U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1997
[ ] Transition Report Under Section 13 or 15(d) of
the Exchange Act
For the transition period from ____________ to ____________.
Commission file number 0-20203 and 1-11386
INTERNATIONAL FAST FOOD CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Florida 65-0302338
------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1000 Lincoln Road, Suite 200
Miami Beach, Florida 33139
------------------------------------------------
(Address of Principal Executive Office)
(305) 531-5800
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
The number of shares outstanding of the issuer's common stock, par value $.01
per share as of November 5, 1997 was 44,091,382.
Traditional Small Business Disclosure Format: Yes [x] No [ ]
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
----
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM. 1 Financial Statements
Consolidated Balance Sheets as of
September 30, 1997 and December 31,
1996 2 - 3
Consolidated Statements of Operations
for the Three and Nine Months Ended
September 30, 1997 and 1996 4
Consolidated Statements of
Shareholders' Equity for the Nine
Months Ended September 30, 1997 5
Consolidated Statements of Cash Flows
for the Nine Months Ended September
30, 1997 and 1996 6 - 7
Notes to Consolidated Financial
Statements 8 - 20
ITEM. 2 Management's Discussion and Analysis
or Plan of Operation 21 - 35
PART II. OTHER INFORMATION
- ---------------------------
ITEM. 2 Legal Proceedings 36
ITEM. 4 Results of Votes of Security Holders 36 - 37
ITEM. 5 Other Information 37
ITEM. 6 Exhibits and Reports on Form 8-K 37
SIGNATURES
1
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
------
September 30, December 31,
1997 1996
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 1,640,140 $ 194,269
Restricted cash and
certificates of deposit 999,990 500,000
Receivables 90,203 42,348
Inventories 336,604 300,217
Advances to affiliate -- 228,984
Prepaid expenses 88,450 53,794
----------- -----------
Total Current Assets 3,155,387 1,319,612
----------- -----------
FURNITURE, EQUIPMENT AND
LEASEHOLD IMPROVEMENTS, NET 5,889,265 5,586,844
DEFERRED DEBENTURE ISSUANCE COSTS,
NET OF ACCUMULATED AMORTIZATION
OF $149,097 AND $124,155,
RESPECTIVELY 283,229 308,170
OTHER ASSETS, NET OF ACCUMULATED
AMORTIZATION OF $310,961 and
$206,792 510,675 618,978
BURGER KING DEVELOPMENT
RIGHTS, NET OF ACCUMULATED
AMORTIZATION OF $54,054 945,946 --
DOMINOS DEVELOPMENT RIGHTS
NET OF ACCUMULATED AMORTIZATION
OF $7,771 181,332 --
----------- -----------
Total Assets $10,965,834 $ 7,833,604
=========== ===========
See Accompanying Notes
2
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, December 31,
1997 1996
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 562,442 $ 454,697
Accrued interest payable 69,586 10,335
Other accrued expenses 480,152 1,009,606
Bank credit facilities payable 1,253,545 1,220,495
Other notes payable -- 69,307
Payable to affiliate -- 149,382
Non-interest bearing obligation
payable to minority shareholder
of IFF Polska -- 500,000
------------ ------------
Total Current Liabilities 2,365,725 3,413,822
LONG TERM BANK CREDIT FACILITIES 726,000 300,000
9% SUBORDINATED CONVERTIBLE
DEBENTURES, DUE DECEMBER 15, 2007 2,756,000 2,756,000
------------ ------------
Total Liabilities 5,847,725 6,469,822
------------ ------------
DEFERRED CREDIT 1,000,000 --
------------ ------------
MINORITY INTEREST IN NET ASSETS OF
CONSOLIDATED SUBSIDIARY 254,014 460,361
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred Stock, $.01 par value,
1,000,000 shares authorized;
33,450 and 38,240 shares issued
and outstanding, respectively
(liquidation preference of
$3,345,000) 334 382
Common Stock, $.01 par value,
100,000,000 shares authorized;
43,591,382 and 10,322,521 shares
issued and outstanding, respectively 435,914 103,225
Additional paid-in capital 17,150,640 14,523,361
Accumulated deficit (13,816,806) (13,706,261)
Accumulated translation adjustment 94,013 (17,286)
------------ ------------
Total Shareholders' Equity 3,864,095 903,421
------------ ------------
Total Liabilities and
Shareholders' Equity $ 10,965,834 $ 7,833,604
============ ============
See Accompanying Notes
3
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Sales $ 1,493,656 $ 1,281,125 $ 4,246,215 $ 3,895,891
Other operating 14,780 32,596 66,258 101,465
------------ ------------ ------------ ------------
Total Revenue 1,508,436 1,313,721 4,312,473 3,997,356
FOOD AND PACKAGING 595,406 529,358 1,714,428 1,692,546
------------ ------------ ------------ ------------
GROSS PROFIT 913,030 784,363 2,598,045 2,304,810
OPERATING EXPENSES:
Payroll and Related Costs 309,633 210,361 749,703 594,230
Occupancy and Other Operating
Expenses 488,491 354,157 1,253,208 1,061,556
Depreciation and Amortization 263,285 208,625 700,160 684,617
------------ ------------ ------------ ------------
Total Operating
Expenses 1,061,409 773,143 2,703,071 2,340,403
------------ ------------ ------------ ------------
(148,379) 11,220 (105,026) (35,593)
------------ ------------ ------------ ------------
GENERAL AND ADMINISTRATIVE
EXPENSES 523,397 349,949 1,238,283 1,119,086
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES):
Interest and other, net 222,668 (17,023) 119,823 89,776
Interest expense, including
amortization of debenture
issuance costs (147,305) (115,685) (420,476) (344,227)
Gain on settlement of
litigation, net of applicable
costs -- -- 1,327,070 --
------------ ------------ ------------ ------------
Total other income
(expenses) 75,363 (132,708) 1,026,417 (254,451)
------------ ------------ ------------ ------------
LOSS BEFORE MINORITY
INTEREST (596,413) (471,437) (316,892) (1,409,130)
MINORITY INTEREST IN LOSSES OF
CONSOLIDATED SUBSIDIARY 83,848 48,531 206,347 166,192
------------ ------------ ------------ ------------
NET LOSS $ (512,565) $ (422,906) $ (110,545) $ (1,242,938)
============ ============ ============ ============
NET LOSS PER COMMON SHARE $ (.01) $ (.06) $ (.01) $ (.27)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 37,005,288 6,776,544 20,239,892 5,053,117
============ ============ ============ ============
</TABLE>
See Accompanying Notes
4
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Nine Months Ended September 30, 1997
(Unaudited)
Common Stock Preferred Stock Additional Accumulated
------------------- ------------------ Paid In Translation Accumulated
Shares Amount Shares Amount Capital Adjustment Deficit Total
--------- -------- -------- -------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
December 31, 1996 10,322,521 $103,225 38,240 $ 382 $ 14,523,361 $( 17,286) $(13,706,261) $ 903,421
Conversion of
Preferred Stock 159,650 1,597 ( 4,790) ( 48) ( 1,549) - - -
Common Stock issued in
exchange for professional
services 2,000,000 20,000 - - 180,000 - - 200,000
Common Stock issued in
exchange for Underwriter
and debenture warrants 200,000 2,000 - - ( 2,000) - -
Conversion of 8% Convertible
Promissory Notes 5,000,000 50,000 - - 450,000 - - 500,000
Conversion of Litigation
Funding Promissory Note 25,909,211 259,092 - - 2,000,828 - - 2,259,920
Translation adjustments - - - - - 111,299 - 111,299
Net income for the period - - - - - ( 110,545) ( 110,545)
---------- -------- -------- ------- ------------ ------------ ------------ -----------
Balances,
September 30, 1997 43,591,382 $435,914 33,450 $ 334 $ 17,150,640 $ 94,013 $(13,816,806) $ 3,864,095
========== ======== ======== ======= ============ ============ ============ ===========
</TABLE>
See Accompanying Notes
5
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
-------------------------------
1997 1996
------------- -------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (110,545) $(1,242,938)
Adjustment to reconcile net loss
to net cash provided by
(used in)operating activities:
Amortization and depreciation 791,160 776,174
Minority interest in losses of
subsidiary (206,347) (166,192)
Gain on forgiveness of indebtedness (337,859) --
Changes in operating assets and
liabilities, net of acquisition
of business:
Receivables 435 14,212
Inventories 20,488 80,009
Prepaid expenses (22,612) (6,311)
Accounts payable and
accrued expenses (284,943) 191,789
----------- -----------
Net cash used in operating
activities (150,223) (353,257)
----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of business, net of
cash acquired (500,849) --
Increase in restricted cash and
certificates of deposit (499,990) --
Payments for furniture, equipment
and leasehold improvements, net (247,764) --
Payments for other assets (25,866) (53,794)
Disposition of furniture & equipment -- 114,308
Refund of franchise fees 30,000 --
----------- -----------
Net cash provided by (used in)
investing activities (1,244,469) 60,514
----------- -----------
See Accompanying Notes
6
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
Nine Months Ended September 30,
-------------------------------
1997 1996
------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Sale of common shares for cash -- 245,000
Sale of options for cash -- 10,000
Advances from (to) Affiliate, net 79,602 58,099
Repayments of bank credit
facilities (1,515,232) (294,248)
Net proceeds from settlement of
litigation 3,288,440 --
Payment to Litigation Funding (1,028,521) --
Payment of other notes payable (69,307) --
Payment of non-interest bearing
obligation to minority share-
holder of IFF Polska (500,000) --
Borrowings under bank credit
facilities 1,974,282 339,401
Net Proceeds from issuance of
convertible promissory notes 500,000 --
----------- -----------
Net cash provided by financing
activities 2,729,264 358,252
----------- -----------
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT 111,299 (105,716)
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,445,871 (40,207)
BEGINNING CASH AND CASH EQUIVALENTS 194,269 253,510
----------- -----------
ENDING CASH AND CASH EQUIVALENTS $ 1,640,140 $ 213,303
=========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 312,005 $ 262,320
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON
CASH INVESTING & FINANCING ACTIVITIES:
Nine Months Ended September 30, 1997:
Issuance of 159,650 shares of Common Stock upon the exchange of 4,790
shares of Preferred Stock.
Issuance of 2,000,000 shares of Common Stock in payment of $200,000 of
legal fees.
Issuance of 5,000,000 shares of Common Stock upon conversion of $500,000
principal amount of 8% Convertible Promissory Notes.
Issuance of 200,000 shares of Common Stock in exchange for the
cancellation of 130,000 Underwriter Common Stock warrants and
Underwriter $1,000,000 debenture warrants.
Issuance of 25,909,211 shares of Common Stock in payment of $2,198,424
principal amount of a promissory note payable to Litigation Funding
plus $61,425 of accrued interest.
Nine Months Ended September 30, 1996:
Issuance of 381,292 shares of Common Stock upon the exchange of 11,440
shares of Preferred Stock.
Issuance of 620,000 shares of Common Stock in payment of $87,305 of legal
fees.
See Accompanying Notes
7
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION:
International Fast Food Corporation (the "Company" or "IFFC") was organized
for the purpose of developing and operating franchised Burger King restaurants
in the Republic of Poland ("Poland").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION - The accompanying consolidated financial statements
include the accounts of the Company and its majority-owned (85%) Polish
subsidiary, International Fast Food Polska, Sp. z o.o. ("IFFP"), a limited
liability corporation, and IFFP's three wholly-owned Polish limited liability
corporations. Additionally, the consolidated financial statements include the
accounts of the Company's two wholly-owned Polish subsidiaries, Krolewska Pizza,
Sp. z o.o.("KP") and Pizza King Polska, Sp. z o.o.("PKP") for the period from
their acquisition in July 1997 through September 30, 1997. KP and PKP operate
four Domino's Pizza stores and one commissary. All significant intercompany
transactions and balances have been eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from these estimates.
The accompanying unaudited consolidated financial statements, which are for
interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the footnotes thereto contained in the Annual Report on Form
10-KSB for the year ended December 31, 1996 of International Fast Food
Corporation and Subsidiaries (the "Company"), as filed with the Securities and
Exchange Commission. The December 31, 1996 consolidated balance sheet was
derived from audited consolidated financial statements, but does not include all
disclosures required by generally accepted accounting principles.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal recurring
nature) necessary for a fair presentation of the financial statements. The
results of operations for the nine months ended September 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
The official currency of Poland is the zloty. The value of the zloty is
pegged pursuant to a system based on a basket of currencies, as well as all
other economic and political factors that effect the value of currencies
8
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
generally. On January 1, 1995, the National Bank of Poland introduced a new
currency unit (a "new zloty"). New zlotys are equivalent to 10,000 old zlotys
("old zlotys"). All references in this document to zlotys are to new zlotys. At
September 30, 1997 and 1996, the exchange rate was 3.417 and 2.801 new zlotys
per dollar, respectively. Monetary assets and liabilities are translated from
the local currency, the "zloty", to U.S. dollars at the period end exchange
rate. Non-monetary assets, liabilities, and related expenses, primarily
furniture, equipment, leasehold improvements and related depreciation and
amortization, are translated using historical exchange rates. Income and expense
accounts, excluding depreciation and amortization, are translated at an annual
weighted average exchange rate.
The accounts of IFFC's Polish subsidiaries are measured using the zloty. Due
to Poland's highly inflationary environment through December 31, 1995, generally
accepted accounting principles required IFFC to calculate and recognize on its
statement of operations its currency translation gains or losses associated with
IFFP. Due to the reduction in Poland's inflation rate, effective for the year
ended December 31, 1996, IFFC was no longer required pursuant to generally
accepted accounting principles to recognize currency translation gains or losses
in its statement of operations.
LIQUIDITY AND PLAN OF OPERATIONS - As of September 30, 1997, IFFC had working
capital of approximately $789,662 and Cash and Cash Equivalents of $1,640,140.
IFFC's working capital and cash position were significantly improved by the
settlement of it's litigation with Burger King Corporation in March 1997 coupled
with recent debt consolidation and merger with Litigation Funding, Inc. (See
Notes 7 and 9) Although IFFC believes that it has sufficient funds to finance
its present plan of operations through December 31, 1998. IFFC cannot reasonably
estimate how long it will be able to satisfy its cash requirements. The capital
requirements relating to implementation of the BKC Development Agreement and the
New Master Franchise Agreement with Domino's are significant. Based upon current
assumptions, IFFC will seek to implement its business plan utilizing its Cash
and Cash Equivalents, cash generated from restaurant operations and the proceeds
from the sale of 11% convertible senior subordinated discounts notes due 2007,
(See Note 10). In order to satisfy the capital requirements of the BKC
Development Agreement and the New Master Franchise Agreement with Domino's, IFFC
will require resources substantially greater than the amounts it presently has
or amounts that can be generated from restaurant operations. Other than its
existing Bank Credit Facilities (See Note 4), IFFC has no current arrangements
with respect to, or sources of additional financing and there can be no
assurance that IFFC will be able to obtain additional financing or that
additional financing will be available on acceptable terms to fund future
commitments for capital expenditures.
NET (LOSS) PER COMMON SHARE - The net loss per common share in the
accompanying statements of operations is based upon the net loss after preferred
dividend requirements divided by the weighted average number of shares
outstanding during each period. The net loss per common share does not include
the assumed exercise of any common stock options or warrants since their
inclusion would be anti-dilutive. Fully diluted per share data has not been
presented since the inclusion of common stock equivalents arising from stock
9
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
options and warrants and the assumed issuance of common shares upon conversion
of the 9% Subordinated Convertible Debentures and the Preferred Stock would be
anti-dilutive.
RECLASSIFICATION - Certain amounts in the 1996 financial statements have
been reclassified to conform with the 1997 presentation.
3. RESTRICTED CASH:
At September 30, 1997 the Company had $999,990 of certificates of deposit,
which represents collateral for an outstanding line of credit.
4. BANK CREDIT FACILITIES:
BANK CREDIT FACILITIES AT SEPTEMBER 30, 1997 CONSISTS OF THE FOLLOWING:
Amerbank in Poland, S.A., PKP overdraft
credit line, variable rate approximately
equal to prime, expires March 31, 1998 $ 5,263
Amerbank in Poland, S.A., IFFP overdraft
credit line, variable rate approximately
equal to prime, expires March, 30, 1998 25,282
Amerbank, IFFP line of credit of $950,000
payable in twenty nine installments of
$32,000 commencing on March 31, 1998,
interest payable monthly at 2.75% above
LIBOR, $22,000 due at maturity on
August 12, 2000. 950,000
Amerbank IFFP revolving credit facility,
interest is payable monthly at 2.50%
above LIBOR, $1,500,000 maximum credit
until August 1999, payable in thirty
five monthly installments thereafter of
$42,000 with final payment of $30,000
due at maturity on August 12, 2002. 0
Totalbank IFFC line of credit of $999,000
payable in full on May 19, 1998,
interest at 6.5% payable quarterly
collateralized by certificates of
deposit in the amount $999,990 999,000
-----------
Total Debt 1,979,545
Less: Current Maturities 1,253,545
-----------
Long Term Debt $ 726,000
============
* The Amerbank revolving facility for $1,500,000 has not been drawn upon as of
September 30, 1997.
10
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
On March 18, 1996, PKP obtained a $150,000 line of credit from American Bank.
Borrowings under the facility bear interest at 10% per annum, payable every
three months commencing April 30, 1996, and may be used to finance up to 50% of
the cost of developing Domino's Stores. The credit facility is secured by a
promissory note of PK Polska, and title to the fixtures and equipment of the
Domino's Stores developed with the credit facility borrowings. No draws have
been made on the credit facility. The facility expires on January 30, 1998.
5. SHAREHOLDERS' EQUITY:
The Company's stock option plan provides for the granting of options to
qualified employees and directors of the Company. Stock option activity for the
nine months ended September 30, 1997 is as follows:
1997
----
Outstanding at beginning of period 210,000
Granted 410,000
Exercised -
Expired ( 50,000)
---------
Outstanding at end of period 570,000
=========
Exercisable at end of period 256,000
=========
Price range of options outstanding
at end of period $ .40
=========
Available for grant at end of period 1,430,000
=========
During the nine months ended September 30, 1997 and 1996, 159,650 and
381,292 shares of Common Stock were issued upon the exchange of 4,790 and 11,440
shares of Preferred Stock.
6. CONVERTIBLE PROMISSORY NOTES:
In January and March 1997, IFFC sold to the Company's Chairman of the
Board, Chief Executive Officer and President and his wife as well as other
members of his family an aggregate of $500,000 8% convertible promissory notes
due January 1999. The notes were converted into 5,000,000 shares of Common Stock
on June 19, 1997.
At September 30, 1997, IFFC had reserved the following shares of Common
Stock for issuance:
Stock option plan 2,000,000
Warrants issued in connection with
1994 exchange offer, exercisable at
$7.00 per share through August 1,
1999 290,800
11
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Convertible Debentures convertible
into Common Stock at a conversion
price of $8.50 per share 324,235
Preferred Stock convertible into
Common Stock at a conversion price
of $3.00 per share 1,114,893
Warrants to purchase 50,000 shares
of Common Stock at an exercise price
of $.2831 per share 50,000
------------
Total reserved shares 3,779,928
============
7. COMMITMENTS AND CONTINGENCIES:
On March 14, 1997, IFFC and Burger King Corporation ("BKC") entered into a
new Development Agreement (the "BKC Development Agreement"), which was then
assigned by IFFC to IFFP; IFFC continues to remain liable for the obligations
contained in the BKC Development Agreement. Pursuant to the BKC Development
Agreement, IFFP has been granted the exclusive right until September 30, 2007 to
develop and be franchised to operate Burger King restaurants in Poland with
certain exceptions discussed below. Pursuant to the BKC Development Agreement,
IFFC is required to open 45 restaurants during the term of the Agreement. Each
traditional Burger King restaurant, in-line Burger King restaurant, or
drive-thru Burger King restaurant shall constitute one restaurant. A Burger King
kiosk restaurant shall, for purposes of the BKC Development Agreement, be
considered one quarter restaurant.
Pursuant to the BKC Development Agreement, IFFC is to open three
restaurants through September 30, 1998, four restaurants in each year beginning
October 1, 1998 and ending September 30, 2001 and five restaurants in each year
beginning October 1, 2001 and ending September 30, 2007.
Pursuant to the BKC Development Agreement, IFFC shall pay BKC $1,000,000
as a development fee. IFFC shall not be obligated to pay the development fee if
IFFC is in compliance with the development schedule by September 30, 1999, and
has achieved gross sales of $11,000,000 for 12 months preceding the September
30, 1999 target date. If the development schedule has been achieved but gross
sales were less than $11,000,000, but greater than $9,000,000, the development
fee shall be reduced to $250,000. If the development fee is payable due to
failure to achieve the performance targets set forth above, IFFC, at its option,
may either pay the development fee or provide BKC with the written and binding
undertaking of Mr. Mitchell Rubinson, IFFC's Chairman, that the Rubinson Group
(as defined below) will completely divest themselves of any interest in IFFC and
the Burger King restaurants opened or operated by IFFC in Poland within six (6)
12
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
months of the date the development fee payment is due. The Rubinson Group shall
be defined to include any entity that Mr. Rubinson directly or indirectly owns
an aggregate interest of ten percent (10%) or more of the legal or beneficial
equity interest and any parent, subsidiary or affiliate of a Rubinson entity.
Mr. Rubinson has personally guaranteed payment of the development fee.
For each restaurant opened, IFFC is obligated to pay BKC an initial fee of
up to $40,000 for franchise agreements with a term of 20 years and $25,000 for
franchise agreements with a term of ten years payable not later than twenty days
prior to the restaurant's opening. Each franchised restaurant must also pay a
percentage of the restaurant's gross sales, irrespective of profitability, as a
royalty for the use of the Burger King System and the Burger King Marks. The
annual royalty fee is five percent (5%) of gross sales. The franchises must also
contribute a monthly advertising and promotion fee of 6% of the restaurant's
gross sales, to be used for advertising, sales promotion, and public relations.
Payment of all amounts due to BKC is guaranteed by IFFC. The BKC Development
Agreement calls for certain cash contributions from BKC to IFFC over the term of
the Development Agreement and additional sums based on an incentive arrangement
when earned to be retained by IFFC out of BKC's future royalties.
BKC may terminate rights granted to IFFC under the BKC Development
Agreement, including franchise approvals for restaurants not yet opened, for a
variety of possible defaults by IFFC, including, among others, failure to open
restaurants in accordance with the schedule set forth in the BKC Development
Agreement; failure to obtain BKC site approval prior to the commencement of each
restaurant's construction; failure to meet various operational, financial, and
legal requirements set forth in the BKC Development Agreement, including
maintaining of IFFP's net worth of $7,500,000 beginning on June 1, 1999. Upon
termination of the BKC Development Agreement, whether resulting from default or
expiration of its terms, BKC has the right to license others to develop and
operate Burger King restaurants in Poland, or to do so itself.
The BKC Development Agreement requires IFFC to designate a full-time
Managing Director to be responsible for the restaurants to be developed. Such
General Manager must be acceptable to BKC. Leon Blumenthal, who has served as
IFFP's President, Chief Operating Officer, and Managing Director since 1995, has
been approved by BKC.
Specifically excluded from the scope of the BKC Development Agreement are
restaurants on United States military establishments. BKC has also reserved the
right to open restaurants in hotel chains with which BKC has, or may in the
future have, a multi-territory agreement encompassing Poland. With respect to
restaurants in airports, train stations, hospitals and other hotels, IFFC has
the right of first refusal with the owners of such sites. If IFFC is unable or
unwilling to reach a mutually acceptable agreement, BKC or its affiliates or
designated third parties may do so. IFFC is restricted from engaging in the fast
food hamburger restaurant business without the prior written consent of BKC,
which consent may not be withheld so long as IFFC and the franchisees operating
Burger King restaurants by designation of IFFC are adequately funded.
13
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Subject to certain exceptions, as long as IFFC is a principal of IFFP, BKC
has the right to review and consent to certain types of new stock issuances of
IFFC for which the consent will not be unreasonably withheld, provided that IFFC
has complied with all reasonable conditions then established by BKC in
connection with the proposed sale or issuance of applicable equity securities by
IFFC.
On August 28, 1997, KP entered into a New Master Franchise Agreement with
Domino's Pizza International, Inc. ("Domino's"), granting KP the exclusive right
to develop and operate and to sub-license Domino's Pizza stores and to operate a
commissary for the Domino's system and the use of the Domino's and related marks
in the operation of stores in Poland. IFFC has agreed that as a condition to the
New Master Franchise Agreement it shall contribute or cause other entities to
contribute equity to KP in a minimum amount of $2,000,000 by December 31, 1997.
IFFC also agreed that any additional capital required above such amount will
also be dedicated to KP as needed to permit KP to meet its development quotas.
The term of the New Master Franchise Agreement will expire on December 31, 2003,
and if KP is in compliance with all material provisions of the New Master
Franchise Agreement, it may be extended for an additional ten (10) years in
accordance with certain minimum development quotas which KP and Domino's may
agree upon by execution of an amendment to the New Master Franchise Agreement.
Under the terms of the New Master Franchise Agreement, KP shall be obligated to
open up one (1) additional store in 1997, in addition to the four (4) existing
stores as of August 28, 1997. During the next six (6) years, KP shall be
obligated to open 5, 6, 7, 8, 9, and 10 stores, respectively, beginning in 1998
and ending in the year 2003 for a total of 50 stores. Of such stores, third
party franchise stores shall not exceed 25% of the number of open and operating
stores and all stores located in Warsaw, Poland shall be corporate stores.
During the term of the New Master Franchise Agreement, KP and its
controlling shareholders, including the controlling shareholder of IFFC, will
not have any interest as an owner, investor, partner, licensee or in any other
capacity in any business engaged in sit-down, delivery or carry-out pizza or in
any business or entity which franchises or licenses or otherwise grants to
others the right to operate a business engaged in such business which is located
in Poland. The latter restriction shall apply for a period of one (1) year
following the effective date of termination of the New Master Franchise
Agreement.
8. LITIGATION:
POLISH FISCAL AUTHORITY DISPUTES - As of July 1995, IFFC may have become
subject to penalties for failure to comply with a recently amended tax law
requiring the use of cash registers with certain calculating and recording
capabilities and which are approved for use by the Polish Fiscal Authorities.
Although IFFP's NCR Cash Register System (the "Cash Register System") is a
modern system, the System cannot be modified and will ultimately need to be
replaced in order to comply with the new tax law. IFFP is now in compliance with
14
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
the tax law using a parallel cash register system but was unable to modify
and/or replace its Cash Register System before July 1995. As a penalty for
noncompliance, Polish tax authorities may disallow certain VAT deductions for
July and August, which were previously deducted by IFFP. Additionally, penalties
and interest may be imposed on these disallowed deductions. IFFP believes that
its potential exposure is approximately $150,000, which amount has been provided
for in the accompanying financial statements. IFFP has requested a final
determination by the Polish Minister of Finance. The Company is unable to
predict the timing and nature of the Ministers ruling. IFFP believes a new cash
register system would cost approximately $250,000.
ROMANSKA - NINKOWIC ("RN") - In April 1997, RN filed suit in Voivodship
Court in Krakow, Poland against IFFP. RN alleged that IFFP owed RN approximately
266,831 PLN (approximately $78,000 at the September 30, 1997 exchange rate) in
final settlement for the construction of IFFP's Katowice restaurant.
On December 19, 1996, PKP was formally informed by the Voivodship court in
Warsaw that RN, PKP's former general contractor, had filed suit alleging that
PKP owed RN approximately 123,422 zlotys or (approximately $36,000 based on
September 30, 1997 exchange rates) plus interest from April 6, 1994.
On October 27, 1997, IFFP, PKP and RN settled their disputes. IFFP and PKP
agreed to pay RN $25,000 cash for full settlement of all claims.
9. OTHER TRANSACTIONS:
On July 14, 1997, IFFC and IFFC Acquisition, Inc., a wholly-owned
subsidiary of the Company ("Acquisition Sub") entered into a Merger Agreement
with Litigation Funding, Inc. ("Funding") and Mitchell and Edda Rubinson, the
sole shareholders of Funding. Under the terms of the Agreement, Funding was
merged with and into Acquisition Sub. The 25,909,211 shares of common stock of
the Company to be received by the Funding shareholders is determined by dividing
the $3,021,014 value assigned to Funding by the book value per share ($.1166) of
the Company's common stock as of June 30, 1997, before reduction for the
liquidation preference applicable to the 36,950 (as of June 30, 1997)
outstanding shares of Preferred Stock.
The value assigned to Funding represents (i) the $2,198,494 plus accrued
interest owed to Funding by the Company pursuant to a promissory note and (ii)
$750,000 which represents seventy-five percent (75%) of the value attributable
to the New Development Agreement between Burger King Corporation ("BKC" and IFFC
and its affiliates which was executed on March 14, 1997 in connection with the
Company's settlement of its litigation against BKC. Funding was entitled to
receive seventy-five percent (75%) of the litigation proceeds under its prior
agreements with the Company. For a more detailed discussion of the Company's
agreements with Funding, see "Note 8 - Litigation."
15
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
In July 1997, the Company purchased 100% of KP and PKP, two Polish limited
liability companies, for a nominal consideration and assumption of all
liabilities, including the liabilities of KP to the Company under a $500,000
promissory note. KP owns the exclusive master franchise rights and PKP owns the
individual store franchises for Dominos pizza stores in Poland.
The acquisition was accounted for by the purchase method of accounting,
and the net assets acquired are included in the Company's consolidated balance
sheet based upon their estimated fair values at the date of acquisition. Results
of operations of KP are included in the Company's consolidated statement of
operations subsequent to the date of acquisition. The excess of the net assets
acquired over the purchase price are accounted for as a reduction of furniture,
equipment and leasehold improvements.
The following unaudited pro-forma summary presents the consolidated
results of operations as if the acquisition had occurred at the beginning of the
periods presented and does not purport to be indicative of what would have
occurred had the acquisition actually been made as of such date or of results
which may occur in the future.
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
Total Revenues* $ 1,493,656 $ 1,535,491 $ 4,834,654 $ 4,667,395
Net income (loss) $( 512,565) $( 744,372) $( 426,047) $(1,641,979)
Net income loss
per share $( .01) $( .11) $( .03) $( .35)
* The $41,835 decrease in total revenues for the three months ended September
30, 1997 as compared with the three months ended September 30, 1996, is
attributable to the devaluation of the zolty in relation to the U.S. dollar of
approximately 26% in the three months ended September 30, 1997 as compared with
the three months ended September 30, 1996.
On August 28, 1997, KP entered into a New Master Franchise Agreement with
Domino's Pizza International, Inc. ("Domino's"), granting KP the exclusive right
to develop and operate and to sub-license Domino's Pizza stores and to operate a
commissary for the Domino's system and the use of the Domino's and related marks
in the operation of stores in Poland. As a condition to the New Master Franchise
Agreement IFFC shall contribute or cause other entities to contribute equity to
KP in a minimum amount of $2,000,000 by December 31, 1997. IFFC also agreed that
any additional capital required above such amount will also be dedicated to KP
as needed to permit KP to meet its development quotas. The term of the New
Master Franchise Agreement will expire on December 31, 2003, and if KP is in
compliance with all material provisions of the New Master Franchise Agreement,
it may be extended for an additional ten (10) years in accordance with certain
minimum development quotas which KP and Domino's may agree upon by execution of
an amendment to the New Master Franchise Agreement. Under the terms of the New
Master Franchise Agreement, KP shall be obligated to open up one (1) additional
store in 1997, in addition to the four (4) existing stores as of August 28,
16
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
1997. During the next six (6) years, KP shall be obligated to open 5, 6, 7, 8,
9, and 10 stores, respectively, beginning in 1998 and ending in the year 2003
for a total of 50 stores. Of such stores, third party franchise stores shall not
exceed 25% of the number of open and operating stores and all stores located in
Warsaw, Poland shall be corporate stores.
During the term of the New Master Franchise Agreement, KP and its controlling
shareholders, including the controlling shareholder of IFFC, will not have any
interest as an owner, investor, partner, licensee or in any other capacity in
any business engaged in sit-down, delivery or carry-out pizza or in any business
or entity which franchises or licenses or otherwise grants to others the right
to operate a business engaged in such business which is located in Poland. The
latter restriction shall apply for a period of one (1) year following the
effective date of termination of the New Master Franchise Agreement.
On July 7, 1997, IFFP and British Petroleum ("BP") of Poland, executed a
letter of intent for the co-development of Burger King restaurants and BP petrol
stations throughout the Republic of Poland. The letter, although not binding,
states that BP will provide IFFP with packages of between 5 and 10 development
sites each. These sites will be available to IFFP to lease for a specific term
plus option periods at IFFP's discretion subject to Burger King approval. IFFP
anticipates that the majority of these locations will open in 1998 and 1999.
Rental terms will be based on a minimum monthly rental fee versus a percentage
of sales. IFFP and BP are currently negotiating the terms of the master lease.
On July 10, 1997, IFFP and Du Pont Conoco ("Conoco") of Poland, executed a
letter of intent for the co-development of Burger King restaurants and Conoco
petrol stations throughout the Republic of Poland. The letter, although not
binding, states that Conoco will provide IFFP with packages of between 5 and 10
development sites each. These sites will be available to IFFP to lease for a
specific term plus option periods at IFFP's discretion subject to Burger King
approval. IFFP anticipates that the majority of these locations will open in
1998 and 1999. Rental terms will be based on a minimum monthly rental fee versus
a percentage of sales. IFFP and Conoco have agreed on the terms of a master
lease.
On August 12, 1997, the Company executed two credit agreements with the
American Bank in Poland ("Amerbank"). The first credit facility was in the
amount of $950,000. The purpose of this facility is to consolidate existing debt
with Amerbank totaling $300,000 with existing debt owed to Bank Handlowy of
$650,000. Both of these loans were due in full within the next six months.
Pursuant to the terms of the new loan, interest is payable monthly at the
prevailing one month LIBOR rate plus 2.75%. Commencing in March 1998, the loan
is to be repaid in monthly installments of $32,000 for twenty nine months with a
balloon payment of $22,000 due at maturity (August 12, 2000). The loan is
secured by all existing restaurant assets and the guarantee of IFFC.
The second credit agreement is a development loan in the principal amount of
$1,500,000. The purpose of this loan is to provide partial credit for the
development of new Burger King restaurants. Borrowings under this credit
17
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
facility may be made until August 1999 and are secured by: (i) fixed assets of
each new restaurant financed; and (ii) a guarantee of IFFC. The loan is required
to be repaid in thirty five equal installments of $42,000 starting in September
1999 with a balloon payment of $30,000 due at maturity (August 12, 2002).
Interest is paid monthly at the prevailing one month LIBOR rate plus 2.5%.
According to the terms of the agreement, the proceeds of the loan could be used
to finance up to fifty percent (50%) of the costs of furnishing and commencing
operation of Burger King restaurants operated by IFFP.
On September 11, 1997, IFFP entered into an agreement with Statoil to develop
up to twenty-two Burger King restaurants on Statoil service station properties
in Poland apportioned in five categories. IFFP, in coordination with BKC, is
presently evaluating various Statoil sites to determine the feasibility of the
development of Burger King restaurants. In the event that BKC disapproves of any
of the sites within a particular category, Statoil reserves the right to
withdraw from IFFP's consideration all sites within such category. As of
November 6, 1997, IFFC has rejected three of the twenty two sites offered in the
agreement.
In July 1997, PKP opened its fourth Domino's store in Warsaw. The store cost
approximately $125,000 which includes leasehold improvements, equipment, and
furniture and fixtures. The store consists of approximately 100 square meters
and annual lease payments, excluding electricity, are approximately $4,500.00.
The lease was executed in September 1996 between PKP and the Municipality of
Warsaw. The lease is for an unlimited period of time, however, either party may
terminate the lease upon three months written notice to the other party. In the
event that the Municipality terminates the lease, PKP is entitled to recover its
costs, including leasehold improvements, net of depreciation.
On August 29, 1997, PKP entered into a lease for an unlimited period of time
with the Municipality of Wola, Warsaw for its fifth Domino's store site
consisting of approximately 97 square meters. The lease may be terminated by PKP
at any time upon six months' notice. The Municipality of Wola, Warsaw may
terminate the lease at any time upon six months' notice. In the event the
Municipality of Wola, Warsaw terminates the lease, PKP is entitled to recover
its costs, including leasehold improvements, net of depreciation. Annual lease
payments, excluding utility charges are approximately $16,684 at September 30,
1997 exchange rates. The store is currently under construction and the Company
anticipates that it will be opened by December 1997.
The Company entered into an employment agreement with James F. Martin,
effective July 1, 1997. Mr. Martin's employment agreement provides that he will
serve as Chief Financial Officer of the Company and/or that of its subsidiaries
or affiliates that may be founded, for an initial term of three (3) years, which
the Company may extend for up to two (2) additional years. His annual salary for
the first year is $85,000. Pursuant to his employment agreement, Mr. Martin is
required to devote his full business time, attention and best efforts to the
performance of his duties under the employment agreement. Mr. Martin is entitled
to three (3) weeks of paid vacation during any year of employment. Mr. Martin is
also entitled to an automobile allowance of $400 per month, however, Mr. Martin
shall be responsible for all associated expenses relating to such automobile,
18
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
including, without limitation, insurance, gas and repairs. Mr. Martin is
eligible to receive stock option grants under the Company's Stock Option Plans
in the discretion of the Company's Board of Directors or Option Committees. The
Company has granted Mr. Martin a stock option to acquire 100,000 shares of the
Company's Common Stock at an exercise price of $.40 per share equal to the
current price of the Common Stock on the date of the grant, such options to be
exercisable in whole or in part and cumulatively as follows, provided in each
case that Mr. Martin is an employee of the Company on the date of reference: (i)
twenty percent (20%) one (1) year after the effective date of the employment
agreement; (ii) sixty percent (60%) two (2) years after the effective date of
the employment agreement; and (iii) one hundred percent (100%) three (3) years
after the effective date of the employment agreement. In the event Mr. Martin is
required to move to Poland, the Company shall provide Mr. Martin an appropriate
housing allowance, to be determined at that time. Mr. Martin's employment
agreement provides for a payment of $20,000 in the event his employment is
terminated by reason of his death or disability and a severance pay in the event
Mr. Martin's employment is terminated without cause, such severance to be
calculated as follows: (i) July 1, 1997 through June 30, 1998 a $20,000
severance amount; (ii) July 1, 1998 through June 30, 1999 a $15,000 severance
amount; and (iii) July 1, 1999 through June 30, 2000 a $10,000 severance amount.
Mr. Martin's employment agreement does not provide for a severance payment in
the event his employment is terminated for cause. Mr. Martin's employment
agreement requires that he not compete or engage in any business competitive
with the Company's business for the term of the agreement and for a period of
two (2) years thereafter.
The Company entered into an employment agreement with Leon Blumenthal,
effective July 1, 1997. Mr. Blumenthal's employment agreement provides that he
will serve as the Company's Senior Vice President, Chief Operating Officer and
General Manager, and shall serve as the President of International Fast Food
Polska for an initial term of three (3) years, which the Company may extend for
up to an additional two (2) years. His annual salary for the first year is
$100,000. Additionally, under the terms of the employment agreement, Mr.
Blumenthal shall be eligible to receive stock option grants under the Company's
Stock Option Plans in the discretion of the Company's Board of Directors or
Option Committees. The Company granted Mr. Blumenthal a stock option to acquire
100,000 shares of the Company's Common Stock at an exercise price of $.40 per
share equal to the current price of the Common Stock on the date of the grant,
such options to be exercisable in whole or in part and cumulatively according to
the following schedule: (i) twenty percent (20%) one (1) year after the
effective date of the employment agreement; (ii) sixty percent (60%) two (2)
years after the effective date of the employment agreement; and (iii) one
hundred percent (100%) three (3) after the effective date of the employment
agreement. Mr. Blumenthal is, in addition to salary, entitled to certain fringe
benefits including an automobile to use in connection with the performance of
his duties under the agreement. Mr. Blumenthal shall be entitled to three (3)
weeks of paid vacation during his employment. Mr. Blumenthal's employment
agreement provides for a payment of $25,000 in the event his employment is
terminated by reason of his death or disability and, in the event his employment
is terminated without cause, Mr. Blumenthal is entitled to a severance payment
as follows: if the termination occurs (i) on or prior to July 1, 1998, the
19
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
severance amount will be $25,000; (ii) after July 1, 1998 but on or prior to
July 1, 1999, the severance amount will be $20,000; and (iii) after July 1,
1999, the severance amount will be $15,000. Mr. Blumenthal's employment
agreement does not provide for a severance payment in the event his employment
is terminated for cause. Mr. Blumenthal's employment agreement requires that he
not compete or engage in any business competitive with the Company's business
for the term of the agreement and for two (2) years thereafter.
10. SUBSEQUENT EVENTS:
On November 5, 1997, the Company sold approximately $27.5 million of 11%
convertible senior subordinated discount notes due 2007, (the "Notes") in a
private offering in which BT Alex. Brown, Incorporated acted as placement agent.
Net proceeds received by the Company were as follows:
In thousands
------------
Face amount of notes $ 27,500
Discount to be accreted as interest expense
and added to the original principal balance
of the notes over a period of three years (7,500)
Offering expenses (2,200)
----------
Net proceeds $ 17,800
=========
The Notes are convertible into approximately 39.4 million shares of common
stock of the Company at a conversion price of $0.70 per share at any time after
one year. The Company intends to use the net proceeds of the offering for the
development of new Burger King restaurants and Domino's Pizza stores in Poland
and for working capital and other general corporate purposes. The Notes (and the
shares of common stock issuable upon conversion thereof) have not been
registered under the Securities Act of 1933, as amended, or any state securities
laws and, unless so registered, may not be offered or sold in the United States
except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state securities
laws.
20
<PAGE>
ITEM I. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
Managements Discussion and Analysis or Plan of Operation contains various
"forward looking statements" within the meaning of the Securities Act of 1933
and the Securities And Exchange Act of 1934, which represents the Company's
expectations or beliefs concerning future events including without limitation
the following; fluctuations in the Polish economy; ability of the Company to
obtain financing on terms and conditions that are favorable; ability of the
Company to improve levels of profitability and sufficiency of cash provided by
operations, investing and financing activities.
The Company cautions that these statements are further qualified by important
factors that could cause actual results to differ materially from those
contained in the forward looking statements, including without limitations,
general economic and political conditions in Poland, the demand for the
Company's products and services, changes in the level of operating expense and
the present and future level of competition. Results actually achieved may
differ materially from expected results included in these statements.
As of September 30, 1997, IFFC had working capital of approximately $789,662
and Cash and Cash Equivalents of $1,640,140. IFFC's working capital and cash
position were significantly improved by the settlement of the BKC Litigation in
March 1997 coupled with the debt consolidation and IFFC's merger with Litigation
Funding, Inc. (See Notes 7 and 9) Although IFFC believes that it has sufficient
funds to finance its present plan of operations through December 31, 1998, IFFC
cannot reasonably estimate how long it will be able to satisfy its cash
requirements. The capital requirements relating to implementation of the BKC
Development Agreement and the New Master Franchise Agreement with Domino's are
significant. Based upon current assumptions, IFFC will seek to implement its
business plan utilizing its Cash and Cash Equivalents, cash generated from
restaurant operations and the proceeds from the sale of the 11% convertible
senior subordinated discount notes due 2007. In order to satisfy the capital
requirements of the BKC Development Agreement and the New Master Franchise
Agreement with Domino's, IFFC will require resources substantially greater than
the amounts it presently has or amounts that can be generated from restaurant
operations. Except as discussed below, IFFC has no current arrangements with
respect to, or sources of additional financing and there can be no assurance
that IFFC will be able to obtain additional financing or that additional
financing will be available on acceptable terms to fund future commitments for
capital expenditures.
On November 5, 1997, the Company sold approximately $27.5 million of 11%
convertible senior subordinated discount notes due 2007, (the "Notes") in a
private offering in which BT Alex. Brown, Incorporated acted as placement agent.
Net proceeds received by the Company were as follows:
In thousands
------------
Face amount of notes $ 27,500
Discount to be accreted as interest expense
and added to the original principal balance
of the notes over a period of three years (7,500)
Offering expenses (2,200)
----------
Net proceeds $ 17,800
=========
21
<PAGE>
The Notes are convertible into approximately 39.4 million shares of common
stock of the Company at a conversion price of $0.70 per share at any time after
one year. The Company intends to use the net proceeds of the offering for the
development of new Burger King restaurants and Domino's Pizza stores in Poland
and for working capital and other general corporate purposes. The Notes (and the
shares of common stock issuable upon conversion thereof) have not been
registered under the Securities Act of 1933, as amended, or any state securities
laws and, unless so registered, may not be offered or sold in the United States
except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state securities
laws.
IFFC currently operates its Burger King restaurant business in Poland through
its majority owned (85%) Polish subsidiary, IFFP, and its wholly-owned Polish
limited liability corporations, IFF Polska-Kolmer, IFF-DX Management and IFF
Polska i Spolka. IFFC operates its Domino's Pizza business in Poland through its
two wholly-owned Polish subsidiaries, Krolewska Pizza, Sp. z o.o. ("KP") and
Pizza King Polska, Sp. z o.o. ("PKP"). Unless the context indicates otherwise,
references herein to IFFC include all of its operating subsidiaries.
IFFC currently operates eight Traditional Burger King Restaurants and four
Domino's Pizza stores. IFFC has incurred losses and anticipates that it will
continue to incur losses until, at the earliest, it establishes a number of
restaurants and stores generating sufficient revenues to offset its operating
costs and the costs of its proposed continuing expansion. There can be no
assurance that IFFC will be able to successfully establish a sufficient number
of restaurants to achieve profitable operations.
On July 14, 1997, International Fast Food Corporation, Inc. (the"Company")
and IFFC Acquisition, Inc., a wholly-owned subsidiary of the Company
("Acquisition Sub") entered into a Merger Agreement with Litigation Funding,
Inc. ("Funding") and Mitchell and Edda Rubinson, the sole shareholders of
Funding. Under the terms of the Agreement, Funding was merged with and into
Acquisition Sub. The 25,909,211 shares of common stock of the Company received
by the Funding shareholders was determined by dividing the $3,021,014 value
assigned to Funding by the book value per share ($.1166) of the Company's common
stock as of June 30, 1997, before reduction for the liquidation preference
applicable to the outstanding shares of Preferred Stock.
The value assigned to Funding represents (i) the $2,198,494 plus accrued
interest owed to Funding by the Company pursuant to a promissory note and (ii)
$750,000 which represents seventy-five percent (75%) of the value attributable
to the Development Agreement between Burger King Corporation ("BKC" and IFFC and
its affiliates which was executed on March 14, 1997 in connection with the
Company's settlement of its litigation against BKC. Funding was entitled to
receive seventy-five percent (75%) of the litigation proceeds, as defined, under
its prior agreements with the Company.
In July 1997, the Company purchased KP and PKP, two Polish limited liability
companies, for a nominal consideration and assumption of all liabilities,
including the liabilities of KP to the Company under a $500,000 promissory note.
KP owns the exclusive master franchise rights and PKP owns the individual store
franchises for Dominos pizza stores in Poland.
22
<PAGE>
The acquisition was accounted for by the purchase method of accounting, and
the net assets acquired are included in the Company's consolidated balance sheet
based upon their estimated fair values at the date of acquisition. Results of
operations of KP will are included in the Company's consolidated statement of
operations subsequent to the date of acquisition. The excess of the net assets
acquired over the purchase price is accounted for as a reduction of furniture,
equipment and leasehold improvements.
The following unaudited pro-forma summary presents the consolidated results
of operations as if the acquisition had occurred at the beginning of the periods
presented and does not purport to be indicative of what would have occurred had
the acquisition actually been made as of such date or of results which may occur
in the future.
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
Total Revenues* $ 1,493,656 $ 1,535,491 $ 4,834,654 $ 4,667,395
Net income (loss) $( 512,565) $( 744,372) $( 426,047 $(1,641,979)
Net income loss
per share $( .01) $( .11) $( .03) $( .35)
* The $41,835 decrease in total revenues for the three months ended September
30, 1997 as compared with the three months ended September 30, 1996, is
attributable to the devaluation of the zolty in relation to the U.S. dollar of
approximately 26% in the three months ended September 30, 1997 as compared with
the three months ended September 30, 1996.
On August 28, 1997, KP entered into a New Master Franchise Agreement with
Domino's Pizza International, Inc. ("Domino's"), granting KP the exclusive right
to develop and operate and to sub-license Domino's Pizza stores and to operate a
commissary for the Domino's system and the use of the Domino's and related marks
in the operation of stores in Poland. IFFC has agreed that as a condition to the
New Master Franchise Agreement it shall contribute or cause other entities to
contribute equity to KP in a minimum amount of $2,000,000 by December 31, 1997.
IFFC also agreed that any additional capital required above such amount will
also be dedicated to KP as needed to permit KP to meet its development quotas.
The term of the New Master Franchise Agreement will expire on December 31, 2003,
and if KP is in compliance with all material provisions of the New Master
Franchise Agreement, it may be extended for an additional ten (10) years in
accordance with certain minimum development quotas which KP and Domino's may
agree upon by execution of an amendment to the New Master Franchise Agreement.
Under the terms of the New Master Franchise Agreement, KP shall be obligated
to open up one (1) additional store in 1997, in addition to the four (4)
existing stores as of August 28, 1997. During the next six (6) years, KP shall
be obligated to open 5, 6, 7, 8, 9, and 10 stores, respectively, beginning in
1998 and ending in the year 2003 for a total of 50 stores. Of such stores, third
party franchise stores shall not exceed 25% of the number of open and operating
stores and all stores located in Warsaw, Poland shall be corporate stores.
During the term of the New Master Franchise Agreement, KP and its controlling
shareholders, including the controlling shareholder of IFFC, will not have any
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interest as an owner, investor, partner, licensee or in any other capacity in
any business engaged in sit-down, delivery or carry-out pizza or in any business
or entity which franchises or licenses or otherwise grants to others the right
to operate a business engaged in such business which is located in Poland. The
latter restriction shall apply for a period of one (1) year following the
effective date of termination of the New Master Franchise Agreement.
On July 7, 1997, IFFP and British Petroleum ("BP") of Poland, executed a
letter of intent for the co-development of Burger King restaurants and BP petrol
stations throughout the Republic of Poland. The letter, although not binding,
states that BP will provide IFFP with packages of between 5 and 10 development
sites each. These sites will be available to IFFP to lease for a specific term
plus option periods at IFFP's discretion subject to Burger King approval. IFFP
anticipates these locations will open in 1998 and beyond. Rental terms will be
based on a minimum monthly rental fee and/ or a percentage of sales. IFFP and BP
are currently negotiating the terms of the master lease.
On July 10, 1997, IFFP and Du Pont Conoco ("Conoco") of Poland, executed a
letter of intent for the co-development of Burger King restaurants and Conoco
petrol stations throughout the Republic of Poland. The letter, although not
binding, states that Conoco will provide IFFP with packages of between 5 and 10
development sites each. These sites will be available to IFFP to lease for a
specific term plus option periods at IFFP's discretion subject to Burger King
approval. IFFP anticipates these locations will open in 1998 and beyond. Rental
terms will be based on a minimum monthly rental fee and/ or a percentage of
sales. IFFP and Conoco have agreed on the terms of a master lease.
On August 12, 1997, the Company executed two credit agreements with the
American Bank in Poland ("Amerbank"). The first credit facility was in the
amount of $950,000. The purpose of this facility was to consolidate existing
debt owed to Amerbank totaling $300,000 with existing debt owed to Bank Handlowy
of $650,000. Pursuant to the terms of the new loan, interest is payable monthly
at the prevailing one month LIBOR rate plus 2.75%. Commencing in March 1998, the
loan is to be repaid in monthly installments of $32,000 for twenty nine months
with a balloon payment of $22,000 due at maturity (August 12, 2000). The loan is
secured by all existing restaurant assets and the guarantee of IFFC.
The second credit agreement is a development loan in the principal amount of
$1,500,000. The purpose of this loan is to provide partial credit for the
development of new Burger King restaurants. Borrowings under this credit
facility may be made until August 1999 and are secured by: (i) fixed assets of
each new restaurant financed; and (ii) a guarantee of IFFC. The loan is required
to be repaid in thirty five equal installments of $42,000 starting in September
1999 with a balloon payment of $30,000 due at maturity (August 12, 2002).
Interest is paid monthly at the prevailing one month LIBOR rate plus 2.5%.
According to the terms of the agreement, the proceeds of the loan could be used
to finance up to fifty percent (50%) of the costs of furnishing and commencing
operation of Burger King restaurants operated by IFFP. No advances have been
made on this credit facility.
On September 11, 1997, IFFP entered into an agreement with Statoil to develop
up to twenty-two Burger King restaurants on Statoil service station properties
in Poland apportioned in five categories. IFFP, in coordination with BKC, is
presently evaluating various Statoil sites to determine the feasibility of the
development of Burger King restaurants. In the event that BKC disapproves of any
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of the sites within a particular category, Statoil reserves the right to
withdraw from IFFP's consideration all sites within such category. As of
November 6, 1997, IFFC has rejected three of the twenty two sites offered in the
agreement.
In July 1997, PKP opened its fourth Domino's store in Warsaw. The store cost
approximately $125,000 which includes leasehold improvements, equipment, and
furniture and fixtures. The store consists of approximately 100 square meters
and annual lease payments, excluding electricity, are approximately $4,500.00.
The lease was executed in September 1996 between PKP and the Municipality of
Warsaw. The lease is for an unlimited period of time, however, either party may
terminate the lease upon three months written notice to the other party. In the
event that the Municipality terminates the lease, PKP is entitled to recover its
costs, including leasehold improvements, net of depreciation.
On August 29, 1997, PKP entered into a lease for an unlimited period of time
with the Municipality of Wola, Warsaw for its fifth Domino's store site
consisting of approximately 97 square meters. The lease may be terminated by PKP
at any time upon six months' notice. The Municipality of Wola, Warsaw may
terminate the lease at any time upon six months' notice. In the event the
Municipality of Wola, Warsaw terminates the lease, PKP is entitled to recover
its costs, including leasehold improvements, net of depreciation. Annual lease
payments, excluding utility charges, are 57,008 zlotys, approximately $16,684 at
September 30, 1997 exchange rates. The store is currently under construction and
is scheduled to open by December 1997.
The Company entered into an employment agreement with James F. Martin,
effective July 1, 1997. Mr. Martin's employment agreement provides that he will
serve as Chief Financial Officer of the Company and/or that of its subsidiaries
or affiliates that may be founded, for an initial term of three (3) years, which
the Company may extend for up to two (2) additional years. His annual salary for
the first year is $85,000. Pursuant to his employment agreement, Mr. Martin is
required to devote his full business time, attention and best efforts to the
performance of his duties under the employment agreement. Mr. Martin is entitled
to three (3) weeks of paid vacation during any year of employment. Mr. Martin is
also entitled to an automobile allowance of $400 per month, however, Mr. Martin
shall be responsible for all associated expenses relating to such automobile,
including, without limitation, insurance, gas and repairs. Mr. Martin is
eligible to receive stock option grants under the Company's Stock Option Plans
in the discretion of the Company's Board of Directors or Option Committees. The
Company has granted Mr. Martin a stock option to acquire 100,000 shares of the
Company's Common Stock at an exercise price of $.40 per share equal to the
current price of the Common Stock on the date of the grant, such options to be
exercisable in whole or in part and cumulatively as follows, provided in each
case that Mr. Martin is an employee of the Company on the date of reference: (i)
twenty percent (20%) one (1) year after the effective date of the employment
agreement; (ii) sixty percent (60%) two (2) years after the effective date of
the employment agreement; and (iii) one hundred percent (100%) three (3) years
after the effective date of the employment agreement. In the event Mr. Martin is
required to move to Poland, the Company shall provide Mr. Martin an appropriate
housing allowance, to be determined at that time. Mr. Martin's employment
agreement provides for a payment of $20,000 in the event his employment is
terminated by reason of his death or disability and a severance pay in the event
Mr. Martin's employment is terminated without cause, such severance to be
calculated as follows: (i) July 1, 1997 through June 30, 1998 a $20,000
severance amount; (ii) July 1, 1998 through June 30, 1999 a $15,000 severance
amount; and (iii) July 1, 1999 through June 30, 2000 a $10,000 severance amount.
Mr. Martin's employment agreement does not provide for a severance payment in
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the event his employment is terminated for cause. Mr. Martin's employment
agreement requires that he not compete or engage in any business competitive
with the Company's business for the term of the agreement and for a period of
two (2) years thereafter.
The Company entered into an employment agreement with Leon Blumenthal,
effective July 1, 1997. Mr. Blumenthal's employment agreement provides that he
will serve as the Company's Senior Vice President, Chief Operating Officer and
General Manager, and shall serve as the President of International Fast Food
Polska for an initial term of three (3) years, which the Company may extend for
up to an additional two (2) years. His annual salary for the first year is
$100,000. Additionally, under the terms of the employment agreement, Mr.
Blumenthal shall be eligible to receive stock option grants under the Company's
Stock Option Plans in the discretion of the Company's Board of Directors or
Option Committees. The Company granted Mr. Blumenthal a stock option to acquire
100,000 shares of the Company's Common Stock at an exercise price of $.40 per
share equal to the current price of the Common Stock on the date of the grant,
such options to be exercisable in whole or in part and cumulatively according to
the following schedule: (i) twenty percent (20%) one (1) year after the
effective date of the employment agreement; (ii) sixty percent (60%) two (2)
years after the effective date of the employment agreement; and (iii) one
hundred percent (100%) three (3) after the effective date of the employment
agreement. Mr. Blumenthal is, in addition to salary, entitled to certain fringe
benefits including an automobile to use in connection with the performance of
his duties under the agreement. Mr. Blumenthal shall be entitled to three (3)
weeks of paid vacation during his employment. Mr. Blumenthal's employment
agreement provides for a payment of $25,000 in the event his employment is
terminated by reason of his death or disability and, in the event his employment
is terminated without cause, Mr. Blumenthal is entitled to a severance payment
as follows: if the termination occurs (i) on or prior to July 1, 1998, the
severance amount will be $25,000; (ii) after July 1, 1998 but on or prior to
July 1, 1999, the severance amount will be $20,000; and (iii) after July 1,
1999, the severance amount will be $15,000. Mr. Blumenthal's employment
agreement does not provide for a severance payment in the event his employment
is terminated for cause. Mr. Blumenthal's employment agreement requires that he
not compete or engage in any business competitive with the Company's business
for the term of the agreement and for two (2) years thereafter.
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NINE MONTHS ENDED SEPTEMBER 30, 1997 VS NINE MONTHS ENDED SEPTEMBER 30, 1996
RESULTS OF OPERATIONS
Results of operations for the nine months ended September 30, 1997, include
the results of KP and PKP, which were acquired in July 1997 in a transaction
accounted for as a purchase. KP owns the exclusive master franchise rights and
PKP owns the individual store franchises for Domino's pizza stores in Poland.
During the three months ended September 30, 1997, KP and PKP generated
$275,075 of sales from their four Domino's pizza stores and incurred Food and
Packaging Costs of $104,418, Payroll and Related Costs of $90,018, Occupancy and
Other Operating Expenses of $110,158 and Depreciation and Amortization of
$44,500. Food and Packaging Costs were 38.0% of sales, Payroll and Related Costs
were 32.7% of sales, Occupancy and Other Operating Expenses were 40.0% of sales
and Depreciation and Amortization were 16.2% of sales. Since the acquisition was
accounted for as a purchase, no amounts are included in the accompanying
financial statements for the three and nine month periods ended September 30,
1996.
For the nine months ended September 30, 1997 and September 30, 1996, IFFC
generated Sales of $4,246,215 and $3,895,891, respectively which includes sales
of $275,075 for the Domino's Pizza stores in 1997. In U.S. dollar and Polish
zloty terms IFFC's Sales increased by approximately 1.9% and 23.4% for the nine
months ended September 30, 1997 as compared to the nine months ended September
30, 1996. The increase is primarily attributable to improved local stores
marketing and general improvements in the Polish economy.
During the nine months ended September 30, 1997, IFFC incurred Food and
Packaging Costs of $1,714,428, Payroll and Related Costs of $749,703, Occupancy
and Other Operating Expenses of $1,253,208 and Depreciation and Amortization
Expense of $700,160.
Food and Packaging Costs applicable to Burger King restaurants for the nine
months ended September 30, 1997 and 1996 were 40.5% and 43.4% of Restaurant
Sales, respectively. The 2.9% decrease as a percentage of Restaurant Sales is
primarily attributable to improved product sourcing, the implementation of
tighter cost controls, a decrease in custom duties and import tax on paper goods
coupled with an increase in Restaurant Sales.
Payroll and Related Costs applicable to Burger King restaurants for the nine
months ended September 30, 1997 and 1996 were 16.6% and 15.3% of Restaurant
Sales, respectively. The 1.3% increase as a percentage of Restaurant Sales
increased primarily as a result of an increase in the minimum wage rate and
related benefits in Poland effective January 1, 1997.
Occupancy and Other Operating Expenses applicable to Burger King restaurants
for the nine months ended September 30, 1997 and 1996 were 28.8% and 27.2% of
Restaurant Sales, respectively. The 1.6% increase as a percentage of Restaurant
Sales is primarily attributable to an increase in advertising, utilities and
repairs and maintenance.
Depreciation and Amortization Expense applicable to Burger King restaurants
as a percentage of Restaurant Sales was 16.5% and 17.6% in the nine months ended
September 30, 1997 and 1996, respectively. The 1.1% decrease as a percentage of
restaurant sales is primarily attributable to an increase in Restaurant Sales
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coupled with the fully depreciated status of certain assets still in use, as
well as, the increase in amortization expense associated with the deferred
leased costs associated with the re-negotiation of the Dantex lease.
General and Administrative Expenses for the nine months ended September 30,
1997 (which include $47,360 applicable to KP and PKP) and 1996 were 29.2% and
27.6% of Restaurant Sales, respectively. The 1.6% increase as a percentage of
Restaurant Sales is primarily attributable to increased office rent, accounting
services, and corporate salaries. For the nine months ended September 30, 1997,
General and Administrative Expenses were comprised of executive and office staff
salaries and benefits ("Salary Expense") $423,393; legal and professional fees,
office rent, travel, telephone and other corporate expenses ("Corporate Overhead
Expense") $723,799, and depreciation and amortization $91,091. For the nine
months ended September 30, 1996, General and Administrative Expense were
comprised of executive and office staff salaries $401,573; legal and
professional fees, office rent, travel, telephone and other general corporate
expenses $650,898, and depreciation and amortization $66,615.
For the nine months ended September 30, 1997, IFFC generated a net loss of
$(110,545) or $(.01) per share of IFFC's Common Stock compared to a net loss of
$(1,242,938), or $(.27) per share of IFFC's Common Stock for the nine months
ended September 30, 1996. During the nine months ended September 30, 1997, IFFC
recognized a non-recurring gain of $1,327,070 or $.07 per share of IFFC's Common
Stock in connection with the settlement of the BKC Litigation.
IFFC anticipates that it will continue to incur certain expenses in
connection with its disputes with the Polish Fiscal Authorities. See "Item 2.
Legal Proceedings - Polish Fiscal Authority Disputes" for a description of such
matters.
For the nine months ended September 30, 1997 and 1996 Interest and Other Income
was comprised as follows:
Nine Months Ended September 30,
1997 1996
-------------- ---------------
Interest income $ 104,409 $ 49,949
Foreign exchange (losses)
gains, net ( 247,128) ( 9,008)
Management fee 13,904 20,773
Forgiveness of indebtedness 337,859 -
All other, net ( 89,221) 28,062
---------- ----------
$ 119,823 $ 89,776
========== ==========
All other, net includes various non-recurring charges and credits not
specifically related to operating activity.
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Interest Expense is comprised as follows:
Nine Months Ended September 30,
-------------------------------
1997 1996
------------- --------------
Interest Expense on Subordinated
Convertible Debentures $ 186,030 $ 186,030
Interest Expense on Note Payable
to Litigation Funding 73,767 -
Interest Expense on Convertible
Promissory Notes 16,178 -
Amortization of Debenture
Issuance Costs 24,942 24,942
Interest Expense on Bank
Facilities 119,559 133,255
---------- ----------
Total $ 420,476 $ 344,227
========== ==========
Interest Expense exceeded Interest and Other Income by $316,067 and
$294,278 for the nine months ended September 30, 1997 and 1996, respectively.
IFFC's interest expense on bank facilities was $119,559 and $133,255 for
the nine months ended September 30, 1997 and 1996, respectively. The $13,666
decrease is attributable to lower borrowings under bank credit facilities during
the comparative period.
LIQUIDITY AND CAPITAL RESOURCES
IFFC's material commitments for capital expenditures in its restaurant
business relate to the provisions of the BKC Development Agreement and the New
Master Franchise Agreement with Domino's..
On March 14, 1997, a new Development Agreement (the "BKC Development
Agreement") was entered into between BKC and IFFC, which was then assigned by
IFFC to IFFP on March 14, 1997; IFFC continues to remain liable for the
obligations contained in the BKC Development Agreement. Pursuant to the BKC
Development Agreement, IFFC has been granted the exclusive right until September
30, 2007 to develop and be franchised to operate Burger King restaurants in
Poland with certain exceptions discussed below. Pursuant to the BKC Development
Agreement, IFFC is required to open 45 Development Units during the term of the
Agreement. Each traditional Burger King restaurant, in-line Burger King
restaurant, or drive-thru Burger King restaurant shall constitute one unit. A
Burger King kiosk restaurant shall, for purposes of the BKC Development
Agreement, be considered one quarter unit. Pursuant to the BKC Development
Agreement, IFFC is to open three Development Units through September 30, 1998,
four units in each year beginning October 1, 1998 and ending September 30, 2001
and five units in each year beginning October 1, 2001 and ending September 30,
2007.
Pursuant to the BKC Development Agreement, IFFC shall pay BKC $1,000,000
as a development fee. IFFC shall not be obligated to pay the development fee if
IFFC is in compliance with the development schedule by September 30, 1999, and
has achieved gross sales of $11,000,000 for the 12 months preceding the
September 30, 1999, target date. If the development schedule has been achieved
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but gross sales were less than $11,000,000, but greater than $9,000,000, the
development fee shall be reduced to $250,000. If the development fee is payable
due to the failure of IFFC to achieve the performance targets set forth above,
IFFC, at its option, may either pay the development fee or provide BKC with the
written and binding undertaken of Mr. Mitchell Rubinson, IFFC's Chairman, that
the Rubinson Group will completely divest themselves of any interest in IFFC and
the Burger King restaurants opened or operated by IFFC in Poland within six (6)
months of the date the development fee payment is due. The Rubinson Group shall
be defined to include any entity that Mr. Rubinson directly or indirectly owns
an aggregate interest of ten percent (10%) or more of the legal or beneficial
equity interest and any parent, subsidiary or affiliate of a Rubinson entity.
Mr. Rubinson has personally guaranteed payment of the development fee.
BKC may terminate rights granted to IFFC under the BKC Development
Agreement, including franchise approvals for restaurants not yet opened, for a
variety of possible defaults by IFFC, including, among others, failure to open
restaurants in accordance with the schedule set forth in the BKC Development
Agreement; failure to obtain BKC site approval prior to the commencement of each
restaurant's construction; failure to meet various operational, financial, and
legal requirements set forth in the BKC Development Agreement, including
maintaining of IFFP's net worth of $7,500,000 beginning on June 1, 1999. Upon
termination of the BKC Development Agreement, whether resulting from default or
expiration of its terms, BKC has the right to license others to develop and
operate Burger King restaurants in Poland, or to do so itself.
IFFC currently estimates the cost of opening a traditional restaurant to
be approximately $450,000 to $1,000,000, including leasehold improvements,
furniture, fixtures, equipment, and opening inventories. Such estimates vary
depending primarily on the size of a proposed restaurant and the extent of the
improvements required. The development of additional restaurants is contingent
upon, among other things, IFFC's ability to generate cash from operations and/or
securing additional debt or equity financing. If cash is unavailable from those
sources, IFFC will have to curtail any additional development until additional
cash resources are secured.
On August 28, 1997, KP entered into a New Master Franchise Agreement with
Domino's Pizza International, Inc. ("Domino's"), granting KP the exclusive right
to develop and operate and to sub-license Domino's Pizza stores and to operate a
commissary for the Domino's system and the use of the Domino's and related marks
in the operation of stores in Poland. As a condition to the New Master Franchise
Agreement, IFFC shall contribute or cause other entities to contribute equity to
KP in a minimum amount of $2,000,000 by December 31, 1997. IFFC also agreed that
any additional capital required above such amount will also be dedicated to KP
as needed to permit KP to meet its development quotas. The term of the New
Master Franchise Agreement will expire on December 31, 2003, and if KP is in
compliance with all material provisions of the New Master Franchise Agreement,
it may be extended for an additional ten (10) years in accordance with certain
minimum development quotas which KP and Domino's may agree upon by execution of
an amendment to the New Master Franchise Agreement.
Under the terms of the New Master Franchise Agreement, KP shall be
obligated to open up one (1) additional store in 1997, including the four (4)
existing stores as of August 28, 1997. During the next six (6) years, KP shall
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be obligated to open 5, 6, 7, 8, 9, and 10 stores, respectively, beginning in
1998 and ending in the year 2003 for a total of 50 stores. Of such stores, third
party franchise stores shall not exceed 25% of the number of open and operating
stores and all stores located in Warsaw, Poland shall be corporate stores.
During the term of the New Master Franchise Agreement, KP and its
controlling shareholders, including the controlling shareholder of IFFC, will
not have any interest as an owner, investor, partner, licensee or in any other
capacity in any business engaged in sit-down, delivery or carry-out pizza or in
any business or entity which franchises or licenses or otherwise grants to
others the right to operate a business engaged in such business which is located
in Poland. The latter restriction shall apply for a period of one (1) year
following the effective date of termination of the New Master Franchise
Agreement.
IFFC anticipates that it will continue to incur certain expenses in
connection with its disputes with the Polish Fiscal Authorities. See "Part II.
Item 2. Legal Proceedings - Polish Fiscal Authority Disputes" for a description
of such matters and IFFC's best estimates of the expenses IFFC anticipates
incurring and the timing of such expenses.
On May 17, 1996, IFFC's Common Stock was deleted from the NASDAQ Stock
Market and has traded on the over the counter market (Electronic bulletin board)
since that date.
To date, IFFC's business operations have been principally financed by
proceeds from public offerings of IFFC's equity and debt securities, private
offerings of equity and debt securities, proceeds from various bank credit
facilities and proceeds from the sale of certain equity securities and the BKC
Settlement Agreement.
IFFC did not pay the preferred dividends that were due on June 15, 1996,
December 15, 1996 and June 15, 1997 and as of September 30, 1997, $301,050 of
preferred dividends remain in arrears. At September 30, 1997 there were 33,450
shares of Preferred Stock outstanding.
In June 1996, after considering various alternatives and including the
market price for the Company's Common Stock, its trading volume and various time
constraints the Board of Directors authorized the issuance of 2,200,000 shares
of the Company's Common Stock for a total purchase price of $110,000 to Mitchell
Rubinson and his wife Edda. The Company used the proceeds from the sale of the
shares for payment of interest on the Company's Convertible Subordinated
Debentures.
In September 1996, the Company had working capital needs, and had incurred
additional expenses in connection with the BKC Litigation. The Board of
Directors of IFFC authorized the sale of 2,500,000 shares of common stock at
$.10 per share. Marilyn Rubinson, Jaime Rubinson and Kim Rubinson , the mother
and daughters of Mitchell Rubinson, the Company's President purchased 250,000
shares each or a total of 750,000 shares of the offering.
In November 1996, the Company had additional working capital needs. The
Board of Directors of IFFC authorized the sale of 500,000 shares of common stock
at $.10 per share. Jaime Rubinson purchased 250,000 shares and Kim Rubinson
purchased 250,000 shares. Both are the daughters of Mitchell Rubinson, the
Company's President.
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In December 1996, IFFC had outstanding an interest payment of
approximately $125,000 in connection with its Convertible Subordinated
Debentures and additional
working capital needs. After considering various alternatives and factors, the
Board of Directors of IFFC authorized the sale of 1,500,000 shares of common
stock of IFFC to Marilyn Rubinson, the Mother of Mitchell Rubinson, the
Company's President at $.10 per share.
In January 1997, Marilyn Rubinson, the mother of Mitchell Rubinson, Jaime
Rubinson and Kim Rubinson, Mr. Rubinson's daughters, purchased $300,000, $50,000
and $50,000 aggregate principal amount of convertible promissory notes,
respectively. The notes bear interest at 8% per annum and mature on January 13,
1999. The notes are convertible into shares of the Company's Common Stock at
$.10 per share. The proceeds from the sale of the notes were used to fund the
cost and expenses in connection with the Company's litigation against BKC and
general working capital. In January 1997, Mr. Rubinson and his wife purchased
from the Company a convertible promissory note in the aggregate principal amount
of $100,000. In June, 1997 the $500,000 principal amount of the convertible
promissory notes was converted into 5,000,000 shares of Common Stock.
On March 14, 1997, IFFC issued a promissory note in the original principal
amount of $2,198,494 to Litigation Funding as partial payment of amounts due to
Litigation Funding in connection with the settlement of the BKC Litigation. See
Note 9 of notes to consolidated financial statements for a description of
transactions involving the payment of amounts due to Litigation Funding by
issuance of 25,909,211 shares of Common Stock.
As of September 30, 1997 and November 5, 1997, the Company had $550,163
and $606,835, respectively, in accounts with Bank Handlowy and AmerBank with
substantially all of such funds held as European Currency Unit denominated
deposits. Substantially all of the Company's remaining cash including the net
proceeds of the private placement is held in U.S.dollar accounts in U.S. Banks.
IFFC has also financed its operations through the use of credit
facilities, which credit facilities are described below.
As of January 28, 1993, IFFP entered into a revolving credit facility with
American Bank of Poland S.A. ("AmerBank") totalling 300,000 new zlotys.
Borrowings under the January 28,1993 AmerBank credit facility are secured by a
guarantee of IFFC and bear interest at a monthly adjusted variable rate
approximately equal to AmerBank's prime rate. Borrowings under the January 28,
1993 AmerBank credit facility were repayable as of January 28, 1996. On April
12, 1996, the credit facility was amended as follows: (i) to 200,000 new zlotys
(approximately $58,531 at September 30, 1997 exchange rates), and (ii) in March
1997, the credit facility was further amended to 100,000 new zlotys
(approximately $29,265 at September 30, 1997 exchange rates). The credit
facility matures on March 31, 1998. As of September 30, 1997 and November 5,
1997, the outstanding balance on the credit facility was $25,282 and $14,145,
respectively.
On March 18, 1996, PKP obtained a $150,000 line of credit from American
Bank. Borrowings under the facility bear interest at 10% per annum, payable
every three months commencing April 30, 1996, and may be used to finance up to
50% of the cost of developing Domino's Stores. The credit facility is secured by
a promissory note of PK Polska, and title to the fixtures and equipment of the
Domino's Stores developed with the credit facility borrowings. No draws have
been made on the credit facility. The facility expires on January 30, 1998.
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On September 30, 1996, PKP entered into a revolving credit facility with
Amerbank totaling 100,000 new zlotys (approximately $29,265 at September 30,
1997 exchange rates). The credit facility matures on March 30, 1998 and bears
interest at a monthly adjusted rate. The note is secured by the guarantee of
IFFC. As of September 30, 1997 and November 5, 1997, the outstanding balance on
the credit facility was $5,263 and $8,064, respectively.
As of February 23, 1994, IFFC terminated a credit facility created on
February 12, 1993 and entered into a new $1,000,000 credit facility with
AmerBank. The new credit facility was structured as a revolving credit facility
through May 31, 1994. During this initial period, draws could be made in minimum
increments of $40,000 to purchase, and are secured by, furniture, equipment and
related items for restaurants. During the initial period, interest accrued on
the outstanding balance at a rate of 12% per annum and was due and payable
quarterly. As of July 31, 1994, the outstanding balance under the credit
facility became due and payable at a rate of $90,000 plus interest every six
months with any principal outstanding as of April 30, 1996 immediately due and
payable. On November 7, 1996 AmerBank agreed to amend the credit facility so
that the outstanding principal balance becomes due and payable at a rate of
$100,000 on June 30, 1997 and $110,000 on September 30, 1997 plus interest every
six months. The balance of the credit facility was paid in full on September 30,
1997.
On February 16, 1996, IFFP entered into a $300,000 line of credit with
AmerBank, the proceeds of which may be used to finance IFFP's business
operations. Pursuant to the line of credit, IFFC could make draws on the line of
credit until September 30, 1996. IFFP is required to make interest payments on
the outstanding principal amount of the credit facility at AmerBank's prime
rate. IFFP is also obligated to pay AmerBank a 1% per annum commission on the
daily average unutilized principal balance of the credit facility. Interest and
commission expenses are payable monthly. The outstanding principal balance of
the loan is payable in three quarterly installments of $100,000 commencing on
March 31, 1998. The credit facility is secured by: (i) a promissory note of IFFP
and (ii) a guarantee of IFFC. The balance of the credit facility was paid in
full on September 9, 1997.
On May 30, 1994, IFFC's subsidiary, IFFP, entered into a credit facility
with Bank Handlowy Warszawie, S.A. ("Bank Handlowy") in the principal amount of
$10,000,000. Borrowings under the Bank Handlowy credit facility could be made
until May 31, 1997 and were secured by: (i) amounts on deposit with Bank
Handlowy; (ii) an unconditional guarantee of IFFC; (iii) the fixed assets of
IFFP; and (iv) a letter of credit (described below). Borrowings under the Bank
Handlowy credit facility were required be repaid in fourteen equal semi-annual
installments with the first installment due on November 30, 1997. Interest
accrued on the amount outstanding under the credit facility at the London
Interbank Offered Rate (LIBOR) for nine month deposits plus 3.875% per annum.
The proceeds could be used to finance up to forty percent (40%) of the costs of
furnishing and commencing operation of fast food restaurants operated by IFFP.
On December 13, 1995, the credit facility with Bank Handlowy was amended. The
principal amount of the credit facility was reduced to $1,000,000 and borrowings
under the credit facility were required to be repaid on December 16, 1996. The
maturity date and payment terms of the facility were further amended and
principal payments of $100,000 and $50,000 were made in December 1996 and
January 1997, respectively. The remaining principal balance is payable in
33
<PAGE>
quarterly installments of $100,000 commencing on March 31, 1997 through
September 30, 1997, with the remaining principal balance payable in full on
December 16, 1997. Borrowings under the amended credit facility are secured by:
(i) amounts on deposit with Bank Handlowy; (ii) an unconditional guarantee of
IFFC; (iii) fixed assets of IFFP having a value of $1,250,000; and (iv) a letter
of credit in the amount of $500,000. The Letter of Credit is valid until
December 30, 1997. The balance of the credit facility was paid in full on
September 9, 1997.
On May 19, 1997, IFFC entered into a $999,000 credit facility with
Totalbank which is collateralized by $999,990 of certificates of deposit. The
credit facility bears interest at 6.5% per annum and is due on May 19, 1998.
On August 12, 1997, the Company executed two credit agreements with the
American Bank in Poland ("Amerbank"). The first credit facility was in the
amount of $950,000. The purpose of this facility was to consolidate existing
debt owed to Amerbank totaling $300,000 with existing debt owed to Bank Handlowy
of $650,000. Pursuant to the terms of the new loan, interest is payable monthly
at the prevailing one month LIBOR rate plus 2.75%. Commencing in March 1998, the
loan is to be repaid in monthly installments of $32,000 for twenty nine months
with a balloon payment of $22,000 due at maturity (August 12, 2000). The loan is
secured by all existing restaurant assets and the guarantee of IFFC.
The second credit agreement is a development loan in the principal amount
of $1,500,000. The purpose of this loan is to provide partial credit for the
development of new Burger King restaurants. Borrowings under this credit
facility may be made until August 1999 and are secured by: (i) fixed assets of
each new restaurant financed; and (ii) a guarantee of IFFC. The loan is required
to be repaid in thirty five equal installments of $42,000 starting in September
1999 with a balloon payment of $30,000 due at maturity (August 12, 2002).
Interest is paid monthly at the prevailing one month LIBOR rate plus 2.5%.
According to the terms of the agreement, the proceeds of the loan could be used
to finance up to fifty percent (50%) of the costs of furnishing and commencing
operation of Burger King restaurants operated by IFFP. No advances have been
made on this facility.
IFFC has financed its operations in part through the use of proceeds
acquired in connection with a private offering of IFFP's equity capital. As of
December 14, 1994, Agros Holding S.A., a joint stock corporation which produces
agricultural products ("Agros"), acquired a 20% voting and property interest in
IFFP pursuant to a subscription agreement (the "Subscription Agreement"), dated
November 30, 1994, between IFFC and Agros. Agros purchased the 20% interest from
IFFP for the zloty equivalent of $2,000,000. On December 28, 1995, IFFC
increased its equity interest in IFFP from 80% to 85% by purchasing from Agros
5% (25% or the Agros holdings) of the outstanding capital stock of IFFP in
exchange for a $500,000 non-interest bearing obligation due in full on December
28, 1996. The obligation was paid in full in June 1997.
As of January 1, 1995, IFFC and IFFP entered into a five year consulting
agreement (the "IFFP Consulting Agreement") pursuant to which IFFC is to provide
IFFP consultation and advice with respect to the selection, design and equipping
of IFFC's offices and facilities, the maintenance of IFFP's financial records,
reporting to IFFP's Board of Directors, the procurement of financing, the
performance of cash management functions, the hiring of employees and officers,
the strategic planning of IFFP's business and the management of IFFP's business.
34
<PAGE>
The IFFP Consulting Agreement automatically renews for an additional year
unless terminated by either party. In exchange for its services, IFFC receives
from IFFP, on a monthly basis, the greater of (a) 5% of IFFP's Sales for the
month, or (b) $50,000 (the "Management Fee"). IFFC receives reimbursement for
all out-of-pocket expenses it incurs in connection with the fulfillment of its
obligations under the IFFP Consulting Agreement and any tax, duty or fee imposed
on the Management Fee.
IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS
The accounts of IFFP are measured using the Polish zloty. Due to Poland's
highly inflationary environment through December 31, 1995, generally accepted
accounting principles required IFFC to calculate and recognize on its statement
of operations its currency translation gains or losses associated with IFFP. Due
to the reduction in Polands inflation rate, effective for the year ended
December 31, 1996, IFFC was no longer required pursuant to generally accepted
accounting principles to recognize currency translation gains or losses in its
statement of operations.
The official currency in Poland is the zloty. The value of the zloty is
pegged pursuant to a system based on a basket of currencies, as well as all
other economic and political factors that effect the value of currencies
generally. As of January 1, 1995, the National Bank of Poland introduced a new
zloty (a "new zloty"). New zlotys are equivalent to 10,000 old zlotys ('old
zlotys"). At September 30, 1997, the exchange rate was 3.417 new zlotys per
dollar.
IFFC's restaurant operations are conducted in Poland. The Polish economy
has historically been characterized by high rates of inflation and devaluation
of the Polish zloty against the dollar and European currencies. However, in the
year ended December 31, 1996, the rates of inflation and devaluation improved.
For the years ended December 31, 1993, 1994, 1995 and 1996, the annual inflation
rate in Poland was 35%, 32%, 21.6% and 19.5%, respectively, and as of December
31, 1993, 1994, 1995 and 1996 the exchange rate was 2.134, 2.437, 2.468 and
2.872 new zlotys per dollar, respectively. Payment of interest and principal on
the Debentures and payment of franchise fees to BKC for each IFFC restaurant
opened are in United States currency. Additionally, IFFC is dependent on certain
sources of supply which require payment in European or United States currencies.
Since IFFC's revenues from operations will be in zlotys, IFFC is subject to the
risk of currency fluctuations. IFFC has and intends to maintain substantially
all of its unutilized funds in United States or Western European currency
denominated securities and/or European Currency Units. There can be no assurance
that IFFC will successfully manage its exposure to currency fluctuations or that
such fluctuations will not have a material adverse effect on IFFC.
Thus far, IFFC's revenues have been used to fund restaurant operations and
IFFC's expansion. As a result, such revenues have been relatively insulated from
inflationary conditionsin Poland. There can be no assurance that inflationary
conditions in Poland will not have an adverse effect on IFFC in the future.
35
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. LEGAL PROCEEDINGS
POLISH FISCAL AUTHORITY DISPUTES - As of July 1995, IFFC may have become
subject to penalties for failure to comply with a recently amended tax law
requiring the use of cash registers with certain calculating and recording
capabilities and which are approved for use by the Polish Fiscal Authorities.
Although IFFP's NCR Cash Register System (the "Cash Register System") is a
modern system, the System cannot be modified and will ultimately need to be
replaced in order to comply with the new tax law. IFFP is now in compliance with
the tax law using a parallel cash register system but was unable to modify
and/or replace its Cash Register System before July 1995. As a penalty for
noncompliance, Polish tax authorities may disallow certain VAT deductions for
July and August of 1995, which were previously deducted by IFFP. Additionally,
penalties and interest may be imposed on these disallowed deductions. IFFP
believes that its potential exposure is approximately $150,000, which amount has
been provided for in the accompanying financial statements. IFFP has requested a
final determination by the Polish Minister of Finance. The Company is unable to
predict the timing and nature of the Ministers ruling. IFFP has not yet made a
decision whether or not to replace its Cash Register System. IFFP believes a new
cash register system would cost approximately $250,000.
ROMANSKA - NINKOWIC ("RN") - In April 1997, RN filed suit in Voivodship
Court in Krakow, Poland against IFFP. RN alleged that IFFP owed RN approximately
266,831 PLN (approximately $78,000 at the September 30, 1997 exchange rate) in
final settlement for the construction of IFFP's Katowice restaurant.
On December 19, 1996, PKP was formally informed by the Voivodship court in
Warsaw that RN, PKP's former general contractor, had filed suit alleging that
PKP owed RN approximately 123,422 zlotys or (approximately $36,000 based on
September 30, 1997 exchange rates) plus interest from April 6, 1994.
On October 27, 1997, IFFP, PKP and RN settled their disputes. IFFP and PKP
agreed to pay RN $25,000 cash for full settlement of all claims.
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
The Company's Annual Shareholders' Meeting was held on August 18, 1997. At
the Annual Meeting, the Company's shareholders were asked to consider and vote
upon the following matters:
(1) The election of four members to the Company's Board of Directors to
serve until the Company's 1998 Annual Meeting of Shareholders or
until their successors are duly elected and qualified; and
(2) A proposal to approve an increase in the number of shares which may
be granted under the Company's 1993 Stock Option Plan from 600,000
shares to 2,000,000 shares (the "Amended Plan").
36
<PAGE>
The following four members of the Company's Board of Directors were duly
elected,
Director Votes for Votes against Votes withheld
- ---------------------- ------------- -------------- --------------
Mitchell Rubinson 14,786,940 0 35,282
Larry H. Schatz 14,786,940 0 35,282
James F. Martin 14,786,940 0 35,282
Dr. Mark Rabinowitz 14,786,940 0 35,282
The results of the vote on the Company's proposal to approve an increase in the
number of shares which may be granted under the Company's 1993 Stock Option Plan
from 600,000 shares to 2,000,000 shares (the "Amended Plan"), were as follows,
Votes for Votes against Abstentions Not voted
--------- ------------- ----------- ---------
14,518,377 87,036 3,700 213,109
ITEM 5. OTHER INFORMATION
On November 5, 1997, the Company sold approximately $27.5 million of 11%
convertible senior subordinated discount notes due 2007 in a private offering in
which BT Alex. Brown, Incorporated acted as placement agent. The Company
received net proceeds of approximately $17.8 million after expenses of $2.2
million associated with the offering. The Company announced such offering in a
press release dated November 10, 1997, a copy of which is attached hereto as an
exhibit and incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.01 Indenture dated November 5, 1997.
10.02 Securities Purchase Agreement dated November 5, 1997.
10.03 Registration Rights Agreement dated November 5, 1997.
10.04 Voting and Disposition Agreement dated November 5, 1997
22 Press Release dated November 10, 1997.
27 Financial Data Schedule (Electronic filing only)
(b) The following reports on Form 8-K were filed during the quarter ended on
September 30, 1997:
(i) On July 14, 1997, the Company filed a Form 8-K in connection with
the merger of Litigation Funding into IFFC.
(ii) On August 28, 1997, the Company filed a Form 8-K in connection with
the execution of a New Master Franchise Agreement between Domino's
Pizza and Krolewska Pizza, Sp. z o.o.
37
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act of
1934, International Fast Food has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
INTERNATIONAL FAST FOOD CORPORATION
DATE: November 12, 1997 By: /s/ Mitchell Rubinson
---------------------------------------------
Mitchell Rubinson, Chairman of the Board,
Chief Executive Officer and President
(Principal Executive Officer)
DATE: November 12, 1997 By: /s/ James Martin
---------------------------------------------
James Martin, Chief Financial Officer
(Principal Financial and Accounting Officer)
38
================================================================================
INTERNATIONAL FAST FOOD CORPORATION
as Issuer
AND
MARINE MIDLAND BANK
as Trustee
_____________
INDENTURE
Dated as of November 5, 1997
_____________
$27,536,000
Aggregate Stated Principal Amount at Maturity
11% Convertible Senior Subordinated Discount Notes due 2007
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1
DEFINITIONS AND RULES OF CONSTRUCTION........................................1
SECTION 1.01. DEFINITIONS................................................1
SECTION 1.02. OTHER DEFINITIONS.........................................16
SECTION 1.03. RULES OF CONSTRUCTION.....................................16
ARTICLE 2
THE SECURITIES..............................................................17
SECTION 2.01. FORM AND DATING...........................................17
SECTION 2.02. EXECUTION AND AUTHENTICATION..............................17
SECTION 2.03. REGISTRAR AND PAYING AGENT................................18
SECTION 2.04. PAYING AGENT TO HOLD ASSETS IN TRUST......................18
SECTION 2.05. HOLDER LISTS..............................................19
SECTION 2.06. TRANSFER AND EXCHANGE.....................................19
SECTION 2.07. REPLACEMENT SECURITIES....................................20
SECTION 2.08. OUTSTANDING SECURITIES....................................20
SECTION 2.09. TREASURY SECURITIES.......................................20
SECTION 2.10. TEMPORARY SECURITIES......................................21
SECTION 2.11. CANCELLATION..............................................21
SECTION 2.12. CUSIP NUMBER..............................................21
SECTION 2.13. DEPOSIT OF MONEYS.........................................21
SECTION 2.14. RECORD DATE...............................................22
ARTICLE 3
PURCHASE....................................................................22
SECTION 3.01. OFFER TO REPURCHASE.......................................22
SECTION 3.02. DEPOSIT OF PURCHASE PRICE.................................24
SECTION 3.03. DELIVERY OF SECURITIES AND PAYMENT OF
PURCHASE PRICE............................................24
SECTION 3.04. SECURITIES PURCHASED IN PART..............................24
ARTICLE 4
REDEMPTION..................................................................25
SECTION 4.02. NOTICES TO TRUSTEE........................................25
SECTION 4.03. SELECTION OF SECURITIES TO BE REDEEMED....................25
SECTION 4.04. NOTICE OF REDEMPTION......................................26
SECTION 4.05. EFFECT OF NOTICE OF REDEMPTION. ..........................27
SECTION 4.06. DEPOSIT OF REDEMPTION PRICE...............................28
SECTION 4.07. PAYMENT OF SECURITIES CALLED FOR REDEMPTION...............28
SECTION 4.08. SECURITIES REDEEMED IN PART. ............................28
i
<PAGE>
ARTICLE 5
COVENANTS...................................................................28
SECTION 5.01. PAYMENT OF SECURITIES.....................................28
SECTION 5.02. MAINTENANCE OF OFFICE OR AGENCY...........................29
SECTION 5.03. REPORTS AND OTHER COMMUNICATIONS..........................29
SECTION 5.04. COMPLIANCE CERTIFICATES...................................30
SECTION 5.05. TAXES.....................................................31
SECTION 5.06. WAIVER OF STAY, EXTENSION AND USURY LAWS..................31
SECTION 5.07 RESTRICTED PAYMENTS.......................................31
SECTION 5.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
RESTRICTED SUBSIDIARIES...................................33
SECTION 5.09 INCURRENCE OF INDEBTEDNESS ..............................34
SECTION 5.10. ASSET SALES...............................................35
SECTION 5.11. TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES.............36
SECTION 5.12. LIENS.....................................................37
SECTION 5.13. CONDUCT OF BUSINESS.......................................37
SECTION 5.14 CORPORATE EXISTENCE.......................................38
SECTION 5.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL................38
SECTION 5.16. STATUS AS INVESTMENT COMPANY..............................38
SECTION 5.17. DESIGNATION OF RESTRICTED SUBSIDIARY AS UNRESTRICTED
SUBSIDIARY; REDESIGNATION OF UNRESTRICTED SUBSIDIARY AS
RESTRICTED SUBSIDIARY ....................................39
SECTION 5.18. INTERNAL REVENUE SERVICE FILING AND
WITHHOLDING INFORMATION...................................39
SECTION 5.19. ISSUANCE AND SALE OF CAPITAL STOCK
OF RESTRICTED SUBSIDIARIES................................39
SECTION 5.20. ISSUANCES OF GUARANTEES
BY RESTRICTED SUBSIDIARIES................................40
SECTION 5.21. INCURRENCE OF SENIOR SUBORDINATED
INDEBTEDNESS. ............................................40
SECTION 5.22 ACCOUNTANTS...............................................40
SECTION 5.23 INSURANCE.................................................41
ARTICLE 6
SUCCESSORS..................................................................41
SECTION 6.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS..................41
SECTION 6.02. SUCCESSOR CORPORATION SUBSTITUTED.........................42
ii
<PAGE>
ARTICLE 7
DEFAULTS AND REMEDIES.......................................................42
SECTION 7.01. EVENTS OF DEFAULT.........................................42
SECTION 7.02. ACCELERATION..............................................44
SECTION 7.03. OTHER REMEDIES............................................45
SECTION 7.04. WAIVER OF PAST DEFAULTS...................................45
SECTION 7.05. CONTROL BY MAJORITY.......................................45
SECTION 7.06. LIMITATION ON SUITS.......................................46
SECTION 7.07. RIGHTS OF HOLDERS OF SECURITIES TO
RECEIVE PAYMENT...........................................46
SECTION 7.08. COLLECTION SUIT BY TRUSTEE................................46
SECTION 7.09. TRUSTEE MAY FILE PROOFS OF CLAIM..........................47
SECTION 7.10. PRIORITIES................................................47
SECTION 7.11. UNDERTAKING FOR COSTS.....................................48
ARTICLE 8
TRUSTEE.....................................................................48
SECTION 8.01. DUTIES OF TRUSTEE.........................................48
SECTION 8.02. RIGHTS OF TRUSTEE AND EACH AGENT..........................50
SECTION 8.03. INDIVIDUAL RIGHTS OF TRUSTEE..............................51
SECTION 8.04. DISCLAIMER OF TRUSTEE AND AGENTS..........................51
SECTION 8.05. NOTICE OF DEFAULT.........................................51
SECTION 8.06. REPORTS BY TRUSTEE TO HOLDERS.............................52
SECTION 8.07. COMPENSATION AND INDEMNITY................................52
SECTION 8.08. REPLACEMENT OF TRUSTEE....................................53
SECTION 8.09. SUCCESSOR TRUSTEE BY MERGER, ETC..........................54
SECTION 8.10. ELIGIBILITY; DISQUALIFICATION.............................54
SECTION 8.11. PREFERENTIAL COLLECTION OF
CLAIMS AGAINST THE COMPANY................................54
SECTION 8.12. AUTHENTICATING AGENTS.....................................55
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER............................................56
SECTION 9.01. WITHOUT CONSENT OF HOLDERS................................56
SECTION 9.02. WITH CONSENT OF HOLDERS...................................56
SECTION 9.03. REVOCATION AND EFFECT OF CONSENTS.........................57
SECTION 9.04. NOTATION ON OR EXCHANGE OF SECURITIES.....................58
SECTION 9.05. TRUSTEE TO SIGN AMENDMENTS, ETC...........................58
iii
<PAGE>
ARTICLE 10
SUBORDINATION...............................................................59
SECTION 10.01. SECURITIES SUBORDINATE TO SENIOR INDEBTEDNESS. ..........59
SECTION 10.02. NO PAYMENT ON SECURITIES IN CERTAIN
CIRCUMSTANCES.............................................59
SECTION 10.03. PAYMENT OVER OF PROCEEDS UPON
DISSOLUTION, ETC. .......................................60
SECTION 10.04. SUBROGATION OF HOLDERS TO RIGHTS OF HOLDERS OF
SENIOR INDEBTEDNESS. .....................................61
SECTION 10.05. OBLIGATIONS OF COMPANY UNCONDITIONAL. ...................62
SECTION 10.06. PAYMENTS MAY BE MADE PRIOR TO DISSOLUTION. ...............62
SECTION 10.07. NO WAIVER OF SUBORDINATION PROVISIONS. ..................62
SECTION 10.08. AUTHORIZATION TO TRUSTEE TO TAKE ACTION TO
EFFECTUATE SUBORDINATION. ...............................63
SECTION 10.09. SENIOR INDEBTEDNESS MAY BE RENEWED OR
EXTENDED, ETC. ..........................................63
SECTION 10.10. TRUSTEE TO HAVE NO FIDUCIARY DUTY TO HOLDERS OF
SENIOR INDEBTEDNESS.......................................63
SECTION 10.11. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR
INDEBTEDNESS. ...........................................63
SECTION 10.12. NOTICE TO TRUSTEE. ......................................64
SECTION 10.13. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF
LIQUIDATING AGENT. ......................................64
SECTION 10.14. NOT TO PREVENT EVENTS OF DEFAULT. .......................65
SECTION 10.15. TRUSTEE'S COMPENSATION NOT PREJUDICED. ..................65
ARTICLE 11
CONVERSION OF SECURITIES ...................................................65
SECTION 11.01. RIGHT TO CONVERT; MANDATORY CONVERSION. ..................65
SECTION 11.02. MECHANICS OF CONVERSION. ................................66
SECTION 11.03. ADJUSTMENT TO CONVERSION RATIO. .........................68
SECTION 11.04. NO FRACTIONAL SHARES. ...................................74
SECTION 11.05. RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE OF ASSETS. .........................................74
SECTION 11.06. SPECIFIC PERFORMANCE. ...................................74
SECTION 11.07 COMPANY TO RESERVE COMMON STOCK. .........................75
SECTION 11.08 RESPONSIBILITY OF TRUSTEE FOR CONVERSION
PROVISIONS................................................75
iv
<PAGE>
ARTICLE 12
MISCELLANEOUS...............................................................75
SECTION 12.01. NOTICES...................................................75
SECTION 12.02. CERTIFICATE AND OPINION AS TO CONDITIONS
PRECEDENT.................................................77
SECTION 12.03. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.............77
SECTION 12.04. RULES BY TRUSTEE AND AGENTS...............................78
SECTION 12.05. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS,
EMPLOYEES AND STOCKHOLDERS................................78
SECTION 12.06. GOVERNING LAW.............................................78
SECTION 12.07. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.............79
SECTION 12.08. SUCCESSORS................................................79
SECTION 12.09. SEVERABILITY..............................................79
SECTION 12.10. COUNTERPART ORIGINALS.....................................79
SECTION 12.11. TABLE OF CONTENTS, HEADINGS, ETC..........................79
EXHIBITS AND SCHEDULES
EXHIBIT A - FORM OF SECURITY
EXHIBIT B - ASSIGNMENT FORM
EXHIBIT C - TRANSFEREE CERTIFICATE FOR NON-QIB ACCREDITED
INVESTORS
SCHEDULE I - EXISTING INDEBTEDNESS
SCHEDULE II - EXISTING LIENS
SCHEDULE III - FORM OF CEO CERTIFICATION
</TABLE>
v
<PAGE>
INDENTURE dated as of November 5, 1997, between International Fast Food
Corporation, a Florida corporation (the "Company"), and Marine Midland Bank, as
trustee (the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of $27,536,000 aggregate stated principal
amount at maturity of the Company's 11% Convertible Senior Subordinated Discount
Notes due 2007 (the "Securities") issuable as provided in this Indenture. All
things necessary to make the Securities, when duly issued and executed by the
Company, and authenticated and delivered hereunder, the valid obligations of the
Company, and to make this Indenture a valid and binding agreement of the
Company, have been done.
The Company and the Trustee agree as follows for the benefit of each other
and for the equal and ratable benefit of the Holders of the Securities:
ARTICLE 1
DEFINITIONS AND RULES OF CONSTRUCTION
SECTION 1.01. DEFINITIONS.
"Accreted Value" is defined to mean, for any Specified Date, the amount
provided for each $1,000 principal amount at maturity of Securities:
(i) if the Specified Date occurs on one of the following dates (each a
"Semi-Annual Accrual Date"), the Accreted Value will equal the amount set forth
below for such Semi-Annual Accrual Date:
Semi-Annual Accrual Date Accreted Value
------------------------ --------------
April 30, 1998 . . . . . . . . . . . . . . . . $ 765.13
October 31, 1998 . . . . . . . . . . . . . . . 807.22
April 30, 1999 . . . . . . . . . . . . . . . . 851.61
October 31, 1999 . . . . . . . . . . . . . . . 898.45
April 30, 2000 . . . . . . . . . . . . . . . . 947.87
October 31, 2000 . . . . . . . . . . . . . . . 1,000.00
(ii) if the Specified Date occurs before the first Semi-Annual Accrual
Date, the Accreted Value will equal the sum of (a) the original issue price and
(b) an amount equal to the product of (1) the Accreted Value for the first
1
<PAGE>
Semi-Annual Accrual Date less the original issue price MULTIPLIED by (2) a
fraction, the numerator of which is the number of days from the Issue Date of
the Securities to the Specified Date, using a 360-day year of twelve 30-day
months, and the denominator of which is the number of days elapsed from the
Issue Date of the Securities to the first Semi-Annual Accrual Date, using a
360-day year of twelve 30-day months;
(iii)if the Specified Date occurs between two Semi-Annual Accrual Dates,
the Accreted Value will equal the sum of (a) the Accreted Value for the
Semi-Annual Accrual Date immediately preceding such Specified Date and (b) an
amount equal to the product of (1) the Accreted Value for the immediately
following Semi-Annual Accrual Date less the Accreted Value for the immediately
preceding Semi-Annual Accrual Date MULTIPLIED by (2) a fraction, the numerator
of which is the number of days from the immediately preceding Semi-Annual
Accrual Date to the Specified Date, using a 360-day year of twelve 30-day
months, and the denominator of which is 180; or
(iv) if the Specified Date occurs after the last Semi-Annual Accrual Date,
the Accreted Value will equal $1,000.
"Adjusted Consolidated Net Income" means, for any period, the aggregate
net income (or loss) of the Company and its Restricted Subsidiaries for such
period determined in conformity with GAAP; PROVIDED that the following items
shall be excluded in computing Adjusted Consolidated Net Income (without
duplication): (i) the net income of any Person (other than net income
attributable to a Restricted Subsidiary) in which any Person (other than the
Company or any of its Restricted Subsidiaries) has a joint interest and the net
income of any Unrestricted Subsidiary, except to the extent of the amount of
dividends or other distributions actually paid to the Company or any of its
Restricted Subsidiaries by such other Person during such period; (ii) the net
income of any Restricted Subsidiary to the extent (and only to the extent) that
the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by the
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Restricted Subsidiary; (iii) any gains or losses (on an after-tax basis)
attributable to Asset Sales; (iv) except for purposes of calculating the amount
of Restricted Payments that may be made pursuant to clause (C) of the first
paragraph of Section 5.07, any amount paid as, or accrued for, cash dividends on
Preferred Stock of the Company or any Restricted Subsidiary owned by Persons
other than the Company and any of its Restricted Subsidiaries; and (v) all
extraordinary gains and extraordinary losses or expenses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves) except to the extent
resulting from write-ups of capital assets (excluding write- ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its Restricted
Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
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intangibles (other than rights under the New BKC Development Agreement and the
New Domino's Master Franchise Agreement) all as set forth on the quarterly or
annual consolidated balance sheet of the Company and its Restricted
Subsidiaries, prepared in conformity with GAAP and most recently filed with the
Commission pursuant to Section 5.03. As used in this Indenture, references to
financial statements of the Company and its Restricted Subsidiaries shall be
adjusted to exclude Unrestricted Subsidiaries if the context requires.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, without correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" means any Registrar, Paying Agent, Authenticating Agent or
co-Registrar.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale leaseback transactions) in one transaction
or a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property or assets of the Company or any of its Restricted
Subsidiaries outside the ordinary course of business of the Company or such
Restricted Subsidiary and, in each case, that is not governed by Sections 5.10
and 6.01; PROVIDED that the following shall not be included within the meaning
of "Asset Sale": (A) sales or other dispositions of inventory, receivables and
other current assets; and (B) sales or other dispositions of equipment that has
become worn out, obsolete or damaged or otherwise unsuitable or unnecessary for
use in connection with the business of the Company or its Restricted
Subsidiaries,
"Authenticating Agent" means any Person authorized pursuant to Section
8.12 to act on behalf of the Trustee to authenticate Securities.
"Average Life" means, at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal, state
or foreign law for the relief of debtors.
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"Board of Directors" means the Board of Directors or any authorized
committee of the Board of Directors. Unless otherwise indicated, "Board of
Directors" shall mean the Board of Directors of the Company.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such certificate,
and delivered to the Trustee.
"Business Day" means any day other than a Legal Holiday.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether now outstanding or
issued after the date of this Indenture, including, without limitation, all
Common Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person; and "Capitalized
Lease Obligations" means the discounted present value of the rental obligations
under such lease.
"Change of Control" means such time as any of (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other
than the Permitted Investor, becomes the ultimate "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have beneficial ownership of all shares that such Person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time) of Voting Stock representing more than 50% of the total voting
power of the Voting Stock of the Company (on an undiluted basis), (ii) the
Permitted Investor shall beneficially own (as defined in clause (i) immediately
above) Voting Stock representing less than 40.0% of the total voting power of
the Voting Stock of the Company owned by the Permitted Investor as of the date
hereof, or (iii) Mr. Mitchell Rubinson shall cease (a) to be the principal
executive officer of the Company in charge of the management and policies of the
Company or (b) to devote substantially the same level of business time and
efforts to the business affairs of the Company and its Restricted Subsidiaries
as are devoted by him thereto as of the date hereof.
"Closing Date" means the date on which the Securities were originally
issued under this Indenture.
"Closing Price" shall have the meaning set forth in Section 11.03.
"Commission" means the Securities and Exchange Commission.
"Company" means International Fast Food Corporation, a Florida
corporation.
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"Common Stock" means the common stock, par value $.01 per share, of the
Company.
"Consolidated EBITDA" means, for any period, net cash from operating
activities as determined on a consolidated basis for the Company and its
Restricted Subsidiaries in conformity with GAAP; PROVIDED, HOWEVER, that when
used with respect to any Restricted Subsidiary, "Consolidated EBITDA" shall mean
the Consolidated EBITDA of such Restricted Subsidiary calculated in the manner
set forth above, and "Adjusted Consolidated Net Income" and "Consolidated
Interest Expense" shall be calculated with respect to such Restricted Subsidiary
on a consolidated basis.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness (including amortization of
original issue discount on any Indebtedness and the interest portion of any
deferred payment obligation, calculated in accordance with the effective
interest method of accounting; all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries) and all but the principal component of rentals in
respect of Capitalized Leased Obligations paid, accrued or scheduled to be paid
or to be accrued by the Company and its Restricted Subsidiaries during such
period.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity as set forth on the most recently available unaudited
quarterly or audited annual consolidated balance sheet of the Company and its
Restricted Subsidiaries required hereunder (which shall be as of a date not more
than 90 days prior to the date of such computation, and which shall not take
into account Unrestricted Subsidiaries), less any amounts attributable to
Redeemable Stock or any equity security convertible into or exchangeable for
indebtedness, the cost of treasury stock and the principal amount of any
promissory notes receivable from the sale of the Capital Stock of the Company or
any of its Restricted Subsidiaries, each item to be determined in conformity
with GAAP.
"Conversion Shares" means the shares of Common Stock issuable upon the
conversion of the Securities.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.01 hereof or such other address as to which the
Trustee may give notice to the Company.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Restricted Subsidiaries against fluctuations in currency
values to or under which the Company or any of its Restricted Subsidiaries is a
party or a beneficiary on the date of this Indenture or becomes a party or
beneficiary thereafter.
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"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" means any Indebtedness of the Company or any of
its Restricted Subsidiaries outstanding or available on the date of this
Indenture as set forth on Schedule I hereto.
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors (whose determinations shall be conclusive)
and evidenced by a Board Resolution.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect on the date of determination thereof, including, without
limitations, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession. All ratios and computations
contained in this Indenture shall be computed in conformity with GAAP applied on
a consistent basis.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreements to keep well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); PROVIDED that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Holder" means a Person in whose name a Security is registered.
"IFFP" shall have the meaning set forth in Section 5.07.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including, with respect to the Company and its Restricted Subsidiaries, an
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"incurrence" of Indebtedness by reason of a Person becoming a Restricted
Subsidiary of the Company; PROVIDED that neither the accrual of interest nor the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication, and whether or not contingent), (i) all
indebtedness of such Person for borrowed money; (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments
(whether negotiable or non-negotiable), (iii) all obligations of such Person in
respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
except current trade payables incurred in the ordinary course of business and
payable in accordance with customary practices, (v) all Capitalized Lease
Obligations of such Person, (vi) all liabilities secured by any Lien on any
property owned by such Person even if such Person has not assumed or otherwise
become liable for the payment thereof to the extent of the fair market value of
the property subject to such Liens, (vii) all Indebtedness of other Persons
Guaranteed by such Person to the extent such Indebtedness is Guaranteed by such
Person and (viii) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate Agreements. The amount
of Indebtedness of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and, with respect
to contingent obligations that are included in any of clauses (i) through (viii)
above, the maximum liability upon the occurrence of the contingency giving rise
to the obligation, PROVIDED (A) that the amount outstanding at any time of any
Indebtedness issued with original issue discount is the face amount of such
Indebtedness and (B) that Indebtedness shall not include any liability for
federal, state, local or other taxes except to the extent evidenced by an
instrument.
"Indenture" means this Indenture, as amended or supplemented from time to
time.
"Interest Payment Date" means each semi-annual interest payment date on
April 30 and October 31 of each year, commencing April 30, 2001.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement or other similar agreement or arrangement designed
to protect the Company or any of its Restricted Subsidiaries against
fluctuations in interest rates in respect of Indebtedness to or under which the
Company or any of its Restricted Subsidiaries is a party or a beneficiary on the
date of this Indenture or becomes a party or a beneficiary hereafter.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of the Company or its Restricted Subsidiaries) or capital
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contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair
market value of the Capital Stock held by the Company and the Restricted
Subsidiaries of any Person that has ceased to be a Restricted Subsidiary by
reason of any transaction permitted by clause (iii) of Section 5.19. For
purposes of the definition of "Unrestricted Subsidiary" and Section 5.07, (i)
"Investment" shall include the fair market value of the assets (net of
liabilities) of any Restricted Subsidiary of the Company at the time that such
Restricted Subsidiary of the Company is designated an Unrestricted Subsidiary
and shall exclude the fair market value of the assets (net of liabilities) of
any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary of the Company and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined by the
Board of Directors in good faith.
"Issue Date" means the Closing Date for the sale and original issuance of
the Securities under this Indenture.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof, any sale with recourse
against the seller or any Affiliate of the seller, or any agreement to give any
security interest).
"Maturity Date" means October 31, 2007.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of (i) reasonable and
customary brokerage commissions and other fees and expenses (including fees and
expenses of counsel and investment bankers) related to such Asset Sale, (ii)
provisions for all taxes that will actually be paid or are payable as a result
of such Asset Sale, without regard to the consolidated results of operations of
the Company and its Restricted Subsidiaries, taken as a whole, (iii) payments
made to repay Indebtedness or any other obligation outstanding at the time of
such Asset Sale that either (A) is secured by a Lien on the property or assets
sold or (B) is required to be paid as a result of such sale and (iv) appropriate
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amounts to be provided by the Company or any Restricted Subsidiary of the
Company as a cash reserve against any liabilities associated with such Asset
Sale, including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
determined in conformity with GAAP and (b) with respect to any issuance or sale
of Capital Stock, the proceeds of such issuance or sale in the form of cash or
cash equivalents, including payments in respect of deferred payment obligations
(to the extent corresponding to the principal, but not interest, component
thereof) when received in the form of cash or cash equivalents and proceeds from
the conversion of other property received when converted to cash or cash
equivalents, net of reasonable and customary attorney's fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees incurred in connection with such issuance or sale and
net of taxes paid or payable as a result thereof.
"New BKC Development Agreement" means the Restaurant Development
Agreement, dated as of March 14, 1997, by and between the Company and Burger
King Corporation.
"New Domino's Master Franchise Agreement" means the Master Franchise
Agreement, dated as of August 28, 1997, by and between Krolewska Pizza Sp.z.o.o.
and Domino's Pizza International, Inc.
"Offer to Purchase" means an offer to purchase Securities by the Company
from the Holders that is required by Sections 5.10 or 5.15 of this Indenture.
"Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary, any Assistant Secretary, any Vice President or any Assistant Vice
President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the Chief Executive
Officer, the President, the Chief Operating Officer or the Chief Financial
Officer of the Company that meets the requirements of Section 12.02 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee, that meets the requirements of Section 12.02 hereof.
The counsel may be an employee of or counsel to the Company or the Trustee.
"OTC Price" shall have the meaning set forth in Section 11.01(b).
"Other Indebtedness" means Indebtedness of the Company or any of its
Restricted Subsidiaries other than (a) the Securities and (b) any Existing
Indebtedness.
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"Paying Agent" has the meaning provided in Section 2.03, except that,
during the continuance of a Default or Event of Default and for the purposes of
Article 3 and Sections 5.10 and 5.15, the Paying Agent shall not be the Company
or any Affiliate of the Company.
"Payment Date" means the date of purchase, which shall be a Business Day
no earlier than 30 days nor later than 60 days from the date a notice is mailed
pursuant to an Offer to Purchase.
"Permitted Investment" means (i) an Investment in a Restricted Subsidiary
or a Person which will, upon the making of such Investment, become a Restricted
Subsidiary or be merged or consolidated with or into or transfer or convey all
or substantially all its assets to, the Company or a Restricted Subsidiary; (ii)
Temporary Cash Investments; (iii) payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses in accordance with GAAP; (iv) loans or advances to employees in an
aggregate principal amount not to exceed $250,000 at any one time outstanding;
(v) stock, obligations or securities received in satisfaction of judgments; (vi)
Investments, to the extent that the consideration provided by the Company or any
of its Restricted Subsidiaries consists solely of Capital Stock (other than
Redeemable Stock) of the Company issued at fair market value; and (vii) notes
payable to the Company that are received by the Company as payment of the
purchase price for Capital Stock (other than Redeemable Stock) of the Company.
"Permitted Investor" means Mr. Mitchell Rubinson, his spouse and any trust
for the benefit of the foregoing.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory or common law Liens of landlords and
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) Liens incurred or deposits
made to secure the performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of-money bonds and other obligations of a
similar nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money) and a bank's unexercised right of
set-off with respect to deposits made in the ordinary course; (v) assessments,
rights-of-way, municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of the Company or any of its
Restricted Subsidiaries; (vi) existing liens set forth on Schedule II to this
Indenture, (vii) Liens securing Indebtedness that has been refinanced or
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refunded as permitted under clause (iii) of the second paragraph of Section 5.09
to the extent that such refinanced or refunded Indebtedness was secured, (viii)
Liens on assets existing at the time of acquisition by the Company provided that
such Liens were not incurred in contemplation of such acquisition, (ix) Liens
(including extensions and renewals thereof) upon real or personal property
acquired after the Closing Date; provided that (a) such Lien is created solely
for the purpose of securing Indebtedness Incurred in accordance with Section
5.09, (1) to finance the cost (including the cost of improvement or
construction) of the item of property or assets subject thereto and such Lien is
created prior to, at the time of or within twelve months after the later of the
acquisition, the completion of construction or the commencement of full
operation of such property or (2) to refinance any Indebtedness previously so
secured, (b) the principal amount of the Indebtedness secured by such Lien does
not exceed 100% of such cost and (c) any such Lien shall not extend to or cover
any property or assets other than such item of property or assets and any
improvements on or associated with such item; (x) leases or subleases granted to
others that do not materially interfere with the ordinary course of business of
the Company and its Restricted Subsidiaries, taken as a whole; (xi) any interest
or title of a lessor in the property subject to any Capitalized Lease or
operating lease; (xii) Liens arising from filing Uniform Commercial Code (or
similar law in effect in Poland) financing statements regarding leases; (xiii)
Liens on property of, or on shares of stock or Indebtedness of, any corporation
existing at the time such corporation becomes, or becomes a part of, any
Restricted Subsidiary; PROVIDED that such Liens do not extend to or cover any
property or assets of the Company or any Restricted Subsidiary other than the
property or assets acquired; (xiv) Liens in favor of the Company or any
Restricted Subsidiary; (xv) Liens arising from the rendering of a final judgment
or order against the Company or any Restricted Subsidiary of the Company that
does not give rise to an Event of Default; (xvi) Liens securing reimbursement
obligations with respect to letters of credit that encumber documents and other
property relating to such letters of credit and the products and proceeds
thereof; (xvii) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods; (xviii) Liens encumbering customary initial deposits and
margin deposits, and other Liens that are either within the general parameters
customary in the industry and incurred in the ordinary course of business, in
each case, security Indebtedness under Interest Rate Agreements and Currency
Agreements and forward contracts, options, future contracts, futures options or
similar agreements or arrangements designed to protect the Company or any of its
Restricted Subsidiaries from fluctuations in the price of commodities; (xix)
Liens arising out of conditional sale, title retention, consignment or similar
arrangements for the sale of goods entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business in accordance with
the past practices of the Company and its Restricted Subsidiaries prior to the
Closing Date; (xx) Liens securing Indebtedness permitted under clause (i) of the
second paragraph under Section 5.09; and (xxi) Liens on or sales of receivables.
"Person" means an individual, corporation, partnership, joint venture,
association, limited liability company, joint-stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof (including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).
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"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's preferred or preference stock, whether
now outstanding or issued after the date of this Indenture, including, without
limitation, all series and classes of such preferred or preference stock.
"Redeemable Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Securities, (ii) redeemable at the option of the
holder of such class or series of Capital Stock at any time prior to the Stated
Maturity of the Securities (unless the redemption price is, at the Company's
option, without conditions precedent, payable solely in Common Stock (other than
Redeemable Stock) of the Company) or (iii) convertible into or exchangeable for
Capital Stock referred to in clause (i) or (ii) above or Indebtedness having a
scheduled maturity prior to the Stated Maturity of the Securities.
"Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which the Security is to be redeemed pursuant to this
Indenture.
"Registrar" has the meaning provided in Section 2.03.
"Registration Rights Agreement" means the Registration Rights Agreement by
and between the Company, the purchasers of the Securities and BT Alex. Brown
Incorporated, relating to the Securities and dated as of the Issue Date, as the
same may be amended, supplemented or modified from time to time in accordance
with the terms thereof.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Securities" means any of the Securities, as defined in the preamble
hereof, that are authenticated and delivered under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Register" has the meaning provided in Section 2.03.
"Senior Indebtedness" means with respect to the Company, the principal of
and interest on, and all other amounts owing in respect of, any Indebtedness
permitted to be incurred by the Company under the terms of this Indenture
(including, but not limited to, reasonable fees and expenses of counsel and all
other reasonable charges, fees and expenses incurred in connection with such
Indebtedness), unless the instrument creating or evidencing such Indebtedness or
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pursuant to which such Indebtedness is outstanding expressly provides that such
Indebtedness is on a parity with or subordinated in right of payment to the
Securities. Notwithstanding the foregoing, Senior Debt shall not include (i) any
Indebtedness for federal, state, local or other taxes, (ii) any Indebtedness
among or between the Company and/or any Restricted Subsidiary, (iii) any
Indebtedness incurred for the purchase of goods or materials, or for services
obtained, in the ordinary course of business or any Guarantees in respect of any
such Indebtedness, (iv) any Indebtedness that is incurred in violation of this
Indenture, (v) Indebtedness evidenced by the Securities, or (vi) Indebtedness of
a Person that is expressly subordinated or junior in right of payment to any
other Indebtedness of such Person. Senior Indebtedness will also include
interest accruing subsequent to events of bankruptcy of the Company and its
Subsidiaries at the rate provided for in the document governing such Senior
Indebtedness, whether or not such interest is an allowed claim enforceable
against the debtor in a bankruptcy case under the Bankruptcy Law.
"Senior Subordinated Obligations" is defined to mean any principal of,
premium, if any, or interest on the Securities payable pursuant to the terms of
the Securities or upon acceleration, to the extent relating to the purchase of
Securities or amounts corresponding to such principal, premium, if any, or
interest on the Securities.
"Shelf Registration Statement" means the registration statement as defined
and described in the Registration Rights Agreement.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary of the Company that, together with its Subsidiaries, (i)
for the most recent fiscal year of the Company, accounted for more than 10% of
the consolidated revenues of the Company and its Restricted Subsidiaries or (ii)
as to the end of such fiscal year, was the owner of more than 10% of the
Adjusted Consolidated Net Tangible Assets of the Company and its Restricted
Subsidiaries, all as set forth on the most recently available consolidated
financial statements of the Company for such fiscal year.
"Specified Date" means any redemption date, any date of purchase for any
purchase of Securities pursuant to Sections 5.10 or 5.15, any date of conversion
or exchange of Securities or any date on which the Securities are due and
payable after an Event of Default.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which Voting Stock representing more
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than 50% of the voting power of the outstanding Voting Stock is owned, directly
or indirectly, by such Person and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States or any agency thereof or obligations fully and
unconditionally guaranteed by the United States or any agency thereof; (ii) time
deposit accounts, certificates of deposits and money market deposits maturing
within 90 days of the date of acquisition thereof issued by a bank or trust
company which is organized under the laws of the United States, any state
thereof or territory or any foreign country that is a member of the Organization
of Economic Cooperation and Development and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $100 million (or
the foreign currency thereof) and has outstanding debt which is rated "A" (or
such similar equivalent rating) or higher by Moody's Investors Service, Inc. or
Standard and Poor's Ratings Group or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor, (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above; (iv) commercial paper, maturing
not more than 90 days after the date of acquisition, issued by a corporation
(other than an Affiliate of the Company) organized and in existence under the
laws of the United States, any state thereof or any foreign country recognized
by the United States with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's Investors Service,
Inc. or "A-1" (or higher) according to Standard & Poor's Ratings Group; and (v)
securities with maturities of six months or less from the date of acquisition
issued or fully and unconditionally guaranteed by any state, commonwealth or
territory of the United States, or by any political subdivision or taxing
authority thereof, and rated at least "A" by Standard & Poor's Ratings Group or
Moody's Investors Service, Inc.
"TIA" means the Trust Indenture Act of 1939, as amended (15 U.S. Code
ss.ss. 77aaa - 77bbbb), as in effect on the date this Indenture was executed.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock of the Company is listed or admitted to
trading is open for the transaction of business, or, if the Common Stock of the
Company is not listed or admitted to trading on any national securities
exchange, a day on which the NASDAQ National or Small Cap Market System (or any
successor thereto) or such other system then in use is open for the transaction
of business, or, if the Common Stock of the Company is not quoted by any such
organization, any day other than a Saturday, Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness (including, without limitation, Senior Indebtedness) by the Company
or any of its Restricted Subsidiaries, the date such Indebtedness is to be
incurred and, with respect to any Restricted Payment, the date such Restricted
Payment is to be made.
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"Trustee" means the party named as such above until a successor replaces
it in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.
"Trust Officer" means any officer or assistant officer of the Trustee
assigned by the Trustee to administer its corporate trust matters or, in the
case of a successor trustee, an officer assigned to the department, division or
group performing the corporate trust work of such successor.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company), other than a Subsidiary that has become a guarantor,
to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock
of, or owns or holds any Lien on any property of, the Company or any Restricted
Subsidiary; PROVIDED that neither the Company nor its Restricted Subsidiaries
has any Guarantee of any Indebtedness of such Subsidiary outstanding at the time
of such designation and either (A) the Subsidiary to be so designated has total
assets of $1,000 or less or (B) if such Subsidiary has assets greater than
$1,000, that such designation would be permitted under Section 5.07. The Board
of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of the Company; PROVIDED that immediately after giving effect to such
designation (x) the Company could incur $1.00 of additional Indebtedness under
the first paragraph of Section 5.09 and (y) no Default or Event of Default shall
have occurred and be continuing. Any such designation by the Board of Directors
shall be evidenced to the Trustee by promptly filing with the Trustee a copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"U.S. Government Obligations" means direct obligations of, and obligations
guaranteed by, the United States of America for the payment of which the full
faith and credit of the United States of America is pledged.
"U.S. legal tender" means such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
"Voting Stock" means with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, such
Subsidiary if all of the outstanding Capital Stock in such Subsidiary (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) is owned by such Person or one or more Wholly Owned
Subsidiaries of such Person.
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SECTION 1.02. OTHER DEFINITIONS.
Term Defined In Section
---- ------------------
"BBS" 11.01
"Conversion Ratio" 11.01
"Current Market Price" 11.03
"Distribution Securities" 11.03
"Expiration Time" 11.03
"Event of Default" 6.07
"Excess Proceeds" 5.10
"Guaranteed Indebtedness" 5.20
"Market Criteria" 11.01
"Market Criteria Period" 11.01
"Payment Blockage Period" 10.02
"Protected Property" 5.12
"Purchased Shares" 11.03
"Record Date" 11.03
"Restricted Subsidiary Indebtedness" 5.09
"Subsidiary Guarantee" 5.20
SECTION 1.03. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;
(3) "OR" is not exclusive;
(4) words in the singular include the plural, and in the plural include
the singular;
(5) provisions apply to successive events and transactions;
(6) "herein", "hereof" and words of similar import refer to this Indenture
as a whole and not to any particular Article, Section or other subdivision; and
(7) references to sections of or rules under the Securities Act shall be
deemed to include substitute, replacement or successor sections or rules adopted
by the SEC from time to time.
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ARTICLE 2
THE SECURITIES
SECTION 2.01. FORM AND DATING.
The Securities and the notation relating to the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A. The Securities
may have notations, legends or endorsements required by law, stock exchange rule
or usage. The Company and the Trustee shall approve the form of the Securities
and any notation, legend or endorsement on them. Each Security shall be dated
the date of its issuance and shall show the date of its authentication.
The terms and provisions contained in the Securities, annexed hereto as
Exhibit A, shall constitute, and are hereby expressly made, a part of this
Indenture and, to the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers, or an Officer and an Assistant Secretary, shall sign, or one
Officer shall sign and one Officer or an Assistant Secretary (each of whom
shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to, the Securities for the Company by manual or facsimile
signature. The Company's seal shall also be reproduced on the Securities and may
be in facsimile form.
If an Officer or Assistant Secretary whose signature is on a Security was
an Officer or Assistant Secretary at the time of such execution but no longer
holds that office or position at the time the Trustee authenticates the
Security, the Security shall nevertheless be valid.
A Security shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Security. The signature
shall be conclusive evidence that the Security has been authenticated under this
Indenture.
The Trustee shall authenticate Securities for original issue in the
aggregate stated principal amount at maturity of $27,536,000 upon receipt of a
written order of the Company in the form of an Officers' Certificate (which need
not comply with Sections 12.02 and 12.03). The Officers' Certificate shall
specify the amount of Securities to be authenticated, the date on which the
Securities are to be authenticated and such other information as the Trustee may
reasonably request. The aggregate stated principal amount at maturity of
Securities outstanding at any time may not exceed $27,536,000, except as
provided in Section 2.07. Upon receipt of a written order of the Company, the
Trustee shall authenticate Securities in substitution of Securities originally
issued to reflect any name change of the Company.
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The Trustee may appoint an authenticating agent (an "Authenticating
Agent") reasonably acceptable to the Company to authenticate the Securities.
Unless otherwise provided in the appointment, an Authenticating Agent may
authenticate Securities whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
agent. An Authenticating Agent has the same rights as an Agent to deal with the
Company and Affiliates of the Company. The Trustee hereby appoints Bankers Trust
Company to be the Authenticating Agent on the Issue Date.
The Securities shall be issuable in fully registered form only, without
coupons, in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency (which shall be located in
the Borough of Manhattan in the City of New York, State of New York), where (a)
Securities may be presented or surrendered for registration of transfer or for
exchange ("Registrar"), (b) Securities may be presented or surrendered for
payment ("Paying Agent") and (c) notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served. The Registrar shall
keep a register of the Securities and of their transfer and exchange (the
"Security Register"). The Company, upon notice to the Trustee, may have one or
more co-Registrars and one or more additional paying agents reasonably
acceptable to the Trustee. The term "Paying Agent" includes any additional
paying agent. The Company upon notice to the Trustee may change any Registrar or
Paying Agent without notice to any Holder. The Company may act as Registrar or
Paying Agent, except that for purposes of Article 3 and Sections 5.10 and 5.15,
the Paying Agent shall not be the Company or any Affiliate of the Company.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall notify
the Trustee, in advance, of the name and address of any such Agent. If the
Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as
such.
The Company initially appoints Bankers Trust Company at 4 Albany Street,
New York, New York 10006, as Registrar and Paying Agent until such time as such
Agent has resigned or a successor has been appointed.
SECTION 2.04. PAYING AGENT TO HOLD ASSETS IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
the Holders or the Trustee all assets held by the Paying Agent for the payment
of principal of, or premium, if any, and interest on, the Securities, and shall
notify the Trustee of any Default by the Company in making any such payment. The
Company, upon written direction to the Paying Agent, at any time may require a
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Paying Agent to distribute all assets held by it to the Trustee and account for
any assets disbursed and the Trustee may at any time during the continuance of
any payment Default, upon written request to a Paying Agent, require such Paying
Agent to distribute all assets held by it to the Trustee and to account for any
assets distributed. Upon distribution to the Trustee of all assets that shall
have been delivered by the Company to the Paying Agent and the completion of any
accounting required to be made hereunder, the Paying Agent shall have no further
liability for such assets.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders. If the Trustee is not the Registrar, the Company shall furnish to
the Trustee at such times as the Trustee may request in writing, and in any
event in intervals of not more than six months commencing on the Issue Date, a
list in such form and as of such date as the Trustee may reasonably require of
the names and addresses of the Holders, including the aggregate principal amount
of the Securities held by each thereof, which list may be conclusively relied
upon by the Trustee.
SECTION 2.06. TRANSFER AND EXCHANGE.
When Securities are presented to the Registrar or a co-Registrar with a
request to register the transfer of such Securities or to exchange such
Securities for an equal principal amount of Securities of other authorized
denominations, the Registrar or co-Registrar shall register the transfer or make
the exchange as requested if its requirements for such transaction are met;
PROVIDED, HOWEVER, that the Securities surrendered for transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer in the
form of Exhibit B hereto, duly executed by the Holder thereof or his attorney
duly authorized in writing and be accompanied by a certificate in the form of
Exhibit C hereto completed by the proposed transferee. In connection with any
transfers of Securities, each Holder agrees by its acceptance of the Securities
to furnish the Registrar and the Company such certifications, legal opinions or
other information as the Registrar or the Company may reasonably request to
confirm that such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act;
PROVIDED, that the Registrar shall not be required to determine (but may rely on
a determination made by the Company with respect to) the sufficiency of such
certifications, legal opinions or other information. To permit registration of
transfers and exchanges, the Company shall execute and the Trustee shall
authenticate Securities at the Registrar's or co- Registrar's written request.
No service charge shall be made for any registration of transfer or exchange,
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 taxes or other governmental charge payable upon exchanges or
transfers pursuant to Section 2.02, 2.10, 3.04, 5.10, 5.15 or 9.04). The
Registrar or co-Registrar shall not be required to register the transfer of or
exchange of any Security during an Offer to Purchase if such Security is
tendered pursuant to such Offer to Purchase and not withdrawn.
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SECTION 2.07. REPLACEMENT SECURITIES.
If a mutilated Security is surrendered to the Trustee or if the Holder of
a Security claims that the Security has been lost, destroyed or wrongfully
taken, the Company shall issue and the Trustee shall authenticate a replacement
Security if the Trustee's requirements are met. Such Holder must provide an
indemnity bond or other indemnity sufficient, in the judgment of the Company and
the Trustee, to protect the Company, the Trustee or any Agent from any loss
which any of them may suffer if a Security is replaced. The Company may charge
such Holder for its reasonable out-of-pocket expenses in replacing a Security,
including reasonable fees and expenses of counsel. Every replacement Security
shall constitute an additional obligation of the Company.
SECTION 2.08. OUTSTANDING SECURITIES.
Securities outstanding at any time are all the Securities that have been
authenticated by the Trustee except those canceled by the Trustee, those
delivered to it for cancellation and those described in this Section as not
outstanding. Subject to Section 2.09, a Security does not cease to be
outstanding because the Company or any of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than a mutilated
Security surrendered for replacement), it ceases to be outstanding unless the
Trustee receives proof satisfactory to it that the replaced Security is held by
a BONA FIDE purchaser. A mutilated Security ceases to be outstanding upon
surrender of such Security and replacement thereof pursuant to Section 2.07.
If the principal amount of any Security is considered paid under Section
5.01, it ceases to be outstanding and interest ceases to accrue.
If on the Maturity Date the Paying Agent holds money in immediately
available funds and designated for and sufficient to pay all of the principal
of, and premium, if any, and interest due on the Securities payable on that date
and is not prohibited from paying such money to the Holders thereof pursuant to
the terms of this Indenture, then on and after that date such Securities cease
to be outstanding and interest on them ceases to accrue.
SECTION 2.09. TREASURY SECURITIES.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver, consent or notice,
Securities owned by the Company or an Affiliate of the Company shall be
considered as though they are not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any direction,
waiver or consent, only Securities which the Trustee actually knows are so owned
shall be so considered. The Company shall notify the Trustee, in writing, when
it or any of its Affiliates repurchases or otherwise acquires Securities and of
the aggregate principal amount of such Securities so repurchased or otherwise
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acquired. The Trustee may require an Officers' Certificate listing Securities
owned by the Company, a Subsidiary of the Company or any Affiliate of the
Company.
SECTION 2.10. TEMPORARY SECURITIES.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities upon receipt of
a written order of the Company in the form of an Officers' Certificate. The
Officers' Certificate shall specify the amount of temporary Securities to be
authenticated and the date on which the temporary Securities are to be
authenticated. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and execute, and the Trustee shall authenticate upon receipt of a
written order of the Company in the form of an Officers' Certificate in
accordance with Section 2.02, definitive Securities in exchange for temporary
Securities.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee or, at the direction of the Trustee, the Registrar or the Paying Agent,
and no one else, shall cancel and, at the written direction of the Company,
shall dispose of (subject to the record retention requirements of the Exchange
Act) (but shall not be required to destroy) all Securities surrendered for
transfer, exchange, payment or cancellation. Subject to Section 2.07, the
Company may not issue new Securities to replace Securities that the Company has
paid or delivered to the Trustee for cancellation. If the Company shall acquire
any of the Securities, such acquisition shall not operate as a redemption or
satisfaction of the Indebtedness represented by such Securities unless and until
the same are surrendered to the Trustee for cancellation pursuant to this
Section 2.11.
SECTION 2.12. CUSIP NUMBER.
The Company in issuing the Securities may use a "CUSIP" or other
identification number, and if so, the Trustee shall use the CUSIP or other
identification number in notices of redemption or other notices 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 Securities, and that reliance may be placed only on the other
identification numbers printed on the Securities.
SECTION 2.13. DEPOSIT OF MONEYS.
Prior to 11:00 a.m. New York City time on the Business Day preceding the
Maturity Date, the Company shall deposit with the Paying Agent in immediately
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available funds money sufficient to make cash payments, if any, due on the
Maturity Date, in a timely manner which permits the Paying Agent to remit
payment to the Holders on the Maturity Date.
SECTION 2.14. RECORD DATE.
The record date for purposes of determining the identity of Holders of the
Securities entitled to vote or consent to any action by vote or consent
authorized or permitted under this Indenture shall be determined as provided for
in Section 9.03.
ARTICLE 3
PURCHASE
SECTION 3.01. OFFER TO REPURCHASE.
In the event that, pursuant to Sections 5.10 or 5.15 hereof, the Company
shall be required to commence an Offer to Purchase, it shall follow the
procedures specified below.
The Company shall send, by first class mail, a notice of such Offer to
Purchase to the Trustee and each of the Holders which shall contain all
instructions and materials necessary to enable such Holders to tender Securities
pursuant to such Offer to Purchase. The notice of Offer to Purchase, which shall
govern the terms of the Offer to Purchase, shall state:
(a) that the Offer to Purchase is being made pursuant to this
Section 3.01 and Section 5.10 or 5.15 hereof, as applicable, the length of
time that such Offer to Purchase shall remain open and that all Securities
validly tendered will be accepted for payment on a pro rata basis;
(b) the purchase price and the Payment Date;
(c) that any Security not tendered or accepted for payment shall
continue to accrue interest pursuant to its terms;
(d) that, unless the Company defaults in payment of the purchase
price, any Security accepted for payment pursuant to an Offer to Purchase
shall cease to accrue interest on or after the Payment Date;
(e) that Holders electing to have a Security purchased pursuant to
any Offer to Purchase shall be required to surrender the Security together
with the form entitled "Option of the Holder to Elect Purchase" on the
reverse side of the Security completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the Business Day
immediately preceding the Payment Date;
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(f) that Holders shall be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the date of
the Offer to Purchase, a telegram, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of Securities
the Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Securities purchased;
(g) that Holders whose Securities are being purchased only in part
shall be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered, which unpurchased
portion must be equal to $1,000 in principal amount or an integral
multiple thereof; and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
Without limiting the foregoing, the notice shall also contain information
concerning the business of the Company and its Restricted Subsidiaries which the
Company in good faith believes will enable such Holders to make an informed
decision with respect to the Offer to Purchase which at a minimum will include
(i) the most recent annual and quarterly financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in the documents required to be supplied to the Trustee pursuant to
Section 5.03 (which requirements may be satisfied by delivery of such documents
together with the notice), (ii) a description of material developments in the
Company's business subsequent to the date of the latest of such financial
statements referred to in clause (i) (including a description of the events
requiring the Company to make the Offer to Purchase), (iii) if applicable,
appropriate pro forma financial information concerning the Offer to Purchase and
the events requiring the Company to make the Offer to Purchase and (iv) any
other information required by applicable law to be included therein.
At the Company's request, the Trustee shall give the notice of Offer to
Purchase in the Company's name and at its expense; PROVIDED, HOWEVER, that the
Company shall have delivered to the Trustee, at least 30 days prior to the Offer
to Purchase, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
The Trustee shall act as Paying Agent for an Offer to Purchase. The
Company shall comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of Securities
in connection with an Offer to Purchase. To the extent that the provisions of
any securities laws and regulations conflict with the Offer to Purchase
provisions of this Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Indenture by virtue thereof.
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SECTION 3.02. DEPOSIT OF PURCHASE PRICE.
On or prior to the Payment Date, the Company shall (i) accept for payment
on a pro rata basis Securities or portions thereof tendered pursuant to an Offer
to Purchase; (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Securities or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee all Securities or portions
thereof accepted together with any Officers' Certificate specifying the
Securities or portions thereof so accepted for payment by the Company. The
Paying Agent shall promptly return to the Company any money deposited with the
Paying Agent by the Company in excess of the amounts necessary to pay the
purchase price of all Securities purchased.
If the Company complies with the provisions of the preceding paragraph, on
and after the Payment Date, the Securities or the portions of Securities to be
purchased in accordance with the provisions of this Indenture shall cease to
accrete.
SECTION 3.03. DELIVERY OF SECURITIES AND PAYMENT OF PURCHASE PRICE.
On the Payment Date, the Company shall deliver or cause to be delivered to
the Trustee the Securities or portions thereof so accepted on a pro rata basis
together with an Officers' Certificate stating the aggregate principal amount of
Securities or portions thereof being purchased by the Company and that such
securities were accepted for purchase by the Company in accordance with the
terms of Section 3.01 hereof. The Paying Agent shall promptly mail or deliver to
each tendering Holder an amount equal to the purchase price of the Securities
tendered by such Holder and accepted by the Company for purchase, and the
Company shall promptly issue a new Security, and the Trustee, upon written
request from the Company, shall promptly authenticate and mail or deliver such
new Security to such Holder, in a principal amount equal to any unpurchased
portion of the Security surrendered, if any, PROVIDED, that each such new
Security shall be in a principal amount of $1,000 or an integral multiple
thereof. Any Security not so accepted shall be promptly mailed or delivered by
the Company to the Holder thereof. The Company shall publicly announce the
results of an Offer to Purchase as soon as practicable after the Payment Date.
SECTION 3.04. SECURITIES PURCHASED IN PART.
Upon surrender of a Security that is purchased in part, the Company shall
issue, and upon the Company's written request, the Trustee shall promptly
authenticate for the Holder at the expense of the Company a new Security equal
in principal amount to the unpurchased portion of the Security surrendered.
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ARTICLE 4
REDEMPTION.
SECTION 4.01. RIGHT OF REDEMPTION
The Securities will be redeemable, at the Company's option, in whole or
in part, at any time or from time to time, on or after October 31, 2002 and
prior to maturity, upon not less than 30 nor more than 60 days' prior notice
mailed by first-class mail to each Holder at the following Redemption Prices
(expressed in percentages of the Accreted Value thereof) plus accrued and unpaid
interest, if any, to the Redemption Date (subject to the right of Holders on the
relevant record date that is on or prior to the Redemption Date to receive
interest due on an Interest Payment Date), if redeemed during the 12-month
period commencing October 31, of the year set forth below:
Year Redemption Price
---- ----------------
2002 105.500%
2003 104.000%
2004 102.500%
2005 101.000%
2006 and thereafter 100.000%
SECTION 4.02. NOTICES TO TRUSTEE.
If the Company elects to redeem Securities pursuant to Section 4.01, it
shall notify the Trustee in writing of the Redemption Date and the principal
amount at maturity of Securities to be redeemed plus interest accrued and
premium due thereon, if any, to the Redemption Date.
The Company shall give each notice provided for in this Section 4.02 in an
Officers' Certificate at least five Business Days before mailing the notice to
Holders referred to in Section 4.01.
SECTION 4.03. SELECTION OF SECURITIES TO BE REDEEMED.
If less than all of the Securities are to be redeemed at any time, the
Trustee shall select the Securities to be redeemed in compliance with the
requirements, as certified to it by the Company, of the principal national
securities exchange, if any, on which the Securities are listed or, if the
Securities are not listed on a national securities exchange, on a pro rata
basis, by lot or by such other method as the Trustee in its sole discretion
shall deem fair and appropriate; PROVIDED, HOWEVER, that no Securities of $1,000
in principal amount at maturity or less shall be redeemed in part.
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The Trustee shall make the selection from the Securities outstanding and
not previously called for redemption. Securities in denominations of $1,000 in
principal amount at maturity may only be redeemed in whole. The Trustee may
select for redemption portions (equal to $1,000 in principal amount at maturity
or any integral multiple thereof) of Securities that have denominations larger
than $1,000 in principal amount at maturity. Provisions of this Indenture that
apply to Securities called for redemption also apply to portions of Securities
called for redemption. The Trustee shall notify the Company and the Registrar
promptly in writing of the Securities or portions of Securities to be called for
redemption.
If after a Security has been selected for partial redemption such Security
is converted in part into Conversion Shares, the converted portion of such
Security shall be deemed (insofar as it may be) to be the portion selected for
redemption. The Securities (or portions thereof) so selected shall be deemed
duly selected for redemption for all purposes hereof, notwithstanding that any
such Security is converted into Conversion Shares in whole or in part before the
notice of redemption is mailed.
Upon any redemption of less than all of the Securities, the Company and
the Trustee may treat as outstanding any Securities surrendered for conversion
during the period that is 15 days preceding the date a notice of redemption is
mailed and are not required to treat as outstanding any Security authenticated
and delivered during such period in exchange for the unconverted portion of any
Security converted in part during such period.
SECTION 4.04. NOTICE OF REDEMPTION.
With respect to any redemption of Securities pursuant to Section 4.01, at
least 30 days but not more than 60 days before a Redemption Date, the Company
shall mail a notice of redemption by first class mail to each Holder whose
Securities are to be redeemed.
The notice shall identify the Securities to be redeemed and shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) the current Conversion Price and the date on which the right to
convert such Securities or portions thereof into Conversion Shares
shall expire (which date shall be the close of business on the
Trading Day next preceding such Redemption Date unless the Company
defaults in payment of the Redemption Price);
(d) the name and address of the Paying Agent;
(e) that Securities called for redemption must be surrendered to the
Paying Agent in order to collect the Redemption Price;
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(f) that, unless the Company defaults in making such redemption
payment, interest on Securities called for redemption ceases to
accrue on and after the Redemption Date and the only remaining right
of the Holders is to receive payment of the Redemption Price plus
accrued interest to the Redemption Date upon surrender of the
Securities to the Paying Agent;
(g) that, if any Security is being redeemed in part, the portion of
the principal amount at maturity (equal to $1,000 in principal
amount at maturity or any integral multiple thereof) of such
Security to be redeemed and that, on and after the Redemption Date,
upon surrender of such Security, a new Security or Securities in
principal amount at maturity equal to the unredeemed portion thereof
will be reissued; and
(h) that, if any Security contains a CUSIP or other identification
number as provided in Section 2.12, no representation is being made
as to the correctness of the CUSIP or other identification number
either as printed on the Securities or as contained in the notice of
redemption and that reliance may be placed only on the other
identification numbers printed on the Securities.
At the Company's request (which request may be revoked by the Company at
any time prior to the time at which the Trustee shall have given such notice to
the Holders), made in writing to the Trustee at least five Business Days before
mailing the notice to Holders referred to in Section 4.01, the Trustee shall
give such notice of redemption in the name and at the expense of the Company.
If, however, the Company gives such notice to the Holders, the Company shall
concurrently deliver to the Trustee an Officers' Certificate stating that such
notice has been given.
SECTION 4.05. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed, Securities called for redemption,
unless converted to Conversion Shares in accordance with the terms hereof,
become due and payable on the Redemption Date and at the Redemption Price. Upon
surrender of any Securities to the Paying Agent, such Securities shall be paid
at the Redemption Price, plus accrued interest, if any, to the Redemption Date.
Notice of redemption shall be deemed to be given when mailed, whether or
not the Holder receives the notice. In any event, failure to give such notice,
or any defect therein, shall not affect the validity of the proceedings for the
redemption of Securities held by Holders to whom such notice was properly given.
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SECTION 4.06. DEPOSIT OF REDEMPTION PRICE.
On or prior to any Redemption Date, the Company shall deposit with the
Paying Agent money sufficient to pay the Redemption Price of and accrued
interest, if any, on all Securities to be redeemed on that date other than
Securities or portions thereof called for redemption on that date that (a) have
been delivered by the Company to the Trustee for cancellation or (b) have been
surrendered for conversion into Conversion Shares.
SECTION 4.07. PAYMENT OF SECURITIES CALLED FOR REDEMPTION.
If notice of redemption has been given in the manner provided above, the
Securities or portion of Securities specified in such notice to be redeemed
shall, unless converted to Conversion Shares in accordance with the terms
hereof, become due and payable on the Redemption Date at the Redemption Price
stated herein, together with accrued interest, if any, to such Redemption Date,
and on and after such date (unless the Company shall default in the payment of
such Securities at the Redemption Price and accrued interest to the Redemption
Date, in which case the principal, until paid, shall bear interest from the
Redemption Date at the rate prescribed in the Securities), such Securities shall
cease to accrue interest. Such Securities shall no longer be convertible into
Conversion Shares at the close of business on the Trading Day next preceding
such Redemption Date. Upon surrender of any Security for redemption in
accordance with a notice of redemption, such Security shall be paid and redeemed
by the Company at the Redemption Price, together with accrued interest, if any,
to the Redemption Date; PROVIDED that installments of interest whose Stated
Maturity is on or prior to the Redemption Date shall be payable to the Holders
registered as such at the close of business on the relevant record date.
SECTION 4.08. SECURITIES REDEEMED IN PART.
Upon surrender of any Security that is redeemed in part, the Company shall
execute and the Trustee shall authenticate and deliver to the Holder a new
Security equal in principal amount at maturity to the unredeemed portion of such
surrendered Security.
ARTICLE 5
COVENANTS
SECTION 5.01. PAYMENT OF SECURITIES.
The Company shall pay or cause to be paid the principal of, and premium,
if any, and interest on the Securities on the dates and in the manner provided
in the Securities. Principal, and premium, if any, and interest shall be
considered paid on the date due if the Trustee or Paying Agent, if other than
the Company, holds as of 10:00 a.m. New York City time on the due date money
deposited by the Company in immediately available funds and designated for and
sufficient to pay all principal, and premium, if any, and interest then due, and
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the Trustee or Paying Agent is not prohibited from paying such money to the
Holders in accordance with the terms of this Indenture.
The Company shall pay, to the extent such payments are lawful, interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue principal and premium from time to time on demand at the rate borne by
the Securities plus 2% per annum. Interest shall be computed on the basis of a
360-day year comprised of twelve 30-day months.
The Company shall pay interest (including post-petition interest in any
proceeding under Bankruptcy Law) on overdue installments of interest (without
regard to any applicable grace period) at the same rate to the extent lawful.
Notwithstanding anything to the contrary contained in this Indenture, the
Company may, to the extent it is required to do so by law, deduct or withhold
income or other similar taxes imposed by the United States of America from
principal or interest payments hereunder.
SECTION 5.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain the office or agency required under Section
2.03. The Company shall give prior notice to the Trustee of the location, and
any change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the address of the Trustee set
forth in Section 12.01.
SECTION 5.03. REPORTS AND OTHER COMMUNICATIONS.
(a) At the Company's expense, following the first fiscal quarter ending
after the date of this Indenture and regardless of whether the Company is
required to furnish such reports to its stockholders pursuant to the rules and
regulations of the Commission, for so long as the Securities remain outstanding,
the Company shall furnish to the Holders (i) within 45 days after the end of
each of the first three fiscal quarters of each fiscal year and 90 days of the
end of each fiscal year all quarterly and annual financial information, as the
case may be, that would be required to be contained in a filing with the
Commission on Forms 10-QSB and 10-KSB (or any successor Forms) if the Company
were required to file such Forms, including a "Management's Discussion and
Analysis of Financial Condition Results of Operations" and, with respect to the
annual information only, an audit report and opinion thereon by the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K (or any successor Form) if
the Company were required to file such reports. In addition, whether or not
required by the rules and regulations of the Commission, the Company will file a
copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
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request. In addition, promptly upon receipt, at the Company's expense, the
Company shall furnish to the Holders copies of all communications from Burger
King Corporation or Domino's Pizza (including any of their designees, agents,
counsel and representatives) as to all matters material to the Company's
franchise business.
(b) Such reports and other communications shall be delivered to the
Registrar in a sufficient number for distribution and the Registrar will mail
them at the Company's expense to the Holders at their addresses appearing in the
Security Register.
(c) Each of the Holders shall have the right, from time to time upon
reasonable notice to the Company and at such Holder's own cost and expense (or,
while any Default or Event of Default is continuing, at the Company's cost and
expense), during normal business hours and at reasonable times and intervals, to
inspect the books and records of the Company at its offices maintained pursuant
to Section 2.03 hereof and elsewhere and to discuss the business and affairs of
the Company with members of management designated by the Company.
SECTION 5.04. COMPLIANCE CERTIFICATES.
(a) The Company shall deliver to the Trustee, within 90 days after the end
of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further, stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action the Company is
taking or proposes to take with respect thereto) and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest on the Securities is
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 year-end financial
statements delivered pursuant to Section 5.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) 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 Article 5 or Article 6 hereof 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.
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(c) The Company shall, so long as any of the Securities are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
SECTION 5.05. TAXES.
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies
except such as are contested in good faith and by appropriate proceedings or
where the failure to effect such payment is not adverse in any material respect
to the Holders of the Securities.
SECTION 5.06. WAIVER OF STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
shall 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 or any other
law that would prohibit or forgive the Company from paying all or any portion of
the principal of, premium, if any, or interest on the Securities as contemplated
herein, whenever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this Indenture, and (to the extent
that it may lawfully do so) the Company hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
SECTION 5.07 RESTRICTED PAYMENTS
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, (i) declare or pay any dividend or make
any distribution on its Capital Stock (other than dividends or distributions
payable solely in shares of its or such Restricted Subsidiary's Capital Stock
(other than Redeemable Stock) held by such holders or in options, warrants or
other rights to acquire such shares of Capital Stock) other than such Capital
Stock held by the Company or any of its Restricted Subsidiaries (and other than
pro rata dividends or distributions on Common Stock of Wholly Owned Restricted
Subsidiaries), (ii) repurchase, redeem, retire or otherwise acquire for value
any shares of Capital Stock of the Company or any Restricted Subsidiary
(including options, warrants or other rights to acquire such shares of Capital
Stock) held by Persons other than the Company or any Wholly Owned Restricted
Subsidiaries of the Company, except, in the case of Capital Stock of
International Fast Food Polska ("IFFP") held by Agros Holding S.A. or
transferees of Agros Holding S.A., (iii) make any voluntary or optional
principal payment, or voluntary or optional redemption, repurchase, defeasance,
or other acquisition or retirement for value, of Indebtedness of the Company
that is subordinated in right of payment to the Securities, or (iv) make any
investment, other than a Permitted Investment, in any Person (such payments or
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any other actions described in clauses (i) through (iv) being collectively
"Restricted Payments") if, at the time of, and after giving effect to, the
proposed Restricted Payment: (A) a Default or Event of Default shall have
occurred and be continuing, (B) except with respect to any Investment (other
than an Investment consisting of the designation of a Restricted Subsidiary as
an Unrestricted Subsidiary), the Company could not incur at least $1.00 of
Indebtedness under the first paragraph of Section 5.09 or (C) the aggregate
amount expended for all Restricted Payments (the amount so expended, if other
than in cash, to be determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) after the
Closing Date shall exceed the sum of (1) 50% of the aggregate amount of the
Adjusted Consolidated Net Income (or, if the Adjusted Consolidated Net Income is
a loss, minus 100% of such amount) (determined by excluding income resulting
from transfers of assets by the Company or a Restricted Subsidiary to an
Unrestricted Subsidiary) accrued on a cumulative basis during the period (taken
as one accounting period) beginning on the first day of the fiscal quarter
immediately following the Closing Date and ending on the last day of the last
fiscal quarter preceding the Transaction Date for which reports have been filed
pursuant to Section 5.03 PLUS (2) the aggregate Net Cash Proceeds received by
the Company after the Closing Date from the issuance and sale permitted by this
Indenture of its Capital Stock (other than Redeemable Stock) to a Person who is
not a Subsidiary of the Company, or from the issuance to a Person who is not a
Subsidiary of the Company of any options, warrants or other rights to acquire
Capital Stock of the Company (in each case, exclusive of any convertible
Indebtedness, Redeemable Stock or any options, warrants or other rights that are
redeemable at the option of the holder, or are required to be redeemed, prior to
the Stated Maturity of the Securities), PLUS (3) an amount equal to the net
reduction in Investments in any Person resulting from payments of interest on
Indebtedness, dividends, repayments of loans or advances, or other transfers of
assets, in each case to the Company or any Restricted Subsidiary (except to the
extent any such payment is included in the calculation of Adjusted Consolidated
Net Income), or from redesignation of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed the amount of Investments previously made by the
Company and its Restricted Subsidiaries in such Person.
The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration thereof if,
at said date of declaration, such payment would comply with the foregoing
paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of payment to
the Securities, including premium, if any, and accrued and unpaid interest, with
the proceeds of, or in exchange for, Indebtedness incurred under clause (iii) of
the second paragraph of Section 5.09; (iii) the repurchase, redemption or other
acquisition of Capital Stock of the Company (or options, warrants or other
rights to acquire such Capital Stock) in exchange for, or out of the proceeds of
a substantially concurrent offering of, shares of Capital Stock or options,
warrants or other rights to acquire such Capital Stock (in each case other than
Redeemable Stock) of the Company; (iv) cash payments in lieu of the issuance of
fractional shares of Common Stock upon conversion (including mandatory
conversion) of the Securities provided for in this Indenture; PROVIDED that no
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Default or Event of Default shall have occurred and be continuing or occur as a
consequence of the actions or payments set forth herein. Any Investments made
other than in cash shall be valued, in good faith, by the Board of Directors.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof), and the
Net Cash Proceeds from any issuance of Capital Stock referred to in clause (iii)
shall be included in calculating whether the conditions of clause (C) of the
first paragraph of this Section 5.07 have been met with respect to any
subsequent Restricted Payments. In the event the proceeds of an issuance of
Capital Stock of the Company are used for the redemption, repurchase or other
acquisition of the Securities or Indebtedness that is PARI PASSU with the
Securities, as the case may be, then the Net Cash Proceeds of such issuance
shall be included in clause (C) of the first paragraph of this Section 5.07 only
to the extent such proceeds are not used for such redemption, repurchase or
other acquisition of Indebtedness.
Not later than the date of making any Restricted Payment (other than an
Investment in cash equivalents), the Company shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which its calculations were computed.
SECTION 5.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
RESTRICTED SUBSIDIARIES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any Restricted Subsidiary to (i) pay dividends or make any
other distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by the Company or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to the Company or any other Restricted Subsidiary
that owns, directly or indirectly, any Capital Stock of such Restricted
Subsidiary, (iii) make loans or advances to the Company or any other Restricted
Subsidiary that owns, directly or indirectly, any Capital Stock of such
Restricted Subsidiary or (iv) transfer any of its property or assets to the
Company or any other Restricted Subsidiary that owns, directly or indirectly,
any Capital Stock of such Restricted Subsidiary.
The foregoing provisions shall not prohibit any encumbrances or
restrictions: (i) existing on the Closing Date in this Indenture or any other
agreement in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements; PROVIDED that the encumbrances and
restrictions in any such extensions, refinancings, renewals or replacements are
no less favorable in any material respect to the Holders than those encumbrances
or restrictions that are then in effect and that are being extended, refinanced,
renewed or replaced; (ii) existing under or by reason of applicable law; (iii)
existing with respect to any Person or the property or assets of such Person
acquired by the Company or any Restricted Subsidiary, at the time of such
acquisition and not incurred in contemplation thereof, which encumbrances or
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restrictions are not applicable to any Person or the property or assets of any
Person other than such Person or the property or assets of such Person so
acquired; (iv) in the case of clause (iv) of the first paragraph of this Section
5.08, (A) that restrict in a customary manner the subletting, assignment or
transfer of any property or asset that is a lease, license, conveyance or
contract or similar property or asset, (B) existing by virtue of any transfer
of, agreement to transfer, option or right with respect to, or Lien on, any
property or assets of the Company or any Restricted Subsidiary nor otherwise
prohibited by this Indenture or (C) arising or agreed to in the ordinary course
of business, not relating to any Indebtedness, and that do not, individually or
in the aggregate, detract from the value of property or assets of the Company or
any Restricted Subsidiary in any manner material to the Company or any
Restricted Subsidiary; (v) with respect to a Restricted Subsidiary and imposed
pursuant to an agreement that has been entered into for the sale or disposition
of all or substantially all of the Capital Stock of, or property and assets of,
such Restricted Subsidiary; or (vi) incurred pursuant to any Restricted
Subsidiary Indebtedness permitted under this Indenture, PROVIDED that the amount
actually subject to such encumbrance or restriction shall not be taken into
account when calculating the Consolidated EBITDA of such Person. Nothing
contained in this Section 5.08 shall prevent the Company or any Restricted
Subsidiary from (1) creating, incurring, assuming or suffering to exist any
Liens otherwise permitted in Section 5.12 or (2) restricting the sale or other
disposition of property or assets of the Company or any of its Restricted
Subsidiaries that secure Indebtedness of the Company or any of its Restricted
Subsidiaries.
SECTION 5.09 INCURRENCE OF INDEBTEDNESS
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, Incur any Other Indebtedness if, after giving effect to
the Incurrence of such Other Indebtedness and the receipt and application of the
proceeds therefrom, the ratio of Other Indebtedness to Consolidated EBITDA would
be greater than 3:1.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
(except as specified below) may incur each and all of the following: (i) Senior
Indebtedness of the Company outstanding at any time in an aggregate principal
amount not to exceed $2.5 million, less any amount of Indebtedness permanently
repaid as provided under Section 5.10; (ii) Indebtedness (A) to the Company
evidenced by an unsubordinated promissory note or (B) to any of its Restricted
Subsidiaries; PROVIDED that any event which results in any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of
such Indebtedness (other than to the Company or another Restricted Subsidiary)
shall be deemed, in each case, to constitute an Incurrence of such Indebtedness
not permitted by this clause (ii); (iii) Indebtedness issued in exchange for, or
the net proceeds of which are used to refinance or refund, then outstanding
Indebtedness, and any refinancings thereof in an amount not to exceed the amount
so refinanced or refunded (plus premiums, accrued interest, fees and expenses);
PROVIDED that such new Indebtedness, determined as of the date of incurrence of
such new Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of such new
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Indebtedness is at least equal to the remaining Average Life of the Indebtedness
to be refinanced or refunded; and PROVIDED FURTHER that in no event may
Indebtedness of the Company be refinanced by means of any Indebtedness of any
Restricted Subsidiary of the Company pursuant to this clause (iii); (iv)
Indebtedness (A) in respect of performance, surety or appeal bonds provided in
the ordinary course of business, and (B) under Currency Agreements and Interest
Rate Agreements; PROVIDED that such agreements do not increase the Indebtedness
of the obligor outstanding at any time other than as a result of fluctuations in
foreign currency exchange rates or interest rates or by reason of fees,
indemnities and compensation payable thereunder; (v) Indebtedness of the Company
not to exceed, at any one time outstanding, 1.5 times the Net Cash Proceeds
received by the Company after the Closing Date from the issuance and sale of its
Capital Stock (other than Redeemable Stock and Preferred Stock that provides for
the payment of dividends in cash); (vi) Indebtedness up to $10 million
outstanding at any time to the extent such Indebtedness is secured by Liens
permitted under clause (vi) of the second paragraph of Section 5.12 and (vii)
Indebtedness of the Company or a Restricted Subsidiary, to the extent the
proceeds thereof are immediately used to purchase Securities tendered in an
Offer to Purchase made as a result of a Change of Control.
(b) For purposes of determining compliance with this Section 5.09, in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness described in the above clauses, the Company, in its sole
discretion, shall classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of such clauses.
SECTION 5.10. ASSET SALES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate any Asset Sale, unless (i) the consideration
received by the Company or such Restricted Subsidiary is at least equal to the
fair market value of the assets sold or disposed of and (ii) at least 80% of the
consideration received consists of cash or Temporary Cash Investments, provided
that the amount of any Senior Indebtedness or Restricted Subsidiary Indebtedness
(as shown on the Company's or such Restricted Subsidiary's most recent balance
sheet or notes thereto) of the Company or such Restricted Subsidiary which is
assumed by the transferee as a credit against the purchase price shall be deemed
to be cash to the extent of the amount so credited. In the event and to the
extent that the Net Cash Proceeds received by the Company or its Restricted
Subsidiaries from one or more Asset Sales occurring on or after the Closing Date
in any period of 12 consecutive months exceed the greater of $1 million or 10%
of Adjusted Consolidated Net Tangible Assets (determined as of the date closest
to the commencement of such 12-month period for which a consolidated balance
sheet of the Company and its Subsidiaries has been prepared), then the Company
shall or shall cause the relevant Restricted Subsidiary to (i) within six months
after the date Net Cash Proceeds so received exceed the greater of $1 million or
10% of Adjusted Consolidated Net Tangible Assets (A) apply, or resolve by Board
of Directors resolutions to apply no later than one year after the consummation
of such Asset Sale, an amount equal to such excess Net Cash Proceeds to
permanently repay Senior Indebtedness of the Company, or any indebtedness of any
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Restricted Subsidiary, in each case owing to a Person other than the Company or
any of its Restricted Subsidiaries or (B) invest an equal amount, or the amount
not so applied pursuant to clause (A) (or enter into a definitive agreement
committing to so invest within six months after the date of such agreement), in
property or assets of a nature or type or that are used in a business (or in a
company having property and assets of a nature or type, or engaged in a
business) similar or related to the nature or type of the property and assets
of, or the business of, the Company and its Restricted Subsidiaries existing on
the date of such investment (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) and (ii) apply (no later than the end of the six-month period
referred to in clause (i)) such excess Net Cash Proceeds (to the extent not
applied pursuant to clause (i)) as provided in the following paragraph of this
Section 5.10. The amount of such excess Net Cash Proceeds required to be applied
(or to be committed to be applied) during such six-month or 12-month period as
set forth in clause (i) of the preceding sentence and not applied as so required
by the end of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
Section 5.10 totals at least $3 million, the Company must commence, not later
than the fifteenth Business Day of such month, and consummate an Offer to
Purchase from the Holders of the Securities on a pro rata basis an aggregate
principal amount of Securities equal to the Excess Proceeds on such date, at a
purchase price equal to 100% of the Accreted Value of the Securities, plus, in
each case, accrued interest (if any) to the date of purchase.
SECTION 5.11. TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into, renew or extend any
transaction (including, without limitation, the purchase, sale, lease or
exchange of property or assets, or the rendering of any service) with any holder
(or any Affiliate of such holder) of 5% or more of any class of Capital Stock of
the Company or with any Affiliate of the Company or any Restricted Subsidiary,
except upon fair and reasonable terms no less favorable to the Company or such
Restricted Subsidiary than could be obtained, at the time of such transaction
or, if such transaction is pursuant to a written agreement, at the time of the
execution of the agreement providing therefor, in a comparable arm's-length
transaction with a Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to: (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized investment
banking firm stating that the transaction is fair to the Company or such
Restricted Subsidiary from a financial point of view; (ii) any transaction
solely between the Company and any of its Wholly Owned Restricted Subsidiaries
or solely between Wholly Owned Restricted Subsidiaries; (iii) the payment of
reasonable fees to directors of the Company who are not employees of the
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Company; or (iv) any payments or other transactions pursuant to any tax-sharing
agreement between the Company and any other Person with which the Company files
a consolidated tax return or with which the Company is part of a consolidated
group for tax purposes. Notwithstanding the foregoing, any transaction covered
by the first paragraph of this Section 5.11 and not covered by clauses (ii)
through (iv) of this paragraph, the aggregate amount of which exceeds $100,000
in value, must be approved or determined to be fair in the manner provided for
in clause (i)(A) or (B) above.
SECTION 5.12. LIENS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien on any of its assets or properties of any character, or any
shares of Capital Stock or Indebtedness of any Restricted Subsidiary
(collectively, "Protected Property"), without making effective provision for all
of the Securities and all other amounts due under this Indenture to be directly
secured equally and ratably with (or, if the obligation or liability to be
secured by such Lien is subordinated in right of payment to the Securities prior
to) the obligation or liability secured by such Lien.
The foregoing limitation does not apply to: (i) Liens existing on the
Closing Date; (ii) Liens granted after the Closing Date on any assets or Capital
Stock of the Company or its Restricted Subsidiaries created in favor of the
Holders of the Securities; (iii) Liens with respect to the assets of a
Restricted Subsidiary granted by such Restricted Subsidiary to the Company, IFFP
or a Wholly Owned Restricted Subsidiary to secure Indebtedness owing to the
Company or such other Restricted Subsidiary; (iv) Liens securing Indebtedness
which is incurred to refinance secured indebtedness which is permitted to be
incurred under clause (iii) of the second paragraph of Section 5.09, PROVIDED
that such Liens do not extend to or cover any property or assets of the Company
or any Restricted Subsidiary other than the property or assets securing the
Indebtedness being refinanced; (v) purchase money Liens upon equipment acquired
or held by the Company or any of its Restricted Subsidiaries taken or retained
by the seller of such inventory or equipment to secure all or a part of the
purchase price therefor; PROVIDED that such Liens do not extend to or cover any
property or assets of the Company or any Restricted Subsidiary other than the
inventory or equipment acquired; or (vi) Permitted Liens.
SECTION 5.13. CONDUCT OF BUSINESS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, engage in any business other than the
franchising of fast food restaurants in Poland or other jurisdictions in Europe
in which the Company receives the right to franchise fast food restaurants;
PROVIDED that any operations outside of Poland are conducted through direct or
indirect wholly-owned subsidiaries of the Company, and any other activity
reasonably related to such activities; and FURTHER PROVIDED that the Company
shall not invest 25% or more of its consolidated assets (measured as of the most
recent date for which balance sheets were delivered pursuant to Section 5.03
hereof) in businesses other than Burger King and Domino's franchises without the
consent of the Holders of a majority of the outstanding principal amount of
Securities.
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SECTION 5.14 CORPORATE EXISTENCE.
Subject to Article 6 hereof, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect (i) its corporate
existence, and the corporate, partnership or other existence of each of its
Restricted Subsidiaries, in accordance with the respective organizational
documents (as the same may be amended from time to time) of the Company or such
Restricted Subsidiary and (ii) the rights (charter and statutory), licenses and
franchises of the Company and its Restricted Subsidiaries; PROVIDED, HOWEVER,
that the Company shall not be required to preserve any such right, license or
franchise, or the corporate, partnership or other existence of any of its
Restricted Subsidiaries, if the Board of Directors shall reasonably and in good
faith determine that the preservation thereof is no longer desirable in the
conduct of business of the Company and its Subsidiaries, taken as a whole, and
that the loss thereof is not adverse in any material respect to the Holders of
the Securities. The Company shall comply, in all material respects, with the
terms and provisions of each of its agreements with each of Burger King
Corporation and Domino's Pizza, except for such noncompliance as would not,
individually or in the aggregate, give rise to a right in the other party to
terminate or suspend any such agreement.
SECTION 5.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
The Company must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all the Securities then
outstanding, at a purchase price equal to 101% of the Accreted Value thereof,
plus accrued interest (if any) to the date of purchase. Prior to the mailing of
the notice to Holders of Securities commencing such Offer to Purchase, but in
any event within 30 days following any Change of Control, the Company covenants
to (i) repay in full all indebtedness of the Company that would prohibit the
repurchase of the Securities pursuant to such Offer to Purchase or (ii) obtain
any requisite consents under instruments governing any such indebtedness of the
Company to permit the repurchase of the Securities. The Company shall first
comply with the covenant in the preceding sentence before it shall repurchase
Securities pursuant to this Section 5.15.
SECTION 5.16. STATUS AS INVESTMENT COMPANY.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, conduct its business in a fashion that would cause it to be
required to register as an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended), or otherwise become subject to
regulation under the Investment Company Act of 1940, as amended.
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SECTION 5.17. DESIGNATION OF RESTRICTED SUBSIDIARY AS UNRESTRICTED
SUBSIDIARY; REDESIGNATION OF UNRESTRICTED SUBSIDIARY AS
RESTRICTED SUBSIDIARY
The Board of Directors may designate any Restricted Subsidiary of the
Company (including any newly acquired or newly formed Subsidiary of the
Company), other than a Subsidiary that has become a guarantor, to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, the Company or any Restricted
Subsidiary; PROVIDED that neither the Company nor its Restricted Subsidiaries
has any Guarantee of any Indebtedness of such Subsidiary outstanding at the time
of such designation and either (A) the Subsidiary to be so designated has total
assets of $1,000 or less or (B) if such Subsidiary has assets greater than
$1,000, that such designation would be permitted under Section 5.07. The Board
of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of the Company; PROVIDED that immediately after giving effect to such
designation (x) the Company could incur $1.00 of additional Indebtedness under
the first paragraph of Section 5.09 and (y) no Default or Event of Default shall
have occurred and be continuing. Any such designation by the Board of Directors
shall be evidenced to the Trustee by promptly filing with the Trustee a copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
SECTION 5.18. INTERNAL REVENUE SERVICE FILING AND
WITHHOLDING INFORMATION.
The Company shall file Internal Revenue Service Form 8281, Information
Return for Publicly Offered Original Issue Discount Instruments, with the
Internal Revenue Service no later than the date such filing is required to be
made and shall mail a copy of such filing to the Trustee and the Paying Agent
within 15 days after such filing with the Internal Revenue Service. Upon the
written request of the Paying Agent, the Company shall promptly prepare and
deliver to the Paying Agent all information requested by the Paying Agent in
order that the Paying Agent can timely comply with the applicable withholding
requirements of the Internal Revenue Service and prepare the applicable Form
1099 OID for distribution to the Holders of Securities.
SECTION 5.19. ISSUANCE AND SALE OF CAPITAL STOCK
OF RESTRICTED SUBSIDIARIES.
The Company will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to the Company or a Wholly Owned
Restricted Subsidiary, (ii) issuances or sales to foreign nationals of shares of
Capital Stock of foreign Restricted Subsidiaries, to the extent required by
applicable law, (iii) if, immediately after giving effect to such issuance or
sale, such Restricted Subsidiary would no longer constitute a Restricted
Subsidiary or (iv) issuances or sales of Common Stock of Restricted Subsidiaries
subject to compliance with clauses (A) or (B) of the first paragraph of Section
5.10.
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SECTION 5.20. ISSUANCES OF GUARANTEES
BY RESTRICTED SUBSIDIARIES.
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to this Indenture providing for a
Guarantee (a "Subsidiary Guarantee") of payment of the Securities by such
Restricted Subsidiary and (ii) each Restricted Subsidiary waives and will not in
any manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Subsidiary Guarantee; PROVIDED that this paragraph shall
not be applicable to any Guarantee of any Restricted Subsidiary that (x) existed
at the time such Person became a Restricted Subsidiary and (y) was not incurred
in connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary. If the Guaranteed Indebtedness is (A) PARI PASSU with the Securities
then the Guarantee of such Guaranteed Indebtedness shall be PARI PASSU with, or
subordinated to, the Subsidiary Guarantee or (B) subordinated to the Securities
then the Guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantees at least to the extent that the Guaranteed Indebtedness is
subordinated to the Securities.
SECTION 5.21. INCURRENCE OF SENIOR SUBORDINATED
INDEBTEDNESS.
The Company will not incur any Indebtedness, other than the Securities,
that is expressly made subordinated in right of payment to any Senior
Indebtedness unless such Indebtedness, by its terms and by the terms of any
agreement or instrument pursuant to which such Indebtedness is outstanding is
expressly made PARI PASSU with, or subordinate in right of payment to, the
Securities pursuant to provisions substantially similar to those contained in
Article 10 of this Indenture; PROVIDED, HOWEVER, that the foregoing limitation
shall not apply to distinctions between categories of Senior Indebtedness that
exist by reason of any Liens or Guarantees arising or created in respect of some
but not all Senior Indebtedness.
SECTION 5.22 ACCOUNTANTS.
In connection with the audit of the Company's financial statements for the
year ending December 31, 1997 and for all subsequent periods for so long as any
Securities shall remain outstanding, the Company shall retain independent public
accountants reasonably acceptable to the Holders of a majority in principal
amount of the outstanding Securities.
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SECTION 5.23 INSURANCE.
(a) The Company shall maintain key man life insurance on the life of
Mitchell Rubinson in an amount equal to the lesser of (i) the aggregate
principal amount at maturity of the outstanding Securities at any time and (ii)
the amount of key man life insurance that the Company could purchase for
$250,000 from an insurance company rated A or better by Best & Co.
(b) The Company shall, and shall cause its Restricted Subsidiaries to,
maintain insurance by insurers of recognized financial responsibility against
such risks and in such amounts as are prudent and customary for the interest of
their respective businesses and the value of their respective properties.
ARTICLE 6
SUCCESSORS
SECTION 6.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company shall not consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person or permit any
Person to merge with or into the Company unless: (i) the Company shall be the
continuing Person, or the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or that acquired or leased
such property and assets of the Company shall be a corporation organized and
validly existing under the laws of the United States of America or any
jurisdiction thereof and shall expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, all of the obligations of the Company on
all of the Securities and under this Indenture; (ii) immediately after giving
effect to such transaction, no Default or Event of Default shall have occurred
and be continuing; (iii) immediately after giving effect to such transaction on
a pro forma basis, the Company or any Person becoming the successor obligor of
the Securities shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction;
(iv) immediately after giving effect to such transaction on a pro forma basis
the Company, or any Person becoming the successor obligor of the Securities,
could incur at least $1.00 of Indebtedness under the first paragraph of Section
5.09; PROVIDED that this clause (iv) shall not apply to the merger of a
corporation, the sole material asset of which consists of Common Stock of the
Company (and options, warrants or other rights to purchase or acquire such
Common Stock), into the Company, if (a) the Chief Executive Officer of the
Company delivers to the Trustee a certificate on behalf of the Company, in the
form attached hereto as Schedule III, to the effect that to his best knowledge
there are no liabilities, contingent or otherwise, of such corporation and (b)
the only consideration received by the stockholders of such corporation in
connection with such merger consists of Common Stock of the Company (and
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options, warrants other rights to purchase or acquire such Common Stock), in the
aggregate in an amount not to exceed the amount thereof held by such corporation
immediately prior to such merger; and (v) the Company delivers to the Trustee an
Officers' Certificate (attaching the arithmetic computations to demonstrate
compliance with clauses (iii) and (iv)) and an Opinion of Counsel, in each case
stating that such consolidation, merger or transfer and such supplemental
indenture complies with this provision and that all conditions precedent
provided for herein relating to such transaction have been complied with;
PROVIDED, however, that clauses (iii) and (iv) above do not apply if, in the
good faith determination of the Board of Directors of the Company, whose
determination shall be evidenced by a Board Resolution, the principal purpose of
such transaction is to change the state of incorporation of the Company; and
PROVIDED FURTHER that any such transaction shall not have as one of its purposes
the evasion of the foregoing limitations.
SECTION 6.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 6.01 hereof, the successor corporation
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and may exercise every right
and power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; PROVIDED, HOWEVER, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of, and premium, if any, and interest on the Securities except in the
case of a sale of all of the Company's assets that meets the requirements of
Section 6.01 hereof.
ARTICLE 7
DEFAULTS AND REMEDIES
SECTION 7.01. EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(1) the Company defaults in the payment of principal of (or premium,
if any, on) or interest on any of the Securities, when the same becomes
due and payable at maturity, upon acceleration, redemption or otherwise,
whether or not such payment is prohibited by the provisions described
below in Article 10;
(2) the Company defaults in the performance of any covenant set
forth in Section 5.03, 5.04, 5.10 or 5.13 hereof, and the default
continues for a period of
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15 consecutive days after written notice by the Trustee, or by the Holders
of 25% or more in aggregate principal amount of the Securities then
outstanding;
(3) the Company defaults in the performance or breaches any other
covenant or agreement of the Company in this Indenture, or under the
Securities, and such default or breach continues for a period of 30
consecutive days after written notice by the Trustee, or by the Holders of
25% or more in aggregate principal amount of the Securities then
outstanding;
(4) either of the New BKC Development Agreement or the New Domino's
Master Franchise Agreement shall be suspended or terminated;
(5) there occurs with respect to any issue or issues of Indebtedness
of the Company or any Significant Subsidiary having an outstanding
principal amount of $3 million or more in the aggregate for all issues of
all such Persons, whether such Indebtedness now exists or shall hereafter
be created, (a) an event of default that has caused the holder thereof to
declare such Indebtedness to be due and payable prior to its Stated
Maturity and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (b) the failure to make any principal payment with
respect to any fixed maturity and such defaulted payment shall not have
been made, waived or extended within 30 days of such payment default;
(6) any final judgment or order (not covered by insurance) for the
payment of money in excess of $5 million in the aggregate for all such
final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against the Company or any Significant Subsidiary and shall not
be paid or discharged, and there shall be any period of 60 consecutive
days following entry of the final judgment or order that causes the
aggregate amount for all such final judgments or orders outstanding and
not paid or discharged against all such Persons to exceed $5 million
during which a stay or enforcement of such final judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect;
(7) a court having jurisdiction in the premises enters a decree or
order for:
(a) relief in respect of the Company or any Significant
Subsidiary in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect;
(b) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company
or any Significant Subsidiary for all or substantially all of the
property and assets of the Company or any Significant Subsidiary; or
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(c) the winding up or liquidation of the affairs of the
Company or any Significant Subsidiary and, in each case, such decree
or order shall remain unstayed and in effect for a period of 60
consecutive days.
(8) The Company or any Significant Subsidiary:
(a) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in
effect, or consents to the entry of an order for relief in an
involuntary case under any such law;
(b) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Company or any Significant Subsidiary for
all or substantially all of the property and assets of the Company
or any Significant Subsidiary; or
(c) effects any general assignment for the benefit of
creditors.
SECTION 7.02. ACCELERATION.
If an Event of Default (other than an Event of Default specified in
paragraph (7) or (8) of Section 7.01 with respect to the Company) occurs and is
continuing under this Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Securities, then outstanding, by written
notice to the Company (and to the Trustee if such notice is given by the
Holders), may and the Trustee at the request of such Holders shall, declare the
Accreted Value of, premium, if any, and accrued interest, if any, on the
Securities to be immediately due and payable. Upon a declaration of
acceleration, such Accreted Value, premium, if any, and accrued interest, if
any, shall be immediately due and payable. In the event of a declaration of
acceleration because an Event of Default specified in paragraph (5) of Section
7.01 has occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to paragraph (5) of Section 7.01 shall be remedied or
cured by the Company or the relevant Significant Subsidiary or waived by the
holders of the relevant Indebtedness within 60 days after the declaration of
acceleration with respect thereto. If an Event of Default specified in paragraph
(7) or (8) of Section 7.01 occurs with respect to the Company, the Accreted
Value of, premium, if any, and accrued interest, if any, on the Securities then
outstanding shall IPSO FACTO become and be immediately due and payable without
any declaration or other act on the part of either the Trustee or any Holder.
The Holders of at least a majority in principal amount of the outstanding
Securities, by written notice to the Company and to the Trustee, may waive all
past defaults and rescind and annul a declaration of acceleration and its
consequences if (A) all existing Events of Default, other than the nonpayment of
the principal of, premium, if any, and accrued interest, if any, on the
Securities that have become due solely by such declaration of acceleration, have
been cured or waived and (B) the rescission would not conflict with any judgment
or decree of a court of competent jurisdiction.
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SECTION 7.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, and premium, if any,
and interest on the Securities or to enforce the performance of any provision of
the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Security 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 available
remedies are cumulative to the extent permitted by law.
SECTION 7.04. WAIVER OF PAST DEFAULTS.
Subject to Sections 7.07 and 9.02, the Holders of not less than a majority
in aggregate principal amount of the then outstanding Securities by notice to
the Trustee may on behalf of the Holders of all of the Securities waive an
existing Default or Event of Default and its consequences hereunder, except a
continuing Default or Event of Default in the payment of the principal of, or
premium, if any, and interest on the Securities (the waiver of which is required
to be unanimous), or in respect of a covenant or a provision which cannot be
amended or modified without the consent of all Holders. In the event of any
Event of Default specified in Section 7.01(5) above, such Event of Default and
all consequences thereof (including, without limitation, any acceleration or
resulting payment default) shall be annulled, waived and rescinded automatically
and without any action by the Trustee or the Holders of the Securities, if
within 60 days after such Event of Default arose (x) the Indebtedness that is
the basis for such Event of Default has been discharged, (y) the holders thereof
have rescinded or waived the acceleration, notice or action giving rise to such
Event of Default or (z) if the default that is the basis for such Event of
Default has been cured. 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 Indenture; but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereon.
SECTION 7.05. CONTROL BY MAJORITY.
The Holders of at least a majority in aggregate principal amount of the
then outstanding Securities may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture, that may involve the
Trustee in personal liability, or that the Trustee determines in good faith may
be unduly prejudicial to the rights of Holders of Securities not joining in the
giving of such direction and may take any other action it deems proper that is
not inconsistent with any such direction received from Holders of Securities.
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SECTION 7.06. LIMITATION ON SUITS.
A Holder may not pursue any remedy with respect to this Indenture or the
Securities unless:
(1) the Holder gives to the Trustee written notice of a continuing Event
of Default;
(2) the Holders of at least 25% in aggregate principal amount of the
outstanding Securities make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer to the Trustee indemnity against any
costs, liability or expense to be incurred in compliance with such request which
is reasonably satisfactory to the Trustee;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of satisfactory indemnity; and
(5) during such 60-day period the Holders of a majority in aggregate
principal amount of the outstanding Securities do not give the Trustee a
direction which, in the opinion of the Trustee, is inconsistent with the
request.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
SECTION 7.07. RIGHTS OF HOLDERS OF SECURITIES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to receive payment of principal of, and premium, if any,
and interest on the Security, on or after the respective due dates expressed in
the Security (including in connection with an Offer to Purchase), 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.
SECTION 7.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 7.01(1) occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount of
principal of, and premium, if any, and interest remaining unpaid on the
Securities and interest on overdue principal and such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
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SECTION 7.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relating to the Company (or any
other obligor upon the Securities), its creditors or its property, and shall be
entitled and empowered to participate as a member, voting or otherwise, of any
official committee of creditors appointed in such matter and to collect, receive
and distribute any monies or other property payable or deliverable on any such
claims and any custodian in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee, and in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due to it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, any
other amounts due the Trustee under Section 8.07. To the extent that the payment
of any such compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, and any other amounts due the Trustee under Section 8.07
out of the estate in any such proceeding, shall be denied for any reason,
payment of the same shall be secured by a lien on, and shall be paid out of, any
and all distributions, dividends, money, securities and other properties that
the Holders may be entitled to receive in such proceeding whether in liquidation
or under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Securities or the rights of any Holder,
or to authorize the Trustee to vote in respect of the claim of any Holder in any
such proceeding.
SECTION 7.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
FIRST: to the Trustee, its Agents and attorneys for amounts due under
Section 8.07, including payment of all compensation, expenses and liabilities
incurred, and all advances made, by the Trustee and the costs and expenses of
collection;
SECOND: if the Holders are forced to proceed against the Company directly
without the Trustee, to Holders for their collection costs;
THIRD: to Holders of Securities for amounts due and unpaid on the
Securities for principal of, premium, if any, and interest on the Securities in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the Securities for principal, and premium, if any, and
interest respectively; and
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FOURTH: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Securities pursuant to this Section 7.10.
SECTION 7.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, 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.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Security pursuant to Section 7.07, or a suit by Holders of more than 10% in
principal amount of the then outstanding Securities.
ARTICLE 8
TRUSTEE
SECTION 8.01. DUTIES OF TRUSTEE.
(a) If an Event of Default actually known to the Trustee has occurred and
is continuing, the Trustee shall exercise such of the rights and powers vested
in it by this Indenture and use the same degree of care and skill in its
exercise thereof as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under this Indenture at the request of any of the Holders of
the Securities, unless they shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
(b) Except during the continuance of an Event of Default actually known to
the Trustee:
(1) The Trustee and the Agents need perform only those duties as are
specifically set forth in this Indenture and no duties, covenants,
responsibilities or obligations shall be implied in this Indenture that
are adverse to the Trustee or the Agents.
(2) In the absence of bad faith on its part, the Trustee or any
Agent may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates
(including Officers' Certificates) or opinions (including Opinions of
Counsel) furnished to the Trustee or any Agent and conforming to the
requirements of this Indenture. However, as to any certificates or
opinions which are required by any provision of this Indenture to be
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delivered or provided to the Trustee or any Agent, the Trustee or such
Agent shall examine the certificates and opinions to determine whether or
not they conform to the requirements of this Indenture, but not to verify
the contents thereof.
(c) Notwithstanding anything to the contrary herein contained, the Trustee
may not be relieved from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 8.01.
(2) Neither the Trustee nor any Agent shall be liable for any error
of judgment made in good faith by a Trust Officer (or an officer of the
Agent), unless it is proved that the Trustee or such Agent was negligent
in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 7.02, 7.04 or 7.05.
(d) No provision of this Indenture shall require the Trustee or any Agent
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or to take or omit to take any
action under this Indenture or take any action at the request or direction of
Holders if it shall have reasonable grounds for believing that repayment of such
funds is not assured to it or it does not receive an indemnity satisfactory to
it in its sole discretion against such risk, liability, loss, fee or expense
which might be incurred by it in compliance with such request or direction.
(e) Every provision of this Indenture that in any way relates to the
Trustee or any Agent is subject to paragraphs (a), (b), (c) and (d) of this
Section 8.01.
(f) Neither the Trustee nor any Agent shall be liable for interest on any
money or assets received by it except as the Trustee or any such Agent may agree
in writing with the Company. Assets held in trust by the Trustee or any Agent
need not be segregated from other assets except to the extent required by law.
(g) The Trustee shall not be responsible for the application of any money
by any Paying Agent other than the Trustee.
(h) Any provision of this Indenture relating to the conduct or affecting
the liability of or affording protection to the Trustee shall be subject to the
provisions of this Section 8.01.
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(i) The Trustee shall receive and retain financial reports and statements
of the Company as provided herein, but it shall have no duty to review or
analyze such reports or statements to determine compliance with covenants or
other obligations of the Company.
(j) Neither the Trustee nor any Agent shall be liable for interest on any
money received by it except as the Trustee or any Agent may agree in writing
with the Company. Money held in trust by the Trustee or any Agent need not be
segregated from other funds except to the extent required by law.
SECTION 8.02. RIGHTS OF TRUSTEE AND EACH AGENT.
Subject to Section 8.01:
(a) The Trustee and each Agent may request and rely conclusively and shall
be fully protected in acting or refraining from acting upon any document
believed by it to be genuine and to have been signed or presented by the proper
Person. Neither the Trustee nor any Agent need investigate any fact or matter
stated in the document.
(b) Before the Trustee or any Agent acts or refrains from acting, it may
consult with counsel and may require an Officers' Certificate or an Opinion of
Counsel, which shall conform to Sections 12.02 and 12.03. Neither the Trustee
nor any Agent shall be liable for and shall be fully protected in respect of any
action it takes or omits to take in good faith in reliance on such Officers'
Certificate or Opinion of Counsel.
(c) The Trustee and any Agent may act through their attorneys and Agents
and shall not be responsible for the misconduct or negligence of any Agent
(other than an Agent who is an employee of the Trustee or such Agent) or
attorney appointed with due care.
(d) Neither the Trustee nor any Agent shall be liable for any action that
it takes or omits to take in good faith which it reasonably believes to be
authorized or within its rights or powers conferred upon it by this Indenture.
(e) Neither the Trustee nor any Agent shall be bound to make any
investigation into the facts or matters stated in any resolution, certificate
(including any Officers' Certificate), statement, instrument, opinion (including
any Opinion of Counsel), notice, request, direction, consent, order, bond,
debenture, or other paper or document, but the Trustee or an Agent, in their
discretion, may make such further inquiry or investigation into such facts or
matters as they may see fit and, if the Trustee or any Agent shall determine to
make such further inquiry or investigation, they shall be entitled, upon
reasonable notice to the Company, to examine the books, records, and premises of
the Company, personally or by agent or attorney.
(f) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request, order or direction of
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any of the Holders of the Securities pursuant to the provisions of this
Indenture, unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may be
incurred by it in compliance with such request, order or direction.
(g) The Trustee or any Agent may consult with counsel of its selection,
and the advice or opinion of counsel with respect to legal matters relating to
this Indenture and the Securities shall be full and complete authorization and
protection from liability with respect to any action taken, omitted or suffered
by it hereunder in good faith and in accordance with the advice or opinion of
such counsel.
SECTION 8.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the owner
or pledgee of Securities and may otherwise deal with the Company, any Subsidiary
of the Company, or their respective Affiliates, with the same rights it would
have if it were not Trustee. Any Agent may do the same with like rights.
However, in the event that the Trustee acquires any conflicting interest it must
eliminate such conflict within 90 days or resign. The Trustee must comply with
Sections 8.10 and 8.11.
SECTION 8.04. DISCLAIMER OF TRUSTEE AND AGENTS.
Neither the Trustee nor any Agent makes any representation as to the
validity, effectiveness or adequacy of this Indenture or the Securities, and it
shall not be accountable for the Company's use of the proceeds from the
Securities or any money paid to the Company or upon the Company or upon the
Company's direction under any provision of this Indenture. The Trustee shall not
be responsible for the use or application of any money received by any Paying
Agent other than the Trustee, and it shall not be responsible for any statement
or recital of the Company in this Indenture or the Securities or any document
issued in connection with the sale of the Securities.
SECTION 8.05. NOTICE OF DEFAULT.
If a Default or an Event of Default occurs and is continuing and if it is
actually known to the Trustee, the Trustee shall mail to each Holder, as their
names and addresses appear on the Holder list described in Section 2.05, notice
of the uncured Default or Event of Default within 90 days after the Trustee
receives such notice. Except in the case of a Default or an Event of Default in
payment of principal of, or premium on, or interest on any Security, including
an accelerated payment and the failure to make payment on the Payment Date
pursuant to an Offer to Purchase, and except in the case of a failure to comply
with Article 6, the Trustee may withhold the notice if and so long as its Board
of Directors, the executive committee of its Board of Directors or a committee
of its directors and/or Trust Officers in good faith determines that withholding
the notice is in the interest of the Holders. The Trustee shall not be deemed to
have knowledge of a Default or Event of Default other than (i) any Event of
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Default occurring pursuant to Section 7.01(1); or (ii) any Default or Event of
Default of which a Trust Officer shall have received written notification or
obtained actual knowledge.
SECTION 8.06. REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after April 15 of each year beginning with April 15, 1998,
the Trustee shall, to the extent that any of the events described in TIA ss.
313(a) occurred within the previous twelve months, but not otherwise, mail to
each Holder a brief report dated as of such date that complies with TIA ss.
313(a). The Trustee also shall comply with TIA ss.ss. 313(b) and 313(c).
A copy of each report at the time of its mailing to Holders shall be
mailed to the Company and filed with the Commission and each stock exchange, if
any, on which the Securities are listed.
The Company shall promptly notify the Trustee if the Securities become
listed on any stock exchange and the Trustee shall comply with TIA ss. 313(d).
SECTION 8.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee and any Agent in their capacity as
such from time to time such compensation as may be agreed upon in writing by the
Company and the Trustee or such Agent. The Trustee's and the Agents'
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee and any Agent upon
request for all reasonable out-of-pocket expenses, disbursements and advances
incurred or made by them in connection with the performance of their duties and
the discharge of their obligations under this Indenture. Such expenses shall
include the reasonable fees and expenses of the Trustee's and Agents' agents and
counsel.
The Company shall indemnify the Trustee and the Agents and their agents,
employees, officers, stockholders and directors for, and hold them harmless
against, any loss, liability, damage, claim or expense incurred by them, arising
out of or in connection with the acceptance or administration of this trust
including the reasonable costs and expenses of defending themselves against any
claim or liability in connection with the exercise or performance of any of
their rights, powers or duties hereunder. The Trustee and the Agents shall
notify the Company promptly of any claim asserted against the Trustee or any
Agent for which indemnity may be sought; PROVIDED, HOWEVER, that the failure to
provide such notice shall not affect the right to indemnity provided for herein.
The Company shall defend the claim and the Trustee and the Agents shall
cooperate in the defense. The Trustee and the Agents may have separate counsel
and the Company shall pay the reasonable fees and expenses of such counsel. The
Company need not pay for any settlement made without its written consent, which
consent shall not be unreasonably withheld.
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To secure the Company's payment obligations in this Section 8.07, the
Trustee and the Agents shall have a lien prior to the Securities on all assets
or money held or collected by the Trustee and the Agents, in their capacity as
Trustee or Agent, as the case may be, except assets or money held in trust to
pay principal of, or premium on, if any, and interest on particular Securities.
When the Trustee or an Agent incurs expenses or renders services after an
Event of Default specified in Section 7.01(7) or (8) occurs, such expenses
(including the reasonable fees and expenses of its agents and counsel) and the
compensation for such services shall be preferred over the status of the Holders
in a proceeding under Bankruptcy Law and are intended to constitute expenses of
administration under any Bankruptcy Law. The Company's obligations under this
Section 8.07 and any claim arising hereunder shall survive the resignation or
removal of any Trustee or Agent.
SECTION 8.08. REPLACEMENT OF TRUSTEE.
The Trustee may resign at any time by so notifying the Company in writing
at least 10 days in advance of such resignation. The Holders of a majority in
principal amount of the then outstanding Securities may remove the Trustee by so
notifying the Company and the Trustee and may appoint a successor trustee with
the Company's consent. A resignation or removal of the Trustee and appointment
of a successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section. The Company may remove
the Trustee if:
(a) the Trustee fails to comply with Section 8.10;
(b) the Trustee is adjudged bankrupt or insolvent or an order for relief
is entered with respect to the Trustee under any Bankruptcy Law;
(c) a receiver or other public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall notify each Holder of such event
and shall promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in principal amount of
the Securities may, with the Company's consent, appoint a successor Trustee to
replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Promptly after that, the retiring
Trustee shall transfer, after payment of all sums then owing to the Trustee
pursuant to Section 8.07, all property held by it as Trustee to the successor
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Trustee, subject to the lien provided in Section 8.07, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Holder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the outstanding Securities may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee after written request by a Holder who has been a Holder for
at least six months fails to comply with Section 8.10, any Holder may (at its
expense) petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section 8.08,
the Company's obligations under Section 8.07 shall continue for the benefit of
the retiring Trustee.
SECTION 8.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another Person, the
resulting, surviving or transferee Person without any further act shall, if such
resulting, surviving or transferee Person is otherwise eligible hereunder, be
the successor Trustee; PROVIDED that such Person shall be otherwise qualified
and eligible under this Article 8.
SECTION 8.10. ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies the requirement
of TIA ss.ss. 310(a)(1) and 310(a)(5). The Trustee (or in the case of a
corporation included in a bank holding company system, the related bank holding
company) shall have a combined capital and surplus of at least $100,000,000 as
set forth in its most recent published annual report of condition. In addition,
if the Trustee is a corporation included in a bank holding company system, the
Trustee, independently of such bank holding company, shall meet the capital
requirements of TIA ss. 310(a)(2). The Trustee shall comply with TIA ss. 310(b);
PROVIDED, HOWEVER, that there shall be excluded from the operation of TIA ss.
310(b)(1) any indenture or indentures under which other securities, or
certificates of interest or participation in other securities, of the Company
are outstanding, if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met. The provisions of TIA ss. 310 shall apply to the Company and
any other obligor of the Securities.
SECTION 8.11. PREFERENTIAL COLLECTION OF
CLAIMS AGAINST THE COMPANY.
The Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
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removed shall be subject to TIA ss. 311(a) to the extent indicated therein. The
provisions of TIA ss. 311 shall apply to the Company and any other obligor of
the Securities.
SECTION 8.12. AUTHENTICATING AGENTS.
(a) The Trustee may appoint one or more Authenticating Agents which shall
be authorized to act on behalf of the Trustee in authenticating Securities.
Wherever reference is made in this Indenture to the authentication of Securities
by the Trustee or the Trustee's certificate of authentication, such reference
shall be deemed to include authentication on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent must be
acceptable to the Company and must be a corporation or financial institution
organized and doing business under the laws of the United States of America or
of any state and having a principal office and place of business in the Borough
of Manhattan, the City and State of New York, having a combined capital and
surplus of at least $15,000,000, authorized under such laws to engage in a trust
business and subject to supervision or examination by federal or state
authorities. The Trustee hereby appoints Bankers Trust Company as an
Authenticating Agent hereunder and Bankers Trust Company hereby accepts such
appointment.
(b) Any Person into which any Authenticating Agent may be merged or
converted or with which it may be consolidated, or any Person resulting from any
merger, conversion or consolidation to which any Authenticating Agent shall be a
party, or any Person succeeding to the corporate agency business of any
Authenticating Agent, shall continue to be the Authenticating Agent without the
execution or filing of any paper or any further act on the part of the Trustee
or the Authenticating Agent; PROVIDED such Person shall be otherwise eligible
under this Article 8.
(c) Any Authenticating Agent may at any time resign by giving at least 30
days' advance written notice of resignation to the Trustee and the Company. The
Trustee may at any time terminate the agency of any Authenticating Agent by
giving written notice of termination to such Authenticating Agent and the
Company. Upon receiving a notice of resignation or upon such a termination, or
in case at any time any Authenticating Agent shall cease to be eligible in
accordance with the provisions of this Section 8.12, the Trustee may appoint a
successor Authenticating Agent, shall give written notice of such appointment to
the Company and shall mail notice of such appointment (at the Company's expense)
to all Holders. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers, duties
and responsibilities of its predecessor hereunder, with like effect as if
originally named as Authenticating Agent. No such Authenticating Agent shall be
appointed unless eligible under the provisions of this Section 8.12. Any
Authenticating Agent shall be entitled to reasonable compensation for its
services which shall be paid by the Company.
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ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS.
Notwithstanding Section 9.02 of this Indenture, the Company, when
authorized by a Board Resolution, and the Trustee together, may amend or
supplement this Indenture or the Securities without notice to or consent of any
Holder:
(1) to cure any ambiguity, defect or inconsistency; PROVIDED that such
amendment or supplement does not, in the opinion of the Trustee, adversely
affect the rights of any of the Holders in any material respect;
(2) to provide for the assumption of the Company's obligations to Holders
of the Securities in the event of a merger, consolidation or sale of all or
substantially all of the Company's assets pursuant to Article 6 hereof;
(3) to make any change that would provide any additional rights or
benefits to the Holders of the Securities or that does not adversely affect the
legal rights under this Indenture of any such Holder; and
(4) to evidence and provide for the acceptance of appointment hereunder by
a successor Trustee;
PROVIDED that the Company has delivered to the Trustee an Opinion of Counsel and
an Officers' Certificate, each stating that such amendment or supplement
complies with the provisions of this Section 9.01.
SECTION 9.02. WITH CONSENT OF HOLDERS.
Subject to Section 7.07, the Company, when authorized by a Board
Resolution and the Trustee, with the written consent of the Holder or Holders of
at least a majority in principal amount of the outstanding Securities may amend
or supplement this Indenture or the Securities, without notice to any other
Holders. Subject to Sections 7.04 and 7.07, the Holder or Holders of a majority
in aggregate principal amount of the outstanding Securities may waive compliance
by the Company with any provision of this Indenture or the Securities without
notice to any other Holders.
No amendment, supplement or waiver, including a waiver pursuant to Section
7.04, shall, directly or indirectly, without the consent of each Holder of each
Security affected thereby:
(1) change the Stated Maturity of the principal of, or any installment of
interest on, any Security or reduce the principal amount of, or premium, if any,
or interest on, any Security;
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(2) change the currency of payment of principal of, or premium, if any, or
interest on, any Security;
(3) impair the right to institute suit for the enforcement of any payment
on or after the Stated Maturity (or, in the case of a redemption, on or after
the Redemption Date) of any Security;
(4) reduce the percentage of outstanding Securities whose Holders must
consent to an amendment or supplement to this Indenture;
(5) waive a Default or Event of Default in the payment of principal of, or
premium, if any, or interest on the Securities;
(6) reduce the percentage or aggregate principal amount of outstanding
Securities, the consent of whose Holders is necessary for waiver of compliance
with certain provisions of this Indenture or for waiver of certain Defaults;
(7) reduce the rate of accretion on any Security; or
(8) make any change in the foregoing amendment and waiver provisions.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.02 becomes
effective (as provided in Section 9.03), the Company shall mail to the Holders
affected thereby a notice briefly describing the amendment, supplement or
waiver.
SECTION 9.03. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, waiver or supplement becomes effective, a consent to
it by a Holder is a continuing consent by the Holder and every subsequent Holder
of a Security or portion of a Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not made on any
Security. Subject to the following paragraph, any such Holder or subsequent
Holder may revoke the consent as to his Security or portion of his Security by
notice to the Trustee or the Company received before the date on which the
Trustee receives an Officers' Certificate certifying that the Holders of the
requisite principal amount of Securities have consented (and not theretofore
revoked such consent) to the amendment, supplement or waiver (at which time such
amendment, supplement or waiver shall become effective).
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to consent to any amendment,
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supplement or waiver, which record date shall be at least 30 days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
Persons who were Holders at such record date (or their duly designated proxies),
and only those Persons, shall be entitled to revoke any consent previously
given, whether or not such Persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 120 days after
such record date.
After an amendment, supplement or waiver becomes effective, it shall bind
every Holder, unless it makes a change described in any of clauses (1) through
(8) of Section 9.02, in which case, the amendment, supplement or waiver shall
bind only each Holder of a Security who has consented to it and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security; PROVIDED that any such waiver shall not impair
or affect the right of any Holder to receive payment of principal of, or premium
on, or interest on a Security on or after the respective due dates expressed in
such Security, or to bring suit for the enforcement of any such payment on or
after such respective dates without the consent of such Holder.
SECTION 9.04. NOTATION ON OR EXCHANGE OF SECURITIES.
If an amendment, supplement or waiver changes the terms of a Security, the
Trustee may require the Holder of the Security to deliver it to the Trustee. The
Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determine, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms.
Failure to make the appropriate notation or issue a new Security shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.05. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall execute any amendment, supplement or waiver authorized
pursuant to and adopted in accordance with this Article 9; PROVIDED that the
Trustee may, but shall not be obligated to, execute any such amendment,
supplement or waiver which affects the Trustee's own rights, duties or
immunities under this Indenture. The Trustee shall be entitled to receive, and
shall be fully protected in relying upon, an Opinion of Counsel and an Officers'
Certificate each stating that the execution of any amendment, supplement or
waiver authorized pursuant to this Article 9 is authorized or permitted by this
Indenture. Such Opinion of Counsel shall not be an expense of the Trustee.
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ARTICLE 10
SUBORDINATION
SECTION 10.01. SECURITIES SUBORDINATE TO SENIOR INDEBTEDNESS.
The Company and the Trustee each covenants and agrees, and each Holder, by
its acceptance of a Security, likewise covenants and agrees, that all Securities
shall be issued subject to the subordination provisions contained in this
Article 10, and each Holder of a Security, whether upon original issue or upon
transfer, assignment or exchange thereof, accepts and agrees that the Senior
Subordinated Obligations shall be, to the extent and in the manner set forth in
this Article 10, subordinated in right of payment and subject to the prior
payment in full, in cash or cash equivalents, of all amounts payable under
Senior Indebtedness including, without limitation, any interest accruing
subsequent to an event specified in Sections 7.01(7) and 7.01(8), whether or not
such interest is an allowed claim enforceable against the debtor under the
Bankruptcy Code.
SECTION 10.02. NO PAYMENT ON SECURITIES IN CERTAIN CIRCUMSTANCES.
(a) No direct or indirect payment by or on behalf of the Company of any
Senior Subordinated Obligations, whether pursuant to the terms of the Securities
or upon acceleration or otherwise, shall be made if, at the time of such
payment, there exists a default in the payment of all or any portion of the
obligations on any Senior Indebtedness, and such default shall not have been
cured or waived, or the benefits of this sentence waived by or on behalf of, the
holders of such Senior Indebtedness.
(b) In addition, during the continuance of any other event of default with
respect to any Senior Indebtedness pursuant to which the maturity thereof may be
accelerated, upon receipt by the Trustee of written notice from the trustee or
other representative for the holders of such Senior Indebtedness (or the holders
of at least a majority in principal amount of such Senior Indebtedness then
outstanding), no payment of Senior Subordinated Obligations may be made by or on
behalf of the Company upon or in respect of the Securities for a period (a
"Payment Blockage Period") commencing on the date of receipt of such notice and
ending 179 days thereafter (unless, in each case, such Payment Blockage Period
shall be terminated by written notice to the Trustee from such trustee of, or
other representatives for, such holders or if the Company delivers to the
Trustee an Officers' Certificate certifying that (i) the Senior Indebtedness
that gave rise to such Payment Blockage Period has been repaid in full or (ii)
the event of default that gave rise to such Payment Blockage Period is no longer
continuing). Not more than one Payment Blockage Period may be commenced with
respect to the Securities during any period of 360 consecutive days.
Notwithstanding anything in this Indenture to the contrary, there must be 180
consecutive days in any 360-day period in which no Payment Blockage Period is in
effect. No event of default that existed or was continuing (it being
acknowledged that any subsequent action that would give rise to an event of
default pursuant to any provision under which an event of default previously
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existed or was continuing shall constitute a new event of default for this
purpose) on the date of the commencement of any Payment Blockage Period with
respect to the Senior Indebtedness initiating such Payment Blockage Period shall
be, or shall be made, the basis for the commencement of a second Payment
Blockage Period by the representative for, or the holders of, such Senior
Indebtedness, whether or not within a period of 360 consecutive days, unless
such event of default shall have been cured or waived for a period of not less
than 90 consecutive days.
(c) In the event that, notwithstanding the foregoing, any payment shall be
received by the Trustee or any Holder and the Trustee is aware that such payment
is prohibited by paragraphs (a) and (b) of this Section 10.02, the Trustee shall
promptly notify the holders of the Senior Indebtedness of such prohibited
payment and such payment shall be held for the benefit of, and shall be paid
over or delivered to, the holders of Senior Indebtedness or their respective
representatives, or to the trustee or trustees under any indenture pursuant to
which any of such Senior Indebtedness may have been issued, as their respective
interests may appear, but only to the extent that, upon notice from the Trustee
to the holders of Senior Indebtedness that such prohibited payment has been
made, the holders of the Senior Indebtedness (or their representative or
representatives or a trustee) within 30 days of receipt of such notice from the
Trustee, notify the Trustee of the amounts then due and owing on the Senior
Indebtedness, if any, and only the amounts specified in such notice to the
Trustee shall be paid to the holders of Senior Indebtedness and any excess above
such amounts due and owing on Senior Indebtedness shall be paid to the Company.
SECTION 10.03. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.
(a) Upon any payment or distribution of assets or securities of the
Company of any kind or character, whether in cash, property or securities, upon
any dissolution or winding up or total or partial liquidation or reorganization
of the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become due upon all
Senior Indebtedness (including any interest accruing subsequent to an event of
bankruptcy, whether or not such interest is an allowed claim enforceable against
the debtor under the Bankruptcy Code) shall first be paid in full, in cash or
cash equivalents, before the Holders of the Securities or the Trustee on behalf
of the Holders of the Securities shall be entitled to receive any payment by the
Company on account of Senior Subordinated Obligations, or any payment to acquire
any of the Securities for cash, property or securities, or any distribution with
respect to the Securities of any cash, property or securities.
(b) In the event that, notwithstanding the foregoing provision prohibiting
such payment or distribution, any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, shall
be received by the Trustee or any Holder at a time when such payment or
distribution is prohibited by Section 10.03(a) and before all obligations in
respect of Senior Indebtedness are paid in full, in cash or cash equivalents,
such payment or distribution shall be received and held for the benefit of, and
shall be paid over or delivered to, the holders of Senior Indebtedness (PRO RATA
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to such holders on the basis of the respective amount of Senior Indebtedness
held by such holders) or their representatives or to the trustee or trustees
under any other indenture pursuant to which any such Senior Indebtedness may
have been issued, as their respective interests appear, for application to the
payment of Senior Indebtedness remaining unpaid until all such Senior
Indebtedness has been paid in full, in cash or cash equivalents, after giving
effect to any concurrent payment, distribution or provision therefor to or for
the holders of such Senior Indebtedness.
(c) The consolidation of the Company with, or the merger of the Company
with or into, another corporation or the liquidation or dissolution of the
Company following the sale, conveyance, transfer, lease or other disposition of
all or substantially all of its property and assets to another corporation upon
the terms and conditions provided in Article 6 shall not be deemed a
dissolution, winding up, liquidation or reorganization for the purposes of this
Section 10.03 if such other corporation shall, as a part of such consolidation,
merger, sale, conveyance, transfer, lease or other disposition, comply with the
conditions provided in Article 6.
SECTION 10.04. SUBROGATION OF HOLDERS TO RIGHTS OF HOLDERS OF SENIOR
INDEBTEDNESS.
Upon the payment in full of all Senior Indebtedness in cash or cash
equivalents, the Holders of Securities shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or distributions of cash,
property or securities of the Company made on such Senior Indebtedness until the
principal of, premium, if any, and interest on the Securities shall be paid in
full, and no payments or distributions to the holders of Senior Indebtedness (or
any trustee therefor) of any cash, property or securities of the Company to
which the Holders or the Trustee on their behalf would be entitled except for
the provisions of this Article 10, and no payment pursuant to the provisions of
this Article 10 to the holders of Senior Indebtedness by Holders or the Trustee
on their behalf shall be, as among the Trustee, the Company, its creditors other
than the holders of Senior Indebtedness, and the Holders, deemed to be a payment
by the Company to or on account of the Senior Indebtedness, it being understood
that the provisions of this Article 10 are and are intended solely for the
purpose of defining the relative rights of, the Holders, on the one hand, and
the holders of the Senior Indebtedness, on the other hand.
If any payment or distribution to which the Holders would otherwise have
been entitled but for the provisions of this Article 10 shall have been applied,
pursuant to the provisions of this Article 10, to the payment of all amounts
payable under Senior Indebtedness, then, and in such case, the Holders shall be
entitled to receive from the holders of such Senior Indebtedness any payments or
distributions received by such holders of Senior Indebtedness in excess of the
amount required to make payment in full, in cash or cash equivalents, of such
Senior Indebtedness of such holders.
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SECTION 10.05. OBLIGATIONS OF COMPANY UNCONDITIONAL.
Nothing contained in this Article 10 or elsewhere in this Indenture or in
the Securities is intended to or shall impair, as among the Company, its
creditors other than the holders of Senior Indebtedness, and the Holders, the
obligation of the Company, which is unconditional and absolute, to pay to the
Holders the principal of, premium, if any, and interest on the Securities as and
when the same shall become due and payable in accordance with their terms, or to
affect the relative rights of the Holders and creditors of the Company other
than the holders of the Senior Indebtedness, nor shall anything herein or
therein prevent the Trustee or any Holders from exercising all remedies
otherwise permitted by applicable law upon a Default or an Event of Default
under this Indenture, subject to the rights, if any, under this Article 10, of
the holders of Senior Indebtedness in respect of cash, property or securities of
the Company received upon the exercise of any such remedy.
Without limiting the generality of the foregoing, nothing contained in
this Article 10 will restrict the right of the Trustee or the Holders to take
any action to declare the Securities to be due and payable prior to their Stated
Maturity pursuant to Section 7.01 or to pursue any rights or remedies hereunder;
PROVIDED, HOWEVER, that all Senior Indebtedness then due and payable or
thereafter declared to be due and payable shall first be paid in full, in cash
or cash equivalents, before the Holders or the Trustee are entitled to receive
any direct or indirect payment from the Company of Senior Subordinated
Obligations.
SECTION 10.06. PAYMENTS MAY BE MADE PRIOR TO DISSOLUTION.
Nothing contained in this Article 10 or elsewhere in this Indenture or in
any of the Securities (a) shall prevent the Company at any time, except under
the conditions described in Section 10.02 or 10.03, from making payments of or
on account of the Senior Subordinated Obligations to the Holders entitled
thereto or from depositing any moneys with the Trustee for such payments, or (b)
shall prevent the application by the Trustee (or any Paying Agent other than the
Company) of any moneys deposited with it hereunder to the payment of or on
account of the Senior Subordinated Obligations, if the Trustee or such Paying
Agent, as the case may be, did not, at least two Business Days prior to the date
upon which such payment becomes due and payable, have written notice as provided
in Section 10.02 or 10.12 of any event prohibiting the making of such payment.
The Company shall give prompt written notice to the Trustee of any dissolution,
winding up, liquidation or reorganization of the Company.
SECTION 10.07. NO WAIVER OF SUBORDINATION PROVISIONS.
No right of any present or future holder of any Senior Indebtedness of the
Company to enforce the subordination provisions of this Article 10 shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Company or by any act or failure to act, in good faith, by any such
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holder, or by any noncompliance by the Company with the terms, provisions and
covenants of this Indenture, regardless of any knowledge thereof any such holder
may have or be otherwise charged with. The provisions of this Article 10 are
intended to be for the benefit of, and shall be enforceable directly by, the
holders of Senior Indebtedness.
SECTION 10.08. AUTHORIZATION TO TRUSTEE TO TAKE ACTION TO EFFECTUATE
SUBORDINATION.
Each Holder of Securities by his acceptance thereof authorizes and directs
the Trustee on his behalf to take such action as may be necessary or appropriate
to effectuate, as between the Holders and the holders of the Senior
Indebtedness, the subordination as provided in this Article 10 and appoints the
Trustee his attorney-in-fact for any and all such purposes.
SECTION 10.09. SENIOR INDEBTEDNESS MAY BE RENEWED OR EXTENDED, ETC.
Without in any way limiting the generality of Section 10.07 of this
Indenture, the holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders, without
incurring responsibility to the Holders and without impairing or releasing the
subordination provided in this Article 10 or the obligations hereunder of the
Holders to the holders of Senior Indebtedness, do any one or more of the
following: (a) change the manner, place or terms of payment or extend the time
of payment of, or renew or alter, Senior Indebtedness or any instrument
evidencing the same or any agreement under which Senior Indebtedness is
outstanding or secured; (b) sell, exchange, release or otherwise deal with any
property pledged, mortgaged or otherwise securing Senior Indebtedness; (c)
release any Person liable in any manner for the collection of Senior
Indebtedness; and (d) exercise or refrain from exercising any rights against the
Company and any other Person.
SECTION 10.10. TRUSTEE TO HAVE NO FIDUCIARY DUTY TO HOLDERS OF SENIOR
INDEBTEDNESS.
With respect to the holders of Senior Indebtedness, the Trustee undertakes
to perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article 10, and no implied covenants and
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and the Trustee shall
not be liable to any holder of Senior Indebtedness if it shall pay over or
deliver to the Holders, the Company or any other Person moneys or assets to
which any holder of Senior Indebtedness shall be entitled by virtue of this
Article 10 or otherwise.
SECTION 10.11. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS.
The Trustee shall be entitled to all rights set forth in this Article 10
in respect of any Senior Indebtedness at any time held by it, to the same extent
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as any other holder of Senior Indebtedness and nothing in this Indenture shall
be construed to deprive the Trustee of any of its rights as such holder.
SECTION 10.12. NOTICE TO TRUSTEE.
The Company shall give prompt written notice to the Trustee and any Paying
Agent of any fact known to the Company which would prohibit the making of any
payment of moneys to or by the Trustee or any Paying Agent in respect of
Securities pursuant to the provisions of this Article 10 or otherwise. The
Trustee shall not be charged with knowledge of the existence of a default or
event of default with respect to all Senior Indebtedness or any other facts that
would prohibit the making of any payment to or by the Trustee unless and until
the Trustee shall have received written notice thereof mailed or delivered to
the Trustee at its Corporate Trust Office signed by an Officer of the Company or
the holder or representative of any class of Senior Indebtedness or any trustee
or agent therefor; and prior to the receipt of any such written notice, the
Trustee shall, subject to Article 8, be entitled to assume that no such facts
exist; PROVIDED that, if the Trustee shall not have received the notice provided
for in this Section 10.12 at least two Business Days prior to the date upon
which, by the terms of this Indenture, any money shall become payable for any
purpose (including, without limitation, the payment of the principal or,
premium, if any, or interest on any Security), then notwithstanding anything
herein to the contrary, the Trustee shall have full power and authority to
receive any money from the Company and to apply the same to the purpose for
which they were received, and shall not be affected by any notice to the
contrary that may be received by it on or after such prior date except for an
acceleration of the Securities prior to such application. Nothing contained in
this Section 10.12 shall limit the right of the holders of Senior Indebtedness
to recover payments as contemplated by this Article 10. The foregoing shall not
apply if the Paying Agent is the Company.
The Trustee shall be entitled to rely on the delivery to it of a written
notice by a Person representing himself or itself to be a holder of any Senior
Indebtedness (or a trustee on behalf of, or other representative of, such
holder) to establish that such notice has been given by a holder of such Senior
Indebtedness or a trustee or representative on behalf of any such holder. In the
event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article 10, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article 10.
SECTION 10.13. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING
AGENT.
Upon any payment or distribution of assets or securities referred to in
this Article 10, the Trustee and the Holders shall be entitled to rely upon any
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order or decree made by any court of competent jurisdiction in which bankruptcy,
dissolution, winding up, liquidation or reorganization proceedings are pending,
or upon a certificate of the receiver, trustee in bankruptcy, liquidating
trustee, agent or other similar Person making such payment or distribution,
delivered to the Trustee or to the Holders for the purpose of ascertaining the
Persons entitled to participate in such distribution, the holders of the Senior
Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article 10.
SECTION 10.14. NOT TO PREVENT EVENTS OF DEFAULT.
The failure to make a payment on account of principal of, premium, if any,
or interest on the Securities by reason of any provision of this Article 10 will
not be construed as preventing the occurrence of an Event of Default.
SECTION 10.15. TRUSTEE'S COMPENSATION NOT PREJUDICED.
Nothing in this Article 10 will apply to amounts due to the Trustee
pursuant to other sections of this Indenture.
ARTICLE 11
CONVERSION OF SECURITIES
SECTION 11.01. RIGHT TO CONVERT; MANDATORY CONVERSION.
(a) The Holders of the Securities shall have the right, at the option of
each Holder, at any time after one year following the Closing Date (except as
provided in this Section 11.01) to convert any such Security or any portion
thereof, in denominations of $1,000 principal amount at maturity or integral
multiples thereof, into that number of fully paid and nonassessable whole
Conversion Shares obtained by dividing (i) the aggregate Accreted Value, through
and including the date of conversion, of the Securities being converted by a
particular Holder by (ii) $.70, subject to adjustment as provided in this
Article 11 (such ratio being the "Conversion Ratio").
(b) If on any date of determination (i) the Closing Price of the Common
Stock on the NASDAQ National or Small Cap Market or other principal securities
exchange or system on which the Common Stock is then traded, if any, or (ii) if
not so traded, then if the best bid offered price on the OTC Bulletin Board
Service (the "BBS") on days when transactions in the Common Stock are not
effected, or, on such days as transactions are effected on the BBS, the highest
price at which a trade was executed as reported to the National Association of
Securities Dealers, Inc. through the Automated Confirmation Transaction Service
(the "OTC Price"), during any period set forth below has exceeded the price for
such period set forth below for at least 20 consecutive Trading Days (the
"Market Criteria," and such 20-day period being the "Market Criteria Period")
and the Shelf Registration Statement with respect to the Conversion Shares is
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effective and available, then all of the Securities will be automatically
converted on such date into that number of fully paid and nonassessable whole
Conversion Shares obtained by applying the Conversion Ratio as specified in
paragraph (a) above of this Section 11.01; PROVIDED, HOWEVER, that if the Market
Criteria is satisfied during the third year after the Closing Date, the
conversion will not occur until the three-year anniversary of the Closing Date
and will occur only if the Closing Price or OTC Price, as applicable, of the
Common Stock is at least $2.80 on such date:
12 Months Beginning Closing Price
------------------- -------------
October 31, 1999 $2.80
October 31, 2000 $3.25
Except as provided herein, no payment or adjustment shall be made
upon conversion of any Security for interest accrued thereon or for dividends
paid on Common Stock of the Company prior to the close of business on the Record
Date for the determination of stockholders entitled to such dividends.
If any Securities shall be called for redemption, the right to convert the
Securities designated for redemption shall terminate at the close of business on
the Trading Day next preceding the date fixed for redemption unless the Company
defaults in the payment of the Redemption Price plus all accrued and unpaid
interest. In the event of default in the payment of the Redemption Price, the
right to convert the Securities designated for redemption shall terminate at the
close of business on the Business Day next preceding the date that such default
is cured.
If Securities not called for redemption are converted (including pursuant
to Section 11.01(b)) after a Record Date for the payment of interest and prior
to the next succeeding Interest Payment Date, such Securities must be
accompanied by funds equal to the interest payable on such succeeding Interest
Payment Date on the principal amount so converted.
The Conversion Shares, upon conversion of the Securities, when the same
shall be issued in accordance with the terms hereof, are hereby declared to be,
and shall be, validly issued, fully paid and nonassessable shares of Common
Stock of the Company in the hands of the Holders thereof.
SECTION 11.02. MECHANICS OF CONVERSION.
In order to effect the conversion of any Security into Conversion Shares,
the Holder of such Security shall surrender to the Trustee or its agent the
Security to be converted accompanied by a duly executed notice of conversion
form set forth in the certificate representing such Security stating that such
Holder elects to convert all or a specified portion of the principal amount at
maturity of such Security in accordance with the provisions hereof and
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specifying the name or names in which such Holder wishes the Conversion Shares
to be issued. If more than one Security shall be surrendered for conversion at
one time by the same Holder, the number of full Conversion Shares issuable upon
conversion thereof shall be computed on the basis of the aggregate Accreted
Value of all of the Securities so surrendered by such Holder at such time.
In case such notice shall specify a name or names other than that of such
Holder, such notice shall be accompanied by payment of all transfer taxes
payable upon the issuance of Conversion Shares in such name or names. Other than
such taxes, the Company will pay any and all issue and other taxes (other than
taxes based on income) that may be payable in respect of any issue or delivery
of Conversion Shares upon conversion of Securities.
As promptly as practicable and in any event within ten Business Days after
surrender of the Securities to be converted and the receipt of such notice of
conversion relating thereto and, if applicable, payment of all transfer taxes
(or the demonstration to the satisfaction of the Company that any such taxes
have been paid), the Trustee or its agent will instruct the Company to deliver
promptly to, or upon the written order of, the Holder of the Securities to be
converted (i) certificates representing the number of validly issued, fully paid
and nonassessable whole Conversion Shares to which the Holder of the Securities
being converted shall be entitled, (ii) any cash owing in lieu of a fractional
Conversion Share, determined in accordance with Section 11.04 and (iii) if fewer
than all the Securities surrendered are being converted, a new Security or
Securities, of like tenor, evidencing a principal amount at maturity equal to
the principal amount at maturity of the Securities surrendered for conversion
less the principal amount at maturity of the Securities being converted. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the Securities to be converted and the
making of any such required payment. Upon such conversion, the rights of the
Holder thereof as to the Securities being converted shall cease except for the
right to receive Conversion Shares (or such other consideration as provided
herein) in accordance herewith, and the Person entitled to receive the
Conversion Shares shall be treated for all purposes as having become the record
Holder of such Conversion Shares at such time. All Securities delivered for
conversion to the Trustee or its agent shall be canceled by or at the direction
of the Trustee, which shall thereafter dispose of the same.
The Company shall not be required to convert any Securities, and no
surrender of Securities shall be effective for that purpose, while stock
transfer books of the Company for the Common Stock are closed for any purposes
(but not for any period in excess of 15 days), but the surrender of Securities
for conversion during any period while such books are so closed shall become
effective for conversion immediately upon the reopening of such books, as if the
conversion had been made on the date such books were reopened, and with the
application of the Conversion Ratio in effect at the date such books were
reopened.
The Holders of Securities are not entitled, as such, to receive dividends
or other distributions, receive notice of any meeting of the stockholders,
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consent to any action of the stockholders, receive notice of any other
stockholder proceedings, or to any other rights as stockholders of the Company.
SECTION 11.03. ADJUSTMENT TO CONVERSION RATIO.
The denominator of the Conversion Ratio shall be adjusted from time to
time as follows:
(a) In case the Company shall hereafter pay a dividend (excluding payment
of dividends on the Company's Series A Preferred Stock) or make a distribution
in Common Stock of the Company to all holders of the outstanding Common Stock of
the Company, the denominator of the Conversion Ratio in effect at the opening of
business on the date following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution shall be
reduced by multiplying such denominator of the Conversion Ratio by a fraction of
which the numerator shall be the number of Common Stock outstanding at the close
of business on the date fixed for such determination and the denominator shall
be the sum of such number of shares and the total number of shares constituting
such dividend or other distribution, such reduction to become effective
immediately after the opening of business on the day following the date fixed
for such determination. The Company will not pay any dividend or make any
distribution on Common Stock held in the treasury of the Company.
(b) In case the Company shall hereafter issue rights or warrants to all
holders of its outstanding Common Stock entitling them (for a period expiring
within 45 days after the date fixed for determination of stockholders entitled
to receive such rights or warrants) to subscribe for or purchase Common Stock at
a price per share less than the Current Market Price (as defined below) on the
date fixed for determination of stockholders entitled to receive such rights or
warrants, the denominator of the Conversion Ratio shall be adjusted so that the
same shall equal the number determined by multiplying the denominator of the
Conversion Ratio in effect immediately prior to the date fixed for determination
of stockholders entitled to receive such rights or warrants by a fraction of
which the numerator shall be the number of shares of Common Stock outstanding at
the close of business on the date fixed for determination of stockholders
entitled to receive such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered would purchase
at such Current Market Price, and of which the denominator shall be the number
of Common Stock outstanding on the date fixed for determination of stockholders
entitled to receive such rights or warrants plus the total number of additional
shares of Common Stock offered for subscription or purchase. Such adjustment
shall become effective immediately after the opening of business on the day
following the date fixed for determination of stockholders entitled to receive
such rights or warrants. To the extent that Common Stock is not delivered, after
the expiration of such rights or warrants the denominator shall be readjusted to
the denominator which would then be in effect had the adjustments made upon the
issuance of such rights or warrants been made on the basis of delivery of only
the number of shares of Common Stock actually delivered. In the event that such
rights or warrants are not so issued, the denominator shall again be adjusted to
be the denominator which would then be in effect if such date fixed for the
determination of stockholders entitled to receive such rights or warrants had
not been fixed.
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(c) In case the outstanding Common Stock shall be subdivided into a
greater number of shares of Common Stock, the denominator of the Conversion
Ratio in effect at the opening of business on the day following the day upon
which such subdivision becomes effective shall be proportionately reduced, and
conversely, in case outstanding Common Stock shall be combined into a smaller
number of shares of Common Stock, the denominator of the Conversion Ratio in
effect at the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately increased, such reduction
or increase, as the case may be, to become effective immediately after the
opening of business on the day following the day upon which such subdivision or
combination becomes effective.
(d) In case the Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock shares of any class of capital stock (other than a
dividend or distribution to which subparagraph (a) of this Section 11.03
applies) or evidences of its indebtedness or assets (including securities, but
excluding any rights or warrants referred to in subparagraph (b) of this Section
11.03, and excluding any dividend or distribution (x) in connection with the
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, (y) paid exclusively in cash or (z) referred to in subparagraph (a)
of this Section 11.03) (any of the foregoing being hereinafter in this
subparagraph (d) referred to as the "Distribution Securities"), then, in each
such case, unless the Company elects to reserve such Distribution Securities for
distribution to the Holders of the Securities upon the conversion of the
Securities so that any such Holder converting Securities will receive upon such
conversion, in addition to the Conversion Shares to which such Holder is
entitled, the amount and kind of such Distribution Securities which such Holder
would have received if such Holder had, immediately prior to the Record Date for
such distribution of the Distribution Securities, converted its Securities into
Conversion Shares, the denominator of the Conversion Ratio shall be reduced so
that the same shall equal the number determined by multiplying the denominator
of the Conversion Ratio in effect on the Record Date by a fraction of which the
numerator shall be the Current Market Price per share of Common Stock on the
Record Date less the fair market value (as determined by the Board of Directors
or, to the extent permitted by applicable law, a duly authorized committee
thereof, whose determination shall be conclusive, and described in a resolution
of the Board of Directors or such duly authorized committee thereof, as the case
may be), on the Record Date, of the portion of the Distribution Securities so
distributed applicable to one share of Common Stock and the denominator shall be
such Current Market Price per share of the Common Stock, such reduction to
become effective immediately prior to the opening of business on the day
following the Record Date; PROVIDED, HOWEVER, that in the event the then fair
market value (as so determined) of the portion of the Distribution Securities so
distributed applicable to one share of Common Stock is equal to or greater than
the Current Market Price of the Common Stock on the Record Date, in lieu of the
foregoing adjustment, adequate provision shall be made so that each Holder of
Securities shall have the right to receive upon conversion the amount and kind
of Distribution Securities such Holder would have received had such Holder
converted each such Security on the Record Date.
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In the event that such dividend or distribution is not so paid or made, the
denominator of the Conversion Ratio shall again be adjusted to be the
denominator of the Conversion Ratio which would then be in effect if such
dividend or distribution had not been declared. If the Board of Directors (or,
to the extent permitted by applicable law, a duly authorized committee thereof)
determines the fair market value of any distribution for purposes of this
subparagraph (d) by reference to the actual or when issued trading market for
any securities comprising such distribution, it must in doing so consider the
prices in such market over the same period used in computing the Current Market
Price of the Common Stock.
For purposes of this subparagraph (d) and subparagraphs (a) and (b) of
this Section 11.03, any dividend or distribution that includes Common Stock, or
rights or warrants to subscribe for or purchase Common Stock, shall be deemed
instead to be (i) a dividend or distribution of the evidences of indebtedness,
assets or shares of capital stock other than such Common Stock or rights or
warrants (and any reduction in the denominator of the Conversion Ratio required
by this subparagraph (d) with respect to such dividend or distribution shall
then be made) immediately followed by (ii) a dividend or distribution of such
Common Stock or such rights or warrants (and any further reduction in the
denominator of the Conversion Ratio required by subparagraph (a) or (b) of this
Section 11.03 with respect to such dividend or distribution shall then be made),
except (A) the Record Date of such dividend or distribution as defined in this
subparagraph (d) shall be substituted as "the date fixed for the determination
of stockholders entitled to receive such dividend or other distribution" and
"the date fixed for such determination" within the meaning of subparagraphs (a)
and (b) of this Section 11.03 and (B) any Common Stock included in such dividend
or distribution shall not be deemed "outstanding at the close of business on the
date for such determination" within the meaning of subparagraph (a) of this
Section 11.03.
(e) In case the Company shall, by dividend or otherwise, at any time
distribute to all holders of its Common Stock cash (excluding any quarterly,
semi-annual, annual or other regularly scheduled cash dividend paid on the
Common Stock, and excluding any dividend or distribution in connection with the
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary), then, in such case, unless the Company elects to reserve such cash
for distribution to the Holders of the Securities upon the conversion of the
Securities so that any such Holder converting Securities will receive upon such
conversion, in addition to the Conversion Shares to which such Holder is
entitled, the amount of cash which such Holder would have received if such
Holder had, immediately prior to the Record Date for such distribution of cash,
converted its Securities into Conversion Shares, the denominator of the
Conversion Ratio shall be reduced so that the same shall equal the number
determined by multiplying the denominator of the Conversion Ratio in effect
immediately prior to the Record Date by a fraction of which the numerator shall
be the Current Market Price of the Common Stock on the Record Date less the
amount of cash so distributed (and not excluded as provided above) applicable to
one share of Common Stock and the denominator shall be such Current Market Price
of the Common Stock, such reduction to become effective immediately prior the
opening of business on the day following the Record Date; PROVIDED, HOWEVER,
that in the event the portion of the cash so distributed applicable to one share
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of Common Stock is equal to or greater than the Current Market Price of the
Common Stock on the Record Date, in lieu of the foregoing adjustment, adequate
provision shall be made so that each Holder of Securities shall thereafter have
the right to receive upon conversion the amount of cash such Holder would have
received had he converted each Security on the Record Date. In the event that
such dividend or distribution is not so paid or made, the denominator of the
Conversion Ratio shall again be adjusted to be the denominator of the Conversion
Ratio which would then be in effect if such dividend or distribution had not
been declared.
(f) In case a tender or exchange offer made by the Company or any
Subsidiary of the Company for all or any portion of the Common Stock shall
expire and such tender or exchange offer shall involve the payment by the
Company or such Subsidiary of consideration per share of Common Stock having a
fair market value (as determined by the Board of Directors or, to the extent
permitted by applicable law, a duly authorized committee thereof, whose
determination shall be conclusive, and described in a resolution of the Board of
Directors or such duly authorized committee thereof, as the case may be) at the
last time (the "Expiration Time") tenders or exchanges may be made by holders of
Common Stock pursuant to such offer (as it shall have been amended) that exceeds
the Current Market Price of the Common Stock on the Trading Day next succeeding
the Expiration Time, the denominator of the Conversion Ratio shall be reduced so
that such denominator shall equal the number determined by multiplying the
denominator of the Conversion Ratio in effect immediately prior to the
Expiration Time by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding (including any tendered or exchanged shares)
on the Expiration Time multiplied by the Current Market Price of the Common
Stock on the Trading Day next succeeding the Expiration Time and the denominator
shall be the sum of (x) the fair market value (determined as aforesaid) of the
aggregate consideration payable to stockholders based on the acceptance (up to
any maximum specified in the terms of the tender or exchange offer) of all
shares validly tendered or exchanged and not withdrawn as of the Expiration Time
(the shares deemed so accepted, up to any such maximum, being referred to as the
"Purchased Shares") and (y) the product of the number of Common Stock
outstanding (less any Purchased Shares) on the Expiration Time and the Current
Market Price of the Common Stock on the Trading Day next succeeding the
Expiration Time, such reduction to become effective immediately prior to the
opening of business on the day following the Expiration Time. In the event that
the Company is obligated to purchase shares pursuant to any such tender or
exchange offer, but the Company is permanently prevented by applicable law from
effecting any such purchases or all such purchases are rescinded, the
denominator of the Conversion Ratio shall again be adjusted to be the
denominator of the Conversion Ratio which would then be in effect if such tender
or exchange offer had not been made.
(g) The Company may make such reductions in the denominator of the
Conversion Ratio, in addition to those required by subparagraphs (a), (b), (c),
(d), (e) and (f) of this Section 11.03, as the Board of Directors considers to
be advisable to avoid or diminish any income tax to holders of Common Stock or
rights to purchase Common Stock resulting from any dividend or distribution of
stock (or rights to acquire stock) or from any event treated as such for income
tax purposes. To the extent permitted by applicable law, the Company from time
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<PAGE>
to time may reduce the denominator of the Conversion Ratio by any amount for any
period of time if the period is at least 20 days, the reduction is irrevocable
during such period, and the Board of Directors (or, to the extent permitted by
applicable law, a duly authorized committee thereof) shall have made a
determination that such reduction would be in the best interests of the Company,
which determination shall be conclusive. Whenever the denominator of the
Conversion Ratio is reduced pursuant to the preceding sentence, the Company
shall mail to Holders of record of the Securities a notice of the reduction at
least 15 days prior to the date the reduced denominator of the Conversion Ratio
takes effect, and such notice shall state the reduced denominator of the
Conversion Ratio and the period it will be in effect.
(h) No adjustment in the denominator of the Conversion Ratio shall be
required unless such adjustment would require an increase or decrease of at
least 1% in the denominator of the Conversion Ratio then in effect; PROVIDED,
HOWEVER, that any adjustments which by reason of this subparagraph (h) are not
required to be made shall be carried forward and taken into account in
determining whether any subsequent adjustment shall be required. Except as
provided in this Section 11.03, the denominator of the Conversion Ratio will not
be adjusted for the issuance of Common Stock or any securities convertible into
or exchangeable for Common Stock or carrying the right to purchase any of the
foregoing.
(i) Notwithstanding any other provision of this Section 11.03, in the
event that the Shelf Registration Statement is not declared effective by the
Commission on or prior to the date that is one year after the date of this
Indenture, the denominator of the Conversion Ratio will be decreased by $.15.
(j) Notwithstanding any other provision of this Section 11.03, no
adjustment to the denominator of the Conversion Ratio shall reduce the
denominator of the Conversion Ratio below the par value per share of the Common
Stock, and any such purported adjustment shall instead reduce the denominator of
the Conversion Ratio to such par value. The Company hereby covenants not to take
any action (i) to increase the par value per share of the Common Stock or (ii)
that would or does result in any adjustment in the denominator of the Conversion
Ratio that, if made without giving effect to the previous sentence, would cause
the denominator of the Conversion Ratio to be less than the then par value per
share of the Common Stock, PROVIDED, HOWEVER, that the covenant in this sentence
shall be suspended if within ten days of determining in good faith that such
action would result in such adjustment (but not later than the Business Day next
following the effectiveness of such adjustment), the Company gives notice of
redemption of all outstanding Securities, and effects the redemption referred to
in such notice on the redemption date referred to therein in compliance with
Article 4, but the covenant in this sentence shall be retroactively reinstated
if such notice is not given or such redemption does not occur.
(k) Whenever the denominator of the Conversion Ratio is adjusted as herein
provided, the Company shall promptly file with the Trustee an Officers'
Certificate setting forth the denominator after such adjustment and setting
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<PAGE>
forth a brief statement of the facts requiring such adjustment. Promptly after
delivery of such certificate, the Company shall prepare a notice of such
adjustment of the denominator of the Conversion Ratio setting forth such
adjusted denominator and the date on which each adjustment becomes effective and
shall mail such notice of such adjustment of the denominator of the Conversion
Ratio to the Holder of each Security at his last address appearing on the
Security Register provided for in Section 2.03, within 20 days, after execution
thereof. Failure to deliver such notice shall not effect the legality or
validity of any such supplement indenture. The Trustee shall be under no duty or
responsibility with respect to any certificate or the information and
calculations contained therein.
(l) In any case in which this Section 11.03 provides that an adjustment
shall become effective immediately after a Record Date for an event, the Company
may defer until the occurrence of such event (y) issuing to the Holder of any
Securities converted after such Record Date and before the occurrence of such
event the additional Conversion Shares issuable upon such conversion by reason
of the adjustment required by such event over and above the Conversion Shares
issuable upon such conversion before giving effect to such adjustment and (z)
paying to such Holder any amount in cash in lieu of any fractional Conversion
Share.
(m) For purposes of this Section 11.03, the following terms shall have the
meaning indicated:
(i) "Closing Price" with respect to any securities on any day
means the closing sale price regular way on such day or, in case no such sale
takes place on such day, the average of the reported closing bid and asked
prices, regular way, in each case on the NASDAQ National or Small Cap Market,
or, if such security is not listed or admitted to trading on such exchange, on
the principal national security exchange or quotation system on which such
security is quoted or listed or admitted to trading, or, if not quoted or listed
or admitted to trading on any national securities exchange or quotation system,
the OTC Price or if an OTC Price is not available, in such manner as furnished
by any NASD member firm selected from time to time by the Board of Directors for
that purpose, or a price determined in good faith by the Board of Directors or,
to the extent permitted by applicable law, a duly authorized committee thereof,
whose determination shall be conclusive.
(ii) "Current Market Price" means the average of the daily
Closing Prices per share of Common Stock for the ten consecutive Trading Days
immediately prior to the date in question.
(iii) "Record Date" shall mean, with respect to any dividend,
distribution or other transaction or event in which the holders of Common Stock
have the right to receive any cash, securities or other property or in which the
Common Stock (or other applicable security) is exchanged for or converted into
any combination of cash, securities or other property, the date fixed for
determination of shareholders entitled to receive such cash, securities or other
property (whether such date is fixed by the Board of Directors or by statute,
contract or otherwise).
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SECTION 11.04. NO FRACTIONAL SHARES.
No fractional Conversion Shares or scrip representing fractional
Conversion Shares shall be issued upon conversion of Securities. If more than
one Security shall be surrendered for conversion at one time by the same Holder,
the number of whole shares issuable upon conversion thereof shall be computed on
the basis of the aggregate number of Securities so surrendered. Instead of any
fractional Conversion Share that would otherwise be issuable upon conversion of
any Securities, the Company shall pay a cash adjustment in respect of such
fractional interest in an amount equal to the same fraction of the market price
per share of Common Stock of the Company (as determined or prescribed by the
Board of Directors, or, to the extent permitted by applicable law, a duly
authorized committee thereof, whose determination shall be conclusive, but
which, if the Common Stock is listed on the NASDAQ National or Small Cap Market
or other principal securities exchange or system, shall be the Closing Price of
the NASDAQ National or Small Cap Market or other principal securities exchange
or system and if not so traded, shall be the OTC Price, if available) at the
close of business on the Trading Day immediately preceding the date of
conversion.
SECTION 11.05. RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE
OF ASSETS.
In the case of (a) any reclassification or change of the Common Stock of
the Company, (b) a consolidation, merger or combination involving the Company or
(c) a sale or conveyance to another corporation of the property and assets of
the Company as an entirety or substantially as an entirety, in each case as a
result of which holders of Common Stock shall be entitled to receive stock,
other securities, other property or assets (including cash) with respect to or
in exchange for such Common Stock, the Holders of the Securities then
outstanding will be entitled thereafter to convert such Securities into the kind
and amount of shares of stock, other securities or other property or assets
which they would have owned or been entitled to receive upon such
reclassification, change, consolidation, merger, combination, sale or conveyance
had such Securities been converted into Conversion Shares immediately prior to
such reclassification, change, consolidation, merger, combination, sale or
conveyance assuming that a Holder of the Securities would not have exercised any
rights of election as to the stock, other securities or other property or assets
in connection therewith.
SECTION 11.06. SPECIFIC PERFORMANCE.
Without limiting the remedies available to the Holders, the Company
acknowledges that any failure by the Company to comply with its obligations
under this Article 11 may result in material irreparable injury to the Holders
for which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, any Holder may, notwithstanding any other provision contained in this
Indenture, obtain such relief as may be required to specifically enforce the
Company's obligations under this Article 11.
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<PAGE>
SECTION 11.07 COMPANY TO RESERVE COMMON STOCK.
The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of Securities, the full number of shares of
Common Stock then issuable upon the conversion of all outstanding Securities.
SECTION 11.08 RESPONSIBILITY OF TRUSTEE FOR CONVERSION PROVISIONS.
The Trustee, subject to the provisions of Section 8.01, shall not at any
time be under any duty or responsibility to any Holder of Securities to
determine whether any facts exist which may require any adjustment of the
Conversion Ratio, or with respect to the nature or extent of any such adjustment
when made, or with respect to the method employed, or herein or in any
supplemental indenture provided to be employed, in making the same, or whether a
supplemental indenture need be entered into. The Trustee, subject to the
provisions of Section 8.01, shall not be accountable with respect to the
validity or value (or the kind or amount) of any Common Stock, or of any other
securities or property or cash, which may at any time be issued or delivered
upon the conversion of any Security; and it does not make any representation
with respect thereto. The Trustee, subject to the provisions of Section 8.01,
shall not be responsible for any failure of the Company to make or calculate any
cash payment or to issue, transfer or deliver any shares of Common Stock or
share certificates or other securities or property or cash upon the surrender of
any Security for the purpose of conversion; and the Trustee, subject to the
provisions of Section 8.01, shall not be responsible for any failure of the
Company to comply with any of the covenants of the Company contained in this
Article.
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. NOTICES.
Any notice or communication by the Company or the Trustee to the other is
duly given if in writing and delivered in Person or mailed by registered mail,
return receipt requested, telex, telecopier or overnight air courier
guaranteeing next day delivery, to the other at the following address:
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<PAGE>
If to the Company:
International Fast Food Corporation
1000 Lincoln Road
Suite 200
Miami Beach, FL 33139
Telephone: 305-531-5800
Telecopier: 305-538-5037
Attention: Mitchell Rubinson
with a copy to:
Greenberg Traurig Hoffman
Lipoff Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, FL 33131
Telephone: 305-579-0500
Telecopier: 305-579-0717
Attention: Gary Epstein, Esq.
If to the Trustee:
Marine Midland Bank, as Trustee
140 Broadway, 12th Floor
New York, New York 10005
Telephone: 212-658-6433
Telecopier: 212-658-6425
Attention: Corporate Trust Department - IFFC
with a copy to:
Winston & Strawn
200 Park Avenue
New York, New York 10166
Telephone: 212-294-6711
Telecopier: 212-294-4700
Attention: Jeffrey H. Elkin, Esq.
The Company or the Trustee, by notice to the other may designate
additional or different addresses for subsequent notices or communications.
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All notices and communications (other than those sent to the Trustee)
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; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Notices and communications to the Trustee shall be deemed to have been given
only upon receipt.
Any notice or communication to a Holder shall be mailed by first class
mail, or by overnight air courier guaranteeing next day delivery to its address
shown on the register kept by the Registrar. Failure to mail a notice or
communication to a Holder or any defect in it shall not affect its sufficiency
with respect to other Holders.
If a notice or communication (other than to the Trustee) is mailed in the
manner provided above within the time prescribed, it is duly given, whether or
not the addressee receives it.
If the Company mails a notice or communication to Holders, it shall mail a
copy to the Trustee and each Agent at the same time.
SECTION 12.02. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.03 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.03 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied.
SECTION 12.03. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
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(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 12.04. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 12.05. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES
AND STOCKHOLDERS.
No recourse for the payment of the principal of, premium, if any, or
interest on any of the Securities or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in this Indenture, or in any of the Securities or
because of the creation of any Indebtedness represented thereby, shall be had
against any incorporator, shareholder, officer, director, employee or
controlling person of the Company or of any successor Person thereof. Each
Holder, by accepting the Securities, waives and releases all such liability.
SECTION 12.06. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE AND THE SECURITIES. THE COMPANY HEREBY SUBMITS TO THE
JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE CITY OF NEW
YORK IN CONNECTION WITH ANY DISPUTE RELATED TO THIS INDENTURE OR ANY OF THE
MATTERS CONTEMPLATED HEREBY. THE COMPANY AGREES THAT ANY LEGAL SUIT, ACTION OR
PROCEEDING BROUGHT BY THE TRUSTEE OR THE HOLDERS TO ENFORCE ANY RIGHTS UNDER OR
WITH RESPECT TO THIS INDENTURE MAY BE INSTITUTED IN ANY STATE OR FEDERAL COURT
IN THE CITY OF NEW YORK, STATE OF NEW YORK, WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING AND IRREVOCABLY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR
PROCEEDING.
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SECTION 12.07. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 12.08. SUCCESSORS.
All agreements of the Company in this Indenture and the Securities shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.
SECTION 12.09. SEVERABILITY.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 12.10. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
SECTION 12.11. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents and Headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, and are not to
be considered a part of this Indenture and shall in no way modify or restrict
any of the terms or provisions hereof.
[Signatures on following page]
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the date first above written.
INTERNATIONAL FAST FOOD
CORPORATION
By: /s/ Mitchell Rubinson
-----------------------------------------
Name: Mitchell Rubinson
Title: Chairman of the Board, President
and Chief Executive Officer
MARINE MIDLAND BANK, as Trustee
By: /s/ Frank Godino
------------------------------------------
Name: Frank Godino
Title: Assistant Vice President
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================================================================================
EXHIBIT A
[Form of Security]
A-1
<PAGE>
EXHIBIT A
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR
THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS AN "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501 OF REGULATION D UNDER THE SECURITIES ACT) (AN
"ACCREDITED INVESTOR"), (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD
REFERRED TO IN RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF
TRANSFER OF THIS SECURITY, RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE
TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY
WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER SHALL, PRIOR TO SUCH
TRANSFER, FURNISH TO THE REGISTRAR, THE TRUSTEE AND THE COMPANY SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS ANY OF THEM MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
THIS SECURITY WAS ISSUED WITH "ORIGINAL ISSUE DISCOUNT." THE ISSUE
PRICE IS $726.33 FOR EACH $1,000 OF STATED PRINCIPAL AMOUNT. THE ORIGINAL ISSUE
DISCOUNT IS $273.67 OF STATED PRINCIPAL AMOUNT. THE ISSUE DATE IS NOVEMBER 5,
1997. THE YIELD TO MATURITY IS 11%, COMPOUNDED SEMI-ANNUALLY.
A-2
<PAGE>
INTERNATIONAL FAST
FOOD CORPORATION
11% CONVERTIBLE SENIOR SUBORDINATED DISCOUNT NOTE DUE 2007
CUSIP No. __________
No. $__________
INTERNATIONAL FAST FOOD CORPORATION, a Florida corporation (the
"Company"), for value received, promises to pay to ________________ or its
registered assigns the principal sum of ___________ Dollars (which amount
includes amortization of the original issue discount) on ____________, 2007.
Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth in this place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
Dated: ____________, 1997
INTERNATIONAL FAST FOOD CORPORATION
By: _____________________________________
Name:
Title:
By: _____________________________________
Name:
Title:
A-3
<PAGE>
Trustee's Certificate of Authentication
Dated:_____________________
This is one of the Securities referred to in the within-mentioned Indenture:
Marine Midland Bank,
as Trustee
By: Bankers Trust Company
as Authenticating Agent
By: __________________________
Authorized Signatory
A-4
<PAGE>
(Reverse of Security)
11% Convertible Senior Subordinated Discount Note Due 2007
1. PRINCIPAL AND INTEREST.
The Company will pay the principal of this Note on October 31, 2007.
The Company promises to pay interest on the principal amount of this Note
on each Interest Payment Date, as set forth below, at the rate per annum shown
above.
Interest will be payable semi-annually (to the holders of record of the
Notes at the close of business on the April 15 or October 15 (the "Regular
Record Dates") immediately preceding the Interest Payment Date) on each Interest
Payment Date, commencing April 30, 2001; PROVIDED that no interest shall accrue
on the principal amount of this Note prior to October 31, 2000 and no interest
shall be paid on this Note prior to April 30, 2001.
From and after October 31, 2000, interest on the Notes will accrue from
the most recent date to which interest has been paid or, if no interest has been
paid, from October 31, 2000; PROVIDED that, if there is no existing default in
the payment of interest and this Note is authenticated between a Regular Record
Date and the next succeeding Interest Payment Date, interest shall accrue from
such Interest Payment Date. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
The Company shall pay, to the extent such payments are lawful, interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue principal and premium, if any, and interest from time to time on demand
at the rate borne by the Securities plus 2% per annum. Interest shall be
computed on the basis of a 360-day year comprised of twelve 30-day months.
2. METHOD OF PAYMENT.
The Company will pay principal as provided above and interest (except
defaulted interest) on the principal amount of the Notes as provided above on
each April 30 and October 31 to the persons who are Holders (as reflected in the
Security Register at the close of business on the April 15 and October 15
immediately preceding the Interest Payment Date), in each case, even if the Note
is canceled on registration of transfer or registration of exchange after such
record date; PROVIDED that, with respect to the payment of principal, the
Company will not make payment to the Holder unless this Note is surrendered to a
Paying Agent.
The Company will pay principal, premium, if any, and as provided above,
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
A-5
<PAGE>
principal, premium, if any, and interest by its check payable in such money
mailed to a Holder's registered address (as reflected in the Security Register).
If a payment date is a date other than a Business Day at a place of payment,
payment may be made at that place on the next succeeding day that is a Business
Day and no interest shall accrue for the intervening period.
3. PAYING AGENT AND REGISTRAR.
Initially, Bankers Trust Company will act as Authenticating Agent, Paying
Agent and Registrar. The Company may change any Authenticating Agent, Paying
Agent or Registrar without notice. Subject to certain exceptions, the Company,
any Subsidiary or any Affiliate of any of them may act as Paying Agent,
Registrar or co-Registrar.
4. INDENTURE; LIMITATIONS.
The Company issued the Notes under an Indenture dated as of November 5,
1997 (the "Indenture"), between the Company and Marine Midland Bank, as trustee
(the "Trustee"). Capitalized terms herein are used as defined in the Indenture
unless otherwise indicated. The Notes are subject to all the terms of the
Indenture and Holders are referred to the Indenture for a statement of all such
terms. To the extent permitted by applicable law, in the event of any
inconsistency between the terms of this Note and the terms of the Indenture, the
terms of the Indenture shall control.
The Notes are unsecured senior subordinated indebtedness of the Company
and will be junior in right of payment to all existing and future Senior
Indebtedness of the Company. The Indenture limits the original aggregate stated
principal amount at maturity of the Notes to $27,536,000.
5. REDEMPTION.
The Notes will be redeemable, at the Company's option, in whole or in
part, at any time or from time to time, on or after October 31, 2002 and prior
to maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first-class mail to each Holders' last address as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of the
Accreted Value thereof), plus accrued and unpaid interest, if any, to the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date that is on or prior to the Redemption Date to receive
interest due on an Interest Payment Date that is on or prior to the Redemption
Date) if redeemed during the 12-month period commencing October 31, of the
applicable year set forth below:
A-6
<PAGE>
Year Redemption Price
---- ----------------
2002 105.500%
2003 104.000%
2004 102.500%
2005 101.000%
2006 and thereafter 100.000%
6. NOTICE OF REDEMPTION.
Notice of any optional redemption will be mailed at least 30 days but not
more than 60 days before the Redemption Date to each Holder of Notes to be
redeemed at his last address as it appears in the Security Register. Notes in
original denominations larger than $1,000 pay be redeemed in part; PROVIDED that
Notes will only be issued in denominations of $1,000 principal amount at
maturity or integral multiples thereof. On and after the Redemption Date,
interest ceases to accrue on Notes or portions of Notes called for redemption,
unless the Company defaults in the payment of the Redemption Price.
7. REPURCHASE UPON CHANGE IN CONTROL.
Upon the occurrence of any Change of Control, each Holder shall have the
right to require the repurchase of its Notes by the Company in cash pursuant to
the offer described in the Indenture at a purchase price equal to 101% of the
Accreted Value thereof, plus accrued and unpaid interest, if any, to the date of
purchase (the "Change of Control Payment").
A notice of such Change of Control will be mailed within 30 days after any
Change of Control occurs to each Holder at his last address as it appears in the
Security Register. Notes in original denominations larger than $1,000 may be
sold to the Company in part; PROVIDED that Notes will only be issued in
denominations of $1,000 principal amount at maturity or integral multiples
thereof. On and after the Change of Control Payment Date, interest ceases to
accrue on Notes or portions of Notes surrendered for purchase by the Company,
unless the Company defaults in the payment of the Change of Control Payment.
8. CONVERSION.
Subject to and upon compliance with the provisions of the Indenture, the
Holders of the Securities shall have the right, at the option of each Holder, at
any time after one year following the Closing Date (except as provided in this
Section 8 or in the Indenture) to convert any such Security or any portion
A-7
<PAGE>
thereof, in denominations of $1,000 principal amount at maturity or integral
multiples thereof, into that number of fully paid and nonassessable whole
Conversion Shares obtained by dividing the aggregate Accreted Value of the
Securities being converted on such date by $.70, subject to adjustment in
certain events (the "Conversion Ratio").
Subject to the provisions of the Indenture, if on any date of
determination (a) the Closing Price of the Common Stock on the NASDAQ National
or Small Cap Market or other principal securities exchange or system on which
the Common Stock is then traded, if any, or (b) if not so traded, then if the
best bid offered price on the OTC Bulletin Board Service (the "BBS") on days
when transactions in the Common Stock are not effected, or, on such days as
transactions are effected on the BBS, the highest price at which a trade was
executed as reported to the National Association of Securities Dealers, Inc.
through the Automated Confirmation Transaction Service (the "OTC Price"), during
any period set forth below has exceeded the price for such period set forth
below for at least 20 consecutive Trading Days (the "Market Criteria," and such
20-day period being the "Market Criteria Period") and (b) the Shelf Registration
Statement with respect to the Conversion Shares is effective and available, then
all of the Securities will be automatically converted on such date into that
number of fully paid and nonassessable whole Conversion Shares obtained by
applying the aforementioned Conversion Ratio; PROVIDED, HOWEVER, that if the
Market Criteria is satisfied during the third year after the Closing Date, the
conversion will not occur until the three-year anniversary of the Closing Date
and will occur only if the Closing Price or OTC Price, as applicable, of the
Common Stock of the Company is at least $2.80 on such date:
12 Months Beginning Closing Price
------------------- -------------
October 31, 1999 $2.80
October 31, 2000 $3.25
If Notes not called for redemption are converted (including pursuant to
mandatory conversion) after a record date for the payment of interest and prior
to the next succeeding Interest Payment Date, such Notes must be accompanied by
funds equal to the interest payable on such succeeding Interest Payment Date on
the principal amount so converted.
The denominator of the Conversion Ratio is subject to adjustment (under
formula set forth in the Indenture) in certain events, including: (i) the
issuance of Common Stock as a dividend or distribution on Common Stock to all
Holders of the outstanding Common Stock; (ii) certain subdivisions and
combinations of the Common Stock; (iii) the issuance to all Holders of Common
Stock of certain rights or warrants to purchase additional shares of Common
Stock; (iv) the distribution to all holders of Common Stock of shares of capital
stock of the Company (other than Common Stock) or evidences of indebtedness of
the Company or assets (including securities, but excluding those rights,
warrants, dividends and distributions referred to above and dividends and
distributions in connection with the liquidation, dissolution or winding up of
the Company or paid in cash); (v) distributions consisting of cash, excluding
A-8
<PAGE>
any quarterly, semi-annual, annual or other regularly scheduled cash dividend
paid on the Common Stock; and (vi) payment in respect of a tender or exchange
offer by the Company or any of its Subsidiaries for the Common Stock to the
extent that the cash and value of any other consideration included in such
payment per share of Common Stock exceeds the Current Market Price per share of
Common Stock on the Trading Day next succeeding the last date on which tenders
or exchanges may be made pursuant to such tender or exchange.
In the case of (i) any reclassification or change of the Common Stock,
(ii) a consolidation, merger or combination involving the Company or (iii) a
sale or conveyance to another corporation of the property and assets of the
Company as an entirety or substantially as an entirety, in each case as result
of which holders of Common Stock shall be entitled to receive stock, other
securities, or other property or assets (including cash) with respect to or in
exchange for such Common Stock, the Holders of the Securities then outstanding
will be entitled thereafter to convert such Securities into the kind and amount
of shares of stock, other securities or other property or assets which they
would have owned or been entitled to receive upon such reclassification, change,
consolidation, merger, combination, sale or conveyance had such Securities been
converted into Common Stock immediately prior to such reclassification, change,
consolidation, merger, combination, sale or conveyance.
The Company from time to time may, to the extent permitted by law, reduce
the denominator of the Conversion Ratio by any amount for any period of at least
20 days, in which case the Company shall give at least 15 days' notice of such
reduction, if the Board of Directors has made a determination that such
reduction would be in the best interests of the Company, which determination
shall be conclusive. The Company may, at its option, make such reductions in the
denominator of the Conversation Ratio as the Board of Directors deems advisable
to avoid or diminish any income tax to holders of Common Stock resulting from
any dividend or distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes.
If any Securities shall be called for redemption, the right to convert the
Securities designated for redemption shall terminate at the close of business on
the Trading Day next preceding the date fixed for redemption unless the Company
defaults in the payment of the Redemption Price plus all accrued and unpaid
interest. In the event of default in the payment of the Redemption Price, the
right to convert the Securities designated for redemption shall terminate at the
close of business on the Business Day next preceding the date that such default
is cured.
The Company shall not be required to convert any Securities, and no
surrender of Securities shall be effective for that purpose, while the stock
transfer books of the Company for the Common Stock are closed for any purposes
(but not for any period in excess of 15 days), but the surrender of Securities
for conversion during any period while such books are so closed shall become
effective for conversion immediately upon the reopening of such books, as if the
A-9
<PAGE>
conversion had been made on the date such books were reopened, and with the
application of the Conversion Ratio in effect at the date such books were
reopened.
If a Security is converted into Conversion Shares on any date, then on and
after such date such Security ceases to be outstanding and interest on it shall
cease to accrue.
The Conversion Shares, upon conversion of the Securities, when the same
shall be issued in accordance with the terms hereof, are hereby declared to be
and shall be fully paid and nonassessable shares of Common Stock of the Company
in the hands of the Holders thereof. The Holders of Securities are not entitled,
as such, to receive dividends or other distributions, receive notice of any
meeting of the stockholders, consent to any action of the stockholders, receive
notice of any other stockholder proceedings, or to any other rights as
stockholders of the Company.
9. DENOMINATIONS; TRANSFER; EXCHANGE.
The Notes are in registered form without coupons in denominations of
$1,000 of principal amount at maturity and integral multiples thereof. A Holder
may register the transfer or exchange of Notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
or exchange or any Notes selected for redemption. Also, it need not register the
transfer or exchange of any Notes for a period of 15 days before a selection of
Notes to be redeemed is made.
10. PERSONS DEEMED OWNERS.
A Holder shall be treated as the owner of a Note for all purposes.
11. UNCLAIMED MONEY.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Company at its request. After that, Holders entitled to the
money must look to the Company for payment, unless an applicable law designates
another Person, and all liability of the Trustee and such Paying Agent with
respect to such money shall cease.
12. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture or the Notes may be amended
or supplemented with the consent of the Holders of at least a majority in
aggregate principal amount at maturity of the Notes then outstanding, and any
existing default or compliance with any provision may be waived with the consent
A-10
<PAGE>
of the Holders of at least a majority in principal amount at maturity of the
Notes then outstanding. Without notice to or the consent of any Holder, the
parties thereto may amend or supplement the Indenture or the Notes to, among
other things, cure any ambiguity, defect or inconsistency and make any change
that does not materially and adversely affect the rights of any Holder.
13. RESTRICTIVE COVENANTS.
The Indenture imposes certain limitations on the ability of the Company
and its Restricted Subsidiaries, among other things to: incur additional
indebtedness; create liens; pay dividends or make distributions in respect of
their capital stock; make investments or make certain other restricted payments;
sell assets; issue or sell stock of Restricted Subsidiaries; enter into
transactions with stockholders or affiliates; engage in unrelated lines of
business; or consolidate, merge or sell all or substantially all of their
assets. Within 90 days after the end of the last fiscal quarter of each year,
the Company must report to the Trustee on compliance with such limitations.
14. SUCCESSOR PERSONS.
Generally, when a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
15. DEFAULTS AND REMEDIES.
The following events constitute "Events of Default" under the Indenture:
(a) default in the payment of principal of (or premium, if any, on) or interest
on any Note when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise whether or not such payment is prohibited
by the subordination provisions of the Indenture; (b) the Company defaults in
the performance of any covenant set forth in Section 5.03, 5.04, 5.10 or 5.13 of
the Indenture, and the default continues for a period of 15 consecutive days
after written notice by the Trustee or by the Holders of 25% or more in
aggregate principal amount of the Notes then outstanding; (c) the Company
defaults in the performance of or breaches any other covenant or agreement of
the Company in the Indenture or under the Notes and such default or breach
continues for a period of 30 consecutive days after written notice by the
Trustee or the Holders of 25% or more in aggregate principal amount at maturity
of the Notes; (d) either of the New BKC Development Agreement or the New
Domino's Master Franchise Agreement shall be suspended or terminated; (e) there
occurs with respect to any issue or issues of Indebtedness of the Company or any
Significant Subsidiary having an outstanding principal amount at maturity of
$3,000,000 or more in the aggregate for all such issues of all such Persons,
whether such Indebtedness now exists or shall hereafter be created, (A) an event
of default that has caused the holder thereof to declare such Indebtedness to be
due and payable prior to its Stated Maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or annulled
within 30 days of such acceleration and/or (B) the failure to make any principal
A-11
<PAGE>
payment with respect to any fixed maturity and such defaulted payment shall not
have been made, waived or extended within 30 days of such payment default; (f)
any final judgment or order (not covered by insurance) for the payment of money
in excess of $5,000,000 in the aggregate for all such final judgments or orders
against all such Persons (treating any deductibles, self-insurance or retention
as not so covered) shall be rendered against the Company or any Significant
Subsidiary and shall not be paid or discharged, and there shall be any period of
60 consecutive days following entry of the final judgment or order that causes
the aggregate amount for all such final judgments or orders outstanding and not
paid or discharged against all such Persons to exceed $5,000,000 during which a
stay of enforcement of such final judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; (g) a court having jurisdiction in
the premises enters a decree or order for (A) relief in respect of the Company
or any significant Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, (B)
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (C) the winding up or liquidation of the affairs of
the Company or any Significant Subsidiary and, in each case, such decree or
order shall remain unstayed and in effect for a period of 60 consecutive days;
or (h) the Company or any Significant Subsidiary (A) commences a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consents to the entry of an order of relief in an
involuntary case under any such law, (B) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (C) effects any general assignment for the benefit of
creditors.
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to the Company) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes, then outstanding, by written notice to
the Company (and to the Trustee if such notice is given by the Holders), may,
and the Trustee at the request of such Holders shall, declare the Accreted Value
of, premium, if any, and accrued interest, if any, on the Notes to be
immediately due and payable. If a bankruptcy or insolvency default with respect
to the Company or any Restricted Subsidiary occurs and is continuing, the
Accreted Value of the Notes automatically becomes due and payable. Holders may
not enforce the Indenture or the Notes except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Notes. Subject to certain limitations, Holders of at least a
majority in principal amount at maturity of the Notes then outstanding may
direct the Trustee in its exercise of any trust or power.
A-12
<PAGE>
16. SUBORDINATION.
The payment of the Notes will, to the extent set forth in the Indenture,
be subordinated in right of payment to the prior payment in full, in cash or
cash equivalents, of all Senior Indebtedness.
17. TRUSTEE DEALINGS WITH COMPANY.
The Trustee under the Indenture, in its individual or any other capacity,
may make loans to, accept deposits from and perform services for the Company or
its Affiliates and may otherwise deal with the Company or its Affiliates as if
it were not the Trustee; PROVIDED, HOWEVER, that if the Trustee acquires any
conflicting interest, it must eliminate such conflict or resign.
18. NO RECOURSE AGAINST OTHERS.
No incorporator or any past, present or future partner, shareholder, other
equity holder, officer, director, employee or controlling person as such, of the
Company or of any successor Person shall have any liability for any obligations
of the Company under the Notes or the Indenture or for any claim based on, in
respect of or by reason of, such obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. Such waiver and release
are part of the consideration for the issuance of the Notes.
19. AUTHENTICATION.
This Note shall not be valid until the Trustee or Authenticating Agent
signs the certificate of authentication on the other side of this Note.
20. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
21. REGISTRATION RIGHTS.
In accordance with the terms of the Registration Rights Agreement, the
Company has agreed to use its best efforts, at its cost, to cause to become
effective no later than one year after the Closing Date, the Shelf Registration
Statement with respect to the resale of the Conversion Shares. The Company is
required to use its best efforts, at its cost, to maintain the effectiveness of
such Shelf Registration Statement until the earlier of (i) the expiration of the
time period referred to in Rule 144(k) under the Securities Act with respect to
A-13
<PAGE>
all beneficial holders other than affiliates of the Company of Conversion Shares
and (ii) such time as all the Conversion Shares covered by such Shelf
Registration Statement have been sold pursuant to such Shelf Registration
Statement or are otherwise freely tradeable without registration under the
Securities Act. During any consecutive 365-day period, the Company will have the
ability to suspend availability of such Shelf Registration Statement for up to
45 consecutive days (except for the consecutive 45-day period immediately prior
to the maturity of the Securities), but no more than an aggregate of 60 days
during any 365-day period, if the Company's Board of Directors determines in
good faith that there is a valid purpose for the suspension. If such
registration statement is not declared effective on or prior to the date that is
one year after the Closing Date, the denominator of the Conversion Ratio will be
decreased by $.15 (subject to adjustment as described in the Indenture).
The Registration Rights Agreement contains provisions providing for
indemnity and contribution with respect to such Shelf Registration Statement to
the persons who are issued, or the persons (other than the Company) that sell,
Conversion Shares under any such registration statement. Holders of the
Securities will be able to convert their Securities only if the conversion of
the Securities is exempt from the registration requirements of the Securities
Act, and such securities are qualified for sale or exempt from qualification
under the applicable securities laws of the states or other jurisdictions in
which the various holders of the Securities reside.
22. INDENTURE.
Each Holder, by accepting a Security, agrees to be bound by all of the
terms and provisions of the Indenture, as the same may be amended from time to
time. Capitalized terms used herein and not defined herein have the meanings
ascribed thereto in the Indenture.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:
International Fast Food Corporation
1000 Lincoln Road
Suite 200
Miami Beach, FL 33139
Attention: Jill Friedman, Administrative Assistant
A-14
<PAGE>
FORM OF CONVERSION NOTICE
(To be executed only upon conversion of this Note)
To: The Trustee under the Indenture with respect to the Convertible Senior
Subordinated Discount Notes due 2007 of International Fast Food Corporation,
dated as of , 1997.
The undersigned irrevocably converts Notes having a principal amount
at maturity equal to $ ____ into shares of Common Stock of International Fast
Food Corporation (the "Company") on the terms and conditions specified in the
Indenture herein referred to, and surrenders this Note and all right, title and
interest herein to the Company and directs that the shares of Common Stock
deliverable upon the conversion of this Note be registered or placed in the name
and at the address specified below and delivered thereto.
Dated: _________________________1/
(Signature of Owner)
______________________________
(Street Address)
______________________________
(City) (State) (Zip Code)
Signature Guarantee: ___________________________________________________________
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Registrar)
Common Stock and/or check to be issued to:
Name:
Street Address:
City, State and Zip Code:
Social security or identifying number:
________________
1/ The signature must correspond with the name as written upon the face of
this Note in every particular, without alteration or enlargement or any
change whatever.
B-1
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company pursuant to
Section 5.10 or 5.15 of the Indenture, check the appropriate box:
Section 5.10 [ ]
Section 5.15 [ ]
If you wish to have a portion of this Security purchased by the Company
pursuant to Section 5.10 or 5.15 of the Indenture, state the amount (in even
multiples of $1,000) you wish to have purchased:
US$_____________
Date:_______________________ Your Signature:___________________________________
(sign exactly as your name appears on the other
side of this Security)
Signature Guarantee: ___________________________________________________________
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Registrar)
B-2
<PAGE>
================================================================================
EXHIBIT B
[Assignment Form]
B-1
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign and
transfer this Security to:
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Security on the books of the Company. The agent may substitute
another to act for him.
Date: ______________ Your Signature:___________________________________
(Sign exactly as your names appears
on the face of this Security)
Signature Guarantee:
____________________________________________________________
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Registrar)
B-2
<PAGE>
================================================================================
EXHIBIT C
(Transfers to Accredited Investors)
C-1
<PAGE>
(Transfers to Accredited Investors)
___________________, ____
BANKERS TRUST COMPANY, as Registrar
4 Albany Street
New York, New York 10006
Attention: Corporate Trust and Agency Group
Re: International Fast Food Corporation
11% Convertible Senior Subordinated Discount Notes due 2007
-----------------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed purchase of 11% Convertible Senior
Subordinated Discount Notes due 2007 (the "Securities") of International Fast
Food Corporation (the "Company"), we confirm that:
1. We understand that any subsequent transfer of the Securities is
subject to certain restrictions and conditions set forth in the Indenture dated
as of , 1997 relating to the Securities (the "Indenture") and the undersigned
agrees to be bound by, and not to resell, pledge or otherwise transfer the
Securities except in compliance with, such restrictions and conditions and the
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Securities have not
been registered under the Securities Act, and that the Securities may not be
offered or sold except as permitted in the following sentence. We agree, on our
own behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that we will not, within the time period referred to in Rule 144(k)
under the Securities Act as in effect on the date of transfer of this Security,
resell or otherwise transfer this Security except pursuant to an exemption from,
or in a transaction not subject to, the registration requirements of the
Securities Act and we further agree to provide to any person to whom this
Security is transferred a notice advising such transferee that resales of the
Securities are restricted as stated herein.
3. We understand that, on any proposed resale of any Securities, we
will be required to furnish to the Trustee, the Registrar and the Company, such
certifications, legal opinions and other information as the Trustee, the
Registrar and the Company may reasonably require to confirm that the proposed
sale complies with the foregoing restrictions. We acknowledge that the Trustee,
the Registrar and the Company will rely upon the truth and accuracy of such
information. We further understand that the Securities purchased by us will bear
a legend to the foregoing effect.
C-2
<PAGE>
4. We are an "accredited investor" as defined in Rule 501 of Regulation
D under the Securities Act) and have such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of our
investment in the Securities, and we and any accounts for which we are acting
are each able to bear the economic risk of our or their investment, as the case
may be.
5. We are acquiring the Securities purchased by us for our account or
for one or more accounts (each of which is an "accredited investor") as to each
of which we exercise sole investment discretion. We are not acquiring the
Securities with a view toward distribution thereof in a transaction that would
violate the Securities Act or the securities laws of any State of the United
States or any other applicable jurisdiction.
You, the Company and the Trustee (as defined in the Indenture
relating to the Securities) are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
By:
------------------------------------
Name:
Title:
C-3
<PAGE>
SCHEDULE I
(Existing Indebtedness)
Existing Indebtedness at November 5, 1997 consists of the following:
Amerbank in Poland, S.A.
overdraft credit line, variable
rate approximately equal to prime,
expires March 31, 1998 $ 50,000
Amerbank, IFFP line of credit of
$950,000 payable in twenty nine
installments of $32,000 commencing
on March 31, 1998, interest payable
monthly at 2.75% above LIBOR, $22,000
due at maturity on August 12, 2000. 950,000
Amerbank, PKP line of credit of
$300,000 maturing on March 31, 1998,
Interest payable monthly at Amerbank prime. *300,000
Amerbank revolving credit facility,
interest is payable monthly at 2.50%
above LIBOR, $1,500,000 maximum
credit until August 1999, payable
in thirty five monthly installments
thereafter of $42,000 with final
payment of $30,000 due at
maturity on August 12, 2002. *1,500,000
Totalbank line of credit of $999,000
payable in full on May 19, 1998,
interest at 6.5% payable quarterly
collateralized by certificates of
deposit in the amount $999,990 999,000
Subordinated 9% debentures, due 2007 2,756,000
Existing Indebtedness $ 6,555,000
=============
* The Amerbank revolving facilities for $1,500,000 and $300,000 have not been
drawn upon as of November 5, 1997.
D-1
<PAGE>
================================================================================
SCHEDULE II
(Existing Liens)
1. Credit facility with Amerbank S.A. in the amount of $950,000 is secured by
all existing restaurant assets of IFFP and is guaranteed by IFFC.
2. Loan in the principal amount of $1,500,000 is secured by the fixed assets
of each new restaurant financed, and is guaranteed by IFFC.
3. Promissory Note in the amount of $1,000,000 is secured by certificates of
deposit with interest due quarterly and principal due in May of 1998.
D-2
<PAGE>
================================================================================
SCHEDULE III
[Form of CEO Certification]
I, the undersigned, ___________________, being Chief Executive Officer (as
defined in the Indenture dated , 1997) [if applicable insert - "and _____
[actual title]"] of International Fast Food Corporation (the "Company"), do
hereby attest that: (a) to the best of my knowledge, there are no liabilities,
contingent or otherwise, of _____ [Name of Corporation] and (b) the only
consideration received by the stockholders of ______ [Name of Corporation] in
connection with this merger consists of the Common Stock of the Company (and
options, warrants or other rights to purchase or acquire such Common Stock), in
the aggregate in an amount that does not exceed the amount thereof held by _____
[Name of Corporation] immediately prior to the merger of [Name of Corporation]
with and into the Company.
INTERNATIONAL FAST FOOD CORPORATION
By:
-----------------------------------------
Name:
Title:
================================================================================
INTERNATIONAL FAST FOOD CORPORATION
_______________
SECURITIES PURCHASE AGREEMENT
Dated as of November 5, 1997
_______________
$27,536,000 Aggregate Stated Principal Amount at Maturity
11% Convertible Senior Subordinated Discount Notes due 2007
================================================================================
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION
1000 Lincoln Road
Suite 200
Miami Beach, Florida 33139
SECURITIES PURCHASE AGREEMENT
New York, New York
as of November 5, 1997
TO THE PURCHASER WHOSE NAME
APPEARS IN THE ACCEPTANCE
FORM ON THE SIGNATURE PAGE HEREOF
Ladies and Gentlemen:
INTERNATIONAL FAST FOOD CORPORATION, a Florida corporation (the
"COMPANY"), hereby agrees with you as follows:
ss.1. ISSUANCE OF NOTES.
ss.1.1 AUTHORIZATION. The Company has duly authorized the issuance
of $27,536,000 aggregate stated principal amount at maturity of 11% Convertible
Senior Subordinated Discount Notes due 2007 (the "CONVERTIBLE NOTES"),
convertible into shares (the "CONVERSION SHARES") of the Company's common stock,
par value $.01 per share (the "COMMON STOCK"). The Convertible Notes are to be
issued pursuant to the provisions of the Indenture to be dated as of November 5,
1997, between the Company and Marine Midland Bank, as Trustee (the "INDENTURE"),
and the Securities Purchase Agreements between the Company and each purchaser
(the "PURCHASERS") of Convertible Notes (the "SECURITIES PURCHASE AGREEMENTS").
The number of Conversion Shares issuable upon conversion of the Convertible
Notes is equal to the Accreted Value (as defined in the Indenture) of the
Convertible Notes being converted (on the date of conversion) divided by $.70,
subject to adjustment in certain events (the "CONVERSION RATIO"). Capitalized
terms used but not defined herein shall have the meanings ascribed thereto in
the Indenture.
ss.1.2 PURCHASE AND SALE OF NOTES; THE CLOSING. The Company shall
sell to you and, subject to the terms and conditions hereof, you shall purchase
from the Company, Convertible Notes in the aggregate principal amount set forth
on Schedule A to this Agreement, at a purchase price equal to 72.633% of such
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principal amount. The closing of such purchase shall be held at 9:30 A.M., New
York City time, on November 5, 1997 (the "CLOSING DATE"), at the office of
Winston & Strawn, 200 Park Avenue, New York, New York 10166. On the Closing
Date, the Company will deliver to you one or more Convertible Notes, registered
in your name or in the name of your nominee, in any denominations (multiples of
$1,000), in the aggregate principal amount to be purchased by you, all as you
may specify by timely notice to the Company (or, in the absence of such notice,
one Convertible Note registered in your name), duly executed and dated the
Closing Date, against payment of such purchase price, by check (cashier's or
certified), or money order payable to: "International Fast Food Corporation" or
by wire transfer of immediately available funds to an account designated in
writing by the Company or BT Alex. Brown Incorporated (the "PLACEMENT AGENT").
ss.2. REPRESENTATIONS OF THE COMPANY. The Company represents and
warrants to you as follows:
ss.2.1 The Memorandum (as defined below) complies in all respects
with the applicable requirements of the Securities Act of 1933, as amended (the
"1933 ACT") and the applicable rules and regulations thereunder (the
"REGULATIONS"), including Regulation D thereunder. The Memorandum does not
contain, nor did the Memorandum contain when provided to any Purchasers, any
untrue statement of a material fact, or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. Since the date of the Memorandum
through the date hereof, no event has occurred as a result of which it is
necessary to amend or supplement the Memorandum in order to include any material
fact not previously included therein or to make the statements previously
included therein, in the light of the circumstances under which such previous
statements were made, not misleading. The financial projections included in the
Memorandum or attached hereto as Schedule B are based on information that the
Company believes to be accurate and assumptions that the Company believes to be
reasonable (both as of the date of such projections and as of the date hereof)
and were calculated in a manner that is mathematically accurate. Except as
provided in the immediately preceding sentence, the Company makes no
representations or warranties with respect to such financial projections. For
purposes hereof, "MEMORANDUM" shall mean the Preliminary Confidential Private
Placement Memorandum relating to the offering of the Convertible Notes (the
"OFFERING") dated September 19, 1997, including the exhibits thereto, as
amended, modified or supplemented by the Confidential Private Placement
Memorandum relating to the Offering dated October 31, 1997, including the
exhibits thereto.
ss.2.2 Assuming the accuracy of the representations and warranties
of each of the Purchasers in the Securities Purchase Agreements, including your
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representations and warranties herein, the offer, issue, sale and delivery of
the Convertible Notes under the circumstances contemplated by the Memorandum and
the Securities Purchase Agreements constitute exempted transactions under the
registration provisions of the 1933 Act and the Regulations. Neither the Company
nor any of its Affiliates (as defined in Rule 501(b) of Regulation D under the
1933 Act) has directly, or through any agent, (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of, and will not
sell, offer for sale, solicit offers to buy or otherwise negotiate in respect
of, any "security" (as defined in the 1933 Act) which could be integrated with
the sale of the Convertible Notes in a manner that would require the
registration under the 1933 Act of the Convertible Notes or (ii) engaged in any
form of general solicitation or general advertising (as those terms are used in
Regulation D under the 1933 Act) in connection with the offering of the
Convertible Notes or in any manner involving a public offering within the
meaning of Section 4(2) of the 1933 Act.
ss.2.3 Each of the Company and each of its Subsidiaries (as defined
below) is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation. Each of the Company and each of
its Subsidiaries has full corporate power and authority to conduct all the
activities conducted by it, to own or lease all the properties and assets owned
or leased by it and to conduct its business as described in the Memorandum. Each
of the Company and each of its Subsidiaries is duly licensed or qualified to do
business and is in good standing as a foreign corporation in all jurisdictions
(foreign and domestic) in which the nature of the activities conducted by it or
the character of the assets owned or leased by it makes such license or
qualification necessary, except for such failures to be so qualified as could
not, individually or in the aggregate, have a material adverse effect on the
Company and its Subsidiaries taken as a whole. Except as described in the
Memorandum, the Company does not own, directly or indirectly, any Equity
Interest (as defined below) or long-term debt securities of any corporation,
firm, partnership, joint venture, association or other entity or person. For
purposes hereof, (a) a "SUBSIDIARY" of any person means (i) a person or entity
more than 50% of the combined voting power of the outstanding Equity Interests
of which are owned, directly or indirectly, by such person or by one or more
other Subsidiaries of such person or by such person or entity and one or more
Subsidiaries thereof, or (ii) any other person or entity in which such person,
or one or more other Subsidiaries of such person or such person and one or more
other Subsidiaries thereof, directly or indirectly, has the power to direct the
policies, management and affairs thereof and (b) "Equity Interest" of any person
means any and all shares, interests, rights to purchase, warrants, options,
participations or other equivalents of or interests in (however designated)
corporate stock or other equity participations, including partnership interests,
whether general or limited, of such person. Complete and correct copies of the
certificate of incorporation and of the by-laws of the Company and
organizational documents of each of its Subsidiaries and all amendments thereto
have been delivered to the Purchasers or their counsel.
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ss.2.4 (As of September 30, 1997, (i) the authorized capital stock
of the Company consisted of 100,000,000 shares of Common Stock and 1,000,000
shares of preferred stock, par value $.01 per share (the "PREFERRED STOCK"), and
(ii) the outstanding capital stock of the Company consisted of 43,591,382 shares
of Common Stock and 33,450 shares of Series A Preferred Stock, par value $.01
per share (the "SERIES A PREFERRED STOCK"). An additional 3,779,928 shares of
Common Stock are reserved for issuance upon the conversion of outstanding
convertible securities and the exercise of outstanding options and warrants. The
outstanding shares of Common Stock and Series A Preferred Stock have been duly
authorized and validly issued and are fully paid and non-assessable and have not
been issued subject to and are not owned or held in violation of any preemptive
or similar right. The descriptions in the Memorandum of the Common Stock and the
Preferred Stock (including the Series A Preferred Stock) are complete and
accurate in all material respects. Without limiting the generality of the
foregoing, other than as described in the Memorandum, there are no restrictions
on the voting or transfer of the Common Stock and the Preferred Stock.
(b) The Company owns and, at the Closing Date will own, 100%
of the Equity Interests of Krolewska Pizza Sp.zo.o, a Polish limited liability
company ("KP") and Pizza King Polska Sp.zo.o ("PKP") and 85% of the outstanding
Equity Interests of International Fast Food Polska Sp.zo.o, a Polish limited
liability company ("IFFP"). All of the Equity Interests owned, directly or
indirectly, by the Company in each of its Subsidiaries have been duly and
validly authorized and issued and are fully paid and non-assessable, and, except
as described in the Memorandum, are free and clear of any security interest,
claim, lien, encumbrance, equities and claims or restrictions on transferability
or voting. There are no (i) options, warrants or other rights to purchase from
any Subsidiary of the Company, (ii) agreements or other obligations of any
Subsidiary of the Company to issue or (iii) other rights to convert any
obligation into, or exchange any securities for, Equity Interests in any
Subsidiary of the Company.
(c) Except as set forth in the Memorandum, there is no
commitment, plan or arrangement to issue, and there are no outstanding options
to purchase, or any rights or warrants to subscribe for, or any securities or
obligations convertible into, or any contracts or commitments to offer, issue or
sell, or any preemptive or similar rights to acquire, any shares of Common Stock
or any such options, rights, warrants, convertible securities or obligations.
The Company has duly reserved for issuance upon exercise or conversion of such
options, rights, warrants, convertible securities or obligations a sufficient
number of shares of Common Stock. The Company has no obligation to repurchase or
redeem any shares of Common Stock or Preferred Stock.
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ss.2.5 The Indenture has been duly authorized, executed and
delivered by, and is a valid and binding agreement of, the Company, enforceable
in accordance with its terms except as the enforceability thereof may be limited
by (i) bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) general principles of equity and the discretion of the court
before which any proceeding with respect thereto may be brought.
ss.2.6 The Convertible Notes have been duly and validly authorized
by the Company and, when executed by the Company and authenticated by the
Trustee in accordance with the provisions of the Indenture, and when delivered
to and paid for by the Purchasers in accordance with the terms of the Securities
Purchase Agreements, will have been duly executed, issued and delivered and will
constitute the valid and legally binding obligations of the Company, entitled to
the benefits of the Indenture and enforceable against the Company in accordance
with their terms, except as the enforcement thereof may be limited by (i)
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
(ii) general principles of equity and the discretion of the court before which
any proceeding with respect thereto may be brought.
ss.2.7 The Conversion Shares have been duly authorized and, when
issued upon conversion (including mandatory conversion) of the Convertible Notes
in accordance with the terms of such Convertible Notes and the Indenture, will
be validly issued, fully paid and nonassessable and will not be subject to any
preemptive rights or similar rights. The Company has duly reserved, and will
continue to reserve, so long as any Convertible Notes are outstanding, a
sufficient number of shares of Common Stock for issuance upon conversion of the
Convertible Notes. As of the date hereof, the Conversion Shares represent 37.38%
of the Common Stock on a fully-diluted basis (taking into account all shares
issuable upon exercise of outstanding warrants, options and other rights to
purchase Common Stock and the conversion of the Series A Preferred Stock) and,
on a fully-accreted basis, represent 45.14% of the Common Stock on a
fully-diluted basis.
ss.2.8 The balance sheets and statements of operations,
stockholders' equity and cash flows included in the Memorandum are complete and
correct in all material respects and present fairly the results of operations
and financial position of the Company and its Subsidiaries at the times and for
the periods presented therein in conformity with United States generally
accepted accounting principles ("GAAP") consistently applied throughout the
periods involved (except as otherwise noted therein). There has been no material
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change in the results of operations or financial position of the Company and its
Subsidiaries since the date of the most recent financial statements included in
the Memorandum, except as described in the Memorandum, and nothing has come to
the attention of the management of the Company that would indicate that such
financial statements were not true and correct as of the respective dates
thereof or that the Company's consolidated financial statements as of and for
the year ending December 31, 1997 will require any material year-end adjustments
not reflected or reserved for in such financial statements. Since the date of
the Memorandum, except as incurred in the ordinary course of business, the
Company has not incurred any material liabilities of any kind or nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted, known or
unknown, and, to the best knowledge of the Company, there exists no set of facts
or circumstances that should reasonably be anticipated to form the basis for any
such material liabilities.
ss.2.9 Subsequent to the respective dates as of which information is
given in the Memorandum, except as set forth in or contemplated by the
Memorandum, (a) neither the Company nor any of its Subsidiaries has sustained
any material loss or interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, (b) there has not been
any change in the capitalization or long-term debt of the Company and its
Subsidiaries or any materially adverse change or any development involving a
prospective materially adverse change, in or affecting the business, properties,
business prospects, condition (financial or otherwise) or results of operations
of the Company and its Subsidiaries, (c) the Company has not issued or granted
any security other than upon the conversion of outstanding convertible
securities or the exercise of outstanding options or warrants, (d) neither the
Company nor any of its Subsidiaries has incurred any material liabilities or
obligations, direct or contingent, nor has it entered into any material
transactions other than pursuant to this Agreement and the transactions referred
to herein, (e) the Company has not paid or declared any dividends or other
distributions of any kind on any class of its capital stock, (f) the Company and
its Subsidiaries have not entered any agreement, loan or other transaction or
arrangement with any director or executive officer of the Company or any of its
Subsidiaries or with any holder of 5% or more of the Company's outstanding
Common Stock or Series A Preferred Stock, (g) the Company and its Subsidiaries
have not acquired or disposed of any assets, except in the ordinary course of
business and consistent with past practice, and (h) the Company and its
Subsidiaries have not waived any valuable rights or claims.
ss.2.10 The Company is not, and after giving effect to the sale of
the Convertible Notes will not be, an "investment company" or an "affiliated
person" of, or a "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940, as
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amended (the "INVESTMENT COMPANY ACT"). The Company will conduct its operations
in a manner that will not subject it to registration as an investment company
under the Investment Company Act, and this transaction will not cause the
Company to become an investment company subject to registration under the
Investment Company Act.
ss.2.11 Except as set forth in the Memorandum, there are no actions,
suits or proceedings pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries or the business,
properties, business prospects, condition (financial or otherwise) or results of
operations of the Company or any of its Subsidiaries or any of its or their
officers or directors in their capacity as such, before or by any court,
commission, regulatory body, administrative agency or other governmental body,
domestic or foreign, wherein an unfavorable ruling, decision or finding could
materially and adversely affect the Company or any of its Subsidiaries or the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company or any of its Subsidiaries. There are no
existing judgments, orders or decrees against or affecting the Company or any of
its Subsidiaries or any of its or their officers or directors in their capacity
as such which could have a material and adverse effect on the Company or any of
its Subsidiaries or the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company or any of its
Subsidiaries, nor is the Company or any of its Subsidiaries subject to any
remedial obligations under any federal, state, local or foreign environmental
law.
ss.2.12 Each of the Company and each of its Subsidiaries has (a) all
foreign and domestic governmental licenses, permits, consents, orders,
approvals, authorizations and certificates necessary to carry on its business as
described in the Memorandum (except for those which the failure to have would
not, individually or in the aggregate, reasonably be expected to have a material
adverse effect on the Company and its Subsidiaries, taken as a whole), (b)
complied in all material respects with all laws, regulations and orders
applicable to it or its business and (c) except for the non-payment of certain
dividends accruing on its Preferred Stock as described in the Memorandum,
performed all its obligations required to be performed by it, and is not in
default, under any material contract, agreement, lease, license or other
instrument to which it is a party or by which it is bound. To the best knowledge
of the Company, no other party under any material contract, agreement, lease,
license or other instrument to which the Company or any of its Subsidiaries is a
party is in default in any material respect thereunder. Each such license,
permit, consent, order, approval, authorization and certificate is valid and in
full force and effect, and there is no proceeding pending, or, to the knowledge
of the Company, threatened which might lead to the revocation, termination or
suspension of any such license, permit, consent, order, approval, authorization
or certificate. Neither the Company nor any of its Subsidiaries is in violation
of any provision of its Certificate of Incorporation or By-laws or other
organizational documents.
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ss.2.13 Other than the filing of one or more notices on Form D (the
"FORM D") with the Securities and Exchange Commission (the "COMMISSION"), and
other than as contemplated by the Registration Rights Agreement, no consent,
approval, authorization or order of, or any filing or declaration with, any
court or governmental agency or body is required by or on behalf of the Company
or any of its Subsidiaries for the consummation by the Company of the
transactions contemplated by this Agreement.
ss.2.14 The Company has full corporate power and authority to effect
the Offering and the issuance of the Convertible Notes and to enter into the
Securities Purchase Agreements, the Indenture and the Registration Rights
Agreement (collectively, the "TRANSACTION DOCUMENTS"). Each of the Transaction
Documents has been duly authorized and, when executed and delivered by the
Company, will constitute a valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, except as the
enforceability thereof may be limited by (i) bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (ii) general principles of equity
and the discretion of the court before which any proceeding with respect thereto
may be brought. When executed and delivered, the Registration Rights Agreement
and the Indenture will conform in all material respects to the descriptions
thereof in the Memorandum. The performance by the Company of its obligations
under the Securities Purchase Agreements, the Indenture and the Registration
Rights Agreement and the consummation of the transactions contemplated hereby
and thereby will not result in the creation or imposition of any lien, charge or
encumbrance upon any of the assets of the Company or any of its Subsidiaries
pursuant to the provisions of, or result in a breach or violation of any of the
provisions of, constitute a default under, conflict with, or result in the
acceleration of any obligation under, the Certificate of Incorporation or
By-laws or other organizational documents of the Company or any of its
Subsidiaries, any contract or agreement pursuant to which the Company is
committed to issue, sell or repurchase, or offer to issue, sell or repurchase,
any shares of Common Stock or other securities of the Company, any contract or
agreement pursuant to which the Company is, or may be, required to file a
registration statement under the 1933 Act in connection with the public offering
of shares of Common Stock or other securities of the Company, any statute,
judgment, ruling, decree, order, rule or regulation of any court or other
governmental agency or body applicable to the business or properties of the
Company or any of its Subsidiaries, or any indenture, mortgage, deed of trust,
voting trust agreement, loan agreement, bond, debenture, note agreement or other
evidence of indebtedness, lease, contract or other agreement or instrument to
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which the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries or its or their properties is bound or affected.
ss.2.15 Each of the Company and each of its Subsidiaries has good
and marketable title in fee simple to all real property and good and marketable
title to all material personal property owned by it, in each case free and clear
of all liens, encumbrances and defects, except such as are described in the
Memorandum or such as do not materially affect the value of such property and do
not materially interfere with the use made and proposed to be made of such
property by the Company or such Subsidiary. Each of the Company and each of its
Subsidiaries has valid, subsisting and enforceable leases for the real
properties described in the Memorandum as leased by it, with such exceptions as
are not material and do not materially interfere with the use made and proposed
to be made of such properties by the Company or such Subsidiary. Each of the
Company and each of its Subsidiaries enjoys peaceful and undisturbed possession
under all leases under which it is operating.
ss.2.16 The Company and each of its Subsidiaries owns or possesses
adequate licenses or other rights to use all patents, patent rights, inventions,
trademarks, service marks, trade names, copyrights and know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) (collectively, "INTELLECTUAL PROPERTY")
presently employed by it in connection with, or necessary for the conduct of,
the businesses now or proposed to be conducted by it as described in the
Memorandum, except where the failure to own or possess such Intellectual
Property would not have a material adverse effect on the Company or any of its
Subsidiaries; and none of the Company or any of its Subsidiaries has received
any notice of infringement of or conflict with (or knows of any such
infringement of or conflict with) asserted rights of others with respect to any
patents, trademarks, service marks, trade names, copyrights or know-how which,
if such assertion of infringement or conflict were sustained, individually or in
the aggregate, would have a material adverse effect on the Company or any of its
Subsidiaries. To the knowledge of the Company, the use of such Intellectual
Property in connection with the business and operations of the Company and the
its Subsidiaries does not infringe on the rights of any other person.
ss.2.17 There is no document, agreement, instrument, lease, license
or contract of a character required to be described in the Memorandum or to be
included as an exhibit to the Memorandum (in each case, as if it were part of a
registration statement under the Securities Act) or otherwise to be made
available to any prospective Purchaser which has not been properly described,
included or made available as required. All material contracts to which the
Company or any of its Subsidiaries is a party have been duly authorized,
executed and delivered by the Company or the applicable Subsidiary, constitute
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valid and binding agreements of the Company or the applicable Subsidiary and are
enforceable against the Company or the applicable Subsidiary in accordance with
the terms thereof, subject to bankruptcy, insolvency or similar laws affecting
creditors rights generally and to general principles of equity and the
discretion of the court before which any proceeding with respect thereto may be
brought, and to the Company's knowledge each is the legal, valid and binding
obligation of the other party thereto, enforceable against each of them in
accordance with its terms.
ss.2.18 No statement, representation, warranty or covenant made by
the Company in this Agreement or made in any other agreement, certificate or
document required by this Agreement to be delivered was or will be, when made,
inaccurate, untrue or incorrect in any material respect.
ss.2.19 Since January 1, 1993, the Company has timely filed with the
Commission each Annual Report on Form 10-KSB and each other document required to
be filed with the Commission under Section 13, 14 or 15 of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT") (collectively, the
"REPORTS"). As of their respective dates, none of the Reports contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading. Each of the
balance sheets and statements of operations, stockholders' equity and cash flows
included in the Reports fairly presented the results of operations and financial
position of the Company and its Subsidiaries at the times and for the periods
presented therein in conformity with Regulation S-X and United States GAAP
consistently applied throughout the periods involved (except as otherwise noted
therein).
ss.2.20 The Company has filed all foreign, Federal, state and local
income and franchise tax returns required to be filed through the date hereof
and has paid all taxes shown to be due with respect to the taxable periods
covered by such returns, and no tax deficiency has been assessed, nor does the
Company have any knowledge of any tax deficiency which, if determined adversely
to the Company or any of its Subsidiaries, could reasonably be expected to have
a material adverse effect on the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company or
any of its Subsidiaries.
ss.2.21 None of the transactions contemplated by this Agreement
(including, without limitation, the use of the proceeds from the sale of the
Convertible Notes) will violate Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System, in each case as in effect, or as the
same may hereafter be in effect, on the Closing Date.
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ss.2.22 There is no strike, labor dispute, slowdown or work stoppage
involving the employees of the Company or any of its Subsidiaries which is
pending or, to the knowledge of the Company, threatened.
ss.2.23 The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such risks and in such
amounts as are prudent and customary for the interest of their respective
businesses and the value of their respective properties.
ss.2.24 Other than holders of the Conversion Shares and Placement
Agent Warrant Shares (as defined in the Registration Rights Agreement) pursuant
to the Registration Rights Agreement, as of the date hereof, no holder of
securities of the Company will be entitled to have such securities registered
under the registration statement required to be filed by the Company pursuant to
the Registration Rights Agreement.
ss.2.25 The Company has not engaged in any transaction that would
require shareholder approval under Section 607.0901, Florida Statutes (Chapter
607, Laws of Florida).
ss.2.26 The terms of the Convertible Notes and the Indenture conform
in all material respects to the description thereof contained in the Memorandum
under the heading "Description of the Convertible Notes" and the terms of the
Conversion Shares conform in all material respects to the description thereof
contained in the Memorandum under the heading "Description of Securities -
Common Stock."
ss.2.27 Neither the Company nor any ERISA Affiliate has ever
maintained any Plan in connection with which there could arise a direct or
contingent liability to the Pension Benefit Guaranty Corporation, the Department
of Labor or the Internal Revenue Service. Neither the Company nor any ERISA
Affiliate is a participating employer in (i) any Plan under which more than one
employer makes contributions as described in Sections 4063 and 4064 of ERISA, or
(ii) a Multiemployer Plan. Each employee benefit plan of the Company is in
substantial compliance with all of the laws of the jurisdiction in which it is
located. The execution and delivery of this Agreement and the issuance and sale
of the Convertible Notes hereunder will not involve any prohibited transaction
within the meaning of ERISA or Section 4975 of the Code. The representations by
the Company in the preceding sentences are made in reliance upon and subject to
the accuracy of your representation in ss.3.2 of this Agreement.
For purposes of this Section 2.27, the following terms shall have
the following meanings: "ERISA AFFILIATE" means any corporation, trade or
business that is, along with the Company, (i) a member of a controlled group of
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corporations or a controlled group of trades or businesses, as described in
Section 414(b) or (c) of the Code or Section 4001 of ERISA or (ii) solely for
purposes of potential liability under Section 412(c)(11) of the Code and Section
302(c)(11) of ERISA and the lien created under Section 412(n) of the Code and
Section 302(f) of ERISA, treated as a single employer under Section 414(m) or
(o) of the Code. "MULTIEMPLOYER PLAN" means a multiemployer plan defined as such
in Section 3(37) of ERISA to which contributions have been made by the Company
or any ERISA Affiliate and that is covered by Title IV of ERISA. "PLAN" means an
employee benefit or other plan established or maintained by the Company or any
ERISA Affiliate and that is covered by Title IV of ERISA, other than a
Multiemployer Plan.
ss.2.28 The Company and each of its Subsidiaries is in compliance
with all applicable Environmental Laws (as defined below) and has obtained all
environmental, health and safety permits, licenses and other authorizations
required under all applicable Environmental Laws to carry on its business as now
being conducted, except to the extent noncompliance or the failure to have any
such permit, license or authorization would not, individually or in the
aggregate, have a material adverse effect on the prospects, business,
operations, properties or financial condition of the Company or any of its
Subsidiaries; each of such permits, licenses and authorizations is in full force
and effect; in addition, no written notice, notification, demand, request for
information, citation, summons or order has been issued, no complaint has been
filed before any judicial, quasi-judicial or administrative body, no penalty has
been assessed and no investigation is pending or threatened by any governmental
body with respect to any violation by or liability of the Company or any of its
Subsidiaries relating to or arising under any Environmental Law which would,
individually or in the aggregate, have a material adverse effect on the
prospects, business, operations, properties or financial condition of the
Company or any of its Subsidiaries.
For purposes of this Section 2.28, "ENVIRONMENTAL LAWS" means any
and all foreign, U.S. Federal, state and local laws, rules or regulations, and
any foreign or U.S. orders or decrees, all as now or hereafter in effect,
relating to the regulation or protection of human health, safety or the
environment or to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, handling of emission, discharge, release or
threatened release of pollutants, contaminants, chemicals or toxic or hazardous
substances or wastes as defined or regulated by applicable Environmental Laws,
including, without limitation, petroleum or petroleum byproducts, into the
indoor or outdoor environment, including without limitation ambient air, soil,
surface water, ground water, wetlands, land or subsurface strata.
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ss.2.29 As of the date hereof, prior to giving effect to the
offering of Convertible Notes or the issuance of the Placement Agent Shares (as
defined in the Memorandum), Mitchell Rubinson owns 69.76% of the Common Stock on
an undiluted basis.
ss.3. REPRESENTATIONS OF THE PURCHASER. You represent and warrant to
the Company as follows:
ss.3.1 You are purchasing the Convertible Notes for your own account
and not for the account or benefit of any other person;
ss.3.2 You are an "accredited investor" as defined in Rule 501 of
Regulation D under the 1933 Act;
ss.3.3 You have knowledge and experience in financial and business
matters such that you are capable of evaluating the merits and risks of an
investment in the Convertible Notes being purchased by you;
ss.3.4 You (i) have received a copy of the Memorandum and have
reviewed each of the documents included as part thereof, including, without
limitation, the Risk Factors set forth therein, (ii) have been given the
opportunity to obtain from the Company and to review each of the contracts and
other documents that have been filed with the Commission as exhibits to the
filings included as part of the Memorandum, (iii) have been furnished with all
such additional information as you have deemed necessary to make an informed
investment decision with respect to the Convertible Notes and (iv) have been
afforded an opportunity to ask questions and receive answers from authorized
officers and other representatives of the Company concerning the Company and the
terms and conditions of the Offering;
ss.3.5 You confirm that you had the opportunity to obtain such
independent legal and tax advice and financial planning services as you have
deemed appropriate prior to making a decision to purchase the Convertible Notes;
ss.3.6 You are aware that an investment in the Company is highly
speculative and subject to substantial risks. You are capable of bearing the
economic risks of an investment in the Convertible Notes, including, but not
limited to, the possibility of a complete loss of your investment, as well as
limitations on the transferability of the Convertible Notes which may make the
liquidation of an investment in the securities difficult or impossible for the
indefinite future;
ss.3.7 You, if a corporation, partnership, trust or other entity,
are authorized and duly empowered to purchase and hold the Convertible Notes,
have your principal place of business at the address set forth on Schedule A and
have not been formed for the specific purpose of acquiring the Convertible
Notes;
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<PAGE>
ss.3.8 The Convertible Notes are being acquired by you solely for
invest ment, and are not being purchased with a view to a distribution or resale
thereof otherwise than in compliance with the 1933 Act;
ss.3.9 You understand that the Convertible Notes have not been
registered under the 1933 Act, or any state securities laws, in reliance upon
exemptions from registration for non-public offerings. You understand that
neither such securities nor any interest therein may be, and agree that neither
such securities nor any interest therein will be, resold or otherwise disposed
of by you unless such securities are subsequently registered under the 1933 Act
and under appropriate state securities laws or unless the Company receives an
opinion of counsel reasonably satisfactory to it that an exemption from
registration is applicable;
ss.3.10 You understand that (i) the Conversion Shares have not been
and will not be registered under the 1933 Act, or any state securities laws, for
sale to the holders of the Convertible Notes and, accordingly, the ability of a
holder to convert the Convertible Notes will depend on the availability of an
exemption from registration and (ii) any Conversion Shares acquired upon the
conversion of the Convertible Notes will be "restricted securities" within the
meaning of Rule 144 under the 1933 Act, and may not be resold or otherwise
disposed of by the holder of such shares unless (A) the Conversion Shares are
subsequently registered for resale under the 1933 Act and under appropriate
state securities laws or (B) the Company receives an opinion of counsel
reasonably satisfactory to it that an exemption from registration is available.
ss.3.11 You have been informed of and understand that no federal or
state agency has made any finding or determination as to the merits of an
investment in the Convertible Notes, or any recommendation or endorsement of the
Convertible Notes;
ss.3.12 None of the following information has ever been represented,
guaranteed or warranted to you, expressly or by implication, by the Placement
Agent, by any other broker, by the Company, by any officer, director, employee
or agent of any of the foregoing, or by any other person:
(a) The length of time that you will be required to remain
as a securityholder of the Company;
(b) The profit or loss that may be realized as a result of
an investment in the Convertible Notes;
15
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(c) That the past performance or experience of the management
of the Company or any other person are in any way indicative of future results
of operations of the Company or a return on an investment in the Convertible
Notes;
ss.3.13 The information set forth in the Confidential Prospective
Investor Questionnaire (the "QUESTIONNAIRE") executed by you is true, correct
and complete; and
ss.3.14 You represent that at least one of the following statements
is an accurate representation as to each source of funds to be used by you to
pay the purchase price of the Convertible Notes to be purchased by you
hereunder:
(a) the source of such funds is an "insurance company general
account" within the meaning of Department of Labor Prohibited Transaction
Exemption ("PTE") 95-60 and the acquisition of the Convertible Notes is exempt
under PTE 95-60;
(b) all or a part of such funds constitute assets of one or more
"pooled separate accounts" (within the meaning of PTE 90-1), there is no
employee benefit plan whose assets in such account exceed 10% of the total
assets of such account (for the purpose of this clause (b), all employee benefit
plans maintained by the same employer or employee organization are deemed to be
a single plan) and the acquisition of the Convertible Notes is exempt under PTE
90-1;
(c) all or a part of such funds constitute assets of a "bank
collective investment fund" (within the meaning of PTE 91-38), there is no
employee benefit plan whose assets in such account exceed 10% of the total
assets of such account (for the purpose of this clause (c), all employee benefit
plans maintained by the same employer or employee organization are deemed to be
a single plan) and the acquisition of the Convertible Notes is exempt under PTE
91-38;
(d) the Convertible Notes are being acquired for the account of one
or more pension funds, trust funds or agency accounts, each of which is a
"governmental plan" as defined in Section 3(32) of ERISA;
(e) the source of funds is an "investment fund" managed by a
"qualified professional asset manager" or "QPAM" (as defined in Part V of PTE
84-14) and the acquisition of the Convertible Notes is exempt under PTE 84-14;
or
(f) if you are not an insurance company, all of such funds or such
portion of such fund as is not a source described in another paragraph of this
16
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Section 3.14 consist of funds which do not constitute Plan Assets. For purposes
hereof, "PLAN ASSETS" shall mean "plan assets" (within the meaning of U.S.
Department of Labor Regulations Section 2510.3-101) of any employee benefit or
other plan that is subject to ERISA or Section 4975 of the Internal Revenue
Code.
ss.4. CONDITIONS OF CLOSING. Your obligation to purchase and pay for
the Convertible Notes hereunder shall be subject to the conditions hereinafter
set forth:
ss.4.1 On the Closing Date the Convertible Notes to be purchased by
you hereunder shall be a legal investment for you under the laws of each
jurisdiction to which you may be subject, and you shall have received such
certificates or other evidence as you may reasonably request demonstrating the
legality of such purchase under such laws.
ss.4.2 The Company shall have delivered to you a certificate or
other evidence satisfactory to your special counsel that the Company has
obtained from Standard & Poor's Corporation's CUSIP Service Bureau a private
placement number with respect to the Convertible Notes.
ss.4.3 The representations and warranties of the Company contained
in this Agreement shall be true and correct as of the date hereof and on the
Closing Date;
ss.4.4 Each of the Transaction Documents, the Questionnaires and
such other applicable purchase documents as have been sent to the Purchasers
shall have been duly executed and delivered by the parties thereto, and shall be
in full force and effect;
ss.4.5 The Placement Agent and the Purchasers shall have received
the opinions of counsel to the Company (including opinions of Polish counsel)
acceptable to their counsel;
ss.4.6 Mr. Mitchell Rubinson, the Company's Chairman of the Board,
Chief Executive Officer, President and principal stockholder, shall have
executed and delivered the Voting and Disposition Agreement attached as Exhibit
A hereto.
ss.4.7 At least three days before the Closing Date, the Company
shall have delivered to each of the Purchasers projected balance sheets, income
statements and statements of cash flows of the Company and its Subsidiaries as
of and for each of the years in the period ending December 31, 2007, which
projections shall be reasonably satisfactory to the Purchasers.
17
<PAGE>
ss.4.8 The Purchasers shall have received (A) accurate certificates,
each dated the Closing Date, signed by each of (x) the President and Chief
Executive Officer and (y) the Chief Financial Officer of the Company, in form
and substance satisfactory to the Placement Agent, to the effect that (1) each
signer of such certificate has carefully examined the Memorandum, (2) as of the
date thereof, the Memorandum is true and correct in all material respects and
does not omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except with respect to the projections contained in the Memorandum,
as to which such officers shall represent that to the best of their knowledge,
the assumptions underlying such projections are reasonable, (3) since the date
of the Memorandum, no event has occurred as a result of which it is necessary to
amend or supplement the Memorandum in order to include any material fact or to
make the statements therein, in the light of the circumstances under which they
were made, not misleading and (4) the representations and warranties of the
Company contained in this Agreement are true and correct as of the date hereof
and on the Closing Date and (B) an accurate certificate, dated the Closing Date,
signed by the Secretary of the Company, in form and substance satisfactory to
the Placement Agent, certifying as to (1) the incumbency and the signatures of
those officers of the Company executing the Transaction Documents and the
certificates or other documents to be delivered pursuant to the terms of such
agreements, (2) the Certificate of Incorporation and By-Laws of the Company and
similar organizational documents of KP, PKP and IFFP, (3) the resolutions of the
Board of Directors of the Company (or duly appointed committee thereof)
authorizing the Offering and the execution and delivery of the Transaction
Documents, the offer, sale and issuance of the Convertible Notes and the
consummation of the transactions contemplated hereby and thereby and (4) good
standing certificates as of a recent date with respect to the Company from the
Secretary of State of Florida and each state in which it is qualified to do
business and similar certificates with respect to the Company, KP, PKP and IFFP
from the Republic of Poland;
ss.4.9 All corporate and other proceedings taken or to be taken by
the Company in connection with the transactions contemplated by the Transaction
Documents or described in the Memorandum and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Placement Agent,
the Purchasers and their counsel, and you shall have received all such
counterpart originals or certified or other copies of such documents as you may
reasonably request;
ss.4.10 The Company shall have paid on or before the Closing Date
the fees, charges and disbursements of Reboul, MacMurray, Hewitt, Maynard &
Kristol, special counsel to the Purchasers;
18
<PAGE>
ss.4.11 Contemporaneously with the Closing, the Company shall sell
to the other Purchasers and the other Purchasers shall purchase the Convertible
Notes to be purchased by them at the Closing as specified on Schedule A; and
ss.4.12 You shall have received such additional certificates,
instruments and other documents as to such matters as you or your counsel may
reasonably request.
ss.5. LIABILITIES OF THE PURCHASER. Neither this Agreement nor any
disposition of any of the Convertible Notes shall be deemed to create any
liability or obligation of you or any other holder of any Convertible Note to
enforce any provision hereof or of any of the Convertible Notes for the benefit
or on behalf of any other person who may be the holder of any Convertible Note.
ss.6. TAXES. The Company will pay all stamp, documentary or similar
taxes which may be payable in respect of the execution and delivery of this
Agreement or of the execution and delivery (but not the transfer) of any of the
Convertible Notes or of any amendment of, or waiver or consent under or with
respect to, this Agreement or of any of the Convertible Notes and will save you
and all subsequent holders of the Convertible Notes harmless against any loss or
liability resulting from nonpayment or delay in payment of any such tax. The
obligations of the Company under this ss.6 shall survive the payment of the
Convertible Notes.
ss.7. ACCEPTANCE AND TERMINATION. Execution and delivery of this
Agreement shall constitute an irrevocable offer, subject to the terms and
conditions hereof, to purchase the Convertible Notes indicated, which offer may
be accepted or rejected, either in whole or in part, by the Company in its sole
discretion for any cause or for no cause. Acceptance of this offer by the
Company shall be signified by the execution hereof by a duly authorized officer
of the Company and the delivery of two duly executed copies of this Agreement to
the Purchaser. In the event that the sale to the Purchaser of the Convertible
Notes proposed to be purchased by the Purchaser has not been consummated by
November 15, 1997, then this Agreement shall terminate on such date, and the
parties shall be released from all of their respective obligations hereunder.
19
<PAGE>
ss.8. USE OF PROCEEDS. The Company will use the proceeds realized
from the sale of the Convertible Notes to the Purchasers for the purposes
described in the Memorandum.
ss.9. MISCELLANEOUS.
ss.9.1 EXPENSES. The Company agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay all reasonable expenses
incurred by the Company in connection with such transactions, including all
document production costs and other expenses, the reasonable fees and expenses
of Reboul, MacMurray, Hewitt, Maynard & Kristol, your special counsel, for their
services with relation to such transactions, the reasonable fees and expenses of
Marine Midland Bank, as trustee under the Indenture, and Bankers Trust Company,
as Registrar, Paying Agent and Authenticating Agent under the Indenture, and all
reasonable out-of-pocket expenses in connection with the shipping to and from
your office or the office of your nominee of the Convertible Notes and upon any
exchange or substitution pursuant to the provisions of the Convertible Notes or
this Agreement.
ss.9.2 RELIANCE ON AND SURVIVAL OF REPRESENTATIONS. All agreements,
representations and warranties of the Company and the Purchaser herein and in
any certificates or other instruments delivered pursuant to this Agreement shall
(i) be deemed to have been relied upon by the other party, notwithstanding any
investigation heretofore or hereafter made by the other party or on its behalf,
and (ii) survive the execution and delivery of this Agreement and the delivery
of the Convertible Notes, and shall continue in effect so long as any
Convertible Note is outstanding and thereafter as provided in Sections 6, 9.1
and 9.5.
ss.9.3 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure
to the benefit of and be enforceable by the Company and its permitted successors
and assigns hereunder, you and your successors and assigns, and, in addition,
shall inure to the benefit of and be enforceable by all holders from time to
time of the Convertible Notes.
ss.9.4 COMMUNICATIONS. All notices and other communications provided
for in this Agreement shall be in writing and shall be sent by confirmed
telecopy (with an undertaking to provide hard copy) or delivered by hand or sent
by overnight courier service prepaid to a person at its address specified below.
A communication shall be addressed, until such time as a person shall have
notified the other parties and holders of Convertible Notes of a change of
address
20
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(a) if to the Company, to:
International Fast Food Corporation
1000 Lincoln Road
Suite 200
Miami Beach, FL 33139
Telephone: 305-531-5800
Telecopier: 305-538-5037
Attn: Mitchell Rubinson
with a copy to:
Greenberg Traurig Hoffman
Lipoff Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, FL 33131
Telephone: 305-579-0500
Telecopier: 305-579-0717
Attn: Gary Epstein, Esq.
(b) if to you, at your address as set forth in Schedule A,
with a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Telephone: 212-841-5700
Telecopier: 212-841-5725
Attn: Karen C. Wiedemann, Esq.
or
(c) if to any other holder of a Convertible Note, at the
address of such holder as it appears on the Convertible Note Register.
Any notice or other communication herein provided to be given to the
holders of all outstanding Convertible Notes shall be deemed to have been duly
given if sent as aforesaid to each of the registered holders of the Convertible
Notes at the time outstanding at the address for such purpose of such holder as
it appears on the Convertible Note Register.
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<PAGE>
ss.9.5 INDEMNIFICATION. The Company agrees to indemnify, exonerate
and hold you, each other holder from time to time of any Convertible Note and
each of your and their respective officers, directors, employees and agents
(collectively herein called the "INDEMNITEES" and individually called an
"INDEMNITEE") free and harmless from and against any and all actions, causes of
action, suits, losses, liabilities and damages, and expenses in connection
therewith, including without limitation reasonable counsel fees and
disbursements (collectively herein called the "INDEMNIFIED LIABILITIES")
incurred by the Indemnities or any of them as a result of, or arising out of, or
relating to any transaction financed or to be financed in whole or in part
directly or indirectly with proceeds from the sale of any of the Convertible
Notes, or the execution, delivery, performance (in accordance with the terms
hereof) or enforcement of this Agreement or any instrument contemplated hereby
for such date by any of the Indemnities, except for any such Indemnified
Liabilities arising on account of such Indemnitee's gross negligence or willful
misconduct, and if and to the extent the foregoing undertaking may be
unenforceable for any reason, the Company agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The obligations of the
Company under this ss.9.5 shall survive the payment of the Convertible Notes.
ss.9.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT
TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE SOUTHERN
DISTRICT OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT.
ss.9.7 ENTIRE AGREEMENT. This Agreement, together with the
Indenture, the Registration Rights Agreement and the Questionnaire, is intended
by the parties as a final expression of their agreement, and is intended to be a
complete and exclusive statement of their agreement in respect of the purchase
by the Purchaser of the Convertible Notes. This Agreement, the Indenture, the
Registration Rights Agreement and the Questionnaire supersede all prior
agreements between the parties hereto with respect to such subject matter. There
are no representations, promises, warranties or undertakings between the parties
hereto in respect of the purchase by the Purchaser of the Convertible Notes,
other than those set forth or referred to herein and therein.
ss.9.8 FURTHER ASSURANCES. The parties agree to execute and deliver
all such further documents and agreements and take such other and further action
as may be necessary or appropriate to carry out the purposes and intent of this
Agreement.
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ss.9.9 HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect any of the terms
hereof.
ss.9.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
ss.9.11 SEVERABILITY. In case any one of more of the provisions
contained in this Agreement or in any instrument contemplated hereby, or any
application thereof, shall be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein and therein, and any other application thereof, shall not in any way be
affected or impaired thereby.
23
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If you are in agreement with the foregoing, please sign the form of
acceptance in the space provided below.
Very truly yours,
INTERNATIONAL FAST FOOD CORPORATION
By: /s/ Mitchell Rubininson
---------------------------------------
Name: Mitchell Rubininson
Title: President
The foregoing Agreement is hereby accepted as of the date first above written:
Purchaser: NORTHSTAR HIGH TOTAL RETURN FUND
By: /s/ Michael A. Graves
-------------------------------------
Name: Michael A. Graves
Title: Vice President
Purchaser: NORTHSTAR HIGH TOTAL RETURN FUND II
By: /s/ Michael A. Graves
-------------------------------------
Name: Michael A. Graves
Title: Vice President
Purchaser: NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
By: /s/ Michael A. Graves
-------------------------------------
Name: Michael A. Graves
Title: Vice President
Purchaser: BANKAMERICA INVESTMENT CORP.
By: /s/ Mike Hornig
-------------------------------------
Name: Mike Hornig
Title: Assistant Controller
Purchaser: LEGG MASON INCOME TRUST, INC.
By: /s/ Trudie D. Whitehead
-------------------------------------
Name: Trudie D. Whitehead
Title: Portfolio Manager
24
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SCHEDULE A
INFORMATION RELATING TO PURCHASERS
Aggregate Principal
Amount of
Name (and Nominee Name, if any) Convertible Notes
TO BE PURCHASED
------------------------------------- -------------------------------
$
(1) All payments on account of the Convertible Notes shall be made by wire
transfer of immediately available funds, identifying the full names and
private placement number of the Convertible Notes and providing sufficient
information to identify the source of the transfer, and allocation of
principal and interest, and shall appear in the following format:
________________________________
________________________________
________________________________
ABA #____________________
For Further Credit to: ____________________ Account No. ________
Regarding:International Fast Food Corporation
11% Convertible Senior Subordinated Discount Notes due
2007
Issuance Date: _________________, 1997
Private Placement No.: _________________
(2) Address for all notices in respect of payments:
________________________________
________________________________
________________________________
________________________________
(3) Address for all other communications:
________________________________
________________________________
________________________________
________________________________
(4) Taxpayer Identification No.: ______________
25
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SCHEDULE B
----------
FINANCIAL PROJECTIONS
26
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and entered
into as of November 5, 1997, by and among (i) International Fast Food
Corporation, a Florida corporation (the "COMPANY"), (ii) each of the undersigned
purchasers (the "PURCHASERS"), which Purchasers are each executing a Securities
Purchase Agreement (collectively, the "PURCHASE AGREEMENTS") relating to an
offering (the "OFFERING") by the Company of $27,536,000 aggregate stated
principal amount at maturity of 11% Convertible Senior Subordinated Discount
Notes due 2007 (the "CONVERTIBLE NOTES"), to be issued by the Company pursuant
to the provisions of an Indenture dated as of November 5, 1997 (as amended,
supplemented or otherwise modified from time to time, the "INDENTURE") and the
Purchase Agreements, and (iii) BT Alex. Brown Incorporated (the "PLACEMENT
AGENT").
In order to induce the Purchasers to enter into the Purchase Agreements
and the Placement Agent to enter into the Placement Agency Agreement relating to
the Offering (the "PLACEMENT AGENCY AGREEMENT"), the Company has agreed to
provide the registration rights set forth in this Agreement to the Purchasers
and the Placement Agent. Capitalized terms used herein without definition shall
have the meanings set forth in the Purchase Agreements.
The parties hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following capitalized terms shall have the
following meanings:
"ADVICE" shall have the meaning set forth in Section 5 hereof.
"CLOSING DATE" shall mean the date of the closing of the Offering.
"COMMISSION" shall mean the Securities and Exchange Commission.
"COMMON STOCK" shall mean the common stock, par value $.01 per share, of
the Company.
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"COMPANY" shall have the meaning set forth in the preamble.
"CONTROL PERSON" shall have the meaning set forth in Section 7(a) hereof.
"CONVERSION RATIO" shall have the meaning set forth in the Indenture.
"CONVERSION SHARES" shall mean the shares of Common Stock issuable upon
conversion of the Convertible Notes at the rate and in the manner set forth in
the Indenture.
"CONVERTIBLE NOTE AMOUNT" shall have the meaning set forth in Section 2(f)
hereof.
"CONVERTIBLE NOTES" shall have the meaning set forth in the preamble.
"EFFECTIVENESS PERIOD" shall have the meaning set forth in Section 2(a)
hereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"INDEMNIFIED PERSON" shall have the meaning set forth in Section 7(c)
hereof.
"INDEMNIFYING PERSON" shall have the meaning set forth in Section 7(c)
hereof.
"INDENTURE" shall have the meaning set forth in the preamble.
"INSPECTORS" shall have the meaning set forth in Section 5(k) hereof.
"NASD" shall have the meaning set forth in Section 5(m) hereof.
"OFFERING" shall have the meaning set forth in the preamble.
"PARTICIPANT" shall have the meaning set forth in Section 7(a) hereof.
"PLACEMENT AGENT" shall have the meaning set forth in the preamble.
"PLACEMENT AGENT SHARES" shall mean the 500,000 shares of Common Stock to
be issued to the Placement Agent pursuant to the terms of the Placement Agency
Agreement.
"PLACEMENT AGENCY AGREEMENT" shall have the meaning set forth in the
preamble.
"PURCHASE AGREEMENTS" shall have the meaning set forth in the preamble.
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"PURCHASERS" shall have the meaning set forth in the preamble.
"RECORDS" shall have the meaning set forth in Section 5(k) hereof.
"REGISTRABLE SECURITIES" shall mean the Conversion Shares and the
Placement Agent Shares.
"REGISTRATION DEFAULT" shall have the meaning set forth in Section 2(f)
hereof.
"REGISTRATION EXPENSES" shall have the meaning set forth in Section 6(a)
hereof.
"RESTRICTED REGISTRABLE SECURITIES" means the Registrable Securities until
(i) a registration statement covering such Registrable Securities has been
declared effective and they have been disposed of pursuant to such effective
registration statement or (ii) they are eligible for distribution to the public
pursuant to Rule 144(k) (or any similar provision then in force) under the
Securities Act.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SHELF REGISTRATION STATEMENT" shall have the meaning set forth in Section
2(a) hereof.
2. SHELF REGISTRATION.
(a) SHELF REGISTRATION STATEMENT. The Company shall file with the
Commission a registration statement for an offering to be made on a continuous
basis pursuant to Rule 415 under the Securities Act covering all of the
Restricted Registrable Securities (the "SHELF REGISTRATION STATEMENT") and shall
use its best efforts to cause such Shelf Registration Statement to be declared
effective by the Commission on or prior to the one year anniversary of the
Closing Date. The Shelf Registration Statement shall be on Form S-3 or another
appropriate form permitting registration of such Restricted Registrable
Securities for resale by the holders thereof in the manner or manners designated
by them (including, without limitation, one underwritten offering). The Company
shall not permit any securities to be sold by the Company to be included in the
Shelf Registration Statement.
The Company shall use its best efforts to keep the Shelf Registration
Statement continuously effective under the Securities Act until the earlier of
(i) the expiration of the time period referred to in Rule 144(k) under the
Securities Act with respect to all beneficial holders other than affiliates of
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the Company of Restricted Registrable Securities and (ii) such time as all the
Restricted Registrable Securities covered by such Shelf Registration Statement
have been sold pursuant to such Shelf Registration Statement or are otherwise
freely tradeable without registration under the Securities Act (the
"EFFECTIVENESS PERIOD"). The Company shall be deemed not to have used its best
efforts to keep a registration statement effective during the Effectiveness
Period if it voluntarily takes any action that would result in selling holders
of the Restricted Registrable Securities covered thereby not being able to sell
such Restricted Registrable Securities during that period unless such action is
required by applicable law or unless the Company complies with this Agreement,
including without limitation, the provisions of Section 2(e) hereof, Section
5(i) hereof and the last paragraph of Section 5 hereof.
(b) SELECTION OF INVESTMENT BANKERS AND MANAGERS. If any of the Restricted
Registrable Securities covered by the Shelf Registration Statement are to be
sold in an underwritten offering, the investment banker or investment bankers
and manager or managers that will administer the offering will be selected by
the Company and reasonably acceptable to the holders of a majority of the
Restricted Registrable Securities to be included in such offering.
(c) EXPENSES. The Company shall pay all Registration Expenses (as
hereinafter defined) incurred in connection with the Company's registration
obligations pursuant to this Section 2.
(d) CONVERSION RATIO. In the event the Shelf Registration Statement is not
declared effective on or prior to the date that is one year after the Closing
Date, the denominator of the Conversion Ratio will be decreased by $.15 (subject
to adjustment as set forth in the Indenture).
(e) SUSPENSION. During any consecutive 365-day period, the Company may
suspend the availability of the Shelf Registration Statement for up to 45
consecutive days (except for the consecutive 45-day period immediately prior to
the maturity of the Convertible Notes) if the Company's Board of Directors
determines in good faith that there is a valid purpose for such suspension;
PROVIDED, HOWEVER, that in no event may the availability of the Shelf
Registration Statement be suspended, for any reason, for more than an aggregate
of 60 days during any 365-day period.
(f) LIQUIDATED DAMAGES. If the Shelf Registration Statement is declared
effective but, except under the circumstances described in the last sentence of
paragraph (a) above, thereafter ceases to be effective or usable for its
intended purpose during the period specified in this Agreement (except as and
for the periods permitted hereby) without being succeeded promptly by a
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post-effective amendment to such Shelf Registration Statement that cures such
failure and that is itself immediately declared effective (each such event being
referred to herein as a "Registration Default"), the Company hereby agrees to
pay liquidated damages to each holder of Restricted Registrable Securities
and/or Convertible Notes. Such liquidated damages shall be payable to each such
holder with respect to the first 30-day period (or portion thereof) immediately
following the occurrence of a Registration Default in an amount equal to .05%
multiplied by the principal amount of Convertible Notes then held by such holder
plus the aggregate principal amount of Convertible Notes from which the
Restricted Registrable Securities then held by such holder were converted (such
holder's "Convertible Note Amount"). For each subsequent 30-day period (or
portion thereof) that the Registration Default continues, the amount of the
liquidated damages payable to each holder shall increase by an additional .05%
multiplied by such holder's Convertible Note Amount until all Registration
Defaults have been cured, up to a maximum amount of liquidated damages of 5%
multiplied by such holder's Convertible Note Amount. All accrued liquidated
damages shall be paid to holders by the Company by wire transfer of immediately
available funds or by federal funds check upon the termination of each 30-day
period described above or upon cure of all Registration Defaults, whichever
occurs first. Following the cure of all Registration Defaults relating to any
particular Restricted Registrable Securities, the accrual of liquidated damages
with respect to such Restricted Registrable Securities will cease.
3. PIGGYBACK REGISTRATION.
(a) If at any time after the one year anniversary of the Closing Date the
Company shall register or propose the registration under the Securities Act of
any shares of Common Stock of the Company (other than a registration relating
solely to the sale of securities to participants in a Company employee benefit
plan or a registration on Form S-4 promulgated under the Securities Act or any
successor or similar form for registering stock issuable upon a
reclassification, business combination involving an exchange of securities, or
an exchange offer for securities of the Company or another entity), the Company
shall send to the record owners of Restricted Registrable Securities, at least
30 days prior to the filing of a registration statement, notice of such proposed
registration stating the total number of shares proposed to be the subject of
such registration. The Company, subject to Section 3(c) hereof, will include in
any registration statement filed with the Commission with regard to such
proposed registration the number of Restricted Registrable Securities specified
in writing by any such record owners to it within 20 days after receipt of said
notice. Any record owner who participates in the public offering pursuant to
such registration statement shall be entitled to all the benefits of this
Agreement in connection with any registration hereunder, except as otherwise
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provided in this Section 3. The right to registration provided in this Section
is in addition to and not in lieu of the registration rights provided in Section
2 hereof.
(b) All Registration Expenses in connection with any registration
statement contemplated by this Section 3 shall be borne by the Company.
(c) Notwithstanding the foregoing, if the managing underwriter or
underwriters of such proposed offering advise(s) the Company in writing that in
its or their opinion the total amount or kind of securities which the holders of
Restricted Registrable Securities, the Company and any other persons or entities
intend to include in such offering would reasonably be likely to adversely
affect the Company in such offering, then the Company will include in such
registration, to the extent of the number of securities which the Company is so
advised can be sold in such offering, (i) first, the shares of Common Stock that
the Company proposes to sell in a primary offering, (ii) second, the Restricted
Registrable Securities requested to be registered by the holders thereof
pursuant to Section 3(a); PROVIDED, HOWEVER, that if in the written opinion of
the managing underwriter or underwriters of such offering the inclusion of all
the Restricted Registrable Securities requested to be included in such offering
would adversely affect the amount or price of the securities that could be sold
by the Company in such offering, then the Restricted Registrable Securities
included in such offering shall be determined on a pro rata basis (based on
relative holdings of Registrable Securities), and (iii) third, so long as all
Restricted Registrable Securities requested to be included in such registration
pursuant to Section 3(a) have been included in such registration, all other
securities of the Company proposed to be included in such registration, in
accordance with the priorities, if any, then existing among the holders of such
securities.
4. HOLDBACK AGREEMENT.
(a) Each owner of Restricted Registrable Securities shall, with respect to
any Restricted Registrable Securities not then being registered for resale under
the Securities Act as part of any registration statement described in Section 3
hereof, upon receipt of written notice from the Company, not effect any public
sale or distribution of such Restricted Registrable Securities of such owner,
including a sale pursuant to Rule 144 under the Securities Act, during the seven
days prior to, and during the 120-day period beginning on, the effective date of
any registration statement described in Section 3 hereof for an underwritten
offering (except as part of such registration), if and to the extent requested
by the managing underwriter or underwriters in the underwritten public offering.
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(b) The Company agrees not to effect any public sale or distribution of
its equity securities, or any securities convertible into or exchangeable or
exercisable for such equity securities, during the seven days prior to, and
during the 120-day period beginning on, the effective date of any underwritten
offering pursuant to the Shelf Registration Statement (except pursuant to
registrations on Form S-8 or any successor form to Form S-8).
5. REGISTRATION PROCEDURES.
In connection with each registration provided for in Sections 2 or 3
hereof, the Company will, during the Effectiveness Period, promptly:
(a) furnish to each holder of Restricted Registrable Securities, prior to
filing a registration statement or amendments thereto with the Commission with
respect to Restricted Registrable Securities, copies of such registration
statement and amendments as proposed to be filed and all exhibits thereto, and
thereafter furnish such number of copies of such registration statement, each
amendment and supplement thereto (in each case including all exhibits thereto),
the prospectus included in such registration statement and amendments thereto
(including each preliminary prospectus) and such other documents as such seller
may reasonably request in order to facilitate the disposition of the Restricted
Registrable Securities owned by such seller. The Company shall not file any
registration statement or any amendments thereto if the holders of a majority of
the Restricted Registrable Securities covered by such registration statement,
their counsel, or the managing underwriters, if any, shall reasonably object;
(b) prepare and file with the Commission such amendments and
post-effective amendments to the Shelf Registration Statement as may be
necessary to keep such registration statement continuously effective for the
Effectiveness Period (subject to Section 2 (e)); cause the prospectus in each
registration statement filed pursuant to Section 2 or 3 hereof to be
supplemented by any prospectus supplement required by applicable law, and, if
required, as so supplemented to be filed pursuant to Rule 424 (or any similar
provisions then in force) under the Securities Act; and comply with the
provisions of the Securities Act and the Exchange Act, applicable to it with
respect to the disposition of all securities covered by such registration
statement as so amended or such prospectus as so supplemented;
(c) notify the selling holders of Restricted Registrable Securities, their
counsel and the managing underwriters, if any, promptly (but in any event within
five business days), and confirm such notice in writing, (i) when a prospectus
or any prospectus supplement or post-effective amendment thereto has been filed,
and, with respect to a registration statement or any post-effective amendment
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thereto, when the same has become effective under the Securities Act (including
in such notice a written statement that any holder may, upon request, obtain, at
the sole expense of the Company, such number of copies as are requested of the
registration statement or post-effective amendment thereto including financial
statements and schedules, documents incorporated or deemed to be incorporated by
reference and exhibits), (ii) of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement or of any order
preventing or suspending the use of any preliminary prospectus or the initiation
of any proceedings for that purpose, (iii) if at any time when a prospectus is
required by the Securities Act to be delivered in connection with sales of the
Restricted Registrable Securities the representations and warranties of the
Company contained in any agreement contemplated by Section 5(j) hereof cease to
be true and correct, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from qualification
of a registration statement or any of the Restricted Registrable Securities for
offer or sale in any jurisdiction, or the initiation of any proceeding for such
purpose, (v) of the happening of any event, the existence of any condition or
any information becoming known that makes any statement made in a registration
statement or related prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires the making of any changes in or amendments or supplements to a
registration statement, prospectus or documents so that it 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 not misleading,
and that in the case of the prospectus, it 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, (vi) of the
determination by the Company that a post-effective amendment to a registration
statement would be appropriate and (vii) of any suspension of the availability
of the Shelf Registration Statement pursuant to Section 2(e);
(d) use its best efforts to prevent the issuance of any order suspending
the effectiveness of a registration statement or of any order preventing or
suspending the use of a prospectus or suspending the qualification (or exemption
from qualification) of any of the Restricted Registrable Securities for sale in
any jurisdiction, and, if any such order is issued, to use its best efforts to
obtain the withdrawal of any such order as soon as practicable;
(e) upon and after the filing of the Shelf Registration Statement pursuant
to Section 2 and if requested by the managing underwriter or underwriters (if
any) or the holders of a majority of the Restricted Registrable Securities being
sold, (i) promptly include in a prospectus supplement or post-effective
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amendment thereto such information as the managing underwriter or underwriters
(if any), such holders, or counsel for any of them reasonably request to be
included therein and (ii) make all required filings of such prospectus
supplement or such post-effective amendment as soon as practicable after the
Company has received notification of the matters to be included in such
prospectus supplement or post-effective amendment;
(f) prior to any public offering of Restricted Registrable Securities, to
use its best efforts to register or qualify such Restricted Registrable
Securities (and to cooperate with selling holders of Restricted Registrable
Securities, the managing underwriter or underwriters, if any, and their
respective counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Restricted
Registrable Securities) for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any selling holder, or the
managing underwriter or underwriters reasonably request in writing; PROVIDED,
HOWEVER, that where Restricted Registrable Securities are offered other than
through an underwritten offering, the Company agrees to cause its counsel to
perform Blue Sky investigations and file registrations and qualifications
required to be filed pursuant to this Section 5(f); use its best efforts to keep
any effective registration or qualification (or exemption therefrom) effective
during the period such registration statement is required to be kept effective
and do any and all other acts or things reasonably necessary or advisable to
enable the disposition in such jurisdictions of the Restricted Registrable
Securities covered by the applicable registration statement; PROVIDED, HOWEVER,
that the Company shall not be required to (A) qualify generally to do business
in any jurisdiction where it is not then so qualified, (B) take any action that
would subject it to general service of process in any such jurisdiction where it
is not then so subject, (C) subject itself to taxation in excess of a nominal
dollar amount in any such jurisdiction where it is not then so subject or (D)
modify in any way its corporate documents or agree to any restriction on the
sale of securities by the Company or any of its affiliates;
(g) cooperate with the selling holders of Restricted Registrable
Securities and the managing underwriter or underwriters, if any, to facilitate
the timely preparation and delivery of certificates representing Restricted
Registrable Securities that are sold, which certificates shall not bear any
restrictive legends; and enable such Restricted Registrable Securities to be
registered in such names as the managing underwriter or underwriters, if any, or
holders may reasonably request;
(h) use its best efforts to cause the Restricted Registrable Securities
covered by the registration statement to be registered with or approved by such
other domestic governmental agencies or authorities as may be reasonably
necessary to enable the holders thereof or the underwriter or underwriters, if
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any, to dispose of such Restricted Registrable Securities, except as may be
required solely as a consequence of the nature of a selling holder's business,
in which case the Company will cooperate in all reasonable respects with the
filing of such registration statement and the granting of such approvals;
(i) upon the occurrence of any event contemplated by Section 5(c)(v) or
5(c)(vi) hereof, as promptly as practicable prepare and (subject to Section 5(a)
hereof) file with the Commission, at the sole expense of the Company, a
supplement or post-effective amendment to the registration statement or a
supplement to the related prospectus or any document incorporated or deemed to
be incorporated therein by reference, or file any other required document so
that, as thereafter delivered to the purchasers of such Restricted Registrable
Securities, such prospectus will not contain an 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;
(j) in connection with any underwritten offering of Restricted Registrable
Securities pursuant to the Shelf Registration Statement, enter into an
underwriting agreement as is customary in underwritten offerings of equity
securities similar to the Common Stock and take all such other actions as are
reasonably requested by the managing underwriter or underwriters in order to
facilitate the registration or the disposition of such Restricted Registrable
Securities and, in such connection, (i) make such representations and warranties
to, and covenants with, the underwriters with respect to the business of the
Company and its respective subsidiaries and the registration statement,
prospectus and documents, if any, incorporated or deemed to be incorporated by
reference therein, in each case, as are customarily made by issuers to
underwriters in underwritten offerings of equity securities similar to the
Common Stock, and confirm the same in writing if and when requested; (ii) obtain
the written opinion of counsel to the Company and written updates thereof in
form, scope and substance reasonably satisfactory to the managing underwriter or
underwriters, addressed to the underwriters covering the matters customarily
covered in opinions requested in underwritten offerings of equity securities
similar to the Common Stock and such other matters as may be reasonably
requested by the managing underwriter or underwriters; (iii) obtain "cold
comfort" letters and updates thereof in form, scope and substance reasonably
satisfactory to the managing underwriter or underwriters from the independent
public accountants of the Company (and, if necessary, any other independent
public accountants of any subsidiary of the Company or of any business acquired
by the Company for which financial statements and financial data are, or are
required to be, included or incorporated by reference in the registration
statement), addressed to each of the underwriters, such letters to be in
customary form and covering matters of the type customarily covered in "cold
comfort" letters in connection with underwritten offerings of equity securities
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similar to the Common Stock and such other matters as reasonably requested by
the managing underwriter or underwriters; and (iv) if an underwriting agreement
is entered into, the same shall contain indemnification provisions and
procedures no less favorable than those set forth in Section 7 hereof (or such
other provisions and procedures acceptable to holders of a majority of
Restricted Registrable Securities covered by such registration statement and the
managing underwriter or underwriters) with respect to all parties to be
indemnified pursuant to said Section. The above shall be done at each closing
under such underwriting agreement, or as and to the extent required thereunder;
(k) upon the filing of any registration statement with respect to
Restricted Registrable Securities and after entry into a confidentiality
agreement in customary form, make available for inspection by any selling holder
of such Restricted Registrable Securities being sold, any underwriter
participating in any such disposition of Restricted Registrable Securities, if
any, and any attorney, accountant or other agent retained by any such selling
holder or underwriter (collectively, the "INSPECTORS"), at the offices where
normally kept, during reasonable business hours and upon reasonable advance
notice to the Company, all financial and other records, pertinent corporate
documents and instruments of the Company and its respective subsidiaries
(collectively, the "RECORDS") as shall be reasonably necessary to enable them to
exercise any applicable due diligence responsibilities, and cause the officers,
directors and employees of the Company and its respective subsidiaries to supply
all information reasonably requested by any such Inspector in connection with
such registration statement. Records which the Company determines, in good
faith, to be confidential and any Records which it notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless (i) the disclosure
of such Records is necessary to avoid or correct a material misstatement or
material omission in the registration statement, (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction, (iii) disclosure of such information is, in the
reasonable opinion of counsel for any Inspector, necessary or advisable in
connection with any action, claim, suit or proceeding, directly or indirectly
involving such Inspector and arising out of, based upon, relating to, or
involving this Agreement, or any transactions contemplated hereby or arising
hereunder, or (iv) the information in such Records has been made generally
available to the public. Each selling holder of such Restricted Registrable
Securities will be required to agree that information obtained by it as a result
of such inspections shall be deemed and kept confidential and shall not be used
by it as the basis for any market transactions in the securities of the Company
unless and until such information is generally available to the public. Each
selling holder of such Restricted Registrable Securities will be required to
further agree that it will, upon learning that disclosure of such Records is
sought in a court of competent jurisdiction or by any regulatory authority, give
prompt notice to the Company and allow the Company to undertake appropriate
action to prevent disclosure of the Records deemed confidential at the Company's
sole expense;
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(l) make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the registration statement (as defined in Rule 158(c) under the
Securities Act), an earnings statement of the Company (which need not be
audited) complying with Section 11(a) of the Securities Act and the rules and
regulations of the Commission thereunder (including, at the option of the
Company, Rule 158);
(m) cooperate with each seller of Restricted Registrable Securities
covered by any registration statement and each underwriter, if any,
participating in the disposition of such Restricted Registrable Securities and
their respective counsel in connection with any filings required to be made with
the National Association of Securities Dealers, Inc. (the "NASD");
(n) use its best efforts to list the Restricted Registrable Securities for
trading on the NASDAQ Small Cap market if the Common Stock is then listed on the
NASDAQ Small Cap market, and such other markets, systems or exchanges on which
the Common Stock is then listed for trading, prior to their sale pursuant to a
registration statement contemplated hereby; and
(o) use its best efforts to take all other reasonable steps necessary or
advisable to effect the registration under the Securities Act of the Restricted
Registrable Securities covered by a registration statement contemplated hereby.
The Company may require each seller of Restricted Registrable Securities
as to which any registration is being effected to furnish in writing to the
Company such information regarding such seller and the distribution of such
Restricted Registrable Securities as the Company may, from time to time,
reasonably request. The Company may exclude from such registration the
Restricted Registrable Securities of any seller who unreasonably fails to
furnish such information within a reasonable time after receiving such request.
Each seller as to which a registration statement is being effected agrees to
furnish promptly to the Company all information required to be disclosed in
order to make the information previously furnished to the Company by such seller
not materially misleading.
Each holder of Restricted Registrable Securities agrees by acquisition of
such Restricted Registrable Securities, upon actual receipt of any notice from
the Company of the happening of any event of the kind described in Section
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5(c)(ii), 5(c)(iv), 5(c)(v), 5(c)(vi) or 5(c)(vii) hereof, such holder will
forthwith discontinue disposition of such Restricted Registrable Securities
covered by such registration statement or prospectus to be sold by such holder
until such holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 5(i) hereof, or until it is advised in
writing (the "ADVICE") by the Company that the use of the applicable prospectus
may be resumed.
6. REGISTRATION EXPENSES.
(a) Registration Expenses shall be borne as set forth in Sections 2 and 3
hereof. Registration Expenses ("REGISTRATION EXPENSES") shall consist of all
expenses incidental to the Company's performance of or compliance with this
Agreement, including without limitation (i) all registration and filing fees
(including, without limitation, (A) fees with respect to filings required to be
made with the NASD and (B) fees and expenses of compliance with state securities
or Blue Sky laws (including, without limitation, reasonable fees and
disbursements of counsel in connection with Blue Sky qualifications of the
Restricted Registrable Securities), (ii) printing expenses, including, without
limitation, expenses of printing certificates for Restricted Registrable
Securities and of printing prospectuses in an amount reasonably requested by the
managing underwriter or underwriters, if any, if the printing of prospectuses is
requested by the managing underwriter or underwriters, if any, or by the holders
of the Restricted Registrable Securities included in any Registration Statement,
(iii) messenger and delivery expenses, (iv) fees and disbursements of counsel
for the Company, (v) fees and disbursements of all independent public
accountants referred to in Section 5(j)(iii) hereof (including, without
limitation, the expenses of any special audit and "cold comfort" letters
required by or incident to such performance), (vi) fees associated with making
the Restricted Registrable Securities eligible for trading through The
Depository Trust Company, (vii) Securities Act liability insurance, if the
Company desires such insurance, (viii) fees and expenses of all other persons
retained by the Company, (ix) internal expenses of the Company (including,
without limitation, all salaries and expenses of officers and employees of the
Company performing legal or accounting duties), (x) the expense of any annual
audit, (xi) the fees and expenses incurred in connection with the listing of the
securities to be registered on the NASDAQ Small Cap market or any securities
exchange, system or market on which the Common Stock is then listed, and (xii)
the expenses relating to printing, word processing and distributing all
registration statements, underwriting agreements, securities sales agreements
and any other documents necessary in order to comply with this Agreement.
Registration Expenses do not include any underwriting discounts or sales
commissions.
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(b) The Company shall reimburse the holders of the Restricted Registrable
Securities being registered under the Shelf Registration Statement for the
reasonable fees and disbursements of not more than one counsel chosen by the
holders of a majority of the Restricted Registrable Securities to be included in
the Shelf Registration Statement.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each holder of
Restricted Registrable Securities, its affiliates, and its and their respective
officers, directors, employees and agents, and each person, if any, who controls
any such person (each, a "CONTROL PERSON") within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act (each, a
"PARTICIPANT"), from and against any and all losses, claims, damages and
liabilities (including, without limitation, the reasonable legal fees and other
expenses actually incurred in connection with any suit, action, investigation or
proceeding or any claim asserted) caused by, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement (or any amendment thereto) or related prospectus (or any
amendments or supplements thereto) or any related preliminary prospectus, or
caused by, arising out of or based upon any omission or alleged omission to
state therein a 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; PROVIDED, HOWEVER, that the Company will not be required
to indemnify a Participant if (i) such losses, claims, damages or liabilities
are caused by any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information relating to
any Participant furnished to the Company in writing by or on behalf of such
Participant expressly for use therein or (ii) if such Participant sold to the
person asserting the claim the Restricted Registrable Securities which are the
subject of such claim and such untrue statement or omission or alleged untrue
statement or omission was contained or made in any preliminary prospectus and
corrected in the prospectus or any amendment or supplement thereto and the
prospectus does not contain any other untrue statement or omission or alleged
untrue statement or omission of a material fact that was the subject matter of
the related proceeding and it is established by the Company in the related
proceeding that such Participant failed to deliver or provide a copy of the
prospectus (as amended or supplemented) to such person with or prior to the
confirmation of the sale of such Restricted Registrable Securities sold to such
person if required by applicable law, unless such failure to deliver or provide
a copy of the prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5 of this Agreement.
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(b) Each Participant agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors and officers and each person who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from the Company to each Participant, but only (i) with respect to information
relating to such Participant furnished to the Company in writing by or on behalf
of such Participant expressly for use in any registration statement or
prospectus, any amendment or supplement thereto, or any preliminary prospectus
or (ii) with respect to any untrue statement or representation made by such
Participant in writing to the Company. Notwithstanding the foregoing, under no
circumstances shall the Placement Agent, its affiliates or its or their
respective officers, directors, employees, agents or Control Persons, be
responsible for amounts that in the aggregate exceed the value of the Placement
Agent Shares on the date hereof. In addition, under no circumstances shall any
Participant in any registration hereunder be responsible for any amount in
excess of the proceeds received by it in such registration.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "INDEMNIFIED PERSON") shall promptly
notify the person against whom such indemnity may be sought (the "INDEMNIFYING
PERSON") in writing, and the Indemnifying Person, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may reasonably designate in such proceeding and shall pay,
as incurred, the reasonable fees and expenses actually incurred by such counsel
related to such proceeding; PROVIDED, HOWEVER, that the failure to so notify the
Indemnifying Person shall not relieve it of any obligation or liability which it
may have hereunder or otherwise (unless and only to the extent that such failure
directly results in the loss or compromise of any material rights or defenses by
the Indemnifying Person and the Indemnifying Person was not otherwise aware of
such action or claim). In any such proceeding, any Indemnified Person 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 Person unless (i) the Indemnifying
Person and the Indemnified Person shall have mutually agreed in writing to the
contrary, (ii) the Indemnifying Person shall have failed within a reasonable
period of time to retain counsel reasonably satisfactory to the Indemnified
Person or to pay expenses subject to indemnification hereunder or (iii) the
named parties in any such proceeding (including any impleaded parties) include
both the Indemnifying Person and the Indemnified Person and representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that, unless there
exists a conflict among Indemnified Persons, the Indemnifying Person shall not,
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in connection with any one such proceeding or separate but substantially similar
related proceedings in the same jurisdiction arising out of the same general
allegations, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all Indemnified Persons, and that all
such fees and expenses shall be reimbursed promptly as they are incurred. Any
such separate firm for the Participants (including, without limitation, any
Control Persons) shall be designated in writing by Participants who sold a
majority in interest of Restricted Registrable Securities sold by all such
Participants and any such separate firm for the Company, its directors, its
officers and such Control Persons of the Company shall be designated in writing
by the Company. The Indemnifying Person shall not be liable for any settlement
of any proceeding effected without its prior written consent (which consent
shall not be unreasonably withheld), but if settled with such consent or if
there be a final non-appealable judgment for the plaintiff for which the
Indemnified Person is entitled to indemnification pursuant to this Agreement,
the Indemnifying Person agrees to indemnify and hold harmless each Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. No Indemnifying Person shall, without the prior written consent of the
Indemnified Person, effect any settlement or compromise of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
reasonably have been expected to be a party, and indemnity could have been
sought hereunder by such Indemnified Person, unless such settlement (A) includes
an unconditional written release of such Indemnified Person, in form and
substance reasonably satisfactory to such Indemnified Person, from all liability
on claims that are the subject matter of such settlement and (B) does not
include any statement as to an admission of fault, culpability or failure to act
by or on behalf of any Indemnified Person.
(d) If the indemnification provided for in the first and second paragraphs
of this Section 7 is for any reason unavailable to, or insufficient to hold
harmless, an Indemnified Person in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Person under such
paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in
order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
(i) the relative benefits received by the Indemnifying Person or persons on the
one hand and the Indemnified Person or Persons on the other from the offering of
the securities or (ii) if the allocation provided by the foregoing clause (i) is
not permitted by applicable law, not only such relative benefits but also the
relative fault of the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof). The relative
fault of the parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
16
<PAGE>
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or such Participant on the other, the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission, and any other equitable
considerations appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by PRO RATA allocation
(even if the Participants were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses actually incurred by such Indemnified Person in
connection with investigating or defending any such action or claim. 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.
(f) The indemnity and contribution agreements contained in this Section 7
will be in addition to any liability which the Indemnifying Persons may
otherwise have to the Indemnified Persons referred to above.
8. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
No owner of Restricted Registrable Securities may participate, pursuant to
Section 3 hereof, in any underwritten offering of Common Stock of the Company,
notice of which is given pursuant to Section 3 hereof, unless such owner (a)
agrees to sell its Restricted Registrable Securities pursuant to customary
underwriting arrangements approved by the Company and its counsel and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
No owner of Restricted Registrable Securities may participate, pursuant to
Section 2 hereof, in any underwritten offering of Common Stock of the Company
pursuant to the Shelf Registration Statement filed in accordance with Section 2
hereof, unless such owner completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and such other documents
reasonably required under the terms of customary underwriting arrangements.
17
<PAGE>
9. RULE 144.
The Company covenants that it will use its best efforts to file timely the
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, and it will
take such further action as any record owner of Restricted Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such owner to sell Restricted 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 similar rule or regulation hereafter adopted by
the Commission. Upon the request of any record owner of Restricted Registrable
Securities, the Company will deliver to such owner a written statement as to
whether it has complied with such requirements.
10. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company has not, as of the date
hereof, and the Company shall not, after the date of this Agreement, enter into
any agreement with respect to any of its securities that is inconsistent with
the rights granted to the holders of Restricted Registrable Securities in this
Agreement or otherwise conflicts with the provisions hereof. The Company will
not enter into any agreement which will grant any such rights that are in
conflict with the rights afforded by this Agreement.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, otherwise than with the prior written
consent of the Company and the holders of not less than a majority of the
then-outstanding Restricted Registrable Securities. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of holders of Restricted
Registrable Securities whose securities are being sold pursuant to a
registration statement and that does not directly or indirectly affect, impair,
limit or compromise the rights of other holders of Restricted Registrable
Securities may be given by holders of at least a majority of the Restricted
Registrable Securities being sold by such holders pursuant to such registration
statement.
(c) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing and be by hand-delivery or
certified mail, return receipt requested, or by facsimile (with a hard copy to
follow by either overnight or two (2) day courier):
18
<PAGE>
(i) if to a holder of Restricted Registrable Securities other than
the Placement Agent, at the most current address given by such holder to the
Company in writing;
(ii) if to the Placement Agent, at its address set forth in the
Placement Agency Agreement; and
(iii) if to the Company, at its address set forth in the Purchase
Agreements.
All such notices and communications shall be deemed to have been duly given when
delivered by hand, if personally delivered; five business days after being
deposited in the mail (by certified mail), postage prepaid, if mailed; upon
receipt, if sent by facsimile (followed by a hard copy sent by either overnight
or two (2) day courier).
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties
hereto; PROVIDED, HOWEVER, that this Agreement shall not inure to the benefit of
or be binding upon a successor or assign of a holder unless and to the extent
such successor or assign holds Restricted Registrable Securities.
(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, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE STATE OF NEW YORK IN
ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(h) SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
19
<PAGE>
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(i) RESTRICTED REGISTRABLE SECURITIES HELD BY THE COMPANY OR ITS
AFFILIATES. Whenever the consent or approval of holders of a specified
percentage of Restricted Registrable Securities is required hereunder,
Restricted Registrable Securities held by the Company or its affiliates (as such
term is defined in Rule 405 under the Securities Act) shall not be counted in
determining whether such consent or approval was given by the holders of such
required percentage.
(j) ENTIRE AGREEMENT. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no representations, promises,
warranties or undertakings between the parties hereto with respect to the
subject matter hereof, other than those set forth or referred to herein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter.
[signature pages follow]
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed as of the date first above written.
INTERNATIONAL FAST FOOD CORPORATION
By: /s/ Mitchell Rubininson
---------------------------------------
Name: Mitchell Rubininson
Title: President
Purchaser: NORTHSTAR HIGH TOTAL RETURN FUND
By: /s/ Michael A. Graves
-------------------------------------
Name: Michael A. Graves
Title: Vice President
Purchaser: NORTHSTAR HIGH TOTAL RETURN FUND II
By: /s/ Michael A. Graves
-------------------------------------
Name: Michael A. Graves
Title: Vice President
Purchaser: NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
By: /s/ Michael A. Graves
-------------------------------------
Name: Michael A. Graves
Title: Vice President
Purchaser: BANKAMERICA INVESTMENT CORP.
By: /s/ Mike Hornig
-------------------------------------
Name: Mike Hornig
Title: Assistant Controller
21
<PAGE>
Purchaser: LEGG MASON INCOME TRUST, INC.
By: /s/ Trudie D. Whitehead
-------------------------------------
Name: Trudie D. Whitehead
Title: Portfolio Manager
Purchaser: BT ALEX. BROWN INCORPORATED
By: /s/ Gary Luciani
-------------------------------------
Name: Gary Luciani
Title: Managing Director
22
VOTING AND DISPOSITION AGREEMENT
VOTING AND DISPOSITION AGREEMENT dated as of November 5, 1997, among
Mitchell Rubinson ("Rubinson") and each of the purchasers (the "Purchasers") of
the 11% Convertible Senior Subordinated Discount Notes due 2007 (the
"Convertible Notes") of International Fast Food Corporation, a Florida
corporation ("IFFC"), listed on the signature pages hereto.
WHEREAS, Rubinson is the Chairman of the Board, Chief Executive Officer,
President and principal shareholder of IFFC;
WHEREAS, IFFC is offering (the "Offering") $27,536,000 aggregate stated
principal amount at maturity of Convertible Notes;
WHEREAS, the execution of this Agreement by Rubinson is a condition
precedent related to the Offering to the obligations of the Purchasers under the
Securities Purchase Agreements related to the Offering dated as of the date
hereof between IFFC and each of the Purchasers;
NOW, THEREFORE, in consideration of $1.00 and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. VOTING OF SECURITIES.
a. Rubinson agrees that for so long as not less than $6,894,250 in
principal amount of the Convertible Notes are outstanding, he shall vote any
voting securities now or hereafter beneficially owned by him in favor of one
individual designated to the Board of Directors of IFFC by the holders of a
majority in principal amount of the Notes.
b. Rubinson agrees to notify the holders of the Convertible Notes at
least 105 days prior to any election of directors of IFFC. The holders of the
Convertible Notes shall notify Rubinson at least 90 days prior to any election
of directors as to the identity of such holders' designee.
2. DISPOSITION OF SECURITIES. Rubinson agrees that for a period of three
years after the date hereof, he shall not sell, transfer or otherwise dispose of
any shares of capital stock of IFFC beneficially owned by him except as follows:
a. by will, by the laws of descent and distribution or by gift to
his spouse, lineal descendants, parents or siblings (or to a trust for the
1
<PAGE>
benefit of any of the foregoing), PROVIDED, HOWEVER, that any such
transferee shall agree in writing to be bound by, and to comply with, all
applicable provisions of this Agreement as a successor or assign of
Rubinson (a "Permitted Transferee");
b. subject to paragraph 3 hereof, in amounts not to exceed the
volume permitted for sales by "affiliates" under paragraph (e)(1) of Rule
144 under the Securities Act of 1933, as amended, PROVIDED, that for
purposes hereof,
i. dispositions by any Permitted Transferees of Rubinson
pursuant to clause (a) above of shares of capital stock transferred
by Rubinson shall be aggregated with dispositions by Rubinson, and
ii. the number of shares that may be disposed of in any 90-day
period shall be increased by the aggregate number of shares that
could have been disposed of in all prior 90-day periods hereunder
and were not theretofore disposed of; and
c. in compliance with paragraph 3 hereof.
The Company agrees not to effect any transfer of shares of capital stock on its
books in violation of the provisions of this Agreement. The parties acknowledge
that any transfer or attempted transfer in violation hereof shall be null and
void AB INITIO and of no force and effect.
3. RIGHT OF CO-SALE.
a. If Rubinson (including, for this purpose any Permitted
Transferee) proposes to sell, exchange, pledge, transfer or in any other manner
dispose of 25% or more of the shares of Common Stock held by Rubinson as of the
date hereof in a single transaction or series of related transactions, then
Rubinson shall give written notice (a "Notice of Intention to Sell") to the
Company setting forth in reasonable detail the terms and conditions of such
proposed transaction. Upon receipt of such Notice of Intention to Sell, the
Company shall promptly forward a copy thereof to each Purchaser.
b. Each Purchaser shall have the right, exercisable upon written
notice to the Company within fifteen (15) days after receipt of any Notice of
Intention to Sell, to participate in the proposed disposition of shares to the
proposed purchaser on the terms and conditions set forth in such Notice of
Intention to Sell. Each Purchaser may participate with respect to all or any
part of that number of shares of Common Stock which is equal to the product
2
<PAGE>
obtained by multiplying (i) the aggregate number of shares of Common Stock
covered by the proposed disposition by (ii) a fraction, the numerator of which
is the number of shares of Common Stock at the time beneficially owned by such
Purchaser and the denominator of which is the aggregate number of shares of
Common Stock then beneficially owned by Rubinson and the Purchasers.
c. Each Purchaser participating in the proposed disposition (a
"Participating Purchaser") shall deliver to the Company, as agent for such
Participating Purchaser, for transfer to the proposed acquiror one or more
certificates, properly endorsed for transfer or accompanied by stock transfer
powers duly endorsed for transfer, with all stock transfer taxes paid and stamps
affixed, which represent the number of shares of Common Stock that such
Participating Purchaser elects to dispose of pursuant to this paragraph 3. The
consummation of such proposed disposition shall be subject to the sole
discretion of Rubinson, who shall have no liability whatsoever to any
Participating Purchaser other than to obtain for such Participating Purchaser
the same terms and conditions as those obtained by Rubinson as set forth in the
Notice of Intention to Sell or any amendment thereof communicated to the other
Participating Purchasers in the manner provided for in paragraph 3(a) above.
d. The stock certificate or certificates delivered by each
Participating Purchaser to the Company pursuant to paragraph 3(c) shall be
transferred by the Company to the acquiror in consummation of the disposition of
the Common Stock pursuant to the terms and conditions specified in paragraph
3(a) and the Company shall promptly thereafter remit to such Participating
Purchaser that portion of the net proceeds of disposition to which such
Participating Purchaser is entitled by reason of such participation.
4. RESTRICTIVE LEGEND. Each certificate representing shares of capital
stock of the Company held by Rubinson or any Permitted Transferee pursuant to
paragraph 2(a) above, and each certificate issued in exchange of or replacement
therefor, shall conspicuously bear the following legend until such time as the
shares represented thereby are no longer subject to the provisions hereof:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE TERMS AND CONDITIONS OF A VOTING AND
DISPOSITION AGREEMENT, DATED AS OF NOVEMBER 5, 1997,
AMONG THE COMPANY AND THE OTHER PARTIES THERETO. COPIES
MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
COMPANY."
3
<PAGE>
The Company covenants that it shall keep a copy of this Agreement on
file at the address of its principal executive offices for the purpose of
furnishing such copies.
5. AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereby may not be given, except with the prior written consent of
Rubinson and the registered holders of not less than a majority of the
then-outstanding Convertible Notes.
6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE SOUTHERN DISTRICT OF
THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT.
7. FURTHER ASSURANCES. The parties agree to execute and deliver all such
further documents and agreements and take such other and further action as may
be necessary or appropriate to carry out the purposes and intent of this
Agreement.
8. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
9. SEVERABILITY. In case any one of more of the provisions contained in
this Agreement or in any instrument contemplated hereby, or any application
thereof, shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and therein, and any other application thereof, shall not in any way be
affected or impaired thereby.
10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and assigns
to the extent set forth herein.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
INTERNATIONAL FAST FOOD CORPORATION
By: /s/ Mitchell Rubininson
---------------------------------------
Name: Mitchell Rubininson
Title: President
Purchaser: NORTHSTAR HIGH TOTAL RETURN FUND
By: /s/ Michael A. Graves
-------------------------------------
Name: Michael A. Graves
Title: Vice President
Purchaser: NORTHSTAR HIGH TOTAL RETURN FUND II
By: /s/ Michael A. Graves
-------------------------------------
Name: Michael A. Graves
Title: Vice President
Purchaser: NORTHSTAR BALANCE SHEET OPPORTUNITIES FUND
By: /s/ Michael A. Graves
-------------------------------------
Name: Michael A. Graves
Title: Vice President
Purchaser: BANKAMERICA INVESTMENT CORP.
By: /s/ Mike Hornig
-------------------------------------
Name: Mike Hornig
Title: Assistant Controller
Purchaser: LEGG MASON INCOME TRUST, INC.
By: /s/ Trudie D. Whitehead
-------------------------------------
Name: Trudie D. Whitehead
Title: Portfolio Manager
5
INTERNATIONAL FAST FOOD CORPORATION
Exclusive Developer and Franchisee of Burger King Corporation
for the Republic of Poland
- --------------------------------------------------------------------------------
1000 Lincoln Road o Suite 200 o Miami Beach, Florida 33139 o (305) 531-5800
N e w s R e l e a s e
FOR IMMEDIATE RELEASE CONTACTS:
Mitchell Rubinson
November 10, 1997 Chairman of the Board
INTERNATIONAL FAST FOOD CORPORATION COMPLETES
PRIVATE OFFERING OF CONVERTIBLE SENIOR SUBORDINATED
DISCOUNT NOTES
MIAMI BEACH, Fla. -- International Fast Food Corporation, (OTC: FOOD),
announced that it sold approximately $27 million of 11% convertible senior
subordinated discount notes due 2007 through a private offering in which BT
Alex.Brown, Incorporated acted as Placement Agent. The Company received net
proceeds of approximately $19 million.
The Company intends to use the net proceeds of the offering for the
development of new Burger King restaurants and Domino's Pizza stores in Poland
and for working capital and other general corporate purposes.
The notes (and the shares of common stock issuable upon conversion
thereof) have not been registered under the Securities Act of 1933, as amended,
or any state securities laws and, unless so registered, may not be offered or
sold in the United States except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act
and applicable state securities laws.
This press release contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties or
other factors which may cause actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. For more
complete information concerning factors which could affect the Company's
results, reference is made to the Company's registration statements, reports and
other documents filed with the Securities and Exchange commission.
**************
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INTERNATIONAL FAST FOOD CORPORATION, INC. FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,640,140
<SECURITIES> 0
<RECEIVABLES> 90,203
<ALLOWANCES> 0
<INVENTORY> 336,604
<CURRENT-ASSETS> 3,155,387
<PP&E> 9,687,571
<DEPRECIATION> (3,798,306)
<TOTAL-ASSETS> 10,965,834
<CURRENT-LIABILITIES> 2,365,725
<BONDS> 2,756,000
0
334
<COMMON> 435,914
<OTHER-SE> 3,427,847
<TOTAL-LIABILITY-AND-EQUITY> 10,965,834
<SALES> 4,246,215
<TOTAL-REVENUES> 4,312,473
<CGS> 1,714,428
<TOTAL-COSTS> 4,417,499
<OTHER-EXPENSES> 1,118,460
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 420,476
<INCOME-PRETAX> (110,545)
<INCOME-TAX> 0
<INCOME-CONTINUING> (110,545)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (110,545)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
