<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended March 24, 1996
------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
-------------- --------------
Commission file number 0-20792
FRESH CHOICE, INC.
------------------
(Exact name of registrant as specified in its charter)
DELAWARE 77-0130849
-------- ----------
(State or other jurisdiction of (I.R.S. Employee
incorporation or organization) Identification No.)
2901 TASMAN DRIVE - SUITE 109, SANTA CLARA, CALIFORNIA 95054
------------------------------------------------------------
(Address of principal executives offices) (Zip Code)
Registrant's telephone number, including area code: (408) 986-8661
--------------
- - --------------------------------------------------------------------------------
Former name, former address and former fiscal year. If changed since last
report.
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of Common Stock, $.001 par value, outstanding as of April
21, 1996 was 5,583,737.
<PAGE> 2
FRESH CHOICE, INC.
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets at March 24, 1996
and December 31, 1995 .................................................. 3
Condensed Consolidated Statements of Operations for the Twelve Weeks
ended March 24, 1996 and March 19, 1995 ................................ 4
Condensed Consolidated Statements of Cash Flow for the Twelve Weeks
ended March 24, 1996 and March 19, 1995 ................................ 5
Notes to Unaudited Condensed Consolidated Financial Statements ......... 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations .............................................. 8
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings ................................................ 16
Item 2 - Changes in Securities ............................................ 16
Item 3 - Defaults Upon Senior Securities .................................. 16
Item 4 - Submission of Matters to a Vote of Security Holders .............. 16
Item 5 - Other Information ................................................ 16
Item 6 - Exhibits and Reports on Form 8-K ................................. 16
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FRESH CHOICE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 24, December 31,
1996 1995
----------- ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 932 $ 1,294
Receivables 144 207
Inventories 427 465
Pre-opening costs 38 117
Refundable income taxes 1,602 1,602
Prepaid expenses and other current assets 470 686
-------- --------
Total current assets 3,613 4,371
PROPERTY AND EQUIPMENT, net 31,671 31,983
LEASE ACQUISITION COSTS, net 613 630
DEPOSITS AND OTHER ASSETS 344 322
-------- --------
TOTAL $ 36,241 $ 37,306
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 391 $ --
Accounts payable 2,794 2,909
Accrued salaries and wages 1,610 1,121
Sales tax payable 905 627
Other accrued expenses 2,885 2,954
Restructuring reserve 4,294 5,266
Current portion of capital lease obligations 316 406
-------- --------
Total current liabilities 13,195 13,283
CAPITAL LEASE OBLIGATIONS 60 89
OTHER LONG TERM LIABILITIES 1,555 1,643
-------- --------
Total liabilities 14,810 15,015
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; 250,000 shares authorized;
none outstanding
Common stock, $.001 par value; 7.5 million shares authorized;
shares outstanding: 1996-5,583,737; 1995-5,582,449 41,625 41,619
Accumulated deficit (20,194) (19,328)
-------- --------
Total stockholders' equity 21,431 22,291
-------- --------
TOTAL $ 36,241 $ 37,306
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
<PAGE> 4
<TABLE>
<CAPTION>
FRESH CHOICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Twelve Weeks Ended
-------------------------
March 24, March 19,
1996 1995
--------- ---------
<S> <C> <C>
NET SALES $18,061 $16,934
COST AND EXPENSES:
Cost of sales 5,053 4,583
Restaurant operating expenses:
Labor 5,906 5,914
Occupancy and other 5,284 5,565
Depreciation and amortization 817 1,263
General and administrative expenses 1,796 1,754
------- -------
Total costs and expenses 18,856 19,079
------- -------
OPERATING LOSS (795) (2,145)
------- -------
Interest income -- 46
Interest expense (71) (41)
------- -------
Interest income (expense), net (71) 5
------- -------
LOSS BEFORE INCOME TAXES (866) (2,140)
Benefit from income taxes -- (856)
------- -------
NET LOSS $ (866) $(1,284)
======= =======
Net loss per common share $ (0.16) $ (0.23)
======= =======
Shares used in computing per share amounts 5,584 5,483
======= =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
4
<PAGE> 5
<TABLE>
<CAPTION>
FRESH CHOICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in thousands)
(Unaudited) Twelve Weeks Ended
--------------------------
March 24, March 19,
1996 1995
------------ ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (866) $(1,284)
Adjustments to reconcile net loss to
net cash provided by operations:
Depreciation and amortization 829 1,336
Premium amortization on short-term investments -- 26
Loss on sale of short-term investments -- 46
Loss on disposal of property 7 195
Deferred rent (84) 80
Changes in operating assets and liabilities:
Receivables 63 79
Inventories 38 52
Pre-opening costs -- (156)
Prepaid expenses and other current assets 216 (705)
Income taxes refundable -- (107)
Accounts payable (115) (778)
Accrued salaries and wages 489 176
Other accrued expenses 209 398
Restructuring reserve (972) --
------- -------
Net cash used in operating activities (186) (642)
------- -------
INVESTING ACTIVITIES:
Capital expenditures (432) (4,858)
Proceeds from sale of short-term investments -- 4,652
Deposits and other assets (22) 234
------- -------
Net cash provided by (used in) investing activities (454) 28
------- -------
FINANCING ACTIVITIES:
Common stock sales 6 16
Other note payable - borrowings -- 120
Notes payable and line of credit - borrowings 1,701 1,465
Notes payable and line of credit - repayments (1,310) (1,465)
Capital lease obligations - repayments (119) (91)
------- -------
Net cash provided by financing activities 278 45
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS (362) (569)
CASH AND CASH EQUIVALENTS:
Beginning of year 1,294 1,542
------- -------
End of year $ 932 $ 973
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 20 $ 26
Cash paid during the year for income taxes $ -- $ 8
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Income tax benefit from employee stock option transactions $ -- $ 3
Decrease in unrealized loss on investments, net of tax effect of $32 in 1995 $ -- $ (53)
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
5
<PAGE> 6
FRESH CHOICE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Twelve Weeks Ended March 24, 1996 and March 19, 1995
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have
been prepared by the Company without audit and reflect all adjustments,
consisting of normal recurring adjustments and accruals, which are, in the
opinion of management, necessary to a fair statement of financial position and
the results of operations for the interim periods. The statements have been
prepared in accordance with the regulations of the Securities and Exchange
Commission, but omit certain information and footnote disclosures necessary to
present the statements in accordance with generally accepted accounting
principles. For further information, refer to the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.
2. EARNINGS PER SHARE
Net loss per common share is based on the weighted average number of
common shares outstanding during the period. Common share equivalents, which are
common stock options and warrants converted using the treasury stock method,
have been excluded from the earnings per share computation for 1996 and 1995 as
they would be anti-dilutive.
3. RESTRUCTURING RESERVE
In December 1995, after a thorough analysis of the sales potential
and operating economics of every Fresh Choice restaurant, the Company announced
a $23,932,000 restructuring plan to help restore profitability. The plan
included closing as many as ten of the Company's restaurants (of which seven
restaurants were included in the reserve for closures) and a partial write-down
of assets to estimated fair value for others. In accordance with the
restructuring plan, the Company closed three restaurants at the end of 1995 and
one restaurant in the first quarter of 1996. The Company also closed one
restaurant to date in the second quarter of 1996.
The following table sets for the Company's 1995 restructuring reserve
and the reserve balance at December 31, 1995 and March 24, 1996 (in thousands):
<TABLE>
<CAPTION>
1995 Utilized Balance, Utilized Balance
Restructuring in Dec. 31, to date Mar. 24,
Reserve 1995 1995 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Restaurant closures:
Write-down of restaurant assets to estimate
fair value and other related costs $ 8,318 $ 8,010 $ 308 $-- $ 308
Estimate costs associated with restaurant
closures and settlement of lease obligations 4,655 205 4,450 880 3,570
Write-down of assets to estimated fair value at
other restaurants and other related costs 10,353 10,027 326 -- 326
Other 606 424 182 92 90
----------------------------------------------------------
Total $23,932 $18,666 $5,266 $972 $4,294
==========================================================
</TABLE>
Total cash expected to be utilized in connection with the
restructuring plan includes $4,655,00 associated with restaurant closures and
settlement of lease obligations and $106,000 for other restructuring costs. In
1995, the Company utilized $205,000 in cash for costs associated with restaurant
closures and settlement of lease obligations and $80,000 in cash for other
restructuring expenses. In the first quarter of
6
<PAGE> 7
1996, the Company utilized $880,000 in cash for costs associated with restaurant
closures and settlement of lease obligations and $92,000 in cash for other
restructuring expenses.
The Company plans to complete its restaurant closures by the end of
1996 and believes the reserve balance at March 24, 1996 is adequate to cover the
remaining estimated costs to be incurred under the plan.
4. INCOME TAXES
The Company recorded no tax benefit from its operating loss in the
first twelve weeks of 1996. The Company has incurred operating losses in its
last six quarters, and recorded a full valuation allowance in late 1995 against
its net deferred tax assets consisting primarily of the tax benefit related to
operating loss carryforwards and non-deductible restructuring asset write-downs
and restructuring expense accruals. The Company will continue to provide a
valuation allowance for its deferred tax assets until it becomes more likely
than not, in management's assessment, that the Company's deferred tax assets
will be realized.
5. SUBSEQUENT EVENT
On April 26, 1996, the Company entered into a preferred stock
purchase agreement (the "Agreement") with Crescent Real Estate Equities Limited
Partnership ("Crescent"). Under the terms of the Agreement, Crescent has agreed
to purchase 1,187,906 shares of the Company's Series B non-voting convertible
preferred stock for $4.63 per share, or approximately $5,500,000, in a private
offering, subject to approval by the stockholders of the Company and certain
other conditions. Crescent will also have an option to purchase up to 593,953
shares of Series C non-voting convertible preferred stock at a price of $6.00
per share for a period of three years following its initial investment.
The Series B non-voting preferred stock will be convertible, at the
holders' option, into Series A voting convertible preferred stock on a
one-for-one basis, and the Series A voting preferred stock, Series B non-voting
preferred stock, and Series C non-voting preferred stock will be convertible,
at the holders' option, into Common Stock on a one-for-one basis. The Series A
preferred stock will entitle its holders to vote with Common stockholders on
all matters submitted to a vote of stockholders. In addition, when and if
issued, the holders of a majority of the outstanding Series A preferred Stock
will have a separate right to approve certain corporate actions. In the event
of a failure by Fresh Choice, Inc. to achieve earnings targets (before
interest, taxes, depreciation, and amortization) of at least $1,500,000 in
1996, $3,500,000 in 1997 and $5,500,000 in 1998 (subject to adjustment under
certain circumstances by the Company's Board of Directors), the Series A
preferred stockholders may elect a majority of the Company's Board of
Directors. Upon achievement of certain per-share market price tests, Fresh
Choice may force a mandatory conversion of the Series A preferred stock to
Common Stock. All shares of Series A, Series B and Series C preferred stock
will be senior to the Company's Common Stock with respect to dividends and with
respect to distributions on liquidation.
In connection with the Agreement, the Company also has granted to
Crescent registration rights with respect to the Common Stock issuable upon
conversion of the Series A, Series B and Series C preferred stock.
7
<PAGE> 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is intended to highlight significant changes
in the Company's financial position and results of operations for the twelve
weeks ended March 24, 1996 as compared to the twelve weeks ended March 19, 1995.
The interim Financial Statements and this Management's Discussion and
Analysis of Financial Condition and Results of Operations should be read in
conjunction with the Consolidated Financial Statements and Notes thereto for the
fiscal year ended December 31, 1995 and the related Management's Discussion and
Analysis of Financial Condition and Results of Operations, both of which are
contained in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
This Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements about the Company's ability to implement and the
effectiveness of its previously-announced restructuring plan; fluctuations in
quarterly results; and the ability of Fresh Choice to obtain funds to pursue its
future plans; future profitability; customer receptiveness to new products and
the new prototype restaurant; competitive pressures in the food-service
marketplace; the changing tastes of consumers; the effect of general economic
conditions; and the ability to secure and retain services of experienced
personnel. Actual results could differ materially from those described in the
forward-looking statements as a result of the risk factors set forth herein.
Liquidity and Capital Resources
The Company's primary capital requirement has been for the expansion
of its restaurant operations which the Company has traditionally financed with
funds from equity offerings, cash flow from operations, landlord allowances, and
short-term bank debt. The Company does not have significant receivables or
inventory and receives trade credit based upon negotiated terms in purchasing
food and supplies.
Although the Company's continued growth depends to a significant
degree on its ability to open new restaurants and to operate such restaurants
profitably, the Company temporarily suspended its expansion plans during 1995,
reviewed the operating performance of all of its restaurants, and identified
those restaurants which did not meet its expectations for operating performance.
At the end of 1995, after a thorough analysis of the sales potential and
operating economics of every restaurant in the chain, the Company announced a
major restructuring plan which called for closing as many as ten of the
Company's restaurants and a partial write-down of assets to estimated fair value
in other restaurants. The Company estimated it would incur cash costs of $4.7
million in connection with restaurant closures and the related lease
settlements. To date, the Company has closed five restaurants, closing three
restaurants at year-end 1995, one restaurant during the first quarter ended
March 24, 1996 and one to date in the second quarter of 1996. The Company has
incurred cash costs of approximately $1.3 million, disbursing $1.0 million
during the twelve weeks ended March 24, 1996. The Company plans to complete its
restaurant closures by the end of 1996.
The Company intends to resume restaurant expansion, assuming its
financial performance improves. The Company's ability to implement an expansion
strategy will depend upon a variety of factors, including the success of its
restructuring plan in restoring profitability and its ability to obtain funds.
The Company believes its near-term capital requirements for closing as many as
five additional restaurants and opening at least one new restaurant can be met
through cash provided by operations and its available bank line of credit.
However, the Company is seeking additional debt or equity financing to provide
greater flexibility toward improving its operating performance.
8
<PAGE> 9
On April 26, 1996, the Company entered into a preferred stock
purchase agreement (the "Agreement") with Crescent Real Estate Equities Limited
Partnership ("Crescent"). Under the terms of the Agreement, Crescent has agreed
to purchase 1,187,906 shares of the Company's Series B non-voting convertible
preferred stock for $4.63 per share, or approximately $5,500,000, in a private
offering, subject to approval by the stockholders of the Company and certain
other conditions. Crescent will also have an option to purchase up to 593,953
shares of Series C non-voting convertible preferred stock at a price of $6.00
per share for a period of three years following its initial investment..
The Series B non-voting preferred stock will be convertible, at the
holders' option, into Series A voting convertible preferred stock on a
one-for-one basis, and the Series A voting preferred stock, Series B non-voting
preferred stock, and Series C non-voting preferred stock will be convertible,
at the holders' option, into Common Stock on a one-for-one basis. The Series A
preferred stock will entitle its holders to vote with Common stockholders on
all matters submitted to a vote of stockholders. In addition, when and if
issued, the holders of a majority of the outstanding Series A preferred Stock
will have a separate right to approve certain corporate actions. In the event
of a failure by Fresh Choice, Inc. to achieve earnings targets (before
interest, taxes, depreciation, and amortization) of at least $1,500,000 in
1996, $3,500,000 in 1997 and $5,500,000 in 1998 (subject to adjustment under
certain circumstances by the Company's Board of Directors), the Series A
preferred stockholders may elect a majority of the Company's Board of
Directors. Upon achievement of certain per-share market price tests, Fresh
Choice may force a mandatory conversion of the Series A preferred stock to
Common Stock. All shares of Series A, Series B and Series C preferred stock
will be senior to the Company's Common Stock with respect to dividends and with
respect to distributions on liquidation.
In connection with the Agreement, the Company also has granted to
Crescent registration rights with respect to the Common Stock issuable upon
conversion of the Series A, Series B and Series C preferred stock.
For the twelve weeks ended March 24, 1996 and March 19, 1995, the
Company invested $0.4 million and $4.9 million, respectively, in property and
equipment. In 1996, the investment consisted primarily of spending on one new
restaurant scheduled to open in May 1996. This restaurant is a new prototype
restaurant designed to reduce the Company's initial investment while increasing
both customer throughput and operating efficiencies. The Company funded this
investment through bank debt and cash flow from operations. In 1995, the
investment included spending on several of the seven new restaurants to be
opened, of which two were opened in the first quarter of 1995, four in the
second quarter of 1995, and one in the third quarter of 1995. The Company funded
this investment through the sale of short-term investments and bank debt.
During the twelve weeks ended March 24, 1996 and March 19,1995,
operating activities used $0.2 million and $0.6 million of cash, respectively.
The use of cash for operations in the Company's first quarter reflects the
seasonality in the Company's operations. The Company's restaurants experience a
seasonally downward fluctuation in the first quarter of the year. This quarter
contains twelve weeks compared to the prior quarter which is typically 16 weeks
(17 weeks in 1995), and the Company also generally realizes a seasonally
disproportionate amount of restaurant sales and restaurant operating income in
the second and third fiscal quarters.
At March 24, 1996, the Company had $0.4 million outstanding under its
$5 million bank line of credit that expires in November 1996. Borrowings under
the line bear interest at the prime rate (8.25% on March 24, 1996) plus 2%. The
initial $2 million available under the line is collateralized by the Company's
personal property, and subsequent advances, if any, will be collateralized by
executed leasehold interests in certain Company restaurants. The line of credit
agreement requires the Company to achieve minimum sales, cash flow and fixed
charge coverage, limits the Company's capital spending, debt to tangible net
worth ratio and debt to cash flow ratio, and prohibits the payment of dividends.
The Company was in compliance with these covenants as of March 24, 1996.
9
<PAGE> 10
Total long-term debt outstanding as of March 24, 1996 was $.5 million, a
decrease of $.1 million from December 31, 1995. The long-term debt consists of
$.4 million of obligations under capital equipment leases and a $.1 million note
for site construction costs which is included in other long-term liabilities on
the balance sheet.
Impact of Inflation
The Company has not experienced a significant overall impact from
inflation.
Business Risks
Certain characteristics and dynamics of the Company's business and of
financial markets in general create risks to the Company's long-term success and
to predictable quarterly results. These risks include:
Recent Operating Losses. The Company's profitability began to decline
in the second half of fiscal 1994. In the fourth quarter of fiscal 1994, the
Company reported its first operating loss, and the Company has reported
additional operating losses in each subsequent quarter to date. Beginning late
in the third quarter of fiscal 1994, the Company began reporting significant
comparable real store sales declines. Comparable real store sales continued to
decline through the first three quarters of 1995 compared to the respective
quarters in the prior year, although the magnitude of these declines lessened in
the third and fourth quarters of 1995 and the first quarter of 1996. Comparable
real store sales declined 0.3% in the first quarter of 1996. There can be no
assurance that comparable real store sales will improve or that the Company will
return to profitability.
Expansion. The Company has experienced substantial growth in recent
years having opened 14 restaurants in 1993, 15 restaurants in 1994, and seven in
1995. In 1995, the Company temporarily suspended its expansion plans, reviewed
the operating performance of all of its restaurants, and identified certain
restaurants which do not meet its expectations for operating performance. As a
result, the Company announced in December 1995 a restructuring plan to close as
many as ten restaurants. The Company has closed five restaurants to date,
including three at the end of 1995, one in the first quarter of 1996, and one to
date in the second quarter of 1996. The Company has opened no restaurants to
date in 1996, but the Company intends to open one restaurant in the second
quarter of 1996. The Company believes its growth depends to a significant degree
on its ability to open new restaurants and to operate such restaurants
profitably. While the Company intends to resume its expansion, assuming its
financial performance improves, there can be no assurance as to when or whether
the Company will resume its expansion. The Company's ability to implement
successfully its expansion strategy will depend upon a variety of factors,
including the selection and availability of capital to finance restaurant
expansion and equipment costs, the ability to hire and train qualified
management and personnel, the ability to control food and other operating costs,
and other factors, many of which are beyond the Company's control. On a
long-term basis, the Company intends to continue to increase its presence in
California and to expand its operations in additional markets outside of
California, assuming its financial performance improves. The Company's expansion
plans may include entering new geographic regions in which the Company has no
previous operating experience. There can be no assurance that the Fresh Choice
concept will be successful in regions outside of California, where tastes and
restaurant preferences may be different. The Company opened five restaurants in
Texas, three restaurants in the state of Washington and three restaurants in the
Washington, D.C. metropolitan area during fiscal years 1993, 1994 and 1995. Of
the five restaurants closed by the Company to date, two were in Texas, one was
in the state of Washington, and two were in California.
Geographic Concentration. As of March 24, 1996, 46 of the Company's
54 restaurants are located in California, primarily in the San Francisco Bay
Area. Accordingly, the Company is susceptible to
10
<PAGE> 11
fluctuations in its business caused by adverse economic conditions in this
region. In addition, net sales at certain of the Company's restaurants have been
adversely affected when a new Company restaurant has been opened in relatively
close geographic proximity, and such pressure may continue to depress annual
comparable real store sales. The Company expects additional sales pressure may
be experienced at the individual restaurants as it continues to expand within
existing market areas. There can be no assurance that such continued expansion
within existing or future geographic markets will not adversely affect the
individual financial performance of Company restaurants in such markets or the
Company's overall results of operations. In addition, given the Company's
present geographic concentration in Northern California, adverse weather
conditions in the region or negative publicity relating to an individual Company
restaurant could have a more pronounced adverse effect on net sales than if the
Company's restaurants were more broadly dispersed.
Volatility of Stock Price. The market price of the Company's common
stock has fluctuated substantially since the initial public offering of the
common stock in December 1992. Changes in general conditions in the economy, the
financial markets or the restaurant industry, natural disasters or other
developments affecting the Company or its competitors could cause the market
price of the Company's common stock to fluctuate substantially. In addition, in
recent years the stock market has experienced extreme price and volume
fluctuations. This volatility has had significant effect on the market prices of
securities issued by many companies, including the Company, for reasons
sometimes unrelated to the operating performance of these companies. Any
shortfall in the Company's net sales or earnings from levels expected by
securities analysts could have an immediate and significant adverse effect on
the trading price of the Company's common stock in any given period.
Additionally, such shortfalls may not become apparent until late in the fiscal
quarter, which could result in an even more immediate and significant adverse
effect on the trading price of the Company's common stock.
Seasonality and Quarterly Fluctuations. The Company's restaurants
experience seasonal fluctuations, as a disproportionate amount of net sales and
net income are generally realized in the second and third fiscal quarters. In
addition, the Company's quarterly results of operations have been and will
continue to be materially impacted by the timing of new restaurant openings. The
fourth quarter normally includes 16 weeks of operations as compared with 12
weeks for each of the three prior quarters. However, in 1995, the fourth quarter
included 17 weeks to accommodate the Company's fiscal year-end date, the last
Sunday in December, which fell on December 31, 1995. As a result of these
factors, net sales and net income in the fourth quarter are not comparable to
results in each of the first three fiscal quarters, and net sales and net income
can be expected to decline in the first quarter of each fiscal year in
comparison to the fourth quarter of the prior fiscal year. Comparable real store
sales, which have been negative in the seven quarters beginning in the third
quarter of 1994, may continue to be negative.
Dependence on Key Personnel. The success of the Company depends on
the efforts of key management personnel. The Company's success will depend on
its ability to motivate and retain its key employees and to attract qualified
personnel, particularly general managers, for its restaurants. In recent
periods, several senior corporate office employees have left the Company. The
Company is currently assessing its management needs and has hired, or plans to
hire, personnel to fill those positions which it believes are necessary to
provide continuity of direction for the Company and to execute the Company's
business plan. There can be no assurance that these new employees will be hired,
or if hired, will be able to perform effectively, or that significant management
turnover will not continue in the future.
Restaurant Industry. The restaurant industry is affected by changes
in consumer tastes, as well as national, regional and local economic conditions
and demographic trends. The performance of individual restaurants, including the
Company's restaurants, may be affected by factors such as traffic patterns,
demographic considerations, and the type, number and location of competing
restaurants. In addition, factors such as inflation, increased food, labor and
employee benefit costs, and the availability of experienced management and
hourly employees may also adversely affect the restaurant industry in general
and the Company's restaurants in particular. Restaurant operating costs are
affected by increases in the minimum
11
<PAGE> 12
hourly wage, unemployment tax rates, and various federal, state and local
governmental regulations, including those relating to the sale of food and
alcoholic beverages. There can be no assurance that the restaurant industry in
general, and the Company in particular, will be successful.
Competition. The Company's restaurants compete with the rapidly
growing mid-price, full-service casual dining segment; with traditional
self-service buffet, soup, and salad restaurants; and, increasingly, with
quick-service outlets. The Company's competitors include national and regional
chains, as well as local owner-operated restaurants. Key competitive factors in
the industry are the quality and value of the food products offered, quality and
speed of service, price, dining experience, restaurant location and the ambiance
of facilities. The Company believes that it competes favorable with respect to
these factors, although many of the Company's competitors have been in existence
longer than the Company, have a more established market presence, and have
substantially greater financial, marketing and other resources than the Company,
which may give them certain competitive advantages. The Company believes that
its ability to compete effectively will continue to depend in large measure upon
its ability to offer a diverse selection of high-quality, fresh food products
with an attractive price-value relationship.
Ability to Obtain Financing. The Company intends to resume restaurant
expansion, assuming its financial performance improves. The Company's ability to
implement an expansion strategy will depend upon a variety of factors, including
the success of its restructuring plan in restoring profitability and its ability
to obtain funds. The Company believes its near-term capital requirements for
closing as many as five additional restaurants and opening at least one new
restaurant can be met through cash provided by operations and its available bank
line of credit. However, the Company is seeking additional debt or equity
financing to provide greater flexibility toward improving its operating
performance and has entered into an agreement with Crescent Real Estate Equities
Limited Partnership ("Crescent") to provide funds of approximately $5,500,000 in
a private offering, subject to stockholder approval and other conditions. If
such stockholder approval is not obtained or if the Company's transaction with
Crescent is not concluded for any other reason, there can be no assurance that
the Company will be able to obtain financing when needed on acceptable terms or
at all.
12
<PAGE> 13
Results of Operations
The following table set forth items in the Company's statement of operations as
a percentage of sales and certain operating data for the periods indicated
(dollars in thousands):
<TABLE>
<CAPTION>
Twelve Weeks Ended
----------------------------------------------------
March 24, 1996 March 19, 1995
---------------------- -----------------------
<S> <C> <C> <C> <C>
NET SALES $18,061 100.0% $ 16,934 100.0%
COST AND EXPENSES:
Cost of sales 5,053 28.0% 4,583 27.0%
Restaurant operating expenses:
Labor 5,906 32.7% 5,914 34.9%
Occupancy and other 5,284 29.3% 5,565 32.9%
Depreciation and amortization 817 4.5% 1,263 7.5%
General and administrative expenses 1,796 9.9% 1,754 10.4%
---------------------- -----------------------
Total costs and expenses 18,856 104.4% 19,079 112.7%
---------------------- -----------------------
OPERATING LOSS (795) (4.4)% (2,145) (12.7)%
Interest income -- --% 46 0.3%
Interest expense (71) (0.4)% (41) (0.2)%
---------------------- -----------------------
Interest income (expense), net (71) (0.4)% 5 0.1%
---------------------- -----------------------
LOSS BEFORE INCOME TAXES (866) (4.8)% (2,140) (12.6)%
Benefit from income taxes -- --% (856) (5.0)%
---------------------- -----------------------
NET LOSS $ (866) (4.8)% $ (1,284) (7.6)%
====================== =======================
Number of restaurants:
Open at beginning of period 55 51
======= ========
Open at end of period 54 53
======= ========
</TABLE>
The following table presents the components of average operating income on a per
restaurant basis, based on the average number of restaurants open during the
year (dollars in thousands):
<TABLE>
<CAPTION>
Twelve Weeks Ended
---------------------------------------------------
March 24, 1996 March 19, 1995
--------------------- ---------------------
<S> <C> <C> <C> <C>
NET SALES $ 332 100.0% $ 327 100.0%
COST AND EXPENSES:
Cost of sales 93 28.0% 88 27.0%
Restaurant operating expenses:
Labor 109 32.7% 114 34.9%
Occupancy and other 97 29.3% 108 32.9%
Depreciation and amortization 15 4.5% 24 7.5%
General and administrative expenses 33 9.9% 34 10.4%
--------------------- ---------------------
Total costs and expenses 347 104.4% 368 112.7%
--------------------- ---------------------
OPERATING LOSS $ (15) (4.4)% $ (41) (12.7)%
===================== =====================
Average restaurants open during the year 54.43 51.85
====== ======
</TABLE>
13
<PAGE> 14
Results of Operations: Twelve Weeks Ended March 24, 1996
Compared to Twelve Weeks Ended March 19, 1995
Net Sales. Net sales increased $1.2 million to $18.1 million in the
twelve weeks ended March 24, 1996 from $16.9 million in the twelve weeks ended
March 19, 1995. Although the Company opened no new restaurants in the twelve
weeks ended March 24, 1996, incremental sales from seven new restaurants opened
in 1995 contributed $1.8 million to higher sales in 1996. Offsetting these
incremental sales from new restaurants were the absence of $0.5 million in sales
from four closed restaurants (of which three were closed at the end of 1995 and
one was closed in the first twelve weeks of 1996) and a $0.1 million decline in
sales at the remaining restaurants opened prior to 1995. Comparable real store
sales, which include only sales for restaurants opened at least 18 months,
declined 0.3% in the first twelve weeks of 1996 compared to the same period of
1995. Net sales averaged $0.3 million per restaurant in the first twelve weeks
of 1996 and 1995. At March 24, 1996, the Company operated 54 restaurants
compared to 53 restaurants at March 19, 1995.
Cost and Expenses. Cost of sales (food and beverage costs) increased
as a percentage of net sales to 28.0% in the twelve weeks ended March 24, 1996
compared to 27.0% in the twelve weeks ended March 19, 1995. During the first
twelve weeks of 1996, the Company launched the roll-out of a major food program
that introduced new recipes and upgraded existing recipe favorites. The Company
developed the program with a food consulting firm and emphasized market research
and consumer trends in developing its new menu offering. Just before the end of
the twelve weeks ended March 24, 1996, the Company followed the roll-out of its
new food program with a new pricing structure that eliminated two-tiered pricing
and offered unlimited servings for a new fixed price of $5.99 at lunch and $7.25
at dinner, plus the cost of a beverage, at most of its locations.
Restaurant operating expenses decreased as a percentage of net sales
to 62.0% in the first twelve weeks of 1996 from 67.8% for the same twelve weeks
of 1995. Increased operating efficiencies produced substantial reductions in
variable operating costs, and the absence of fixed costs on four low-volume
closed restaurants also improved the relationship of restaurant operating costs
to net sales.
Depreciation and amortization decreased as a percentage of net sales
to 4.5% in the first twelve weeks of 1996 compared to 7.5% in the first twelve
weeks of 1995. The Company's curtailment of restaurant expansion in the second
half of 1995 resulted in a $253,000 reduction in restaurant start-up cost
amortization in the first twelve weeks of 1996 compared to the same period in
1995. The write-down of assets to estimated fair value in connection with the
Company's restructuring plan in late 1995 contributed to a reduction in
restaurant depreciation expense which was $193,000 lower than the prior year.
General and administrative expenses were $1.8 million for both the
first twelve weeks of 1996 and the first twelve weeks of 1995. General and
administrative expenses also remained constant on a per restaurant basis each
year. General and administrative expenses in the first quarter of 1996 include
costs for consultants, most of whom have completed their work.
Interest Income. The Company has no interest income and no invested
cash balances during the first twelve weeks of 1996. In the first twelve weeks
of 1995, the Company earned $46,000 in interest income on the final invested
balances from its December 1992 initial public offering and its July 1993
secondary offering. All of the remaining investments were sold during the first
twelve weeks of 1995 to finance restaurant construction.
Interest Expense. Interest expense was $71,000 in the twelve weeks
ended March 24, 1996 compared to $41,000 in the twelve weeks ended March 19,
1995. Interest expense consists primarily of interest on line of credit
borrowings and capital lease obligations. Line of credit borrowings to finance
both the construction of the Company's new prototype restaurant and the
Company's planned restaurant closures
14
<PAGE> 15
account for the increased interest expense in the first twelve weeks of 1996
compared to the same period in the prior year.
Income Taxes. The Company recorded no tax benefit from its operating
loss in the first twelve weeks of 1996. The Company has incurred operating
losses in its last six quarters, and recorded a full valuation allowance in late
1995 against its net deferred tax assets consisting primarily of the tax benefit
related to operating loss carryforwards and non-deductible restructuring asset
write-downs and restructuring expense accruals. The Company will continue to
provide a valuation allowance for its deferred tax assets until it becomes more
likely than not, in management's assessment, that the Company's deferred tax
assets will be realized.
In the first twelve weeks of 1995, the tax benefit resulting from the
Company's operating loss was computed at the Company's then estimated annual
effective tax rate of 40.0%.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On January 9, 1995, a class action lawsuit was filed in the United
States District Court for the Northern District of California, San Jose
division, naming the Company, certain of its directors, and current and former
officers as defendants. The lawsuit alleges that the defendants misrepresented
or failed to disclose material facts about the Company's operations and
financial results, which the plaintiffs contend resulted in an artificial
inflation of the price of the Company's stock. The suit is purportedly brought
on behalf of a class of purchasers of the Company's stock during the period from
July 15, 1993 to December 15, 1994. On March 20, 1995 the plaintiffs filed an
amended complaint, which added as defendants the co-lead underwriters of the
Company's initial and secondary public offerings and three securities analysts
employed by the underwriters. The amended complaint also expanded the alleged
class period to include purchasers of the Company's stock during the period from
December 8, 1992 to February 9, 1995. On December 7, 1995, the Court dismissed
the amended complaint, with leave for further amendment. Plaintiffs filed a
Second Amended Complaint on February 27, 1996. This complaint alleges that Fresh
Choice and certain of its current and former officers and directors
misrepresented or failed to disclose material facts about the Company's
operations and financial results during the period from February 15, 1994
through February 9, 1995, in violation of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934. The Company filed a motion to dismiss this
lawsuit on March 29, 1996. The Company has reviewed the allegations in the
lawsuit, believes them to be without merit, and intends to defend itself
vigorously. The Company does not believe that the lawsuit will result in a
material impact on its financial position or operations.
ITEM 2 - CHANGES IN SECURITIES Not Applicable.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES Not Applicable.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable.
ITEM 5 - OTHER INFORMATION Not Applicable.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The exhibits listed in the accompanying index to Form 10-Q
Exhibits are filed or incorporated by reference as part of this
report.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter ended March 24, 1996
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FRESH CHOICE, INC.
(Registrant)
/S/ Charles A. Lynch
-------------------------------------------------
Charles A. Lynch
Chairman of the Board and Director
(Principal Executive Officer)
/S/ David A. Anderson
-------------------------------------------------
David A. Anderson
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: May 8, 1996
17
<PAGE> 18
INDEX TO FORM 10-Q EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- - -----------------------------------------------------------------------------------------------------
<S> <C>
3.1 (1) Certification of Incorporation of Fresh Choice, Inc.
3.2 Amended By-Laws of Fresh Choice, Inc. dated April 11, 1996
10.1 (1) Form of Indemnity Agreement for directors and officers
10.2 (2)(3) Second Amended and Restated 1988 Stock Option Plan
10.3 (2)(3) 1992 Employee Stock Purchase Plan
10.4 (1) Series A Preferred Stock Purchase Agreement dated August 10, 1988
10.5 (1) Series B Preferred Stock Purchase Agreement dated July 21, 1989
10.6 (1) Series C Preferred Stock Purchase Agreement dated January 15, 1990
10.7 (1) Master Lease and Warrant Agreement with Equitec Leasing Company
and Warrant dated January 18, 1990
10.8 Preferred Stock Purchase Agreement with Crescent Real Estate
Equities Limited Partnership dated April 26, 1996
10.9 (1) Series D Preferred Stock Purchase Agreement dated April 17, 1991
10.10 (5) Amendment No. 1 dated September 3, 1993 to the Business Loan
Agreement dated September 3, 1993.
10.11 (5) Amendment No. 2 dated November 15, 1993 to the Business Loan
Agreement dated September 3, 1993.
10.12 (1) Amendment dated December 1, 1992 to Preferred Stock Purchase
Agreements
10.13 (4) Business Loan Agreement dated September 3, 1993 with Bank of
America National Trust and Savings Association
10.14 (5) Amendment No. 4 dated March 31, 1995 to the Business Loan
Agreement dated September 3, 1993
10.15 (5) Amendment No. 3 dated April 27, 1994 to the Business Loan
Agreement dated September 3, 1993
10.16 (6) Loan and security Agreement dated December 20, 1995 with Silicon
Valley Bank
10.17 (6) Third Party Security agreement dated December 20, 1995 between
Silicon Valley Bank and Moffett Design Corporation
10.18 (6) Warrant to Purchase up to 75,000 Shares of the Company's Common
Stock issued to Silicon Valley Bank on December 20, 1995
10.19 (6) Common Stock Purchase Warrant to Purchase 100,000 Shares of the
Company's Common Stock issued to Bain & Company,
dated December 15, 1995
10.20 (6)(3) Employment Offer Letter to Robert Ferngren dated November 9, 1995
11.1 Computation of Net Loss per Share
27 Financial Data Schedule
</TABLE>
18
<PAGE> 19
- - ------------------
(1) Incorporated by reference from the Exhibits with corresponding numbers
filed with the Company's Registration Statement on Form S-1 (No. 33-53904)
filed October 29, 1992, as amended by Amendment No. 1 to Form S-1 (No.
33-53904) filed December 7, 1992, except that Exhibit 3.1 is incorporated
by reference from Exhibit 3.1C and Exhibit 3.2 is incorporated by
reference from Exhibit 3.2B.
(2) Incorporated by reference from the Exhibits with corresponding numbers
filed with the Company's Quarterly Report on Form 10-Q for the quarter
ended September 4, 1994.
(3) Agreements or compensatory plans covering executive officers and directors
of Fresh Choice, Inc.
(4) Incorporated by reference from the Company's Annual Report on Form 10-K
for the period ended December 26, 1993.
(5) Incorporated by reference from the Exhibits with corresponding numbers
filed with the Company's Quarterly Report on Form 10-Q for the quarter
ended March 19, 1995.
(6) Incorporated by reference from the Exhibits with corresponding numbers
filed with the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
19
<PAGE> 1
EXHIBIT 3.2 Amended By-Laws of Fresh Choice, Inc. dated April 11, 1996
AMENDED BY-LAWS
OF
FRESH CHOICE, INC.
<PAGE> 2
I N D E X
<TABLE>
<CAPTION>
Section Page
- - ------- ----
<S> <C> <C>
ARTICLE I - STOCKHOLDERS........................................................................................ 1
Section 1. Annual Meeting....................................................................... 1
Section 2. Special Meetings..................................................................... 1
Section 3. Notice of Meetings................................................................... 1
Section 4. Quorum............................................................................... 2
Section 5. Conduct of the Stockholders' Meeting................................................. 2
Section 6. Conduct of Business.................................................................. 2
Section 7. Notice of Stockholder Business....................................................... 3
Section 8. Proxies and Voting................................................................... 3
Section 9. Stock List........................................................................... 4
ARTICLE II - BOARD OF DIRECTORS................................................................................. 4
Section 1. Number and Term of Office............................................................ 4
Section 2. Vacancies and Newly Created Directorships............................................ 4
Section 3. Removal.............................................................................. 5
Section 4. Regular Meetings..................................................................... 5
Section 5. Special Meetings..................................................................... 5
Section 6. Quorum............................................................................... 5
Section 7. Participation in Meetings by Conference Telephone.................................... 5
Section 8. Conduct of Business.................................................................. 6
Section 9. Powers............................................................................... 6
Section 10. Compensation of Directors............................................................ 6
Section 11. Nomination of Director Candidates.................................................... 6
ARTICLE III - COMMITTEES........................................................................................ 8
Section 1. Committees of the Board of Directors................................................. 8
Section 2. Conduct of Business.................................................................. 8
ARTICLE IV - OFFICERS........................................................................................... 8
Section 1. Generally............................................................................ 8
Section 2. Chairman of the Board................................................................ 8
Section 3. President............................................................................ 9
Section 4. Vice President....................................................................... 9
Section 5. Treasurer............................................................................ 9
Section 6. Secretary............................................................................ 9
Section 7. Delegation of Authority.............................................................. 9
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE V - STOCK............................................................................................... 10
Section 1. Certificates of Stock................................................................ 10
Section 2. Transfers of Stock................................................................... 10
Section 3. Record Date.......................................................................... 10
Section 4. Lost, Stolen or Destroyed Certificates............................................... 10
Section 5. Regulations.......................................................................... 10
ARTICLE VI - NOTICES............................................................................................ 10
Section 1. Notices.............................................................................. 10
Section 2. Waivers.............................................................................. 11
ARTICLE VII - MISCELLANEOUS..................................................................................... 11
Section 1. Facsimile Signatures................................................................. 11
Section 2. Corporate Seal....................................................................... 11
Section 3. Reliance Upon Books, Reports and Records............................................. 11
Section 4. Fiscal Year.......................................................................... 11
Section 5. Time Periods......................................................................... 11
ARTICLE VIII - INDEMNIFICATION OF DIRECTORS AND OFFICERS........................................................ 12
Section 1. Right to Indemnification............................................................. 12
Section 2. Right of Claimant to Bring Suit...................................................... 13
Section 3. Non-Exclusivity of Rights............................................................ 13
Section 4. Indemnification Contracts............................................................ 13
Section 5. Insurance............................................................................ 13
Section 6. Effect of Amendment.................................................................. 13
ARTICLE IX - AMENDMENTS......................................................................................... 14
</TABLE>
ii
<PAGE> 4
FRESH CHOICE, INC.
A DELAWARE CORPORATION
BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting. An annual meeting of the stockholders, for
the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, on such date, and at such time as the Board of
Directors shall each year fix.
Section 2. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes prescribed in the notice of the meeting, may be called
only (i) by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there
exists any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board of Directors for adoption) or (ii) by the
holders of not less than 10% of all shares entitled to cast votes at the
meeting, voting together as a single class and shall be held at such place, on
such date, and at such time as they shall fix. Business transacted at special
meetings shall be confined to the purpose or purposes stated in the notice.
Section 3. Notice of Meetings. Written notice of the place, date, and
time of all meetings of the stockholders shall be given, not less than ten (10)
nor more than sixty (60) days before the date on which the meeting is to be
held, to each stockholder entitled to vote at such meeting, except as otherwise
provided herein or required by law (meaning, here and hereinafter, as required
from time to time by the Delaware General Corporation Law or the Certificate of
Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum. At any meeting of the stockholders, the holders of a
majority of all of the shares of the stock entitled to vote at the meeting,
present in person or by proxy, shall
1
<PAGE> 5
constitute a quorum for all purposes, unless or except to the extent that the
presence of a larger number may be required by law.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date, or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
Section 5. Conduct of the Stockholders' Meeting. At every meeting of
the stockholders, the Chairman, if there is such an officer, or if not, the
President of the Corporation, or in his absence the Vice President designated by
the President, or in the absence of such designation any Vice President, or in
the absence of the President or any Vice President, a chairman chosen by the
majority of the voting shares represented in person or by proxy, shall act as
Chairman. The Secretary of the Corporation or a person designated by the
Chairman shall act as Secretary of the meeting. Unless otherwise approved by the
Chairman, attendance at the stockholders' meeting is restricted to stockholders
of record, persons authorized in accordance with Section 8 of these Bylaws to
act by proxy, and officers of the Corporation.
Section 6. Conduct of Business. The Chairman shall call the meeting to
order, establish the agenda, and conduct the business of the meeting in
accordance therewith or, at the Chairman's discretion, it may be conducted
otherwise in accordance with the wishes of the stockholders in attendance. The
date and time of the opening and closing of the polls for each matter upon which
the stockholders will vote at the meeting shall be announced at the meeting.
The Chairman shall also conduct the meeting in an orderly manner, rule
on the precedence of and procedure on, motions and other procedural matters, and
exercise discretion with respect to such procedural matters with fairness and
good faith toward all those entitled to take part. The Chairman may impose
reasonable limits on the amount of time taken up at the meeting on discussion in
general or on remarks by any one stockholder. Should any person in attendance
become unruly or obstruct the meeting proceedings, the Chairman shall have the
power to have such person removed from participation. Notwithstanding anything
in the Bylaws to the contrary, no business shall be conducted at a meeting
except in accordance with the procedures set forth in this Section 6 and Section
7, below. The Chairman of a meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
and in accordance with the provisions of this Section 6 and Section 7, and if he
should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
2
<PAGE> 6
Section 7. Notice of Stockholder Business. At an annual or special
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before a
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
properly brought before the meeting by or at the direction of the Board of
Directors, (c) properly brought before an annual meeting by a stockholder, or
(d) properly brought before a special meeting by a stockholder, but if, and only
if, the notice of a special meeting provides for business to be brought before
the meeting by stockholders. For business to be properly brought before a
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, a stockholder
proposal to be presented at an annual meeting shall be received at the
Corporation's principal executive offices not less than 120 calendar days in
advance of the date that the Corporation's (or the Corporation's predecessor's)
proxy statement was released to stockholders in connection with the previous
year's annual meeting of stockholders, except that if no annual meeting was held
in the previous year or the date of the annual meeting has been changed by more
than 30 calendar days from the date contemplated at the time of the previous
year's proxy statement, or in the event of a special meeting, notice by the
stockholder to be timely must be received not later than the close of business
on the tenth day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made. A stockholder's notice to
the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual or special meeting (a) a brief description of the
business desired to be brought before the annual or special meeting and the
reasons for conducting such business at the special meeting, (b) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business, (c) the class and number of shares of the Corporation which are
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business.
Section 8. Proxies and Voting. At any meeting of the stockholders,
every stockholder entitled to vote may vote in person or by proxy authorized by
an instrument in writing or by a transmission permitted by law filed in
accordance with the procedure established for the meeting. No stockholder may
authorize more than one proxy for his shares.
Each stockholder shall have one vote for every share of stock entitled
to vote which is registered in his or her name on the record date for the
meeting, except as otherwise provided herein or required by law.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballots, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
3
<PAGE> 7
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law, all other matters shall be determined by a
majority of the votes cast.
Section 9. Stock List. A complete list of stockholders entitled to vote
at any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the identity
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Number and Term of Office. The number of directors shall
initially be six (6) and, thereafter, shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption). After the closing date of
the first sale of the Corporation's common stock pursuant to a firmly
underwritten registered public offering (the "IPO"), the directors shall be
divided into three classes, as nearly equal in number as reasonably possible,
with the term of office of the first class to expire at the first annual meeting
of stockholders held after the IPO, the term of office of the second class to
expire at the second annual meeting of stockholders held after the IPO; the term
of office of the third class to expire at the third annual meeting of
stockholders held after the IPO; and thereafter for each such term to expire at
each third succeeding annual meeting of stockholders after such election. A
vacancy resulting from the removal of a director by the stockholders as provided
in Article II, Section 3 below may be filled at special meeting of the
stockholders held for that purpose. All directors shall hold office until the
expiration of the term for which elected and until their respective successors
are elected, except in the case of the death, resignation or removal of any
director.
Section 2. Vacancies and Newly Created Directorships. Subject to the
rights of the holders of any series of Preferred Stock then outstanding, newly
created directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification or other cause (other than removal
from office by a vote of the stockholders) may be filled only by a majority vote
of the
4
<PAGE> 8
directors then in office, though less than a quorum, and directors so
chosen shall hold office for a term expiring at the next annual meeting of
stockholders at which the term of office of the class to which they have been
elected expires. No decrease in the number of directors constituting the Board
of Directors shall shorten the term of any incumbent director.
Section 3. Removal. Subject to the rights of holders of any series of
Preferred Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, with or without cause, but
only by the affirmative vote of the holders of at least a majority of the voting
power of all of the then outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class. Vacancies in the Board of Directors resulting from such removal
may be filled by a majority of the directors then in office, though less than a
quorum, or by the stockholders as provided in Article II, Section 1 above.
Directors so chosen shall hold office until the new annual meeting of
stockholders.
Section 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such place or places, on such date or dates, and at such time
or times as shall have been established by the Board of Directors and publicized
among all directors. A notice of each regular meeting shall not be required.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be called by one-third of the directors then in office (rounded up to the
nearest whole number) or by the chief executive officer and shall be held at
such place, on such date, and at such time as they or he or she shall fix.
Notice of the place, date, and time of each such special meeting shall be given
each director by whom it is not waived by mailing written notice not fewer than
five (5) days before the meeting or by telegraphing or personally delivering the
same not fewer than twenty-four (24) hours before the meeting. Unless otherwise
indicated in the notice thereof, any and all business may be transacted at a
special meeting.
Section 6. Quorum. At any meeting of the Board of Directors, a majority
of the total number of authorized directors shall constitute a quorum for all
purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without further
notice or waiver thereof.
Section 7. Participation in Meetings by Conference Telephone. Members
of the Board of Directors, or of any committee thereof, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and such participation shall constitute presence in
person at such meeting.
Section 8. Conduct of Business. At any meeting of the Board of
Directors, business shall be transacted in such order and manner as the Board
may from time to time determine, and
5
<PAGE> 9
all matters shall be determined by the vote of a majority of the directors
present, except as otherwise provided herein or requited by law. Action may be
taken by the Board of Directors without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 9. Powers. The Board of Directors may, except as otherwise
required by law, exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with
law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such
form as it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties of any officer
upon any other person for the time being;
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for directors, officers, employees
and agents of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and
other benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent
with these bylaws, for the management of the Corporation's business and affairs.
Section 10. Compensation of Directors. Directors, as such, may receive,
pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as directors, including, without limitation,
their services as members of committees of the Board of Directors.
Section 11. Nomination of Director Candidates. Subject to the rights of
holders of any class or series of Preferred Stock then outstanding, nominations
for the election of Directors may be made by the Board of Directors or a proxy
committee appointed by the Board of Directors or by any stockholder entitled to
vote in the election of Directors generally. However, any stockholder entitled
to vote in the election of Directors generally may nominate one or more persons
for election as Directors at a meeting only if timely notice of such
stockholder's intent to make such nomination or nominations has been given in
writing to the Secretary of the Corporation. To be timely, a stockholder
nomination for a director to be elected at an annual
6
<PAGE> 10
meeting shall be received at the Corporation's principal executive
offices not less than 120 calendar days in advance of the date that the
Corporation's (or the Corporation's Predecessor's) Proxy statement was released
to stockholders in connection with the previous year's annual meeting of
stockholders, except that if no annual meeting was held in the previous year or
the date of the annual meeting has been changed by more than 30 calendar days
from the date contemplated at the time of the previous year's proxy statement,
or in the event of a nomination for director to be elected at a special meeting,
notice by the stockholders to be timely must be received not later than the
close of business on the tenth day following the day on which such notice of the
date of the special meeting was mailed or such public disclosure was made. Each
such notice shall set forth: (a) the name and address of the stockholder who
intends to make the nomination and of the person or persons to be nominated; (b)
a representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote for the election of Directors on the date of such
notice and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission, had the nominee been nominated, or
intended to be nominated, by the Board of Directors; and (e) the consent of each
nominee to serve as a director of the Corporation if so elected.
In the event that a person is validly designated as a nominee in
accordance with this Section 11 and shall thereafter become unable or unwilling
to stand for election to the Board of Directors, the Board of Directors or the
stockholder who proposed such nominee, as the case may be, may designate a
substitute nominee upon delivery, not fewer than five days prior to the date of
the meeting for the election of such nominee, of a written notice to the
Secretary setting forth such information regarding such substitute nominee as
would have been required to be delivered to the Secretary pursuant to this
Section 11 had such substitute nominee been initially proposed as a nominee.
Such notice shall include a signed consent to serve as a director of the
Corporation, if elected, of each such substitute nominee.
If the chairman of the meeting for the election of Directors determines
that a nomination of any candidate for election as a Director at such meeting
was not made in accordance with the applicable provisions of this Section 11,
such nomination shall be void; provided, however, that nothing in this Section
11 shall be deemed to limit any voting rights upon the occurrence of dividend
arrearages provided to holders of Preferred Stock pursuant to the Preferred
Stock designation for any series of Preferred Stock.
ARTICLE III
COMMITTEES
7
<PAGE> 11
Section 1. Committees of the Board of Directors. The Board of
directors, by a vote of a majority of the whole Board, may from time to time
designate committees of the Board, with such lawfully delegable powers and
duties as it thereby confers, to serve at the pleasure of the Board and shall,
for those committees and any others provided for herein, elect a director or
directors to serve as the member or members, designating, if it desires, other
directors as alternate members who may replace any absent or disqualified member
at any meeting of the committee. Any committee so designated may exercise the
power and authority of the Board of Directors to declare a dividend, to
authorize the issuance of stock or to adopt a certificate of ownership and
merger pursuant to Section 253 of the Delaware General Corporation Law if the
resolution which designates the committee or a supplemental resolution of the
Board of Directors shall so provide. In the absence or disqualification of any
member of any committee and any alternate member in his place, the member or
members of the committee present at the meeting and not disqualified from
voting, whether or not he or she or they constitute a quorum, may by unanimous
vote appoint another member of the Board of Directors to act at the meeting in
the place of the absent or disqualified member.
Section 2. Conduct of Business. Each committee may determine the
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings;
one-third of the authorized members shall constitute a quorum unless the
committee shall consist of one or two members, in which event one member shall
constitute a quorum; and all matters shall be determined by a majority vote of
the members present. Action may be taken by any committee without a meeting if
all members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of such committee.
ARTICLE IV
OFFICERS
Section 1. Generally. The officers of the Corporation shall consist of
a President, one or more Vice Presidents, a Secretary and a Treasurer. The
Corporation may also have, at the discretion of the Board of Directors, a
Chairman of the Board and such other officers as may from time to time be
appointed by the Board of Directors. Officers shall be elected by the Board of
Directors, which shall consider that subject at its first meeting after every
annual meeting of stockholders. Each officer shall hold office until his or her
successor is elected and qualified or until his or her earlier resignation or
removal. The Chairman of the Board, if there shall be such an officer, and the
President shall each be members of the Board of Directors. Any number of offices
may he held by the same person.
Section 2. Chairman of the Board. The Chairman of the Board, if there
shall be such an officer, shall, if present, preside at all meetings of the
Board of Directors, and exercise and
8
<PAGE> 12
perform such other powers and duties as may be from time to time assigned to him
by the Board of Directors or prescribed by these bylaws.
Section 3. President. The President shall be the chief executive
officer of the Corporation. Subject to the provisions of these bylaws and to the
direction of the Board of Directors, he or she shall have the responsibility for
the general management and control of the business and affairs of the
Corporation and shall perform all duties and have all powers which are commonly
incident to the office of chief executive or which are delegated to him or her
by the Board of Directors. He or she shall have power to sign all stock
certificates, contracts and other instruments of the Corporation which are
authorized and shall have general supervision and direction of all of the other
officers, employees and agents of the Corporation.
Section 4. Vice President. Each Vice President shall have such powers
and duties as may be delegated to him or her by the Board of Directors. One Vice
President shall be designated by the Board to perform the duties and exercise
the powers of the President in the event of the President's absence or
disability.
Section 5. Treasurer. Unless otherwise designated by the Board of
Directors, the Chief Financial Officer of the Corporation shall be the
Treasurer. The Treasurer shall have the responsibility for maintaining the
financial records of the Corporation and shall have custody of all monies and
securities of the Corporation. He or she shall make such disbursements of the
funds of the Corporation as are authorized and shall render from time to time an
account of all such transactions and of the financial condition of the
Corporation. The Treasurer shall also perform such other duties as the Board of
Directors may from time to time prescribe.
Section 6. Secretary. The Secretary shall issue all authorized notices
for, and shall keep, or cause to be kept, minutes of all meetings of the
stockholders, the Board of Directors, and all committees of the Board of
Directors. He or she shall have charge of the corporate books and shall perform
such other duties as the Board of Directors may from time to time prescribe.
Section 7. Delegation of Authority. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
Section 8. Removal. Any officer of the Corporation may be removed at
any time, with or without cause, by the Board of Directors.
Section 9. Action With Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or any
officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and
9
<PAGE> 13
otherwise to exercise any and all rights and powers which this
Corporation may possess by reason of its ownership of securities in such other
corporation.
ARTICLE V
STOCK
Section 1. Certificates of Stock. Each stockholder shall be entitled to
a certificate signed by, or in the name of the Corporation by, the President or
a Vice President, and by the Secretary or an Assistant Secretary, or the
Treasurer or an Assistant Treasurer, certifying the number of shares owned by
him or her. Any of or all the signatures on the certificate may be facsimile.
Section 2. Transfers of Stock. Transfers of stock shall be made only
upon the transfer books of the Corporation kept at an office of the Corporation
or by transfer agents designated to transfer shares of the stock of the
Corporation. Except where a certificate is issued in accordance with Section 4
of Article V of these bylaws, an outstanding certificate for the number of
shares involved shall be surrendered for cancellation before a new certificate
is issued therefor.
Section 3. Record Date. The Board of Directors may fix a record date,
which shall not be more than sixty (60) nor fewer than ten (10) days before the
date of any meeting of stockholders, nor more than sixty (60) days prior to the
time for the other action hereinafter described, as of which there shall be
determined the stockholders who are entitled: to notice of or to vote at any
meeting of stockholders or any adjournment thereof; to receive payment of any
dividend or other distribution or allotment of any rights; or to exercise any
rights with respect to any change, conversion or exchange of stock or with
respect to any other lawful action.
Section 4. Lost, Stolen or Destroyed Certificates. In the event of the
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such regulations as the Board of Directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.
Section 5. Regulations. The issue, transfer, conversion and
registration of certificates of stock shall be governed by such other
regulations as the Board of Directors may establish.
ARTICLE VI
NOTICES
Section 1. Notices. Except as otherwise specifically provided herein or
required by law, all notices required to be given to any stockholder, director,
officer, employee or agent shall be in writing and may in every instance be
effectively given by hand delivery to the recipient thereof, by depositing such
notice in the mails, postage paid, or by sending such notice by
10
<PAGE> 14
prepaid telegram, mailgram, telecopy or commercial courier service. Any
such notice shall be addressed to such stockholder, director, officer, employee
or agent at his or her last known address as the same appears on the books of
the Corporation. The time when such notice shall be deemed to be given shall be
the time such notice is received by such stockholder, director, officer,
employee or agent, or by any person accepting such notice on behalf of such
person, if hand delivered, or the time such notice is dispatched, if delivered
through the mails or be telegram or mailgram.
Section 2. Waivers. A written waiver of any notice, signed by a
stockholder, director, officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, director, officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
ARTICLE VII
MISCELLANEOUS
Section 1. Facsimile Signatures. In addition to the provisions for use
of facsimile signatures elsewhere specifically authorized in these bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
Section 2. Corporate Seal. The Board of Directors may provide a
suitable seal, containing the name of the Corporation, which seal shall be in
the charge of the Secretary. If and when so directed by the Board of Directors
or a committee thereof, duplicates of the seal may be kept and used by the
Treasurer or by an Assistant Secretary or Assistant Treasurer.
Section 3. Reliance Upon Books, Reports and Records. Each director,
each member of any committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of his duties, be fully
protected in relying in good faith upon the books of account or other records of
the Corporation, including reports made to the Corporation by any of its
officers, by an independent certified public accountant, or by an appraiser
selected with reasonable care.
Section 4. Fiscal Year. The fiscal year of the Corporation shall be as
fixed by the Board of Directors.
Section 5. Time Periods. In applying any provision of these bylaws
which require that an act be done or not done a specified number of days prior
to an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
11
<PAGE> 15
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative, is or was a director, officer or employee of
the Corporation or is or was serving at the request of the Corporation as a
director, officer or employee of another corporation, or of a Partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer or employee or in any other capacity
while serving as a director, officer or employee, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by Delaware Law, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said Law permitted the Corporation
to provide prior to such amendment) against all expenses, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties,
amounts paid or to be paid in settlement and amounts expended in seeking
indemnification granted to such person under applicable law, this bylaw or any
agreement with the Corporation) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer or employee and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that, except as provided in Section 2 of this Article VIII, the Corporation
shall indemnify any such person seeking indemnity in connection with an action,
suit or proceeding (or part thereof) initiated by such person only if (a) such
indemnification is expressly required to be made by law, (b) the action, suit or
proceeding (or part thereof) was authorized by the board of directors of the
Corporation, (c) such indemnification is provided by the Corporation, in its
sole discretion, pursuant to the powers vested in the Corporation under the
Delaware General Corporation Law, or (d) the action, suit or proceeding (or part
thereof) is brought to establish or enforce a right to indemnification under an
indemnity agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law. Such right shall be a
contract right and shall include the right to be paid by the Corporation
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, unless the Delaware General Corporation
Law then so prohibits, the payment of such expenses incurred by a director or
officer of the Corporation in his or her capacity as a director or officer (and
not in any other capacity in which service was or is tendered by such person
while a director or officer, including, without limitation. service to an
employee benefit plan) in advance of the final disposition of such proceeding,
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so advanced if it
should be determined ultimately that such director or officer is not entitled to
be indemnified under this Section or otherwise.
12
<PAGE> 16
Section 2. Right of Claimant to Bring Suit. If a claim under Section 1
of this Article VIII is not paid in full by the Corporation within ninety (90)
days after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if such suit is not frivolous or brought in bad
faith, the claimant shall be entitled to be paid also the expense of prosecuting
such claim. The burden of proving such claim shall be on the claimant. It shall
be a defense to any such action (other then an action brought to enforce a claim
for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to this
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law for the Corporation to
indemnify the claimant for the amount claimed. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct.
Section 3. Non-Exclusivity of Rights. The rights conferred on any
person in Sections 1 and 2 shall not be exclusive of any other right which such
persons may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 4. Indemnification Contracts. The Board of Directors is
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
board of directors so determinates, greater than, those provided for in this
Article VIII.
Section 5. Insurance. The Corporation shall maintain insurance to the
extent reasonably available, at its expense, to protect itself and any such
director, officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any such expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the Delaware
General Corporation Law.
Section 6. Effect of Amendment. Any amendment, repeal or modification
of any provision of this Article VIII by the stockholders and the directors of
the Corporation shall not adversely affect any right or protection of a director
or officer of the Corporation existing at the time of such amendment, repeal or
modification.
13
<PAGE> 17
ARTICLE IX
AMENDMENTS
The Board of Directors is expressly empowered to adopt, amend or repeal
Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the
Corporation by the Board of Directors shall require the approval of a majority
of the total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any resolution
providing for adoption, amendment or repeal is presented to the Board). The
stockholders shall also have power to adopt, amend or repeal the Bylaws of the
Corporation. Any adoption, amendment or repeal of By-Laws of the Corporation by
the stockholders shall require, in addition to any vote of the holders of any
class or series of stock of the Corporation required by law or by this
Certificate of Incorporation, the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class.
14
<PAGE> 1
Exhibit 10.8
SIGNATURE COPY
- - --------------------------------------------------------------------------------
PREFERRED STOCK PURCHASE AGREEMENT
BY AND BETWEEN
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
AND
FRESH CHOICE, INC.
-------------------------------
DATED AS OF APRIL 26, 1996
-------------------------------
- - --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE 1
<S> <C> <C>
PURCHASE AND SALE OF SHARES
Section 1.1. Purchase and Sale of Shares...................................................... 1
Section 1.2. Purchase Price................................................................... 1
ARTICLE 2
THE CLOSING
Section 2.1. The Closing...................................................................... 2
ARTICLE 3
OPTION
Section 3.1. Grant of Option.................................................................. 2
Section 3.2. Exercise of Option............................................................... 2
Section 3.3. Exercise Price................................................................... 3
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Section 4.1. Representations and Warranties of the Company.................................... 3
4.1.1. Existence; Good Standing; Corporate Authority; Compliance
with Law......................................................................... 3
4.1.2. Authorization, Validity and Effect of Agreements................................. 3
4.1.3. Capitalization................................................................... 4
4.1.4. Subsidiaries..................................................................... 4
4.1.5. Other Interests.................................................................. 5
4.1.6. No Violation..................................................................... 5
4.1.7. Books and Records................................................................ 6
4.1.8. SEC Documents.................................................................... 6
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
4.1.9. Litigation....................................................................... 6
4.1.10. Absence of Certain Changes....................................................... 6
4.1.11. Tax Returns...................................................................... 8
4.1.12. Employee Benefit Plans........................................................... 8
4.1.13. Labor Matters.................................................................... 9
4.1.14. No Brokers....................................................................... 9
4.1.15. Agreements....................................................................... 9
4.1.16. Title to Assets.................................................................. 10
4.1.17. Insurance........................................................................ 10
4.1.18. Environmental Matters............................................................ 11
4.1.19. Intellectual Property............................................................ 11
4.1.20. Licenses......................................................................... 11
4.1.21. Preferred Stock to be Delivered to Purchaser..................................... 11
4.1.22. Disclosure....................................................................... 12
4.1.23. No Undisclosed Liabilities....................................................... 12
4.1.24. Receivables...................................................................... 12
4.1.25. Business Plan.................................................................... 12
Section 4.2. Representations and Warranties of Purchaser...................................... 12
4.2.1. Existence; Good Standing......................................................... 12
4.2.2. Authorization, Validity and Effect of Agreements................................. 12
4.2.3. No Violation..................................................................... 13
4.2.4. No Brokers....................................................................... 13
4.2.5. Investment Intent................................................................ 13
ARTICLE 5
COVENANTS
Section 5.1. Fees............................................................................. 14
Section 5.2. Expenses......................................................................... 14
Section 5.3. Conduct of Business.............................................................. 15
Section 5.4. Other Action..................................................................... 15
Section 5.5. Inspection of Records............................................................ 15
Section 5.6. Publicity........................................................................ 15
Section 5.7. Meeting of Stockholders.......................................................... 16
Section 5.9. Quarterly, Annual and Special Reports............................................ 16
Section 5.10. Use of Proceeds.................................................................. 16
Section 5.11. Continuation of Indemnification; Insurance....................................... 16
Section 5.12. Registration Rights.............................................................. 17
Section 5.13. No Transfer to a Competitor...................................................... 17
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE 6
CONDITIONS
Section 6.1. Conditions to Each Party's Obligation to Close................................... 17
Section 6.2. Conditions to Obligation of the Company to Close................................. 18
Section 6.3. Conditions to Obligation of Purchaser to Close................................... 18
ARTICLE 7
TERMINATION
Section 7.1. Termination by Mutual Consent.................................................... 20
Section 7.2. Termination by Either Purchaser or the Company................................... 20
Section 7.3. Termination by the Company....................................................... 20
Section 7.4. Termination by Purchaser......................................................... 20
Section 7.5. Effect of Termination............................................................ 20
ARTICLE 8
DEFINITIONS AND CONSTRUCTION
Section 8.1. Definition of Certain Terms...................................................... 21
Section 8.2. Rules of Construction............................................................ 26
ARTICLE 9
GENERAL PROVISIONS
Section 9.1. Survival of Representations and Warranties....................................... 26
Section 9.2. Severability..................................................................... 27
Section 9.3. Notices.......................................................................... 27
Section 9.4. Headings......................................................................... 28
Section 9.5. Entire Agreement................................................................. 28
Section 9.6. Counterparts..................................................................... 28
Section 9.7. Governing Law, Etc............................................................... 29
Section 9.8. Binding Effect................................................................... 29
Section 9.9. Assignment....................................................................... 29
Section 9.10. No Third Party Beneficiaries..................................................... 29
Section 9.11. Amendment; Waivers, Etc.......................................................... 29
</TABLE>
-iii-
<PAGE> 5
EXHIBIT LIST
Exhibit A - Form of Certificate of Designation for Series A
Exhibit B - Form of Certificate of Designation for Series B
Exhibit C - Form of Certificate of Designation for Series C
Exhibit D - Form of Registration Rights Agreement
-iv-
<PAGE> 6
PREFERRED STOCK PURCHASE AGREEMENT
This PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is dated as
of April 26, 1996, and is being entered into by and between CRESCENT REAL ESTATE
EQUITIES LIMITED PARTNERSHIP, a Delaware limited partnership ("Purchaser"), and
FRESH CHOICE, INC., a Delaware corporation (the "Company").
RECITALS
A. The Company desires to issue and sell to Purchaser, and Purchaser
desires to purchase from the Company, 1,187,906 the Company's Preferred Stock,
par value $0.001 per share (the "Preferred Stock"), Series B Non-Voting
Participating Convertible Preferred Stock (the "Series B Preferred Stock"), upon
the terms and subject to the conditions hereinafter set forth. The Series B
Preferred Stock is convertible, at the option of the holder thereof, into shares
of Preferred Stock, Series A Voting Participating Convertible Preferred Stock
(the "Series A Preferred Stock").
B. The Company desires to grant Purchaser an option to purchase up to
593,953 shares of Preferred Stock, Series C Participating Non-Voting Convertible
Preferred Stock (the "Series C Preferred Stock"), upon the terms and subject to
the conditions hereof.
C. Unless the context indicates otherwise, each capitalized term used
herein is defined in Section .
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF SHARES
SECTION 1.1. PURCHASE AND SALE OF SHARES. On the basis of the
representations and warranties herein contained and subject to the terms and
conditions hereof, the Company agrees to issue, sell and deliver to Purchaser,
and Purchaser agrees to purchase from the Company, at the Closing, 1,187,906
shares of Series B Preferred Stock (the "Shares").
SECTION 1.2. PURCHASE PRICE. In consideration of the issuance and sale
by the Company of the Shares, and in full and complete payment therefor, on the
Closing Date, Purchaser shall pay the Company an aggregate purchase price (the
"Purchase Price") equal to the product of (i) $4.63 and (ii) 1,187,906, i.e.,
$5,500,004.78. The Purchase Price shall be paid to the Company in currently
available funds by federal funds wire transfer on the Closing Date.
<PAGE> 7
ARTICLE 2
THE CLOSING
SECTION 2.1. THE CLOSING. Subject to the terms and conditions of this
Agreement, the closing of the transactions contemplated hereby (the "Closing")
shall take place at the offices of Cooley Godward Castro Huddleson & Tatum, Five
Palo Alto Square, 3000 El Camino Real, Palo Alto, California 94306-2155, at
10:00 a.m., local time, on the later of (a) the Stockholder Meeting Date, or (b)
the date which is three Business Days after the satisfaction or waiver of all
conditions to the consummation of the transactions contemplated hereby, or at
such other time, date or place as the Company and Purchaser may agree. The date
on which the Closing occurs is referred to herein as the "Closing Date". At the
Closing, the Company will issue and transfer to Purchaser good and valid title
in and to the Shares, free and clear of all Liens, by delivering to Purchaser a
certificate or certificates representing the Shares, in genuine and unaltered
form. At the Closing, there shall also be delivered to Purchaser and the Company
the other Transaction Documents, certificates and other instruments to be
delivered under Article .
ARTICLE 3
OPTION
SECTION 3.1. GRANT OF OPTION. The Company hereby grants to Purchaser an
irrevocable option (the "Option") to purchase up to 593,953 shares (the "Option
Shares") of Series C Preferred Stock, in the manner and at the purchase price
set forth below.
SECTION 3.2. EXERCISE OF OPTION. The Option may be exercised by
Purchaser, in whole or in part, at any time or from time to time, after the
Closing Date and prior to the third anniversary of the Closing Date. If
Purchaser desires to exercise the Option, Purchaser shall send a written notice
to the Company specifying the number of Option Shares it will purchase and a
date (not earlier than seven nor later than 14 Business Days from the date such
notice is given) for the closing of such purchase (the "Option Closing"). The
Option Closing shall take place (a) at the offices of Cooley Godward Castro
Huddleson & Tatum, Five Palo Alto Square, 3000 El Camino Real, Palo Alto,
California 94306-2155, at 10:00 o'clock a.m. local time on the date specified in
such notice or (b) at such other place and time as the Company and Purchaser may
agree. At each Option Closing, the Company will issue and transfer to Purchaser
good and valid title in and to the Option Shares being purchased, free and clear
of all Liens, by delivering to Purchaser a certificate or certificates
representing the Option Shares being purchased, in genuine and unaltered form,
and certificates similar to those certificates that the Company is required to
deliver to Purchaser under Section .
-2-
<PAGE> 8
SECTION 3.3. EXERCISE PRICE. In consideration of the issuance and sale
by the Company of the Option Shares, and in full and complete payment therefor,
at each Option Closing, Purchaser shall pay an aggregate price equal to the
product of (i) $6.00 multiplied by (ii) the number of Option Shares being
purchased.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as
set forth in the disclosure letter delivered at or prior to the execution hereof
to Purchaser (the "Disclosure Letter"), the Company represents and warrants to
Purchaser, as of the date of this Agreement, as follows:
4.1.1. EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY; COMPLIANCE WITH
LAW. The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of State of Delaware. The Company is duly licensed
or qualified to do business as a foreign corporation and is in good standing
under the laws of those jurisdictions specified in Section of the Disclosure
Letter, which are the only jurisdictions in which the character of the
properties owned, used or leased by it therein or in which the transaction of
its business makes such qualification necessary, except where the failure to be
so qualified would not have a material adverse effect on the business, results
of operations or financial or other condition or prospects of the Company and
its Subsidiaries taken as a whole (a "Company Material Adverse Effect"). The
Company has all requisite corporate power and authority to own, operate and
lease its properties and carry on its business as now conducted. The Company
represents and warrants that its principal line of business is the operation of
casual upscale restaurants, operating under the name "Fresh Choice." The name of
each director and officer of the Company on the date hereof, and the position
with the Company held by each, are listed in Section of the Disclosure Letter.
Each of the Company's Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, has the corporate power and authority to own its properties and
to carry on its business as it is now being conducted, and is duly qualified to
do business and is in good standing in those jurisdictions in which the
ownership of its property or the conduct of its business requires such
qualification, except where the failure to be so qualified would not have a
Company Material Adverse Effect. Neither the Company nor any of its Subsidiaries
has received any notice that it is in violation of any order, writ, judgment,
decree, injunction or similar pronouncement (each, an "Order"), of any court,
governmental authority or arbitration board or tribunal, or any law, statute,
ordinance, governmental rule or regulation (each, a "Law") to which the Company
or any of its Subsidiaries or any of their respective properties or assets is
subject. The copies of the Company's Certificate of Incorporation and Bylaws
previously delivered to Purchaser are true and correct and are the Certificate
of Incorporation and the Bylaws as in effect on the date hereof.
4.1.2. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. The Company
has the requisite corporate power and authority to execute and deliver this
Agreement and the Registration Rights
-3-
<PAGE> 9
Agreement (collectively, the "Transaction Documents"), and, subject to
stockholder approval of an amendment to its certificate of incorporation, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby, including, without limitation, to
issue, sell and transfer the Shares and to consummate the transactions
contemplated hereby. The execution and delivery by the Company of this Agreement
and the other Transaction Documents and the performance and consummation by the
Company of the transactions contemplated hereby and thereby have been duly and
validly authorized by all requisite corporate action on the part of the Company
other than the necessary approval of its stockholders. Subject to stockholder
approval, this Agreement has been duly and validly executed and delivered by the
Company and constitutes, and the other Transaction Documents (when executed and
delivered pursuant hereto for value received) will constitute, the valid and
legally binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as enforceability may be limited
by applicable bankruptcy, reorganization, insolvency, moratorium or other
similar laws relating to creditors' rights generally or general principles of
equity (whether considered in a proceeding in equity or at law) or by public
policy applicable to securities laws.
4.1.3. CAPITALIZATION. The authorized capital stock of the Company
consists solely of 7,500,000 shares of common stock, par value $0.001 per share
("Common Stock"), and 250,000 shares of preferred stock, par value $0.001 per
share. As of February 29, 1996 there were 5,583,737 shares of Common Stock
issued and outstanding. As of the date hereof, no shares of Preferred Stock were
issued and outstanding. The Certificates of Designation for the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock
are attached hereto as Exhibits A, B and C, respectively. Except as specified on
Section of the Disclosure Letter, since such date, no additional shares of
capital stock of the Company have been issued. The Company has no outstanding
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or which are convertible into or exercisable for securities
having the right to vote) with the stockholders of the Company on any matters.
All such issued and outstanding shares of Common Stock are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights. Other
than as contemplated by this Agreement or as disclosed in the Company Reports,
there are not at the date of this Agreement any existing options, warrants,
calls, subscriptions, convertible securities, phantom stock rights, or other
rights, agreements or commitments (each, a "Warrant") which obligate the Company
or any of its Subsidiaries to issue, transfer or sell any shares of capital
stock of the Company or any of its Subsidiaries, or any obligation of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any outstanding capital stock of the Company or any of its Subsidiaries, or
otherwise entitle the holder thereof to receive or exercise any benefits or
rights similar to any rights enjoyed by or accruing to the holder of shares of
capital stock of the Company, including any right to participate in the equity
or income of the Company. The delivery of a certificate or certificates at the
Closing representing the Shares in the manner provided in Section will transfer
to Purchaser good and valid title to the Shares, free and clear of all Liens.
4.1.4. SUBSIDIARIES. Section of the Disclosure Letter lists the name of
each Subsidiary and all lines of business in which each Subsidiary is
participating or engaged.
-4-
<PAGE> 10
Section of the Disclosure Letter also lists for each Subsidiary the amount of
its authorized capital stock, the amount of its outstanding capital stock and
the record owners of such outstanding capital stock. The Company owns directly
or indirectly each of the outstanding shares of capital stock of each of its
Subsidiaries. Except as disclosed in Section of the Disclosure Letter, each of
the outstanding shares of capital stock of each of the Company's Subsidiaries is
duly authorized, validly issued, fully paid and nonassessable, and is owned,
directly or indirectly, by the Company free and clear of all Liens. There are no
outstanding Warrants with respect to any Subsidiary. The name of each director
and officer of each Subsidiary on the date hereof, and the position with such
Subsidiary held by each, are listed in Section of the Disclosure Letter. The
Company has prior to the execution of this Agreement delivered to Purchaser true
and complete copies of the certificate or articles of incorporation and bylaws
(or other comparable corporate charter documents) of each of the Subsidiaries as
in effect on the date hereof.
4.1.5. OTHER INTERESTS. Except for interests in the Company's
Subsidiaries, neither the Company nor any Subsidiary owns directly or indirectly
any interest or investment (whether equity or debt) in any corporation,
partnership, joint venture, business, trust or entity (other than investments in
short-term investment securities and corporate, partnership, development,
cooperative marketing and similar undertakings and arrangements entered into in
the ordinary course of the Company's business).
4.1.6. NO VIOLATION. Neither the execution and delivery by the Company
of this Agreement or of the other Transaction Documents, nor the consummation by
the Company of the transactions contemplated hereby or thereby in accordance
with the terms hereof and thereof, will (i) conflict with or result in a breach
or violation of any provisions of the certificate or articles of incorporation
or bylaws of the Company or any Subsidiary (or other comparable corporate
charter documents); (ii) result in a breach or violation of, a default under, or
the triggering of any payment or other material obligations pursuant to, or
accelerate vesting under, the Second Amended and Restated 1988 Stock Option Plan
and the 1992 Employee Stock Purchase Plan (collectively, the "Stock Plans"), or
any grant or award made thereunder, (iii) violate, or conflict with, or result
in a breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination or in a right of termination or cancellation of, or
accelerate the performance required by, or result in the creation of any Lien
upon any property of the Company or its Subsidiaries under, or result in any
additional rights under or in being declared void, voidable, or without further
binding effect, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust or any material license, franchise, permit,
lease, contract (whether written or oral), agreement or other instrument,
commitment or obligation to which the Company or any of its Subsidiaries is a
party, or by which the Company or any of its Subsidiaries or any of their
respective properties is bound or affected; (iv) require any consent, approval
or authorization of, or declaration, filing or registration with, any third
party or any domestic or foreign governmental or regulatory authority; or (v)
conflict with or result in a violation or breach of any term or provision of any
Law or Order applicable to the Company or any Subsidiary or any of their
respective assets and properties.
-5-
<PAGE> 11
4.1.7. BOOKS AND RECORDS. Except as set forth in Section of the
Disclosure Letter, the minute books and other similar records of the Company and
its Subsidiaries as made available to Purchaser prior to the execution of this
Agreement contain a true and complete record, in all material respects, of all
action taken at all meetings and by all written consents in lieu of meetings of
the stockholders, the boards of directors and committees of the boards of
directors of the Company and its Subsidiaries.
4.1.8. SEC DOCUMENTS. The Company has delivered to Purchaser each
Company Report. As of their respective dates, the Company Reports (i) were
prepared in all material respects in accordance with the applicable requirements
of the Securities Act, the Exchange Act, and the rules and regulations
thereunder and (ii) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading. Each of the consolidated balance sheets of the
Company included in the Company Reports (including the related notes and
schedules) fairly represents the consolidated financial position of the Company
and the its Subsidiaries as of its date and each of the consolidated statements
of operations, stockholders' equity and cash flow of the Company included in the
Company Reports (including any related notes and schedules) fairly presents the
results of operations, stockholders' equity or cash flow, as the case may be, of
the Company and its Subsidiaries for the periods set forth therein. Except as
and to the extent set forth on the consolidated balance sheet of the Company and
its Subsidiaries at December 31, 1995, including all notes thereto, or as set
forth in the Company Reports, neither the Company nor any of its Subsidiaries
has any material liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that would be required to be reflected on, or
reserved against in, a balance sheet of the Company or in the notes thereto,
prepared in accordance with generally accepted accounting principles
consistently applied, except liabilities arising in the ordinary course of
business since such date.
4.1.9. LITIGATION. Except as disclosed in the Company Reports, there
are no Actions pending against, relating to or affecting the Company or any of
its Subsidiaries or any of their respective assets and properties or, to the
Knowledge of the Company, threatened against the Company or any of its
Subsidiaries, at law or in equity, or before or by any federal or state
commission, board, bureau, agency or instrumentality. There are no Orders
outstanding against the Company or any Subsidiary. Except as set forth in
Section of the Disclosure Letter, prior to the execution of this Agreement, the
Company has delivered to Purchaser all responses of counsel for the Company and
its Subsidiaries to auditors' requests for information delivered in connection
with the Financial Statements and/or the interim financial statements contained
in the Company Reports (together with any updates provided by such counsel)
regarding such Actions pending or threatened against, relating to or affecting
the Company or any Subsidiary.
4.1.10. ABSENCE OF CERTAIN CHANGES. Since December 31, 1995, there has
been no event or condition of any character (whether actual, threatened or
contemplated) that has had, or can reasonably be anticipated to have,
individually or together with such other events or conditions, a Company
Material Adverse Effect. Without limiting the generality of the foregoing,
-6-
<PAGE> 12
except as set forth in Section of the Disclosure Letter (with paragraph
references corresponding to those set forth below), neither the Company nor any
Subsidiary has, since December 31, 1995:
(a) borrowed any funds or, except in the ordinary course of
the Company's business consistent with past practices, (i) mortgaged or
otherwise subjected to any Lien or other liability any of its assets or
properties, (ii) sold, assigned or transferred any of its assets in
excess of $250,000 in the aggregate, or (iii) incurred any liability,
commitment, indebtedness or obligation (of any kind whatsoever, whether
accrued or contingent, matured or unmatured) in an amount, individually
or in the aggregate, in excess of $250,000;
(b) suffered any damage, destruction or loss, whether or not
covered by insurance in an amount, individually or in the aggregate, in
excess of $250,000, except for losses adequately reserved against on
the date of this Agreement;
(c) received notice or had knowledge or reasonable grounds to
believe that any labor unrest exists among any of its employees or that
any group, organization or union has attempted to organize any of its
employees;
(d) received notice or had knowledge or reasonable grounds to
believe that any of its franchisees or developers has terminated or
intends to terminate its relationship with the Company or any
Subsidiary;
(e) failed to operate its business in the ordinary course
consistent with past practices, or failed to preserve its business
organization intact or to preserve the goodwill of its developers,
suppliers, customers and others with whom it has business relations;
(f) incurred any loss in an amount in excess of $250,000,
except for losses adequately reserved against on the date of this
Agreement, or waived any material right in connection with any aspect
of its business, whether or not in the ordinary course of its business;
(g) cancelled any debt owed to it, or cancelled any of its
claims, or paid any of its noncurrent obligations or liabilities;
(h) made any capital expenditure or capital addition or
betterment in an amount in excess of $250,000 individually or
$1,500,000 in the aggregate;
(i) entered into any agreement requiring the payment,
conditionally or otherwise, of any salary, bonus, extra compensation,
pension or severance payment to any of its present or former directors,
officers or employees, except such agreements as are terminable at will
without any penalty or other payment by it, or increased the
compensation (including salaries, fees, bonuses, profit sharing,
incentive, pension,
-7-
<PAGE> 13
retirement or other similar payments) of any such person whose annual
compensation would, following such increase, exceed $100,000;
(j) declared, set aside, increased or paid any dividend, or
declared or made any distribution on, or directly or indirectly
combined, redeemed, reclassified, purchased or otherwise acquired, any
shares of Common Stock;
(k) authorized, issued, sold or otherwise disposed of any
shares of capital stock of or Warrant with respect to the Company or
any Subsidiary, or modified or amended any right of any holder of any
outstanding shares of capital stock or Warrant with respect to the
Company or any Subsidiary;
(l) changed any accounting, financial reporting or tax
practice or policy or any method of calculating any bad debt,
contingency or other reserve of the Company or any Subsidiary for
accounting, financial reporting or tax purposes, or any change in the
fiscal year of the Company or any Subsidiary;
(m) engaged in any transaction with any officer, director or
Affiliate of the Company or any Subsidiary (A) outside the ordinary
course of business consistent with past practice of (B) other than on
an arm's-length basis; or
(n) entered into any agreement, contract or commitment to do
any of the foregoing after the date hereof.
4.1.11. TAX RETURNS. The Company has accurately and timely filed all
federal, state and other tax returns which are required to be filed and has
timely paid all taxes covered by such returns which have become due and payable.
The Company has not been advised that any of its returns, federal, state or
other, have been or are being audited as of the date hereof. The Company is not
delinquent in taxes or assessments and has no tax deficiency proposed or
assessed and no waiver of the statute of limitations and assessment or
collections.
4.1.12. EMPLOYEE BENEFIT PLANS. All material employee benefit plans,
programs, policies, or arrangements (including, without limitation, each
employee benefit plan within the meaning of Section 3(3) of ERISA) that are
sponsored, maintained or contributed to or required to be contributed to by the
Company for the benefit of any active, former, or retired employee of the
Company or its Subsidiaries are listed in the Disclosure Letter (the "Company
Plans"). Each Company Plan has been maintained and administered in all material
respects with its terms and applicable law, including ERISA and the Code. Any
Company Plan intended to be qualified under Section 401(a) of the Code has
either obtained a favorable determination letter as to its qualified status from
the IRS or still has a remaining period of time under applicable Treasury
regulations or IRS pronouncements in which to apply for such determination
letter and to make any amendments necessary to obtain a favorable determination.
No Company Plan is covered by Title IV of ERISA or Section 412 of the Code. To
the Knowledge of the Company, neither the Company nor any officer or director of
the Company has incurred any liability or penalty
-8-
<PAGE> 14
under Sections 4975 through 4980 of the Code or Title I of ERISA. No suit,
action, or other litigation (excluding claims for benefits incurred in the
ordinary course of the Company Plan activities) has been brought or, to the
Knowledge of the Company, is threatened against or with respect to any such
Company Plan. All material contributions, reserves, or premium payments required
to be made or accrued as of the date hereof to the Company Plans have been made
or accrued.
4.1.13. LABOR MATTERS. Section of the Disclosure Letter contains a list
of names of each officer and employee of the Company or its Subsidiaries having
an annual base salary or wages of at least $100,000 at the date hereof, together
with each such person's position or function, annual base salary or wages and
any incentive or bonus arrangement with respect to such person in effect on such
date. No employee of the Company or any of its Subsidiaries is a party to, or
bound by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization. There is no unfair labor
practice, sex, age, race or other discrimination or labor arbitration proceeding
pending or, to the Knowledge of the Company, threatened against the Company or
its Subsidiaries relating to their business. To the Knowledge of the Company,
there are no organizational efforts with respect to the formation of a
collective bargaining unit presently being made or threatened involving
employees of the Company or any of its Subsidiaries. To the best of the
Company's Knowledge, the Company and the Subsidiaries have complied in all
material respects with all applicable Laws relating to the employment of labor,
including, without limitation, those relating to wages, hours and collective
bargaining.
4.1.14. NO BROKERS. The Company has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of the Company, any Subsidiary or Purchaser to pay any finder's fees,
brokerage or agent's commission, or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby. The Company is not aware of any claim for payment of any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby.
4.1.15. AGREEMENTS.
(a) Neither the Company nor any of its Subsidiaries is a
party to:
(i) any agreement, contract or commitment containing
any covenant limiting the freedom of the Company or any of its
Subsidiaries to engage in any line of business or to compete
with any person in any line of business permitted by its or
their Certificate of Incorporation or by applicable law;
(ii) any written agreement, order or decree of or
with any federal or state regulatory agency; or
-9-
<PAGE> 15
(iii) any obligation of guaranty or indemnity, other
than obligations of Subsidiaries guaranteed by the Company and
obligations of the Company guaranteed by Subsidiaries.
(b) The list of exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, contains a true and
complete list of each of the material Contracts or other arrangements
required to be filed therewith (true and complete copies or, if none,
reasonably complete and accurate written descriptions of which,
together with all amendments and supplements thereto and all waivers of
any terms thereof, have been delivered to Purchaser prior to the
execution of this Agreement), to which the Company or any Subsidiary is
a party or by which any of their respective assets and properties is
bound.
(c) To the best of the Company's Knowledge, each of such
Contracts is in full force and effect and constitutes a legal, valid
and binding agreement, enforceable in accordance with its terms, of
each party thereto; and except as disclosed in Section of the
Disclosure Letter, neither the Company, any Subsidiary nor, to the
Knowledge of the Company, any other party to such Contract is, or has
received notice that it is, in violation or breach of or default under
any such Contract (or with notice or lapse of time or both, would be in
violation or breach of or default under any such Contract) in any
material respect.
(d) To the best of the Company's Knowledge, except as
disclosed in Section of the Disclosure Letter, neither the Company nor
any Subsidiary is a party to or bound by any Contract that has resulted
in, or could reasonably be expected, individually or in the aggregate
with any other such contracts, to result in a Company Material Adverse
Effect.
4.1.16. TITLE TO ASSETS. The Company has good and marketable title to
its properties and assets, and has good title to all of its leasehold interests,
in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge,
other than (i) the lien of current taxes not yet due and payable, and (ii)
possible minor liens and encumbrances that do not in any case materially detract
from the value of the property subject thereto or materially impair the
operations of the Company and which have not arisen otherwise than in the
ordinary course of business.
4.1.17. INSURANCE. Except as set forth in Section of the Disclosure
Letter, the Company and each of its Subsidiaries maintain in force insurance
policies and bonds in such amounts and against such liabilities and hazards as
are reasonable and customary for persons engaged in such business and operations
and having such assets and properties. A true and complete list of all such
insurance policies is contained in Section of the Disclosure Letter. Neither the
Company nor any of its Subsidiaries is now liable, nor to the Knowledge of the
Company, will it or any of them become liable, for any material retroactive
premium adjustment not recorded on its books or otherwise provided for. All
policies are valid and enforceable and
-10-
<PAGE> 16
in full force and effect, no premiums due thereunder have not been paid and
neither the Company nor any of its Subsidiaries has received any notice of a
material premium increase or cancellation with respect to any of its insurance
policies or bonds or of any default thereunder. Within the last three years,
neither the Company nor any of its Subsidiaries has been refused any basic
insurance coverage sought or applied for, and the Company has no reason to
believe that its existing insurance coverage cannot be renewed as and when same
shall expire, upon terms and conditions standard in the market at the time
renewal is sought. The insurance coverage provided by any of the policies set
forth in Section of the Disclosure Letter will not terminate or lapse by reason
of the transactions contemplated by this Agreement.
4.1.18. ENVIRONMENTAL MATTERS. To the best Knowledge of the Company,
the Company is not in violation of any applicable statute, law, or regulation
relating to the environment or occupational health and safety, and, to the best
Knowledge of the Company, no material expenditures are or will be required in
order to comply with any such existing statute, law or regulation.
4.1.19. INTELLECTUAL PROPERTY. The Company Reports disclose all of the
Intellectual Property owned or used by or licensed to the Company or any
Subsidiary (the "Company Intellectual Property"). Except as disclosed in the
Company Reports, no licenses, sublicenses or other agreements in respect of such
Company Intellectual Property have been granted or entered into by the Company
or any Subsidiary. The Company and each of its Subsidiaries owns or has the
legal right to use all Company Intellectual Property.
4.1.20. LICENSES. To the best Knowledge of the Company, each of the
Company and its Subsidiaries has all necessary Licenses required to lawfully
conduct its respective business as presently conducted, including but not
limited to all material Licenses, permits, certifications, and other regulatory
authorizations required for each of the Company and its Subsidiaries to operate
as they currently operate and in accordance with all applicable laws, rules,
regulations, ordinances, or orders of any governmental authority, and, to the
best Knowledge of the Company, (a) each such License is valid, binding and in
full force and effect, (b) no such License is subject to revocation or
forfeiture by virtue of any existing circumstance, (c) there is no pending or,
to the Knowledge of the Company, threatened proceeding to modify in any material
respect or revoke any material License, (d) no such License is subject to any
outstanding order, decree, judgment, stipulation, or investigation known to the
Company that would materially affect such License, and (e) neither the Company
nor any Subsidiary is, or has received any notice that it is, in default (or
with the giving of notice or lapse of time or both, would be in default) under
any such License.
4.1.21. PREFERRED STOCK TO BE DELIVERED TO PURCHASER. The issuance and
delivery by the Company to Purchaser of the Shares and the Option Shares have
been duly and validly authorized by all necessary corporate action on the part
of the Company except for actions to be taken and approved under Section . The
Shares, and the Option Shares, if and when issued in accordance with the terms
of this Agreement, will be validly issued, fully paid and nonassessable and free
of all Liens.
-11-
<PAGE> 17
4.1.22. DISCLOSURE. None of the representations or warranties made by
the Company in this Agreement, and no information in the Exhibits hereto contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained herein and therein not
misleading.
4.1.23. NO UNDISCLOSED LIABILITIES. To the best Knowledge of the
Company, except as reflected or reserved against in the balance sheet or in the
notes thereto included in the Company Reports or as disclosed in Section of the
Disclosure Letter or any other Section of the Disclosure Letter, there are no
indebtedness of any kind or obligations or other liabilities (whether absolute,
accrued, contingent, fixed or otherwise, or whether due or to become due)
against, relating to or affecting the Company or any Subsidiary or any of their
respective assets and properties, other than such indebtedness and liabilities
incurred in the ordinary course of business consistent with past practice which
in the aggregate do not have a Company Material Adverse Effect.
4.1.24. RECEIVABLES. All receivables of the Company (including accounts
receivable, loans receivable and advances) which are reflected in the balance
sheet or the notes thereto included in the Company Reports, and all such
receivables which shall have arisen since the date thereof and prior to the
Closing Date (including those that will exist on the Closing Date), have arisen
and shall have arisen only from bona fide transactions and represent bona fide
claims for sales or other charges arising in the ordinary course of business
and, to the best Knowledge of the Company, will be (or have been) fully
collectible when due, or in the case of each account receivable within 90 days
after the invoice date, without resort to litigation and without offset or
counterclaim, in the aggregate face amounts thereof.
4.1.25. BUSINESS PLAN. The Company has previously presented and
delivered to Purchaser the Company's Business Plan in the form most recently
approved by the Board of Directors. The pro forma financial statements,
projections and other estimates contained in the Business Plan are based upon
factual assumptions that were reasonably made by the Company and were made in
good faith at the time such projections and estimates were made, and such
factual assumptions remain reasonable and good faith assumptions. There has been
no material change in the business prospects of the Company or in any other fact
or circumstance which would or could reasonably be expected to render any such
projections or estimates, or the assumptions upon which they were based,
unreasonable or not made in good faith in any material respect.
SECTION 4.2. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents and warrants to the Company, as of the date of this Agreement, as
follows:
4.2.1. EXISTENCE; GOOD STANDING. Purchaser is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware.
4.2.2. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. Purchaser has
the requisite corporate power and authority to execute and deliver this
Agreement and the other Transaction
-12-
<PAGE> 18
Documents. The consummation by Purchaser of the transactions contemplated hereby
and thereby has been duly authorized by all requisite corporate action. This
Agreement constitutes, and the other Transaction Documents (when executed and
delivered pursuant hereto for value received) will constitute, the valid and
legally binding obligations of Purchaser, enforceable against Purchaser in
accordance with their respective terms, except as enforceability may be limited
by applicable bankruptcy, reorganization, insolvency, moratorium or other
similar laws relating to creditors' rights generally or general principles of
equity (whether considered in a proceeding in equity or at law) or by public
policy applicable to securities laws.
4.2.3. NO VIOLATION. Neither the execution and delivery by Purchaser of
this Agreement nor the consummation by Purchaser of the transactions
contemplated hereby in accordance with the terms hereof, will (i) conflict with
or result in a breach of any provisions of the certificate of incorporation or
bylaws of Purchaser; (ii) violate, or conflict with, or result in a breach of
any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust
or any material license, franchise, permit, lease, contract, agreement or other
instrument, commitment or obligation to which Purchaser is a party, or by which
Purchaser or any of its properties is bound or affected, (iii) require any
material consent, approval or authorization of, or declaration, filing or
registration with, any third party or any domestic or foreign governmental or
regulatory authority, or (iv) violate any statute, rule, regulation, order or
decree of any public body or authority by which Purchaser or any of its assets
or properties is bound, except for any of the foregoing matters in clauses (i),
(ii), (iii) or (iv) above which, either individually or in the aggregate, would
not prevent Purchaser from performing its obligations under this Agreement or
consummating the transactions contemplated hereby and thereby.
4.2.4. NO BROKERS. Neither Purchaser nor its Affiliates have entered
into any contract, arrangement or understanding with any person or firm which
may result in the obligation of Purchaser, any Affiliate of Purchaser or the
Company to pay any finder's fees, brokerage or agent's commission or like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby. Purchaser is not aware of
any claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
4.2.5. INVESTMENT INTENT.
(a) Purchaser is acquiring the Shares, the Option and the
Option Shares, if any, solely for the purpose of investment for its own
account and not with a view to or for sale in connection with any
distribution thereof within the meaning of Section 2(11) of the
Securities Act. Purchaser acknowledges that the Shares (and the Option
Shares, if any) are being issued to Purchaser in reliance upon one or
more exemptions from registration contained in the Securities Act and
applicable state securities laws. The
-13-
<PAGE> 19
reliance by the Company upon such exemptions is based in part upon the
representations set forth in this Section .
(b) Purchaser understands that the Shares and the Option
Shares have not been registered under the Securities Act, and that it
has no right, except as provided in the Registration Rights Agreement,
to cause the Shares and the Option Shares to be so registered.
(c) Purchaser has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and
risks of an investment in the Shares and of making an informed
investment decision.
(d) Purchaser is an Accredited Investor.
(e) Purchaser acknowledges and agrees that the certificates
representing the Shares issued to Purchaser or any subsequent holder
thereof who acquires the Shares (and the Option Shares, if any) in a
transaction exempt from registration under the Securities Act may be
imprinted with an appropriate restrictive legend concerning
registration.
(f) Purchaser acknowledges and agrees that the Company's stock
records may be marked to indicate the provisions of this Section and
the Company may direct any transfer agent to enter a stop transfer
order in its records with respect to the Shares in accordance with this
Section .
ARTICLE 5
COVENANTS
SECTION 5.1. FEES. At the Closing, the Company shall pay Purchaser, in
addition to any reimbursements for expenses under Section , a financing fee of
$75,000. For so long as the Purchaser shall own the Requisite Shares (as defined
in the Series A Certificate of Designation), and for such time or times as a
Series A Designee (as defined in Section ) shall not be serving as a member of
the Board of Directors, the Company shall pay Purchaser an annual fee of
$50,000, payable quarterly in arrears, plus shall reimburse Purchaser for all
reasonably incurred out-of-pocket expenses (including legal fees) incurred in
monitoring the investment in the Preferred Stock.
SECTION 5.2. EXPENSES. Whether or not the Closing occurs, all costs and
expenses of the Company and Purchaser incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the Company directly
or paid by the Company to Purchaser to reimburse Purchaser for any such
expenses; provided, however, that the Company shall not be obligated to pay on
behalf of or reimburse Purchaser for its out-of-pocket costs in excess of
$75,000. The Company shall reimburse Purchaser for its costs and expenses at the
earlier of (i) the Termination of this Agreement or (ii) the Closing.
-14-
<PAGE> 20
SECTION 5.3. CONDUCT OF BUSINESS. Prior to the Closing, except as
contemplated by any other provision of this Agreement, unless Purchaser has
consented in writing thereto, the Company:
(a) shall, and shall cause each of its Subsidiaries to,
conduct its operations according to its usual, regular and ordinary
course in substantially the same manner as heretofore conducted;
(b) shall not permit any change in the financial condition,
business, operations or prospects of the Company and its Subsidiaries,
taken as a whole, that would have or would be reasonably likely to have
a Company Material Adverse Effect; or
(c) shall not do, or enter into any agreement to do, any of
those acts set forth in clauses (i) through (x) of Section 6 of the
Certificates of Designation.
SECTION 5.4. OTHER ACTION. Subject to the terms and conditions herein
provided, the Company and Purchaser shall (a) use all reasonable efforts to
cooperate with one another in (i) determining whether any filings are required
to be made prior to the Closing with, and whether any consents, approvals,
permits or authorizations are required to be obtained prior to the Closing from,
governmental or regulatory authorities of the United States, the several states
and foreign jurisdictions in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and (ii)
timely making any such filings and timely seeking any such consents, approvals,
permits or authorizations; and (b) use all reasonable efforts to take, or cause
to be taken, all other action and do, or cause to be done, all other things
necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement. If at any time after the Closing,
any further action is necessary or desirable to carry out the purpose of or to
consummate the transactions contemplated by this Agreement, the Purchaser and
the Company shall use all reasonable efforts to cooperate with one another in
taking all such necessary action.
SECTION 5.5. INSPECTION OF RECORDS. From the date hereof through the
Closing, the Company shall allow, upon reasonable notice, all designated
officers, attorneys, accountants and other representatives of Purchaser access
at all reasonable times during normal business hours to the records and files,
correspondence, audits, properties and personnel, as well as to all information
relating to commitments, contracts, titles, franchise compliance and financial
position, or otherwise pertaining to the business and affairs, of the Company
and its Subsidiaries.
SECTION 5.6. PUBLICITY. The initial press release relating to this
Agreement shall be a joint press release and thereafter the Company and
Purchaser shall, subject to their respective legal obligations (including,
without limitation, requirements of stock exchanges and other similar regulatory
bodies), consult with each other, and use reasonable efforts to agree upon the
text of any press release, before issuing any such press release or otherwise
making public statements with respect to the transactions contemplated hereby
and in making any filings with any federal
-15-
<PAGE> 21
or state governmental or regulatory agency or with any national securities
exchange with respect thereto.
SECTION 5.7. MEETING OF STOCKHOLDERS. The Company will take all
necessary action in accordance with applicable law, the requirements of The
Nasdaq Stock Market, and the Company's certificate of incorporation and bylaws
to commence a meeting of its stockholders to consider and vote upon any and all
actions which the stockholders must take in order for this Agreement and the
transactions contemplated hereby to be consummated, including, without
limitation, amending the Company's certificate of incorporation to increase the
number of authorized shares of Common Stock and Preferred Stock and to authorize
the issuance of the Shares and Option Shares. The Board of Directors of the
Company shall recommend such approval, and the Company shall take all lawful
action to solicit such approval, including, without limitation, timely mailing
of a proxy statement.
SECTION 5.8. FILING OF CERTIFICATES OF DESIGNATION. Subject to the
approval of the stockholders of the Company of the amendments to the Company's
certificate of incorporation to increase the authorized number of shares of
Common Stock and Preferred Stock, the Company shall file the Certificates of
Designation with the Secretary of State of the State of Delaware.
SECTION 5.9. QUARTERLY, ANNUAL AND SPECIAL REPORTS. The Company will
furnish to Purchaser copies of all Quarterly Reports on Form 10-Q, Annual
Reports on Form 10-K, Current Reports on Form 8-K, Proxy Statements and any
other registration statement, report, proxy statement or information statement
filed with the Commission within three (3) days of the date any such
registration statement, report, proxy statement or information statement is
filed with the Commission.
SECTION 5.10. USE OF PROCEEDS. The Company will apply the proceeds from
the sale of Shares as provided in the business plan of the Company, a copy of
which has been delivered to Purchaser. The Company shall not use such proceeds
for any other purposes.
SECTION 5.11. CONTINUATION OF INDEMNIFICATION; INSURANCE.
(a) From and after the Closing, the Company shall indemnify,
defend and hold harmless each person who has been elected by the
holders of the Series A Preferred Stock, or appointed, pursuant to the
provisions of the Series A Certificate of Designation and who is
serving in the capacity of a director of the Company (a "Series A
Designee") from and against all losses, claims, damages, liabilities,
costs or expenses (including reasonable attorneys' fees) based upon or
arising from his acts or omissions as a director of the Company to the
fullest extent permitted under the laws of the State of Delaware.
(b) From and after the Closing, the Company shall not amend,
alter or repeal its certificate of incorporation or bylaws, except as
required by law, if the effect of such amendment, alteration or repeal
would be to increase the potential liability of a director of the
Company to the Company or to its stockholders for monetary damages for
breach
-16-
<PAGE> 22
of fiduciary duty, or to lessen or otherwise adversely affect the
indemnification rights of directors, officers, employees or agents of
the Company as provided in such certificate of incorporation or bylaws
as in effect on the date of this Agreement.
(c) The Company shall cause to be maintained, at its sole
cost, at all times following the Closing, directors and officers
liability insurance in an amount equal to or greater than $5,000,000
covering any Series A Designee serving in the capacity of a director of
the Company.
(d) This Section is intended to benefit each Series A Designee
serving in the capacity of a director of the Company, each of whom
shall be entitled to enforce the provisions hereof as if they were a
party hereto. The Company shall pay all expenses, including reasonable
attorneys' fees, that may be incurred by any Series A Designee serving
in the capacity of a director of the Company in enforcing the
provisions of this Section .
(e) For purposes of this Section , "Series A Designee" shall
include any person that the holders of the Series A Preferred Stock are
entitled to nominate or elect to the Board of Directors as a result of
an "Event of Non-Compliance" as defined in the Series A Certificate of
Designation.
SECTION 5.12. REGISTRATION RIGHTS. At the Closing, the Company and
Purchaser will enter into a Registration Rights Agreement in substantially the
form of Exhibit A (the "Registration Rights Agreement").
SECTION 5.13. NO TRANSFER TO A COMPETITOR. The Purchaser will not
transfer the Shares, or, if converted into Series A Preferred Stock, the shares
of the Series A Preferred Stock, to any competitor of the Company without the
express written consent of the Company. The foregoing shall not apply to any
business combination approved by the Board of Directors or to sales made on the
open market by Purchaser.
ARTICLE 6
CONDITIONS
SECTION 6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO CLOSE. The
respective obligation of each party to close the transactions contemplated
hereby shall be subject to the fulfillment at or prior to the Closing of the
following conditions:
(a) Neither of the parties hereto shall be subject to any
Order or injunction of a court of competent jurisdiction which
prohibits the consummation of the transactions contemplated by this
Agreement or any of the other Transaction Documents or which could
reasonably be expected to otherwise result in a material diminution of
the benefits of the transactions contemplated hereby or thereby to
Purchaser. In the event any such
-17-
<PAGE> 23
Order or injunction shall have been issued, each party agrees to use
its reasonable efforts to have any such Order or injunction lifted.
There shall not be pending or threatened on the Closing Date any Action
which could reasonably be expected to result in the issuance of any
such Order or injunction.
(b) All consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission, board or
other regulatory body required in connection with the execution,
delivery and performance of this Agreement and the other Transaction
Documents shall have been obtained or made, except for any other
documents required to be filed after the Closing Date, which are set
forth in the Disclosure Letter.
SECTION 6.2. CONDITIONS TO OBLIGATION OF THE COMPANY TO CLOSE. The
obligation of the Company to close the transactions contemplated hereby shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions (which may be waived in whole or in part by the Company in its sole
discretion):
(a) The Company shall have received all necessary
stockholder approvals.
(b) The Company shall have received a certificate, dated the
Closing Date, of the Secretary of Purchaser, certifying as to the
incumbency of the officers of Purchaser executing this Agreement, the
validity and effect of the resolutions of the directors and
stockholders of Purchaser authorizing and approving this Agreement and
the other Transaction Documents and the transactions contemplated
hereby and thereby, and such other matters as Purchaser or its counsel
may reasonably request.
(c) Purchaser shall have performed its covenants and
agreements contained in this Agreement required to be performed on or
prior to the Closing Date and the representations and warranties of
Purchaser contained in this Agreement and in any document delivered in
connection herewith shall be true and correct as of the Closing Date in
all material respects, and the Company shall have received a
certificate of the President or a Vice President of Purchaser, dated
the Closing Date, certifying to such effect.
SECTION 6.3. CONDITIONS TO OBLIGATION OF PURCHASER TO CLOSE. The
obligations of Purchaser to close the transactions contemplated hereby shall be
subject to the fulfillment at or prior to the Closing Date of each of the
following conditions (all or any of which may be waived in whole or in part by
Purchaser in its sole discretion):
(a) The Purchaser shall have received the Business Plan of the
Company and the Strategic Plan of the Company, in each case as will be
in effect on and as of the Closing Date, and each shall be satisfactory
to Purchaser in all respects.
(b) The Company shall have received all necessary
stockholder approvals.
-18-
<PAGE> 24
(c) The Company shall have filed the Certificates of
Designation with the Secretary of the State of Delaware.
(d) The Company shall have performed and complied with each of
its covenants and agreements contained in this Agreement required to be
performed on or prior to the Closing Date and the representations and
warranties of the Company contained in this Agreement and in any
document delivered in connection herewith shall be true and correct in
all material respects as of the Closing Date as though such
representation or warranty was made on and as of the Closing Date, and
Purchaser shall have received a certificate, dated the Closing Date, of
the President or a Vice President of the Company, certifying to such
effect.
(e) From the date of this Agreement through the Closing, there
shall not have occurred any change in the financial condition,
business, operations or prospects of the Company and its Subsidiaries,
taken as whole, that would have or would be reasonably likely to have a
Company Material Adverse Effect.
(f) Purchaser shall have received a certificate, dated the
Closing Date, of the Secretary of the Company, certifying as to the
incumbency of the officers of the Company executing this Agreement, the
validity and effect of the resolutions of the directors and
stockholders of the Company authorizing and approving this Agreement
and the other Transaction Documents and the transactions contemplated
hereby and thereby, the validity and effect of the Certificate of
Incorporation and Bylaws of the Company, and such other matters as
Purchaser or its counsel may reasonably request.
(g) The Company shall have delivered to Purchaser a
certificate, dated the day prior to the Closing Date, from the
Secretary of State of the State of Delaware, certifying that the
Company is duly incorporated under the laws of the State of Delaware
and is in good standing and has a legal corporate existence at such
date.
(h) The Company shall have executed and delivered to Purchaser
the Registration Rights Agreement.
(i) Purchaser shall have received such other documents,
instruments or certificates incident to the transactions contemplated
by this Agreement or by the other Transaction Documents as it or its
counsel may reasonably request.
-19-
<PAGE> 25
ARTICLE 7
TERMINATION
SECTION 7.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated, and the transactions contemplated hereby may be abandoned, at any
time prior to the Closing by the mutual consent of Purchaser and the Company.
SECTION 7.2. TERMINATION BY EITHER PURCHASER OR THE COMPANY. This
Agreement may be terminated by action of the Board of Directors of either
Purchaser or the Company if (a) the Closing shall not have occurred by August
31, 1996, or (b) a United States federal or state court of competent
jurisdiction or United States federal or state governmental, regulatory or
administrative agency or commission shall have issued an Order, decree or ruling
or taken any other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement, and such Order,
decree, ruling or other action shall have become final and nonappealable;
provided, that the party seeking to terminate this Agreement pursuant to this
clause (b) shall have used all reasonable efforts to remove such Order,
injunction or decree; and further provided, in the case of a termination
pursuant to clause (a) above, that the terminating party shall not have breached
in any material respect its obligations under this Agreement in any manner that
shall have proximately contributed to the occurrence of the failure referred to
in said clause.
SECTION 7.3. TERMINATION BY THE COMPANY. This Agreement may be
terminated at any time prior to the Closing by action of the Board of Directors
of the Company if (a) any condition in Section has not been satisfied as of the
Closing Date, or if satisfaction of such a condition is or becomes impossible
(other than through the failure of the Company to comply fully with its
obligations under this Agreement) and the Company has not waived such condition
on or before the Closing Date, or (b) there has been a material breach of any of
the covenants or agreements set forth in this Agreement on the part of
Purchaser, which breach is not curable or, if curable, is not cured within 30
days after written notice of such breach is given by the Company to Purchaser.
SECTION 7.4. TERMINATION BY PURCHASER. This Agreement may be terminated
at any time prior to the Closing by action of the Board of Directors of
Purchaser if (a) any condition in Section has not been satisfied as of the
Closing Date, or if satisfaction of such a condition is or becomes impossible
(other than through the failure of Purchaser to comply fully with its
obligations under this Agreement) and Purchaser has not waived such condition on
or before the Closing Date, or (b) there has been a material breach of any of
the covenants or agreements set forth in this Agreement on the part of the
Company, which breach is not curable or, if curable, is not cured within 30 days
after written notice of such breach is given by Purchaser to the Company.
SECTION 7.5. EFFECT OF TERMINATION. In the event of termination of this
Agreement pursuant to this Article , all obligations of the parties hereto shall
terminate, except the
-20-
<PAGE> 26
obligations of the parties pursuant to this Section and Section and except for
the provisions of Articles and , which will remain in effect. Moreover, in the
event of termination of this Agreement pursuant to Sections or , nothing herein
shall prejudice the ability of the non-breaching party from seeking damages from
any other party for any breach of this Agreement, including without limitation,
attorneys' fees and the right to pursue any remedy at law or in equity.
ARTICLE 8
DEFINITIONS AND CONSTRUCTION
SECTION 8.1. DEFINITION OF CERTAIN TERMS. Except as otherwise expressly
provided or unless the context otherwise requires, the terms defined in this
Section , whenever used in this Agreement (including in the Schedules), shall
have the respective meanings assigned to them in this Section for all purposes
of this Agreement, and include the plural as well as the singular.
ACCREDITED INVESTOR: as defined in Regulation D promulgated
under the Securities Act.
ACTION: any claim, action, suit, proceeding, arbitration or
investigation that would have a Company Material Adverse Effect.
AFFILIATE: of a Person means a Person that directly or
indirectly through one or more intermediaries, controls, is controlled
by, or is under common control with, the first Person. "Control"
(including the terms "controlled by" and "under common control with")
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management policies of a person, whether
through the ownership of voting securities, by contract or credit
arrangement, as trustee or executor, or otherwise.
AGREEMENT: this instrument as originally executed, including
the Schedules hereto, or as it may be from time to time supplemented or
amended by one or more supplements or amendments hereto entered
pursuant to the applicable provisions hereof.
APPLICABLE LAW: all applicable provisions of all (i)
constitutions, treaties, statutes, laws (including the common law),
rules, regulations, ordinances, codes or orders of any Governmental
Authority, (ii) Governmental Approvals and (iii) orders, decisions,
injunctions, judgments, awards and decrees of or agreements with any
Governmental Authority.
BUSINESS: the business of the Company described in the
Company's Annual Report of From 10-K filed with the Commission for the
fiscal year ended December 31, 1995.
-21-
<PAGE> 27
BUSINESS DAY: shall mean a day other than a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or
required to close.
CERTIFICATES OF DESIGNATION: collectively, the Series A
Certificate of Designation, the Series B Certificate of Designation and
the Series C Certificate of Designation.
CLOSING: as defined in Section 2.1.
CLOSING DATE: as defined in Section 2.1.
CODE: the Internal Revenue Code of 1986, as amended.
COMMON STOCK: as defined in Section 4.1.3.
COMMISSION: Securities and Exchange Commission of the United
States of America and any successor commission, service, agency or
bureau.
COMPANY: as defined in the first paragraph of this Agreement.
COMPANY INTELLECTUAL PROPERTY: as defined in Section 4.1.19.
COMPANY MATERIAL ADVERSE EFFECT: as defined in Section 4.1.1.
COMPANY PLANS: as defined in Section 4.1.12.
COMPANY REPORT: each registration statement, report, proxy
statement or information statement prepared by the Company since
December 31, 1995, including without limitation the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, each in the
form (including exhibits and any amendments thereto) filed with the
Commission.
CONSENT: any consent, approval, authorization, waiver, permit,
grant, franchise, concession, agreement, license, exemption or order
of, registration, certificate, declaration or filing with, or report or
notice to, any Person, including but not limited to any Governmental
Authority.
CONTRACT: any agreement, license, lease, evidence of
indebtedness, mortgage, indenture or other contract (whether written or
oral).
DISCLOSURE LETTER: as defined in Section 4.1.
DOLLARS OR $: lawful money of the United States.
-22-
<PAGE> 28
ERISA: the Employee Retirement Income Security Act of 1974, as
amended.
GAAP: generally accepted accounting principles as in effect in
the United States.
GOVERNMENT APPROVAL: any Consent of, with or to any
Governmental Authority.
GOVERNMENTAL AUTHORITY: any nation or government, any state or
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, including, without limitation, any government
authority, agency, department, board, commission or instrumentality of
the United States, any State of the United States or any political
subdivision thereof, and any tribunal or arbitrator(s) of competent
jurisdiction, and any self-regulatory organization.
INTELLECTUAL PROPERTY: any and all United States and foreign:
(a) patents (including design patents, industrial designs and utility
models) and patent applications (including docketed patent disclosures
awaiting filing, reissues, divisions, continuations-in-part and
extensions), patent disclosures awaiting filing determination,
inventions and improvements thereto; (b) trademarks, service marks,
trade names, trade dress, logos, business and product names, slogans,
and registrations and applications for registration thereof; (c)
copyrights (including software) and registrations thereof; (d)
inventions, processes, designs, formulae, trade secrets, know-how,
industrial models, confidential and technical information,
manufacturing, engineering and technical drawings, product
specifications and confidential business information; (e) mask work and
other semiconductor chip rights and registrations thereof; (f)
intellectual property rights similar to any of the foregoing; (g)
copies and tangible embodiments thereof (in whatever form or medium,
including electronic media).
IRS: the Internal Revenue Service of the United States of
America and any successor commission, service, agency or bureau.
KNOWLEDGE: An individual will be deemed to have "Knowledge" of
a particular fact or other matter if: (a) such individual is actually
aware of such fact or other matter; or (b) a prudent individual could
be expected to discover or otherwise become aware of such fact or other
matter in the course of conducting a reasonably comprehensive
investigation concerning the existence of such fact or other matter. A
Person (other than an individual) will be deemed to have "Knowledge" of
a particular fact or other matter if any individual who is serving as a
director, officer, partner, executor, or trustee of such Person (or in
any similar capacity) has Knowledge of such fact or other matter.
-23-
<PAGE> 29
LAW: as defined in Section 4.1.1.
LICENSE: any permit, license and other authorization, approval,
registration and similar consent.
LIEN: any mortgage, pledge, hypothecation, right of others,
claim, security interest, encumbrance, lease, sublease, license,
occupancy agreement, adverse claim or interest, easement, covenant,
encroachment, burden, title defect, title retention agreement, voting
trust agreement, interest, equity, option, lien, right of first
refusal, charge or other restrictions or limitations of any nature
whatsoever, including but not limited to such as may arise under any
Contracts.
OPTION: as defined in Section 3.1.
OPTION CLOSING: as defined in Section 3.2.
OPTION SHARES: as defined in Section 3.1.
ORDER: as defined in Section 4.1.1.
PERSON: any natural person, firm, partnership, association,
corporation, company, trust, business trust, Governmental Authority or
other entity.
PREFERRED STOCK: as defined in the Recitals.
PURCHASE PRICE: as defined in Section 1.2.
PURCHASER: as defined in the first paragraph of this Agreement.
REGISTRATION RIGHTS AGREEMENT: as defined in Section 5.12.
REMEDIAL ACTION: all actions required to (i) clean up, remove,
treat or in any other way remediate any Hazardous Substances; (ii)
prevent the release of Hazardous Substances so that they do not migrate
or endanger or threaten to endanger public health or welfare or the
environment; or (iii) perform studies, investigations and care related
to any such Hazardous Substances.
RESTRUCTURING PLAN: the restructuring plan announced by the
Company in December 1995 to return the Company to profitability.
SECURITIES ACT: the Securities Act of 1933, as amended.
SERIES A PREFERRED STOCK: as defined in the Recitals hereto.
-24-
<PAGE> 30
SERIES B PREFERRED STOCK: as defined in the Recitals hereto.
SERIES C PREFERRED STOCK: as defined in the Recitals hereto.
SERIES A CERTIFICATE OF DESIGNATION: the Certificate of
Designation of the Series A Preferred Stock, to be filed with the
Secretary of State of the State of Delaware in the form attached hereto
as Exhibit A.
SERIES B CERTIFICATE OF DESIGNATION: the Certificate of
Designation of the Series B Preferred Stock, to be filed with the
Secretary of State of the State of Delaware in the form attached hereto
as Exhibit B.
SERIES C CERTIFICATE OF DESIGNATION: the Certificate of
Designation of the Series C Preferred Stock, to be filed with the
Secretary of State of the State of Delaware in the form attached hereto
as Exhibit C.
SHARES: as defined in Section 1.1.
STOCKHOLDER MEETING DATE: the date on which the Company shall
hold the meeting of stockholders contemplated by Section 5.7.
STOCK PLANS: as defined in Section 4.1.6.
SUBSIDIARIES: each corporation or other Person in which a
Person owns or controls, directly or indirectly, capital stock or other
equity interests representing at least 50% of the outstanding voting
stock or other equity interests.
TAX: any federal, state, provincial, local, foreign or other
income, alternative, minimum, accumulated earnings, personal holding
company, franchise, capital stock, net worth, capital, profits,
windfall profits, gross receipts, value added, sales, use, goods and
services, excise, customs duties, transfer, conveyance, mortgage,
registration, stamp, documentary, recording, premium, severance,
environmental (including taxes under Section 59A of the Code), real
property, personal property, ad valorem, intangibles, rent, occupancy,
license, occupational, employment, unemployment insurance, social
security, disability, workers' compensation, payroll, health care,
withholding, estimated or other similar tax, duty or other governmental
charge or assessment or deficiencies thereof (including all interest
and penalties thereon and additions thereto whether disputed or not).
TAX RETURN: any return, report, declaration, form, claim for
refund or information return or statement relating to Taxes, including
any schedule or attachment thereto, and including any amendment
thereof.
TRANSACTION DOCUMENTS: as defined in Section 4.1.2.
-25-
<PAGE> 31
WARRANT: as defined in Section 4.1.3.
SECTION 8.2. RULES OF CONSTRUCTION.
(a) "This Agreement" means this instrument as originally
executed, including the Exhibits hereto, or as it may be from time to
time supplemented or amended by one or more supplements or amendments
hereto entered pursuant to the applicable provisions hereof;
(b) "includes" and "including" are not limiting, and, in
each case, shall be construed as if followed by the words "without
limitation," "but not limited to" or words of similar import;
(c) "may not" is prohibitive, and not permissive;
(d) "shall" is mandatory, and not permissive;
(e) "or" is not exclusive [i.e., if a party "may do (a),
(b) or (c)," then the party may do all of, any one of, or any
combination of, (a), (b) or (c)] unless the context expressly provides
otherwise;
(f) all references in this instrument to designated
"Articles," "Sections" and other subdivisions are to the designated
Articles, Sections and other subdivisions of this instrument as
originally executed;
(g) the words "herein," "hereof," "hereto" and
"hereunder" and other words of similar import refer to this Agreement
as a whole and not to any particular Article, Section or other
subdivision;
(h) all terms used herein which are defined in the
Securities Act, the Exchange Act or the rules and regulations
promulgated thereunder have the meanings assigned to them therein
unless otherwise defined herein; and
(i) all accounting terms not otherwise defined herein
have the meaning assigned to them in accordance with GAAP.
ARTICLE 9
GENERAL PROVISIONS
SECTION 9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained in this Agreement shall survive the
execution and delivery of this
-26-
<PAGE> 32
Agreement, any examination by or on behalf of the parties hereto and the
completion of the transactions contemplated herein, but only to the extent
specified below:
(a) except as set forth in clauses (b) and (c) below, the
representations and warranties contained in Section 4.1 and Section
4.2 shall survive for a period of two years following the Closing Date
and the date of each Option Closing;
(b) the representations and warranties contained in
Sections 4.1.1, 4.1.2, 4.1.6, 4.2.1 and 4.2.2 shall survive without
limitation; and
(c) the representations and warranties of the Company
contained in Section 4.1.11 shall survive as to any Tax covered by
such representations and warranties for so long as any statute of
limitations for such Tax remains open, in whole or in part, including
without limitation by reason of waiver of such statute of limitations.
SECTION 9.2. SEVERABILITY. If any provision of this Agreement,
including any phrase, sentence, clause, Section or subsection is inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering the provision in question inoperative or unenforceable in any other
case or circumstance, or of rendering any other provision or provisions herein
contained invalid, inoperative, or unenforceable to any extent whatsoever.
SECTION 9.3. NOTICES. All notices, requests, demands, waivers and
other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (a)
delivered personally, (b) mailed by first-class, registered or certified mail,
return receipt requested, postage prepaid, or (c) sent by next-day or overnight
mail or delivery or (d) sent by telecopy or telegram:
(a) if to Purchaser, to:
Crescent Real Estate Equities Limited Partnership
777 Main Street, Suite 2100
Fort Worth, TX 76102
Attention: Gerald W. Haddock, President and Chief
Operating Officer
Fax No. (817) 878-0429
with copies to:
David M. Dean, Esq.
Senior Vice President, Law
Crescent Real Estate Equities, Ltd.
777 Main Street, Suite 2100
Fort Worth, TX 76102
Fax No. (817) 878-0429
-27-
<PAGE> 33
Bruce A. Cheatham, Esq.
Winstead Sechrest & Minick P.C.
1201 Elm Street, Suite 5400
Dallas, Texas 75270
Fax No. (214) 745-5390
(b) if to the Company, to:
Fresh Choice, Inc.
2901 Tasman Drive, Suite 109
Santa Clara, CA 95054
Fax No. (408) 986-8427
Attention: Charles A. Lynch, Chairman
with a copy to:
Robert J. Brigham, Esq.
Cooley Godward Castro Huddleson & Tatum
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Fax No. (415) 857-0663
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on the day
after such delivery, (x) if by certified or registered mail, on the seventh
business day after the mailing thereof, (y) if by next-day or overnight mail or
delivery, on the day delivered, (z) if by telecopy or telegram, on the next day
following the day on which such telecopy or telegram was sent, provided that a
copy is also sent by certified or registered mail.
SECTION 9.4. HEADINGS. The headings contained in this Agreement
are for purposes of convenience only and shall not affect the meaning or
interpretation of this Agreement.
SECTION 9.5. ENTIRE AGREEMENT. This Agreement (including the
Exhibits hereto) and the other Transaction Documents (when executed and
delivered) constitute the entire agreement and supersede all prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof.
SECTION 9.6. COUNTERPARTS. This Agreement may be executed in
several counterparts, each of which shall be deemed an original and all of
which shall together constitute one and the same instrument.
-28-
<PAGE> 34
SECTION 9.7. GOVERNING LAW, ETC. This Agreement shall be governed
in all respects, including as to validity, interpretation and effect, by the
internal laws of the State of Delaware, without giving effect to the conflict
of laws rules thereof. Purchaser and the Company hereby irrevocably submit to
the jurisdiction of the courts of the State of Delaware and the Federal courts
of the United States of America located in the State of Delaware, solely in
respect of the interpretation and enforcement of the provisions of this
Agreement and of the documents referred to in this Agreement, and hereby waive,
and agree not to assert, as a defense in any action, suit or proceeding for the
interpretation or enforcement hereof or of any such document, that it is not
subject thereto or that such action, suit or proceeding may not be brought or
is not maintainable in said courts or that the venue thereof may not be
appropriate or that this Agreement or any of such document may not be enforced
in or by said courts, and the parties hereto irrevocably agree that all claims
with respect to such action or proceeding shall be heard and determined in such
a Delaware State or Federal court. Purchaser and the Company hereby consent to
and grant any such court jurisdiction over the person of such parties and over
the subject matter of any such dispute and agree that mailing of process or
other papers in connection with any such action or proceeding in the manner
provided in Section 9.7, or in such other manner as may be permitted by law,
shall be valid and sufficient service thereof.
SECTION 9.8. BINDING EFFECT. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
SECTION 9.9. ASSIGNMENT. This Agreement shall not be assignable
or otherwise transferable by any party hereto without the prior written consent
of the other parties hereto, provided that Purchaser may assign this Agreement
to (i) any Subsidiary of Purchaser, (ii) Purchaser may assign this Agreement to
any lender to Purchaser or any Subsidiary or Affiliate thereof as security for
obligations to such lender in respect of the financing arrangements entered into
in connection with the transactions contemplated hereby and any refinancings,
extensions, refundings or renewals thereof, provided, further, that no
assignment to any such lender shall in any way affect Purchaser's obligations or
liabilities under this Agreement; and (iii) Purchaser may assign the Option, in
whole or in part.
SECTION 9.10. NO THIRD PARTY BENEFICIARIES. Nothing in this
Agreement shall confer any rights upon any person or entity other than the
parties hereto and their respective heirs, successors and permitted assigns.
SECTION 9.11. AMENDMENT; WAIVERS, ETC. No amendment, modification
or discharge of this Agreement, and no waiver hereunder, shall be valid or
binding unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, discharge or waiver is sought. Any
such waiver shall constitute a waiver only with respect to the specific matter
described in such writing and shall in no way impair the rights of the party
granting such waiver in any other respect or at any other time. Neither the
waiver by any of the parties hereto of a breach of or a default under any of
the provisions of this Agreement, nor the failure by any of the parties, on one
or more occasions, to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder, shall be construed as a waiver of
any other breach
-29-
<PAGE> 35
or default of a similar nature, or as a waiver of any of such provisions, rights
or privileges hereunder. The rights and remedies herein provided are cumulative
and are not exclusive of any rights or remedies that any party may otherwise
have at law or in equity. The rights and remedies of any party based upon,
arising out of or otherwise in respect of any inaccuracy or breach of any
representation, warranty, covenant or agreement or failure to fulfill any
condition shall in no way be limited by the fact that the act, omission,
occurrence or other state of facts upon which any claim of any such inaccuracy
or breach is based may also be the subject matter of any other representation,
warranty, covenant or agreement as to which there is no inaccuracy or breach.
The representations and warranties of the Company shall not be affected or
deemed waived by reason of any investigation made by or on behalf of Purchaser
(including but not limited to by any of their respective advisors, consultants
or representatives) or by reason of the fact that Purchaser or any of such
advisors, consultants or representatives knew or should have known that any such
representation or warranty is or might be inaccurate. The representations and
warranties of Purchaser shall not be affected or deemed waived by reason of any
investigation made by or on behalf of the Company (including but not limited to
by any of their respective advisors, consultants or representatives) or by
reason of the fact that the Company or any of such advisors, consultants or
representatives knew or should have known that any such representation or
warranty is or might be inaccurate.
[This space left blank intentionally.]
[Signatures on following page.]
-30-
<PAGE> 36
PREFERRED STOCK PURCHASE AGREEMENT
Signature Page
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP
By: CRESCENT REAL ESTATE EQUITIES, LTD.
General Partner
By: /s/ DAVID M. DEAN
_____________________________________
David M. Dean
Senior Vice President, Law and
Secretary
FRESH CHOICE, INC.
By: /s/ CHARLES A. LYNCH
_____________________________________
Charles A. Lynch
Chairman
-31-
<PAGE> 37
EXHIBIT A
CERTIFICATE OF DESIGNATION
OF
SERIES A VOTING PARTICIPATING CONVERTIBLE PREFERRED STOCK
OF
FRESH CHOICE, INC.
Fresh Choice, Inc., a Delaware corporation, DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors of
said corporation by virtue of its Certificate of Incorporation as amended and in
accordance with Section 151 of the General Corporation Law of the State of
Delaware, said Board of Directors has duly adopted a resolution providing for
the issuance of a series of Preferred Stock, par value $0.001 per share,
designated as Series A Voting Participating Convertible Preferred Stock, which
resolution reads as follows:
"BE IT RESOLVED, that the Board of Directors (the "Board of Directors")
of Fresh Choice, Inc., a Delaware corporation (the "Corporation"), hereby
authorizes the issuance of a series of Preferred Stock and fixes its
designation, powers, preferences and relative, participating, optional or other
special rights, and qualifications, limitations and restrictions thereof, as
follows:
SECTION 1. DESIGNATION. The distinctive serial designation of said
series shall be "Series A Voting Participating Convertible Preferred Stock"
(hereinafter called "Series A"). Each share of Series A shall be identical in
all respects with all other shares of Series A except as to the dates from and
after which dividends thereon shall be cumulative.
SECTION 2. NUMBER OF SHARES. The number of shares in Series A shall
initially be 1,187,906, which number may from time to time be increased or
decreased (but not below the total number thereof then outstanding and reserved
for issuance) by the Board of Directors. Shares of Series A that are redeemed,
purchased or otherwise acquired by the Corporation or converted into Common
Stock shall be cancelled and shall revert to authorized but unissued shares of
Preferred Stock undesignated as to series.
SECTION 3. DIVIDENDS. So long as any share of Series A remains
outstanding, the holders of shares of Series A shall be entitled to participate,
on an "as converted" basis, in and to receive, when, as and if declared by the
Board of Directors of the Corporation, but only out of funds legally available
therefore, any and all cash dividends and other distributions paid or made with
respect to any junior stock. So long as any share of Series A remains
outstanding, no dividend whatever shall be paid or declared and no distribution
shall be made on any junior stock, unless, contemporaneously therewith, a
dividend or other distribution on the shares of the Series A then outstanding
shall have been declared and set apart for payment as hereinafter provided. All
dividends and other distributions paid or made by the Corporation at any time as
any share of the Series A remains outstanding shall be paid or distributed among
the holders of the Common Stock and the Series A in proportion to the shares of
Common Stock then held by
<PAGE> 38
EXHIBIT A
the holders of the Common Stock and the shares of Common Stock which the holders
of the Series A then have the right to acquire upon conversion of the shares of
Series A then held by them.
In addition to the foregoing, in the event of any liquidation,
dissolution or winding up of the affairs of the Corporation (a "Liquidation")
following the occurrence of an Event of Non-Compliance, and continuing through
and including the date on which any such Liquidation occurs, the holders of the
Series A shall be entitled to receive, when, as and if declared by the Board of
Directors of the Corporation, but only out of funds legally available therefore,
cumulative preferential cash dividends at the annual rate of $0.56 per share,
and no more, calculated from the first date of the occurrence of an Event of
Non-Compliance, and payable pursuant to Section 4 hereof. So long as any share
of Series A remains outstanding, no dividend whatever shall be paid or declared
and no distribution shall be made on any junior stock, and no shares of junior
stock shall be purchased, redeemed or otherwise acquired for consideration by
the Corporation, directly or indirectly, unless all accrued dividends on all
outstanding shares of Series A shall have been paid. For the sole purpose of
this paragraph, any merger, consolidation or sale of substantially all the
assets of the Corporation shall be deemed to be a Liquidation for the purposes
of such rights to cumulative preferential dividends, and shall be paid prior to
the consummation of any such transaction.
SECTION 4. LIQUIDATION RIGHTS. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, then, after payment in full of all amounts, if any, owing to the
holders of the Corporation's Series B Non-Voting Participating Convertible
Preferred Stock (hereinafter called "Series B") and Series C Non-Voting
Participating Convertible Preferred Stock (hereinafter called "Series C"), but
before any distribution or payment shall be made to the holders of any junior
stock, the holders of shares of Series A shall be entitled to be paid in full an
amount equal to $4.63 per share, together with all accrued dividends to such
distribution or payment date whether or not earned or declared. After payment in
full of all amounts owing to the holders of shares of Series A as herein
provided, the remaining assets of the Corporation, if any, may be distributed by
the Corporation as provided in Section 281 of the General Corporation Law of the
State of Delaware or other controlling provision of applicable law, and the
holders of shares of Series A shall have no right to participate in any such
distributions.
SECTION 5. CONVERSION RIGHTS. The holders of shares of Series A shall
have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A shall be
convertible, at the option of the holder thereof, at any time after the
date of issuance of such share at the office of the Corporation or any
transfer agent for such stock, into such number of fully paid and
nonassessable shares of Common Stock of the Corporation as is
determined by
-2-
<PAGE> 39
EXHIBIT A
dividing $4.63 by the Current Conversion Price applicable to such
share, determined as hereinafter provided, in effect on the date the
certificate is surrendered for conversion. The price at which shares of
Common Stock shall be deliverable upon conversion of shares of the
Series A (the "Stated Conversion Price") shall initially be $4.63 per
share of Common Stock. The Stated Conversion Price shall be adjusted
from and after the date of filing this Certificate (the "Original
Filing Date") as hereinafter provided. The Stated Conversion Price at
any time in effect or, in the case of any such adjustment, such Stated
Conversion Price as most recently so adjusted, is herein called the
"Current Conversion Price."
(b) MANDATORY CONVERSION. At the option of the Corporation,
each share of Series A shall be converted into shares of Common Stock
at the Current Conversion Price then in effect at any time after both
the following conditions shall have been satisfied: (i) either (A) the
average Closing Prices (as hereinafter defined) for the Common Stock
during any 120-day consecutive Trading Day (as hereinafter defined)
period beginning on the first anniversary following the filing of this
Certificate shall equal or exceed $15.00 per share (as adjusted for any
stock dividends, combinations or splits with respect to such shares),
or (B) the Corporation shall have consummated the sale of originally
issued shares of Common Stock equal to or greater than 25% of the total
number of shares outstanding immediately preceding the date of such
original issuance (calculated on a fully diluted basis) at a price per
share (prior to underwriters' discounts and expenses) of Common Stock
equal to or greater than $15.00 (as adjusted for any stock dividends,
combinations or splits with respect to such shares) pursuant to a firm
commitment, underwritten public offering registered pursuant to the
provisions of the Securities Act of 1933, as amended, other than a
registration relating solely to a transaction under Rule 145 under such
Act (or any successor thereto) or to an employee benefit plan of the
Corporation; and (ii) the shares of the Common Stock issuable upon
conversion of the Series A shall have been registered for resale in the
open market without restriction by any holder of the Series A who
receives Common Stock pursuant to this mandatory conversion provision
pursuant to an effective shelf registration statement under the
Securities Act of 1933, as amended, and the Corporation shall have
agreed to keep such registration effective until the holder of the
Series A receiving Common Stock pursuant to this mandatory conversion
provision shall be free to resell such Common Stock in the open market
without restrictions. The Corporation may exercise its option by
delivering to the holders of the Series A and the transfer agent for
the Series A a certificate from the Corporation's independent certified
public accountants certifying compliance with both of the conditions
set forth above. As used herein, the term "Closing Price" on any day
shall mean the reported last sale price per share of Common Stock
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 New York Stock Exchange, or, if the Common
Stock is not listed or admitted to trading
-3-
<PAGE> 40
EXHIBIT A
on such exchange, on the American Stock Exchange, or, if the Common
Stock is not listed or admitted to trading on such Exchange, on The
Nasdaq Stock Market, or if the Common Stock is not listed or admitted
to trade thereon, on the principal national securities exchange on
which the Common Stock is listed or admitted to trading, or, if the
Common Stock is not listed or admitted to trading on any national
securities exchange or market, the average of the closing bid and asked
prices in the over-the-counter market as reported by the National
Association of Securities Dealers, or, if not so reported, as reported
by the National Quotation Bureau, Incorporated, or any successor
thereof, or, if not so reported, the average of the closing bid and
asked prices as furnished by any member of that National Association of
Securities Dealers, Inc. selected from time to time by the Corporation
for that purpose; and the term "Trading Day" shall mean a day on which
the principal national securities exchange or market on which the
Common Stock is listed or admitted to trading is open for the
transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, a Monday,
Tuesday, Wednesday, Thursday or Friday on which banking institutions in
the Borough of Manhattan, The City of New York, are not authorized or
obligated by law or executive order to close.
(c) MECHANICS OF CONVERSION. Before any holder of Series A
shall be entitled to convert the same into shares of Common Stock, such
holder shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for
such stock, and shall give written notice to the Corporation at such
office that such holder elects to convert the same and shall state
therein the name or names in which such holder wishes the certificate
or certificates for shares of Common Stock to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver
at such office to such holder of Series A, a certificate or
certificates for the number of shares of Common Stock to which such
holder shall be entitled as aforesaid. Such conversion shall be deemed
to have been made immediately prior to the close of business on the
date of surrender of the shares of Series A to be converted, and the
person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
(d) ADJUSTMENTS TO CURRENT CONVERSION PRICE FOR STOCK
DIVIDENDS AND FOR COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the
event that the Corporation at any time or from time to time after the
Original Filing Date shall declare or pay, without consideration, any
dividend on the Common Stock payable in Common Stock or in any right to
acquire Common Stock for no consideration, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock (by stock split, reclassification or
otherwise than by payment of a dividend in Common Stock or in any right
to acquire Common Stock), or in the event the outstanding shares
-4-
<PAGE> 41
EXHIBIT A
of Common Stock shall be combined or consolidated, by reclassification
or otherwise, into a lesser number of shares of Common Stock, then the
Current Conversion Price in effect immediately prior to such event
shall, concurrently with the effectiveness of such event, be
proportionately decreased or increased, as appropriate. In the event
that the Corporation shall declare or pay, without consideration, any
dividend on the Common Stock payable in any right to acquire Common
Stock for no consideration, then the Corporation shall be deemed to
have made a dividend payable in Common Stock in an amount of shares
equal to the maximum number of shares issuable upon exercise of such
rights to acquire Common Stock.
(e) ADJUSTMENTS FOR RECLASSIFICATION AND REORGANIZATION. If at
any time after the Original Filing Date the Common Stock issuable upon
conversion of the Series A shall be changed into the same or a
different number of shares of any other class or classes of stock,
whether by capital reorganization, reclassification or otherwise, the
Current Conversion Price then in effect shall, concurrently with the
effectiveness of such reorganization or reclassification, be
proportionately adjusted so that the Series A shall be convertible
into, in lieu of the number of shares of Common Stock which the holders
would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares
of Common Stock that would have been subject to receipt by the holders
upon conversion of the Series A immediately before that change.
(f) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS. If at any time or from time to time after the Original Filing
Date there is a capital reorganization or reclassification of the
capital stock of the Corporation (other than a recapitalization,
subdivision, combination, reclassification, exchange or substitution of
shares provided for elsewhere in this Section 5) or a merger,
consolidation or sale of all or substantially all of the assets of the
Corporation, as a part of and as a condition to such capital
reorganization or reclassification, merger, consolidation or sale of
assets provision shall be made so that the holders of the Series A
shall thereafter be entitled to receive upon conversion of the Series A
the number of shares of stock or other securities or property of the
Corporation to which a holder of the number of shares of Common Stock
deliverable upon conversion of the Series A would have been entitled on
such capital reorganization or reclassification, merger, consolidation
or sale of assets, subject to adjustment in respect of such stock or
securities by the terms thereof. In any such case, appropriate
adjustment shall be made in the application of the provisions of this
Section 5 with respect to the rights of the holders of Series A after
the capital reorganization, merger, consolidation or sale of assets to
the end that the provisions of this Section 5 (including adjustment of
the Current Conversion Price then in effect and the number of shares
issuable upon conversion of the Series A) shall be applicable after
that event and be as nearly equivalent as practicable.
-5-
<PAGE> 42
EXHIBIT A
(g) NO IMPAIRMENT. From and after the Original Filing Date,
the Corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder
by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 5, and in the taking
of all such action as may be necessary or appropriate in order to
protect the Conversion Rights of the holders of the Series A against
impairment.
(h) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of any Current Conversion Price
pursuant to this Section 5, the Corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of Series A and
Series B Non-Voting Participating Convertible Preferred Stock
(hereinafter called "Series B") a certificate executed by the
Corporation's President or Chief Financial Officer setting forth such
adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any holder of Series A or Series B,
furnish or cause to be furnished to such holder a like certificate
setting forth (i) such adjustments and readjustments, (ii) the Current
Conversion Price for such series of Preferred Stock at the time in
effect, and (iii) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the
conversion of the Series A.
(i) NOTICES OF RECORD DATE. In the event that the Corporation
shall propose at any time after the Original Filing Date: (i) to
declare any dividend or distribution upon its Common Stock, whether in
cash, property, stock or other securities, whether or not a regular
cash dividend and whether or not out of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or
series or other, rights; (iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a change in
the Common Stock; or (iv) to merge or consolidate with or into any
other corporation, or sell, lease or convey all or substantially all of
its assets, or to liquidate, dissolve or wind up; then, in connection
with each such event, the Corporation shall send to the holders of
Series A and Series B:
(i) at least twenty (20) days' prior written notice
of the date on which a record shall be taken for such
dividend, distribution or subscription rights (and specifying
the date on which the holders of Common Stock shall be
entitled thereto) or for determining rights to vote, if any,
in respect of the matters referred to in (iii) and (iv) above;
and
-6-
<PAGE> 43
EXHIBIT A
(ii) in the case of the matters referred to in (iii)
and (iv) above, at least twenty (20) days' prior written
notice of the date when the same shall take place (and
specifying the date on which the holders of Common Stock shall
be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event).
(j) ISSUE TAXES. The Corporation shall pay any and all issue
and other taxes that may be payable in respect of any issue or delivery
of shares of Common Stock on conversion of Series A pursuant hereto;
provided, however, that the Corporation shall not be obligated to pay
any transfer taxes resulting from any transfer requested by any holder
in connection with any such conversion.
(k) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose
of effecting the conversion of the shares of the Series A, such number
of its shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding shares of the Series A; and
if at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose, including,
without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to this Certificate.
(l) FRACTIONAL SHARES. No fractional share shall be issued
upon the conversion of any share or shares of Series A. All shares of
Common Stock (including fractions thereof) issuable upon conversion of
more than one share of Series A by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the
issuance of any fractional share. If, after the aforementioned
aggregation, the conversion would result in the issuance of a fraction
of a share of Common Stock, the Corporation shall, in lieu of issuing
any fractional share, pay the holder otherwise entitled to such
fraction a sum in cash equal to the fair market value of such fraction
on the date of conversion (as determined in good faith by the Board of
Directors).
(m) NOTICES. Any notice required by the provisions of this
Section 5 to be given to the holders of shares of Series A and Series B
shall be deemed given if deposited in the United States mail, postage
prepaid, or if sent by facsimile or delivered personally by hand or
nationally recognized courier and addressed to each holder of record at
such holder's address or facsimile number appearing in the records of
the Corporation.
-7-
<PAGE> 44
EXHIBIT A
(n) MEANING OF "COMMON STOCK". For the purpose of this Section
5, the term "Common Stock" shall include any stock of any class or
series of the Corporation which has no preference or priority in the
payment of dividends or in the distribution of assets in the event of
any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation which is not subject to redemption by the Corporation.
However, shares issuable upon conversion of shares of Series A shall
include only shares of the class designated as Common Stock as of the
original date of issuance of shares of Series A or shares of the
Corporation of any classes or series resulting from any
reclassification or reclassifications thereof and which have no
preference or priority in the payment of dividends or in the
distribution of assets in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation and which are
not subject to redemption by the Corporation, provided that if at any
time there shall be more than one such resulting class or series, the
shares of each such class and series then so issuable shall be
substantially in the proportion which the total number of shares of
such class and series resulting from all such reclassifications bears
to the total number of shares of all such classes and series resulting
from all such reclassifications.
(o) POSTPONEMENT OF ADJUSTMENTS; CALCULATIONS. Any adjustment
in the conversion price otherwise required by this Section 5 to be made
may be postponed if such adjustment (plus any other adjustments
postponed pursuant to this paragraph and not theretofore made) would
not require an increase or decrease of more than 1% in such price. All
calculations hereunder shall be made to the nearest cent or to the
nearest 1/100th of a share, as the case may be.
(p) TAX ADJUSTMENTS. The Board of Directors may make such
adjustments in the conversion price, in addition to those required by
this Section 5, as shall be determined by the Board of Directors to be
advisable in order to avoid taxation so far as practicable of any
dividend of stock or stock rights or any event treated as such for
Federal income tax purposes to the recipients. The Board of Directors
shall have the power to resolve any ambiguity or correct any error in
this Section 5, and its action in so doing shall be final and
conclusive.
(q) ADJUSTMENTS APPLICABLE TO NEW SECURITIES. In the event
that any time, as a result of an adjustment made pursuant to the
provisions hereof, the holder of any shares of Series A thereafter
surrendered for conversion shall become entitled to receive any shares
of capital stock of the Corporation other than Common Stock, thereafter
the number of such other shares so receivable upon conversion of such
shares of Series A shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in Section 5 with
respect to the Common Stock shall apply on like terms to any such other
shares.
-8-
<PAGE> 45
EXHIBIT A
(r) ACCOUNTANTS' CERTIFICATE. The certificate of any
independent firm of public accountants of recognized standing selected
by the Board of Directors shall be presumptive evidence of the
correctness of any computation made under this Section 5.
SECTION 6. VOTING RIGHTS. The holders of shares of Series A shall not
have any voting rights except as set forth below or as otherwise from time to
time required by law.
The holders of Series A shall be entitled to vote, voting together with
the holders of Common Stock as a single class, on all matters submitted to a
vote of, or approval by, the Corporation's stockholders. Each holder of Series A
shall be entitled to the number of votes equal to the number of shares of Common
Stock into which the shares of Series A held by such holder are, at the time of
any vote or approval, then convertible (in each case, rounded up to the next
whole share).
At any time when the Requisite Shares shall be outstanding, in addition
to any other vote or consent of stockholders required by law or by the
Certificate of Incorporation, the consent of the holders of at least a majority
of the shares of Series A at the time outstanding, voting together as a single
class, given in person or by proxy, either in writing without a meeting or by
vote at any meeting called for the purpose, shall be necessary for authorizing,
effecting or validating any of the following actions; provided, however, if
there are members of the Corporation's Board of Directors who have been elected
to hold such office by the holders of the Series A, or appointed to hold such
office, pursuant to, or in accordance with, the provisions hereof, then the
approval of the holders of the Series A shall be necessary only for authorizing,
effecting or validating any of the following actions which have not been
approved by each of such members:
(i) Any amendment, alteration or repeal of any of the
provisions of the Certificate of Incorporation, or of the
Bylaws, of the Corporation affecting in any manner whatsoever
meetings of stockholders, special meetings, meeting notices,
quorums, size of board, vacancies on the board, or provisions
relating to the amendment of the Certificate of Incorporation
or Bylaws;
(ii) The authorization or creation of, or the
increase in the authorized number of, any shares of any class
or series or any security convertible into shares of any class
or series ranking prior or senior to, or pari passu or on a
parity with, the shares of Series A in the distribution of
assets on any liquidation, dissolution, or winding up of the
Corporation or in the payment of dividends or otherwise, or
any increase or decrease (but not below the number of shares
thereof then outstanding) in the authorized number of shares
of Series A;
-9-
<PAGE> 46
EXHIBIT A
(iii) The merger or consolidation of the Corporation
with or into any other corporation or other entity, or the
sale of all or substantially all of the assets of the
Corporation, or any other business combination (as such term
is defined in Section 203 of the Delaware General Corporation
Law;
(iv) Any increase in the number of Directors
constituting the whole Board of Directors of the Corporation
to more than seven;
(v) Any "fundamental change" transaction, including,
without limitation, any transaction or other event pursuant to
which the Corporation would change its principal business
activity or add additional business activities or other lines
of business;
(vi) Material deviations from annual operating or
capital budgets;
(vii) Material changes in the operating strategy of
the Corporation;
(viii) Any acquisition or repurchase of any security
of the Corporation except as permitted or required by any
employee benefit plan of the Corporation duly authorized and
approved by the Corporation's stockholders prior to its
implementation by the Corporation;
(ix) Any incurrence of, or the entering into any
contract or agreement to alter or amend the instruments
governing, any indebtedness for borrowed money or capital
leases (including liens and leases) in an aggregate amount
greater than $5,000,000; or
(x) The creation of or investment in any subsidiary
of the Corporation.
So long as the Requisite Shares of Series A are outstanding, if and
whenever an Event of Non-Compliance shall occur, and for so long as any Event of
Non-Compliance shall be continuing, the number of Directors then constituting
the whole Board of Directors shall be automatically increased to create such
number of vacancies as are necessary so that such vacancies constitute a
majority of the whole Board of Directors, and the holders of shares of Series A
at the time outstanding, in addition to any other vote or consent of
stockholders required by law or by the Certificate of Incorporation, voting
separately as a single class, given in person or by proxy, either in writing
without a meeting or by vote at any meeting called for the purpose,voting
separately as a class, shall be entitled to elect the additional directors
necessary to fill such newly created vacancies. Whenever all Events of
Non-Compliance shall have been cured or waived, then the right of the holders of
the shares of Series A to elect such additional directors shall cease (but
subject always to the same provisions for the vesting of such voting
-10-
<PAGE> 47
EXHIBIT A
rights in the case of any similar future occurrences), and the terms of office
of all persons elected as Directors by the holders of the shares of Series A
shall forthwith terminate and the number of Directors constituting the whole
Board of Directors shall be reduced accordingly.
At any time after any additional voting power shall have been so vested
in the holders of shares of Series A, the Secretary of the Corporation may, and
upon the written request of any holder of shares of Series A (addressed to the
Secretary at the principal office of the Corporation) shall, call a special
meeting of the holders of the shares of Series A for the election of the
Directors to be elected by them as herein provided, such call to be made by
notice similar to that provided in the Bylaws for a special meeting of the
stockholders or as required by law. If any such special meeting required to be
called as above provided shall not be called by the Secretary within 20 days
after receipt of any such request, then any holder of shares of Series A may
call such meeting, upon the notice above provided, and for that purpose shall
have access to the stock books of the Corporation. The Directors elected at any
such special meeting shall hold office until the next annual meeting of the
stockholders if such office shall not have previously terminated as above
provided. In case any vacancy shall occur among the Directors elected by the
holders of the shares of Series A, a successor shall be elected by the Board of
Directors to serve until the next annual meeting of the stockholders upon the
nomination of the then remaining Directors elected by the holders of the shares
of Series A or the successor of such remaining Directors. Any Directors who
shall have been elected by the holders of Series A or by any Directors so
elected may be removed during the aforesaid term of office, either with or
without cause, by, and only by, the affirmative vote of the holders of a
majority of the shares of the Series A, voting separately as a single class,
given either at a special meeting of such stockholders duly called for that
purpose or pursuant to a written consent of stockholders, and any vacancy
thereby created may be filled by the holders of Series A represented at such
meeting or pursuant to such written consent. If the holders of shares of Series
A become entitled under the foregoing provisions to elect or participate in the
election of Directors, such entitlement shall not affect the right of such
holders to vote as stated in the first paragraph of this Section 6.
SECTION 7. COVENANTS; "EVENT OF NON-COMPLIANCE" DEFINED. For so long as
the Requisite Shares shall be outstanding, the Corporation shall do each of the
following:
(a) PROFITABILITY. The Corporation's consolidated net income
before all amounts properly recorded for interest, taxes, depreciation
and amortization ("EBITDA"), in each case, as set forth in the audited
financial statements of the Corporation for the fiscal years indicated,
shall be, (i) for fiscal year 1996, $1,500,000; (ii) for fiscal year
1997, $3,500,000; and (iii) for fiscal year 1998, $5,500,000. As used
herein, the term "EBITDA Period" means each fiscal year of the
Corporation ending in December 1996, December 1997, and December 1998;
and the term "EBITDA Target" for any EBITDA Period means the dollar
amount of EBITDA required to be earned by the Corporation for each such
EBITDA Period as set forth in the preceding sentence, or as
subsequently
-11-
<PAGE> 48
EXHIBIT A
modified as hereinafter provided. If the Board of Directors of the
Corporation shall unanimously and specifically authorize and approve
any act or activity of the Corporation the result of which will be to
reduce the Corporation's EBITDA for any EBITDA Period, and such
reduction in the EBITDA is unanimously and specifically authorized and
approved by the Board of Directors, the EBITDA Target or Targets, as
the case may be, shall be deemed to be automatically reduced to the
dollar amount equal to the amount calculated by multiplying the
Corporation's new, revised budgeted EBITDA by a fraction the numerator
of which is the original EBITDA Target specified for the applicable
EBITDA Period in the first sentence of this paragraph and the
denominator of which is the originally budgeted EBITDA for such EBITDA
Period as such originally budgeted EBITDA is set forth in the Business
Plan of the Corporation as of April 26, 1996.
(b) MATTERS REQUIRING NOTICE. The Corporation shall notify the
holders of the Series A (i) ten days prior to the taking of any action
to reduce any EBITDA Target, and (ii) promptly upon acquiring knowledge
of the occurrence of any Event of Non-Compliance.
(c) "EVENT OF NON-COMPLIANCE" DEFINED. As used herein, an
"Event of Non-Compliance" means (i) the breach of or violation by the
Corporation of any covenant of the Corporation set forth in paragraphs
(a) and (b) of this Section 7, and such violation is not cured or
waived within 30 days, or (ii) either a monetary default or a material
non-monetary default, or both, under any material bond, note or other
evidence of indebtedness of the Corporation or under any indenture or
other instrument under which any such evidence if indebtedness has been
issued or by which it is governed and the expiration of the applicable
period of grace, if any, specified in such evidence of indebtedness;
provided, however, that, if such default under such evidence of
indebtedness, indenture or other instrument shall be cured by the
Corporation, or be waived by the holders of such indebtedness, in each
case as may be permitted by such evidence of indebtedness, indenture or
other instrument, the Event of Non-Compliance hereunder by reason of
such default shall be deemed likewise to have been thereupon cured or
waived. In the event the Corporation's EBITDA for any EBITDA Period
shall be an amount less than the EBITDA Target for such EBITDA Period,
but shall be an amount equal to or greater than the product obtained by
multiplying (i) the EBITDA Target for such EBITDA Period by (ii) .95
(the EBITDA Target less such amount being hereinafter called the
"Shortfall"), then, in such event, the failure of the Corporation to
earn an amount equal to or greater than the EBITDA Target for such
EBITDA Period shall be deemed to have been cured if, for the first
quarter of the Corporation's fiscal year next following the EBITDA
Period during which the Corporation shall fail to have earned the
EBITDA Target, the Corporation shall have earned the sum of (x) the
Shortfall, plus (y) the First Quarter Projected EBITDA (as hereinafter
defined). As used herein, the term "First Quarter Projected EBITDA"
shall mean either (i) the amount determined by
-12-
<PAGE> 49
EXHIBIT A
multiplying the Corporation's budgeted EBITDA for the applicable
quarter by a fraction the numerator of which is the EBITDA Target for
the EBITDA Period in which the quarter falls and the denominator of
which is the Corporation's budgeted EBITDA for such EBITDA Period, or
(ii) if the Corporation's budgeted EBITDA for the applicable quarter
shall be a loss, then the Corporation's budgeted loss for such quarter,
whichever of (i) or (ii) is less. For the purposes hereof, the
references to budgeted amounts refer to the budgets of the Corporation
duly approved by the Corporation's Board of Directors in the ordinary
course of business and consistent with past practice.
SECTION 8. REDUCTION IN VALUE OR SECURITY. The Corporation shall not in
any manner, whether by amendment of the Certificate of Incorporation (including,
without limitation, any Certificate of Designations), merger, reorganization,
recapitalization, consolidation, sale of assets, sale of stock, tender offer,
dissolution or otherwise, take any action, or permit any action to be taken,
solely or primarily for the purpose of increasing the value of any class of
stock of the Corporation if the effect of such action is to reduce the value or
security of the Series A.
SECTION 9. DEFINITIONS. As used herein with respect to Series A, the
following terms shall have the following meanings:
(a) The term "accrued dividends," with respect to any share of
any class or series, shall mean an amount computed at the annual
dividend rate for the class or series of which the particular share is
a part, from the date on which dividends on such share became
cumulative to and including the date to which such dividends are to be
accrued, less the aggregate amount of all dividends theretofore paid
thereon.
(b) The term "business day" shall mean each Monday, Tuesday,
Wednesday, Thursday or Friday on which banking institutions in the
Borough of Manhattan, The City of New York, are not authorized or
obligated by law or executive order to close.
(c) The term "junior stock" shall mean the Common Stock and
any other series of Preferred Stock of the Corporation, or any other
class or series of the capital stock of the Corporation, authorized or
issued after the date on which this Certificate is filed other than the
Series B Non-Voting Participating Convertible Preferred Stock of the
Corporation and the Series C Non-Voting Participating Convertible
Preferred Stock of the Corporation, which Series B Non-Voting
Participating Convertible Preferred Stock and Series C Non-Voting
Participating Convertible Preferred Stock are senior to, and have
preference and priority in the payment of dividends and in the
distribution of assets on any liquidation, dissolution or winding up of
the Corporation over, the Series A.
-13-
<PAGE> 50
EXHIBIT A
(d) The term "person" shall mean any individual, corporation,
partnership, joint venture, joint stock association, business trust and
other business entity, trust, unincorporated organization, governmental
agency or authority or any other form of entity.
(e) The term "Requisite Shares" means the greater of (i)
593,953 shares of the Series A, Series B and Series C, taken together,
or (ii) 50% of the total shares of the Series A, Series B and Series C
issued on or after the date of filing this Certificate.
(f) The term "subsidiary" shall mean, as to a particular
parent corporation, any person of which 50% or more of the indicia of
equity rights is at the time directly or indirectly owned by such
parent corporation or by one or more persons controlled by, controlling
or under common control with such parent corporation.
SECTION 10. OTHER RIGHTS. The shares of Series A shall not have any
powers, preferences or relative, participating, optional or other special
rights, or qualifications, limitations or restrictions thereof, other than as
set forth herein.
IN WITNESS WHEREOF, Fresh Choice, Inc. has caused this Certificate to
be signed by _____________________, its President, this _____ day of
_____________, _____.
Fresh Choice, Inc.
By__________________________
Robert Ferngren, President
-14-
<PAGE> 51
EXHIBIT B
CERTIFICATE OF DESIGNATION
OF
SERIES B NON-VOTING PARTICIPATING CONVERTIBLE PREFERRED STOCK
OF
FRESH CHOICE, INC.
Fresh Choice, Inc., a Delaware corporation, DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors of
said corporation by virtue of its Certificate of Incorporation as amended and in
accordance with Section 151 of the General Corporation Law of the State of
Delaware, said Board of Directors has duly adopted a resolution providing for
the issuance of a series of Preferred Stock, par value $0.001 per share,
designated as Series B Non-Voting Participating Convertible Preferred Stock,
which resolution reads as follows:
"BE IT RESOLVED, that the Board of Directors (the "Board of Directors")
of Fresh Choice, Inc., a Delaware corporation (the "Corporation"), hereby
authorizes the issuance of a series of Preferred Stock and fixes its
designation, powers, preferences and relative, participating, optional or other
special rights, and qualifications, limitations and restrictions thereof, as
follows:
SECTION 1. DESIGNATION. The distinctive serial designation of said
series shall be "Series B Non-Voting Participating Convertible Preferred Stock"
(hereinafter called "Series B"). Each share of Series B shall be identical in
all respects with all other shares of Series B except as to the dates from and
after which dividends thereon shall be cumulative.
SECTION 2. NUMBER OF SHARES. The number of shares in Series B shall
initially be 1,187,906, which number may from time to time be increased or
decreased (but not below the total number thereof then outstanding and reserved
for issuance) by the Board of Directors. Shares of Series B that are redeemed,
purchased or otherwise acquired by the Corporation or converted into Common
Stock shall be cancelled and shall revert to authorized but unissued shares of
Preferred Stock undesignated as to series.
SECTION 3. DIVIDENDS. So long as any share of Series B remains
outstanding, the holders of shares of Series B shall be entitled to participate,
on an "as converted" basis, in and to receive, when, as and if declared by the
Board of Directors of the Corporation, but only out of funds legally available
therefore, any and all cash dividends and other distributions paid or made with
respect to any junior stock. So long as any share of Series B remains
outstanding, no dividend whatever shall be paid or declared and no distribution
shall be made on any junior stock, unless, contemporaneously therewith, a
dividend or other distribution on the shares of the Series B then outstanding
shall have been declared and set apart for payment as hereinafter provided. All
dividends and other distributions paid or made by the Corporation at any time as
any share of the Series B remains outstanding shall be paid or distributed among
the holders of the Common Stock and the Series B in proportion to the shares of
Common Stock then held by
<PAGE> 52
EXHIBIT B
the holders of the Common Stock and the shares of Common Stock which the holders
of the Series B then have the right to acquire upon conversion of the shares of
Series B then held by them.
In addition to the foregoing, in the event of any liquidation,
dissolution or winding up of the affairs of the Corporation (a "Liquidation")
following the occurrence of an Event of Non-Compliance, and continuing through
and including the date on which any such Liquidation occurs, the holders of the
Series B shall be entitled to receive, when, as and if declared by the Board of
Directors of the Corporation, but only out of funds legally available therefore,
cumulative preferential cash dividends at the annual rate of $0.56 per share,
and no more, calculated from the first date of the occurrence of an Event of
Non-Compliance, and payable pursuant to Section 4 hereof. So long as any share
of Series B remains outstanding, no dividend whatever shall be paid or declared
and no distribution shall be made on any junior stock, and no shares of junior
stock shall be purchased, redeemed or otherwise acquired for consideration by
the Corporation, directly or indirectly, unless all accrued dividends on all
outstanding shares of Series B shall have been paid. For the sole purpose of
this paragraph, any merger, consolidation or sale of substantially all the
assets of the Corporation shall be deemed to be a Liquidation for the purposes
of such rights to cumulative preferential dividends, and shall be paid prior to
the consummation of any such transaction.
SECTION 4. LIQUIDATION RIGHTS. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, then, after payment in full of all amounts, if any, owing to the
holders of the Corporation's Series C Non-Voting Participating Convertible
Preferred Stock, but before any distribution or payment shall be made to the
holders of any junior stock, the holders of shares of Series B shall be entitled
to be paid in full an amount equal to $4.63 per share, together with all accrued
dividends to such distribution or payment date whether or not earned or
declared. After payment in full of all amounts owing to the holders of shares of
Series B as herein provided, the remaining assets of the Corporation, if any,
may be distributed by the Corporation as provided in Section 281 of the General
Corporation Law of the State of Delaware or other controlling provision of
applicable law, and the holders of shares of Series B shall have no right to
participate in any such distributions.
SECTION 5. CONVERSION RIGHTS. The holders of shares of Series B shall
have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series B shall be
convertible at the office of the Corporation or any transfer agent for
such stock, at the option of the holder thereof, into either (i) at any
time after the date of issuance of such share through and including the
date on which the Series A shall have become mandatorily convertible
one fully paid and nonassessable share of Series A Voting Participating
Convertible Preferred Stock
-2-
<PAGE> 53
EXHIBIT B
(hereinafter called "Series A") of the Corporation or (ii) at any time
after the date of issuance of such share such number of fully paid and
nonassessable shares of Common Stock of the Corporation as is
determined by dividing $4.63 by the Current Conversion Price applicable
to such share, determined as hereinafter provided, in effect on the
date the certificate representing such share is surrendered for
conversion. The price at which shares of Common Stock shall be
deliverable upon conversion of shares of the Series B (the "Stated
Conversion Price") shall initially be $4.63 per share of Common Stock.
The Stated Conversion Price shall be adjusted from and after the
Original Issue Date as hereinafter provided. The Stated Conversion
Price at any time in effect or, in the case of any such adjustment,
such Stated Conversion Price as most recently so adjusted, is herein
called the "Current Conversion Price."
(b) MECHANICS OF CONVERSION. Before any holder of Series B
shall be entitled to convert the same into shares of Series A or Common
Stock, as the case may be, such holder shall surrender the certificate
or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for such stock, and shall give
written notice to the Corporation at such office that such holder
elects to convert the same and shall state therein the name or names in
which such holder wishes the certificate or certificates for shares of
Series A or Common Stock, as the case may be, to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver
at such office to such holder of Series B, a certificate or
certificates for the number of shares of Series A or Common Stock, as
the case may be, to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to
the close of business on the date of surrender of the shares of Series
B to be converted, and the person or persons entitled to receive the
shares of Series A or Common Stock, as the case may be, issuable upon
such conversion shall be treated for all purposes as the record holder
or holders of such shares of Series A or Common Stock, as the case may
be, on such date.
(c) ADJUSTMENTS TO CURRENT CONVERSION PRICE FOR STOCK
DIVIDENDS AND FOR COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the
event that the Corporation at any time or from time to time after the
Original Issue Date shall declare or pay, without consideration, any
dividend on the Common Stock payable in Common Stock or in any right to
acquire Common Stock for no consideration, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock (by stock split, reclassification or
otherwise than by payment of a dividend in Common Stock or in any right
to acquire Common Stock), or in the event the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the
Current Conversion Price in effect immediately prior to such event
shall, concurrently with the effectiveness of such event, be
proportionately decreased or increased, as appropriate. In the event
that the
-3-
<PAGE> 54
EXHIBIT B
Corporation shall declare or pay, without consideration, any dividend
on the Common Stock payable in any right to acquire Common Stock for no
consideration, then the Corporation shall be deemed to have made a
dividend payable in Common Stock in an amount of shares equal to the
maximum number of shares issuable upon exercise of such rights to
acquire Common Stock.
(d) ADJUSTMENTS FOR RECLASSIFICATION AND REORGANIZATION. If at
any time after the Original Issue Date the Common Stock issuable upon
conversion of the Series B shall be changed into the same or a
different number of shares of any other class or classes of stock,
whether by capital reorganization, reclassification or otherwise, the
Current Conversion Price then in effect shall, concurrently with the
effectiveness of such reorganization or reclassification, be
proportionately adjusted so that the Series B shall be convertible
into, in lieu of the number of shares of Common Stock which the holders
would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares
of Common Stock that would have been subject to receipt by the holders
upon conversion of the Series B immediately before that change.
(e) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS. If at any time or from time to time after the Original Issue
Date there is a capital reorganization or reclassification of the
capital stock of the Corporation (other than a recapitalization,
subdivision, combination, reclassification, exchange or substitution of
shares provided for elsewhere in this Section 5) or a merger,
consolidation or sale of all or substantially all of the assets of the
Corporation, as a part of and as a condition to such capital
reorganization or reclassification, merger, consolidation or sale of
assets provision shall be made so that the holders of the Series B
shall thereafter be entitled to receive upon conversion of the Series B
the number of shares of stock or other securities or property of the
Corporation to which a holder of the number of shares of Common Stock
deliverable upon conversion of the Series B would have been entitled on
such capital reorganization or reclassification, merger, consolidation
or sale of assets, subject to adjustment in respect of such stock or
securities by the terms thereof. In any such case, appropriate
adjustment shall be made in the application of the provisions of this
Section 5 with respect to the rights of the holders of Series B after
the capital reorganization or reclassification, merger, consolidation
or sale of assets to the end that the provisions of this Section
5(including adjustment of the Current Conversion Price then in effect
and the number of shares issuable upon conversion of the Series B)
shall be applicable after that event and be as nearly equivalent as
practicable.
(f) NO IMPAIRMENT. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale
of securities or any other voluntary action,
-4-
<PAGE> 55
EXHIBIT B
avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the
provisions of this Section 5 and in the taking of all such action as
may be necessary or appropriate in order to protect the Conversion
Rights of the holders of the Series B against impairment.
(g) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of any Current Conversion Price
pursuant to this Section 5, the Corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of Series B a
certificate executed by the Corporation's President or Chief Financial
Officer setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any
holder of Series B, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments,
(ii) the Current Conversion Price for such series of Preferred Stock at
the time in effect, and (iii) the number of shares of Common Stock and
the amount, if any, of other property which at the time would be
received upon the conversion of the Series B.
(h) NOTICES OF RECORD DATE. In the event that the Corporation
shall propose at any time after the Original Issue Date: (i) to declare
any dividend or distribution upon its Common Stock, whether in cash,
property, stock or other securities, whether or not a regular cash
dividend and whether or not out of earnings or earned surplus; (ii) to
offer for subscription pro rata to the holders of any class or series
of its stock any additional shares of stock of any class or series or
other, rights; (iii) to effect any reclassification or recapitalization
of its Common Stock outstanding involving a change in the Common Stock;
or (iv) to merge or consolidate with or into any other corporation, or
sell, lease or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; then, in connection with each such
event, the Corporation shall send to the holders of Series B:
(i) at least twenty (20) days' prior written notice
of the date on which a record shall be taken for such
dividend, distribution or subscription rights (and specifying
the date on which the holders of Common Stock shall be
entitled thereto) or for determining rights to vote, if any,
in respect of the matters referred to in (iii) and (iv) above;
and
(ii) in the case of the matters referred to in (iii)
and (iv) above, at least twenty (20) days' prior written
notice of the date when the same shall take place (and
specifying the date on which the holders of Common Stock shall
be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event).
-5-
<PAGE> 56
EXHIBIT B
(i) ISSUE TAXES. The Corporation shall pay any and all issue
and other taxes that may be payable in respect of any issue or delivery
of shares of Series A or Common Stock, as the case may be, on
conversion of Series B pursuant hereto; provided, however, that the
Corporation shall not be obligated to pay any transfer taxes resulting
from any transfer requested by any holder in connection with any such
conversion.
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Series A and Common Stock, solely for
the purpose of effecting the conversion of the shares of the Series B,
such number of its shares of Series A and Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding
shares of the Series B; and if at any time the number of authorized but
unissued shares of Series A or Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Series B,
the Corporation will take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued
shares of Series A or Common Stock, as the case may be, to such number
of shares as shall be sufficient for such purpose, including, without
limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to the Certificate of
Incorporation of the Corporation.
(k) FRACTIONAL SHARES. No fractional share shall be issued
upon the conversion of any share or shares of Series B. All shares of
Series A or Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series B by a holder thereof shall
be aggregated for purposes of determining whether the conversion would
result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance
of a fraction of a share of Series A or Common Stock, the Corporation
shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined
in good faith by the Board of Directors).
(l) NOTICES. Any notice required by the provisions of this
Section 5 to be given to the holders of shares of Series B shall be
deemed given if deposited in the United States mail, postage prepaid,
or if sent by facsimile or delivered personally by hand or nationally
recognized courier and addressed to each holder of record at such
holder's address or facsimile number appearing in the records of the
Corporation.
(m) MEANING OF "COMMON STOCK". For the purpose of this Section
5, the term "Common Stock" shall include any stock of any class or
series of the Corporation which has no preference or priority in the
payment of dividends or in the distribution of assets in the event of
any voluntary or involuntary liquidation, dissolution or winding up
-6-
<PAGE> 57
EXHIBIT B
of the Corporation which is not subject to redemption by the
Corporation. However, shares issuable upon conversion of shares of
Series B shall include only shares of the class designated as Common
Stock as of the original date of issuance of shares of Series B or
shares of the Corporation of any classes or series resulting from any
reclassification or reclassifications thereof and which have no
preference or priority in the payment of dividends or in the
distribution of assets in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation and which are
not subject to redemption by the Corporation, provided that if at any
time there shall be more than one such resulting class or series, the
shares of each such class and series then so issuable shall be
substantially in the proportion which the total number of shares of
such class and series resulting from all such reclassifications bears
to the total number of shares of all such classes and series resulting
from all such reclassifications.
(n) POSTPONEMENT OF ADJUSTMENTS; CALCULATIONS. Any adjustment
in the conversion price otherwise required by this Section 5 to be made
may be postponed if such adjustment (plus any other adjustments
postponed pursuant to this paragraph 5(n) and not theretofore made)
would not require an increase or decrease of more than 1% in such
price. All calculations hereunder shall be made to the nearest cent or
to the nearest 1/100th of a share, as the case may be.
(o) TAX ADJUSTMENTS. The Board of Directors may make such
adjustments in the conversion price, in addition to those required by
this Section 5, as shall be determined by the Board of Directors to be
advisable in order to avoid taxation so far as practicable of any
dividend of stock or stock rights or any event treated as such for
Federal income tax purposes to the recipients. The Board of Directors
shall have the power to resolve any ambiguity or correct any error in
this Section 5, and its action in so doing shall be final and
conclusive.
(p) ADJUSTMENTS APPLICABLE TO NEW SECURITIES. In the event
that any time, as a result of an adjustment made pursuant to the
provisions hereof, the holder of any shares of Series B thereafter
surrendered for conversion shall become entitled to receive any shares
of capital stock of the Corporation other than Series A or Common
Stock, thereafter the number of such other shares so receivable upon
conversion of such shares of Series B shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock
contained in Section 5 with respect to the Common Stock shall apply on
like terms to any such other shares.
(q) ACCOUNTANTS' CERTIFICATE. The certificate of any
independent firm of public accountants of recognized standing selected
by the Board of Directors shall be presumptive evidence of the
correctness of any computation made under this Section 5.
-7-
<PAGE> 58
EXHIBIT B
(r) REIT SAVINGS CLAUSE. The Conversion Rights with respect to
the Series B shall not exist to the extent that immediately after the
conversion of such shares of Series B into Series A or Common Stock,
Crescent Real Estate Equities, Inc., a Maryland corporation (together
with its successors, "Crescent"), would be treated as owning more than
10 percent of the outstanding voting securities of the Corporation for
purposes of Section 856(c)(5) of the Internal Revenue Code of 1986, as
amended (the "Code"). Any request by any holder of the Series B to
exercise such holder's Conversion Rights must be accompanied by an
opinion of counsel, which counsel and the form, scope and substance of
such opinion must be satisfactory to Crescent in its sole and absolute
discretion, stating that any proposed exercise of any holder's
Conversion Rights will not cause Crescent to be treated as owning more
than 10 percent of the outstanding voting securities of the Corporation
for purposes of Section 856(c)(5) of the Code. Any exercise or
purported exercise of any Conversion Rights in violation of this
Section 5(r) shall be void ab initio.
SECTION 6. VOTING RIGHTS. The holders of shares of Series B shall not
have any voting rights except as from time to time required by law.
SECTION 7. COVENANTS; "EVENT OF NON-COMPLIANCE" DEFINED. For so long as
the Requisite Shares shall be outstanding, the Corporation shall do each of the
following:
(a) PROFITABILITY. The Corporation's consolidated net income
before all amounts properly recorded for interest, taxes, depreciation
and amortization ("EBITDA"), in each case, as set forth in the audited
financial statements of the Corporation for the fiscal years indicated,
shall be, (i) for fiscal year 1996, $1,500,000; (ii) for fiscal year
1997, $3,500,000; and (iii) for fiscal year 1998, $5,500,000. As used
herein, the term "EBITDA Period" means each fiscal year of the
Corporation ending in December 1996, December 1997, and December 1998;
and the term "EBITDA Target" for any EBITDA Period means the dollar
amount of EBITDA required to be earned by the Corporation for each such
EBITDA Period as set forth in the preceding sentence, or as
subsequently modified as hereinafter provided. If the Board of
Directors of the Corporation shall unanimously and specifically
authorize and approve any act or activity of the Corporation the result
of which will be to reduce the Corporation's EBITDA for any EBITDA
Period, and such reduction in the EBITDA is unanimously and
specifically authorized and approved by the Board of Directors, the
EBITDA Target or Targets, as the case may be, shall be deemed to be
automatically reduced to the dollar amount equal to the amount
calculated by multiplying the Corporation's new, revised budgeted
EBITDA by a fraction the numerator of which is the original EBITDA
Target specified for the applicable EBITDA Period in the first sentence
of this paragraph and the denominator of which is the originally
budgeted EBITDA for such EBITDA Period as such originally budgeted
EBITDA is set forth in the Business Plan of the Corporation as of April
26, 1996.
-8-
<PAGE> 59
EXHIBIT B
(b) MATTERS REQUIRING NOTICE. The Corporation shall notify the
holders of the Series B (i) ten days prior to the taking of any action
to reduce any EBITDA Target, and (ii) promptly upon acquiring knowledge
of the occurrence of any Event of Non-Compliance.
(c) "EVENT OF NON-COMPLIANCE" DEFINED. As used herein, an
"Event of Non-Compliance" means (i) the breach of or violation by the
Corporation of any covenant of the Corporation set forth in paragraphs
(a) and (b) of this Section 7, and such violation is not cured or
waived within 30 days, or (ii) the default under any material bond,
note or other evidence of indebtedness of the Corporation or under any
indenture or other instrument under which any such evidence if
indebtedness has been issued or by which it is governed and the
expiration of the applicable period of grace, if any, specified in such
evidence of indebtedness; provide, however, that, if such default under
such evidence of indebtedness, indenture or other instrument shall be
cured by the Corporation, or be waived by the holders of such
indebtedness, in each case as may be permitted by such evidence of
indebtedness, indenture or other instrument, the Event of
Non-Compliance hereunder by reason of such default shall be deemed
likewise to have been thereupon cured or waived. In the event the
Corporation's EBITDA for any EBITDA Period shall be an amount less than
the EBITDA Target for such EBITDA Period, but shall be an amount equal
to or greater than the product obtained by multiplying (i) the EBITDA
Target for such EBITDA Period by (ii) .95 (the EBITDA Target less such
amount being hereinafter called the "Shortfall"), then, in such event,
the failure of the Corporation to earn an amount equal to or greater
than the EBITDA Target for such EBITDA Period shall be deemed to have
been cured if, for the first quarter of the Corporation's fiscal year
next following the EBITDA Period during which the Corporation shall
fail to have earned the EBITDA Target, the Corporation shall have
earned the sum of (x) the Shortfall, plus (y) the First Quarter
Projected EBITDA (as hereinafter defined). As used herein, the term
"First Quarter Projected EBITDA" shall mean either (i) the amount
determined by multiplying the Corporation's budgeted EBITDA for the
applicable quarter by a fraction the numerator of which is the EBITDA
Target for the EBITDA Period in which the quarter falls and the
denominator of which is the Corporation's budgeted EBITDA for such
EBITDA Period, or (ii) if the Corporation's budgeted EBITDA for the
applicable quarter shall be a loss, then the Corporation's budgeted
loss for such quarter, whichever of (i) or (ii) is less. For the
purposes hereof, the references to budgeted amounts refer to the
budgets of the Corporation duly approved by the Corporation's Board of
Directors in the ordinary course of business and consistent with past
practice.
SECTION 8. REDUCTION IN VALUE OR SECURITY. The Corporation shall not in
any manner, whether by amendment of the Certificate of Incorporation (including,
without limitation, any Certificate of Designations), merger, reorganization,
recapitalization, consolidation, sale of assets, sale of stock, tender offer,
dissolution or otherwise, take any action, or permit any action
-9-
<PAGE> 60
EXHIBIT B
to be taken, solely or primarily for the purpose of increasing the value of any
class of stock of the Corporation if the effect of such action is to reduce the
value or security of the Series B.
SECTION 9. DEFINITIONS. As used herein with respect to Series B, the
following terms shall have the following meanings:
(a) The term "accrued dividends," with respect to any share of
any class or series, shall mean an amount computed at the annual
dividend rate for the class or series of which the particular share is
a part, from the date on which dividends on such share became
cumulative to and including the date to which such dividends are to be
accrued, less the aggregate amount of all dividends theretofore paid
thereon.
(b) The term "business day" shall mean each Monday, Tuesday,
Wednesday, Thursday or Friday on which banking institutions in the
Borough of Manhattan, The City of New York, are not authorized or
obligated by law or executive order to close.
(c) The term "junior stock" shall mean the Common Stock and
any other series of Preferred Stock of the Corporation, or any other
class or series of the capital stock of the Corporation, authorized or
issued after the Original Issue Date other than the Series C Non-Voting
Participating Convertible Preferred Stock of the Corporation, which
Series C Non-Voting Participating Convertible Preferred Stock is senior
to, and has preference and priority in the payment of dividends and in
the distribution of assets on any liquidation, dissolution or winding
up of the Corporation over, the Series B.
(d) The term "Original Issue Date" shall mean the date on
which a share of Series B was first issued.
(e) The term "person" shall mean any individual, corporation,
partnership, joint venture, joint stock association, business trust and
other business entity, trust, unincorporated organization, governmental
agency or authority or any other form of entity.
(f) The term "Requisite Shares" means the greater of (i)
593,953 shares of the Series A, Series B and Series C, taken together,
or (ii) 50% of the total shares of the Series A, Series B and Series C
issued on or after the date of filing this Certificate.
(g) The term "subsidiary" shall mean, as to a particular
parent corporation, any person of which 50% or more of the indicia of
equity rights is at the time directly or indirectly owned by such
parent corporation or by one or more persons controlled by, controlling
or under common control with such parent corporation.
-10-
<PAGE> 61
EXHIBIT B
SECTION 10. OTHER RIGHTS. The shares of Series B shall not have any
powers, preferences or relative, participating, optional or other special
rights, or qualifications, limitations or restrictions thereof, other than as
set forth herein.
IN WITNESS WHEREOF, Fresh Choice, Inc. has caused this Certificate to
be signed by _____________________, its President, this _____ day of
_____________, _____.
Fresh Choice, Inc.
By______________________________
Robert Ferngren, President
-11-
<PAGE> 62
EXHIBIT C
CERTIFICATE OF DESIGNATION
OF
SERIES C NON-VOTING PARTICIPATING CONVERTIBLE PREFERRED STOCK
OF
FRESH CHOICE, INC.
Fresh Choice, Inc., a Delaware corporation, DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors of
said corporation by virtue of its Certificate of Incorporation as amended and in
accordance with Section 151 of the General Corporation Law of the State of
Delaware, said Board of Directors has duly adopted a resolution providing for
the issuance of a series of Preferred Stock, par value $0.001 per share,
designated as Series C Non-Voting Participating Convertible Preferred Stock,
which resolution reads as follows:
"BE IT RESOLVED, that the Board of Directors (the "Board of Directors")
of Fresh Choice, Inc., a Delaware corporation (the "Corporation"), hereby
authorizes the issuance of a series of Preferred Stock and fixes its
designation, powers, preferences and relative, participating, optional or other
special rights, and qualifications, limitations and restrictions thereof, as
follows:
SECTION 1. DESIGNATION. The distinctive serial designation of said
series shall be "Series C Non-Voting Participating Convertible Preferred Stock"
(hereinafter called "Series C"). Each share of Series C shall be identical in
all respects with all other shares of Series C except as to the dates from and
after which dividends thereon shall be cumulative.
SECTION 2. NUMBER OF SHARES. The number of shares in Series C shall
initially be 593,953, which number may from time to time be increased or
decreased (but not below the total number thereof then outstanding and reserved
for issuance) by the Board of Directors. Shares of Series C that are redeemed,
purchased or otherwise acquired by the Corporation or converted into Common
Stock shall be cancelled and shall revert to authorized but unissued shares of
Preferred Stock undesignated as to series.
SECTION 3. DIVIDENDS. So long as any share of Series C remains
outstanding, the holders of shares of Series C shall be entitled to participate,
on an "as converted" basis, in and to receive, when, as and if declared by the
Board of Directors of the Corporation, but only out of funds legally available
therefore, any and all cash dividends and other distributions paid or made with
respect to any junior stock. So long as any share of Series C remains
outstanding, no dividend whatever shall be paid or declared and no distribution
shall be made on any junior stock, unless, contemporaneously therewith, a
dividend or other distribution on the shares of the Series C then outstanding
shall have been declared and set apart for payment as hereinafter provided. All
dividends and other distributions paid or made by the Corporation at any time as
any share of the Series C remains outstanding shall be paid or distributed among
the holders of the Common Stock and the Series C in proportion to the shares of
Common Stock then held by
<PAGE> 63
EXHIBIT C
the holders of the Common Stock and the shares of Common Stock which the holders
of the Series C then have the right to acquire upon conversion of the shares of
Series C then held by them.
In addition to the foregoing, in the event of any liquidation,
dissolution or winding up of the affairs of the Corporation (a "Liquidation")
following the occurrence of an Event of Non-Compliance, and continuing through
and including the date on which any such Liquidation occurs, the holders of the
Series C shall be entitled to receive, when, as and if declared by the Board of
Directors of the Corporation, but only out of funds legally available therefore,
cumulative preferential cash dividends at the annual rate of $0.72 per share,
and no more, calculated from the first date of the occurrence of an Event of
Non-Compliance, and payable pursuant to Section 4 hereof. So long as any share
of Series C remains outstanding, no dividend whatever shall be paid or declared
and no distribution shall be made on any junior stock, and no shares of junior
stock shall be purchased, redeemed or otherwise acquired for consideration by
the Corporation, directly or indirectly, unless all accrued dividends on all
outstanding shares of Series C shall have been paid. For the sole purpose of
this paragraph, any merger, consolidation or sale of substantially all the
assets of the Corporation shall be deemed to be a Liquidation for the purposes
of such rights to cumulative preferential dividends, and shall be paid prior to
the consummation of any such transaction.
SECTION 4. LIQUIDATION RIGHTS. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, then, before any distribution or payment shall be made to the
holders of any junior stock, the holders of shares of Series C shall be entitled
to be paid in full an amount equal to $6.00 per share, together with all accrued
dividends to such distribution or payment date whether or not earned or
declared. After payment in full of all amounts owing to the holders of shares of
Series C as herein provided, the remaining assets of the Corporation, if any,
may be distributed by the Corporation as provided in Section 281 of the General
Corporation Law of the State of Delaware or other controlling provision of
applicable law, and the holders of shares of Series C shall have no right to
participate in any such distributions.
SECTION 5. CONVERSION RIGHTS. The holders of shares of Series C shall
have conversion rights as follows (the "Conversion Rights"):
(A) RIGHT TO CONVERT. Each share of Series C shall be
convertible, at the option of the holder thereof, at any time after the
date of issuance of such share at the office of the Corporation or any
transfer agent for such stock, into such number of fully paid and
nonassessable shares of Common Stock of the Corporation as is
determined by dividing $4.63 by the Current Conversion Price applicable
to such share, determined as hereinafter provided, in effect on the
date the certificate is surrendered for conversion. The price at which
shares of Common Stock shall be deliverable upon conversion of
-2-
<PAGE> 64
EXHIBIT C
shares of the Series C (the "Stated Conversion Price") shall initially
be $4.63 per share of Common Stock. The Stated Conversion Price shall
be adjusted from and after the Original Issue Date as hereinafter
provided. The Stated Conversion Price at any time in effect or, in the
case of any such adjustment, such Stated Conversion Price as most
recently so adjusted, is herein called the "Current Conversion Price."
(B) MECHANICS OF CONVERSION. Before any holder of Series C
shall be entitled to convert the same into shares of Common Stock, such
holder shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for
such stock, and shall give written notice to the Corporation at such
office that such holder elects to convert the same and shall state
therein the name or names in which such holder wishes the certificate
or certificates for shares of Common Stock to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver
at such office to such holder of Series C, a certificate or
certificates for the number of shares of Common Stock to which such
holder shall be entitled as aforesaid. Such conversion shall be deemed
to have been made immediately prior to the close of business on the
date of surrender of the shares of Series C to be converted, and the
person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
(C) ADJUSTMENTS TO CURRENT CONVERSION PRICE FOR STOCK
DIVIDENDS AND FOR COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the
event that the Corporation at any time or from time to time after the
Original Issue Date shall declare or pay, without consideration, any
dividend on the Common Stock payable in Common Stock or in any right to
acquire Common Stock for no consideration, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock (by stock split, reclassification or
otherwise than by payment of a dividend in Common Stock or in any right
to acquire Common Stock), or in the event the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the
Current Conversion Price in effect immediately prior to such event
shall, concurrently with the effectiveness of such event, be
proportionately decreased or increased, as appropriate. In the event
that the Corporation shall declare or pay, without consideration, any
dividend on the Common Stock payable in any right to acquire Common
Stock for no consideration, then the Corporation shall be deemed to
have made a dividend payable in Common Stock in an amount of shares
equal to the maximum number of shares issuable upon exercise of such
rights to acquire Common Stock.
(D) ADJUSTMENTS FOR RECLASSIFICATION AND REORGANIZATION. If at
any time after the Original Issue Date the Common Stock issuable upon
conversion of the Series
-3-
<PAGE> 65
EXHIBIT C
C shall be changed into the same or a different number of shares of any
other class or classes of stock, whether by capital reorganization,
reclassification or otherwise, the Current Conversion Price then in
effect shall, concurrently with the effectiveness of such
reorganization or reclassification, be proportionately adjusted so that
the Series C shall be convertible into, in lieu of the number of shares
of Common Stock which the holders would otherwise have been entitled to
receive, a number of shares of such other class or classes of stock
equivalent to the number of shares of Common Stock that would have been
subject to receipt by the holders upon conversion of the Series C
immediately before that change.
(E) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS. If at any time or from time to time after the Original Issue
Date there is a capital reorganization or reclassification of the
capital stock of the Corporation (other than a recapitalization,
subdivision, combination, reclassification, exchange or substitution of
shares provided for elsewhere in this Section ) or a merger,
consolidation or sale of all or substantially all of the assets of the
Corporation, as a part of and as a condition to such capital
reorganization or reclassification, merger, consolidation or sale of
assets provision shall be made so that the holders of the Series C
shall thereafter be entitled to receive upon conversion of the Series C
the number of shares of stock or other securities or property of the
Corporation to which a holder of the number of shares of Common Stock
deliverable upon conversion of the Series C would have been entitled on
such capital reorganization or reclassification, merger, consolidation
or sale of assets, subject to adjustment in respect of such stock or
securities by the terms thereof. In any such case, appropriate
adjustment shall be made in the application of the provisions of this
Section with respect to the rights of the holders of Series C after the
capital reorganization, merger, consolidation or sale of assets to the
end that the provisions of this Section (including adjustment of the
Current Conversion Price then in effect and the number of shares
issuable upon conversion of the Series C) shall be applicable after
that event and be as nearly equivalent as practicable.
(F) NO IMPAIRMENT. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale
of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good
faith assist in the carrying out of all the provisions of this Section
and in the taking of all such action as may be necessary or appropriate
in order to protect the Conversion Rights of the holders of the Series
C against impairment.
(G) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of any Current Conversion Price
pursuant to this Section , the
-4-
<PAGE> 66
EXHIBIT C
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series C a certificate executed by the
Corporation's President or Chief Financial Officer setting forth such
adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any holder of Series C, furnish or
cause to be furnished to such holder a like certificate setting forth
(i) such adjustments and readjustments, (ii) the Current Conversion
Price for such series of Preferred Stock at the time in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion
of the Series C.
(H) NOTICES OF RECORD DATE. In the event that the Corporation
shall propose at any time after the Original Issue Date: (i) to declare
any dividend or distribution upon its Common Stock, whether in cash,
property, stock or other securities, whether or not a regular cash
dividend and whether or not out of earnings or earned surplus; (ii) to
offer for subscription pro rata to the holders of any class or series
of its stock any additional shares of stock of any class or series or
other, rights; (iii) to effect any reclassification or recapitalization
of its Common Stock outstanding involving a change in the Common Stock;
or (iv) to merge or consolidate with or into any other corporation, or
sell, lease or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; then, in connection with each such
event, the Corporation shall send to the holders of Series C:
(i) at least twenty (20) days' prior written notice
of the date on which a record shall be taken for such
dividend, distribution or subscription rights (and specifying
the date on which the holders of Common Stock shall be
entitled thereto) or for determining rights to vote, if any,
in respect of the matters referred to in (iii) and (iv) above;
and
(ii) in the case of the matters referred to in (iii)
and (iv) above, at least twenty (20) days' prior written
notice of the date when the same shall take place (and
specifying the date on which the holders of Common Stock shall
be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event).
(I) ISSUE TAXES. The Corporation shall pay any and all issue
and other taxes that may be payable in respect of any issue or delivery
of shares of Common Stock on conversion of Series C pursuant hereto;
provided, however, that the Corporation shall not be obligated to pay
any transfer taxes resulting from any transfer requested by any holder
in connection with any such conversion.
-5-
<PAGE> 67
EXHIBIT C
(J) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose
of effecting the conversion of the shares of the Series C, such number
of its shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding shares of the Series C; and
if at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series C, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose, including,
without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to the Certificate of
Incorporation of the Corporation.
(K) FRACTIONAL SHARES. No fractional share shall be issued
upon the conversion of any share or shares of Series C. All shares of
Common Stock (including fractions thereof) issuable upon conversion of
more than one share of Series C by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the
issuance of any fractional share. If, after the aforementioned
aggregation, the conversion would result in the issuance of a fraction
of a share of Common Stock, the Corporation shall, in lieu of issuing
any fractional share, pay the holder otherwise entitled to such
fraction a sum in cash equal to the fair market value of such fraction
on the date of conversion (as determined in good faith by the Board of
Directors).
(L) NOTICES. Any notice required by the provisions of this
Section to be given to the holders of shares of Series C shall be
deemed given if deposited in the United States mail, postage prepaid,
or if sent by facsimile or delivered personally by hand or nationally
recognized courier and addressed to each holder of record at such
holder's address or facsimile number appearing in the records of the
Corporation.
(M) MEANING OF "COMMON STOCK". For the purpose of this Section
, the term "Common Stock" shall include any stock of any class or
series of the Corporation which has no preference or priority in the
payment of dividends or in the distribution of assets in the event of
any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation which is not subject to redemption by the Corporation.
However, shares issuable upon conversion of shares of Series C shall
include only shares of the class designated as Common Stock as of the
original date of issuance of shares of Series C or shares of the
Corporation of any classes or series resulting from any
reclassification or reclassifications thereof and which have no
preference or priority in the payment of dividends or in the
distribution of assets in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation and which are
not subject to
-6-
<PAGE> 68
EXHIBIT C
redemption by the Corporation, provided that if at any time there shall
be more than one such resulting class or series, the shares of each
such class and series then so issuable shall be substantially in the
proportion which the total number of shares of such class and series
resulting from all such reclassifications bears to the total number of
shares of all such classes and series resulting from all such
reclassifications.
(N) POSTPONEMENT OF ADJUSTMENTS; CALCULATIONS. Any adjustment
in the conversion price otherwise required by this Section to be made
may be postponed if such adjustment (plus any other adjustments
postponed pursuant to this paragraph and not theretofore made) would
not require an increase or decrease of more than 1% in such price. All
calculations hereunder shall be made to the nearest cent or to the
nearest 1/100th of a share, as the case may be.
(O) TAX ADJUSTMENTS. The Board of Directors may make such
adjustments in the conversion price, in addition to those required by
this Section , as shall be determined by the Board of Directors to be
advisable in order to avoid taxation so far as practicable of any
dividend of stock or stock rights or any event treated as such for
Federal income tax purposes to the recipients. The Board of Directors
shall have the power to resolve any ambiguity or correct any error in
this Section , and its action in so doing shall be final and
conclusive.
(P) ADJUSTMENTS APPLICABLE TO NEW SECURITIES. In the event
that any time, as a result of an adjustment made pursuant to the
provisions hereof, the holder of any shares of Series C thereafter
surrendered for conversion shall become entitled to receive any shares
of capital stock of the Corporation other than Common Stock, thereafter
the number of such other shares so receivable upon conversion of such
shares of Series C shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in Section with
respect to the Common Stock shall apply on like terms to any such other
shares.
(Q) ACCOUNTANTS' CERTIFICATE. The certificate of any
independent firm of public accountants of recognized standing selected
by the Board of Directors shall be presumptive evidence of the
correctness of any computation made under this Section 5.
(R) REIT SAVINGS CLAUSE. The Conversion Rights with respect to
the Series C shall not exist to the extent that immediately after the
conversion of such shares of Series C into Common Stock, Crescent Real
Estate Equities, Inc., a Maryland corporation (together with its
successors, "Crescent"), would be treated as owning more than 10
percent of the outstanding voting securities of the Corporation for
purposes of Section 856(c)(5) of the Internal Revenue Code of 1986, as
amended (the "Code"). Any request
-7-
<PAGE> 69
EXHIBIT C
by any holder of the Series C to exercise such holder's Conversion
Rights must be accompanied by an opinion of counsel, which counsel and
the form, scope and substance of such opinion must be satisfactory to
Crescent in its sole and absolute discretion, stating that any proposed
exercise of any holder's Conversion Rights will not cause Crescent to
be treated as owning more than 10 percent of the outstanding voting
securities of the Corporation for purposes of Section 856(c)(5) of the
Code. Any exercise or purported exercise of any Conversion Rights in
violation of this Section shall be void ab initio.
SECTION 6. VOTING RIGHTS. The holders of shares of Series C shall not
have any voting rights except as from time to time required by law.
SECTION 7. COVENANTS; "EVENT OF NON-COMPLIANCE" DEFINED. For so long as
the Requisite Shares shall be outstanding, the Corporation shall do each of the
following:
(A) PROFITABILITY. The Corporation's consolidated net income
before all amounts properly recorded for interest, taxes, depreciation
and amortization ("EBITDA"), in each case, as set forth in the audited
financial statements of the Corporation for the fiscal years indicated,
shall be, (i) for fiscal year 1996, $1,500,000; (ii) for fiscal year
1997, $3,500,000; and (iii) for fiscal year 1998, $5,500,000. As used
herein, the term "EBITDA Period" means each fiscal year of the
Corporation ending in December 1996, December 1997, and December 1998;
and the term "EBITDA Target" for any EBITDA Period means the dollar
amount of EBITDA required to be earned by the Corporation for each such
EBITDA Period as set forth in the preceding sentence, or as
subsequently modified as hereinafter provided. If the Board of
Directors of the Corporation shall unanimously and specifically
authorize and approve any act or activity of the Corporation the result
of which will be to reduce the Corporation's EBITDA for any EBITDA
Period, and such reduction in the EBITDA is unanimously and
specifically authorized and approved by the Board of Directors, the
EBITDA Target or Targets, as the case may be, shall be deemed to be
automatically reduced to the dollar amount equal to the amount
calculated by multiplying the Corporation's new, revised budgeted
EBITDA by a fraction the numerator of which is the original EBITDA
Target specified for the applicable EBITDA Period in the first sentence
of this paragraph and the denominator of which is the originally
budgeted EBITDA for such EBITDA Period as such originally budgeted
EBITDA is set forth in the Business Plan of the Corporation as of April
26, 1996.
(B) MATTERS REQUIRING NOTICE. The Corporation shall notify the
holders of the Series C (i) ten days prior to the taking of any action
to reduce any EBITDA Target, and (ii) promptly upon acquiring knowledge
of the occurrence of any Event of Non-Compliance.
-8-
<PAGE> 70
EXHIBIT C
(C) "EVENT OF NON-COMPLIANCE" DEFINED. As used herein, an
"Event of Non-Compliance" means (i) the breach of or violation by the
Corporation of any covenant of the Corporation set forth in paragraphs
(a) and (b) of this Section , and such violation is not cured or waived
within 30 days, or (ii) the default under any material bond, note or
other evidence of indebtedness of the Corporation or under any
indenture or other instrument under which any such evidence if
indebtedness has been issued or by which it is governed and the
expiration of the applicable period of grace, if any, specified in such
evidence of indebtedness; provide, however, that, if such default under
such evidence of indebtedness, indenture or other instrument shall be
cured by the Corporation, or be waived by the holders of such
indebtedness, in each case as may be permitted by such evidence of
indebtedness, indenture or other instrument, the Event of
Non-Compliance hereunder by reason of such default shall be deemed
likewise to have been thereupon cured or waived. In the event the
Corporation's EBITDA for any EBITDA Period shall be an amount less than
the EBITDA Target for such EBITDA Period, but shall be an amount equal
to or greater than the product obtained by multiplying (i) the EBITDA
Target for such EBITDA Period by (ii) .95 (the EBITDA Target less such
amount being hereinafter called the "Shortfall"), then, in such event,
the failure of the Corporation to earn an amount equal to or greater
than the EBITDA Target for such EBITDA Period shall be deemed to have
been cured if, for the first quarter of the Corporation's fiscal year
next following the EBITDA Period during which the Corporation shall
fail to have earned the EBITDA Target, the Corporation shall have
earned the sum of (x) the Shortfall, plus (y) the First Quarter
Projected EBITDA (as hereinafter defined). As used herein, the term
"First Quarter Projected EBITDA" shall mean either (i) the amount
determined by multiplying the Corporation's budgeted EBITDA for the
applicable quarter by a fraction the numerator of which is the EBITDA
Target for the EBITDA Period in which the quarter falls and the
denominator of which is the Corporation's budgeted EBITDA for such
EBITDA Period, or (ii) if the Corporation's budgeted EBITDA for the
applicable quarter shall be a loss, then the Corporation's budgeted
loss for such quarter, whichever of (i) or (ii) is less. For the
purposes hereof, the references to budgeted amounts refer to the
budgets of the Corporation duly approved by the Corporation's Board of
Directors in the ordinary course of business and consistent with past
practice.
SECTION 8. REDUCTION IN VALUE OR SECURITY. The Corporation shall not in
any manner, whether by amendment of the Certificate of Incorporation (including,
without limitation, any Certificate of Designations), merger, reorganization,
recapitalization, consolidation, sale of assets, sale of stock, tender offer,
dissolution or otherwise, take any action, or permit any action to be taken,
solely or primarily for the purpose of increasing the value of any class of
stock of the Corporation if the effect of such action is to reduce the value or
security of the Series C.
SECTION 9. DEFINITIONS. As used herein with respect to Series C, the
following terms shall have the following meanings:
-9-
<PAGE> 71
EXHIBIT C
(a) The term "accrued dividends," with respect to any share of
any class or series, shall mean an amount computed at the annual
dividend rate for the class or series of which the particular share is
a part, from the date on which dividends on such share became
cumulative to and including the date to which such dividends are to be
accrued, less the aggregate amount of all dividends theretofore paid
thereon.
(b) The term "business day" shall mean each Monday, Tuesday,
Wednesday, Thursday or Friday on which banking institutions in the
Borough of Manhattan, The City of New York, are not authorized or
obligated by law or executive order to close.
(c) The term "junior stock" shall mean the Common Stock, the
Series A Voting Participating Convertible Preferred Stock of the
Corporation, the Series B Non-Voting Participating Convertible
Preferred Stock of the Corporation, and any other series of Preferred
Stock of the Corporation, or any other class or series of the capital
stock of the Corporation, authorized or issued after the date on which
this Certificate is filed.
(d) The term "Original Issue Date" shall mean the date on
which a share of Series B was first issued.
(e) The term "person" shall mean any individual, corporation,
partnership, joint venture, joint stock association, business trust and
other business entity, trust, unincorporated organization, governmental
agency or authority or any other form of entity.
(f) The term "Requisite Shares" means the greater of (i)
593,953 shares of the Series A, Series B and Series C, taken together,
or (ii) 50% of the total shares of the Series A, Series B and Series C
issued on or after the date of filing this Certificate.
(g) The term "subsidiary" shall mean, as to a particular
parent corporation, any person of which 50% or more of the indicia of
equity rights is at the time directly or indirectly owned by such
parent corporation or by one or more persons controlled by, controlling
or under common control with such parent corporation.
SECTION 10. OTHER RIGHTS. The shares of Series C shall not have any
powers, preferences or relative, participating, optional or other special
rights, or qualifications, limitations or restrictions thereof, other than as
set forth herein.
-10-
<PAGE> 72
EXHIBIT C
IN WITNESS WHEREOF, Fresh Choice, Inc. has caused this Certificate to
be signed by _____________________, its President, this _____ day of
_____________, _____.
Fresh Choice, Inc.
By
---------------------------------
Robert Ferngren, President
-11-
<PAGE> 73
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE 1
REGISTRATION RIGHTS
<S> <C> <C>
Section 1.1 Certain Definitions.................................................................. 1
Section 1.2 Demand Registration Rights........................................................... 3
Section 1.3 Company Registration................................................................. 6
Section 1.4 Expenses of Registration............................................................. 8
Section 1.5 Registration Procedures.............................................................. 9
Section 1.6 Indemnification...................................................................... 11
Section 1.7 Information by Holder................................................................ 14
Section 1.8 Limitations on Subsequent Registration Rights........................................ 14
Section 1.9 Rule 144 Reporting................................................................... 14
Section 1.10 Transfer or Assignment of Registration Rights........................................ 15
Section 1.11 "Market Stand-Off" Agreement......................................................... 15
Section 1.12 Allocation of Registration Opportunities............................................. 16
Section 1.13 Termination of Registration Rights................................................... 16
ARTICLE 2
MISCELLANEOUS
Section 2.1 Governing Law........................................................................ 17
Section 2.2 Successors and Assigns............................................................... 17
Section 2.3 Entire Agreement; Amendment; Waiver.................................................. 18
Section 2.4 Notices, Etc......................................................................... 18
Section 2.5 Delays or Omissions.................................................................. 18
Section 2.6 Rights; Separability................................................................. 18
Section 2.7 Information Confidential............................................................. 19
Section 2.8 Titles and Subtitles................................................................. 19
Section 2.9 Counterparts......................................................................... 19
</TABLE>
-i-
<PAGE> 74
EXHIBIT D
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is dated as of
the ____ day of __________, 1996, and is being entered into by and between
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership (the "Stockholder") and FRESH CHOICE, INC., a Delaware corporation
(the "Company").
RECITALS
This is the Registration Rights Agreement referred to in that certain
Preferred Stock Purchase Agreement (herein so called) dated as of April 26,
1996, by and between the Company and the Stockholder, and is being entered
pursuant to the provisions thereof.
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
representations, warranties, covenants and agreements set forth herein and in
the Preferred Stock Purchase Agreement, and intending to be legally bound, the
paries hereto hereby agree as follows:
ARTICLE 1
REGISTRATION RIGHTS
SECTION 1.1 CERTAIN DEFINITIONS.
As used in this Agreement, the following terms shall have the
meanings set forth below:
(A) CLOSING. "Closing" shall mean the Closing under
the Preferred Stock Purchase Agreement.
(B) COMMISSION. "Commission" shall mean the
Securities and Exchange Commission or any other federal agency
at the time administering the Securities Act.
(C) EXCHANGE ACT. "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended, or any similar
successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to
time.
(D) HOLDER. "Holder" shall mean any holder of Shares
or Registrable Securities and any holder of Registrable
Securities to whom the registration rights conferred by this
Agreement have been transferred in compliance with Section
hereof.
<PAGE> 75
EXHIBIT D
(E) INITIATING HOLDERS. "Initiating Holders" shall
mean any Holder or Holders who in the aggregate hold not less
than fifty percent (50%) of the Registrable Securities, or who
in the aggregate have the right to acquire fifty percent (50%)
of the Registrable Securities upon conversion of the Shares.
It shall not be necessary that a Holder convert the Shares
into Registrable Securities to be an "Initiating Holder."
(F) OTHER STOCKHOLDERS. "Other Stockholders" shall
mean persons other than Holders who, by virtue of agreements
with the Company, are entitled to include their securities in
certain registrations hereunder.
(G) REGISTRABLE SECURITIES. "Registrable Securities"
shall mean (i) shares of Common Stock issued or issuable
pursuant to the conversion of the Shares and (ii) any Common
Stock issued as a dividend or other distribution with respect
to or in exchange for or in replacement of the shares
referenced in (i) above; provided, however, that Registrable
Securities shall not include any shares of Common Stock which
have previously been registered or which have been sold to the
public either pursuant to a registration statement or Rule
144, or which have been sold in a private transaction in which
the transferor's rights under this Agreement are not assigned.
(H) REGISTER, REGISTERED AND REGISTRATION. The terms
"register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable
rules and regulations thereunder, and the declaration or
ordering of the effectiveness of such registration statement.
(I) REGISTRATION EXPENSES. "Registration Expenses"
shall mean all expenses incurred in effecting any registration
pursuant to this Agreement, including, without limitation, all
registration, qualification, and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for
the Company, blue sky fees and expenses, and expenses of any
regular or special audits incident to or required by any such
registration, but shall not include Selling Expenses, fees and
disbursements of counsel for the Holders and the compensation
of regular employees of the Company, which shall be paid in
any event by the Company.
-2-
<PAGE> 76
EXHIBIT D
(J) RULE 144. "Rule 144" shall mean Rule 144 as
promulgated by the Commission under the Securities Act, as
such Rule may be amended from time to time, or any similar
successor rule that may be promulgated by the Commission.
(K) RULE 145. "Rule 145" shall mean Rule 145 as
promulgated by the Commission under the Securities Act, as
such Rule may be amended from time to time, or any similar
successor rule that may be promulgated by the Commission.
(L) SECURITIES ACT. "Securities Act" shall mean the
Securities Act of 1933, as amended, or any similar successor
federal statute and the rules and regulations thereunder, all
as the same shall be in effect from time to time.
(M) SELLING EXPENSES. "Selling Expenses" shall mean
all underwriting discounts, selling commissions and stock
transfer taxes applicable to the sale of Registrable
Securities and fees and disbursements of counsel for any
Holder (other than the fees and disbursements of counsel
included in Registration Expenses).
(N) SHARES. "Shares" shall mean, collectively, the
Company's Series A Voting Participating Convertible Preferred
Stock, par value $0.001 per share, Series B Non-Voting
Participating Convertible Preferred Stock, par value $0.001
per share, and the Company's Series C Non-Voting Participating
Convertible Preferred Stock, par value $0.001 per share.
SECTION 1.2 DEMAND REGISTRATION RIGHTS.
(A) REQUEST FOR REGISTRATION. If the Company shall
receive from Initiating Holders at any time or from time to
time after the date hereof a written request that the Company
effect any registration with respect to all or a part of the
Registrable Securities the Company shall:
(i) promptly give written notice of the
proposed registration to all other Holders; and
(ii) as soon as practicable, use its best
efforts to effect such registration (including,
without limitation, filing post-effective amendments,
appropriate qualifications under
-3-
<PAGE> 77
EXHIBIT D
applicable blue sky or other state securities laws,
and appropriate compliance with the Securities Act)
and as would permit or facilitate the sale and
distribution of all or such portion of such
Registrable Securities as are specified in such
request, together with all or such portion of the
Registrable Securities of any Holder or Holders
joining in such request as are specified in a written
request received by the Company within twenty (20)
days after such written notice from the Company is
mailed or delivered.
The Company shall not be obligated to
effect, or to take any action to effect, any such
registration pursuant to this Section :
(A) In any particular jurisdiction
in which the Company would be required to
execute a general consent to service of
process in effecting such registration,
qualification, or compliance, unless the
Company is already subject to service in
such jurisdiction and except as may be
required by the Securities Act;
(B) After the Company has initiated
two such registrations pursuant to this
Section (a) (counting for these purposes
only registrations which have been declared
or ordered effective and pursuant to which
securities have been sold and registrations
which have been withdrawn by the Holders as
to which the Holders have not elected to
bear the Registration Expenses pursuant to
Section hereof and would, absent such
election, have been required to bear such
expenses); or
(C) During the period starting with
the date sixty (60) days prior to the
Company's good faith estimate of the date of
filing of, and ending on a date one hundred
eighty (180) days after the effective date
of, a Company-initiated registration;
provided that the Company is actively
employing in good faith all reasonable
efforts to cause such registration statement
to become effective.
-4-
<PAGE> 78
EXHIBIT D
(B) FILING OF REGISTRATION STATEMENT. Subject to the
foregoing clauses (A) through (C), the Company shall file a
registration statement covering the Registrable Securities so
requested to be registered as soon as practicable after
receipt of the request or requests of the Initiating Holders;
provided, however, that if (i) in the good faith judgment of
the Board of Directors of the Company, such registration would
be seriously detrimental to the Company and the Board of
Directors of the Company concludes, as a result, that it is
essential to defer the filing of such registration statement
at such time, and (ii) the Company shall furnish to such
Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to
the Company for such registration statement to be filed in the
near future and that it is, therefore, essential to defer the
filing of such registration statement, then the Company shall
have the right to defer such filing (except as provided in
clause (C) above) for a period of not more than ninety (90)
days after receipt of the request of the Initiating Holders,
and, provided further, that the Company shall not defer its
obligation in this manner more than once in any twelve-month
period.
The registration statement filed pursuant to the
request of the Initiating Holders may, subject to the
provisions of Sections (b) and hereof, include other
securities of the Company, with respect to which registration
rights have been granted, and may include securities of the
Company being sold for the account of the Company.
(C) UNDERWRITING. If the registration of which the
Initiating Holders give notice is for a registered public
offering involving an underwriting, the Initiating Holders
shall so advise the Company as a part of the written request
given pursuant to Section (a). In such event, the right of any
Holder to registration pursuant to Section shall be
conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and
such Holder with respect to such participation and inclusion)
to the extent provided herein. A Holder may elect to include
in such underwriting all or a part of the Registrable
Securities held by such Holder.
-5-
<PAGE> 79
EXHIBIT D
(D) PROCEDURES. If the Company shall request
inclusion in any registration pursuant to Section of
securities being sold for its own account, or if other persons
shall request inclusion in any registration pursuant to
Section , the Initiating Holders shall, on behalf of all
Holders, offer to include such securities in the registration,
and may condition such offer on their acceptance of the
further applicable provisions of this Article (including
Section ). If such registration be an underwritten
firm-commitment offering, the Company shall (together with all
Holders and other persons proposing to distribute their
securities through such underwriting) enter into an
underwriting agreement in customary form with the
representative of the underwriter or underwriters selected for
such underwriting by a majority in interest of the Initiating
Holders, which underwriters are reasonably acceptable to the
Company. Notwithstanding any other provision of this Section ,
if the representative of the underwriters advises the
Initiating Holders in writing that marketing factors require a
limitation on the number of shares to be underwritten, the
number of shares to be included in the underwriting or
registration shall be allocated as set forth in Section
hereof. If a person who has requested inclusion in such
registration as provided above does not agree to the terms of
any such underwriting, such person shall be excluded therefrom
by written notice from the Company, the underwriter or the
Initiating Holders. The securities so excluded shall also be
withdrawn from registration. Any Registrable Securities or
other securities excluded or withdrawn from such underwriting
shall also be withdrawn from such registration. If shares are
so withdrawn from the registration and if the number of shares
to be included in such registration was previously reduced as
a result of marketing factors pursuant to this Section (d),
then the Company shall offer to all holders who have retained
rights to include securities in the registration the right to
include additional securities in the registration in an
aggregate amount equal to the number of shares so withdrawn,
with such shares to be allocated among such holders requesting
additional inclusion in accordance with Section .
SECTION 1.3 COMPANY REGISTRATION.
(A) NOTICE OF REGISTRATION. If the Company shall, at
any time or from time to time after the date hereof, determine
to register any of its securities either for its own account
or the
-6-
<PAGE> 80
EXHIBIT D
account of a security holder or holders exercising their
respective demand registration rights (other than pursuant to
Section hereof), other than a registration relating solely to
employee benefit plans, or a registration relating to a
corporate reorganization or other transaction under Rule 145,
or a registration on any registration form that does not
permit secondary sales, the Company shall:
(i) promptly give to each Holder written
notice thereof; and
(ii) use its best efforts to include in such
registration (and any related qualification under
blue sky laws or other compliance), except as set
forth in Section (b) below, and in any underwriting
involved therein, all the Registrable Securities
specified in a written request or requests, made by
any Holder and received by the Company within ten
(10) days after the written notice from the Company
described in clause (i) above is mailed or delivered
by the Company. Such written request may specify all
or a part of a Holder's Registrable Securities.
(B) UNDERWRITING. If the registration of which the
Company gives notice is for a registered public offering
involving an underwriting, the Company shall so advise the
Holders as a part of the written notice given pursuant to
Section (a)(i). In such event, the right of any Holder to
registration pursuant to this Section shall be conditioned
upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such
underwriting shall (together with the Company and the other
holders of securities of the Company with registration rights
to participate therein distributing their securities through
such underwriting) enter into an underwriting agreement in
customary form with the representative of the underwriter or
underwriters selected by the Company.
Notwithstanding any other provision of this Section ,
if the representative of the underwriters advises the Company
in writing that marketing factors require a limitation on the
number of shares to be underwritten, the representative may
(subject to the
-7-
<PAGE> 81
EXHIBIT D
limitations set forth below) exclude all Registrable
Securities from, or limit the number of Registrable Securities
to be included in, the registration and underwriting. The
Company shall so advise all holders of securities requesting
registration, and the number of shares of securities that are
entitled to be included in the registration and underwriting
shall be allocated first to the Company for securities being
sold for its own account and thereafter as set forth in
Section . If any person does not agree to the terms of any
such underwriting, such person shall be excluded therefrom by
written notice from the Company or the underwriter. Any
Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such
registration.
If shares are so withdrawn from the registration or
if the number of shares of Registrable Securities to be
included in such registration was previously reduced as a
result of marketing factors, the Company shall then offer to
all persons who have retained the right to include securities
in the registration the right to include additional securities
in the registration in an aggregate amount equal to the number
of shares so withdrawn, with such shares to be allocated among
the persons requesting additional inclusion in accordance with
Section hereof.
SECTION 1.4 EXPENSES OF REGISTRATION.
All Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to Sections hereof, and the
first two registrations pursuant to Section hereof and reasonable fees of one
counsel for the selling stockholders in the case of registrations pursuant to
Section shall be borne by the Company; provided, however, that if the Holders
bear the Registration Expenses for any registration proceeding begun pursuant to
Section and subsequently withdrawn by the Holders registering shares therein,
such registration proceeding shall not be counted as a requested registration
pursuant to Section hereof. Furthermore, in the event that a withdrawal by the
Holders is based upon material adverse information relating to the Company that
is different from the information known or available (upon request from the
Company or otherwise) to the Holders requesting registration at the time of
their request for registration under Section , such registration shall not be
treated as a counted registration for purposes of Section hereof, even though
the Holders do not bear the Registration Expenses for such registration. All
Selling Expenses relating to securities so registered shall be borne by the
Holders of such securities pro rata on the basis of the number of shares of
securities so registered on their behalf, as shall any other
-8-
<PAGE> 82
EXHIBIT D
expenses in connection with the registration required to be borne by the Holders
of such securities.
SECTION 1.5 REGISTRATION PROCEDURES.
In the case of each registration effected by the Company
pursuant to Article , the Company will keep each Holder advised in writing as to
the initiation of each registration and as to the completion thereof. At its
expense, the Company will use its best efforts to:
(A) Keep such registration effective for a period of
one hundred twenty (120) days or until the Holder or Holders
have completed the distribution described in the registration
statement relating thereto, whichever first occurs; provided,
however, that (i) such 120-day period shall be extended for a
period of time equal to the period the Holder refrains from
selling any securities included in such registration at the
request of an underwriter of Common Stock (or other
securities) of the Company; or, in the case of any
registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such
120-day period shall be extended, if necessary, to keep the
registration statement effective until all such Registrable
Securities are sold, provided that Rule 415 permits an
offering on a continuous or delayed basis, and provided
further that applicable rules under the Securities Act
governing the obligation to file a post-effective amendment
permit, in lieu of filing a post-effective amendment that (I)
includes any prospectus required by Section 10(a)(3) of the
Securities Act or (II) reflects facts or events representing a
material or fundamental change in the information set forth in
the registration statement, the incorporation by reference of
information required to be included in (I) and (II) above to
be contained in periodic reports filed pursuant to Section 13
or 15(d) of the Exchange Act in the registration statement;
(B) Prepare and file with the Commission such
amendments and supplements to such registration statement and
the prospectus used in connection with such registration
statement as may be necessary to comply with the provisions of
the Securities Act with respect to the disposition of all
securities covered by such registration statement;
-9-
<PAGE> 83
EXHIBIT D
(C) Furnish such number of prospectuses and other
documents thereto, including any amendment of or supplement to
the prospectus, as a Holder from time to time may reasonably
request;
(D) Notify each seller of Registrable Securities
covered by such registration statement at any time when a
prospectus relating thereto is required to be delivered under
the Securities Act of the happening of any event as a result
of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein
not misleading or incomplete in the light of the circumstances
then existing, and at the request of any such seller, prepare
and furnish to such seller a reasonable number of copies of a
supplement to or an amendment of such prospectus shall not
include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing;
(E) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange or
market on which similar securities issued by the Company are
then listed or admitted to trading;
(F) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant to such
registration statement and a CUSIP number for all such
Registrable Securities, in each case not later than the
effective date of such registration;
(G) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at
least twelve months, but not more than eighteen months,
beginning with the first month after the effective date of the
Registration Statement, which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities Act; and
(H) In connection with any underwritten offering
pursuant to a registration statement filed pursuant to Section
-10-
<PAGE> 84
EXHIBIT D
hereof, the Company will enter into an underwriting agreement
in form reasonably necessary to effect the offer and sale of
Common Stock, provided such underwriting agreement contains
customary underwriting provisions and provided further that if
the underwriter so requests the underwriting agreement will
contain customary contribution provisions.
SECTION 1.6 INDEMNIFICATION.
(A) The Company will indemnify each Holder, each of
its officers, directors and partners, legal counsel, and
accountants and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to
which registration, qualification, or compliance has been
effected pursuant to this Article , and each underwriter, if
any, and each person who controls within the meaning of
Section 15 of the Securities Act any underwriter, against all
expenses, claims, losses, damages, and liabilities (or
actions, proceedings, or settlements in respect thereof)
arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any
prospectus, offering circular, or other document (including
any related registration statement, notification, or the like)
incident to any such registration, qualification, or
compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or
any violation by the Company of the Securities Act or any rule
or regulation thereunder applicable to the Company and
relating to action or inaction required of the Company in
connection with any such registration, qualification, or
compliance, and will reimburse each such Holder, each of its
officers, directors, partners, legal counsel, and accountants
and each person controlling such Holder, each such
underwriter, and each person who controls any such
underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating and defending or
settling any such claim, loss, damage, liability, or action,
provided that the Company will not be liable in any such case
to the extent that any such claim, loss, damage, liability, or
expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the
Company by such Holder or underwriter and stated to be
specifically for use therein. It is agreed that the indemnity
agreement contained in this Section (a) shall not apply to
amounts paid in settlement of any
-11-
<PAGE> 85
EXHIBIT D
such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company
(which consent has not been unreasonably withheld).
(B) Each Holder will, if Registrable Securities held
by such Holder are included in the securities as to which such
registration, qualification, or compliance is being effected,
indemnify the Company, each of its directors, officers,
partners, legal counsel, and accountants and each underwriter,
if any, of the Company's securities covered by such a
registration statement, each person who controls the Company
or such underwriter within the meaning of Section 15 of the
Securities Act, each other such Holder and Other Stockholder,
and each of their officers, directors, and partners, and each
person controlling such Holder or Other Stockholder, against
all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus,
offering circular, or other document, or any omission (or
alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading, and will reimburse the Company and such
Holders, Other Stockholders, directors, officers, partners,
legal counsel, and accountants, persons, underwriters, or
control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any
such claim, loss, damage, liability, or action, in each case
to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance
upon and in conformity with written information furnished to
the Company by such Holder and stated to be specifically for
use therein; provided, however, that the obligations of such
Holder hereunder shall not apply to amounts paid in settlement
of my such claims, losses, damages, or liabilities (or actions
in respect thereof) if such settlement is effected without the
consent of such Holder (which consent shall not be
unreasonably withheld); and provided that in no event shall
any indemnity under this Section exceed the gross proceeds
from the offering received by such Holder.
(C) Each party entitled to indemnification under this
Section (the "Indemnified Party") shall give notice to the
party
-12-
<PAGE> 86
EXHIBIT D
required to provide indemnification (the "Indemnifying Party")
promptly after such Indemnified Party has actual knowledge of
any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of such
claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the
defense of such claim or any litigation resulting therefrom,
shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Article , to
the extent such failure is not prejudicial. No Indemnifying
Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement that does
not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release
from all liability in respect to such claim or litigation.
Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be
reasonably required in connection with defense of such claim
and litigation resulting therefrom.
(D) If the indemnification provided for in this
Section is held by a court of competent jurisdiction to be
unavailable to an Indemnified Party with respect to any loss,
liability, claim, damage, or expense referred to therein, then
the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such
loss, liability, claim, damage, or expense in such proportion
as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified
Party on the other in connection with the statements or
omissions that resulted in such loss, liability, claim,
damage, or expense as well as other relevant equitable
considerations. The relative fault of the Indemnifying Party
and of the Indemnified Party shall be determined by reference
to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a
material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the
-13-
<PAGE> 87
EXHIBIT D
parties' relative intent, knowledge, access to information,
and opportunity to correct or prevent such statement or
omission.
(E) Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained
in the underwriting agreement entered into in connection with
the underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting
agreement shall control.
SECTION 1.7 INFORMATION BY HOLDER.
Each Holder of Registrable Securities shall furnish to the
Company such information regarding such Holder and the distribution proposed by
such Holder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification, or
compliance referred to in this Article .
SECTION 1.8 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS.
From and after the date of this Agreement, the Company shall
not, without the prior written consent of a majority in interest of the Holders,
enter into any agreement with any holder or prospective holder of any securities
of the Company giving such holder or prospective holder any registration rights
the terms of which are more favorable than the registration rights granted to
the Holders hereunder.
SECTION 1.9 RULE 144 REPORTING.
With a view to making available the benefits of certain rules
and regulations of the Commission that may permit the sale of the restricted
securities to the public without registration, the Company agrees to use its
best efforts to:
(A) Make and keep public information regarding the
Company available as, those terms are understood and defined
in Rule 144, at all times from and after the date hereof;
(B) File with the Commission in a timely manner all
reports and other documents required of the Company under the
Securities Act and the Exchange Act;
(C) So long as a Holder owns any restricted
securities, furnish to the Holder forthwith upon written
request a written statement by the Company as to its
compliance with the reporting
-14-
<PAGE> 88
EXHIBIT D
requirements of Rule 144, and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so
filed as a Holder may reasonably request in availing itself of
any rule or regulation of the Commission allowing a Holder to
sell any such securities without registration.
SECTION 1.10 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS.
The rights to cause the Company to register securities granted
to a Holder by the Company under this Article may be transferred or assigned by
a Holder only to a transferee or assignee of not less than 250,000 shares of
Registrable Securities (as presently constituted and subject to subsequent
adjustments for stock splits, stock dividends, reverse stock splits, and the
like), provided that the Company is given written notice at the time of or
within a reasonable time after said transfer or assignment, stating the name and
address of the transferee or assignee and identifying the securities with
respect to which such registration rights are being transferred or assigned,
and, provided further, that the transferee or assignee of such rights assumes in
writing the obligations of such Holder under this Article .
SECTION 1.11 "MARKET STAND-OFF" AGREEMENT.
If requested by the Company and an underwriter of Common Stock
(or other securities) of the Company, a Stockholder shall not sell or otherwise
transfer or dispose of any Common Stock (or other securities) of the Company
held by such Stockholder (other than those included in the registration) during
the one hundred eighty (180) day period following the effective date of a
registration statement of the Company filed under the Securities Act, provided
that:
(A) such agreement shall only apply to the first such
registration statement of the Company, including securities to
be sold on its behalf to the public in an underwritten
offering, filed after the date hereof; and
(B) all officers and directors of the Company and
holders of at least one percent (1%) of the Company's voting
securities are bound by and have entered into similar
agreements other than holders who have purchased shares in the
public markets and are affiliates of the Company based solely
on the size of their holdings.
-15-
<PAGE> 89
EXHIBIT D
The obligations described in this Section shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms that may be promulgated in the future. The Company may impose
stop-transfer instructions with respect to the shares of Common Stock (or other
securities) subject to the foregoing restriction until the end of said one
hundred eighty (180) day period.
SECTION 1.12 ALLOCATION OF REGISTRATION OPPORTUNITIES.
In any circumstance in which all of the Registrable Securities
and other shares of Common Stock of the Company (including shares of Common
Stock issued or issuable upon conversion of shares of any currently unissued
series of Preferred Stock of the Company) with registration rights (the "Other
Shares") requested to be included in a registration on behalf of the Holders or
other selling stockholders cannot be so included as a result of limitations of
the aggregate number of shares of Registrable Securities and Other Shares that
may be so included, the number of shares of Registrable Securities and Other
Shares that may be so included shall be allocated among the Holders and other
selling stockholders requesting inclusion of shares pro rata on the basis of the
number of shares of Registrable Securities and Other Shares that would be held
by such Holders and other selling stockholders, assuming conversion; provided,
however, that such allocation shall not operate to reduce the aggregate number
of Registrable Securities and Other Shares to be included in such registration.
If any Holder or other selling stockholder does not request inclusion of the
maximum number of shares of Registrable Securities and Other Shares allocated to
such Holder or other stockholder pursuant to the above-described procedure, the
remaining portion of such Holder's or other stockholder's allocation shall be
reallocated among those requesting Holders and other selling stockholders whose
allocations did not satisfy their requests pro rata on the basis of the number
of shares of Registrable Securities and Other Shares which would be held by such
Holders and other selling stockholders, assuming conversion, and this procedure
shall be repeated until all of the shares of Registrable Securities and Other
Shares which may be included in the registration on behalf of the Holders and
other selling stockholders have been so allocated. The Company shall not limit
the number of Registrable Securities to be included in a registration pursuant
to this Agreement in order to include shares held by stockholders with no
registration rights or to include any shares of stock issued to employees,
officers, directors, or consultants pursuant to the Company's Second Amended and
Restated 1988 Stock Option Plan, 1992 Employee Stock Purchase Plan, or any other
compensatory plan or agreement, or, with respect to registration under Sections
hereof, in order to include in such registration securities registered for the
Company's own account.
SECTION 1.13 TERMINATION OF REGISTRATION RIGHTS.
(A) Except as set forth in subparagraph (b) below,
the right of any Holder to request registration or inclusion
in any registration pursuant to Section or shall terminate on
such
-16-
<PAGE> 90
EXHIBIT D
date as all Registrable Securities held by such Holder may
immediately be sold by such Holder in the open market without
limitations as to the manner of such sale or the volume of
such sale and without having to file any forms or reports with
the Commission with respect to such sale under the Securities
Act.
(B) The provisions of subparagraph (a) above shall
not apply to any Holder who owns more than one percent (1%) of
the Company's outstanding stock until such time as such Holder
beneficially owns less than one percent (1%) of the
outstanding securities of the Company.
ARTICLE 2
MISCELLANEOUS
SECTION 2.1 GOVERNING LAW.
This Agreement shall be governed in all respects, including as
to validity, interpretation and effect, by the internal laws of the State of
Delaware, without giving effect to the conflict of laws rules thereof. Holder
and the Company hereby irrevocably submit to the jurisdiction of the courts of
the State of Delaware and the Federal courts of the United States of America
located in the State of Delaware, City and County of Dallas, solely in respect
of the interpretation and enforcement of the provisions of this Agreement and of
the documents referred to in this Agreement, and hereby waive, and agree not to
assert, as a defense in any action, suit or proceeding for the interpretation or
enforcement hereof or of any such document, that it is not subject thereto or
that such action, suit or proceeding may not be brought or is not maintainable
in said courts or that the venue thereof may not be appropriate or that this
Agreement or any of such document may not be enforced in or by said courts, and
the parties hereto irrevocably agree that all claims with respect to such action
or proceeding shall be heard and determined in such a Delaware State or Federal
court. Holder and the Company hereby consent to and grant any such court
jurisdiction over the person of such parties and over the subject matter of any
such dispute and agree that mailing of process or other papers in connection
with any such action or proceeding in the manner provided in Section , or in
such other manner as may be permitted by law, shall be valid and sufficient
service thereof.
SECTION 2.2 SUCCESSORS AND ASSIGNS.
Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors and administrators of the parties hereto.
-17-
<PAGE> 91
EXHIBIT D
SECTION 2.3 ENTIRE AGREEMENT; AMENDMENT; WAIVER.
This Agreement (including the Exhibits hereto) constitutes the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and thereof. Neither this Agreement nor any term hereof may
be amended, waived, discharged or terminated, except by a written assignment
signed by the Company and the holders of at least fifty percent (50%) of the
Registrable Shares and any such amendment, waiver, discharge or termination
shall be binding on all the Holders, but in no event shall the obligation of any
Holder hereunder be materially increased, except upon the written consent of
such Holder.
SECTION 2.4 NOTICES, ETC.
All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by United Stan first-class
mail, postage prepaid, sent by facsimile or delivered personally by hand or
nationally recognized courier addressed (a) if to a Holder, as indicated on the
list of Holders attached hereto as Exhibit A, or at such other address as such
holder or permitted assignee shall have furnished to the Company in writing, or
(b) if to the Company, at such address or facsimile number as the Company shall
have furnished to each Holder in writing. All such notices and other written
communications shall be effective on the date of mailing, facsimile transfer or
delivery.
SECTION 2.5 DELAYS OR OMISSIONS.
No delay or omission to exercise any right, power or remedy
accruing to any Holder, upon any breach or default of the Company under this
Agreement shall impair any such right, power or remedy of such Holder nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default therefore or thereafter occurring. Any waiver, permit, consent
or approval of any kind or character on the part of any Holder of any breach or
default under this Agreement or any waiver on the part of any Holder of any
provisions or conditions of this Agreement must be made in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
Holder, shall be cumulative and not alternative.
SECTION 2.6 RIGHTS; SEPARABILITY.
Unless otherwise expressly provided herein, a Holder's rights
hereunder are several rights, not rights jointly held with any of the other
Holders. In case any provision of the Agreement 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.
-18-
<PAGE> 92
EXHIBIT D
SECTION 2.7 INFORMATION CONFIDENTIAL.
Each Holder acknowledges that the information received by them
pursuant hereto may be confidential and for its use only, and it will not use
such confidential information in violation of the Exchange Act or reproduce,
disclose or disseminate such information to any other person (other than its
employees or agents having a need to know the contents of such information, and
its attorneys), except in connection with the exercise of rights under this
Agreement, unless the Company has made such information available to the public
generally or such Holder is required to disclose such information by a
governmental body.
SECTION 2.8 TITLES AND SUBTITLES.
The titles of the paragraphs and subparagraphs of this
Agreement are for convenience of reference only and are not to be considered in
construing or interpreting this Agreement.
SECTION 2.9 COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
-19-
<PAGE> 93
EXHIBIT D
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement effective as of the day and year first above written.
FRESH CHOICE, INC.
By:
----------------------------------
Title:
STOCKHOLDER:
By:
----------------------------------
Name:
Title:
-20-
<PAGE> 1
Exhibit 11.1
FRESH CHOICE, INC.
COMPUTATION OF NET LOSS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Twelve Weeks Ended
------------------
March 24, 1996 March 19, 1995
-------------- --------------
<S> <C> <C>
Net loss $ (866) $(1,284)
------ -------
Weighted average
common shares
outstanding 5,584 5,483
Common share
equivalents related
to stock options (1) -- --
Shares used in
computation 5,584 5,483
------ -------
Net loss
per common and
equivalent share $(0.16) $ (0.23)
------ -------
</TABLE>
(1) Common share equivalents relating to stock options have been excluded from
the computations for the twelve weeks ended March 24, 1996 and March 19,
1995 as they would be anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FRESH CHOICE
REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 24, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-24-1996
<EXCHANGE-RATE> 1
<CASH> 932
<SECURITIES> 0
<RECEIVABLES> 144
<ALLOWANCES> 0
<INVENTORY> 427
<CURRENT-ASSETS> 3,613
<PP&E> 40,691
<DEPRECIATION> 9,020
<TOTAL-ASSETS> 36,241
<CURRENT-LIABILITIES> 13,195
<BONDS> 0
0
0
<COMMON> 41,625
<OTHER-SE> (20,194)
<TOTAL-LIABILITY-AND-EQUITY> 21,431
<SALES> 18,061
<TOTAL-REVENUES> 18,061
<CGS> 5,053
<TOTAL-COSTS> 18,856
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71
<INCOME-PRETAX> (866)
<INCOME-TAX> 0
<INCOME-CONTINUING> (866)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (866)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
