<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20559
FORM 10-KSB
(Mark One)
(x) Annual Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
or
( ) Transition Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission file number 000-22845
CREATIVE HOST SERVICES, INC.
(Exact name of registrant as specified in its charter)
California 33-1069494
(State of Incorporation) (I.R.S. Employer Identification No.)
6335 FERRIS SQUARE, SUITES G-H, SAN DIEGO, CALIFORNIA 92126
(Address of principal executive offices) (Zip Code)
(619) 587-7300
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange On
Title of Each Class Which Registered
COMMON STOCK NASDAQ
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
------ -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. / /
Revenues for fiscal year 1998 were $14,720,350
The aggregate market value of voting stock held by non-affiliates of the
registrant was $2,771,885 as of March 25, 1999 (computed by reference to the
last sale price of a share of the registrant's Common Stock on that date as
reported by NASDAQ).
There were 3,211,033 shares outstanding of the registrant's Common Stock as
of March 25, 1999.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock trades on the NASDAQ Market under the symbol
CHST. The Company completed its initial public offering on July 22, 1997 and
its stock began trading on the Exchange at that time. The number of
recordholders of the Common Stock was 129 on March 25, 1999. The Company
believes that there are a significant number of beneficial owners of its Common
Stock whose shares are held in "street name." The closing sales price of the
Common Stock on March 25, 1999 was $1.25 per share. The following chart sets
forth, for the fiscal period indicated, the high and low closing sales prices
for the Company's Common Stock.
<TABLE>
<CAPTION>
Low High
------- -------
<S> <C> <C>
Fiscal 1997
July 22, 1997 to September 30, 1997 3 13/16 4 7/16
Fourth Quarter 1 7/8 4 3/16
Fiscal 1998
First Quarter 2 1/32 2 3/4
Second Quarter 1 3/4 3
Third Quarter 1 3/8 2 3/16
Fourth Quarter 13/16 2
</TABLE>
Pursuant to a Private Placement Memorandum dated December 21, 1998, the
Company sold 12% Secured Convertible Promissory Notes, together with Warrants to
purchase 240,000 shares of Common Stock, for an aggregate amount of $3,000,000
in cash. The principal underwriter in this offering was EBI Securities
Corporation. The Notes and Warrants sold in this offering were offered only to
"accredited investors" as defined in the Securities Act of 1933, as amended.
The underwriter received (i) 3% of the proceeds of sales of the securities to
non-institutional investors purchasing less than $1,500,000 of Notes, (ii) 2% of
the proceeds of sales of securities to institutional investors purchasing
$1,500,000 or more of the securities, and (iii) 40,000 warrants to purchase
Common Stock on the same terms as the warrants sold in this offering. These
securities were sold pursuant to Rule 506 of Regulation D under the Securites
Act of 1933, as amended. The Notes are convertible at the option of the holder
thereof, in whole or in part, at any time on or after March 21, 1999, at $2.625
per share of Common Stock. The Warrants are exercisable until December 21, 2003
at an exercise price of $1.48.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
WITH THE EXCEPTION OF HISTORICAL MATTERS, THE MATTERS DISCUSSED IN THIS
COMMENTARY ARE FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
FORWARD LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, STATEMENTS
CONCERNING ANTICIPATED TRENDS IN REVENUES, THE FUTURE MIX OF COMPANY REVENUES,
THE ABILITY OF THE COMPANY TO REDUCE CERTAIN OPERATING EXPENSES AS A PERCENTAGE
OF TOTAL REVENUES, THE ABILITY OF THE COMPANY TO REDUCE GENERAL AND
ADMINISTRATIVE EXPENSES AS A PERCENTAGE OF TOTAL SALES, AND THE POTENTIAL
INCREASE IN NET INCOME AND CASH FLOW THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THE RESULTS DISCUSSED IN SUCH FORWARD LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THE INABILITY
TO OBTAIN THE SUBSTANTIAL ADDITIONAL CAPITAL NECESSARY TO COMPLETE CONSTRUCTION
OF CAPITAL IMPROVEMENTS AWARDED UNDER EXISTING CONCESSION AGREEMENTS, POSSIBLE
EARLY TERMINATION OF EXISTING CONCESSION CONTRACTS, POSSIBLE DELAY IN THE
COMMENCEMENT OF CONCESSION OPERATIONS AT NEWLY AWARDED CONCESSION FACILITIES,
THE NEED AND ABILITY TO ATTRACT AND RETAIN QUALIFIED MANAGEMENT TO MANAGE
OPERATIONS, THE NEED TO OBTAIN CONTINUING APPROVALS FROM GOVERNMENT
13
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CREATIVE HOST SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
(5) NOTES PAYABLE:
A summary is as follows:
<TABLE>
<S> <C>
Note payable, at an effective interest rate of 13.3%, due in
monthly installments of $30,000 through January 2001. Principal
and interest of $43,041 due thereafter through December 2010,
secured by assets of the Company and shares owned by the
president and major stockholder of the Company $ 2,932,847
Note payable to landlord of former franchisee, interest
at the greater of 10% or bank prime rate plus 1%,
due in monthly installments of $1,264 through 2001 32,441
----------------
2,965,288
Less current maturities 12,485
----------------
$ 2,952,803
----------------
----------------
</TABLE>
The following is a summary of the principal amounts payable over the
next five years and thereafter:
<TABLE>
<S> <C>
1999 $ 12,485
2000 13,792
2001 171,561
2002 186,372
2003 2,581,078
----------------
$ 2,965,288
----------------
----------------
</TABLE>
In December 1998, the Company conducted a private placement
offering. The Company sold 3,000 units. Each unit consisted of a
$1,000 note payable with interest of 12% per annum and 80 common
stock purchase warrants. Each warrant entitles the holder to buy one
share of common stock at an exercise price of $1.48. The warrants
expire on December 31, 2003. A payment of interest only is payable
monthly from January 1999 until January 2001. Comencing January
2001, a payment of both principal and interest of $43,041 is
payable monthly until December 2003, at which time all unpaid
principal and intrest is due. The notes are collateralized by
substantially all assets of the Company and shares owned by the
president and major stockholder of the Company. Commencing March
1999, each note may be converted, at the option of the holder, to
shares of the Company's common stock at the price per share of
$2.625 of the outstanding balance of principal and interest
due. The fair value of the notes and the carrying amount and fair
value of the associated warrants were determined. The value of the
warrants amount to $24,240 and is included in paid-in capital. Net
proceeds raised from the notes in the amount of approximately
$2,600,000 were used to pay for certain improvements to concessions
operated by the Company.
See accompanying independent auditors' report.
F-10
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<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ------------ ----------- --------
<C> <S> <S>
3.1 Amended and Restated Articles of Incorporation*
3.2 Bylaws*
4.1 Specimen Certificate for Common Stock*
4.3 Warrant Agreement (including form of Warrant
Certificate)*
4.4 12% Secured Convertible Note dated December 21,
1998 in favor of Fiserv Correspondent Service.
4.5 Indenture dated December 21, 1998 between the Company and U.S.
Bank National Association.
10.1 1997 Stock Option Plan*
10.2 Employment Agreement between the Company and Sayed
Ali*
10.3 Lease Space In The Cedar Rapids Municipal Airport
Terminal For The Purpose of Operating Food/Beverage,
News/Gift, And Airline Catering Concessions dated as
of September 16, 1996 between the Company and Cedar
Rapids Airport Commission.*
10.4 Food And Beverage Concession Agreement And Lease dated
as of October 4, 1996 between the Company and Richland
-Lexington Airport District.*
10.5 Agreement between the Company and Delta Airlines.*
10.6 Concession And Lease Agreement dated as of May 24,
1996 between the Company and Lehigh-Northhampton
Airport Authority.*
10.7 Food And Beverage Concession Agreement And Lease
Bluegrass Airport between the Company and Lexington-
Fayette Urban County Airport Board.*
10.8 Food And Beverage Concession Agreement dated as of
July 26, 1995 between the Company and Outagamie
County.*
10.9 Food And Beverage Lease And Concession Agreement dated
as of May 17, 1996 between the Company and Roanoke
Regional Airport Commission.*
10.10 Food And Beverage Concession Agreement dated as of
October 24, 1995 between the Company and the County of
Dane.*
10.11 Food And Beverage Concession Lease Agreement dated as
of June 10, 1994 between the Company and the Port of
Portland.*
10.12 Concession Agreement dated as of March 25, 1995
between the Company and City of Los Angeles.*
10.13 License And Use Agreement Food/Beverage Service
Aspen/Pitkin County Airport 1994 Through 1999 dated as
of April 1994 between the Company and Board of County
Commissions of Pitkin County Colorado.*
10.14 Food Court Agreement dated as of November 14, 1996
between the Company and City and County of Denver.*
10.15 Agreement between the Company and the City and County
of Denver as of November 19, 1996.*
10.16 Agreement dated as of February 8, 1996 between the
Company and the County of Orange.*
10.17 Concession Agreement for Food and Beverage Operations
at the Des Moines International Airport between the
Company and the City of Des Moines, Iowa dated as of
June 2, 1997.**
10.18 Concession Agreement between the City of Los Angles
Department of Airports and the Companing Covering the
Operation and Management of the Food and Beverage
Package #3 Concession at Ontario International
Airport.**
10.19 Concession Agreement and Lease between the Piedmont
Triad Airport Authority and the Company.**
10.20 Form of Franchise Agreement.*
10.21 TCBY Franchise Agreement dated October 29, 1996
between TCBY Systems, Inc., and St. Clair Development
Corporation.*
10.22 Industrial Real Estate Lease between the Company and
WHPX-S Real Estate Limited Partnership.*
10.23 Warrant to Purchase 270,000 shares of Common Stock in Favor of
Fiserv Correspondent Services.
23.2 Consent of Stonefield Josephson, independent
accountants
</TABLE>
23
<PAGE>
- ---------
* Incorporated by reference from the exhibits included with the Company's
Registration Statement (No. 333-6722) on Form SB-2 filed with the SEC on
April 3, 1997.
**Incorporated by reference from the exhibits included with the Company's Annual
Report (No. 000-22845) on Form 10-KSB filed with the SEC on March 31, 1998.
(b) The following is a list of Current Reports on Form 8-K filed by the
Company during or subsequent to the last quarter of the fiscal year ended
December 31, 1998.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: May 4, 1999 CREATIVE HOST SERVICES, INC.
By: /s/ Sayed Ali
------------------------
Sayed Ali, President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
/s/ Sayed Ali Chairman of the Board and May 4, 1999
- ---------------------- President
Sayed Ali
/s/ Booker T. Graves Director May 4, 1999
- ----------------------
Booker T. Graves
/s/ John P. Donohue, Jr. Director May 4, 1999
- ----------------------
John P. Donohue, Jr.
/s/ Paul A. Karas Director May 4, 1999
- ----------------------
Paul A. Karas
24
<PAGE>
THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933
(THE "ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. THE PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER
OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS
NOTE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR UPON DELIVERY OF AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
Creative Host Services, Inc.
12% Secured Convertible Note
$3,000,000.00 December 21, 1998
No. 1
Creative Host Services, Inc., a California corporation (herein called the
"Issuer," which term includes any successor person or entity under the Indenture
(hereinafter defined)), for value received, hereby promises to pay to Fiser
Correspondent Services, Inc., or registered assigns, the principal sum of Three
Million Dollars on or before December 20, 2003, as specified herein, and to pay
interest thereon (calculated on the basis of a 365 day year) at a rate of 12.0%
per annum, accruing from the date of issuance of this Note, payable on the
fifteenth day of each calendar month, commencing on the fifteenth day of the
first calendar month subsequent to the date of the Indenture, until the entire
principal amount is paid in full or duly provided for.
Principal shall be payable in equal installments, without presentation of
this Note, payable on the fifteenth day of each calendar month, commencing on
the 15th day of the first calendar month subsequent to the date which is two (2)
years after the date of the Indenture, and ending on the Maturity Date, in an
amount sufficient to amortize the Note over 10 years, with any and all unpaid
principal to be paid on the Maturity Date upon presentation of this Note.
1. Person to Whom Interest and Principal is Paid. The interest and
principal payable, on any Payment Date will be paid to the Person in whose name
this Note is registered at the close of business on the Regular Record Date for
such payment of interest or principal. Any such interest or principal not paid
shall cease to be payable to the Holder on such Regular Record Date, and may be
paid to the Person in whose name this Note is registered at the close of
business on a Special Record Date for the payment of such Defaulted Payment to
be fixed by the Trustee, notice of which
<PAGE>
shall be given to Holders of Notes not less than 10 days prior to such Special
Record Date, all as more fully provided in the Indenture.
2. Place of Payment. Payment of principal of and interest on this Note
will be made at the office or agency of the Issuer maintained for that purpose
in the City of San Diego, California or at such other office or agency of the
Issuer as may be maintained for such purpose, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; provided that such payment may be made at the
option of the Issuer by check mailed to the address of the Person entitled
thereto as such address shall appear on the Note Register.
3. Indenture. This Note is one of a duly authorized issue of securities of
the Issuer designated as its 12% Secured Convertible Notes (herein called the
"Notes"), limited in aggregate principal amount to $3,000,000.00 which may be
issued under that certain 12% Secured Convertible Notes Indenture (herein called
the "Indenture") dated December 21, 1998, between the Issuer and U.S. Bank
National Association, as trustee (herein called the "Trustee," which term
includes any successor trustee under the Indenture), to which the Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights of the Issuer, the Trustee and the Holders of the Notes,
and of the terms upon which the Notes are, and are to be, authenticated and
delivered.
All capitalized terms used in this Note without definition shall have the
meanings assigned to them in the Indenture.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the time, place and rate, and in the coin or currency, herein prescribed.
4. Conversion Right. At any time and from time to time during the period
beginning on the date three (3) months from the date of this Note (the
"Conversion Commencement Date") and thereafter while any principal or interest
hereunder remains outstanding, Holder shall have the right, but not the
obligation, to convert this Note into fully paid and nonassessable shares of
Maker's common stock ("Common Stock" or the "Shares") at the price per share of
$2.625 (the "Conversion Price") of the outstanding balance of principal and
interest due hereunder at the date of conversion as follows (such right being
referred to herein as the "Conversion Right"):
4.1 Method of Exercise. The Conversion Right shall be exercised, in
whole or in part, by delivery to the Issuer of the form of subscription
agreement attached hereto duly executed. Upon receipt of such notice, the Issuer
shall cause to be issued certificates for the total number of whole Shares with
respect to which the Conversion Right is being exercised in such denominations
as are required for delivery to the Holder hereof, and the Issuer shall
thereupon deliver such certificates to the Holder hereof or its nominee, and
deliver the surrendered note to the Trustee for
2
<PAGE>
cancellation. The outstanding balance of principal and interest due hereunder
and the monthly payments thereof shall be reduced to reflect any and all
conversions into Shares.
4.2 Investment Intent. The Holder hereof represents and warrants to
the Issuer that the Conversion Right and, to the extent the Conversion Right is
exercised, the Shares, are being acquired for such Holder's own account for
investment purposes only and such Holder has no present intention or agreement
to effect any distribution of any portion of the Conversion Right, the Shares or
any rights with respect thereto.
4.3 Adjustments Upon Changes in Capitalization.
4.3.1 Stock Splits. If the Issuer at any time or from time to
time after the issuance date of this Note effects a subdivision of the
outstanding Common Stock, the Conversion Price then in effect immediately before
that subdivision shall be proportionately decreased, and conversely, if the
Issuer at any time or from time to time after the date of this Note combines the
outstanding shares of Common Stock, the Conversion Price then in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this subsection 4.3.1 shall become effective at the close of
business on the date the subdivision or combination becomes effective.
4.3.2 Dividends and Distributions. In the event the Issuer, at
any time or from time to time after the date of this Note, makes, or fixes a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Conversion Price then in effect shall be
decreased as of the time of such issuance or, in the event such a record date is
fixed, as of the close of business on such record date, by multiplying the
Conversion Price then in effect by a fraction (i) the numerator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(ii) the denominator of which shall be the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution; provided, however,
that if such record date is fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Conversion Price
shall be recomputed accordingly as of the close of business on such record date
and thereafter the Conversion Price shall be adjusted pursuant to this
subsection 4.3.3 as of the time of actual payment of such dividends or
distributions.
4.3.3 Recapitalization or Reclassification. If the Shares
issuable upon the conversion of this Note are changed into the same or a
different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets, provided for elsewhere in this Section 4.3),
then, and in any such event, the Conversion Right shall thereafter refer to the
right to convert this Note into such number and kind of securities as
3
<PAGE>
would have been issuable to the Holder here as a result of such change if,
immediately prior to such change, such Holder had exercised the Conversion Right
as to the entire outstanding balance of principal and interest hereunder,
subject to further adjustment as provided herein.
4.3.4 Sale of the Issuer. If at any time or from time to time
there is a capital reorganization of the Common Stock (other than a
recapitalization, subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section 4.3) or a merger or consolidation
of the Issuer with or into another company, or the sale of all or substantially
all of the Issuer's properties and assets to any other person, the Conversion
Right shall thereafter refer to the right to convert this Note into such number
and kind of securities and property as would have been issuable or distributable
to the Holder hereof on account of such reorganization, merger, consolidation or
sale if, immediately prior thereto, such Holder had exercised the Conversion
Right as to the entire outstanding balance of principal and interest hereunder.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4.3 with respect to the rights of such Holder after
the reorganization, merger, consolidation or sale to the end that the provisions
of this Section 4.3 (including adjustment of the Conversion Price then in effect
and number of shares purchasable upon conversion of this Note) shall be
applicable after that event and be as nearly equivalent to the provisions hereof
as may be practicable.
4.3.5 Observance of Duties. The Issuer shall not, by amendment
of its Articles 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 Issuer but shall
at all times in good faith assist in the carrying out of all the provisions of
this Section 4.3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Right of the Holder hereof
against dilution or other impairment.
5. Registration Under the Securities Act of 1933.
5.1 Registration and Legends. This Note and the Shares issuable upon
conversion of this Note have not been registered under the Securities Act of
1933, as amended ("the Act"). Upon conversion, in whole or in part, of this
Note, the certificates representing the Shares shall bear the following legend
until such time as such legend is no longer required by law:
THIS SECURITY HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
ACT OF 1933 ("ACT") OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
OFFERED OR SOLD UNLESS REGISTERED AND QUALIFIED PURSUANT TO THE APPLICABLE
PROVISIONS OF FEDERAL AND STATE SECURITIES LAWS OR UNLESS AN EXEMPTION
FROM SUCH REGISTRATION OR QUALIFICATION APPLIES. THEREFORE, NO SALE OR
TRANSFER OF THIS SECURITY SHALL BE MADE, NO ATTEMPTED SALE OR TRANSFER
SHALL BE VALID, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE ANY EFFECT TO
ANY SUCH TRANSACTION UNLESS (A) SUCH TRANSACTION HAS BEEN DULY
4
<PAGE>
REGISTERED UNDER THE ACT AND QUALIFIED OR APPROVED UNDER APPROPRIATE STATE
SECURITIES LAWS, OR (B) THE ISSUER HAS FIRST RECEIVED AN OPINION OF
COUNSEL SATISFACTORY TO IT THAT SUCH REGISTRATION, QUALIFICATION OR
APPROVAL IS NOT REQUIRED.
5.2 Registrable Securities. For purposes of this Agreement,
"Registrable Securities" shall mean the securities issued or issuable upon
conversion of the Notes and the securities issued or issuable upon exercise of
the warrants issued by the Issuer pursuant to that certain Confidential Private
Placement Memorandum dated December 15, 1998.
5.3 Demand Registration Rights. On one occasion at any time after
December 21, 1998, the Issuer shall, upon the demand of the holders of a
majority of the Registrable Securities, register such securities and file all
necessary undertakings with the Securities and Exchange Commission (the "SEC")
so as to permit the Holder hereof the right to sell publicly the Shares issued
on conversion of this Note. The Issuer will bear all expenses attendant to
registering the Registrable Securities (subject to Section 5.5.5).
5.4 Piggyback Registration Rights. In the event that the right to
demand that the Registrable Securities be registered pursuant to Section 5.3 has
not been exercised, the Issuer agrees to include any appropriate Shares issuable
upon conversion of this Note in any registration statement filed by the Issuer
at any time after the Conversion Commencement Date and before the Stated
Maturity.
5.5 Covenants Regarding Registration. In connection with any
registration under Section 5.3 or 5.4 hereof, the Issuer covenants and agrees as
follows:
5.5.1 The Issuer shall, within sixty (60) days after receipt
of written demand from the holders of a majority of the Registrable Securities
pursuant to Section 5.3, take all steps necessary to effectuate preparation and
filing with the SEC of the registration statement as required by and in
compliance with the Act. Such registration statement shall be on Form S-3 or
other appropriate form as determined by the Issuer.
5.5.2 The Issuer shall keep such registration statement
effective for the lesser of (i) twenty-four (24) months, or (ii) the period of
time in which the holders of securities covered by such registration statement
have effected the distribution of their Shares. During such period the Issuer
shall prepare and file with the SEC 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
Act with respect to the disposition of all securities covered by such
registration statement.
5.5.3 The Issuer shall notify each holder of Shares covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such
5
<PAGE>
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 in light of the
circumstances then existing.
5.5.4 The Issuer shall furnish to such holders such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of the Shares owned by them.
5.5.5 The Issuer shall pay all costs, fees, and expenses in
connection with new registration statements under Section 5.3 (excluding the
costs attendant to a second demand registration) and Section 5.4 hereof
including, without limitation, the Issuer's legal and accounting fees, printing
expenses, and blue sky fees and expenses, except that the Issuer shall not pay
for any of the following costs and expenses: (i) underwriting discounts and
commissions allocable to the Shares, (ii) state transfer taxes, (iii) brokerage
commissions, (iv) fees and expenses of counsel and accountants for the holders
of this Note or the Shares.
5.5.6 The Issuer will take all necessary action which may be
required in qualifying or registering the Shares covered by such registration
statement or post-effective amendment or new registration statement for offering
and sale under the securities laws of such states as are reasonably requested by
the holders of such Shares, provided that the Issuer shall not be obligated to
execute or file any general consent to service or process or to qualify as a
foreign corporation to do business under the laws of any such jurisdiction.
6. Redemption.
6.1 Optional Redemption. The Notes are subject to redemption
pursuant to the terms of the Indenture, at the option of the Issuer, in whole or
in part, on not less than 90 days' prior notice by mail to each Holder of Notes
to be redeemed, at the percentage (at a given time, the "Optional Redemption
Percentage"), specified below for a given time period in which redemption
occurs, of the outstanding principal amount of each Note or such portion thereof
being redeemed, plus accrued and unpaid interest, if any, to the Redemption Date
(subject to the right of Holders of record on relevant record dates to receive
interest due on a Payment Date):
Time Period Percentage
----------- ----------
December 1, 1998 - November 30, 1999 105%
December 1, 1999 - November 30, 2000 104%
December 1, 2000 - November 30, 2001 103%
December 1, 2001 - November 30, 2002 102%
December 1, 2002 - November 29, 2003 101%
6
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6.2 Prior Due Payments. In the case of any redemption of Notes,
principal and interest installments whose Stated Maturity is on or prior to the
Redemption Date will be payable to the Holders of such Notes of record at the
close of business on the relevant Regular Record Date. Notes (or portions
thereof) for whose redemption and payment provision is made in accordance with
the Indenture shall cease to bear interest from and after the Redemption Date.
In the event of redemption of this Note in part only, a new Note or Notes
for the unredeemed portion hereof shall be issued in the name of the Holder
hereof upon the cancellation hereof.
7. Defaults and Remedies. If an Event of Default shall occur and be
continuing, the principal of all the Notes and accrued and unpaid interest, if
any, may be declared to be due and payable in the manner and with the effect
provided in the Indenture.
8. Security Documents. In order to secure the due and punctual payment of
the principal of, and interest on the Notes and all other amounts payable by the
Issuer under the Indenture and the Notes when and as the same shall be due and
payable, whether at maturity, by acceleration or otherwise, according to the
terms of the Notes and the Indenture, the Issuer has granted to the Trustee
security interests in and Liens on its interest in the Trust Estate for the
benefit of the Holders of Notes pursuant to the Indenture and the Security
Documents.
Each Holder, by accepting a Note, agrees to all of the terms and
provisions of the Security Documents, as the same may be amended from
time-to-time pursuant to the respective provisions thereof and the Indenture.
Each Holder acknowledges that a release of any of the Trust Estate or
Liens strictly in accordance with the terms and provisions of any of the
Security Documents and the terms and provisions of the Indenture will not be
deemed for any purpose to be an impairment of the security under the Indenture.
9. Amendments and Waivers. The Indenture permits, with certain exceptions
as therein provided, the amendment thereof and of the Security Documents and the
modification of the rights and obligations of the Issuer and the rights of the
Holders under the Indenture, the Security Documents and this Note at any time by
the Issuer and the Trustee with the consent of the Holders of not less than a
majority of the aggregate principal amount of the Notes at the time Outstanding.
The Indenture also contains provisions permitting a majority in aggregate
principal amount of the Notes at the time Outstanding, on behalf of the Holders
of all the Notes, to waive compliance by the Issuer with certain provisions of
the Indenture, the Security Documents and this Note and certain past defaults
under the Indenture, the Security Documents and this Note and their
consequences. Any such consent or waiver by or on behalf of the Holder of this
Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any
7
<PAGE>
Note issued upon the registration of transfer hereof or in exchange herefor or
in lieu hereof whether or not notation of such consent or waiver is made upon
this Note.
10. Denominations, Transfer, Exchange. The Notes are issuable only in
registered form without coupons in denominations of $1000 and any integral
multiple thereof. As provided in the Indenture, the securities are exchangeable
for a like aggregate principal amount of Notes of a different authorized
denomination, as requested by the Holder surrendering the same.
As provided in the Indenture and subject to certain limitations therein
set forth, in the event of a transfer the transfer of this Note is registrable
on the Note Register of the Issuer, upon surrender of this Note for registration
of transfer at the office or agency of the Issuer maintained for such purpose in
the City of San Diego, California, or at such other office or agency of the
Issuer as may be maintained for such purpose, duly endorsed by, or accompanied
by a written instrument of transfer in form satisfactory to the Issuer and the
Note Registrar duly executed by the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Notes, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
There shall be a service charge of Twenty ($20.00) for each registration
of transfer or exchange, other than certain exchanges as set forth in the
Indenture not involving any transfer. In addition, the Issuer may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
11. Persons Deemed Owners. The Issuer, the Trustee and any agent of the
Issuer or the Trustee may treat the Person in whose name this Note is registered
as the owner hereof for all purposes, whether or not this Note shall be overdue,
and neither the Issuer, the Trustee nor any agent shall be affected by notice to
the contrary.
12. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of Colorado.
8
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13. Authentication. Unless the certificate of authentication hereon has
been duly executed by the Trustee referred to below by manual signature, this
Note shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed.
Dated: December 21, 1998 CREATIVE HOST SERVICES, INC., a California
corporation
By:
-----------------------------------------
Sayed Ali, President
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned Indenture.
Dated: U.S. BANK NATIONAL ASSOCIATION, a United
----------------- States national banking association, as
Trustee
By:
-----------------------------------------
Title:
---------------------------------
<PAGE>
CREATIVE HOST SERVICES, INC.
6335 Ferris Square, Suites G-H
San Diego, California 92121
Subscription Agreement for the Conversion of Note
The undersigned hereby irrevocably subscribes for the purchase of ________
Shares pursuant to and in accordance with the terms and conditions of this Note,
which Shares should be delivered to the undersigned at the address below. If
said number of Shares do not represent the entire outstanding balance of
principal and interest under this Note, a new Note of like tenor for the
remaining outstanding balance should be delivered to the undersigned at the
address stated below.
The undersigned agrees that: (1) the undersigned will not offer, sell,
transfer or otherwise dispose of any Shares unless either (a) a registration
statement, or post-effective amendment thereto, covering the Shares has been
filed with the Securities and Exchange Commission pursuant to the Securities Act
of 1933, as amended (the "Act"), such sale, transfer or other disposition is
accompanied by a prospectus meeting the requirements of Section 10 of the Act
forming a part of such registration statement, or post-effective amendment
thereto, which is in effect under the Act covering the Shares to be so sold,
transferred or otherwise disposed of, and all applicable state securities laws
have been complied with, or (b) counsel satisfactory to Creative Host Services,
Inc.. has rendered an opinion in writing and addressed to Creative Host
Services, Inc.. that such proposed offer, sale, transfer or other disposition of
the Shares is exempt from the provisions of Section 5 of the Act in view of the
circumstances of such proposed offer, sale, transfer or other disposition; (2)
Creative Host Services, Inc.. may notify the transfer agent for the Shares that
the certificates for the Shares acquired by the undersigned are not to be
transferred unless the transfer agent receives advice from Creative Host
Services, Inc.. that one or both of the conditions referred to in (1)(a) and
(1)(b) above have been satisfied; and (3) Creative Host Services, Inc.. may
affix the legend set forth in Section 5.1 of this Note to the certificates for
the Shares hereby subscribed for, if such legend is applicable.
Dated: Signed:
---------------------------- ---------------------------------
Signature guaranteed: Address:
--------------------------------
- --------------------------------------------
(Signature must be guaranteed by a guarantor
institution participating in a Medallion
Signature Program)
<PAGE>
FORM OF ASSIGNMENT
For value received, the undersigned hereby sells, assigns and transfers
unto ______________________ the within Note of Creative Host Services, Inc. and
all rights thereunder, and hereby irrevocably constitute and appoints
_____________________ attorney to transfer the said Note on the Note Register,
with full power of substitution in the premises.
Dated:
----------------------------- ----------------------------------------
Social Security or other tax
identification number of transferee
Signature Guaranteed:
- --------------------------------------------------
(Signature must be guaranteed by a guarantor
institution participating in a Medallion Signature
Program)
NOTICE: The Assignor's signature to this assignment must correspond with the
name as it appears upon the fact of the within Note in every
particular without alteration or any change whatever.
<PAGE>
12% SECURED CONVERTIBLE NOTES
INDENTURE
dated as of December 21, 1998
by and between
CREATIVE HOST SERVICES, INC.
AND
U.S. BANK NATIONAL ASSOCIATION, as Trustee
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1. DEFINITIONS........................................................1
ARTICLE 2. THE NOTES..........................................................1
2.1 Form of Notes and Authentication...................................1
2.2 Title and Terms....................................................2
2.3 Denominations......................................................2
2.4 Execution, Authentication, Delivery and Dating.....................2
2.5 Registration; Registration of Transfer and Exchange................3
2.6 Mutilated, Destroyed, Lost and Stolen Notes........................4
2.7 Payment of Interest and Principal; Rights Reserved.................5
2.8 Persons Deemed Owner...............................................6
2.9 Cancellation.......................................................6
2.10 Computation of Interest............................................6
ARTICLE 3. SECURITY FOR THE NOTES.............................................6
3.1 Security Documents.................................................6
3.2 Grant of Security Interest.........................................6
3.3 No Adverse Action..................................................7
3.4 Further Assurances.................................................7
ARTICLE 4. SATISFACTION AND DISCHARGE.........................................7
4.1 Satisfaction and Discharge of Indenture............................7
4.2 Application of Trust Money.........................................8
ARTICLE 5. REMEDIES...........................................................8
5.1 Events of Default..................................................8
5.2 Acceleration of Maturity..........................................10
5.3 Collection of Indebtedness and Suits for Enforcement by Trustee...10
5.4 Trustee May File Proofs of Claim..................................11
5.6 Application of Money Collected....................................12
5.7 Limitation on Suits...............................................12
5.8 Unconditional Right of Holders To Receive Principal and Interest..13
5.9 Restoration of Rights and Remedies................................13
5.10 Rights and Remedies Cumulative....................................13
5.11 Delay or Omission Not Waiver......................................13
5.12 Control by Holders................................................14
5.13 Waiver of Past Defaults...........................................14
5.14 Undertaking for Costs.............................................14
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ARTICLE 6. THE TRUSTEE.......................................................15
6.1 Certain Duties and Responsibilities...............................15
6.2 Notice of Defaults................................................16
6.3 Certain Rights of Trustee.........................................16
6.4 Not Responsible for Recitals or Issuance of Notes.................17
6.5 May Hold Notes....................................................17
6.6 Money Held in Trust...............................................17
6.7 Suits To Protect the Trust Estate.................................17
6.8 Determinations Relating to Trust Estate...........................18
6.9 Compensation, Reimbursement and Indemnity.........................18
6.10 Disqualification; Conflicting Interests...........................19
6.11 Corporate Trustee Required; Eligibility...........................19
6.12 Resignation and Removal; Appointment of Successor.................19
6.13 Acceptance of Appointment by Successor............................21
6.14 Merger, Conversion, Consolidation or Succession to Business.......21
6.15 Preferential Collection of Claims Against Issuer..................21
ARTICLE 7. HOLDERS' LISTS AND REPORTS BY ISSUER..............................22
7.1 Issuer to Furnish Trustee Names and Addresses of Holders..........22
7.2 Preservation of Information; Communications to Holders............22
7.3 Reports by the Issuer.............................................23
ARTICLE 8. CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE..............23
8.1 Issuer May Consolidate, Etc., Only on Certain Terms...............23
8.2 Successor Substituted.............................................24
ARTICLE 9. SUPPLEMENTAL INDENTURES...........................................24
9.1 Supplemental Indentures Without Consent...........................24
9.2 Supplemental Indentures With Consent..............................25
9.3 Execution of Supplemental Indentures..............................26
9.4 Effect of Supplemental Indentures.................................26
9.5 Reference in Notes to Supplemental Indentures.....................26
9.6 Revocation and Effect of Consents.................................26
ARTICLE 10. COVENANTS.........................................................27
10.1 Payment of Principal and Interest.................................27
10.2 Maintenance of Office or Agency...................................27
10.3 Money for Note Payments to be Held in Trust.......................27
10.4 Validity of Notes; Title to Trust Estate..........................28
10.5 Corporate Existence...............................................29
10.6 Books; Inspection by Trustee......................................29
10.7 Payment of Taxes and Other Claims.................................29
10.8 Negative Covenants................................................29
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10.9 Recording and Filing of Security Documents........................30
10.10 Statements by Officers as to Default..............................30
10.11 Use of Trust Moneys and Advances by Trustee.......................30
10.12 Use of Proceeds...................................................30
10.13 Insurance.........................................................31
10.14 Repairs and Maintenance of Property...............................31
10.15 Trustee's Right to Make Advances..................................31
10.16 Board Visitation Rights; Election Rights..........................32
10.17 Change of Control.................................................32
10.18 Limitation on Incurrence of Additional Indebtedness...............34
ARTICLE 11. REDEMPTION OF NOTES...............................................34
11.1 Redemption; Notices to the Trustee................................34
11.2 Selection of Notes To Be Redeemed.................................35
11.3 Notice of Redemption..............................................35
11.4 Deposit of Redemption Price.......................................36
11.5 Notes Payable on Redemption Date..................................36
11.6 Notes Redeemed in Part............................................36
ARTICLE 12. ACCOUNTS, ACCOUNTING AND RELEASES.................................37
12.1 "Trust Moneys"....................................................37
12.2 Application of Payment Account....................................38
12.3 Application of Principal Account..................................38
12.4 General Provisions Regarding Accounts.............................38
12.5 Powers Exercisable by Trustee or Receiver.........................39
12.6 Disposition of Notes Retired......................................39
12.7 Release of Trust Estate...........................................39
12.8 Eminent Domain and Other Governmental Takings.....................40
12.9 Trust Indenture Act Requirements..................................41
ARTICLE 13. OTHER PROVISIONS OF GENERAL APPLICATION...........................41
13.1 Compliance Certificates...........................................41
13.2 Acts of Holders...................................................42
13.3 Notices, etc., to Trustee and Issuer..............................42
13.4 Notice to Holders; Waiver.........................................43
13.5 Effect of Headings and Table of Contents..........................44
13.6 Successors and Assigns............................................44
13.7 Severability Clause...............................................44
13.8 Benefits of Indenture.............................................44
13.9 Governing Law.....................................................44
13.10 Legal Holidays....................................................44
13.11 Exhibits and Schedules............................................44
13.12 Rules by Trustee, Paying Agent, Registrar.........................44
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13.13 Counterparts......................................................44
13.14 Security Agreement................................................45
13.15 Entire Agreement..................................................45
iv
<PAGE>
INDENTURE
INDENTURE dated as of December 21, 1998 between CREATIVE HOST SERVICES,
INC., a California corporation (the "Issuer"), and U.S. BANK NATIONAL
ASSOCIATION, a national banking association organized and existing under the
laws of the United States of America, as trustee (in such capacity, the
"Trustee"), with respect to the following facts.
A. The Issuer has duly authorized the creation of an issue of 12% Secured
Convertible Notes ("Notes") as set forth herein; and to provide for such issue
the Issuer has duly authorized the execution and delivery of this Indenture.
B. The Issuer intends to secure the Notes by means of certain property,
rights and privileges, as set forth herein.
C. All things necessary have been done to make the Notes, when executed by
the Issuer and authenticated and delivered hereunder and duly issued by the
Issuer, the valid obligations of the Issuer and to make this Indenture a valid
agreement of the Issuer and the Trustee, for the uses and purposes set forth
herein, in accordance with its terms.
NOW THEREFORE, IT IS HEREBY COVENANTED, DECLARED AND AGREED that the Notes
are to be authenticated, issued and secured, subject to the further covenants,
conditions and trusts hereinafter set forth, and the Issuer does hereby covenant
and agree with the Trustee, for the equal and proportionate benefit of all the
Holders of the Notes, as follows:
ARTICLE 1.
DEFINITIONS
For purposes of this Indenture, except as otherwise expressly provided or
unless the context otherwise requires, all capitalized terms used herein shall
have the meanings set forth in Annex A annexed hereto and made a part hereof.
All other terms which are used herein which are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein. All accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles.
<PAGE>
ARTICLE 2.
THE NOTES
2.1 Form of Notes and Authentication. The Notes and the Trustee's
certificate of authentication shall be in substantially the form attached hereto
as Exhibit A, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture.
2.2 Title and Terms.
(a) The aggregate principal amount of the Notes which may be
authenticated and delivered under this Indenture is limited to $3,000,000 except
for Notes authenticated and delivered upon registration of, transfer of, in
exchange for, or in lieu of, other Notes pursuant to Section 2.5, 2.6, 9.5 or
11.6. The Notes shall be known and designated as the "12% Secured Convertible
Promissory Notes" of the Issuer. The Notes' Maturity Date shall be November 30,
2003.
(b) The Notes shall bear interest at 12% per annum from the date of
original issuance of each Note until the Maturity Date, payable on the fifteenth
day of each calendar month, commencing on the 15th day of the first calendar
month subsequent to the date of this Indenture, until the entire principal
thereof is paid or duly provided for.
(c) Principal shall be payable in equal installments, payable on the
fifteenth day of each calendar month, commencing on the 15th day of the first
calendar month subsequent to the date which is two (2) years after the date of
this Indenture, and ending on the Maturity Date in an amount sufficient to
amortize the Notes over a period of ten years, with any and all unpaid principal
to be paid on the Maturity Date.
(d) Principal of and interest (including any Accrued Bankruptcy
Interest) on the Notes shall be paid at the office or agency of the Issuer
maintained for such purpose in the City of San Diego, California, or at such
other office or agency of the Issuer as may be maintained for such purpose;
provided that at the option of the Issuer such principal or interest may be
payable by check mailed to addresses of the Persons entitled thereto as such
addresses shall appear on the Note Register.
(e) The Notes shall be redeemable as provided in the Notes and in
Article 11.
(f) The Notes shall be convertible as provided in the Notes.
2.3 Denominations. The Notes shall be issuable only in registered form
without coupons and only in denominations of $1000, and any integral multiple
thereof.
2
<PAGE>
2.4 Execution, Authentication, Delivery and Dating.
(a) The Notes shall be executed on behalf of the Issuer by its
officers.
(b) Notes bearing signatures of individuals who were at any time the
proper officers of the Issuer shall bind the Issuer, notwithstanding that such
individuals or any of them have ceased to hold such offices prior to the
authentication and delivery of such Notes or did not hold such offices at the
date of such Notes.
(c) The Issuer shall deliver Notes executed by the Issuer to the
Trustee for authentication, together with an Issuer Order for the authentication
and delivery of such Notes; and the Trustee in accordance with such Issuer Order
shall authenticate and deliver such Notes as provided in this Indenture or such
Issuer Order. Each Note shall be dated the date of its authentication.
(d) No Note shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication duly executed by the Trustee by manual signature
of an authorized representative, and such certificate upon any Note shall be
conclusive evidence, and the only evidence, that such Note has been duly
authenticated and delivered hereunder.
2.5 Registration; Registration of Transfer and Exchange.
(a) The Issuer shall cause to be kept at the offices of the Paying
Agent a register (the "Note Register"), in which, subject to such reasonable
regulations as it may prescribe, the Issuer shall provide for the registration
of Notes and of transfers and exchanges of Notes. The Paying Agent is hereby
initially appointed "Note Registrar" for the purpose of registering Notes and
transfers and exchanges of Notes as herein provided.
(b) Upon surrender for registration of transfer of any Note at the
office or agency of the Issuer designated pursuant to Section 10.2, the Issuer
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Notes of any
authorized denomination or denominations, of a like aggregate principal amount.
(c) At the option of the Holder, Notes may be exchanged for other
Notes of any authorized denomination or denominations, of a like aggregate
principal amount, upon surrender of such Notes to be exchanged at such office or
agency. Whenever any Notes are so surrendered for exchange, the Issuer shall
execute, and the Trustee shall authenticate and deliver, the Notes which the
Holder making the exchange is entitled to receive.
3
<PAGE>
(d) All Notes issued upon any registration of transfer or exchange
of Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
(e) Every Note presented or surrendered for registration of
transfer, or for exchange or redemption shall (if so required by the Issuer or
the Note Registrar) be duly endorsed, or be accompanied by a written instrument
of transfer in form satisfactory to the Issuer and the Note Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
(f) There shall be a service charge of Twenty Dollars ($20.00) for
each registration of transfer or exchange of Notes, other than exchanges
pursuant to Section 9.5 or 11.6 not involving any transfer. In addition, the
Issuer may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer or exchange of Notes other than exchanges pursuant to Section 9.5 or
11.6 not involving any transfer.
(g) Neither the Issuer, the Trustee nor the Note Registrar shall be
required (a) to issue or register the transfer or exchange of any Note during a
period beginning at the opening of business 15 days before the mailing of a
notice of redemption of the Notes selected for redemption under Section 11.2 and
ending at the close of business on the day of such mailing, (b) to register the
transfer or exchange of any Note so selected for redemption in whole or in part,
except the unredeemed portion of Notes being redeemed in part, or (c) to
register a transfer that the Issuer determines, upon advice of counsel, would
violate Federal or State securities laws.
2.6 Mutilated, Destroyed, Lost and Stolen Notes.
(a) If (i) any mutilated Note is surrendered to the Issuer or the
Trustee, or (ii) the Issuer and the Trustee receive evidence to their
satisfaction of the destruction, loss or theft of any Note, and there is
delivered to the Issuer and the Trustee such security or indemnity Note
sufficient in the judgment of both the Issuer and the Trustee to protect each of
them from any loss which any of them may suffer if a Note is replaced, then, in
the absence of written notice to the Issuer or the Trustee that such Note has
been acquired by a bona fide purchaser, the Issuer shall execute and upon an
Issuer Request the Trustee shall authenticate and deliver, in exchange for any
such mutilated Note or in lieu of any such destroyed, lost or stolen Note, a new
Note of like tenor and principal amount, bearing a number not contemporaneously
outstanding.
(b) Upon the issuance of any new Notes under this Section, the
Issuer may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and a reasonable fee
to cover expenses connected therewith. In case any Note which has matured or is
about to mature, or which has been called for redemption, shall become mutilated
or be destroyed, lost or stolen, the Issuer may, instead of issuing a substitute
Note, pay or authorize the payment of the same (without surrender thereof except
in the case of a mutilated
4
<PAGE>
Note) if the applicant for such payment shall furnish the Issuer with such
security or indemnity as it may require to save it harmless and, in case of
destruction, loss or theft, evidence to the satisfaction of the Issuer of the
destruction, loss or theft of such Note and of the ownership thereof.
(c) Every new Note issued pursuant to this Section in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Issuer, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all benefits of this Indenture equally and proportionately with any and all
other Notes duly issued hereunder.
(d) The provisions of this Section are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
2.7 Payment of Interest and Principal; Rights Reserved.
(a) Interest or principal on any Note which is payable, and is
punctually paid or duly provided for, on any Payment Date shall be paid to the
Person in whose name that Note is registered at the close of business on the
Regular Record Date for such interest.
(b) Any interest or principal on any Note which is payable, but is
not punctually paid or duly provided for on any Payment Date (herein called
"Defaulted Payment") shall accrue interest from 30 days from the date of the
Defaulted Payment at the rate of (x) 15 1/2 % per annum or (y) the highest
amount permissible under applicable law, if lower than 15 1/2% per annum
("Default Interest") and shall be paid by the Issuer, at its election in each
case, as provided in Subsection (1) or (2) below:
(1) The Issuer may elect to make payment of any Defaulted
Payment to the Persons in whose names the Notes are registered at the close of
business on a Special Record Date for the payment of such Defaulted Payment,
which shall be fixed in the following manner. The Issuer shall notify the
Trustee in writing of the amount of Defaulted Payment proposed to be paid on
each Note and the date of the proposed payment, and at the same time the Issuer
shall deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Payment or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date of
the proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Payment as set forth in this
Subsection. Thereupon the Trustee shall fix a Special Record Date for the
payment of such Defaulted Payment which shall be not more than 15 days and not
less than 10 days prior to the date of the proposed payment and not less then 10
days after the receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Issuer of such Special Record Date. In the
name and at the expense of the Issuer, the Trustee shall cause notice of the
proposed payment of such Defaulted Payment and the Special Record Date therefor
to be mailed, first-class postage prepaid, to each Holder at his address
5
<PAGE>
as it appears in the Note Register, not less than 10 days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted Payment and the
Special Record Date therefor having been so mailed, such Defaulted Payment shall
be paid to the Persons in whose names the Notes are registered on such Special
Record Date and shall no longer be payable pursuant to the following Subsection
(2).
(2) The Issuer may make payment of any Defaulted Payment in
any other lawful manner, and upon reasonable notice, if, after notice given by
the Issuer to the Trustee of the proposed payment pursuant to this Subsection,
such payment shall be deemed practicable by the Trustee.
(c) Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of, upon transfer of, in
exchange for or in lieu of any other Note shall carry the rights to unpaid
principal and interest accrued, and to accrue, which were carried by such other
Note.
2.8 Persons Deemed Owner. Prior to the time of due presentment for
registration of transfer, the Issuer, the Trustee and any agent of the Issuer or
the Trustee may treat the Person in whose name any Note is registered as the
owner of such Note for all purposes, including the payment (subject to Section
2.7) of principal and interest on such Note, and neither the Issuer, the Trustee
nor any agent of the Issuer or the Trustee shall be affected by notice to the
contrary.
2.9 Cancellation. All Notes surrendered for payment, redemption,
registration of transfer or exchange shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly canceled by
it. The Issuer may at any time deliver to the Trustee for cancellation any Notes
previously authenticated and delivered hereunder which the Issuer may have
acquired in any manner whatsoever, and all Notes so delivered shall be promptly
canceled by the Trustee. No Notes shall be authenticated in lieu of or in
exchange for any Notes canceled as provided in this Section, except as expressly
permitted by this Indenture. All canceled Notes held by the Trustee shall be
destroyed and a certificate of such destruction issued to the Issuer.
2.10 Computation of Interest. Interest on the Notes shall be computed on
the basis of a 365-day year and actual number of days elapsed.
6
<PAGE>
ARTICLE 3.
SECURITY FOR THE NOTES
3.1 Security Documents.
(a) Prior to or contemporaneously with the authentication and
delivery of any Notes pursuant to Section 2.4, the Issuer shall have delivered
to the Trustee that certain Security Agreement dated the date hereof, executed
by the Issuer, and that certain Stock Pledge dated the date hereof, executed by
Mr. Sayed Ali.
(b) For purposes of this Agreement, the Security Agreement and the
Stock Pledge referred to in Section 3.1(a) above, and any other instruments or
documents entered into or delivered in connection with any of the foregoing, as
such agreements, instruments and documents may from time to time be amended or
supplemented in accordance with the terms hereof and thereof, shall be
collectively referred to as the "Security Documents."
(c) Each Holder, by accepting a Note, agrees to all of the terms and
provisions of the Security Documents, as the same may be amended from time to
time pursuant to the provisions of the Security Documents and this Indenture.
3.2 Grant of Security Interest. As security for the payment by the Issuer
of all amounts due to the Holders from the Issuer under the Notes and this
Indenture, and for the performance by the Issuer of its obligations hereunder,
the Issuer does hereby assign and transfer to the Trustee, and does hereby
create a security interest for the benefit of the Trustee, in trust for the
equal and ratable benefit and security of the Holders from time to time of all
the Notes outstanding, without priority of any one Note over any other, and upon
the trusts and subject to the covenants and conditions herein set forth, the
property described, in the Security Agreement (which collectively, including all
property hereafter specifically subjected to the Lien of this Indenture by any
instrument supplemental hereto, are herein called the "Trust Estate"):
3.3 No Adverse Action. The Issuer does hereby represent and warrant that,
except as described in the Company's Confidential Private Placement Memorandum
dated December 15, 1998 relating to the Notes (the "Memorandum") it has not
assigned or pledged, and hereby covenants that it will not assign or pledge, so
long as the Security Documents hereunder shall remain in effect, any of its
right, title or interest hereby secured, to any one other than the Trustee.
3.4 Further Assurances. The Issuer agrees that upon the written request of
the Trustee, the Issuer will promptly and duly execute and deliver or cause to
be duly executed and delivered any and all such further instruments and
documents as the Trustee may reasonably deem desirable in obtaining the full
benefits of this Article 3 and of the rights and powers herein granted.
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ARTICLE 4.
SATISFACTION AND DISCHARGE
4.1 Satisfaction and Discharge of Indenture. This Indenture shall cease to
be of further effect (except as to surviving rights of registration of transfer
or exchange of Notes herein expressly provided for) and the Trustee, on written
demand of the Issuer, shall execute instruments acknowledging satisfaction and
discharge of this Indenture and termination of the Security Documents, when
(a) either
(1) all Notes authenticated and delivered (other than (i)
Notes which have been replaced or paid as provided in Section 2.6 and (ii) Notes
for whose payment money has theretofore been deposited in trust or segregated
and held in trust by the Trustee or any Paying Agent, and thereafter repaid to
the Issuer, as provided in Section 10.3), have been delivered to the Trustee
canceled or for cancellation; or
(2) all such Notes not delivered to the Trustee canceled or
for cancellation have become due and payable and the Issuer has irrevocably
deposited (including by delivering an irrevocable Issuer Order to the Trustee
directing the Trustee to utilize amounts in the Accounts for such purpose) or
caused to be deposited with the Trustee or other trustee satisfactory to the
Trustee as trust funds in trust for the purpose an amount of money sufficient to
pay and discharge the entire indebtedness for principal and interest to the date
of such deposit on such Notes not previously delivered to the Trustee canceled
or for cancellation;
(b) the Issuer has paid or caused to be paid all other sums payable
hereunder by the Issuer; and
(c) the Issuer has delivered to the Trustee or such other trustee
(i) irrevocable instructions to apply the deposited money toward payment of the
Notes at Maturity Date or the Redemption Date, as the case may be, and (ii) an
Officers' Certificate stating that all conditions precedent herein provided for
relating to the satisfaction and discharge of this Indenture have been complied
with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Issuer to the Trustee under Section 6.9, and the obligations
of the Trustee under Section 4.2 and the last paragraph of Section 10.3 shall
survive.
4.2 Application of Trust Money. Subject to the provisions of the last
paragraph of Section 10.3, all money deposited with the Trustee or other trustee
reasonably satisfactory to the Trustee pursuant to Section 4.1 shall be held in
trust and applied by it, in accordance with the
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provisions of the Notes and this Indenture, to the payment, either directly if
the Trustee or such other trustee is then the Paying Agent or through any other
Paying Agent designated by the Issuer (including the Issuer or an Affiliate), to
the Persons entitled thereto, of the principal and interest for whose payment
such money has been deposited with the Trustee, ratably, without preference or
priority of any kind among the Notes.
ARTICLE 5.
REMEDIES
5.1 Events of Default. "Event of Default" means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) default in the payment of any principal of or interest on any
Note when it becomes due and payable, and continuance of such default for a
period of 30 days;
(b) default in the performance, or breach, of any covenant or
warranty of the Issuer in this Indenture (other than a default in the
performance, or breach, of a covenant or warranty which is specifically dealt
with elsewhere in this Section) or the Security Agreement, and continuance of
such default or breach for a period of 30 days after there has been given, by
registered or certified mail, to the Issuer by the Trustee or to the Issuer and
the Trustee by the Holders of not less than a majority in aggregate principal
amount of the Outstanding Notes a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a "Notice
of Default" hereunder;
(c) the filing of any involuntary petition in bankruptcy with
respect to the Issuer, which petition has not been dismissed within 60 days of
such filing, or the entry by a court having jurisdiction in the premises of (A)
a decree or order for relief in respect of the Issuer in an involuntary case or
proceeding under any applicable Federal, state or foreign bankruptcy,
insolvency, reorganization or other similar law or (B) a decree or order
adjudging the Issuer a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition of or in
respect of the Issuer under any applicable Federal, state or foreign law, or
appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official of the Issuer or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and the continuance of
any such decree or order for relief or any such other decree or order unstayed
and in effect for a period of 60 consecutive days;
(d) the commencement by the Issuer of a voluntary case or proceeding
under any applicable Federal, state or foreign bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to be
adjudicated a bankrupt or insolvent, or the consent by the Issuer
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to the entry of a decree or order for relief in respect of the Issuer in an
involuntary case or proceeding under any applicable Federal, state or foreign
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against it, or
the filing by the Issuer of a petition, answer or consent seeking reorganization
or relief under any applicable Federal, state or foreign law, or the consent by
the Issuer to the filing of such petition or the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator
or similar official of the Issuer or of any substantial part of its property, or
the making by it of an assignment for the benefit of creditors, or the admission
by the Issuer in writing of its inability to pay its debts generally as they
become due, or the taking of corporate action by the Issuer in furtherance of
any such action;
(e) (i) the occurrence of a levy, seizure, attachment, lien or
encumbrance of or on any of the property included in the Trust Estate which is
not discharged by the Issuer within 30 days, except for Mechanics' liens or
Materialman's liens occurring in the normal course of Issuer's business and
which Issuer contests in good faith by appropriate proceedings, or (ii) the
sale, transfer or other disposition thereof other than in the ordinary course of
business or in accordance with this Indenture;
(f) the common stock of the Issuer is not listed on a national
securities exchange or quoted on either the National Market System or the Small
Cap Market of the automated quotation service operated by Nasdaq, Inc.;
(g) the failure to pay at the final stated maturity (giving effect
to any extension thereto) the principal amount of any Indebtedness of the Issuer
or the acceleration of the final stated maturity of any such Indebtedness, if
the aggregate principal amount of such Indebtedness, together with the aggregate
principal amount of any other such Indebtedness in default for failure to pay
principal at the final stated maturity (giving effect to any extensions thereof)
or which has been accelerated, aggregates $250,000 or more at any time in each
case after a 10-day period during which such default shall not have been cured
or such acceleration rescinded;
(h) one or more judgments in an aggregate amount in excess of
$250,000 (which are not covered by insurance as to which the insured has not
disclaimed coverage) being rendered against the Issuer and such judgment or
judgments remain undischarged or unstayed for a period of 60 days after the
entry of such judgment or judgments;
(i) except as permitted by the Indenture, the Security Agreement
shall be held in a judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect; or
(j) the termination (however effected) prior to the expiration of
its initial term of any lease, license, concession or similar contract right of
the Issuer to operate food, beverage or other retail operations (each, a
"Store") at an airport which generates at least $250,000 of operating income for
the Issuer per year (for the purposes of this sentence, the term "operating
income" shall
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mean all income attributable to the sale of goods and products at a given Store,
less expenses attributable to the Store, and excluding general and
administrative expenses of the Issuer).
5.2 Acceleration of Maturity. If an Event of Default occurs and is
continuing, then the Trustee or the Holders of not less than a majority in
aggregate principal amount of the Outstanding Notes may declare the entire
principal of all the Notes, plus accrued and unpaid interest, if any, to be due
and payable immediately by a notice in writing to the Issuer (and to the Trustee
if given by Holders), and upon any such declaration such principal and interest
shall become immediately due and payable. All outstanding principal and interest
shall accrue at the rate of 15 1/2% per annum during such period which an Event
of Default is continuing. If an Event of Default occurs, the Holders of a
majority in aggregate principal amount of the Outstanding Notes may elect to
waive the Event of Default or rescind any acceleration with respect to the Notes
and its consequences.
5.3 Collection of Indebtedness and Suits for Enforcement by Trustee.
(a) The Issuer covenants that if default occurs in the payment of
any principal of or interest on any Note when such principal or interest becomes
due and payable and such default continues for a period of 30 days, the Issuer
will, upon demand of the Trustee, pay to the Trustee, for the benefit of the
Holders of such Notes the whole amount then due and payable on such Notes for
principal and interest, with interest upon the overdue principal and upon
overdue installments of interest at the rate borne by such Notes and, in
addition thereto, such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
(b) If the Issuer fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and unpaid
and may prosecute such proceeding to judgment or final decree, and may enforce
the same against the Issuer or any other obligor decreed to be liable in the
manner provided by law out of the property of the Issuer or any other obligor
upon the Notes, wherever situated.
(c) Except as limited by the Security Documents, if an Event of
Default occurs and is continuing, the Trustee may in its discretion proceed to
protect and enforce its rights and the rights of the Holders hereunder or under
the Security Documents by such appropriate private or judicial proceedings as
the Trustee shall deem most effective to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in the Security Documents, or in aid of the exercise of any power
granted herein or therein, or to enforce any other proper remedy, including,
without limitation, foreclosure of the Security Interests pursuant to the terms
hereof and of the Security Documents.
(d) The Trustee shall be entitled to sue and recover judgment as
aforesaid either before, after or during the pendency of any proceeding for the
enforcement of the Lien of this
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Indenture and any of the Security Documents, and the right of the Trustee to
recover such judgment shall not be affected by any entry or sale under any of
the Security Documents or by the exercise of any right, power or remedy for the
enforcement of the provisions of any of the Security Documents, or the
foreclosure of the Lien of this Indenture and any of the Security Documents; in
case of a sale of any of the Trust Estate and the application of the proceeds of
sale to the payment of the Notes, the Trustee, in its own name and as trustee of
an express trust, shall be entitled to enforce payment of, and to receive, all
amounts then remaining due and unpaid upon the Notes, for the benefit of the
Holders thereof, and shall be entitled to recover judgment for any portion of
the same remaining unpaid, with interest as aforesaid. No recovery of any such
judgment upon any property of the Issuer shall affect or impair the Lien of this
Indenture and any of the Security Documents upon the Trust Estate or any rights,
powers or remedies of the Trustee thereunder, or any rights, powers or remedies
of the Holders of the Notes.
5.4 Trustee May File Proofs of Claim. In case of the pendency of any
receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement,
adjustment, composition or other judicial proceeding relative to the Issuer or
any other obligor upon the Notes or the property of the Issuer or of such other
obligor or their creditors, the Trustee shall, under all circumstances, be
entitled and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal and
interest owing and unpaid in respect of the Notes and to file such other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or similar official in any
such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay the Trustee and any
predecessor trustee any amount due them for the reasonable compensation,
expenses, disbursements and advances of the Trustee and any predecessor trustee,
respectively, their respective agents and counsel, and any other amounts due
them under Section 6.9.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder, or to authorize the Trustee to vote in respect of the
claim of any Holder in any such proceeding.
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5.5 Trustee May Enforce Claims Without Possession of Notes. All rights of
action and claims under this Indenture, the Security Documents or the Notes may
be prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name and as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Notes in respect of which such judgment has been recovered.
5.6 Application of Money Collected. Any money collected by the Trustee
pursuant to this Article shall be applied in the following order, at the date or
dates fixed by the Trustee and, in case of the distribution of such money on
account of principal or interest, upon presentation of the Notes and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: to the payment of the Trustee's costs and expenses of
foreclosure under the Security Documents;
SECOND: to the payment of all amounts due the Trustee under Section
6.9 hereof;
THIRD: to the payment of Default Interest, if any;
FOURTH: the amounts then due and unpaid upon the Notes for interest,
in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind among the
Notes, according to the amounts due and payable on such Notes for
interest;
FIFTH: the amounts then due and unpaid upon the Notes for principal,
in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind among the
Notes, according to the amounts due and payable on such Notes for
principal;
SIXTH: the remainder, if any, to the Issuer, its successors or
assigns or to whomsoever may be lawfully entitled to receive the same as
evidenced by an Officer's Certificate or as a court of competent
jurisdiction may direct.
5.7 Limitation on Suits. No Holder shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture or the
Security Documents, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless
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(a) the Holders of not less than a majority in aggregate principal
amount of the Outstanding Notes shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(b) such Holder or Holders have offered to the Trustee reasonable
and customary indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(c) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding; and
(d) no written direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a majority
in aggregate principal amount of the Outstanding Notes;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
5.8 Unconditional Right of Holders To Receive Principal and Interest.
Notwithstanding any other provision in this Indenture, the Holder of any Note
shall have the unconditional right to receive payment (subject to Section 2.7)
of the principal of and interest (including any Accrued Bankruptcy Interest) on
such Note on the respective Stated Maturities expressed in such Note (or, in the
case of redemption, on the Redemption Date) and to institute suit for the
enforcement of any such payment, and such rights shall not be impaired without
the consent of such Holder.
5.9 Restoration of Rights and Remedies. If the Trustee or any Holder has
instituted any proceeding to enforce any right or remedy under this Indenture or
the Security Documents and such proceeding has been discontinued or abandoned
for any reason, or has been determined adversely to the Trustee or to such
Holder, then and in every such case the Issuer, the Trustee and the Holders
shall, subject to any determination in such proceeding, be restored severally
and respectively to their former positions hereunder, and thereafter all rights
and remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
5.10 Rights and Remedies Cumulative. Except as provided in Section 2.6, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion of any right or remedy
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
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5.11 Delay or Omission Not Waiver. No delay or omission of the Trustee or
of any Holder of any Note to exercise any right or remedy accruing upon any
Event of Default shall impair any such right or remedy or constitute a waiver of
any such Event of Default or an acquiescence therein. Every right and remedy
given by this Article or by law to the Trustee or to the Holders may be
exercised as may be deemed expedient by the Trustee or by the Holders, as the
case may be.
5.12 Control by Holders. The Holders of a majority in aggregate principal
amount of the Outstanding Notes shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred on the Trustee hereunder, under any
Security Document or under applicable law; provided that
(a) such direction shall not be in conflict with any rule of law or
with this Indenture;
(b) the Trustee shall have the right to decline to follow any such
direction if the Trustee, being advised by counsel, determines that the action
so directed may not lawfully be taken or if the Trustee in good faith shall
determine that the proceedings so directed would involve it in personal
liability or be unduly prejudicial to the Holders not taking part in such
direction; and
(c) such Holder or Holders have offered to the Trustee reasonable
and customary indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request.
5.13 Waiver of Past Defaults. The Holders of not less than a majority in
aggregate principal amount of the Outstanding Notes may on behalf of the Holders
of all the Notes waive any past default hereunder or under the Security
Documents and its consequence, except a default
(a) in the payment of any principal of or interest on any Note,
(b) depriving the Trustee or any Holder of a Lien upon any of the
Trust Estate, or
(c) in respect of a covenant or provision which under Article Nine
cannot be modified or amended without the consent of the Holder of each
Outstanding Note affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
5.14 Undertaking for Costs. All parties to this Indenture agree, and each
Holder of any Note by acceptance thereof shall be deemed to have agreed, that
any court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture or any Security Document, or in any suit
against the Trustee for any action taken, suffered or omitted by it as
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Trustee, the filing by any party litigant in such suit of an undertaking to pay
the costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in such suit, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; but the provisions of this
Section shall not apply to any suit instituted by the Trustee, to any suit
instituted by any Holder, or group of Holders, holding not less than a majority
in aggregate principal amount of the Outstanding Notes or to any suit instituted
by any Holder for the enforcement of the payment of any principal of or interest
on any Note on or after the respective Stated Maturities expressed in such Note
(or, in the case of redemption, on or after the Redemption Date).
ARTICLE 6.
THE TRUSTEE
6.1 Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and the Security
Documents and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; but in the case of
any such certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the requirements of
this Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and the Security Documents, and use the same degree of care and skill
in their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that
(1) this Subsection (c) shall not be construed to limit the
effect of Subsection (a) of this Section;
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(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in aggregate principal amount of the
Outstanding Notes relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee, under this Indenture or the Security
Documents; and
(4) no provision of this Indenture or the Security Documents
shall require the Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder or in the
exercise of any of its rights or powers if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of
this Indenture and the Security Documents relating to the conduct or affecting
the liability of or affording protection to the Trustee shall be subject to the
provisions of this Section.
6.2 Notice of Defaults. Within 90 days after the occurrence of any default
hereunder, the Trustee shall transmit by mail to all Holders, as their names and
addresses appear in the Note Register, notice of such default hereunder known to
the Trustee, unless such default shall have been cured or waived; provided that,
except in the case of a default in the payment of any principal of or interest
on any Note, the Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Trustee in good faith determines
that the withholding of such notice is in the interest of the Holders; and
provided, further, that in the case of any default of the character specified in
Section 5.1(b) no such notice to Holders shall be given until at least 30 days
after the occurrence thereof. For the purpose of this Section, the term
"default" means any event which is, or after notice or lapse of time or both
would become, an Event of Default.
6.3 Certain Rights of Trustee. Subject to the provisions of Section 6.1:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, debenture, note,
other evidence of indebtedness or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Issuer mentioned herein shall be
sufficiently evidenced by an Issuer Request or Issuer Order and any resolution
of the board of directors of the Issuer shall be sufficiently evidenced by a
Directors' Resolution;
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(c) whenever in the administration of this Indenture or under any
Security Document the Trustee shall deem it desirable that a matter be proved or
established prior to taking or omitting any action, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith on
its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of
such counsel shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture or under any Security Document
at the request or direction of any of the Holders pursuant to this Indenture,
unless such Holders shall have offered to the trustee reasonable and customary
security or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document, but
the Trustee, in its discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be entitled to
examine the books, records and promises of the Issuer, personally or by agent or
attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
under the Security Documents or perform any duties hereunder either directly or
by or through agents or attorneys and the Trustee shall not be responsible for
any willful misconduct, negligence or bad faith on the part of any agent or
attorney appointed with due care by it hereunder; and
(h) the Trustee shall not be liable for any action taken by it in
good faith and believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Indenture.
6.4 Not Responsible for Recitals or Issuance of Notes. The recitals
contained herein, in the Security Documents and in the Notes, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Issuer, and the Trustee assumes no responsibility for their correctness. The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Notes or any of the Security Documents. The Trustee shall
not be accountable for the use or application by the Issuer or any Paying Agent
other than the Trustee of Notes or the proceeds thereof, or any money paid to
the Issuer or any Paying Agent other than the Trustee or upon the direction of
the Issuer or any Paying Agent other than the Trustee under any provisions
hereof.
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6.5 May Hold Notes. The Trustee, any Paying Agent, Note Registrar or any
other agent of the Issuer or the Trustee, in its individual or any other
capacity, may become the owner or pledgee of Notes, and may otherwise deal with
the Issuer or any other obligor on the Notes with the same rights it would have
if it were not Trustee, Paying Agent, Note Registrar or such other agent.
6.6 Money Held in Trust. Money held by the Trustee in trust hereunder need
not be segregated from other funds except to the extent required by law but such
money shall bear interest which shall be paid to the beneficiary(ies) of such
money, pro rata if applicable but the investment earnings on such monies shall
be held in trust subject to the terms of this Indenture.
6.7 Suits To Protect the Trust Estate. Subject to the provisions of the
Security Documents, the Trustee shall have power to institute and to maintain
such suits and proceedings as it may deem expedient to prevent any impairment of
the Trust Estate by any acts which may be unlawful or in violation of any of the
Security Documents or this Indenture, and such suits and proceedings as the
Trustee may deem expedient to preserve or protect its interests and the
interests of the Holders in the Trust Estate (including power to institute and
maintain suits or proceedings to restrain the enforcement of or compliance with
any legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance with,
such enactment, rule or order would impair the Security Interests or be
prejudicial to the interests of the Holders or the Trustee).
6.8 Determinations Relating to Trust Estate. In the event (i) the Trustee
shall receive any written request from the Issuer for consent or approval with
respect to any matter or thing relating to the Trust Estate or the Issuer's
obligations with respect thereto or (ii) there shall be due to or from the
Trustee under the provisions of any Security Document any material performance
or the delivery of any material instrument or (iii) the Trustee shall become
aware of any nonperformance by the Issuer of any covenant or any breach of any
representation or warranty of the Issuer set forth in any Security Document,
then the Trustee shall be entitled to hire experts, consultants, agents and
attorneys to advise the Trustee on the manner in which the Trustee should
respond to such request or render any requested performance or response to such
nonperformance or breach. The Trustee shall be fully protected in the taking of
any action recommended or approved by any such expert, consultant, agent or
attorney or agreed to by a majority of Holders pursuant to Section 5.12.
6.9 Compensation, Reimbursement and Indemnity. The Issuer agrees:
(a) to pay to the Trustee reasonable compensation for all services
rendered by it hereunder, consisting of (i) Two Thousand Dollars ($2,000) for an
initial set-up fee, (ii)Two Thousand Five Hundred Dollars ($2,500) per annum for
all services of the Trustee as set forth in this Indenture other than services
rendered after an Event of Default, payable in 4 quarterly installments of Six
Hundred Twenty Five Dollars ($625.00), commencing on December 1, 1998, and (iii)
reasonable compensation according to the Trustee's standard rates for all
services set forth in this Indenture rendered after an Event of Default;
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(b) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture or the Security Documents, except any such expense, disbursement or
advance as may be attributable to its willful misconduct, negligence or bad
faith; and
(c) to indemnify the Trustee (in its individual capacity and as
Trustee) and each of its officers, directors, attorneys-in-fact and agents for,
and to hold each such Person harmless against, any claim, loss, liability or
expense incurred without willful misconduct, negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration of
this trust or the performance of its duties hereunder or under any Security
Document, including any liability which the Trustee may incur as a result of the
failure to withhold, pay or report taxes arising out of the transactions
contemplated by this Indenture (other than taxes based on the Trustee's income)
and the costs and expenses of defending itself against any claim or liability
and of complying with any process served on the Trustee or such other Person in
connection with the exercise or performance of any of its powers or duties
hereunder or under any of the Security Documents.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 5.1(c) or (d) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The obligation of the Issuer under this Section 6.9 shall constitute
additional indebtedness under this Indenture and shall (a) be secured by a lien
prior to that of the Notes upon all property and funds held or collected by the
Trustee, as such, except funds held in trust for the benefit of particular Notes
and (b) survive the resignation or removal of the Trustee, the satisfaction and
discharge of this Indenture and any rejection or termination of this Indenture
under any applicable Bankruptcy Law. Notwithstanding the foregoing provisions of
this paragraph, the Trustee shall not have any right to set off amounts owing to
the Trustee or to initiate any foreclosure or other remedy with respect to such
lien or indebtedness unless and until the Holders shall have commenced
proceedings to foreclose the Security Interests.
The Trustee shall have no liability for any loss of principal that occurs
for an investment made by the Trustee in Cash Equivalents under any provision of
this Indenture, unless such loss of principal results from the Trustee's
negligent action, negligent failure to act or willful misconduct.
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6.10 Disqualification; Conflicting Interests. The Trustee shall comply
with Section 310(b) of the Trust Indenture Act.
6.11 Corporate Trustee Required; Eligibility. There shall at all times be
a Trustee hereunder which shall be a corporation organized and doing business
under the laws of the United States of America or of any state, authorized under
such laws to exercise corporate trust powers, having a combined capital and
surplus of at least $150,000,000.00, subject to supervision or examination by
Federal or state authority and, to the extent there is such an institution
eligible and willing to serve, having an office or agency in the County of San
Diego, California. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
6.12 Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.13.
(b) The Trustee may resign at any time by giving written notice
thereof to the Issuer at least 30 Business Days prior to the date of such
proposed resignation. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by an Act of the Holders
of a majority in aggregate principal amount of the Outstanding Notes delivered
to the Trustee and to the Issuer.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 6.10 after
written request therefor by the Issuer or by any Holder who has been a bona fide
Holder of a Note for at least six months, or
(2) the Trustee shall cease to be eligible under Section 6.11
and shall fail to resign after written request therefor by the Issuer or by any
such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its
property shall be appointed or any public
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officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation,
then, in any case, (i) the Issuer by a Directors' Resolution may remove the
Trustee, or (ii) subject to Section 5.14, the Holder of any Note who has been a
bona fide Holder of a Note for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of the Trustee for any cause,
a successor Trustee shall be appointed by Act of the Holders of a majority in
aggregate principal amount of the Outstanding Notes, such Act of the Holders
having been delivered to the Issuer and the retiring Trustee, and the successor
Trustee so appointed shall, forthwith upon its acceptance of such appointment in
accordance with Section 6.13, become the successor Trustee and supersede the
Trustee. If no successor Trustee shall have been so appointed by the Holders of
the Notes and so accepted appointment, the Holder of any Note who has been a
bona fide Holder for at least six months may on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Issuer shall give written notice of each resignation and
each removal of the Trustee and each appointment of a successor Trustee to the
Holders of Notes as their names and addresses appear in the Note Register. Each
notice shall include the name of the successor Trustee and the address of its
principal corporate trust office.
6.13 Acceptance of Appointment by Successor. Every successor Trustee
appointed hereunder shall execute, acknowledge and deliver to the Issuer and to
the retiring Trustee an instrument accepting such appointment, and thereupon the
resignation or removal of the retiring Trustee shall become effective and such
successor Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring Trustee;
but, on request of the Issuer or the successor Trustee, such retiring Trustee
shall, upon payment of its charges and reimbursement of all expenses, execute
and deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee, and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder. Upon request of any such successor Trustee, the Issuer shall
execute any and all instruments in order to more fully and certainly vest in and
confirm to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
6.14 Merger, Conversion, Consolidation or Succession to Business. Any
corporation into which the Trustee may be merged or converted or with which it
may be consolidated, or any
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corporation resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation succeeding to all or substantially
all of the corporate trust business of the Trustee, shall be the successor of
the Trustee hereunder, provided such corporation shall be otherwise qualified
and eligible under this Article, without the execution or filing of any paper or
any further act on the part of any of the parties hereto. In case any Notes
shall have been authenticated, but not delivered, by the Trustee then in office,
any successor by merger, conversion or consolidation to such authenticating
Trustee may adopt such authentication and deliver the Notes so authenticated
with the same effect as if such successor Trustee had itself authenticated such
Notes.
6.15 Preferential Collection of Claims Against Issuer. The Trustee shall
comply with Section 311(a) of the Trust Indenture Act, excluding any creditor
relationship listed in Section 311(b) of the Trust Indenture Act. A Trustee who
has resigned or been removed shall be subject to Section 311(a) of the Trust
Indenture Act to the extent indicated therein.
ARTICLE 7.
HOLDERS' LISTS AND REPORTS BY ISSUER
7.1 Issuer to Furnish Trustee Names and Addresses of Holders. The Issuer
will furnish or cause to be furnished to the Trustee
(a) within 30 days after the initial issuance of the Notes, a list
of the names and addresses of the Holders as of the initial issuance, and
annually thereafter, on the anniversary date of the initial issuance, a list of
the names and addresses of the Holders as of the most recent Regular Record
Date, in each case in such form as the Trustee may reasonably require, and
(b) at such other times as the Trustee may request in writing,
within 30 days after receipt by the Issuer of any such request, a list of
similar form and content as of a date not more than 15 days prior to the time
such list is furnished;
provided, however, that if and so long as the Trustee shall be the Note
Registrar, no such list need be furnished.
7.2 Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained in the most
recent list furnished to the Trustee as provided in Section 7.1. The Trustee may
destroy any list furnished to it as provided in Section 7.1 upon receipt of a
new list so furnished.
(b) If three or more Holders (hereinafter referred to as
"applicants") apply in writing to the Trustee, and furnish to the Trustee
reasonable proof that each such applicant has
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owned a Note for a period of at least six months preceding the date of such
application, and such application states that the applicants desire to
communicate with other Holders with respect to their rights under this Indenture
or under the Notes and is accompanied by a copy of the form of proxy or other
communication which such applicants propose to transmit, then the Trustee shall,
within five Business Days after the receipt of such application, at its
election, either
(1) afford such applicants access to the information set forth
in Section 7.2(a), or
(2) inform such applicants as to the approximate number of
Holders whose names and addresses appear in the information set forth in Section
7.2(a), and as to the approximate cost of mailing to such Holders the form of
proxy or other communication, if any, specified in such application.
If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants,
mail to each Holder whose name and address appear in the information preserved
at the time by the Trustee in accordance with Section 7.2(a), a copy of the form
of proxy or other communication which is specified in such request, with
reasonable promptness after a tender to the Trustee of the material to be mailed
and of payment, or provision for the payment, of the reasonable expense of
mailing, provided that if the Trustee determines that the mailing of the form of
proxy or other communication which the applicants propose to transmit would be
contrary to the best interests of the Holders or would be in violation of
applicable law, the Trustee shall within five (5) days after receipt of such
tender provide a written statement to such effect to the Issuer, which statement
shall specify the basis for such opinion. The Issuer shall promptly evaluate the
statement and either (i) provide the Trustee with a written statement concurring
with the Trustee's opinion and instructing the Trustee not to transmit the proxy
or other communication, or (ii) provide a written statement to the Trustee
instructing the Trustee to transmit the proxy or other communication. In either
case, the Issuer shall indemnify the Trustee for any liability arising from
Issuer's instruction. The Trustee shall thereupon comply with the instructions
of the Issuer. If the Trustee, in reliance on the instruction of the Issuer,
fails to transmit the proxy or other communication, it shall give notice of such
failure to the Holders.
(c) Every Holder of Notes, by receiving and holding the same, agrees
with the Issuer and the Trustee that neither the Issuer nor the Trustee shall be
held accountable by reason of disclosure of any such information as to the names
and addresses of the Holders in accordance with Section 7.2(b), regardless of
the source from which such information was derived, and that the Trustee shall
not be held accountable by reason of mailing any material pursuant to a request
made under Section 7.2(b).
7.3 Reports by the Issuer. The Issuer, by March 30 of each year, beginning
March 30, 1999, will deliver to the Trustee and mail to all registered Holders
of the Outstanding Notes, as the names and addresses of such Holders appear upon
the Note Register, the following:
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(a) annual audited financial statements of the Issuer for the
Issuer's fiscal year just ended,
(b) an Officers' Certificate stating that, to the best knowledge of
the signer thereof, the Issuer has fulfilled all its obligations under this
Indenture throughout such fiscal year, and, if there has been a default in the
fulfillment of any such obligation, specifying each default and the nature and
status thereof; and
(c) a brief report by the Issuer's officers, which may be included
in the Officers' Certificate required under Section 7.3(b), with respect to any
release of the Lien of this Indenture over the Trust Estate which has not
previously been reported.
ARTICLE 8.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
8.1 Issuer May Consolidate, Etc., Only on Certain Terms. The Issuer shall
not consolidate or merge with or into any other Person or convey or transfer its
properties and assets substantially as an entirety to any Person, unless:
(a) the Person (if other than the Issuer) formed or surviving such
consolidation or merger or that acquires by conveyance or transfer the
properties and assets of the Issuer substantially as an entirety shall be a
Person organized and existing under the laws of the United States of America or
any State or the District of Columbia, and shall expressly assume, by an
indenture supplement hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, due and punctual payment of the principal of and
interest on all Notes and the performance of every covenant of this Indenture on
the part of the Issuer to be performed or observed;
(b) immediately after giving effect to such transaction, no Event of
Default shall have occurred and be continuing;
(c) the Issuer shall have delivered to the Trustee an Officers'
Certificate satisfactory in form and substance to the Trustee stating that such
consolidation, merger, conveyance or transfer and such supplemental indenture
comply with this Article and that all conditions precedent in this Article
provided for relating to such transaction have been complied with; and
(d) the Issuer complies with the provisions of Section 10.17 below.
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8.2 Successor Substituted. Upon any consolidation or merger, or any
conveyance or transfer of the properties and assets of the Company substantially
as an entirety in accordance with Section 8.1, the Person formed by or surviving
such consolidation or merger (if other than the Issuer) or the Person to which
such conveyance or transfer is made shall succeed to, and be substituted for,
and may exercise every right and power of, the Issuer under this Indenture with
the same effect as if such Person had been named as the Issuer herein. In the
event of any such conveyance or transfer, the Person named as the "Issuer" in
the first paragraph of this instrument or any successor which shall theretofore
have become such in the manner prescribed in this Article may be dissolved,
wound-up and liquidated at any time thereafter, and such person thereafter shall
be released from its liabilities as obligor and maker on all the Notes and from
its obligations under this Indenture.
ARTICLE 9.
SUPPLEMENTAL INDENTURES
9.1 Supplemental Indentures Without Consent. Without the consent of any
Holders, the Issuer, when authorized by a Directors' Resolution, and the Trustee
together may enter into one or more indentures supplemental hereto or amend or
supplement any Note or Security Document, in form satisfactory to the Trustee,
for any of the following purposes:
(a) to evidence the succession of another Person to the Issuer, and
the assumption by any such successor of the covenants of the Issuer, herein and
in the Notes and the Security Documents;
(b) to add to the covenants of the Issuer for the benefit of the
Holders, or to surrender any right or power herein conferred upon the Issuer,
herein or in any Security Document;
(c) to cure any ambiguity, to correct or supplement any provision
herein or in the Notes which may be defective or inconsistent with any other
provision herein, or to make any other provisions with respect to matters or
questions arising under this Indenture or in the Notes; provided that, in each
case, such provisions shall not adversely affect the interests of the Holders in
any material respect;
(d) to evidence, and provide for the acceptance of, the appointment
of a successor Trustee hereunder;
(e) to make any change that does not adversely affect the rights of
any Holder; or
(f) to mortgage, pledge, hypothecate or grant a security interest in
favor of the Trustee as additional security for the payment and performance of
the Indenture Obligations, in any property or assets, including any which is
required to be mortgaged, pledged or hypothecated, or in
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which a security interest is required to be granted, to the Trustee pursuant to
this Indenture or any Security Document or otherwise; provided that the Issuer
has delivered to the Trustee an Officers' Certificate stating that such change
does not adversely effect the rights of any Holder.
9.2 Supplemental Indentures With Consent. With the consent of the Holders
of not less than a majority of the aggregate principal amount of the Outstanding
Notes, by Act of said Holders delivered to the Issuer and the Trustees, the
Issuer when authorized by a Directors' Resolution, and the Trustee may enter
into an indenture or indentures supplemental hereto for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of this Indenture, the Notes or any of the Security Documents or of modifying in
any manner the rights of the Holders under this Indenture, the Notes or any of
the Security Documents; provided that no such supplemental indenture shall,
without the consent of the Holder of each Outstanding Note affected thereby:
(a) change the Stated Maturity of any installment of principal of or
interest on any Note, or reduce the principal amount thereof or the rate of
interest thereon, or change the coin or currency in which any Note or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment after the Stated Maturity thereof (or, in the
case of redemption, on or after the applicable Redemption Date);
(b) alter the percentage in principal amount of the Outstanding
Notes, the consent of whose Holders is required for any such supplemental
indenture, or the consent of whose Holders is required for any waiver (of
compliance with certain provisions of this Indenture or certain defaults
hereunder and their consequences) provided for in this Indenture; or
(c) modify or affect in any manner adverse to the Holders the terms
and conditions of the Issuer in respect of the due and punctual payment of any
principal of or interest on the Notes.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
9.3 Execution of Supplemental Indentures. In executing, or accepting the
additional trusts created by, any supplemental indenture permitted by this
Article or the modifications thereby of the trusts created by this Indenture,
the Trustee shall be entitled to receive and (subject to Section 6.1) shall be
fully protected in relying upon, an Officers' Certificate stating that the
execution of such supplemental indenture (i) is authorized or permitted by this
Indenture and the Security Documents (if applicable) and (ii) does not violate
the provisions of any agreement or instrument known to the Issuer evidencing any
other Indebtedness of the Issuer. The Trustee may, but shall not be obligated
to, enter into any such supplemental indenture which affects the Trustee's own
rights, duties or immunities under this Indenture.
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9.4 Effect of Supplemental Indentures. Upon the execution of any
supplemental indenture under this Article, this Indenture, the Security
Documents and the Notes shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Notes authenticated and delivered hereunder shall be bound
thereby.
9.5 Reference in Notes to Supplemental Indentures. Notes authenticated and
delivered after the execution of any supplemental indenture pursuant to this
Article may, and shall if required by the Trustee, bear a notation in form
satisfactory to the Trustee as to any matter provided for in such supplemental
indenture. If the Issuer shall so determine, new Notes so modified as to
conform, in the opinion of the Trustee and the officers of the Issuer, to any
such supplemental indenture may be prepared and executed by the Issuer and
authenticated and delivered by the Trustee in exchange for Outstanding Notes.
9.6 Revocation and Effect of Consents. Until an amendment or waiver
becomes effective, a consent to it by a Holder is a continuing consent by Holder
and every subsequent Holder or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if a notation of the consent is not made on
any Note. However, any such Holder, or subsequent Holder, may revoke the consent
as to his Note or portion of a Note if the Trustee receives the written notice
of revocation before the date the amendment or waiver becomes effective. An
amendment or waiver shall become effective in accordance with its terms and
thereafter bind every Holder.
ARTICLE 10.
COVENANTS
10.1 Payment of Principal and Interest.
(a) The Issuer shall make payment to the Trustee for deposit in the
Payment Account established under Section 12.1(b), prior to each Payment Date,
all amounts necessary to pay the interest due on such Payment Date.
(b) The Issuer shall make payment to the Trustee for deposit in the
Principal Account established under Section 12.1(c), prior to each Payment Date,
all amounts necessary to pay the principal amount due on such Payment Date.
(c) The Issuer will duly and punctually pay the principal of and
interest on the Notes, in accordance with the terms of the Notes and this
Indenture. An installment (including any redemption of Notes pursuant to Article
11) of principal or interest shall be considered paid on the date due if the
Trustee or Paying Agent (other than the Issuer) holds on that date money
designated for and sufficient to pay the Installment.
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10.2 Maintenance of Office or Agency. The Issuer will maintain in the
County of San Diego, California an office or agency where Notes may be presented
or surrendered for payment or repurchase, where Notes may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Issuer in respect of the Notes and this Indenture may be served. The Issuer
will give prompt written notice to the Trustee of any change in the location of
any such office or agency. If at any time the Issuer shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee, and the Issuer hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
10.3 Money for Note Payments to be Held in Trust. The Trustee will, on or
before each due date of the principal of or interest on any Notes, deposit with
or otherwise make available to the Paying Agent a sum in same day funds
sufficient to pay the principal or interest so becoming due (to the extent funds
are then available from the Trust Estate for such purposes), such sum to be held
in trust for the benefit of the Persons entitled to such principal or interest,
and (unless such Paying Agent is the Trustee) the Trustee will promptly notify
the Paying Agent of such action or any failure so to act.
The Issuer will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will:
(a) hold all sums held by it for the payment of principal of or
interest on Notes in trust for the benefit of the Persons entitled thereto until
such sums shall be paid to such Persons or otherwise disposed of as herein
provided;
(b) give the Trustee notice of any default by the Issuer (or any
other obligor upon the Notes) in the making of any payment of principal or
interest;
(c) at any time during the continuance of any such default, upon the
written request of the Trustee, pay to the Trustee all sums so held in trust by
such Paying Agent;
(d) hold all sums delivered to it for the benefit of the Trustee in
trust for the sole benefit of the Trustee until such sums are applied or
disposed of as herein provided; and
(e) subsequent to an Event of Default, upon the written request of
the Trustee, take such action as may be necessary to cause all payments or
amounts previously paid to the Paying Agent for the benefit of the Trustee to be
paid directly to the Trustee.
The Issuer may for the purpose of obtaining the satisfaction and discharge
of this Indenture or for any other purpose, pay, or by Issuer Order direct any
Paying Agent to pay, to the Trustee all
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sums held in trust by the Issuer or such Paying Agent, such sums to be held by
the Trustee upon the same trusts as those upon which such sums were held by the
Issuer or such Paying Agent; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
Any money deposited with the Trustee or any Paying Agent in trust for the
payment of principal of or interest on any Note and remaining unclaimed six
months after such principal or interest has become due and payable shall be paid
to the Issuer on Issuer Request; and the Holder of such Note shall thereafter,
as an unsecured general creditor, look only to the Issuer for payment thereof,
and all liability of the Trustee or the Paying Agent with respect to such trust
money shall thereupon cease; provided that the Trustee or the Paying Agent,
before being required to make any such repayment, shall at the expense of the
Issuer cause to be (a) mailed to Holders at their addresses as they shall appear
on the Note Register and (b) published once, in a newspaper published in the
English language, customarily published on each Business Day and of general
circulation in the cities of Los Angeles and San Diego, California, notice that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such mailing or publication, any
unclaimed balance of such money then remaining will be repaid to the Issuer.
10.4 Validity of Notes; Title to Trust Estate. The Issuer represents and
warrants that:
(a) It is duly authorized under applicable law and its articles of
incorporation to create and issue the Notes, to execute and deliver this
indenture and all instruments included in the Trust Estate which are executed
and delivered hereby and to pledge the property included in the Trust Estate;
all corporate action and governmental consents, authorizations and approvals
necessary or required therefor have been duly and effectively taken or obtained;
the Notes designated in Section 2.2 are legal, valid and binding obligations of
the Issuer; and
(b) the Security Documents are valid and enforceable and the
property included in the Trust Estate is free of all liens, charges and
encumbrances except as permitted hereby, the Issuer has full power and lawful
authority to pledge the property included in the Trust Estate, and the Trustee
has a valid and enforceable security interest therein, subject only to
exceptions permitted hereby or thereby; the Issuer will at all times preserve,
warrant and defend the Trustee's title and right in and to the property included
in the Trust Estate against the claims of all persons.
10.5 Corporate Existence. The Issuer will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights, licenses and franchises.
10.6 Books; Inspection by Trustee. The Issuer will keep proper books of
record and account, in which full and correct entry shall be made of all
dealings or transactions of or in relation to the Notes and the properties,
business and affairs of the Issuer in accordance with generally accepted
accounting principles. The Issuer will furnish to the Trustee any and all
information as the Trustee may reasonably request with respect to the
performance by the Issuer of its covenants in this
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Indenture. Nothing in this Section shall be deemed to require the Trustee to
request such information with respect to the performance by the Issuer of its
covenants in this Indenture.
10.7 Payment of Taxes and Other Claims. The Issuer will pay or discharge
or cause to be paid or discharged, before the same shall become delinquent, (a)
all taxes, assessments and governmental charges levied or imposed upon it or
upon its income, profits or property, and (b) all lawful claims for labor,
materials and supplies, which, if unpaid, might by law become a lien upon the
property of the Issuer; unless such tax, assessment, charge or claim is being
contested in good faith by appropriate proceedings and for which adequate
provision has been made in accordance with generally accepted accounting
principles.
10.8 Negative Covenants.
(a) The Issuer will not create, incur, assume or suffer to exist any
Liens of any kind upon the Trust Estate, except for Liens on the Trust Estate as
permitted by the applicable Security Documents.
(b) The Issuer will not take or omit to take any action which might
or would have the result of affecting or impairing the Security Interests in
favor of the Trustee, on behalf of the Holders, with respect to the Trust
Estate, and the Issuer shall not grant to any Person any interest whatsoever in
the Trust Estate except as permitted by the Security Documents.
(c) The Issuer will not enter into any agreement or instrument that
by its terms expressly (i) prohibits the Issuer from optionally redeeming or
otherwise making any payments on the Notes or (ii) requires that the proceeds
received from the sale of any Trust Estate be applied to repay, redeem or
otherwise retire any indebtedness of any Person other than the Indebtedness
represented by the Notes except as set forth in Article Twelve hereof and in the
Security Documents.
(d) The Issuer will not incur any Indebtedness that would rank in
terms of payment senior to or on parity with the Notes.
10.9 Recording and Filing of Security Documents. The Issuer will cause
financing statements and continuation statements covering security interests in
personal property to be recorded promptly, registered and filed, and will
execute and file such financing statements and cause to be issued and filed such
continuation statements, all in such manner and in such places as may be
required by law fully to preserve and protect the rights of the Holders and the
Trustee under this Indenture and the Security Documents to all property
comprising the Trust Estate.
10.10 Statements by Officers as to Default. When any event has occurred
and is continuing which is, or after notice or lapse of time or both would
become, an Event of Default, or if the Trustee or any Holder or the trustee for
or the holder of any other evidence of Indebtedness of the Issuer gives any
notice to the Issuer or takes any other action with respect to a claimed
default, the Issuer
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shall deliver to the Trustee by registered or certified mail or by telegram,
telex or facsimile transmission an Officers' Certificate specifying such event,
notice or other action, and the nature and status thereof, as soon as possible
but in no event later than five Business Days after its occurrence.
10.11 Use of Trust Moneys and Advances by Trustee. If the Issuer shall
fail to perform any of its covenants in this Indenture, the Trustee may (but
shall not be required to), use and apply any Trust Moneys held by it under
Article 12 or make advances to effect performance of any such covenant on behalf
of the Issuer as contemplated by this Indenture, the Security Documents or
otherwise; provided, that the Trustee shall not be required to make any such
advances from its own funds; and provided further, that all moneys so used or
advanced by the Trustee, together with interest at the rate borne by the Notes,
shall be repaid by the Issuer upon demand and such advances shall be secured
under the Security Documents. For repayment of all such advances the Trustee
shall have the right to use and apply any Trust Moneys at any time held by it
under Article Twelve but no such use of Trust Moneys or advances shall relieve
the Issuer from any default.
10.12 Use of Proceeds. Issuer will use net proceeds from the sale of all
or any portion of the Notes, after payment of expenses, first, to discharge the
Small Business Administration loan to the Issuer in the outstanding principal
amount of approximately $125,000.00, second, to discharge the convertible bridge
loan from Global Capital to the Issuer in the outstanding principal amount of
approximately $500,000.00, third, to discharge any bridge loan to the Issuer
which is in default, fourth, to discharge the remaining bridge loans to the
issuer which aggregate (together with the amounts of the convertible bridge loan
and any bridge loans which are in default) approximately $1.9 million, and
fifth, to pay for expenditures towards the capital improvements described in the
Memorandum.
10.13 Insurance.
(a) The Issuer will keep all its properties of a character usually
insured by institutions similarly situated insured to one hundred percent (100%)
of their full insurable value against loss by fire and extended perils. Evidence
of such insurance shall be kept by the Issuer. An insurance payment on account
of a loss on any of the Trust Estate shall be payable to the Trustees hereunder
as their interest may appear. In the event of damage or destruction of such
property and recovery therefor under such insurance, the Issuer will as soon as
possible replace or repair such property or use the money received under the
insurance policy to retire the Notes issued hereunder, except as otherwise
provided in the Indenture.
(b) The Issuer will carry insurance against such other risks,
including, without limitation, public liability, workers' compensation, and
boiler insurance, in such reasonable amounts as may be available and as are
usually carried by institutions of the same or similar character and magnitude.
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(c) In the event of loss covered by insurance, if the total amount
received by the Trustee upon all policies shall, in the case of one loss, be
$50,000 or less, and if the Issuer is not, to the knowledge of the Trustee, then
in default under the Indenture, the amount received by the Trustee on account of
such loss shall be paid to the Issuer by the Trustee and shall be used by the
Issuer to pay for replacements of or substitutions for the injured or destroyed
property, but the Trustees shall not be required to see to the application
thereof. In all other cases, the proceeds of any and all insurance on any part
of the Trust Estate which may be received by the Trustee shall be held and
applied as provided in Article 12 of the Indenture.
(d) So long as any of the Notes are outstanding hereunder, the
Issuer will deposit and keep on deposit with the Trustee certificates with
respect to all the policies of insurance referred to in paragraph (a) of this
Section which relate to the Trust Estate and evidence satisfactory to the
Trustee with respect to the insurance coverage referred to in paragraph (b) of
this Section; the Issuer will at any time upon request by the Trustee furnish
such information as the Trustee may request regarding any insurance carried by
it, and if requested by the Trustee, will furnish a certificate signed by an
officer of the Issuer stating that such Issuer is complying with the
requirements of this Section, and the Trustee may accept such statement as
sufficient evidence of compliance by the Issuer with its covenants set forth in
this Section.
10.14 Repairs and Maintenance of Property. The Issuer will keep the Trust
Estate in good repair and condition, and not permit or commit any waste thereof,
and will keep the facilities which comprise a portion of the Trust Estate
occupied so as not to impair the insurance carried thereon. The Issuer will not
permit the rights, powers, franchises or privileges which are subject to the
lien of the Indenture to lapse or be forfeited other than by expiration of a
nonrenewable term.
10.15 Trustee's Right to Make Advances. If the Issuer shall fail to
perform any of the covenants contained in Section 10.13 or 10.14 hereof, the
Trustee may make advances to perform the same in its behalf, but shall be under
no obligation so to do unless indemnified to its satisfaction against the
expense thereof or furnished with the means therefor; and to the extent
permitted by law all sums so advanced shall bear interest at the highest rate
specified in the Notes issued hereunder until paid and shall be secured hereby,
having the benefit of the Lien hereby created prior to the indebtedness
evidenced by the Notes issued hereunder, but no such advance shall be deemed to
relieve the Issuer from any default hereunder.
10.16 Board Visitation Rights; Election Rights. So long as any Notes are
outstanding hereunder, the Holders of a majority in aggregate principal amount
of the Outstanding Notes may nominate one representative who shall have the
right to attend regular meetings of the board of directors of the Issuer. The
Issuer shall notify such representative at least 48 hours in advance of the time
and place of any meeting of the board of directors. If there shall occur an
Event of Default, the Issuer shall take all efforts (subject to the Issuer's
board of directors' fiduciary duties) to nominate a representative designated by
the Holders of a majority in aggregate principal amount of the
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Outstanding Notes for election to the board of directors of the Issuer. Such
representative may decline such nomination.
10.17 Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder shall
have the right to require that the Company purchase all or a portion of such
Holder's Notes in cash pursuant to the offer described below (the "Change of
Control Offer"), at a purchase price equal to the then applicable Optional
Redemption Percentage (as defined in the form of Note attached hereto) of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase.
(b) Prior to the mailing of the notice referred to below, but in any
event within 30 days following the date on which a Change of Control has
occurred, if the purchase of the Notes would violate or constitute a default
under any other Indebtedness of the Issuer, then the Issuer shall, to the extent
needed to permit such purchase of Notes, either (i) repay all such indebtedness
and terminate all commitments outstanding thereunder or (ii) obtain the
requisite consents, if any, under such Indebtedness to permit the purchase of
the Notes as provide below. The Issuer shall first comply with the covenant in
the preceding sentence before it will be required to make the Change of Control
offer or purchase the Notes pursuant to the provisions described below.
(c) Within 30 days following the date on which a Change of Control
has occurred, the Issuer shall send, by first-class mail postage prepaid, a
notice to each Holder of Notes, which notice shall govern the terms of the
Change of Control Offer. The notice to the Holders shall contain all
instructions and materials necessary to enable such Holders to tender Notes
pursuant to the Change of Control Offer. Such notice shall state:
(1) that the Change of Control Offer is being made pursuant to
this Section 10.17 and that all Notes validly tendered and not withdrawn will be
accepted for payment;
(2) the purchase price (including the amount of accrued
interest, if any, and the purchase date (which shall be no earlier than 30 days
nor later than 45 days from the date such notice is mailed, other than as may be
required by law) (the "Change of Control Payment Date");
(3) that any Note not tendered will continue to accrue
interest;
(4) that, unless the Issuer defaults in making payment
therefor, any Note accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Payment Date;
(5) that Holders electing to have a Note purchased pursuant to
a Change of Control Offer will be required to surrender the Note, with the form
entitled "Option to Holder to
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Elect Purchase" on the reverse of the Note contemplated, to the Issuer at the
address specified in the notice prior to the close of business on the Business
Day prior to the Change of Control Payment Date;
(6) that Holders shall be entitled to withdraw their election
if the Paying Agent receives not later than five Business Days prior to the
Change of Control Payment Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the Notes
the Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Note purchased;
(7) that Holders whose Notes are purchased only in part shall
be issued new Notes in a principal amount equal to the unpurchased portion of
the Notes surrendered; provided, however, that each Note purchased and each new
Note issued shall be in a principal amount of $1,000 or integral multiples
thereof; and
(8) the circumstances and relevant facts regarding such Change
of Control.
(d) On or before the change of Control Payment Date, the Issuer
shall (i) accept for payment Notes or portions thereof (in integral multiples of
$1,000) validly tendered pursuant to the Change of Control Offer, (ii) deposit
with the Paying Agent cash in U.S. dollars sufficient to pay the purchase price
plus accrued and unpaid interest, if any, of all Notes so tendered and (iii)
deliver to the Trustee Notes so accepted together with an Officers' Certificate
stating the Notes or portions thereof being purchased by the Issuer. Upon
receipt by the Paying Agent of the monies specified in clause (ii) above and a
copy of the Officers' Certificate specified in clause (iii) above, the Paying
Agent shall promptly mail to the Holders of Notes so accepted payment in an
amount equal to the purchase price plus accrued and unpaid interest, if any, out
of the funds deposited with the Paying Agent in accordance with the preceding
sentence. The Trustee shall promptly authenticate and mail to such Holders new
Notes equal in principal amount to any unpurchased portion of the Notes
surrendered. Upon the payment of the purchase price for the Notes accepted for
purchase, the Trustee shall return the Notes purchased to the Issuer for
cancellation. Any monies remaining after the purchase of Notes pursuant to a
Change of Control Offer shall be returned within three Business Days by the
Trustee to the Issuer except with respect to the monies owed as obligations to
the Trustee pursuant to Article 6. For purposes of this Section 10.17, the
Trustee shall, except with respect to monies owed as obligations to the Trustee
pursuant to Article 6, act as the Paying Agent.
(e) The Issuer shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
purchase of the Notes pursuant to a Change of Control Offer. To the extent the
provisions of any such rule conflict with the provisions of this Indenture
relating to a Change of Control Offer, the Company shall comply with the
provisions of
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such rule and be deemed not to have breached its obligations relating to such
Change of Control Offers by virtue thereof.
10.18 Limitation on Incurrence of Additional Indebtedness. The Issuer may
incur additional Indebtedness so long as (i) the Issuer's Fixed Charge Coverage
Ratio at the time of incurrence of such Indebtedness, after giving pro forma
effect to such incurrence as of such date and to the use of proceeds therefrom,
is at least 1.4:1.0, and (ii) the ratio of (x) the sum of the Issuer's long term
debt including the short term portion of such long term debt (calculated in
accordance with GAAP) and the aggregate principal and interest amount under the
Notes, to (y) Total Shareholders Equity (calculated in accordance with GAAP),
does not exceed 1.5:1.0. The Issuer may not incur any Indebtedness after the
Closing of the issuance of all the Notes issued hereunder unless such the
aggregate principal amount of such Indebtedness (a) allows the Issuer to
maintain the financial ratios set forth in this Section 10.18 and (b) either
does not exceed $500,000 in principal amount of Indebtedness or, if such
principal amount of Indebtedness is over $500,000, is approved by the Holders of
a majority in aggregate principal amount of the Outstanding Notes, which
approval cannot be unreasonably withheld and cannot be made contingent upon such
Holders receiving any form of compensation. In the event the Issuer seeks such
approval, the Issuer shall deliver to each Holder written notice of its intent
to obtain financing and obtain consent to such financing by such Holders, which
consent must be in writing. The denial of the Issuer's request must also be in
writing to the Issuer. The failure by such Holders to approve or deny the
Issuer's request within three (3) business days after the last receipt by any
such Holder of the Issuer's written notice shall be deemed to be a consent to
the financing by such Holders.
10.19 Lease Financing. Notwithstanding the provisions of section 10.18,
the Issuer has received proposals or commitments for lease financing from
certain lease financing companies identified as "New Leases" or "Leases to be
finalized" on Schedule 10.19 hereto to acquire up to $1.3 million of lease
financing proceeds. The Issuer shall have the right, but not the obligation, to
obtain up to an aggregate of $1.3 million of lease financing on the terms
proposed by such lessors, or with other lessors on substantially similar terms.
ARTICLE 11.
REDEMPTION OF NOTES
11.1 Redemption; Notices to the Trustee. The Notes are subject to
redemption, at the option of the Issuer, in whole or in part, upon 90 days'
prior notice by mail to each Holder of Notes to be redeemed, at the percentage,
specified in the Notes for a given time period in which redemption occurs, of
the outstanding principal amount of each Note or such portion thereof being
redeemed, plus accrued and unpaid interest, if any, to the Redemption Date
(subject to the right of Holders of record on relevant record dates to receive
interest due on a Payment Date):
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If the Issuer elects to redeem Notes pursuant to the optional redemption
provisions of the Notes and this Indenture, it shall, as soon as reasonably
practicable but in no event less than 90 days before the Redemption Date (unless
a shorter notice shall be satisfactory to the Trustee), notify the Trustee by an
Officers' Certificate of the Redemption Date and the principal amount of Notes
to be redeemed on such Redemption Date.
The election of the Issuer to optionally redeem any Notes pursuant to this
Section 11.1 shall be evidenced by a Directors' Resolution. In case of any
redemption at the election of the Issuer and so long as any other Indebtedness
of the Issuer is outstanding or committed to be loaned, the Issuer shall provide
the Trustee with an Officers' Certificate (concurrently with the above-mentioned
Officers' Certificate) stating that such redemption is authorized or permitted
by this Indenture and does not violate the terms of any instrument or agreement
evidencing such Indebtedness.
11.2 Selection of Notes To Be Redeemed. If less than all the Notes are to
be redeemed, the particular Notes or portions thereof to be redeemed shall be
selected not less than 90 days prior to the Redemption Date by Company by
written notice to the Trustee from the Outstanding Notes not previously called
for redemption. The Company may elect (the "Discriminatory Redemption Election")
to redeem all, but not less than all, of the Notes held by Cap-Ex. Other than
those Notes redeemed pursuant to the Discriminatory Redemption Election, the
Notes to be redeemed shall be redeemed on a pro rata basis. The amounts to be
redeemed may be equal to $1,000, or any integral multiple thereof.
The Trustee shall promptly notify the Issuer and the Note Registrar in
writing of the Notes selected for redemption and, in the case of any Notes
selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to redemption of Notes shall relate, in the case of any
Note redeemed or to be redeemed only in part, to the portion of the principal
amount of such Note which has been or is to be redeemed.
11.3 Notice of Redemption. Notice of redemption shall be given by
first-class mail, postage prepaid, mailed not less than 90 days prior to the
Redemption Date to each Holder of Notes to be redeemed, at the address appearing
in the Note Register.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Notes are to be redeemed, the
identification and the outstanding principal amount of the particular Notes to
be redeemed;
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(d) that on the Redemption Date the Redemption Price will become due
and payable upon each such Note or portion thereof, and that interest thereon
shall cease to accrue on and after said date;
(e) the place or places where such Notes are to be surrendered for
payment of the Redemption Price; and
(f) the paragraph of the Notes pursuant to which the Notes are being
redeemed;
Notice of redemption of Notes to be redeemed shall be given by the Issuer
or, at the Issuer's request, by the Trustee in the name and at the expense of
the Issuer.
11.4 Deposit of Redemption Price. The Issuer shall deposit with the
Trustee or with a Paying Agent by 10:00 a.m. California time on each Redemption
Date, an amount of money in immediately available funds sufficient to pay the
Redemption Price of, and any accrued interest on, all the Notes or portions
thereof which are to be redeemed on that date, provided that a written notice by
the Issuer to the Trustee that funds sufficient to pay the Redemption Price are
on deposit in an Account established under Section 12.1 shall satisfy the
requirement for a deposit of money as set forth herein.
11.5 Notes Payable on Redemption Date. The Notes to be redeemed shall, on
the Redemption Date, become due and payable at the Redemption Price therein
specified and from and after such date (unless the Issuer shall default in the
payment of the Redemption Price and accrued interest) such Notes shall cease to
bear interest. Upon surrender of any such Note for redemption, such Note shall
be paid by the Issuer at the Redemption Price together with accrued interest to
the Redemption Date; provided that installments of principal and interest whose
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders of such Notes registered as such on the relevant Regular Record Dates
according to the terms and the provisions of Section 2.7. If any Note called for
redemption shall not be paid upon surrender thereof for redemption, the
principal shall, until paid, bear interest from the Redemption Date at the rate
borne by such Note.
11.6 Notes Redeemed in Part. Any Note which is to be redeemed only in part
shall be surrendered at the office or agency of the Issuer maintained for such
purpose pursuant to Section 10.2 (with, if the Issuer, the Note Registrar or the
Trustee so requires, due endorsement by, or a written instrument of transfer in
form satisfactory to the Issuer, the Note Registrar and the Trustee duly
executed by, the Holder thereof or his attorney duly authorized in writing) and
the Issuer shall execute, and the Trustee shall authenticate and deliver to the
Holder of such Note without service charge, a new Note or Notes of any
authorized denomination as requested by such Holder in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Note so surrendered.
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ARTICLE 12.
ACCOUNTS, ACCOUNTING AND RELEASES
12.1 "Trust Moneys".
(a) All cash or Cash Equivalents received by the Trustee or the
Paying Agent acting on behalf of the Trustee:
(1) pursuant to the provisions of Section 10.1(a) of this
Indenture;
(2) pursuant to the provisions of Section 10.1(b) of this
Indenture;
(3) as compensation for, or proceeds of sale of, any part of
the Trust Estate taken by eminent domain or purchased by, or sold pursuant to an
order of, a governmental authority or otherwise disposed of;
(4) as proceeds of insurance upon any part of the Trust Estate
(other than any liability insurance proceeds payable to the Trustee for any
loss, liability or expense incurred by it); or
(5) for application under this Article as elsewhere provided
in this Indenture or any Security Document, or whose disposition is not
elsewhere otherwise specifically provided for herein or in any Security
Document;
(all such moneys being herein sometimes called "Trust Moneys"), shall be held by
the Trustee for the benefit of the Holders as set forth in this Article.
(b) Simultaneously with the execution and delivery hereof, the
Trustee will establish at a financial institution reasonably acceptable to the
Trustee and selected by the Paying Agent a payment account (the "Payment
Account"). The Trustee or the Paying Agent acting on behalf of the Trustee shall
promptly deposit in the Payment Account all Trust Moneys of the type described
in items (1) or (2) of Section 12.1(a). All amounts so deposited, including all
income from the investment or reinvestment thereof, shall be held by the Trustee
as part of the Trust Estate as herein provided, subject to withdrawal by the
Trustee for the purposes hereinafter set forth.
(c) On or before the date on which the Trustee or the Paying Agent
acting on behalf of the Trustee first receives Trust Moneys pursuant to items
(3), (4) or (5) of Section 12.1(a), the Trustee shall establish at a financial
institution reasonably acceptable to the Trustee selected by the Paying Agent an
account for repayment of principal (the "Principal Account"). The Trustee or the
Paying Agent acting on behalf of the Trustee shall promptly deposit in the
Principal Account all Trust Moneys of the type described in items (3), (4) or
(5) of Section 12.1(a). All such amounts,
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including all income from the investment or reinvestment thereof, shall be held
by the Trustee as part of the Trust Estate as herein provided, subject to
withdrawal by the Trustee or the Paying Agent acting on behalf of the Trustee
for the purposes hereinafter set forth.
12.2 Application of Payment Account.
(a) Cash in the Payment Account shall be invested and reinvested, at
the written direction of the Issuer, by the Trustee in Cash Equivalents;
provided, that such cash shall not be invested in Cash Equivalents having a
maturity date on or after the next Payment Date if such Cash Equivalents, after
application of all cash in the Payment Account, will be required in order to pay
the interest due on the Notes on such Payment Date; provided further, that any
Holder may request a copy of such written direction.
(b) On each Payment Date, the Paying Agent on behalf of the Trustee
shall withdraw or draw upon amounts on deposit in the Payment Account in the
amounts required for payment of the installment of principal and interest due on
the Notes on such Payment Date.
12.3 Application of Principal Account. Upon the deposit of any amounts in
the Principal Account, the Issuer shall deliver an Officers' Certificate to the
Trustee indicating whether such amounts, or any portion thereof, represent
proceeds of a sale or refinancing of any part of the Trust Estate pursuant to
Section 12.7(b). The Trustee or the Paying Agent acting on behalf of the Trustee
shall thereafter apply such amounts, and earnings thereon as follows: to the
extent such amounts represent the proceeds of a sale or refinancing of any of
the Trust Estate pursuant to Section 12.7(b) or insurance proceeds, the Trustee
shall use such proceeds to redeem Notes in accordance with Sections 11.2, 11.3,
11.5 and 11.6 on a Redemption Date selected by the Trustee, which Redemption
Date shall not be more than 15 days nor less than 5 days following receipt of
such amounts.
12.4 General Provisions Regarding Accounts.
(a) Amounts on deposit in the Accounts shall not be commingled with
any other moneys or property of the Issuer or any Affiliate.
(b) If any amounts are needed for disbursement from any Account
pursuant to this Article 12, and sufficient uninvested funds are not available
in such Account to make such disbursement, in the absence of an Issuer Order for
the liquidation of Cash Equivalents held therein, the Trustee shall cause to be
sold or otherwise converted to cash, Cash Equivalents held in such Account, in
an amount sufficient to make such disbursement.
(c) Subject to Section 6.1, the Trustee shall not in any way be held
liable by reason of any insufficiency in any Account.
(d) In the event that:
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(1) a default or Event of Default has occurred and is
continuing, but the Notes have not been declared due and payable pursuant to
Section 5.2; or
(2) an Event of Default has occurred and is continuing, the
Notes have been declared due and payable pursuant to Section 5.2, and amounts
collected or receivable pursuant to Article 5 of this Indenture are being
applied in accordance with Section 5.6
the Trustee shall invest and reinvest the funds then in the Accounts, to the
fullest extent practicable in Cash Equivalents. All such investments made under
the circumstances described in clause (2) above shall mature no later than the
first date following the date of such investment on which the Trustee proposes
to make a distribution to Holders of Notes pursuant to Section 5.6.
(e) The Trustee or the Paying Agent acting on behalf of the Trustee
shall maintain in its possession all certificates or other instruments
evidencing any investment of funds in the Accounts and shall relinquish
possession of such items only for purposes of collecting the final payment
receivable on such investment.
12.5 Powers Exercisable by Trustee or Receiver. In case the Trust Estate
(other than any cash, Cash Equivalents, securities and other personal property
held by, or required to be deposited or pledged with, the Trustee hereunder or
under the Security Documents) shall be in the possession of a receiver or
trustee lawfully appointed, the powers hereinbefore in this Article 12 conferred
upon the Issuer with respect to the withdrawal or application of Trust Moneys
may be exercised by such receiver or trustee, in which case a certificate signed
by such receiver or trustee shall be deemed the equivalent of any Officers'
Certificate required by this Article 12. If the Trustee shall be in possession
of any of the collateral hereunder or under any of the Security Documents, such
powers may be exercised by the Trustee, in its discretion.
12.6 Disposition of Notes Retired. All Notes received by the Trustee and
for whose purchase Trust Moneys are applied under this Article 12, if not
otherwise canceled, shall be promptly canceled and destroyed by the Trustee
unless the Trustee shall be otherwise directed by Issuer Request. Upon
destruction of any Notes, the Trustee shall issue a certificate of destruction
to the Issuer.
12.7 Release of Trust Estate.
(a) In the event that the Issuer delivers an Officers' Certificate
certifying that all of the Indenture Obligations have been satisfied and
discharged by complying with the provisions of Article 4 and the Trustee agrees
such Indenture Obligations have been satisfied and discharged, the Trustee shall
not be deemed to hold the Security Interests in the Trust Estate for the benefit
of the Holders.
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(b) The Issuer shall have the right at any time to sell or otherwise
dispose of or to refinance any of the Trust Estate, upon compliance with the
requirements and conditions of this Section 12.7(b) and the Trustee shall
release the same from the Lien of this Indenture and the Security Documents upon
receipt of a notice from the Issuer requesting such release pursuant to this
Section 12.7(b) ("Release Notice") and describing the property to be so
released, together with:
(1) A Directors' Resolution requesting such release and
authorizing an application to the Trustee therefor;
(2) An Officers' Certificate dated not more than 30 days prior
to the date of the application for such release, to the effect:
(a) that the Issuer will dispose of the property to be
released for a consideration, which consideration shall consist solely of cash
or Cash Equivalents, in an amount such that such consideration is equal to or
greater than the then-current fair market value of the property to be released;
(b) that such consideration, together with the fair
market value of the remainder of the Trust Estate, is equal to or greater than
the then-outstanding balance of principal and interest under the Notes; and
(c) that all conditions precedent herein provided for
relating to such release have been complied with; and
(3) A counterpart of the instruments proposed to give effect
to the release fully executed and acknowledged (if applicable) by all parties
thereto other than the Trustee and in form for execution by the Trustee.
In connection with any release, the Issuer shall (i) execute, deliver and
record or file and obtain such instruments as the Trustee may reasonably
require, (ii) deliver to the Trustee such evidence of the satisfaction of the
conditions of the Indenture and the Security Documents as the Trustee may
reasonably require and (ii) deliver to the Trustee the amount of the proceeds
from the sale, disposition or refinancing of the property to be released up to
and including the amount of the principal and accrued interest of the
Outstanding Notes. All cash or Cash Equivalents received by the Trustee pursuant
to this Section 12.7(b) shall be deposited in the Principal Account.
(c) Any release of any portion of the Trust Estate made strictly in
compliance with the provisions of this Section 12.7 shall not be deemed to
impair the Security Interests in contravention of the provisions of this
Indenture.
12.8 Eminent Domain and Other Governmental Takings. Should any of the
property included in the Trust Estate be taken by eminent domain or be sold
pursuant to the exercise by the
42
<PAGE>
United States of America or any State, municipality or other governmental
authority of any right which it may then have to purchase, or to designate a
purchaser or to order a sale of, all or any part of the Trust Estate, the
Trustee shall release the property so taken or purchased, but only upon receipt
by the Trustee of the following:
(a) an Officers' Certificate stating that such property has been
taken by eminent domain and the amount of the award therefor, or that such
property has been sold pursuant to a right vested in the United States of
America, or a State, municipality or other governmental authority to purchase,
or to designate a purchaser, or order a sale of such property and the amount of
the proceeds of such sale, and that all conditions precedent herein provided for
relating to such release have been complied with;
(b) the award for such property or the proceeds of such sale, to be
held as Trust Moneys subject to the disposition thereof pursuant to Article 12
hereof;
In any proceedings for the taking or purchase or sale of any part of the
Trust Estate, by eminent domain or by virtue of any such right to purchase or
designate a purchaser or to order a sale, the Trustee may be represented by
counsel who may be counsel for the Issuer. Each Holder shall be deemed to have
agreed that the amount of any condemnation award shall be equal to the fair
value of the property to which such award relates.
12.9 Trust Indenture Act Requirements. The release of any Trust Estate
from the terms hereof and of any of the Security Documents or the release of, in
whole or in part, the Liens created by any of the Security Documents, will not
be deemed to impair the Security Interests in contravention of the provisions
hereof if and to the extent the Trust Estate or Liens are released pursuant to
the applicable Security Documents and pursuant to the terms hereof. The Trustee
and each of the Holders acknowledge that a release of Trust Estate or Liens
strictly in accordance with the terms of the Security Documents and the terms
hereof will not be deemed for any purpose to be an impairment of the Security
Interests in contravention of the terms of this Indenture.
ARTICLE 13.
OTHER PROVISIONS OF GENERAL APPLICATION
13.1 Compliance Certificates. Upon any application or request by the
Issuer to the Trustee to take any action under any provision of this Indenture
or any provision of a Security Document, the Issuer shall furnish to the Trustee
an Officers' Certificate stating that all conditions precedent, if any, provided
for in this Indenture or such Security Document, as the case may be, relating to
the proposed action have been complied with, except that, in the case of any
such application or request as to which the furnishing of such document is
specifically required by any provision of this Indenture or such Security
Document, as the case may be, relating to such particular application or
request, no additional certificate need be furnished.
43
<PAGE>
Every certificate with respect to compliance with a condition or covenant
provided for in this Indenture or any Security Document shall include:
(a) a statement that each individual signing such certificate has
read such covenant or condition and the definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate are based;
(c) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has been
complied with; and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
13.2 Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture or any Security Document to be
given or taken by Holders or the Trustee on behalf of the Holders pursuant to
any Security Document may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person or
by an agent duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Trustee at the Corporate Trust Office and, where it is
hereby expressly required, to the Issuer. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Holders signing such instrument or instruments. Proof of
execution as provided below in subsection (b) of any such instrument or of a
writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and
the Issuer, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Whenever
such execution is by an officer of a corporation or a member of a partnership on
behalf of such corporation or partnership, such certificate or affidavit shall
also constitute sufficient proof of his authority. The fact and date of the
execution of any such instrument or writing, or the authority of the Person
executing the same, may also be proved in any other manner which the Trustee
deems sufficient.
44
<PAGE>
(c) The ownership of Notes shall be proved conclusively by the Note
Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Note shall bind every future Holder
of the same Note or the Holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof, to the same extent
as the original Holder in respect of anything done, suffered or omitted to be
done by the Trustee, any Paying Agent or the Issuer in reliance thereon, whether
or not notation of such action is made upon such Note.
13.3 Notices, etc., to Trustee and Issuer. Any request, demand,
authorization, direction, notice, consent, waiver or Act of Holders or other
document provided or permitted by this Indenture or any Security Document to be
made upon, given or furnished to, or filed with,
(a) the Trustee by any Holder or by the Issuer shall be sufficient
for every purpose hereunder if made, given, furnished or filed, in writing, to
or with the Trustee at U.S. Bank National Association, 950 17th. Street, Suite
650, Denver, Colorado 80202, Attention: Adam Dalmy, Corporate Trust Department;
or
(b) the Issuer by the Trustee or by any Holder shall be sufficient
for every purpose (except as otherwise herein expressly provided) hereunder if
made, given furnished or delivered in writing, to the Issuer addressed to it at
6335 Ferris Square, Suites G-H, San Diego, California, Attention: Sayed Ali, or
at any other address furnished in writing to the Trustee and such Holder by the
Issuer by notice in accordance with this section; or
(c) the Issuer by the Trustee or the Trustee by the Issuer shall be
sufficient for every purpose hereunder (unless otherwise provided) if in writing
and sent by facsimile transmission, in the case of the Issuer to the attention
of its president, and received by the Issuer at the address listed above, and in
the case of the Trustee at the address listed above, or at any other number of
addressee previously furnished in writing to the Trustee by the Issuer, or by
the Issuer to the Trustee, as the case may be, provided that if receipt of such
facsimile transmission is not confirmed in writing or by facsimile by the
addressee, a copy of such transmission shall be delivered by hand or mailed,
first class, postage prepaid, to such addressee.
Except for a notice to the Trustee, which is deemed given only when
received, if a notice or communication is mailed in the manner provided above,
it is duly given 3 days after deposit in the mails first, class, postage
prepaid, whether or not the addressee receives it.
13.4 Notice to Holders; Waiver. Where this Indenture provides for notice
to Holders of any event, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first class,
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Note Register, not later than the latest date, and not earlier
than the earliest date, prescribed for the giving of such notice. In any case
where notice to Holders is given by mail,
45
<PAGE>
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall effect the sufficiency of such notice with
respect to other Holders. Any notice when mailed to a Holder in the aforesaid
manner shall be conclusively deemed to have been received by such Holder whether
or not actually received by such Holder. Where this Indenture provides for
notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason
of any other cause, it shall be impracticable to mail notice of any event as
required by any provision of this Indenture, then any method of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
13.5 Effect of Headings and Table of Contents. The Article and Section
headings herein and the Table of Contents are used for convenience of reference
only and shall not affect the construction hereof and do not define or limit the
scope of provisions of this Indenture.
13.6 Successors and Assigns. All covenants and agreements in this
Indenture by the Issuer shall bind its successors and assigns, whether so
expressed or not.
13.7 Severability Clause. In case any provision in this Indenture shall be
invalid, illegal or unenforceable, for any reason, it shall be adjusted rather
than voided, if possible, in order to achieve the intent of the parties to the
extent possible, and such invalidity, illegality or unenforceability shall not
affect the remainder of this Indenture. In any event, all other provisions of
this Indenture shall be deemed valid and enforceable to the full extent
possible.
13.8 Benefits of Indenture. Nothing in this Indenture or in the Notes,
express or implied, shall give to any Person (other than the parties hereto and
their successors hereunder, any Paying Agent and the Holders) any benefit or any
legal or equitable right, remedy or claim under this Indenture.
13.9 Governing Law. This Indenture and the Notes shall be governed by and
construed in accordance with the laws of the State of Colorado, as applied to
contracts entered into by Colorado residents and to be performed entirely within
Colorado.
13.10 Legal Holidays. In any case where any Payment Date, Redemption Date,
date established for payment of Defaulted Interest pursuant to Section 2.7 or
Stated Maturity of any Note shall not be a Business Day, then (notwithstanding
any other provision of this Indenture or of the Notes) payment of principal, or
interest need not be made on such date, but may be made on the next succeeding
Business Day with the same force and effect as if made on the Payment Date,
Redemption Date or date established for payment pursuant to Section 2.7 or at
the Stated Maturity
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<PAGE>
and no interest shall accrue with respect to such payment for the period from
and after such Payment Date, Redemption Date, date established for payment of
Defaulted Interest pursuant to Section 2.7 or Stated Maturity, as the case may
be, to the next succeeding Business Day.
13.11 Exhibits and Schedules. All exhibits and schedules attached hereto
are by this reference made a part hereof with the same effect as if herein set
forth in full.
13.12 Rules by Trustee, Paying Agent, Registrar. The Trustee may make
reasonable rules for action at a meeting of Holders. The Paying Agent or
Registrar may make reasonable rules for its functions.
13.13 Counterparts. This Indenture may be executed in any number of
counterparts, each of which shall be deemed an original and all of which shall
together constitute but one and the same instrument.
13.14 Security Agreement. This Indenture shall constitute a security
agreement under the Uniform Commercial Code as in effect in the State of
California. Upon the occurrence of any Event of Default, and in addition to any
other rights available under this Indenture, any Security Document or any other
instruments included in the Trust Estate or otherwise available at law or in
equity, the Trustee shall have all rights and remedies of a secured party on
default under the Uniform Commercial Code to enforce the assignments and
security interests contained herein and, in addition, shall have the right,
subject to compliance with any mandatory requirements of applicable law, to sell
or apply any or all of the amounts on deposit in the interest reserve account
established in the Accounts, if any, and any other rights and other interests
assigned or pledged hereby at public or private sale. All amounts received
hereunder shall be applied first to all costs and expenses incurred by the
Trustee in connection with such collection and enforcement and thereafter as
elsewhere provided in this Indenture.
13.15 Entire Agreement. This Indenture and the related agreements referred
to herein contains all of the terms and conditions agreed upon by the parties
relating to the subject matter of this Indenture and supersedes any and all
prior and contemporaneous agreements, negotiations, correspondence,
understandings and communications of the parties, whether oral or written,
respecting that subject matter.
* * *
U.S. Trust National Association hereby accepts the trusts in this
Indenture declared and provided and agrees to perform its duties hereunder for
the benefit of the Holders, upon the terms and conditions hereinabove set forth.
47
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this Indenture to be
duly executed as of the day and year first above written.
CREATIVE HOST SERVICES, INC., a California
corporation
By: ___________________________________________
Sayed Ali, President
U.S. TRUST NATIONAL ASSOCIATION, a United
States national banking association, as Trustee
By: ___________________________________________
By: ___________________________________________
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<PAGE>
ANNEX A
DEFINITIONS
"Accounts" shall mean the Payment Account and the Principal Account.
"Accrued Bankruptcy Interest" means all interest accruing subsequent to
the occurrence of any of the events specified in Section 5.1(d) or (e) or which
would have accrued but for any such event.
"Act" when used with respect to any Holder has the meaning specified in
Section 13.2.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
means the possession, directly or indirectly, of the power, whether or not
exercised, to direct or cause the direction of the management or policies of
such Person, whether by contract or otherwise.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal or state
law for the relief of debtors.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in San Diego, California are
authorized or obligated by law or executive order to close.
"Capitalized Lease Obligation" means Indebtedness (including the
Indebtedness identified on Schedule 10.19 hereto) represented by obligations
under a lease that is required to be capitalized for financial reporting
purposes in accordance with generally accepted accounting principles and the
amount of such Indebtedness shall be the capitalized amount of such obligations
determined in accordance with such principles.
"Cash Equivalents" means certificates of deposit, or AAA-rated money
market funds, or money market accounts of any financial institution (or its
affiliate) that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $50,000,000.
"Cash Flow" means, for any period, the sum (without duplication) of (i)
net income and (ii) to the extent net income has been reduced thereby, (a) all
income taxes of the Issuer accrued in accordance with GAAP for such period
(other than income taxes attributable to extraordinary or nonrecurring gains or
losses), (b) interest expense, (c) non-cash charges, and (d) the amount of all
lease and concession obligations of the Issuer paid, accrued, or scheduled to be
paid or accrued, during such period, all determined in accordance with GAAP.
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<PAGE>
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one or more
transaction or series of related transactions) of all or substantially all of
the assets of the Issuer to any Person or group of related Persons for purposes
of Section 13(d) of the Exchange Act (a "Group") (whether or not in compliance
with the provisions of this Indenture); (ii) a majority of the board of
directors shall consist of Persons who are not Continuing Directors; or (iii)
the acquisition by any Person or Group of the power, directly or indirectly, to
vote or direct the voting of securities having more than 50% of the ordinary
voting power for the election of directors for the Issuer.
"Closing" means the date of initial issuance of the Notes.
"Continuing Director" means, as of the date of determination, any Person
who (i) was a member of the board of directors of the Issuer on the date of the
first issuance of Notes under this Indenture, or (ii) was nominated for election
or elected to the board of directors of the Issuer, as the case may be, with the
affirmative vote of a majority of the Continuing Directors who were members of
such board of directors at the time of such nomination or election.
"Corporate Trust Office" means the office of the Trustee at which at any
particular time its corporate trust business shall be principally administered,
which office at the date of this Indenture is located at U.S. Bank National
Association, 950 17th. Street, Suite 650, Denver, Colorado 80202, Attn: Adam
Dalmy, Corporate Trust Department, and whose principal operations center is
located at 180 East 5th Street, St. Paul, Minnesota 55101.
"Default Interest" has the meaning specified in Section 2.7. Unless the
context otherwise requires, any references to interest herein shall be deemed to
include Default Interest, if any.
"Defaulted Payment" has the meaning specified in Section 2.7.
"Directors' Resolution" means a copy of a resolution duly adopted by the
board of directors of the Issuer, certified by the secretary of the Issuer and
to be in full force and effect on the date of such certification, and delivered
to the Trustee.
"Event of Default" has the meaning specified in Article Five.
"Fixed Charges" means, for any period, the sum, without duplication, of
(i) the interest expense, calculated in accordance with GAAP, of the Issuer for
such period, (ii) the interest expense, calculated in accordance with GAAP, of
the Issuer that was capitalized during such period, (iii) the amount of all cash
dividend payments paid, accrued or scheduled to be paid or accrued during such
period, and (iv) the amount of any and all lease and concession obligations of
the Issuer paid, accrued, or scheduled to be paid or accrued, during such
period, by the Issuer.
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"Fixed Charge Coverage Ratio" means, in accordance with GAAP, for the four
full fiscal quarters ending on or prior to the date of determination, the ratio
of Cash Flow for such period to the Fixed Charges of the Issuer for such period.
"Holder" means a Person in whose name a Note is registered in the Note
Register.
"Indebtedness" means (i) indebtedness or liability for borrowed money;
(ii) obligations evidenced by Notes, debentures or other similar instruments;
(iii) obligations for the deferred purchase price of property or services
(including trade obligations); (iv) Capitalized Lease Obligations; (v) current
liabilities in respect of unfunded vested benefits under plans covered by ERISA;
(vi) obligations under letters of credit; (vii) obligations under acceptance
facilities; (viii) all guaranties, endorsements (either than for collection or
deposit in the ordinary course of business), and other contingent obligations to
purchase, to provide funds for payment, to supply funds to invest in any Person
or entity, or otherwise to assure a creditor against loss; and (ix) obligations
secured by any Liens, whether or not the obligations have been assumed.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Issuer (and any other
obligor hereunder or under the Notes) to pay principal of, and interest
(including, without limitation, any Accrued Bankruptcy Interest) on the Notes
when due and payable, whether at Maturity, by acceleration, call for redemption
or repurchase, or otherwise, and all other amounts due or to become due under or
in connection with this Indenture, the Notes and the Security Documents and the
performance of all other obligations to the Trustee and the Holders under this
Indenture, the Notes and the Security Documents, according to the terms hereof
and thereof.
"Issuer" means the Person named as the "Issuer" in the first paragraph of
this instrument, until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Issuer" shall mean such
successor Person.
"Issuer Request" or "Issuer Order" means a written request or order signed
in the name of the Issuer by its authorized officer, and delivered to the
Trustee.
"Lien" means any mortgage, lien (statutory or other), pledge, security
interest, charge, encumbrance, claim, hypothecation, assignment for security,
deposit arrangement, or preference or priority or other assignment agreement of
any kind or nature whatsoever.
"Officers' Certificate" means a certificate signed by the authorized
officers of the Issuer, or any other individual customarily performing similar
functions with respect to the Issuer, and delivered to the Trustee. Each
Officers' Certificate shall comply with the provisions of Section 13.1.
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<PAGE>
"Maturity" when used with respect to any Note means the date on which the
entire outstanding principal of such Note becomes due and payable as therein or
herein provided, whether at the Maturity Date or by declaration of acceleration,
call for redemption or otherwise.
"Maturity Date" when used with respect to any Note means the date
specified in such Note as the fixed date on which the entire principal of such
Note is due and payable.
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 2.5.
"Outstanding" when used with respect to Notes means, as of the date of
determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(a) Notes theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(b) Notes, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Issuer) in trust or set aside
and segregated in trust by the Issuer (if the Issuer shall act as its own
Paying Agent) for the Holders of such Notes; provided that if such Notes
are to be redeemed, notice of such redemption has been duly given pursuant
to this Indenture or provision therefor satisfactory to the Trustee has
been made; and
(c) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to this Indenture, other than any
such Notes in respect of which there shall have been presented to the
Trustee proof satisfactory to it that such Notes are held by a bona fide
purchaser in whose hands the Notes are valid obligations of the Issuer;
provided that in determining whether the Holders of the requisite principal
amount of Outstanding Notes have given any request, demand, direction, consent
or waiver hereunder, Notes owned by the Issuer or any other obligor upon the
Notes or any Affiliate of the Issuer or such other obligor shall be disregarded
and deemed not to be Outstanding, except that, in determining whether the
Trustee shall be protected in relying upon any such request, demand, direction,
consent or waiver, only Notes which the Trustee knows to be so owned shall be so
disregarded. Notes so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Notes and that the
pledgee is not the Issuer or any other obligor upon the Notes or any Affiliate
of the Issuer or such other obligor.
"Paying Agent" means any Person authorized by the Issuer to pay the
principal of, or interest on any Notes on behalf of the Issuer, which term may
include the Issuer or an Affiliate of the Issuer. The initial Paying Agent
hereunder shall be U.S. Bank National Association.
"Payment Account" has the meaning assigned such term in Section 12.1.
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<PAGE>
"Payment Date" means the Stated Maturity of an installment of principal of
or interest on the Notes, as provided in the Notes.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Principal Account" has the meaning assigned such term in Section 12.1.
"Redemption Date" when used with respect to any Notes to be redeemed means
the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price" when used with respect to any Note to be redeemed means
the price at which it is to be redeemed pursuant to such Note and this Indenture
(which term shall include the Optional Redemption Percentage, if applicable).
"Regular Record Date" for the interest payable on any Payment Date means
the thirtieth (30th) day of the month (whether or not a Business Day) next
preceding such Payment Date.
"Responsible Officer" when used with respect to the Trustee means any
officer of the Trustee, including without limitation any Vice President, any
Assistant Vice President, any Assistant Secretary or any other officer of the
Trustee customarily performing functions similar to those performed by any of
the above designated officers, who shall, in any case, be responsible for the
administration of this document or have familiarity with it, and also means,
with respect to particular corporate trust matters, any other officer to whom
such matter is referred because of his knowledge of and familiarity with the
particular subject.
"Security Documents" has the meaning specified in Section 3.1.
"Security Interests" means the Liens on the Trust Estate created by the
Security Documents in favor of the Trustee for the benefit of the Holders.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 2.7.
"Stated Maturity" when used with respect to any installment of interest
thereon or principal thereof means the date specified in such Note as the fixed
date on which such installment of interest or principal is due and payable,
including the Maturity Date.
"Trust Estate" has the meaning specified forth in Section 3.2.
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"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended,
or any subsequent legislation that amends, supplements or supersedes such Act.
"Trust Moneys" has the meaning set forth in Section 12.1.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this instrument, until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
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<PAGE>
SCHEDULE 10.19
Creative Host Services, Inc.
Leases Payable
<TABLE>
<CAPTION>
Lessor Original Term Payment End of Lease Outstanding
------ -------- ---- ------- ------------ -----------
Date Buyout Balance
---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
1. Timmerman September 60 $4,117.32 FMV $ 82,896
1995
2. Lyon November 60 8,050.00 FMV 171,155
1995
3. T&W Leasing April 1996 48 4,153.21 None 56,465
4. WINR March 1996 60 7,561.83 1.00 177,081
5. Invest Lease June 1996 60 1,763.77 1.00 66,151
6. Crocker August 1996 60 3,273.98 1.00 98,096
7. Amplicon September 36 31,080.00 None 114,046
1996 Qtrly.
8. FSFI May 1997 36 2,524.49 2,155.68 34,591
----------
Total Prior Leases $ 800,481
----------
New Leases
9. Greentree August 1998 36 5,350.00 1.00 131,250
10. WINR October 1998 60 4,654.00 1.00 150,000
11. Capital Resources October 1998 60 3,308.00 9,946.00 99,000
12. Icon Capital 1998 60 7,144.00 * 475,000
----------
Total New Leases 855,250
----------
Leases to be finalized
12. Icon Capital 1998 60 * * 725,000
13. Pacific Financial 1998 60 * * 550,000
----------
Total Lease to be
finalized 1,275,000
----------
Grand Total 2,930,731
==========
</TABLE>
This schedule includes leases which are anticipated to fund. If these leases do
not come to fruition, then the company will replace them with other leases of
similar terms and amounts.
55
<PAGE>
* Currently under negotiation.
56
<PAGE>
EXHIBIT A
THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933
(THE "ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. THE PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER
OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS
NOTE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR UPON DELIVERY OF AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
Creative Host Services, Inc.
12% Secured Convertible Note
$___________ December 21, 1998
No. ____
Creative Host Services, Inc., a California corporation (herein called the
"Issuer," which term includes any successor person or entity under the Indenture
(hereinafter defined)), for value received, hereby promises to pay to
_________________ or registered assigns, the principal sum of ___________
Dollars on or before December 20, 2003, as specified herein, and to pay interest
thereon (calculated on the basis of a 365 day year) at a rate of 12.0% per
annum, accruing from the date of issuance of this Note, payable on the fifteenth
day of each calendar month, commencing on the fifteenth day of the first
calendar month subsequent to the date of the Indenture, until the entire
principal amount is paid in full or duly provided for.
Principal shall be payable in equal installments, without presentation of
this Note, payable on the fifteenth day of each calendar month, commencing on
the 15th day of the first calendar month subsequent to the date which is two (2)
years after the date of the Indenture, and ending on the Maturity Date, in an
amount sufficient to amortize the Note over 10 years, with any and all unpaid
principal to be paid on the Maturity Date upon presentation of this Note.
Exhibit A - P. 1
<PAGE>
1. Person to Whom Interest and Principal is Paid. The interest and
principal payable, on any Payment Date will be paid to the Person in whose name
this Note is registered at the close of business on the Regular Record Date for
such payment of interest or principal. Any such interest or principal not paid
shall cease to be payable to the Holder on such Regular Record Date, and may be
paid to the Person in whose name this Note is registered at the close of
business on a Special Record Date for the payment of such Defaulted Payment to
be fixed by the Trustee, notice of which shall be given to Holders of Notes not
less than 10 days prior to such Special Record Date, all as more fully provided
in the Indenture.
2. Place of Payment. Payment of principal of and interest on this Note
will be made at the office or agency of the Issuer maintained for that purpose
in the City of San Diego, California or at such other office or agency of the
Issuer as may be maintained for such purpose, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; provided that such payment may be made at the
option of the Issuer by check mailed to the address of the Person entitled
thereto as such address shall appear on the Note Register.
3. Indenture. This Note is one of a duly authorized issue of securities of
the Issuer designated as its 12% Secured Convertible Notes (herein called the
"Notes"), limited in aggregate principal amount to $3,000,000.00 which may be
issued under that certain 12% Secured Convertible Notes Indenture (herein called
the "Indenture") dated December 21, 1998, between the Issuer and U.S. Bank
National Association, as trustee (herein called the "Trustee," which term
includes any successor trustee under the Indenture), to which the Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights of the Issuer, the Trustee and the Holders of the Notes,
and of the terms upon which the Notes are, and are to be, authenticated and
delivered.
All capitalized terms used in this Note without definition shall have the
meanings assigned to them in the Indenture.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the time, place and rate, and in the coin or currency, herein prescribed.
4. Conversion Right. At any time and from time to time during the period
beginning on the date three (3) months from the date of this Note (the
"Conversion Commencement Date") and thereafter while any principal or interest
hereunder remains outstanding, Holder shall have the right, but not the
obligation, to convert this Note into fully paid and nonassessable shares of
Maker's common stock ("Common Stock" or the "Shares") at the price per share of
$2.625 (the "Conversion Price") of the outstanding balance of principal and
interest due hereunder at the date of conversion as follows (such right being
referred to herein as the "Conversion Right"):
Exhibit A - P. 2
<PAGE>
4.1 Method of Exercise. The Conversion Right shall be exercised, in
whole or in part, by delivery to the Issuer of the form of subscription
agreement attached hereto duly executed. Upon receipt of such notice, the Issuer
shall cause to be issued certificates for the total number of whole Shares with
respect to which the Conversion Right is being exercised in such denominations
as are required for delivery to the Holder hereof, and the Issuer shall
thereupon deliver such certificates to the Holder hereof or its nominee, and
deliver the surrendered note to the Trustee for cancellation. The outstanding
balance of principal and interest due hereunder and the monthly payments thereof
shall be reduced to reflect any and all conversions into Shares.
4.2 Investment Intent. The Holder hereof represents and warrants to
the Issuer that the Conversion Right and, to the extent the Conversion Right is
exercised, the Shares, are being acquired for such Holder's own account for
investment purposes only and such Holder has no present intention or agreement
to effect any distribution of any portion of the Conversion Right, the Shares or
any rights with respect thereto.
4.3 Adjustments Upon Changes in Capitalization.
4.3.1 Stock Splits. If the Issuer at any time or from time to
time after the issuance date of this Note effects a subdivision of the
outstanding Common Stock, the Conversion Price then in effect immediately before
that subdivision shall be proportionately decreased, and conversely, if the
Issuer at any time or from time to time after the date of this Note combines the
outstanding shares of Common Stock, the Conversion Price then in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this subsection 4.3.1 shall become effective at the close of
business on the date the subdivision or combination becomes effective.
4.3.2 Dividends and Distributions. In the event the Issuer, at
any time or from time to time after the date of this Note, makes, or fixes a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Conversion Price then in effect shall be
decreased as of the time of such issuance or, in the event such a record date is
fixed, as of the close of business on such record date, by multiplying the
Conversion Price then in effect by a fraction (i) the numerator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(ii) the denominator of which shall be the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution; provided, however,
that if such record date is fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Conversion Price
shall be recomputed accordingly as of the close of business on such record date
and thereafter the Conversion Price shall be adjusted pursuant to this
subsection 4.3.3 as of the time of actual payment of such dividends or
distributions.
Exhibit A - P. 3
<PAGE>
4.3.3 Recapitalization or Reclassification. If the Shares
issuable upon the conversion of this Note are changed into the same or a
different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets, provided for elsewhere in this Section 4.3),
then, and in any such event, the Conversion Right shall thereafter refer to the
right to convert this Note into such number and kind of securities as would have
been issuable to the Holder here as a result of such change if, immediately
prior to such change, such Holder had exercised the Conversion Right as to the
entire outstanding balance of principal and interest hereunder, subject to
further adjustment as provided herein.
4.3.4 Sale of the Issuer. If at any time or from time to time
there is a capital reorganization of the Common Stock (other than a
recapitalization, subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section 4.3) or a merger or consolidation
of the Issuer with or into another company, or the sale of all or substantially
all of the Issuer's properties and assets to any other person, the Conversion
Right shall thereafter refer to the right to convert this Note into such number
and kind of securities and property as would have been issuable or distributable
to the Holder hereof on account of such reorganization, merger, consolidation or
sale if, immediately prior thereto, such Holder had exercised the Conversion
Right as to the entire outstanding balance of principal and interest hereunder.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4.3 with respect to the rights of such Holder after
the reorganization, merger, consolidation or sale to the end that the provisions
of this Section 4.3 (including adjustment of the Conversion Price then in effect
and number of shares purchasable upon conversion of this Note) shall be
applicable after that event and be as nearly equivalent to the provisions hereof
as may be practicable.
4.3.5 Observance of Duties. The Issuer shall not, by amendment
of its Articles 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 Issuer but shall
at all times in good faith assist in the carrying out of all the provisions of
this Section 4.3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Right of the Holder hereof
against dilution or other impairment.
5. Registration Under the Securities Act of 1933.
5.1 Registration and Legends. This Note and the Shares issuable upon
conversion of this Note have not been registered under the Securities Act of
1933, as amended ("the Act"). Upon conversion, in whole or in part, of this
Note, the certificates representing the Shares shall bear the following legend
until such time as such legend is no longer required by law:
Exhibit A - P. 4
<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
ACT OF 1933 ("ACT") OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
OFFERED OR SOLD UNLESS REGISTERED AND QUALIFIED PURSUANT TO THE APPLICABLE
PROVISIONS OF FEDERAL AND STATE SECURITIES LAWS OR UNLESS AN EXEMPTION
FROM SUCH REGISTRATION OR QUALIFICATION APPLIES. THEREFORE, NO SALE OR
TRANSFER OF THIS SECURITY SHALL BE MADE, NO ATTEMPTED SALE OR TRANSFER
SHALL BE VALID, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE ANY EFFECT TO
ANY SUCH TRANSACTION UNLESS (A) SUCH TRANSACTION HAS BEEN DULY REGISTERED
UNDER THE ACT AND QUALIFIED OR APPROVED UNDER APPROPRIATE STATE SECURITIES
LAWS, OR (B) THE ISSUER HAS FIRST RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO IT THAT SUCH REGISTRATION, QUALIFICATION OR APPROVAL IS
NOT REQUIRED.
5.2 Registrable Securities. For purposes of this Agreement,
"Registrable Securities" shall mean the securities issued or issuable upon
conversion of the Notes and the securities issued or issuable upon exercise of
the warrants issued by the Issuer pursuant to that certain Confidential Private
Placement Memorandum dated December 15, 1998.
5.3 Demand Registration Rights. On one occasion at any time after
December 21, 1998, the Issuer shall, upon the demand of the holders of a
majority of the Registrable Securities, register such securities and file all
necessary undertakings with the Securities and Exchange Commission (the "SEC")
so as to permit the Holder hereof the right to sell publicly the Shares issued
on conversion of this Note. The Issuer will bear all expenses attendant to
registering the Registrable Securities (subject to Section 5.5.5).
5.4 Piggyback Registration Rights. In the event that the right to
demand that the Registrable Securities be registered pursuant to Section 5.3 has
not been exercised, the Issuer agrees to include any appropriate Shares issuable
upon conversion of this Note in any registration statement filed by the Issuer
at any time after the Conversion Commencement Date and before the Stated
Maturity.
5.5 Covenants Regarding Registration. In connection with any
registration under Section 5.3 or 5.4 hereof, the Issuer covenants and agrees as
follows:
5.5.1 The Issuer shall, within sixty (60) days after receipt
of written demand from the holders of a majority of the Registrable Securities
pursuant to Section 5.3, take all steps necessary to effectuate preparation and
filing with the SEC of the registration statement as required by and in
compliance with the Act. Such registration statement shall be on Form S-3 or
other appropriate form as determined by the Issuer.
Exhibit A - P. 5
<PAGE>
5.5.2 The Issuer shall keep such registration statement
effective for the lesser of (i) twenty-four (24) months, or (ii) the period of
time in which the holders of securities covered by such registration statement
have effected the distribution of their Shares. During such period the Issuer
shall prepare and file with the SEC 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
Act with respect to the disposition of all securities covered by such
registration statement.
5.5.3 The Issuer shall notify each holder of Shares covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the 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 in light of the circumstances then existing.
5.5.4 The Issuer shall furnish to such holders such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of the Shares owned by them.
5.5.5 The Issuer shall pay all costs, fees, and expenses in
connection with new registration statements under Section 5.3 (excluding the
costs attendant to a second demand registration) and Section 5.4 hereof
including, without limitation, the Issuer's legal and accounting fees, printing
expenses, and blue sky fees and expenses, except that the Issuer shall not pay
for any of the following costs and expenses: (i) underwriting discounts and
commissions allocable to the Shares, (ii) state transfer taxes, (iii) brokerage
commissions, (iv) fees and expenses of counsel and accountants for the holders
of this Note or the Shares.
5.5.6 The Issuer will take all necessary action which may be
required in qualifying or registering the Shares covered by such registration
statement or post-effective amendment or new registration statement for offering
and sale under the securities laws of such states as are reasonably requested by
the holders of such Shares, provided that the Issuer shall not be obligated to
execute or file any general consent to service or process or to qualify as a
foreign corporation to do business under the laws of any such jurisdiction.
Exhibit A - P. 6
<PAGE>
6. Redemption.
6.1 Optional Redemption. The Notes are subject to redemption
pursuant to the terms of the Indenture, at the option of the Issuer, in whole or
in part, on not less than 90 days' prior notice by mail to each Holder of Notes
to be redeemed, at the percentage (at a given time, the "Optional Redemption
Percentage"), specified below for a given time period in which redemption
occurs, of the outstanding principal amount of each Note or such portion thereof
being redeemed, plus accrued and unpaid interest, if any, to the Redemption Date
(subject to the right of Holders of record on relevant record dates to receive
interest due on a Payment Date):
Time Period Percentage
----------- ----------
December 1, 1998 - November 30, 1999 105%
December 1, 1999 - November 30, 2000 104%
December 1, 2000 - November 30, 2001 103%
December 1, 2001 - November 30, 2002 102%
December 1, 2002 - November 29, 2003 101%
6.2 Prior Due Payments. In the case of any redemption of Notes,
principal and interest installments whose Stated Maturity is on or prior to the
Redemption Date will be payable to the Holders of such Notes of record at the
close of business on the relevant Regular Record Date. Notes (or portions
thereof) for whose redemption and payment provision is made in accordance with
the Indenture shall cease to bear interest from and after the Redemption Date.
In the event of redemption of this Note in part only, a new Note or Notes
for the unredeemed portion hereof shall be issued in the name of the Holder
hereof upon the cancellation hereof.
7. Defaults and Remedies. If an Event of Default shall occur and be
continuing, the principal of all the Notes and accrued and unpaid interest, if
any, may be declared to be due and payable in the manner and with the effect
provided in the Indenture.
8. Security Documents. In order to secure the due and punctual payment of
the principal of, and interest on the Notes and all other amounts payable by the
Issuer under the Indenture and the Notes when and as the same shall be due and
payable, whether at maturity, by acceleration or otherwise, according to the
terms of the Notes and the Indenture, the Issuer has granted to the Trustee
security interests in and Liens on its interest in the Trust Estate for the
benefit of the Holders of Notes pursuant to the Indenture and the Security
Documents.
Exhibit A - P. 7
<PAGE>
Each Holder, by accepting a Note, agrees to all of the terms and
provisions of the Security Documents, as the same may be amended from
time-to-time pursuant to the respective provisions thereof and the Indenture.
Each Holder acknowledges that a release of any of the Trust Estate or
Liens strictly in accordance with the terms and provisions of any of the
Security Documents and the terms and provisions of the Indenture will not be
deemed for any purpose to be an impairment of the security under the Indenture.
9. Amendments and Waivers. The Indenture permits, with certain exceptions
as therein provided, the amendment thereof and of the Security Documents and the
modification of the rights and obligations of the Issuer and the rights of the
Holders under the Indenture, the Security Documents and this Note at any time by
the Issuer and the Trustee with the consent of the Holders of not less than a
majority of the aggregate principal amount of the Notes at the time Outstanding.
The Indenture also contains provisions permitting a majority in aggregate
principal amount of the Notes at the time Outstanding, on behalf of the Holders
of all the Notes, to waive compliance by the Issuer with certain provisions of
the Indenture, the Security Documents and this Note and certain past defaults
under the Indenture, the Security Documents and this Note and their
consequences. Any such consent or waiver by or on behalf of the Holder of this
Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note.
10. Denominations, Transfer, Exchange. The Notes are issuable only in
registered form without coupons in denominations of $1000 and any integral
multiple thereof. As provided in the Indenture, the securities are exchangeable
for a like aggregate principal amount of Notes of a different authorized
denomination, as requested by the Holder surrendering the same.
As provided in the Indenture and subject to certain limitations therein
set forth, in the event of a transfer the transfer of this Note is registrable
on the Note Register of the Issuer, upon surrender of this Note for registration
of transfer at the office or agency of the Issuer maintained for such purpose in
the City of San Diego, California, or at such other office or agency of the
Issuer as may be maintained for such purpose, duly endorsed by, or accompanied
by a written instrument of transfer in form satisfactory to the Issuer and the
Note Registrar duly executed by the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Notes, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
There shall be a service charge of Twenty ($20.00) for each registration
of transfer or exchange, other than certain exchanges as set forth in the
Indenture not involving any transfer. In addition, the Issuer may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
Exhibit A - P. 8
<PAGE>
11. Persons Deemed Owners. The Issuer, the Trustee and any agent of the
Issuer or the Trustee may treat the Person in whose name this Note is registered
as the owner hereof for all purposes, whether or not this Note shall be overdue,
and neither the Issuer, the Trustee nor any agent shall be affected by notice to
the contrary.
12. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of Colorado.
13. Authentication. Unless the certificate of authentication hereon has
been duly executed by the Trustee referred to below by manual signature, this
Note shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed.
Dated: December 21, 1998 CREATIVE HOST SERVICES, INC., a California
corporation
By:____________________________________________
Sayed Ali, President
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned Indenture.
Dated: ________________ U.S. BANK NATIONAL ASSOCIATION, a United
States national banking association, as Trustee
By:____________________________________________
Title:__________________________________
Exhibit A - P. 9
<PAGE>
CREATIVE HOST SERVICES, INC.
6335 Ferris Square, Suites G-H
San Diego, California 92121
Subscription Agreement for the Conversion of Note
The undersigned hereby irrevocably subscribes for the purchase of ________
Shares pursuant to and in accordance with the terms and conditions of this Note,
which Shares should be delivered to the undersigned at the address below. If
said number of Shares do not represent the entire outstanding balance of
principal and interest under this Note, a new Note of like tenor for the
remaining outstanding balance should be delivered to the undersigned at the
address stated below.
The undersigned agrees that: (1) the undersigned will not offer, sell,
transfer or otherwise dispose of any Shares unless either (a) a registration
statement, or post-effective amendment thereto, covering the Shares has been
filed with the Securities and Exchange Commission pursuant to the Securities Act
of 1933, as amended (the "Act"), such sale, transfer or other disposition is
accompanied by a prospectus meeting the requirements of Section 10 of the Act
forming a part of such registration statement, or post-effective amendment
thereto, which is in effect under the Act covering the Shares to be so sold,
transferred or otherwise disposed of, and all applicable state securities laws
have been complied with, or (b) counsel satisfactory to Creative Host Services,
Inc.. has rendered an opinion in writing and addressed to Creative Host
Services, Inc.. that such proposed offer, sale, transfer or other disposition of
the Shares is exempt from the provisions of Section 5 of the Act in view of the
circumstances of such proposed offer, sale, transfer or other disposition; (2)
Creative Host Services, Inc.. may notify the transfer agent for the Shares that
the certificates for the Shares acquired by the undersigned are not to be
transferred unless the transfer agent receives advice from Creative Host
Services, Inc.. that one or both of the conditions referred to in (1)(a) and
(1)(b) above have been satisfied; and (3) Creative Host Services, Inc.. may
affix the legend set forth in Section 5.1 of this Note to the certificates for
the Shares hereby subscribed for, if such legend is applicable.
Dated:______________________________ Signed:________________________________
Signature guaranteed: Address:_______________________________
_______________________________
____________________________________
(Signature must be guaranteed by a
guarantor institution participating
in a Medallion Signature Program)
<PAGE>
FORM OF ASSIGNMENT
For value received, the undersigned hereby sells, assigns and transfers
unto ______________________ the within Note of Creative Host Services, Inc. and
all rights thereunder, and hereby irrevocably constitute and appoints
_____________________ attorney to transfer the said Note on the Note Register,
with full power of substitution in the premises.
Dated:______________________ ___________________________________________
Social Security or other tax identification
number of transferee
___________________________________________
Signature Guaranteed:
(Signature must be guaranteed by a guarantor
institution participating in a Medallion Signature
Program)
NOTICE: The Assignor's signature to this assignment must correspond with the
name as it appears upon the fact of the within Note in every
particular without alteration or any change whatever.
<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF
1933 (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED OR
SOLD UNLESS REGISTERED AND QUALIFIED PURSUANT TO THE APPLICABLE PROVISIONS OF
FEDERAL AND STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION
OR QUALIFICATION APPLIES. THEREFORE, NO SALE OR TRANSFER OF THIS SECURITY SHALL
BE MADE, NO ATTEMPTED SALE OR TRANSFER SHALL BE VALID, AND THE ISSUER SHALL NOT
BE REQUIRED TO GIVE ANY EFFECT TO ANY SUCH TRANSACTION UNLESS (A) SUCH
TRANSACTION HAS BEEN DULY REGISTERED UNDER THE ACT AND QUALIFIED OR APPROVED
UNDER APPROPRIATE STATE SECURITIES LAWS, OR (B) THE ISSUER HAS FIRST RECEIVED AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH REGISTRATION,
QUALIFICATION OR APPROVAL IS NOT REQUIRED.
WARRANT
For the Purchase of Shares of Common Stock
of
CREATIVE HOST SERVICES, INC.
Void After 5 P.M. December 21, 2003
No. __
Warrant to Purchase Two Hundred Seventy Thousand (270,000)
Shares of Common Stock
THIS IS TO CERTIFY, that, for value received, Fiser Correspondent
Services, Inc., or registered assigns (the "Holder"), is entitled, subject to
the terms and conditions hereinafter set forth, on or after the date hereof, and
at any time prior to 5 P.M., Pacific Standard Time ("PST"), on December 21, 2003
but not thereafter, to purchase such number of shares of Common Stock, no par
value ("Common Stock" or the "Shares"), of Creative Host Services, Inc., a
California corporation (the "Company"), from the Company as set forth above and
upon payment to the Company of an amount per Share of $1.48 (the "Purchase
Price"), if and to the extent this Warrant is exercised, in whole or in part,
during the period this Warrant remains in force, subject in all cases to
adjustment as provided in Section 2 hereof, and to receive a certificate or
certificates representing the Shares so purchased, upon presentation and
surrender to the Company of this Warrant, with the form of Subscription
Agreement attached hereto, including changes thereto reasonably requested by the
Company, duly executed and accompanied by payment of the Purchase Price of each
Share.
SECTION 1.
Terms of this Warrant
1.1 Time of Exercise. This Warrant may be exercised at any time and from
time to time after 9:00 A.M., PST, on the date hereof, (the "Exercise
Commencement Date"), but no later than 5:00 P.M., December 21, 2003 (the
"Expiration Time") at which time this Warrant shall become void and all rights
hereunder shall cease.
<PAGE>
1.2 Manner of Exercise.
1.2.1 The Holder may exercise this Warrant, in whole or in part,
upon surrender of this Warrant, with the form of Subscription Agreement attached
hereto duly executed, to the Company at its corporate office in San Diego,
California, and upon payment to the Company of the full Purchase Price for each
Share to be purchased in lawful money of the United States, or by certified or
cashier's check, or wired funds, and upon compliance with and subject to the
conditions set forth herein.
1.2.2 Upon receipt of this Warrant with the form of Subscription
Agreement duly executed and accompanied by payment of the aggregate Purchase
Price for the Shares for which this Warrant is then being exercised, the Company
shall cause to be issued certificates for the total number of whole Shares for
which this Warrant is being exercised in such denominations as are required for
delivery to the Holder, and the Company shall thereupon deliver such
certificates to the Holder or its nominee.
1.2.3 In case the Holder shall exercise this Warrant with respect to
less than all of the Shares that may be purchased under this Warrant, the
Company shall execute a new Warrant for the balance of the Shares that may be
purchased upon exercise of this Warrant and deliver such new Warrant to the
Holder.
1.2.4 The Company covenants and agrees that it will pay when due and
payable any and all taxes which may be payable in respect of the issue of this
Warrant, or the issue of any Shares upon the exercise of this Warrant. The
Company shall not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issuance or delivery of this Warrant or
of the Shares in a name other than that of the Holder at the time of surrender,
and until the payment of such tax the Company shall not be required to issue
such Shares.
1.3 "Cashless" Net Issue Exercise.
1.3.1 Notwithstanding any provisions herein to the contrary, if the
Current Market Price of one Share is greater than the Purchase Price, in lieu of
exercising this Warrant by payment with cash, certified check, or wired funds,
the Holder may elect to receive that number of Shares (as determined below)
equal to the value of this Warrant (or the portion thereof being exercised) by
surrender of this Warrant at the corporate office of the Company together with
the duly executed form of Subscription Agreement and notice of such election, in
which event the Company shall issue to the Holder a number of shares of Common
Stock computed using the following formula:
X = (Y (A-B))/A
2
<PAGE>
Where X = the number of shares of Common Stock to be issued to the
Holder
Y = the gross number of shares of Common Stock to be purchased
A = the Current Market Price of one Share of the Company's Common
Stock on the day prior to exercise hereunder.
B = Purchase Price.
1.3.2 The Current Market Price shall be determined as follows:
(a) if the security at issue is listed on a national
securities exchange or admitted to unlisted trading privileges on such an
exchange or quoted on either the National Market System or the Small Cap Market
of the automated quotation service operated by Nasdaq, Inc. ("NASDAQ"), the
current value shall be the last reported sale price of that security on such
exchange or system on the day for which the Current Market Price is to be
determined or, if no such sale is made on such day, the average of the highest
closing bid and lowest asked price for such day on such exchange or system; or
(b) if the security at issue is not so listed or quoted or
admitted to unlisted trading privileges and bid and asked prices are not
reported, the current market value shall be determined in good faith and in such
reasonable manner as may be prescribed from time to time by the Board of
Directors of the Company.
1.4 Exchange of Warrant. This Warrant may be divided into, combined with
or exchanged for another Warrant or Warrants of like tenor to purchase a like
aggregate number of Shares. If the Holder desires to divide, combine or exchange
this Warrant, he shall make such request in writing delivered to the Company at
its corporate office and shall surrender this Warrant and any other Warrants to
be so divided, combined or exchanged. The Company shall execute and deliver to
the person entitled thereto a Warrant or Warrants, as the case may be, as so
requested. The Company shall not be required to effect any division, combination
or exchange which will result in the issuance of a Warrant entitling the Holder
to purchase upon exercise a fraction of a Share. The Company may require the
Holder to pay a sum sufficient to cover any tax or governmental charge that may
be imposed in connection with any division, combination or exchange of Warrants.
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1.5 Holder as Owner. Prior to surrender of this Warrant in accordance with
Section 1.6 for registration of assignment, the Company may deem and treat the
Holder as the absolute owner of this Warrant (notwithstanding any notation of
ownership or other writing hereon) for the purpose of any exercise hereof and
for all other purposes, and the Company shall not be affected by any notice to
the contrary.
1.6 Method of Assignment. Any assignment or transfer of any portion or all
of this Warrant shall be made by surrender of this Warrant to the Company at its
principal office with the form of assignment attached hereto duly executed and
accompanied by funds sufficient to pay any transfer tax. In such event, the
Company shall, without charge, execute and deliver a new Warrant in the name of
the assignee named in such instrument of assignment and this Warrant shall
promptly be canceled.
1.7 Rights of Holder. Nothing contained in this Warrant shall be construed
as conferring upon the Holder the right to vote, consent or receive notice as a
shareholder in respect of any meetings of shareholders for the election of
directors or any other matter, or as having any rights whatsoever as a
shareholder of the Company. Notwithstanding the foregoing, prior to the
occurrence of any of the following events, if such event occurs at any time
prior to the expiration of this Warrant and prior to its exercise, namely,
(a) any taking by the Company of a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, in each
case as indicated by the accounting treatment of such dividend or distribution
on the books of the Company, or
(b) any offer by the Company to the holders of its Common Stock of
any additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any option,
right or warrant to subscribe therefor, or
(c) any capital reorganization or reclassification of the Common
Stock, or sale of all or substantially all of the assets of the Company, or
consolidation or merger of the Company with another entity, or
(d) any voluntary or involuntary dissolution, liquidation or winding
up of the Company,
the Company shall cause to be mailed to the Holder, at the earliest practicable
time (and in any event not less than twenty (20) days before any record date or
other date set for definitive action),
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written notice of the date on which the books of the Company shall close or a
record shall be taken to determine the shareholders entitled to such dividend,
distribution, convertible or exchangeable securities or subscription rights, or
entitled to vote on such reorganization, reclassification, sale, consolidation,
merger, dissolution, liquidation or winding up, as the case may be. Such notice
shall also describe the effect of such action (to the extent such effect may be
known at the date of such notice) on the Purchase Price and the kind and amount
of the Shares and other securities and property deliverable upon exercise of
this Warrant. Such notice shall also specify the date as of which the holders of
the Common Stock of record shall participate in said distribution or
subscription rights or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, sale, consolidation, merger, dissolution, liquidation or
winding up, as the case may be (on which date, in the event of voluntary or
involuntary dissolution, liquidation or winding up of the Company, the right to
exercise this Warrant shall terminate). Without limiting the obligation of the
Company to provide notice to the Holder of actions hereunder, it is agreed that
failure of the Company to give notice shall not invalidate such action of the
Company.
1.8 Lost Certificates. If this Warrant is lost, stolen, mutilated or
destroyed, the Company shall, on such reasonable terms as to indemnity or
otherwise as it may impose (which shall, in the case of a mutilated Warrant,
include the surrender thereof), issue a new Warrant of like denomination and
tenor as, and in substitution for, this Warrant, which shall thereupon become
void. Any such new Warrant shall constitute an additional contractual obligation
of the Company, whether or not the Warrant so lost, stolen, destroyed or
mutilated shall be at any time enforceable by anyone.
1.9 Covenants of the Company. The Company covenants and agrees as follows:
1.9.1 At all times the Company shall reserve and keep available for
the exercise of this Warrant such number of authorized shares of Common Stock as
are sufficient to permit the exercise in full of this Warrant.
1.9.2 Prior to the issuance of any Shares upon exercise of this
Warrant, the Company shall secure the listing of such Shares upon any securities
exchange or automated quotation system upon which the Company's Common Stock is
listed for trading.
1.9.3 The Company covenants that all Shares when issued upon the
exercise of this Warrant will be validly issued, fully paid, non-assessable and
free of preemptive rights.
SECTION 2.
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Adjustment of Purchase Price
and Number of Shares Purchasable upon Exercise
2.1 Stock Splits. If the Company at any time or from time to time after
the issuance date of this Warrant effects a subdivision of the outstanding
Common Stock, the Purchase Price then in effect immediately before that
subdivision shall be proportionately decreased, and conversely, if the Company
at any time or from time to time after the issuance date of this Warrant
combines the outstanding shares of Common Stock, the Purchase Price then in
effect immediately before the combination shall be proportionately increased.
Any adjustment under this subsection 2.1 shall become effective at the close of
business on the date the subdivision or combination becomes effective.
2.2 Dividends and Distributions. In the event the Company at any time, or
from time to time after the issuance date of this Warrant makes, or fixes a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Purchase Price then in effect shall be
decreased as of the time of such issuance or, in the event such a record date is
fixed, as of the close of business on such record date, by multiplying the
Purchase Price then in effect by a fraction (i) the numerator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(ii) the denominator of which shall be the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution; provided, however,
that if such record date is fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Purchase Price
shall be recomputed accordingly as of the close of business on such record date
and thereafter the Purchase Price shall be adjusted pursuant to this subsection
2.2 as of the time of actual payment of such dividends or distributions.
2.3 Recapitalization or Reclassification. If the Shares issuable upon the
exercise of the Warrant are changed into the same or a different number of
shares of any class or classes of stock, whether by recapitalization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend or a reorganization, merger, consolidation or sale of assets,
provided for elsewhere in this Section 2), then, and in any such event, the
Holder shall thereafter be entitled to receive upon exercise of this Warrant
such number and kind of stock or other securities or property of the Company to
which a holder of Shares deliverable upon exercise of this Warrant would have
been entitled on such
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reclassification or other change, subject to further adjustment as provided
herein.
2.4 Sale of the Company. If at any time or from time to time there is a
capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Section 2) or a merger or consolidation of the Company with or
into another Company, or the sale of all or substantially all of the Company's
properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the Holder shall thereafter be entitled to receive upon exercise of this Warrant
such number of shares of stock or other securities or property of the Company,
or of the successor Company resulting from such merger or consolidation or sale,
to which a holder of Shares deliverable upon exercise would have been entitled
on such capital reorganization, merger, consolidation, or sale. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this Section 2 with respect to the rights of the holders of the Warrants
after the reorganization, merger, consolidation or sale to the end that the
provisions of this Section (including adjustment of the Purchase Price then in
effect and number of shares purchasable upon exercise of the Warrants) shall be
applicable after that event and be as nearly equivalent to the provisions hereof
as may be practicable.
2.5 Observance of Duties. The Company will not, by amendment of its
Articles 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 Company but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 2 and in the taking of all such action as may be necessary or
appropriate in order to protect the Exercise Rights of the holders of the
Warrants against dilution or other impairment.
SECTION 3.
Registration Under the Securities Act of 1933
3.1 Registration and Legends. This Warrant and the Shares issuable upon
exercise of this Warrant have not been registered under the Securities Act of
1933, as amended ("the Act"). Upon exercise, in whole or in part, of this
Warrant, the certificates representing the Shares shall bear the following
legend:
THIS SECURITY HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
ACT OF 1933 ("ACT") OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
OFFERED OR SOLD UNLESS REGISTERED AND QUALIFIED PURSUANT TO THE APPLICABLE
PROVISIONS OF FEDERAL AND STATE SECURITIES LAWS OR UNLESS AN EXEMPTION
FROM SUCH
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REGISTRATION OR QUALIFICATION APPLIES. THEREFORE, NO SALE OR TRANSFER OF
THIS SECURITY SHALL BE MADE, NO ATTEMPTED SALE OR TRANSFER SHALL BE VALID,
AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE ANY EFFECT TO ANY SUCH
TRANSACTION UNLESS (A) SUCH TRANSACTION HAS BEEN DULY REGISTERED UNDER THE
ACT AND QUALIFIED OR APPROVED UNDER APPROPRIATE STATE SECURITIES LAWS, OR
(B) THE ISSUER HAS FIRST RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT
THAT SUCH REGISTRATION, QUALIFICATION OR APPROVAL IS NOT REQUIRED.
3.2 Registrable Securities. For purposes of this Agreement, "Registrable
Securities" shall mean the securities issued or issuable upon conversion of the
12% Secured Convertible Notes issued by the Company pursuant to that certain
Private Placement Memorandum dated December 15, 1998 (the "Memorandum") and the
securities issued or issuable upon exercise of the warrants issued by the
Company pursuant to the Memorandum.
3.3 Demand Registration Rights. On one occasion at any time before the
Expiration Date, the Company shall, upon the demand of the holders of a majority
of the Registrable Securities, register such securities and file all necessary
undertakings with the Securities and Exchange Commission (the "SEC") so as to
permit the Holder the right to sell publicly the Shares issued on exercise of
this Warrant. The Company will bear all expenses attendant to registering the
Registrable Securities (subject to Section 3.5(e)).
3.4 Piggyback Registration Rights. In the event that the right to demand
that the Registrable Securities be registered pursuant to Section 3.3 has not
been exercised, the Company agrees to include any Shares issuable upon exercise
of this Warrant in any registration statement filed by the Company at any time
after the Exercise Commencement Date and before the Expiration Date.
3.5 Covenants Regarding Registration. In connection with any registration
under Section 3.3 or 3.4 hereof, the Company covenants and agrees as follows:
(a) The Company shall, within sixty (60) days after receipt of
written demand from the holders of a majority of the Registrable Securities
pursuant to Section 3.3, take all steps necessary to effectuate preparation and
filing with the SEC of the registration statement as required by and in
compliance with the Act. Such registration statement shall be on Form S-3 or
other appropriate form as determined by the Company.
(b) The Company shall keep such registration statement effective for
the lesser of (i) twenty-four (24) months or (ii) the period of time in which
the holders of securities covered by such registration statement have effected
the distribution of their Shares. During such period the Company shall prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus
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used in connection with such registration statement as may be necessary to
comply with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(c) The Company shall notify each holder of Shares covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the 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 in light of the circumstances then existing.
(d) The Company shall furnish to such holders such numbers of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of the Shares owned by them.
(e) The Company shall pay all costs, fees, and expenses in
connection with the registration statements under Section 3.3 and Section 3.4
hereof including, without limitation, the Company's legal and accounting fees,
printing expenses, and blue sky fees and expenses, except that the Company shall
not pay for any of the following costs and expenses: (i) underwriting discounts
and commissions allocable to the Shares, (ii) state transfer taxes, (iii)
brokerage commissions, (iv) fees and expenses of counsel and accountants for the
holders of this Warrant or the Shares.
(f) The Company will take all necessary action which may be required
in qualifying or registering the Shares covered by such registration statement
or post-effective amendment or new registration statement for offering and sale
under the securities laws of such states as are reasonably requested by the
holders of such Shares, provided that the Company shall not be obligated to
execute or file any general consent to service or process or to qualify as a
foreign corporation to do business under the laws of any such jurisdiction.
(g) The Holder shall be entitled to pay the Purchase Price for the
Shares purchasable upon the exercise of this Warrant out of the proceeds of any
sale of the Shares purchasable upon its exercise.
3.6 Indemnity.
3.6.1 The Company shall indemnify and hold harmless each person
registering securities pursuant to this Section (the "Seller") and each
underwriter, within the meaning of the Act, who
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may purchase from or sell for any Seller any of the Common Stock from and
against any and all losses, claims, damages, and liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in any
new registration statement or any supplemented prospectus under the Act included
therein required to be filed or furnished by reason of this Section, or caused
by any omission or alleged omission to state therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any untrue statement or alleged untrue
statement or omission or alleged omission based upon information furnished or
required to be furnished in writing to the Company by such Seller or underwriter
within the meaning of the Act; provided, however, that the indemnity agreement
set forth in this Section 3.6 with respect to any prospectus which shall be
subsequently amended prior to the written confirmation of sale of any Shares
shall not inure to the benefit of any Seller or underwriter from whom the person
asserting any such losses, claims, damages or liabilities purchased such Shares
which are the subject thereof (or to the benefit of any person controlling such
Seller or underwriter), if such Seller or underwriter failed to send or give a
copy of the prospectus as amended to such person at or prior to the written
confirmation of the sale of such Shares and if such amended prospectus did not
contain any untrue statement or alleged untrue statement or omission or alleged
omission giving rise to such cause, claim, damage, or liability.
3.6.2 Each Seller which avails itself of the procedures under this
Section 3 shall indemnify, and secure the agreement of any underwriter which the
Seller employs to indemnify, the Company, its directors, each officer signing
the related post-effective amendment or registration statement and each person,
if any, who controls the Company within the meaning of the Act, from and against
any losses, claims, damages, and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in any post-effective
amendment or registration statement or any prospectus required to be filed or
furnished by reason of this Section 3 or caused by 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, insofar as such losses,
claims, damages, or liabilities are caused by any untrue statement or alleged
untrue statement or omission or alleged omission based upon information
furnished in writing to the Company by any such Seller or underwriter expressly
for use therein.
3.7 Survival of Obligations. The agreements in this Section 3 shall
continue in effect regardless of the exercise and surrender of this Warrant.
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SECTION 4.
Other Matters
4.1 Binding Effect. All the covenants and provisions of this Warrant by or
for the benefit of the Company shall bind and inure to the benefit of its
successors and assigns hereunder.
4.2 Notices. Notices or demands pursuant to this Warrant to be given or
made by the Holder to or on the Company shall be sufficiently given or made if
sent by certified or registered mail, return receipt requested, postage prepaid,
or facsimile and addressed, until another address is designated in writing by
the Company, as follows:
Creative Host Services, Inc.
6335 Ferris Square, Suites G-H
San Diego, California 92121
Notices to the Holder provided for in this Warrant shall be deemed given or made
by the Company if sent by certified or registered mail, return receipt
requested, postage prepaid, and addressed to the Holder at his last known
address as it shall appear on the books of the Company.
4.3 Governing Law. The validity, interpretation and performance of this
Warrant shall be governed by the laws of the State of Colorado.
4.4 Parties Bound and Benefitted. Nothing in this Warrant expressed and
nothing that may be implied from any of the provisions hereof is intended, or
shall be construed, to confer upon, or give to, any person or corporation other
than the Company and the Holder any right, remedy or claim under any promise or
agreement hereof, and all covenants, conditions, stipulations, promises and
agreements contained in this Warrant shall be for the sole and exclusive benefit
of the Company and its successors and of the Holder, its successors and
permitted assigns.
4.5 Headings. The Section headings herein are for convenience only and are
not part of this Warrant and shall not affect the interpretation thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company as
of December 21, 1998.
CREATIVE HOST SERVICES, INC.
By:
------------------------------------
Sayed Ali, President
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CREATIVE HOST SERVICES, INC.
Assignment of Warrant
FOR VALUE RECEIVED, _______________________ hereby sells, assigns and
transfers unto _____________________________ the within Warrant and the rights
represented thereby, and does hereby irrevocably constitute and appoint
_______________________________ Attorney, to transfer said Warrant on the books
of the Company, with full power of substitution.
Dated: _________________________
Signed: ____________________________________
Signature guaranteed:
________________________________
CREATIVE HOST SERVICES, INC.
6335 Ferris Square, Suits G-H
San Diego, California 92121
Subscription Agreement for the Exercise of Warrants
The undersigned hereby irrevocably subscribes for the purchase of
_____________ Shares pursuant to and in accordance with the terms and conditions
of this Warrant, which Shares should be delivered to the undersigned at the
address stated below. If said number of Shares are not all of the Shares
purchasable hereunder, a new Warrant of like tenor for the balance of the
remaining Shares purchasable hereunder should be delivered to the undersigned at
the address stated below.
The undersigned elects to pay the aggregate Purchase Price for such Shares
in the following manner:
|_| by the enclosed cash or check made payable to the Company in
the amount of $________;
|_| by wire transfer of United States funds to the account of the
Company in the amount of $____________, which transfer has
been made before or simultaneously with the delivery of this
Notice pursuant to the instructions of the Company; or
|_| by cashless exercise pursuant to Section 1.3 of the Warrant.
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The undersigned agrees that: (1) the undersigned will not offer, sell,
transfer or otherwise dispose of any Shares unless either (a) a registration
statement, or post-effective amendment thereto, covering the Shares has been
filed with the Securities and Exchange Commission pursuant to the Securities Act
of 1933, as amended (the "Act"), such sale, transfer or other disposition is
accompanied by a prospectus meeting the requirements of Section 10 of the Act
forming a part of such registration statement, or post-effective amendment
thereto, which is in effect under the Act covering the Shares to be so sold,
transferred or otherwise disposed of, and all applicable state securities laws
have been complied with, or (b) counsel reasonably satisfactory to Creative Host
Services, Inc. has rendered an opinion in writing and addressed to Creative Host
Services, Inc. that such proposed offer, sale, transfer or other disposition of
the Shares is exempt from the provisions of Section 5 of the Act in view of the
circumstances of such proposed offer, sale, transfer or other disposition; (2)
Creative Host Services, Inc. may notify the transfer agent for the Shares that
the certificates for the Shares acquired by the undersigned are not to be
transferred unless the transfer agent receives advice from Creative Host
Services, Inc. that one or both of the conditions referred to in (1)(a) and
(1)(b) above have been satisfied; and (3) Creative Host Services, Inc. may affix
the legend set forth in Section 3.1 of this Warrant to the certificates for the
Shares hereby subscribed for, if such legend is applicable.
Dated: _____________________________ Signed: ________________________________
Signature guaranteed: Address: _______________________________
________________________________________
____________________________________
