchangeable securities referred to Subsection 3.1(b)
hereof), then in each such case the Exercise Price in effect immediately
thereafter shall be determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, of which the numerator shall be the
total number of shares of Common Stock outstanding on such record date
multiplied by the Current Market Price (as such term is defined in Subsection
3.l(d) hereof) per share on such record date, less the aggregate fair market
value as determined in good faith by the Board of Directors of the Company of
said shares or evidences of indebtedness or assets or rights, options, warrants
or convertible or exchangeable securities so distributed, and of which the
denominator shall be the total number of shares of Common Stock outstanding on
such record date multiplied by such Current Market Price per share. Such
adjustment shall be made successively whenever such a record date is fixed. In
the event that such distribution is not so made, or that such distribution, by
its express terms, is intended to be made, and is in fact made, to all holders
of Warrant Shares upon exercise of their respective Warrants, the Exercise Price
then in effect shall be readjusted to the Exercise Price which would then be in
effect if such record date had not been fixed.
(d) For the purpose of any computation under Subsection 3.1(b) or 3.1(c)
hereof, the "Current Market Price" per share at any date (the "Computation
Date") shall be deemed to be the average of the daily Closing Prices of the
Common Stock for the ten (10) consecutive Trading Days ending the Trading Day
immediately preceding the Computation Date; provided, however, that if there
-------- -------
shall have occurred prior to the Computation Date any event described in
Subsection 3.l(a), 3.l(b) or 3.1(c) which shall have become effective with
respect to market transactions at any time (the "Market-Effect Date") on or
within such 10-day period, the Closing Price for each Trading Day preceding the
Market-Effect Date shall be adjusted, for purposes of calculating such average,
by multiplying such Closing Price by a fraction, of which the numerator shall be
the Exercise Price as in effect immediately prior to the Computation Date and
the denominator of which shall be the Exercise Price as in effect immediately
prior to the Market-Effect Date, it being understood that the purpose of this
proviso is to ensure that the effect of such event on the market price of the
Common Stock shall, as nearly as possible, be eliminated in order that the
distortion in the calculation of the Current Market Price may be minimized.
7
<PAGE>
PAGE
Sect-1on III.2 No Adjustments to Exercise Price. No adjustment in the
--------------------------------
Exercise Price in accordance with the provisions of Subsection 3.1(a), (b) or
(c) hereof need be made unless such adjustment would amount to a change of at
least 1.0% in such Exercise Price, provided, however, that the amount by which
-------- -------
any adjustment is not made by reason of the provisions of this Section 3.2 shall
be carried forward and taken into account at the time of any subsequent
adjustment in the Exercise Price.
Sect-1on III.3 Adjustment of Number of Shares. Upon each adjustment of
------------------------------
the Exercise Price pursuant to Subsection 3.l(a), (b) or (c) hereof, each
Warrant shall thereupon evidence the right to purchase that number of Warrant
Shares (calculated to the nearest hundredth of a share) obtained by multiplying
the number of Warrant Shares purchasable immediately prior to such adjustment
upon exercise of the Warrant by the Exercise Price in effect immediately prior
to such adjustment and dividing the product so obtained by the Exercise Price in
effect immediately after such adjustment.
Sect-1on III.4 Reorganizations. In case of any capital reorganization,
---------------
other than in the cases referred to in Section 3.1 hereof, or the consolidation
or merger of the Company with or into another corporation (other than a merger
or consolidation in which the Company is the continuing corporation and which
does not result in any reclassification of the outstanding shares of Common
Stock or the conversion of such outstanding shares of Common Stock into shares
of other stock or other securities or property), or the sale or conveyance of
the property of the Company as an entirety or substantially as an entirety
(collectively such actions being hereinafter referred to as "Reorganizations"),
there shall thereafter be deliverable upon exercise of any Warrant (in lieu of
the number of Warrant Shares theretofore deliverable) the number of shares of
stock or other securities or property to which a holder of the number of Warrant
Shares which would otherwise have been deliverable upon the exercise of such
Warrant would have been entitled upon such Reorganization if such Warrant had
been exercised in full immediately prior to such Reorganization. In case of any
Reorganization, appropriate adjustment, as determined in good faith by the Board
of Directors of the Company, shall be made in the application of the provisions
herein set forth with respect to the rights and interests of Holders so that the
provisions set forth herein shall thereafter be applicable, as nearly as
possible, in relation to any shares or other property thereafter deliverable
upon exercise of Warrants. Any such adjustment shall be made by and set forth in
a supplemental agreement prepared by the Company or any successor thereto,
between the Company and any successor thereto, and shall for all purposes hereof
conclusively be deemed to be an appropriate adjustment. The Company shall not
effect any such Reorganization, unless upon or prior to the consummation thereof
the successor corporation, or if the Company shall be the surviving corporation
in any such Reorganization and is not the issuer of the shares of stock or other
securities or property to be delivered to holders of shares of the Common Stock
outstanding at the effective time thereof, then such issuer, shall assume by
written instrument the obligation to deliver to the Holder of any Warrant
Certificate such shares of stock, securities, cash or other property as such
holder shall be entitled to purchase in accordance with the foregoing
provisions.
8
<PAGE>
PAGE
Sect-1on III.5 Verification of Computations. The Company shall select a
----------------------------
firm of independent public accountants (which may be its outside auditors),
which selection may be changed from time to time, to verify each computation
and/or adjustment made in accordance with this Article III. The certificate,
report or other written statement of any such firm shall be conclusive evidence
of the correctness of any computation made under this Article III. Promptly upon
its receipt of such certificate, report or statement from such firm of
independent public accountants, the Company shall deliver a copy thereof to each
Holder.
Sect-1on III.6 Notice of Certain Actions. In the event the Company shall
-------------------------
(a) declare any dividend payable in stock to the holders of its Common Stock or
make any other distribution in property other than cash to the holders of its
Common Stock, (b) offer to the holders of its Common Stock rights to subscribe
for or purchase any shares of any class of stock or any other rights or options,
or (c) effect any reclassification of its Common Stock (other than a
reclassification involving merely the subdivision or combination of outstanding
shares of Common Stock) or any capital reorganization or any consolidation or
merger (other than a merger in which no distribution of securities or other
property is made to holders of Common Stock) or any sale, transfer or other
disposition of its property, assets and business substantially as an entirety,
or the liquidation, dissolution or winding up of the Company; then, in each such
case, the Company shall cause notice of such proposed action to be mailed to
each Holder no later than five (5) days after notice of such action is provided
to holders of the Common Stock generally or earlier if necessary to prevent the
rights of Holders from being prejudiced thereby; provided, however, that in the
-------- -------
event that the Company provides public notice of such action specifying the
information set forth below at least ten (10) days prior to such action, the
Company shall be deemed to have satisfied its obligation to provide notice
pursuant to this Section 3.6. Such notice shall specify the date on which the
books of the Company shall close, or a record be taken, for determining holders
of Common Stock entitled to receive such stock dividend or other distribution or
such rights or options, or the date on which such reclassification,
reorganization, consolidation, merger, sale, transfer, other disposition,
liquidation, dissolution, winding up or exchange shall take place or commence,
as the case may be, and the date as of which it is expected that holders of
record of Common Stock shall be entitled to receive securities or other property
deliverable upon such action, if any such date has been fixed. Such notice shall
be mailed in the case of any action covered by paragraph (a) or (b) of this
Section 3.6, at least ten (10) days prior to the record date for determining
holders of the Common Stock for purposes of receiving such payment or offer, and
in the case of any action covered by this paragraph (c), at least ten (10) days
prior to the earlier of the date upon which such action is to take place or any
record date to determine holders of Common Stock entitled to receive such
securities or other property.
Sect-1on III.7 Certificate of Adjustments. Whenever any adjustment is to
--------------------------
be made pursuant to this Article III, the Company shall prepare a certificate
executed by the Chief Financial Officer of the Company, which certificate shall
(a) be mailed to each Holder prior to the event causing such adjustment, if
practicable, or, if not practicable, as promptly as possible following such
event, and (b) include in reasonable detail (i) the events precipitating the
9
<PAGE>
PAGE
adjustment, (ii) the computation of any adjustments, and (iii) the Exercise
Price and the number of shares or the securities or other property purchasable
upon exercise of each Warrant after giving effect to such adjustment. Such
Certificate shall be accompanied by the accountant's verification required by
Section 3.5 hereof.
Sect-1on III.8 Warrant Certificate Amendments. Irrespective of any
------------------------------
adjustments pursuant to this Article III, Warrant Certificates theretofore or
thereafter issued need not be amended or replaced, but certificates thereafter
issued shall bear an appropriate legend or other notice of any adjustments;
provided the Company may, at its option, issue new Warrant Certificates
- --------
evidencing Warrants in such form as may be approved by its Board of Directors to
reflect any adjustment in the Exercise Price and number of Warrant Shares
purchasable under the Warrants.
Sect-1on III.9 Fractional Shares. The Company shall not be required upon
-----------------
the exercise of any Warrant to issue fractional Warrant Shares which may result
from adjustments in accordance with this Article III to the Exercise Price or
number of Warrant Shares purchasable under each Warrant. If more than one
Warrant is exercised at one time by the same Holder, the number of full Warrant
Shares which shall be issuable upon the exercise thereof shall be computed based
on the aggregate number of Warrant Shares purchasable upon exercise of such
Warrants. With respect to any final fraction of a share called for upon the
exercise of any Warrant or Warrants, the Company shall pay an amount in cash to
the Holder of the Warrants in respect of such final fraction in an amount equal
to the Fair Market Value of a share of Common Stock as of the Date of Exercise
of such Warrants, multiplied by such fraction. All calculations under this
Section 3.9 shall be made to the nearest hundredth of a share.
1-RT-1CLE IV - Miscellaneous
Sect-1on IV.1 Payment of Taxes and Charges. The Company will pay all
----------------------------
taxes and other government charges in connection with the issuance or delivery
of the Warrants and the initial issuance or delivery of Warrant Shares upon the
exercise of any Warrants and payment of the Exercise Price. The Company shall
not, however, be required to pay any additional transfer taxes in connection
with the subsequent transfer of Warrants or any transfer involved in the
issuance and delivery of Warrant Shares in a name other than the name in which
the Warrants to which such issuance relates were registered, and, if any such
tax would otherwise be payable by the Company, no such issuance or delivery
shall be made unless and until the person requesting such issuance has paid to
the Company the amount of any such tax, or it is established to the reasonable
satisfaction of the Company that any such tax has been paid.
Sect-1on IV.2 Changes to Agreement. The Company, when authorized by its
--------------------
Board of Directors, with the written consent of Holders of at least a majority
of the outstanding Warrants may amend or supplement this Agreement. The Company
may, without the consent or concurrence of any Holder, by supplemental agreement
or otherwise, make any changes or corrections in this Agreement that the Company
shall have been advised by counsel (a) are
10
<PAGE>
PAGE
required to cure any ambiguity or to correct any defective or inconsistent
provision or clerical omission or mistake or manifest error herein contained,
(b) add to the covenants and agreements of the Company in this Agreement such
further covenants and agreements thereafter to be observed, or (c) result in the
surrender of any right or power reserved to or conferred upon the Company in
this Agreement, in each case which changes or corrections do not and will not
adversely affect, alter or change the rights, privileges or immunities of the
Holders.
Sect-1on IV.3 Assignment. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company or the Holders shall bind and
inure to the benefit of their respective successors and assigns.
Sect-1on IV.4 Successor to Company. The Company will not merge or
-------------------
consolidate with or into any other corporation or sell or otherwise transfer its
property, assets and business substantially as an entirety to a successor
corporation, unless the corporation resulting from such merger, consolidation,
sale or transfer (if not the Company) shall expressly assume, by supplemental
agreement satisfactory in form and substance to the Holders, the due and
punctual performance and observance of each and every covenant and condition of
this Agreement to be performed and observed by the Company.
Sect-1on IV.5 Notices. Any notice or demand required by this Agreement to
-------
be given or made by any Holder to or on the Company shall be sufficiently given
or made if sent by first-class or registered mail, postage prepaid, addressed as
follows:
Koo Koo Roo, Inc.
11075 Santa Monica Boulevard, Suite 225
Los Angeles, CA 90025
Attn: Chief Financial Officer
With a copy to:
Koo Koo Roo, Inc.
11075 Santa Monica Boulevard, Suite 225
Los Angeles, CA 90025
Attn: General Counsel
Any notice or demand required by this Agreement to be given or made by the
Company to or on any Holder shall be sufficiently given or made if sent by
first-class or registered mail, postage prepaid, addressed to such Holder and
sent to the following address:
DDJ Capital Management, LLC
141 Linden Street, Suite S-4
Wellesley, MA 02181
Attn: Wendy Schnipper Clayton, Esq.
11
<PAGE>
PAGE
With a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Laura Hodges Taylor, P.C.
Any notice or demand required by this Agreement to be given or made by the
Company to or on any Holder shall be sufficiently given or made, whether or not
such holder receives the notice, five (5) days after mailing, if sent by first-
class or registered mail, postage prepaid, addressed to such Holder at its last
address as shown on the books of the Company. Otherwise, such notice or demand
shall be deemed given when received by the party entitled thereto.
Sect-1on IV.6 Defect in Notice. Failure to file any certificate or
----------------
notice or to mail any notice, or any defect in any certificate or notice
pursuant to this Agreement shall not affect in any way the rights of any Holder
or the legality or validity of any adjustment made pursuant to Section 3.1
hereof, or any transaction giving rise to any such adjustment, or the legality
or validity of any action taken or to be taken by the Company.
Sect-1on IV.7 Governing Law. This Agreement and each Warrant
-------------
Certificate issued hereunder shall be governed by the laws of the State of New
York without regard to principles of conflicts of laws thereof.
Sect-1on IV.8 Standing. Nothing in this Agreement expressed and
--------
nothing that may be implied from any of the provisions hereof is intended, or
shall be construed, to confer upon, or give to, any person or corporation other
than the Company and the Holders of any right, remedy or claim under or by
reason of this Agreement or of any covenant, condition, stipulation, promise or
agreement contained herein; and all covenants, conditions, stipulations,
promises and agreements contained in this Agreement shall be for the sole and
exclusive benefit of the Company and its successors, and the Holders.
Sect-1on IV.9 Headings. The descriptive headings of the articles and
--------
sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
Sect-1on IV.10 Counterparts. This Agreement may be executed in
------------
any number of counterparts, each of which so executed shall be deemed to be an
original, and all of which together shall constitute one and the same
instrument.
Sect-1on IV.11 Availability of the Agreement. The Company shall
-----------------------------
keep copies of this Agreement available for inspection by Holders during normal
business hours. Copies of this Agreement may be obtained upon written request
addressed to the Company at the address set forth in Section 4.5 hereof.
12
<PAGE>
PAGE
Sect-1on IV.12 Entire Agreement. This Agreement, including the
----------------
Exhibits referred to herein and the other writings specifically identified
herein or contemplated hereby, is complete, reflects the entire agreement of the
parties with respect to its subject matter, and supersedes all previous written
or oral negotiations, commitments and writings.
13
<PAGE>
PAGE
COMPANY SIGNATURE PAGE
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed by the
parties as of the day and year first above written.
KOO KOO ROO, INC.
By: /s/ Robert F. Kautz
--------------------------------------------
Name: Robert F. Kautz
Title: President and Chief Financial Officer
14
<PAGE>
PAGE
WARRANT AGREEMENT
PURCHASER SIGNATURE PAGE
Accepted and Agreed as of the date first written above.
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:
Notice Information:
Mr. Jay Burnham
DDJ Capital Management, LLC
141 Linden Street, Suite S-4
Wellesley, Massachusetts 02181
phone: (617) 283-8500
fax: (617) 283-8555
15
<PAGE>
PAGE
EXHIBIT A - FORM OF WARRANT CERTIFICATE
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 THE COMMON STOCK
PURCHASE WARRANTS FROM THE SENIOR NOTE ATTACHED HERETO.
No. DDJ W-1
Certificate for 330,000 Warrants
NOT EXERCISABLE AFTER 5:00 P.M.,
NEW YORK CITY TIME, ON AUGUST 15, 2002
KOO KOO ROO, INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
THIS CERTIFIES that [ ], a Delaware limited partnership, or its
registered assigns is the registered holder (the "Registered Holder") of
Warrants set forth above, each of which represents the right to purchase one
fully paid and non-assessable share of common stock, par value $.01 per share
(the "Common Stock") of Koo Koo Roo, Inc., a Delaware corporation (the
"Company"), at the Exercise Price (as defined in the Warrant Agreement) at the
times specified in the Warrant Agreement, by surrendering this Warrant
Certificate, with the form of Election to Purchase attached hereto duly executed
and by paying in
A-1
<PAGE>
PAGE
full the Exercise Price. Payment of the Exercise Price shall be made as set
forth in the Warrant Agreement (as hereinafter defined).
EXHIBIT A - FORM OF WARRANT CERTIFICATE
No Warrant may be exercised after 5:00 P.M., New York City time, on August 15,
2002 (the "Expiration Date"). All Warrants evidenced hereby shall thereafter
become void, subject to the terms of the Warrant Agreement hereinafter referred
to.
Prior to the Expiration Date, subject to any applicable laws, rules or
regulations restricting transferability and to any restriction on
transferability that may appear on this Warrant Certificate and in accordance
with the terms of the Warrant Agreement hereinafter referred to, the Registered
Holder shall be entitled to transfer this Warrant Certificate, in whole or in
part, upon surrender of this Warrant Certificate at the principal office of the
Company with the form of assignment set forth hereon duly executed. Upon any
such transfer, a new Warrant Certificate or Warrant Certificates representing
the same aggregate number of Warrants to purchase the shares of the Common Stock
will be issued in accordance with instructions in the form of assignment.
Upon the exercise of less than all of the Warrants to purchase the shares
of the Common Stock evidenced by this Warrant Certificate, there shall be issued
to the Registered Holder a new Warrant Certificate in respect of the Warrants
not exercised.
Prior to the Expiration Date, the Registered Holder shall be entitled to
exchange this Warrant Certificate, with or without other Warrant Certificates,
for another Warrant Certificate or Warrant Certificates for the same aggregate
number of Warrants to purchase the shares of the Common Stock, upon surrender of
this Warrant Certificate at the principal office of the Company.
Upon certain events provided for in the Warrant Agreement, the Exercise
Price and the number of shares of Common Stock issuable upon the exercise of
each Warrant are required to be adjusted.
No fractional shares will be issued upon the exercise of Warrants. As to
any final fraction of a share of Common Stock which the Registered Holder of one
or more Warrant Certificates, the rights under which are exercised in the same
transaction, would otherwise be entitled to purchase upon such exercise, the
Company shall pay the cash value thereof determined as provided in the Warrant
Agreement. No Warrant Certificate representing any fractional Warrant Shares
will be issued.
This Warrant Certificate is issued under and in accordance with the Warrant
Agreement dated as of August 28, 1997 (the "Warrant Agreement") by and among the
Company and the Purchaser (as defined in the Warrant Agreement) and is subject
to the term and provisions
A-2
<PAGE>
PAGE
contained in the Warrant Agreement. All capitalized terms not defined herein
shall have the meanings given such terms as set forth in the Warrant Agreement.
This Warrant Certificate shall not entitle the Registered Holder to any of the
rights of a stockholder of the Company, including, without limitation, the right
to vote, to receive dividends and other distributions, or to attend or receive
any notice of meetings of stockholders or any other proceedings of the Company.
EXHIBIT A - FORM OF WARRANT CERTIFICATE
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its facsimile corporate seal.
KOO KOO ROO, INC.
By: ____________________________________
Name:
Title:
[Seal] Attest:
By: ____________________________________ Name:
Title: Secretary
A-3
<PAGE>
PAGE
[Form of Assignment]
FOR VALUE RECEIVED, the undersigned hereby irrevocably sells, assigns and
transfers unto the Assignee named below all of the rights of the undersigned
represented by the within Warrant Certificate, with respect to the number of
Warrants to purchase the shares of the Common Stock set forth below:
NAME OF ASSIGNEE ADDRESS NO. OF WARRANTS
and does hereby irrevocably constitute and appoint ___________ Attorney, to make
such transfer on the books of Koo Koo Roo, Inc., maintained for that purpose,
with full power of substitution in the premises.
Dated: __________, 1997
___________________________
Signature
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
A-4
<PAGE>
PAGE
[Form of Election To Purchase]
The undersigned hereby irrevocably elects to exercise ____________ of
the Warrants represented by this Warrant Certificate and to purchase the shares
of Common Stock issuable upon the exercise of said Warrants, and requests that
certificates for such shares be issued and delivered as follows:
ISSUE TO:______________________________________________________________________
(NAME)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
________________________________________________________________________________
(SOCIAL SECURITY OR OTHER IDENTIFICATION NUMBER)
DELIVER TO:_____________________________________________________________________
(NAME)
at______________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
If the number of Warrants to purchase the shares of the Common Stock
hereby exercised is less than all the Warrants represented by this Warrant
Certificate, the undersigned requests that a new Warrant Certificate
representing the number of such full Warrants not exercised be issued and
delivered as set forth below.
In full payment of the purchase price with respect to the exercise of
Warrants to purchase shares of the Common Stock the undersigned [hereby tenders
payment of $______ by cash, certified check, cashier's check or money order
payable in United States currency to the order of the Company][hereby delivers
to the Company that number of shares of Common Stock having a Fair Market Value
(as defined in the Warrant Agreement) equal to the Exercise Price multiplied by
the number of Warrant Shares being purchased] [hereby makes a Net Cashless
Exercise (as defined in the Warrant Agreement)].
ISSUE TO:_______________________________________________________________________
(NAME)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
________________________________________________________________________________
(SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)
DELIVER TO:_____________________________________________________________________
A-5
<PAGE>
PAGE
(NAME)
________________________________________________________________________________
at
(ADDRESS, INCLUDING ZIP CODE)
Date: __________, 19__
____________________________________
Signature
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
PLEASE INSERT SOCIAL SECURITY OR
TAX I.D. NUMBER OF HOLDER
____________________________________
A-6
<PAGE>
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of August
28, 1997, is entered into by and among Koo Koo Roo, Inc., a Delaware corporation
(the "Company"), and each Holder (as hereinafter defined) executing a signature
page hereto.
This Agreement is made pursuant to a certain Securities Purchase Agreement
dated as of August 12, 1997 by and among the Company and the Purchaser named
therein (the "Purchase Agreement"). In order to induce the Purchaser to enter
into the Purchase Agreement, the Company has agreed to provide the registration
rights set forth in this Agreement. The execution of this Agreement is a
condition to the closing of the transactions contemplated by the Purchase
Agreement.
In consideration of the foregoing, the parties hereby agree as follows:
SECTION 1. DEFINITIONS.
-----------
As used in this Agreement, the following terms shall have the following
meanings:
"Advice" shall have the meaning set forth in Section 3.
------
"Affiliate" means, with respect to any specified Person, any other Person
---------
(i) 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 (ii) 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.
"Business Day" means a day that is not a Legal Holiday.
------------
"Commission" means the Securities and Exchange Commission.
----------
"Common Stock" means the common stock, par value $.01 per share, of the
------------
Company.
"Company" shall have the meaning set forth in the preamble and shall
-------
include the Company's successors by merger, acquisition, reorganization or
otherwise.
"Controlling Persons" shall have the meaning set forth in Section 5(a).
-------------------
"Damages" shall have the meaning set forth in Section 5(a).
-------
"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.
"Holder" means (i) each Person (other than the Company) executing a
------
signature page
<PAGE>
hereto and (ii) each Person (other than the Company) to whom a Holder transfers
Warrant Shares if such Person acquires such Warrant Shares as Registrable
Securities.
"Holders' Counsel" means Goodwin, Procter & Hoar LLP, special counsel to
----------------
the Holders, or any successor counsel selected by Holders of a majority in
interest of the Registrable Securities.
"Inspectors" shall have the meaning set forth in Section 3(m).
----------
"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 opened.
"NASD" shall have the meaning set forth in Section 3(q).
----
"Nasdaq" shall have the meaning set forth in Section 3(o).
------
"Objection Notice" shall have the meaning set forth in Section 3(a).
----------------
"Objecting Party" shall have the meaning set forth in Section 3(a).
---------------
"Person" means any individual, corporation, partnership, joint venture,
------
association, joint-stock company, trust, limited liability company,
unincorporated organization, government or other agency, or any political
subdivision thereof, or any other entity of whatever nature.
"Prospectus" means the prospectus included in any Registration Statement
----------
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective Registration
Statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement, and all other amendments and supplements to the
prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such prospectus.
"Purchase Agreement" means the Securities Purchase Agreement, dated as of
------------------
the date of this Agreement, between the Company and the Holder, pursuant to
which the Warrants are being issued, as amended, modified or supplemented from
time to time, together with any exhibits, schedules or other attachments
thereto.
"Records" shall have the meaning set forth in Section 3(m).
-------
"Registrable Securities" means the Warrant Shares; provided, however, that
---------------------- -------- -------
any Warrant Shares shall cease to be Registrable Securities when (i) a
Registration Statement covering such Registrable Securities has been declared
effective and such Registrable Securities have been disposed of pursuant to such
effective Registration Statement, (ii) such Registrable Securities are
2
<PAGE>
transferred to any Person other than a Holder pursuant to Rule 144 (or any
successor rule or similar provision then in effect, but not Rule 144A) under the
Securities Act, including a sale pursuant to the provisions of Rule 144(k),
(iii) such Warrant Shares shall have ceased to be outstanding, or (iv) such
Warrant Shares may be resold pursuant to Rule 144(k) assuming a Net Cashless
Exercise (as defined in Section 2.3 of the Warrant Agreement) thereof in
accordance with Section 2.3 of the Warrant Agreement.
"Registration Expenses" shall have the meaning set forth in Section 4.
---------------------
"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.
"Shelf Registration Statement" means a registration statement of the
----------------------------
Company on the appropriate form for an offering to be made on a continuous basis
pursuant to Rule 415 under the Securities Act that covers any of the Registrable
Securities pursuant to the provisions of this Agreement, and all amendments and
supplements to any such registration statement, including post-effective
amendments, in each case including the Prospectus, all exhibits, and all
material incorporated by reference or deemed to be incorporated by reference in
such registration statement.
"Suspension Notice" shall have the meaning set forth in Section 3.
-----------------
"Suspension Period" shall have the meaning set forth in Section 3.
-----------------
"Target Filing Date" shall mean the date which is 270 days after the date
------------------
hereof, or such other date subsequent thereto as the Holders shall request.
"Warrant Agreement" means the Warrant Agreement, dated as of the date of
-----------------
this Agreement, by and between the Company and the Purchaser identified therein,
as amended or supplemented from time to time in accordance with the terms
thereof.
"Warrants" means the warrants to purchase shares of Common Stock issued to
--------
the Holder pursuant to the Warrant Agreement.
"Warrant Shares" means the shares of Common Stock issuable upon exercise of
--------------
the Warrants and all shares of Common Stock directly or indirectly issued or
issuable in respect of the Warrant Shares by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation, or other reorganization. For purposes of this Agreement, all
references to Holders of Warrants exercisable into a majority or other specified
percentage of Warrant Shares shall be read as incorporating the assumption that
all Warrants have been exercised into Warrant Shares.
3
<PAGE>
SECTION 2. SHELF REGISTRATION.
------------------
(a) Filing; Effectiveness. Not later than the Target Filing Date,
---------------------
the Company shall prepare and file with the Commission a Shelf Registration
Statement covering the resale of all of the Registrable Securities. The Company
shall use its best efforts to cause the Shelf Registration Statement to be
declared effective as promptly as reasonably practicable following the Target
Filing Date and to keep such Shelf Registration Statement continuously effective
for a period beginning on the date on which such Shelf Registration Statement is
declared effective and ending on the date which is 24 months following the date
of this Agreement.
(b) Supplements; Amendments. The Company agrees, if necessary, to
-----------------------
supplement or amend the Shelf Registration Statement, as required by the rules,
regulations or instructions applicable to the registration form used by the
Company for such Shelf Registration Statement or by the Securities Act or as
reasonably requested (which request shall result in the filing of a supplement
or amendment) by any Holder of Registrable Securities to which such Shelf
Registration Statement relates, and the Company agrees upon request to furnish
to the Holders and Holders' Counsel copies of any such supplement or amendment
prior to its being used and/or filed with the Commission.
(c) Effective Registration. A registration will not be deemed to
----------------------
have been effected as a Shelf Registration Statement unless the Shelf
Registration Statement with respect thereto has been declared effective by the
Commission and the Company has complied in all material respects with its
obligations under this Agreement with respect thereto; provided, however, that
-------- -------
if after a Shelf Registration Statement has been declared effective, the
offering of Registrable Securities pursuant to such Shelf Registration Statement
is interfered with by any stop order, injunction or other order or requirement
of the Commission or any other governmental agency or court, such Shelf
Registration Statement will be deemed not to have become effective during the
period of such interference until the offering of Registrable Securities
pursuant to such Shelf Registration Statement may legally resume. If a
registration requested pursuant to this Section 2 is deemed not to have been
effected, then the Company shall continue to be obligated to effect a
registration pursuant to this Section 2.
(d) Information Regarding Holders. A Holder of Registrable
-----------------------------
Securities included in a Shelf Registration Statement shall provide all
information with respect to itself, its plan of distribution and related matters
as may be reasonably requested by the Company in order to effect the
registration and disposition of such Registrable Securities pursuant to such
Shelf Registration Statement. If a Holder has not executed a counterpart to this
Agreement, the Company may, if it so elects, condition inclusion of such
Holder's Registrable Securities in the Shelf Registration Statement upon receipt
of such a counterpart.
SECTION 3. REGISTRATION PROCEDURES.
-----------------------
In connection with the obligations of the Company to effect or cause the
registration of
4
<PAGE>
any Registrable Securities pursuant to the terms and conditions of this
Agreement, the Company shall use its best efforts to effect the registration and
sale of such Registrable Securities in accordance with the intended method of
disposition thereof as quickly as practicable, and in connection therewith:
(a) The Company shall prepare and file with the Commission a Shelf
Registration Statement on the appropriate form under the Securities Act,
which Shelf Registration Statement shall comply as to form in all material
respects with the requirements of the applicable form and include all
financial statements required by the Commission to be filed therewith, and
use its best efforts to cause such Shelf Registration Statement to become
effective and remain effective in accordance with the provisions of this
Agreement; provided, however, that, at least ten Business Days prior to
-------- -------
filing a Shelf Registration Statement or Prospectus or any amendments or
supplements thereto, including documents incorporated by reference after
the initial filing of the Shelf Registration Statement, the Company shall
furnish to Holders' Counsel draft copies of all such documents proposed to
be filed, which documents will be subject to the review of Holders'
Counsel, and the Company will not, unless required by law or this
Agreement, file any Shelf Registration Statement or amendment thereto or
any Prospectus or any supplement thereto to which Holders holding a
majority in interest of the Registrable Securities covered by such Shelf
Registration Statement shall reasonably object; provided, however, that any
-------- -------
such objection to the filing of any Shelf Registration Statement or
amendment thereto or any Prospectus or supplement thereto shall be made by
written notice (the "Objection Notice") delivered to the Company no later
----------------
than ten Business Days after the party or parties asserting such objection
or their counsel (the "Objecting Party") receives draft copies of the
---------------
documents that the Company proposes to file. The Objection Notice shall
set forth the objections and the specific areas in the draft documents
where such objections arise. The Company shall have five Business Days
after receipt of the Objection Notice to correct such deficiencies to the
reasonable satisfaction of the Objecting Party, and will notify each Holder
of any stop order issued or threatened by the Commission in connection
therewith and shall use its best efforts to prevent the entry of such stop
order or, if entered, to have such stop order withdrawn at the earliest
possible moment.
(b) The Company shall promptly prepare and file with the Commission
such amendments and post-effective amendments to such Shelf Registration
Statement as may be necessary to keep such Shelf Registration Statement
effective for as long as the Company is required to keep such Shelf
Registration Statement effective pursuant to the terms hereof; shall cause
the Prospectus to be supplemented by any required Prospectus supplement,
and, as so supplemented, to be filed pursuant to Rule 424 under the
Securities Act; and shall comply with the provisions of the Securities Act
applicable to it with respect to the disposition of all Registrable
Securities covered by such Shelf Registration Statement during the
applicable period in accordance with the intended methods of disposition by
the Holders set forth in such Shelf Registration Statement or amendment
thereto or such Prospectus or supplement thereto;
5
<PAGE>
(c) The Company shall promptly furnish to any Holder of Registrable
Securities included in a Shelf Registration Statement, without charge, such
number of conformed copies of such Shelf Registration Statement and any
post-effective amendment thereto and such number of copies of the
Prospectus (including each preliminary Prospectus) and any amendments or
supplements thereto, any documents incorporated by reference therein and
such other documents as any such Holder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable
Securities being sold by such Holder (it being understood that the Company
consents to the use of the Prospectus and any amendment or supplement
thereto by each Holder selling Registrable Securities in connection with
the offering and sale of the Registrable Securities covered by the
Prospectus or any amendment or supplement thereto).
(d) The Company shall, on or prior to the date on which a Shelf
Registration Statement is declared effective, (i) use its best efforts to
register or qualify the Registrable Securities covered by such Shelf
Registration Statement under the securities or "blue sky" laws of each of
the 50 states of the United States or obtain appropriate exemptions
therefrom; (ii) do any and all other acts and things which may be
reasonably necessary or advisable to enable the Holders of Registrable
Securities included in such Shelf Registration Statement to consummate the
disposition of such Registrable Securities in accordance with their
intended method of disposition thereof; (iii) use its best efforts to keep
each such state securities or "blue sky" registration or qualification (or
exemption therefrom) effective during the period in which the Company is
required to keep such Shelf Registration Statement effective; and (iv) do
any and all other acts or things which may be reasonably necessary or
advisable to enable the Holders of Registrable Securities included in such
Shelf Registration Statement to complete the disposition in such
jurisdictions of such Registrable Securities in accordance with their
intended method of disposition thereof; provided, however, that the Company
-------- -------
shall not be required (x) to qualify to do business in any jurisdiction
where it would not otherwise be required to so qualify but for this Section
3(d) or (y) to file any general consent to service of process.
(e) The Company shall use its best efforts to cause the Registrable
Securities covered by a Shelf Registration Statement to be registered with
or approved by such other governmental agencies or authorities as may be
necessary by virtue of the business and operations of the Company to enable
the Holders to consummate the disposition of such Registrable Securities in
accordance with their intended method of disposition thereof.
(f) The Company shall promptly notify each Holder of Registrable
Securities included in a Shelf Registration Statement and Holders' Counsel
and (if requested by any such Person) confirm such notice in writing, (i)
when such Shelf Registration Statement or a Prospectus or any post-
effective amendment or any Prospectus supplement has been filed and, with
respect to such Shelf Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the
Commission or any state securities authority for amendments and supplements
to such Shelf
6
<PAGE>
Registration Statement and Prospectus or for additional information after
such Shelf Registration Statement has become effective, (iii) of the
issuance by the Commission of any stop order suspending the effectiveness
of such Shelf Registration Statement or the initiation or threatening of
any proceedings for that purpose, (iv) of the issuance by any state
securities commission or other regulatory authority of any order suspending
the registration or qualification or exemption from registration or
qualification of any of the Registrable Securities under state securities
or "blue sky" laws or the initiation of any proceedings for that purpose,
(v) if, between the effective date of such Shelf Registration Statement and
the closing of any sale of Registrable Securities covered thereby, the
representations and warranties of the Company contained in any underwriting
agreement, securities sales agreement or other similar agreement, if any,
relating to the offering of such Registrable Securities cease to be true
and correct in all material respects, and (vi) of the happening of any
event which makes any statement of a material fact made in such Shelf
Registration Statement or related Prospectus untrue or which requires the
making of any changes in such Shelf Registration Statement or Prospectus so
that such Shelf Registration Statement or Prospectus will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
and, as promptly as practicable thereafter, prepare and file an amendment
to such Shelf Registration Statement with the Commission and furnish to any
such Holders a supplement or amendment to such Prospectus so that, as
thereafter deliverable to the purchasers of such Registrable Securities,
such Prospectus will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(g) The Company shall make generally available to the Holders of
Registrable Securities included in a Shelf Registration Statement an
earnings statement satisfying the provisions of Section 11(a) of the
Securities Act no later than 30 days after the end of the 12-month period
beginning with the first day of the Company's first fiscal quarter
commencing after the effective date of such Shelf Registration Statement,
which earnings statement shall cover said 12-month period, and which
requirement will be deemed to be satisfied if the Company timely files
complete and accurate information on Forms 10-Q, 10-K and 8-K under the
Exchange Act and otherwise complies with Rule 158 under the Securities Act.
(h) The Company shall promptly use its best efforts to prevent the
issuance of any order suspending the effectiveness of a Shelf Registration
Statement, and, if any such order suspending the effectiveness of a Shelf
Registration Statement is issued, shall promptly use its best efforts to
obtain the withdrawal of such order at the earliest possible moment.
(i) The Company shall, if requested by any Holder of Registrable
Securities included in a Shelf Registration Statement or Holders' Counsel,
promptly incorporate in a Prospectus supplement or post-effective amendment
such information as such Holder or
7
<PAGE>
Holders' Counsel reasonably requests to be included therein, and the
Company shall promptly make all required filings of such Prospectus
supplement or post-effective amendment.
(j) After the filing with the Commission of any document which is
incorporated by reference into a Shelf Registration Statement (in the form
in which it was incorporated), the Company shall, upon request, promptly
deliver a copy of each such document to each of the Holders of Registrable
Securities included in such Shelf Registration Statement so requesting and
to Holders' Counsel.
(k) The Company shall cooperate with the Holders of Registrable
Securities included in a Shelf Registration Statement to facilitate the
timely preparation and delivery of certificates (which shall not bear any
restrictive legends unless required under applicable law) representing
Registrable Securities sold under such Shelf Registration Statement to the
purchasers thereof, and enable such Registrable Securities to be in such
denominations and registered in such names as such Holders may request and
keep available and make available to the Company's transfer agent prior to
the effectiveness of such Shelf Registration Statement a supply of such
certificates.
(l) The Company shall take such actions as the Holders of Registrable
Securities included in a Shelf Registration Statement may reasonably
request in order to expedite or facilitate the disposition of Registrable
Securities, it being understood that the Company will not be obligated to
enter into any underwriting or similar agreement.
(m) The Company shall promptly make available to each Holder of
Registrable Securities included in a Shelf Registration Statement and any
attorney, accountant or other agent or representative retained by any such
Holder (collectively, the "Inspectors"), upon execution of a
----------
confidentiality agreement reasonably acceptable to the Company and such
Inspector, all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "Records"), as shall be
-------
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees
to supply all Records and other information requested by any such Inspector
in connection with such Shelf Registration Statement.
(n) The Company shall furnish to each Holder of Registrable
Securities included in a Shelf Registration Statement, upon request, a
signed counterpart, addressed to such Holder, of (i) an opinion or opinions
of counsel to the Company, and (ii) a comfort letter or comfort letters
from the Company's independent public accountants, each in customary form
and covering matters of the type customarily covered by opinions or comfort
letters, as the case may be.
(o) The Company shall use its best efforts to cause the Registrable
Securities included in a Shelf Registration Statement (if the Company and
the Registrable Securities so qualify) (i) to be listed on each national
securities exchange, if any, on which similar securities issued by the
Company are then listed, or (ii) if similar securities issued by the
8
<PAGE>
Company are not then listed, to be authorized for listing or quotation, as
applicable, on the New York Stock Exchange or The Nasdaq Stock Market,
Inc.'s ("Nasdaq") National Market.
(p) The Company shall provide a CUSIP number for all Registrable
Securities covered by a Shelf Registration Statement not later than the
effective date of such Shelf Registration Statement.
(q) The Company shall cooperate with each Holder of Registrable
Securities included in a Shelf Registration Statement and Holders' Counsel
in connection with any filings required to be made with the National
Association of Securities Dealers, Inc. ("NASD").
----
(r) The Company shall, during the period when the Prospectus is
required to be delivered under the Securities Act, promptly file all
documents required to be filed with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act.
(s) The Company shall appoint a transfer agent and registrar for all
Registrable Securities covered by a Shelf Registration Statement not later
than the effective date of such Shelf Registration Statement.
(t) If the Registrable Securities are of a class of securities that
is listed on a national securities exchange or Nasdaq, the Company will
file copies of any Prospectus with such exchange or Nasdaq, as applicable,
in compliance with Rule 153 under the Securities Act so that the Holders
shall benefit from the prospectus delivery procedures described therein.
Each Holder of Registrable Securities included in a Shelf Registration
Statement, upon receipt of any notice (a "Suspension Notice") from the Company
-----------------
of the happening of any event of the kind described in Section 3(f), shall
forthwith discontinue disposition of the Registrable Securities pursuant to such
Shelf Registration Statement covering such Registrable Securities until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(f) or until such Holder is advised in writing (the
"Advice") by the Company that the use of the Prospectus may be resumed, and such
------
Holder has received copies of any additional or supplemental filings which are
incorporated by reference in the Prospectus, and, if so directed by the Company,
such Holder will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies then in such Holder's possession, of the
Prospectus covering such Registrable Securities current at the time of receipt
of such notice; provided, however, that the Company shall not give a Suspension
-------- -------
Notice until after the Shelf Registration Statement has been declared effective
and shall not give more than one Suspension Notice during any period of twelve
consecutive months and in no event shall the period from the date on which any
such Holder receives a Suspension Notice to the date on which any such Holder
receives either the Advice or copies of the supplemented or amended Prospectus
contemplated by Section 3(f) (the "Suspension Period") exceed 60 days. In the
-----------------
event that the Company shall give any Suspension Notice, (i) the Company shall
use its best efforts and take
9
<PAGE>
such actions as are reasonably necessary to render the Advice and end the
Suspension Period as promptly as practicable and (ii) the time periods for which
a Shelf Registration Statement is required to be kept effective pursuant to
Section 2 hereof shall be extended by the number of days during the Suspension
Period.
If any Shelf Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (i) the insertion therein of language, in form and
substance reasonably satisfactory to such Holder, to the effect that the holding
by such Holder of such securities is not to be construed as a recommendation by
such Holder of the investment quality of the Company's securities covered
thereby and that such holding does not imply that such Holder will assist in
meeting any future financial requirements of the Company, or (ii) in the event
that such reference to such Holder by name or otherwise is not required by the
Securities Act or any similar Federal or state securities or "blue sky" statute
and the rules and regulations thereunder then in force, the deletion of the
reference to such Holder.
SECTION 4. REGISTRATION EXPENSES. Any and all expenses incident to the
---------------------
Company's performance of or compliance with this Agreement, including without
limitation, all Commission and securities exchange, Nasdaq or NASD registration
and filing fees, all fees and expenses incurred in connection with compliance
with state securities or "blue sky" laws (including reasonable fees and
disbursements of counsel for any Holders in connection with "blue sky"
qualifications of the Registrable Securities), printing expenses, messenger and
delivery expenses, internal expenses (including, without limitation, all
salaries and expenses of the Company's officers and employees performing legal
or accounting duties), all expenses for word processing, printing and
distributing any Shelf Registration Statement, any Prospectus, any amendments or
supplements thereto, any underwriting agreements, securities sales agreements
and other documents relating to the performance of and compliance with this
Agreement, the fees and expenses of the Company incurred in connection with the
listing of the Registrable Securities, the fees and disbursements of counsel for
the Company and of the independent certified public accountants of the Company
(including the expenses of any comfort letters or costs associated with the
delivery by independent certified public accountants of a comfort letter or
comfort letters requested pursuant to Section 4(n)), Securities Act liability
insurance (if the Company elects to obtain such insurance), the reasonable fees
and expenses of any special experts or other Persons retained by the Company in
connection with any registration, and the reasonable fees and disbursements of
Holders' Counsel incurred in connection with each registration hereunder (up to
a maximum of $10,000 in the aggregate) (but excluding underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
Registrable Securities) (all such expenses being herein called "Registration
------------
Expenses"), will be borne by the Company whether or not the Shelf Registration
- --------
Statement to which such expenses relate becomes effective.
SECTION 5. INDEMNIFICATION AND CONTRIBUTION.
--------------------------------
(a) Indemnification by the Company. The Company agrees to
------------------------------
indemnify and hold harmless, to the full extent permitted by law, each Holder,
its partners, members, officers,
10
<PAGE>
directors, trustees, stockholders, employees, agents and investment advisers,
and each Person who controls such Holder within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act, or is under common
control with, or is controlled by, such Holder, together with the partners,
members, officers, directors, trustees, stockholders, employees, agents and
investment advisors of such controlling Person (collectively, the "Controlling
-----------
Persons"), from and against all losses, claims, damages, liabilities and
- -------
expenses (including, without limitation, any legal or other fees and expenses
incurred by any Holder or any such Controlling Person in connection with
defending or investigating any action or claim in respect thereof)
(collectively, the "Damages") to which such Holder, its partners, officers,
-------
directors, trustees, stockholders, employees, agents and investment advisers,
and any such Controlling Person, may become subject under the Securities Act or
otherwise, insofar as such Damages (or proceedings in respect thereof) arise out
of or are based upon any untrue or alleged untrue statement of material fact
contained in any Shelf Registration Statement (or any amendment thereto)
pursuant to which Registrable Securities were registered under the Securities
Act, including all documents incorporated therein by reference, or are caused by
any omission or alleged omission to state therein a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, or arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any Prospectus (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto), or are caused by any omission or alleged omission to state
therein a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; provided, however,
-------- -------
that the Company shall not be liable for Damages to any Holder under this
Section 5(a) to the extent that any such Damages (i) arise out of or are based
upon any such untrue statement or omission which is based upon information
relating to such Holder furnished in writing to the Company by such Holder
expressly for use in any such Shelf Registration Statement (or any amendment
thereto) or Prospectus (or amendment or supplement thereto); or (ii) were caused
by the fact that such Holder sold Securities to a Person as to whom it shall be
established that there was not sent or given, or deemed sent or given pursuant
to Rule 153 under the Securities Act, at the time of or prior to the written
confirmation of such sale, a copy of the Prospectus as then amended or
supplemented if, and only if, (a) the Company has previously furnished copies of
such amended or supplemented Prospectus to such Holder and (b) such Damages were
caused by any untrue statement or omission or alleged untrue statement or
omission contained in the Prospectus so delivered which was corrected in such
amended or supplemented Prospectus.
(b) Indemnification by the Holders. In connection with any Shelf
------------------------------
Registration Statement in which a Holder is participating, each such Holder
agrees, severally and not jointly, to indemnify and hold harmless the Company,
its directors and officers and each Person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act from and against all Damages to the same extent as the
foregoing indemnity from the Company to such Holder, but only to the extent such
Damages arise out of or are based upon any untrue statement of a material fact
contained in any Shelf Registration Statement (or any amendment thereto) or
Prospectus (or any amendment or supplement thereto) or are caused by any
omission to state therein a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, which untrue
11
<PAGE>
statement or omission is based upon information relating to such Holder
furnished in writing to the Company by such Holder expressly for use in any such
Shelf Registration Statement (or any amendment thereto) or any such Prospectus
(or any amendment or supplement thereto); provided, however, that such Holder
-------- -------
shall not be obligated to provide such indemnity to the extent that such Damages
result from the failure of the Company to promptly amend or take action to
correct or supplement any such Shelf Registration Statement or Prospectus on the
basis of corrected or supplemental information furnished in writing to the
Company by such Holder expressly for such purpose. In no event shall the
liability of any Holder of Registrable Securities hereunder be greater in amount
than the dollar amount of the net proceeds received by such Holder upon the sale
of the Registrable Securities giving rise to such indemnification obligation.
(c) Indemnification Procedures. In case any proceeding (including any
--------------------------
governmental investigation) shall be instituted involving any Person in respect
of which indemnity may be sought pursuant to either paragraph (a) or (b) above,
such Person (the "indemnified party") shall promptly notify the Person against
whom such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceedings
and shall pay the fees and disbursements of such counsel relating to such
proceeding. The failure of an indemnified party to notify the indemnifying
party with respect to a particular proceeding shall not relieve the indemnifying
party from any obligation or liability (i) which it may have pursuant to this
Agreement if the indemnifying party is not substantially prejudiced by such
failure to so notify it or (ii) which it may have otherwise than pursuant to
this Agreement. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention of such
counsel, or (ii) the indemnifying party fails promptly to assume the defense of
such proceeding or fails to employ counsel reasonably satisfactory to such
indemnified party, or (iii) (A) the named parties to any such proceeding
(including any impleaded parties) include both such indemnified party or an
Affiliate of such indemnified party and any indemnifying party or an Affiliate
of such indemnifying party, (B) there may be one or more defenses available to
such indemnified party or such Affiliate of such indemnified party that are
different from or additional to those available to any indemnifying party or
such Affiliate of any indemnifying party and (C) such indemnified party shall
have been advised by such counsel that there may exist a conflict of interest
between or among such indemnified party or such Affiliate of such indemnified
party and any indemnifying party or such Affiliate of any indemnifying party, in
which case, if such indemnified party notifies the indemnifying party in writing
that it elects to employ separate counsel of its choice at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense thereof and such counsel shall be at the expense of the indemnifying
party, it being understood, however, that unless there exists a conflict among
indemnified parties, the indemnifying parties shall not, in connection with any
one such proceeding or separate but substantially similar or related proceedings
in the same jurisdiction, arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (together with appropriate local counsel) at any time for such
indemnified parties. The indemnifying party shall not be liable for
12
<PAGE>
any settlement of any proceeding effected without its written consent (which
consent shall not be unreasonably withheld) but, if settled with such consent or
if there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify each indemnified party from and against any loss or liability by
reason of such settlement or judgment. No indemnifying party shall, without the
prior written consent of any indemnified party (which consent shall not be
unreasonably withheld), effect any settlement of any pending or threatened
proceeding in respect of which such indemnified party is a party and indemnity
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on all claims that are the subject matter of such proceeding with no
payment by such indemnified party of consideration.
(d) Contribution. If the indemnification from the indemnifying party
------------
provided for in this Section 5 is found, pursuant to a final judicial
determination not subject to appeal, to be unavailable to an indemnified party
hereunder in respect of any losses, claims, damages, liabilities, or expenses
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities, or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and the indemnified parties in connection with the
actions that resulted in such losses, claims, damages, liabilities or expenses,
as well as any other relevant equitable considerations. The relative fault of
such indemnifying party and indemnified parties shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact, has been made by, or relates to information supplied
by, such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities, and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 5(c), any legal or
other expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
--- ----
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no selling Holder shall be
required to contribute any amount in excess of the amount by which the total net
proceeds received by such selling Holder with respect to Registrable Securities
sold by such selling Holder exceeds the amount of any damages which such selling
Holder has otherwise been required to pay by reason of such untrue statement or
alleged untrue statement or omission or alleged omission. Each Holder's
obligation to contribute pursuant to this Section 5(d) is several and not joint
and shall be determined by reference to the proportion that the net proceeds of
the offering received by such Holder bears to the total net proceeds of the
offering received by all the Holders. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 5 are
not exclusive and shall not limit any rights or remedies that may otherwise be
available to any indemnified
13
<PAGE>
party at law or in equity.
If indemnification is available under this Section 5, the indemnifying
party shall indemnify each indemnified party to the full extent provided in
Sections 5(a) and (b) without regard to the relative fault of said indemnifying
party or indemnified party or any other equitable consideration provided for in
this Section 5(d).
SECTION 6. RULE 144. The Company covenants that it will file any reports
--------
required to be filed by it under the Securities Act and the Exchange Act, and
the rules and regulations adopted by the Commission thereunder (or, if the
Company is not required to file such reports, it will, upon the request of any
Holder, make publicly available other information so long as necessary to permit
sales of the Registrable Securities pursuant to Rule 144 under the Securities
Act), and it will take such further action as any Holder may request, all to the
extent required from time to time to enable such Holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or (b) any successor rule or similar
provision hereafter adopted by the Commission. Upon the request of any Holder,
the Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
SECTION 7. MISCELLANEOUS.
-------------
(a) No Inconsistent Agreements. The Company has not entered into
--------------------------
nor will the Company on or after the date of this Agreement enter into any
agreement which is inconsistent with the rights granted to the Holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any way
conflict with, and are not inconsistent with, the rights granted to the holders
of the Company's other issued and outstanding securities under any such
agreements. The Company may grant registration rights that would permit any
Person the right to piggy-back or may itself exercise its right to piggy-back,
on any Shelf Registration Statement, provided that if the managing underwriter
--------
or underwriters, if any, of such offering delivers an opinion to the Holders
that the total amount of securities which they and the holders of such new
piggy-back rights intend to include in any Shelf Registration Statement is so
large as to materially and adversely affect the success of such offering
(including the price at which such securities can be sold), then only the
amount, number or kind of securities to be offered for the account of holders of
such new piggy-back rights (other than the Company) will be reduced to the
extent necessary to reduce the total amount of securities to be included in such
Shelf Registration Statement to the amount, number or kind recommended by the
managing underwriter prior to any reduction in the amount of Registrable
Securities to be included; and provided further that if such offering is not
-------- -------
underwritten, then such piggy-back rights shall only be exercised with the
consent of the Holders of Warrants exercisable into a majority of the Warrant
Shares being offered under such Shelf Registration Statement.
(b) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or
14
<PAGE>
consents to departures from the provisions hereof may not be given, unless the
Company has obtained the written consent of Holders of Warrants exercisable into
at least a majority of Warrant Shares which are affected by such amendment,
modification, supplement, waiver or consent; provided, however, that, no
-------- -------
amendment, modification, supplement, waiver or consent to any departure from the
provisions of Section 3 hereof (other than any immaterial amendment,
modification, supplement, waiver or consent) shall be effective as against any
Holder of Warrants unless consented to in writing by such Holder.
(c) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by telecopier, registered or certified
mail (return receipt requested), postage prepaid or courier to the parties at
their respective addresses set forth on the signature pages hereof (or at such
other address for any party as shall be specified by like notice, provided that
notices of a change of address shall be effective only upon receipt thereof).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; by confirmed
receipt of transmission, if telecopied; and on the next Business Day if timely
delivered to a courier guaranteeing overnight delivery.
(d) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders. If any transferee of any Holder shall acquire
Registrable Securities in any manner, whether by operation of law or otherwise,
such Registrable Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Securities such Person
shall be conclusively deemed to have agreed to be bound by and to perform all of
the terms and provisions of this Agreement and such Person shall be entitled to
receive the benefits hereof.
(e) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York without regard to
principles or rules of conflicts of law.
(h) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
15
<PAGE>
thereby, it being intended that all of the rights and privileges of the Holders
shall be enforceable to the fullest extent permitted by law.
(i) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and is intended to be the complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement, the Warrant Agreement and the Securities Purchase
Agreement supersede all prior agreements and understandings between the parties
with respect to such subject matter.
(j) Attorneys' Fees. In any action or proceeding brought to enforce
---------------
any provision of this Agreement or where any provision hereof is validly
asserted as a defense, the successful party shall, to the extent permitted by
applicable law, be entitled to recover reasonable attorneys' fees in addition to
any other available remedy.
(k) Further Assurances. Each party shall cooperate and take such
------------------
action as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement and the transactions contemplated
hereby.
(l) Remedies. In the event of a breach or a threatened breach by any
--------
party to this Agreement of its obligations under this Agreement, any party
injured or to be injured by such breach will be entitled to specific performance
of its rights under this Agreement or to injunctive relief, in addition to being
entitled to exercise all rights provided in this Agreement and granted by law.
The parties agree that the provisions of this Agreement shall be specifically
enforceable, it being agreed by the parties that remedies at law for violations
hereof including monetary damages, are inadequate and that the right to object
in any action for specific performance or injunctive relief hereunder on the
basis that a remedy at law would be adequate is waived.
[Remainder of Page Intentionally Left Blank]
16
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
KOO KOO ROO, INC.
By: /s/ Robert F. Kautz
_______________________
Name: Robert F. Kautz
Title: President and Chief Financial Officer
Notice Information:
Ms. Beth Arnold
11075 Santa Monica Boulevard, Suite 225
Los Angeles, California 90025
phone: (310) 479-2080
fax: (310) 479-4221
17
<PAGE>
REGISTRATION RIGHTS AGREEMENT
PURCHASER SIGNATURE PAGE
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:
Notice Information:
Mr. Jay Burnham
DDJ Capital Management, LLC
141 Linden Street, Suite S-4
Wellesley, Massachusetts 02181
phone: (617) 283-8500
fax: (617) 283-8555
18
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<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> SEP-30-1996 SEP-30-1997
<CASH> 4,591,318 13,801,463
<SECURITIES> 5,220,452 5,642,350
<RECEIVABLES> 1,802,919 2,403,397
<ALLOWANCES> 0 0
<INVENTORY> 814,830 1,342,408
<CURRENT-ASSETS> 12,625,029 23,807,483
<PP&E> 31,307,340 40,734,946
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 49,772,087 79,928,054
<CURRENT-LIABILITIES> 5,516,722 10,047,111
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0 0
10,272 4,903
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<OTHER-SE> 42,380,043 55,903,789
<TOTAL-LIABILITY-AND-EQUITY> 49,772,087 79,928,054
<SALES> 21,453,275 49,989,153
<TOTAL-REVENUES> 21,928,444 51,293,408
<CGS> 14,737,250 34,927,540
<TOTAL-COSTS> 30,779,293 66,581,014
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<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
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<NET-INCOME> (8,850,849) (15,287,606)
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