U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 27, 1998
OR
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
for the transition period from ___________ to ___________.
Commission File Number 33-95796
TANNER'S RESTAURANT GROUP, INC.
-------------------------------
(Name of small business issuer in its charter)
Texas 76-0406417
----- ----------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
2662 Holcomb Bridge Road, Suite 320
Alpharetta, Georgia 30022
------------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (770) 518-1444
Securities registered pursuant Name of exchange on which registered:
to Section 12(b) of the Act:
None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
Series A Preferred Stock, $1.00 par value
-----------------------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this Form, and no disclosure will be
contained, to the best of the issuer'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. [X]
The issuer's revenues for its most fiscal year were $11,694,544.
As of March 23, 1999, the aggregate market value of the voting and
non-voting common stock held by non-affiliates, computed by reference to the
price at which the common equity was sold, or the average bid and asked price of
such common equity, was $2,137,312, based upon a closing sales price of $.47 per
share of common stock on the OTC Bulletin Board. As of March 23, 1999, 8,334,489
shares of the Registrant's common stock were outstanding.
The following documents are incorporated by reference into Part III, Items
9 through 12 hereof: None.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Portions of this Annual Report on Form 10-KSB contain "forward-looking"
statements which can be identified by the use of forward-looking terms such as
"expect," "estimate," "anticipate," "intend" and "believe" or by discussions of
strategy, future operating results or events. These forward-looking statements
are subject to risks and uncertainties that may cause our actual results,
performance, or achievements to differ materially from those discussed in the
forward-looking statements. These risks and uncertainties include, among others,
those described in "Item 6, Management's Discussion and Analysis or Plan or
Operation - Disclosure Regarding Forward-Looking Statements" and in our other
filings with the SEC.
Overview
Tanner's Restaurant Group, Inc., formerly known as Harvest Restaurant
Group, Inc., was incorporated in June 1993 under the name "Clucker's Tex-Mex
Venture, Inc." Initially, Harvest operated as an area developer for Cluckers
Wood Roasted Chicken, Inc., the developer and franchiser of the "Cluckers"
restaurant concept. By 1996, Harvest had decided to focus its operations on the
development, operation and franchising of its own line of restaurants, Harvest
Rotisserie restaurants. In 1997, Harvest attempted to grow this concept by
implementing an area development program in Florida, Indiana and North Carolina.
By the first quarter of 1998, however, all restaurants franchised under this
area development program had been closed, and by July 1998 all four
company-owned restaurants were closed. The last remaining franchised restaurant
was closed in August 1998, leaving Harvest with no ongoing business operations.
By this time, Harvest had decided to pursue a merger with TRC Acquisition
Corporation ( TRC") and focus its resources on the development of TRC's "Rick
Tanner's Original Grill" restaurants.
On January 14, 1999, TRC merged into a wholly-owned subsidiary of Harvest
in a forward triangular merger. In this merger, 4,123,219 shares of common
stock, representing approximately 50.1% of the outstanding common shares, were
issued to the former shareholders of privately-held TRC. Also issued in the
merger were 744,500 shares of Series E preferred stock. As a result of the
merger, we now own and franchise the "Rick Tanner's Original Grill" restaurants
formerly owned and franchised by TRC. We own and operate nine of these
restaurants, all of which are located in Georgia, and franchise one additional
restaurant, which is located in Macon, Georgia. As part of the merger, our board
of directors was changed to consist of four members, three of whom were former
directors of TRC, and TRC's managment team became the active management team of
the combined business. Additionally, we moved our corporate headquarters from
San Antonio, Texas to Atlanta, Georgia. For accounting purposes, we accounted
for the merger as an acquisition of Harvest by TRC deemed to have occurred on
December 27, 1998. On March 15, 1999, following receipt of shareholders'
approval at a special shareholders' meeting, we changed our name to Tanner's
Restaurant Group, Inc. Unless otherwise indicated herein, the terms "we," "us,"
or "our" refer to the company after the date of the merger, and the term
"Harvest" refers to the company before the merger.
A significant factor in both the structure and completion of the merger was
a commitment by outside investors to invest $6,000,000 in the new combined
company. The investors invested $2,000,000 under this financing commitment in
July 1998, in exchange for shares of Harvest's preferred stock (which were
recently converted into 2,600 shares of our Series D convertible preferred
stock). Since the merger, the investors have invested an additional $2,000,000
in exchange for 2,600 shares of Series D convertible preferred stock, and they
will invest the balance of $2,000,000 for 2,000 more Series D preferred shares
when the shares of common stock into which the Series D preferred shares are
convertible are registered with the SEC. We intend to cause that registration to
become effective in late spring 1999.
<PAGE>
In addition to the 7,200 shares issued in connection with the $6,000,000
financing commitment, we issued 1,998 shares of Series D convertible preferred
stock to holders of Harvest's Series B convertible preferred stock. This Series
B stock had been purchased by several of the outside investors for $1,332,000 in
December 1997. In all, there are seven outside investors: Sovereign Partners,
L.P., Atlantis Capital Fund Limited, Dominion Capital Fund Limited, G.P.S.
America Fund Ltd., Atlas Capital Fund Ltd., and two foreign residents. In
addition to the share issuances outlined above, the financing commitment
requires that we issue warrants to purchase 919,800 shares of common stock at a
price of $2.00 per share to the outside investors.
Our executive offices are located at 2662 Holcomb Bridge Road, Suite 260,
Alpharetta, Georgia 30022, and our telephone number is (770) 518-1444. However,
effective April 2, 1999, our new address will be 5500 Oakbrook Parkway, Suite
260, Norcross, Georgia 30093.
Growth Strategy
We intend to use part of the proceeds of the financing commitment to pursue
the following growth strategy:
* to open new company-owned Tanner's restaurants;
* to increase our sales at existing restaurants;
* to develop and expand our franchising program; and
* to evaluate possible acquisitions of complimentary restaurant
concepts.
We intend to develop Tanner's restaurants in Atlanta to complete our
penetration of the Atlanta market and in selected Southeastern markets, where we
believe we will be able to use existing supervisory, marketing and distribution
systems. We currently anticipate that we will lease most of our future
locations. In 1999, we plan to open up to four company-owned Tanner's
restaurants and one franchised restaurant.
Background of the "Rick Tanner's Original Grill" Concept
Richard Tanner developed the original Tanner's concept, which focused on
chicken rotisserie and ribs, in 1986, and he grew this idea into eight
restaurants in Atlanta over the next ten years. In October 1996, Mr. Tanner
joined forces with veteran restaurant investors and a new management team to
create TRC. TRC expanded Mr. Tanner's successful concept by adding new
company-owned restaurants and developing a franchise program. Between October
1996 and its merger with us in January 1999, TRC opened three new Tanner's
restaurants and began development of several additional locations. TRC also
began initial development of a franchise program and franchised one restaurant
in Macon, Georgia. During 1998, TRC opened one new company-owned Tanner's
restaurant in Canton, Georgia and two franchised Tanner's restaurants, one in
Macon, Georgia and one in Montgomery, Alabama. The franchised restaurant in
Montgomery, Alabama was closed in February 1999 due to franchisee financing
arrangements and restaurant location issues.
<PAGE>
Tanner's restaurants are designed to appeal to traditional casual dining
customers by offering large portions of high quality foods at low prices. These
restaurants are competitively positioned between fast food chicken restaurants,
home meal replacement restaurants, and the full bar casual restaurants that have
less portable foods. The menu features over 40 different entrees and 15
different appetizers including pot roast, meatloaf, rotisserie chicken, steaks,
slow roasted barbecue pork ribs, " cheesy chicken lips," "Texas" chili,
sandwiches, made-from-scratch soups and salads, and family value packs ideal for
take home service. All entrees are prepared using aged beef and fresh chicken
and seafood, are cooked to order and are served with a choice of two out of 15
different freshly prepared vegetables. Since inception, over 25% of sales have
come from takeout/takehome service.
Value. We believe the Tanner's menu offers a compelling value to the
traditional casual dining customer while remaining competitive with restaurants
targeting value-oriented customers. Tanner's prices range from $3.99 to $6.99
for lunch and from $8.99 to $10.99 for dinner, with many items priced under
$8.00. Additionally, Tanner's offers a "Kids" menu for children ten and under
with items priced at $2.95. The average amount spent per customer, including
beverages, is approximately $6.50 for lunch and $9.50 for dinner.
Distinctive Design and Decor and Casual Atmosphere. Our Tanner's
restaurants are built according to a flexible design concept that allows
recognizable restaurants to be developed at different types of sites. Our
prototype Tanner's store features an efficient operating layout, standardized
equipment and tasteful and distinctive trade dress. Tanner's seeks to create a
fun, casual, family friendly neighborhood atmosphere and we attempt to create
this atmosphere by decorating all our restaurants with such things as
hand-painted murals depicting local history.
Commitment to Customer Satisfaction. We believe that we must provide
prompt, friendly and efficient service to ensure customer satisfaction. We seek
to staff each restaurant with an experienced management team and keep
table-to-server ratios low. We use customer surveys to solicit feedback on each
restaurant and attempt to address problems quickly.
Site Selection. Our site selection strategy targets markets that provide a
balance of business and residential clientele. We analyze a variety of factors
in the site selection process, including local market demographics, site
visibility, accessibility and proximity to major retail centers, office
complexes, residential communities and entertainment facilities. We believe that
this strategy maximizes our exposure to a high volume of new and repeat
customers. We devote significant time and resources to analyzing prospective
restaurant sites and gathering appropriate cost, demographic and traffic data.
We use an in-house construction and real estate department to develop
architectural and engineering plans and to oversee new construction. Although we
have traditionally focused on developing our prototype freestanding restaurant,
we consider developing additional restaurants in existing buildings and in strip
shopping centers where appropriate. We believe that our ability to remodel an
existing building into a Tanner's restaurant permits greater accessibility to
quality sites in more developed markets. Once we select a site, we renovate or
build-out the interior and exterior to produce the distinctive atmosphere of a
Tanner's restaurant. Renovation or build-out of a site usually takes from 60 to
120 days.
<PAGE>
Training and Development. We believe a well-trained, highly motivated
restaurant management team is critical to achieving our operating objectives.
Our training and compensation systems are designed to create accountability for
performance at the restaurant level. We expend significant resources to train,
motivate and educate our restaurant level managers and hourly coworkers. Each
new manager participates in a comprehensive six week training program which
combines hands-on experience in one of our training restaurants. To instill a
sense of ownership in restaurant management, compensation is based, partly, on
restaurant profit and quality service scores. We believe our focus on unit level
operations provides an incentive for managers to focus on increasing same store
sales and restaurant profitability.
Unit Economics. The average total investment cost to open a new Tanner's
restaurant, including the costs of the land, building, furniture, fixtures and
equipment, plus preopening costs that include training salaries, opening
inventory, supplies and promotion, is approximately $1,250,000. Excluding real
estate costs (land purchase or lease costs) and preopening expenses, the average
cost of opening a new restaurant in 1998 was approximately $650,000. We expect
to reduce this average opening cost to approximately $500,000 in 1999, due
primarily to reductions in the average unit size and a new emphasis on opening
restaurants in strip shopping centers rather than freestanding buildings.
Individual unit investment costs could vary, however, on account of a variety of
factors, including competition for new sites, area construction costs, and the
mix of conversions, build-to-suit and leased locations. We have sought to
minimize our cash investment in each restaurant to approximately $300,000 or
less through the use of sale/leaseback, or build-to-suit type financing, and
equipment financing. We have been successful in obtaining such financing for our
new freestanding restaurants and believe such financing will continue to be
available, although we cannot predict that availability.
Competition
Competition in the restaurant industry is intense. Tanner's restaurants
compete with mid-price, full-service, casual dining restaurants primarily on the
basis of quality, atmosphere, location and value. Tanner's takeout/takehome
business competes not only with other full-service restaurants, but also with
take-out food service companies, fast-food restaurants, delicatessens,
cafeteria-style buffets, prepared food stores, supermarkets and convenience
stores. Tanner's also competes with other restaurants and retail establishments
for quality sites.
Many of our competitors are well established and have substantially greater
financial, marketing and other resources than we do. Regional and national
restaurant companies such as Chili's, Applebee's, Black Eyed Pea and Cracker
Barrel have expanded their operations in the current and anticipated market
areas of Tanner's. This competition could adversely affect our operating
results.
Competition in the food service business is often affected by changes in
consumer tastes, national, regional, and local economic and real estate
conditions, demographic trends, traffic patterns, the cost and availability of
labor, purchasing power, the type, number and location of competing restaurants,
availability of product and local competitive factors. Some or all of these
factors could aversely affect us and our future franchisees.
Trademarks and Service Marks
Before the January 1999 merger, TRC had applied for registration with the
United States Patent and Trademark Office of its "Rick Tanner's Original Grill"
and design service mark. We believe our service marks have significant value and
are important factors in the marketing of our restaurants. We are aware of names
and marks similar to the Tanner's service marks used by others in certain
geographic areas, but believe those uses will not adversely affect us. Our
policy is to pursue registration of our marks whenever possible and to
vigorously oppose any infringement of our marks.
<PAGE>
Although we no longer own, franchise or operate any restaurants operating
under the Harvest name, the rights to the "Harvest Rotisserie" name, trademark
and service mark remain registered in our name with the United States Patent and
Trademark Office.
Government Regulation
A variety of federal, state and local laws apply to us and our restaurant
business. Each of our restaurants is subject to permitting, licensing and
regulation by a number of government authorities, including alcoholic beverage
control, zoning, health, safety, sanitation, building and fire agencies in the
state or municipality in which the restaurant is located. Our restaurants must
comply with federal, state and local government regulations applicable to the
consumer food service business, including those relating to the preparation and
sale of food, minimum wage requirements, overtime, working and safety
conditions, mandated health insurance coverage and citizenship requirements.
Difficulties in obtaining or failure to obtain required licenses or approvals
could delay or prevent the development of a new restaurant in a particular area.
Approximately 2% of net restaurant sales were attributable to the sale of
alcoholic beverages in 1998. Alcoholic beverage control regulations require each
restaurant to apply to a state authority and, in certain locations, county or
municipal authorities for a license or permit to sell alcoholic beverages on the
premises. Typically, licenses must be renewed annually and may be revoked or
suspended for cause at any time. Alcoholic beverage control regulations relate
to numerous aspects of restaurant operations, including minimum age of patrons
and employees, hours of operation, advertising, wholesale purchasing, inventory
control and handling, storage and dispensing of alcoholic beverages.
"Dram shop" statutes in Georgia generally give a person injured by an
intoxicated person the right to recover damages from a business that wrongfully
served alcoholic beverages to the intoxicated person. We carry liquor liability
coverage as part of our existing $2 million comprehensive general liability
insurance.
The federal Americans with Disabilities Act requires that places of public
accomodation meet certain requirements related to access and use by persons with
disabilities. We design our restaurants to be accessible to persons with
disabilities and believes that it is in substantial compliance with all current
applicable regulations relating to restaurant accomodations for such persons.
A number of states and the Federal Trade Commission require a franchisor to
provide specified disclosure statements to potential franchisees before granting
a franchise. Additionally, many states require the franchisor to register its
uniform franchise offering circular with the state before it may offer the
franchise to residents of the state.
Our restaurant operations are also subject to federal and state laws
governing such matters as the minimum hourly wage, unemployment tax rates, sales
tax and similar matters over which we have no control. Significant numbers of
our service, food preparation and other personnel are compensated at rates
related to the federal minimum wage, and increases in the minimum wage could
increase our labor costs. The development and construction of additional
restaurants are subject to compliance with applicable zoning, land use and
environmental laws and regulations.
<PAGE>
Franchise Operations
We currently have one franchisee and are presently offering franchises on a
selective basis. We cannot give assurances about either the number of franchise
territories that we will sell during fiscal year 1999 or the impact of franchise
fees on our profitability and cash position.
We franchise market areas or territories through market development
agreements, which grant the right to develop one or more Tanner's restaurants
within a specified geographic area. A franchisee enters into a market
development agreement when the franchisee chooses a specific territory before
signing the first license agreement. A franchisee must also enter into a
separate license agreement, which we call unit license agreement, for each
individual Tanner's restaurant that the franchisee opens.
The market development agreement obligates a franchisee to build and open a
specified number of restaurants in a designated area over a specific time
period. It grants exclusivity for the franchisee, prohibiting us or another
franchisee from developing in the awarded territory. If a franchisee fails to
open restaurants in accordance with the market development agreement, we can
notify the franchisee of default and terminate the market development agreement
if the default is not cured.
Generally, a market development agreement expires when the franchisee opens
the last restaurant listed on the schedule in the agreement. The unit license
agreements then provide market operating control for the franchisees. After the
franchisee completes the development schedule, if we decide to establish
additional restaurants in the licensed territory, the franchisee has the right
of first refusal to develop those restaurants as long as the franchisee's
existing restaurants are in compliance with the agreements.
The initial franchise fee is $25,000 per restaurant. A franchisee pays
$10,000 of this fee upon signing a market development agreement, for each
restaurant to be built. The franchisee pays the remaining $15,000 per restaurant
at the opening of each restaurant, when the unit license agreement is signed.
Unit license agreements generally have a 20-year term and can be renewed with
the then current license if the franchisee is in compliance at the end of the
term.
Generally, under the unit license agreement, a franchisee pays a continuing
royalty fee of 4% of gross revenues from each restaurant. In addition, a
franchisee pays a continuing fee for advertising materials production, initially
.5% of gross revenues. This fee can be increased to 2% of gross revenues upon
implementation of a national advertising program. Currently, we only require the
.5% for advertising materials production.
The unit license agreement also requires a franchisee to comply strictly
with our standards, specifications, processes, procedures, requirements and
instructions regarding the operation of a licensed restaurant. We are obligated
to provide initial training, new store opening support, and continuing
inspection and training/marketing assistance for each franchise restaurant.
Restaurant managers must be certified in our training program. Franchisees may
purchase food products and restaurant supplies from independent, approved
suppliers as long as they conform to our specifications. Alternate sources of
these items are generally available. The same is true for equipment and decor
packages.
<PAGE>
Insurance
We carry general liability, product liability and commercial insurance of
up to $2,000,000, together with an umbrella liability coverage of an additional
$10,000,000 and worker's compensation insurance, all of which we believe is
adequate for a business of our size and type. We cannot assure that our
insurance coverage will remain adequate or that insurance will continue to be
available to us at reasonable rates.
Franchisees are required to maintain certain minimum standards of insurance
pursuant to their franchise agreements, including commercial general liability
insurance, worker's compensation insurance and all risk property and casualty
insurance. We require that we be named as an additional insured on those
policies.
Employees
As of March 22, 1999, we employed approximately 375 people, of whom 12 are
executive and administrative personnel, 36 are restaurant management personnel
and the remainder are hourly restaurant personnel. Many of our hourly restaurant
employees work part-time. None of our employees is covered by a collective
bargaining agreement. We consider our employee relations to be good.
ITEM 2. DESCRIPTION OF PROPERTY
Property
We lease approximately 3,320 square feet of space for our executive offices
in Alpharetta, Georgia under a month-to-month lease for $4,200 per month. We
expect to relocate our executive offices to Norcross, Georgia in early April
1999. Our new monthly rent is $2,919. We believe that these new executive office
facilities will be adequate for our needs in the foreseeable future. We believe
that additional space, if needed, is available at reasonable rates. In addition
to the one property that we own, we lease 19 properties that range in size from
approximately 3,000 to 5,326 square feet and range in rent from $2,700 to
$11,917 per month, as described below. Included in these properties are several
leases for properties that we no longer use, as indicated below.
Although there were no ongoing Harvest Rotisserie restaurant operations
when Harvest merged with TRC in January 1999, Harvest had previously guaranteed
all of the real estate leases on all Harvest Rotisserie franchised restaurants.
We accrued a real estate disposition liability of $145,000 at December 27, 1998,
which we believe will be sufficient to settle all obligations related to the
closing of the company-owned and franchised Harvest Rotisserie restaurants, and
the abandonment of the Harvest Rotisserie restaurant sites under development.
<PAGE>
Form of Lease Monthly
Location Ownership Expiration Rent
- - -------- --------- ---------- ----
Executive Offices:
- - ------------------
2662 Holcomb Bridge Road Building Lease March 31, 1999 $4,200
Suite 320
Alpharetta, GA 30302
5500 Oakbrook Parkway Building Lease March 31, 2004 $2,919
Suite 260
Norcross, Georgia 30093
Operating Restaurants and
Catering Facility:
- - ------------------
350 Northridge Road Building Lease July, 2000 $4,439
Atlanta, GA 30338
3220 Cobb Parkway Building Lease June, 2003 $5,716
Atlanta, GA 30339
4920 Roswell Road Building Lease June, 1999 $5,694
Atlanta, GA 30342
1371 Clairmont Road Building Lease June, 2001 $5,394
Decatur, GA 30033
650 Gwinnett Drive Building Lease April, 2002 $3,731
Suite 203
Lawrenceville, GA 30245
4450 Hugh Howell Road Building Lease April, 2002 $4,426
Tucker, GA 30084
521 Indian Trail NW Building Lease June, 1999 $3,800
Lilburn, GA 30247
94 Pavillion Parkway Building Lease June, 2013 $11,917
Fayetteville, GA 30214
525 Peachtree Industrial Blvd. Building Lease September, 2002 $6,180
Suwanee, GA 30174
6470 Spalding Drive, Suite P Building Lease September, 2002 $4,533
Norcross, Georgia 30092
<PAGE>
Form of Lease Monthly
Location Ownership Expiration Rent
- - -------- --------- ---------- ----
Closed Restaurants
and Abandoned Properties:
- - -------------------------
1453 Riverstone Parkway Building Lease February, 2018 $6,879
Suite 100
Canton, GA 30114
6275 Spalding Drive Building Lease June, 2000 $5,480
Norcross, GA 30092
3433 McGehee Road Building Lease February, 2008 $6,667
Montgomery, AL 36111 (2)
Walzem Road Building Lease February, 2006 $2,700
San Antonio, TX (3)
South Padre Island Drive Building Lease November, 1999 $5,000
Corpus Christi, TX
South Braeswood Road Building Lease January, 2004 $3,000
Houston, TX
11730 West Avenue Building Lease May, 2002 $4,500
San Antonio, TX
Tezel Road Real Estate N/A N/A
San Antonio, TX (1) Owned
- - ------------------------------
(1) Under the terms of a Deed of Trust dated December 28, 1998 and filed in the
County of Bexar in the State of Texas, this property secures two promissory
notes, one in the amount of $150,000 and one in the amount of $50,000,
issued to Mr. William Gallagher pursuant to the terms of his severance
agreement.
(2) We currently sublease this property for approximately the same amount per
month as we owe on the lease.
(3) We currently sublease this property for $3,600 per month.
ITEM 3. LEGAL PROCEEDINGS
We are a named party in the following legal proceedings:
On June 1, 1998, Harvest was named as a defendant in a lawsuit filed in
Texas in Nueces District Court by Lin Chin Liu Ho and Chi Pen Ho (Case Number
98-2048-E). The plaintiffs are seeking damages of $150,000 for breach of a
commercial lease. We have filed a motion for summary judgment. We are in the
process of filing a motion to dismiss this action on the grounds that Harvest
never entered into a lease agreement for the property.
<PAGE>
On August 12, 1998, Harvest was named as a defendant in a lawsuit filed in
Texas by Green Tree Vendor Services Co. in Bexar County Court (Case No. 247317).
The plaintiff is seeking to recover damages of $38,691 for Harvest's failure to
make payments under two equipment leases. The plaintiff has filed a first
amended motion for summary judgment, which has not yet been set for hearing.
Settlement negotiations are ongoing.
On August 20, 1998, Harvest was named as a defendant in a lawsuit filed in
Texas by Toufic Khalifa in Bexar County District Court (Case No. 98-CI-12200).
The plaintiff is seeking damages in the amount of at least $240,000 for breach
of a commercial lease. The case is now in the discovery phase.
Prior to the merger, Harvest settled a number of lawsuits and claims, and
since the merger we have settled additional lawsuits and claims. Some of these
settlements are documented by executed settlement agreements and releases while
others are not.
We are involved in certain claims arising in the normal course of business.
In our opinion, although the outcomes of any such claims are uncertain, in the
aggregate they are not likely to have a material adverse effect on us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1998.
On March 12, 1999, we held a special meeting at which our shareholders
voted in favor of two amendments to our articles of incorporation. The first
amendment increased the number of shares of common stock that we are authorized
to issue from 20,000,000 shares to 200,000,000 shares. The second amendment
changed our name from Harvest Restaurant Group, Inc. to Tanner's Restaurant
Group, Inc. A total of 8,241,609 shares were entitled to vote on each matter, as
follows:
(1) Name change - 7,352,794 shares were voted in favor of the proposal,
while 31,480 shares were voted against the proposal, 58,206 shares
abstained and 799,129 shares did not vote;
(2) Increase in authorized common shares - 7,228,549 shares were voted in
favor of the proposal, while 151,674 shares were voted against this
proposal, 62,257 shares abstained and 799,129 shares did not vote.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market for Common Stock
Until September 16, 1998 the Harvest common stock was quoted on the NASDAQ
SmallCap Market System under the symbol "ROTI." As of close of business on that
date the common stock was delisted from the NASDAQ SmallCap Market, and since
that date the common stock has been quoted on the OTC Bulletin Board. On March
23, 1999, the high and low sales prices for the common stock were $.47 and $.42,
respectively. The range of high and low sales prices for the common stock as
reported by Nasdaq and the range of high and low bid prices as quoted on the OTC
Bulletin Board (indicated by an asterisk) are listed below for the periods
indicated. The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
Price
----------------------
High Low
---- ---
Fiscal Year 1997: Quarter Ended:
- - ----------------- --------------
First Quarter April 20, 1997 $7.75 $6.00
Second Quarter July 13, 1997 $8.00 $4.75
Third Quarter October 5, 1997 $5.09 $1.43
Fourth Quarter December 28, 1997 $2.63 $ .75
Fiscal Year 1998:
- - -----------------
First Quarter April 19, 1998 $2.2188 $ .25
Second Quarter July 12, 1998 $ .875 $ .25
Third Quarter October 4, 1998 $ .875 $ .125*
Fourth Quarter December 27, 1998 $ .29* $ .09*
Holders of Record
We had approximately 99 holders of record of our common stock as of March
23, 1999.
Dividends
We have never paid cash dividends on our common stock and intend to retain
earnings, if any, to use in operating and expanding our business. Our board of
directors will determine the amount of future dividends, if any, based upon our
earnings, financial condition, capital requirements and other conditions.
Recent Sales of Unregistered Securities
We had no sales of unregistered securities in the fiscal year ended
December 27, 1998 that we have not already reported in our quarterly reports,
and we sold no unregistered securities in the fourth quarter.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion should be read in connection with the consolidated
financial statements and related notes thereto included elsewhere in this
report.
On January 14, 1999 TRC merged into a wholly owned subsidiary of Harvest in
a forward triangular merger. Because the former shareholders of TRC received a
majority of the shares of our common stock outstanding immediately after the
merger, the historical financial statements of the surviving company for the
periods prior to the merger are those of TRC rather than Harvest.
Overview
Our growth strategy is to open new company-owned Tanner's restaurants, to
increase sales at existing restaurants, develop and expand our franchising
program, and to evaluate possible acquisitions. We intend to develop Tanner's
restaurants primarily in the greater Atlanta market and in selected Southeastern
markets, where we believe we will be able to use existing supervisory, marketing
and distributions systems. Additionally, we may seek to acquire other restaurant
concepts that would compliment our existing Tanner's business, allowing growth
and improving profitability. We are evaluating existing restaurant locations,
and may close certain unprofitable restaurants as we expand the concept and
focus on increasing profitability.
A significant factor in both the structure and completion of the merger was
a commitment by third party investors to invest $6,000,000 in the new combined
company. This financing will be used primarily for working capital and the
development of up to four company-owned Tanner's restaurants and the opening of
one franchised Tanner's restaurant during 1999, although there can be no
assurance that such development plans will be successful.
Results of Operations for the Year Ended December 27, 1998 Compared to the Year
Ended December 28, 1997
Revenues. Total revenues increased by $2,727,993 during the fiscal year
1998 in comparison to fiscal 1997. This increase in sales is partially
attributable to sales from two new restaurants opened in the fourth quarter of
1997 and one new restaurant opened in the second quarter of 1998. The sales
increase is also the result of a rise in same-store sales of 1.9% over 1997. Our
first franchised stores were opened during the first half of 1998. Royalties and
franchise fees earned during the year were $63,341 versus $0 in the prior year.
This increase in restaurant and franchise-related sales was partially offset by
a 13.5% decrease in catering sales.
Costs and Expenses. In general, costs have increased as a percentage of
sales due to the additional coupon and promotions that began in August 1997 and
continued through 1998. These types of promotions increase the number of
customers that visit the restaurant and increase sales. However, the operating
expenses on these sales are higher because the sales have been discounted below
the menu price. This increase in costs is most evident in food, beverage and
paper costs.
<PAGE>
Food, beverage and paper costs were 35.2% of 1998 sales versus 34.4% of
sales for the same period in 1997. The 0.8% increase in food costs as a
percentage of sales was primarily a result of increased coupon and various
discount promotions in 1998 as mentioned above.
Payroll and benefit expense was a stable 35.5% of sales in 1998 and 1997.
In April 1997, we implemented a new benefits package that permits restaurant
managers to obtain health, life and disability insurance. We pay for a portion
of this package. As a result of this new employee benefit, benefit costs rose
0.1% as a percentage of sales. This was offset by a decrease of 0.1% in labor
costs.
Other operating expenses decreased as a percentage of sales to 23.5% for
1998 from 27.3% for 1997. Although total advertising expenditures remained
constant, we began to realize some market efficiencies as advertising expense
decreased 1.5% as a percentage of sales when compared to 1997. Additional
decreases in 1998 were the result of: (a) changing all restaurant cleaning from
an externally contracted service to an in-store responsibility (.3%
improvement), (b) negotiating certain contracts related to the purchase of
cleaning materials and supplies (.3% improvement) and (c) general reduction in
repair and maintenance expense as a percentage of sales because 28% of all
restaurants are new in 1998 and need minimal repairs versus no new stores until
November of 1997 (.5% improvement). Pre-opening expenses decreased in 1998 due
to one new restaurant compared to two new restaurants in 1997 (.9% of sales in
1998 compared to 2.5% in 1997). However, these margin improvements were
partially offset by the increase in rent expense (.4%). This is due to the
higher costs associated with new store leases. These factors resulted in a net
decrease to other operating expenses of 3.8% of total sales.
Total occupancy costs, consisting of depreciation, rent and restaurant
interest expense, increased to 9.1% in 1998 from 7.1% in 1997. The 2.0% increase
as a percentage of sales was primarily due to the two new restaurants that
opened in the fourth quarter of 1997 and one new restaurant that opened in the
second quarter of 1998. We believe that this trend will start to reverse in 1999
as we open more "end-cap" restaurants located at the end of strip shopping
centers, as opposed to free-standing buildings, which tend to have higher
capital investments, as well as financing costs, therefore resulting in larger
depreciation charges and greater interest costs.
Depreciation and amortization expense in 1998 increased by 0.6% over 1997
due to fixed asset additions at the new restaurants that were opened in 1997 and
1998. Most of these assets were placed in service in December of 1997, January
and July of 1998.
General and administrative expenses increased to $1,651,474 in 1998 from
$1,278,581 in 1997, primarily due to costs incurred in anticipation of
franchising and expanding the Tanner's concept, such as recruiting and training
restaurant managers for anticipated new stores, printing and development costs
for new menus, hiring a franchise consultant, and restructuring the corporate
office personnel to support additional growth. Although total general and
administrative expenditures increased, the additional sales generated from new
and old restaurants leveraged these costs down to 14.1% of 1998 sales from 14.3%
of 1997 sales.
The write down of an intangible asset is due to a one-time charge of
$547,000 related to the cancellation and termination of an employment agreement
with the former president of TRC.
<PAGE>
Other Income (Expense). Other income decreased in 1998 to 0.2% of sales,
from 0.3% of sales in 1997. Interest expense increased to $700,451 in 1998 from
$546,552 in 1997. This is primarily attributable to an increase in borrowings of
approximately $1,000,000 in the first half of 1998. Our effective interest rate
remained at 11.3% for 1998.
Net Loss. We incurred a net loss of $2,897,759 for the year ended December
27, 1998 compared to $2,143,409 for the same period in 1997. We expect to incur
losses in future periods until we expand our base of restaurants and reduce
current general and administrative expenses.
As we pursue our plans for growth, we expect to see the following trends in
operating costs. Food, beverage and paper costs and payroll expenses will
increase during the first two months of a restaurant's operations. Preopening
expenses are expected to total approximately $100,000 for each new restaurant
and are expensed as incurred in accordance with Statement of Position 98-5,
Reporting on the Costs of Start-up Activities. The majority of preopening costs
are incurred in the accounting period prior to opening and in the period that a
restaurant opens. As we increase our base of restaurants, the effects of the
above-mentioned operating trends will decrease, as the new restaurants will have
less of an impact on our consolidated results.
Liquidity and Capital Resources.
Our cash and cash equivalents increased $434,768 during the year ended
December 27, 1998. Principal sources of funds consisted of (a) the sale of one
of the restaurant facilities for $359,696, (b) additional borrowings totaling
$1,016,617 under both secured and unsecured loan agreements and (c) cash of
$411,150 acquired in the merger. The primary uses of funds consisted of (a) the
purchase of additional fixed assets for new restaurants of $972,724 and (b) cash
used in operations of $220,198.
We have incurred operating losses since inception and as of December 27,
1998 had an accumulated deficit of $6,390,005 and a working capital deficit of
$4,040,192. We are not currently generating sufficient revenues from operations
to meet our cash requirements. Because substantially all sales in our
restaurants are for cash, and operating costs are generally due in 15 to 45
days, we are able to operate with negative working capital. Also, we have
obtained extended payment schedules with several of our larger vendors allowing
for payment terms of 60 to 90 days. Additionally, certain vendors and
authorities have agreed to extended payment terms for obligations we previously
incurred.
We have not paid dividends on the Series A preferred stock since June 1998
and are currently analyzing our alternatives for addressing these arrearages.
We opened one new restaurant during 1998 and had two franchised restaurants
open during this same time period. One of the franchised restaurants closed in
February of 1999 due to franchisee financing arrangements and location issues.
We closed two under-performing restaurants in March of 1999, which is expected
to result in a charge to earnings of approximately $300,000 in the first quarter
of 1999. In the remainder of 1999, we plan to open up to four new company-owned
and one franchised Tanner's restaurant. Our capital requirements to meet this
development plan could be as much as $1.6 million. We may also seek to acquire
other restaurant concepts that would compliment our existing Tanner's
restaurants. Although we do not currently have the capital resources to meet
this development plan, outside investors have invested $2,000,000 in 1999 to
purchase shares of our Series D preferred stock. They will invest another
$2,000,000 when the shares of common stock into which the Series D preferred
shares are convertible are registered with the SEC. We intend to cause that
registration to become effective in late spring of 1999. We plan to meet our
capital requirements for new restaurant development, possible acquisition of
another restaurant concept, and working capital through the remainder of this
funding.
<PAGE>
If the current development schedule is not delayed, management anticipates
that by the fourth quarter of 1999, we will have a base of profitable
restaurants that will allow us to begin to leverage our non-operating expenses.
Year 2000 Computer Issues
The "Year 2000 problem" is a general term used to identify those computer
programs or applications that are programmed to use a two-digit field, instead
of a four-digit field, for the year component of a date. Those programs or
applications which are programmed in this manner may recognize the year 2000 as
the year 1900, thereby causing potential system failures or miscalculations,
which could result in disruptions of normal business operations. We have
evaluated our state of readiness, the costs involved to become compliant, the
risks involved, and our contingency plans. Our primary uses of software systems
are our corporate accounting and restaurant management software.
We have completed an initial assessment of our core computer information
systems and are now undertaking the necessary steps to make our systems Year
2000 compliant. We believe that the cost to upgrade our software will not be
material. We are currently evaluating and assessing those computer systems that
do not relate to information systems, such as telecommunications, HVAC, and fire
and safety systems, which typically include embedded technology such as
microcontrollers that may be harder to test, and may require repairs or complete
replacement. We expect to complete this assessment during the second quarter of
1999.
We are in the process of contacting all significant vendors and our
independent payroll vendor to verify that those vendors are also addressing the
problem. We have developed contingency plans where necessary. Certain Year 2000
issues that may adversely affect our operations are beyond our control. We
cannot now estimate the potential adverse effect that may result from the
failure of any of our vendors to become Year 2000 compliant, although we
continues to believe that there will be no direct material effect on our
operating performance or results of operations.
ITEM 7. FINANCIAL STATEMENTS
The financial information required by this item begins on page F-1. The
financial statements presented are those of TRC, the entity that is deemed to
have been the accounting acquirer in the January 1999 merger.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective July 17, 1998, Akin, Doherty, Klein & Feuge, P.C. resigned as the
certifying accountant for Harvest Restaurant Group, Inc. Please see our Current
Report on Form 8-K, dated July 9, 1998, for additional information regarding
this resignation. As a result of our merger with TRC on January 14, 1999, Porter
Keadle Moore, LLP, the independent accountants for TRC before the merger, became
our independent accountants on the date of the merger. Neither we nor anyone on
our behalf consulted Porter Keadle Moore, LLP regarding any matter described in
Item 304(a)(2)(i) or (ii) of Regulation S-B.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors and Executive Officers
Our officers and directors as of March 23, 1999 are listed below. Under the
TRC merger agreement, all of our pre-merger officers and directors other than
William Gallagher resigned, including Michael Hogan, Theodore Heesch and Joseph
Fazzone. Mr. Gallagher resigned from his position as an officer but will remain
on the board of directors until July 1999. When the merger became effective,
certain officers and directors of TRC became our officers and directors, as
described below. Consequently, our current management team consists primarily of
TRC's pre-merger management.
Each director listed below will hold office until our 1999 annual meeting
of shareholders, except that Mr. Gallagher's term will expire in July 1999 in
any event. Cumulative voting is not permitted in the election of directors.
The following table provides information about our directors and executive
officers.
Name Age Office
---- --- ------
Clyde E. Culp, III 56 Chairman of the Board of Directors,
President and Chief Executive Officer
Richard E. Tanner 45 Director
James R. Walker 49 Director
William J. Gallagher 60 Director
Robert J. Hoffman 49 Senior Vice President of Operations
Timothy R. Robinson 35 Vice President and Chief Financial
Officer
<PAGE>
Background of Our Directors and Executive Officers
Clyde E. Culp III, formerly the chairman and chief executive officer of
TRC, assumed the positions of our Chairman of the Board of Directors and Chief
Executive Officer upon the merger. Mr. Culp has held numerous executive
positions during his 28-year career in the hotel and restaurant industry. He
served as a director and officer of TRC beginning in November 1996. From 1993 to
1996, Mr. Culp served as president and chief executive officer of the 1,500 unit
Long John Silvers restaurant chain. From 1990 to 1993, he served as president
and chief executive officer of Embassy Suites Hotels and also served as chief
operating officer of Holiday Inns from 1987 to 1990. In 1975, Mr. Culp founded
Davco Foods, which grew to 146 stores and was the largest Wendy's Hamburger
franchisee in the world.
Richard E. Tanner is the founder of the Rick Tanner's Original Grill
concept and was TRC's president before the merger. Upon the merger Mr. Tanner
became a director and consults with our management in all aspects of restaurant
engineering, design, layout and menu modifications. He will continue to be our
marketing spokesman.
James R. Walker has been the owner and operator of Sim's Wholesale Co.,
Inc. in Lynchburg, Virginia, since 1986 and is also a Visiting Professor of
Business Administration at the Darden Graduate School of Business at the
University of Virginia, a position he has held since 1995. He has held marketing
management positions at Smith Kline Beecham, Inc. and Eli Lilly and Co.
William J. Gallagher was our Chairman and Chief Executive Officer until the
the merger. He will serve as a director July 1999. In addition, he is President
of Jagbanc Capital Ltd., a merchant bank headquartered in San Antonio, Texas.
From February 1991 to September 1994, Mr. Gallagher was the founder and then
chairman and chief executive officer of WaterMarc Food Management, Inc., a
multi-concept restaurant chain and barbecue sauce producer. Mr. Gallagher also
served as a director of Cluckers Wood Roasted Chicken, Inc., the developer and
franchisor of the "Cluckers" restaurant concept, from June 1993 to November
1994.
Robert J. Hoffman, our Senior Vice President of Operations, served TRC in
that role from 1996 until the merger. Mr. Hoffman has over 30 years' experience
in restaurant operations. Before joining TRC, from 1994 to 1996, Mr. Hoffman
served as a vice president for Miami Subs and was responsible for operations and
training of 260 company-owned and franchised restaurants. From 1969 to 1993, he
served in various management roles, most recently as as senior vice president of
operations, with Metromedia Steakhouse LP, which operated 836 Ponderosa
Steakhouses.
Timothy R. Robinson, our Vice President and Chief Financial Officer, served
TRC in those roles from December 1996 until the merger. Prior to joining TRC,
Mr. Robinson served as a senior manager with Coopers & Lybrand, LLP in Atlanta
and has been engaged in public accounting since 1986. He was responsible for
numerous audits of publicly held companies and has extensive financial reporting
experience. Mr. Robinson is a certified public accountant and holds a B.B.A.
degree in accounting from Georgia State University.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers and persons who own beneficially more than 10% of our
outstanding common stock to file with the SEC initial reports of ownership and
reports of changes in their ownership of our common stock. Directors, executive
officers and greater than 10% shareholders are required by SEC regulations to
furnish us with copies of the forms they file. To our knowledge, based solely on
a review of the copies of such reports furnished to us, during the fiscal year
ended December 31, 1998, our directors, executive officers and greater than 10%
shareholders complied with all applicable Section 16(a) filing requirements.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table provides information concerning compensation for the
past fiscal three years to our former Chief Executive Officer. No other
executive officer received compensation in excess of $100,000 during the fiscal
year ended December 27, 1998.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation
Awards
Annual Compensation ------------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Options(#) Compensation($)
- - --------------------------- ---- --------- -------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
William J. Gallagher.................... 1998 90,000 0 13,691(2) 140,000(1) 0
Chairman and Chief Executive Officer 1997 89,519 37,156 7,663 0 0
1996 79,209 0 3,640 0 0
- - -----------------
(1) On February 5, 1998, the Board of Directors authorized a repricing of the
option exercise price for all outstanding options granted under the Harvest
Stock Option Plan to $1.00, with no change in the vesting periods. Mr. Gallagher
owns 140,000 options. This revised exercise price represented approximately 200%
of the market price of the common stock on the date of the repricing.
(2) This amount consists of a car allowance of $5,157 and $8,534 that was used
to pay off a loan.
</TABLE>
Mr. Gallagher resigned as an officer of Harvest and signed a severance
agreement that requires us to pay him $200,000 during 1999. As of March 22, 1999
we have paid him $50,000, and we owe him the remaining $150,000 to be paid as
described below. See "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements.
Option Grants
The following table provides information concerning grants of stock options
to Mr. Gallagher, the only named executive officer under applicable SEC rules,
during the fiscal year ended December 27, 1998.
<PAGE>
Option Grants In Last Fiscal Year
Individual Grants
---------------------------------------
Percent
Number of of Total
Securities Options Exercise
Underlying Granted to Price
Options Employees in ($ per Expiration
Granted(#) Fiscal Year Share) Date
---------- -------------- -------- ----
William J. Gallagher 140,000 (1) 33.33% 1.00 September 2001
- - ------------------
(1) On February 5, 1998, the Board of Directors authorized a repricing of the
option exercise price for all outstanding options granted under the Harvest
Stock Option Plan to $1.00, with no change in the vesting periods. This revised
exercise price represented approximately 200% of the market price of the common
stock on the date of the repricing.
Compensation of Directors
Directors are paid $250 per meeting.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
When we completed the merger on January 14, 1999, Clyde E. Culp, III, the
chairman and chief executive officer of TRC prior to the merger, became our
Chairman and Chief Executive Officer. Mr. Culp's five-year employment agreement
provides that Mr. Culp will be paid an annual salary of $200,000 and provides
that Mr. Culp will be entitled to earn a bonus if he meets certain criteria to
be established by Mr. Culp and the board of directors.
In connection with the merger, William J. Gallagher, our chief executive
officer prior to the merger and one of our current directors, executed a
severance agreement with us pursuant to which he resigned from all positions
that he held with us, other than as one of our directors, in exchange for our
agreement to pay him a total of $200,000. We paid Mr. Gallagher $10,000 in the
first week of January 1999 and $10,000 in the first week of February 1999. As
amended, the severance agreement calls for us to pay Mr. Gallagher $5,000 per
week beginning March 16, 1999 and continuing until the earlier to occur of: our
receipt of the final $2,000,000 installment of funding from the third party
investors; the sale of our property on Tezel Road in San Antonio, Texas; or June
30, 1999. In addition, if we settle our ongoing disagreements on two matters
with third parties, we have agreed to forward Mr. Gallagher the net proceeds of
these settlements. The amounts owed to Mr. Gallagher under his severance
agreement are secured by a deed of trust on the Tezel Road property. Mr.
Gallagher has also agreed to remain on the board of directors until July 1999.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information as of March 23, 1999 concerning
ownership of the capital stock by each director and officer, all directors and
officers as a group, and all beneficial owners of 5% or more of the outstanding
shares of common stock.
Except as otherwise noted, the persons named in the table own the shares
beneficially and of record and have sole voting and investment power with
respect to all shares of capital stock shown as owned by them, subject to
community property laws, where applicable. Each shareholder's address is in care
of us at 2662 Holcomb Bridge Road, Suite 320, Alpharetta, Georgia 30022. The
Right to Acquire column in the table also reflects all shares of common stock
that each individual has the right to acquire within 60 days from the above date
upon exercise of stock options or common stock purchase warrants.
<TABLE>
<CAPTION>
Percent of
Class of Number of Right Outstanding
Name Stock Shares Owned to Acquire Shares of Class
- - ---- ----- ------------ ---------- ---------------
<S> <C> <C> <C> <C>
Clyde E. Culp, III Common 1,178,063 78,538 15.1%
William J. Gallagher Common 46,667 140,000 2.2
Richard Tanner Common 1,413,675 353,419 20.6
Series E 469,775 0 63.0
James R. Walker (1) Common 765,741 54,976 9.9
Series E 183,150 0 24.6
SECA VII, LLC (1) Common 765,741 54,976 9.9
Series E 183,150 0 24.6
Robert J. Hoffman Common -- 243,466 2.9
Timothy R. Robinson Common -- 254,462 3.0
John Feltman Common 382,870 (2) 353,419 8.6
Sirrom Funding Corporation Common -- 643,509 7.2
All officers and directors
as a group (6 persons) (3) Common 3,404,146 1,124,861 48.4
Series E 652,925 0 87.7%
- - ---------------------
(1) Mr. Walker, a director, is an equity owner of SECA VII, LLC, which directly
owns 765,741 shares of common stock and 183,150 shares of Series E
preferred stock and has the right to acquire 54,976 shares of common stock.
(2) Represents 382,870 shares held by Brookhaven Capital Corporation, of which
Mr. Feltman is the chairman.
(3) Messrs. Gallagher, Culp, Tanner, Walker, Hoffman and Robinson.
</TABLE>
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the merger, several of our current officers and
directors, as well as holders of 5% or more of our outstanding common stock,
received our securities. Clyde E. Culp, III, our Chairman and Chief Executive
Officer, received 1,178,063 shares of common stock and options to acquire an
additional 78,538 shares of common stock in exchange for his shares of common
stock and options of TRC, respectively. Also as part of the merger, Mr. Culp
executed an employment agreement to become our Chairman and Chief Executive
Officer. Mr. Culp has also personally guaranteed two loans on our behalf. As of
December 27, 1998, the aggregate outstanding principal amount of these two loans
was $422,150. James R. Walker, one of our directors, is also an equity owner of
SECA VII, LLC, which received 765,741 shares of common stock, 183,150 shares of
Series E preferred stock, and options to acquire 54,976 shares in the merger,
also in exchange for TRC securities that it held. Timothy R. Robinson, our Chief
Financial Officer, and Robert J. Hoffman, our Chief Operating Officer, received
options to acquire 254,462 shares of common stock and 243,466 shares of common
stock, respectively, in exchange for their options to acquire shares of common
stock of TRC. John D. Feltman, a significant shareholder and the chairman of
Brookhaven Capital Corporation, received options to acquire 394,986 shares of
common stock in exchange for his options to acquire shares of TRC common stock.
Moreover, Brookhaven received 382,870 shares of common stock in exchange for its
shares of TRC common stock.
Also in connection with our merger with TRC, Richard Tanner, one of our
directors, received approximately 469,775 shares of Series E preferred stock in
exchange for his agreement to cancel a promissory note from TRC to him, his
agreement to terminate his employment agreement with TRC, and his conversion of
shares of Class A preferred stock of TRC. Mr. Tanner also received 1,413,675
shares of common stock and options to acquire 353,419 shares of common stock in
exchange for his outstanding shares and options, respectively, of TRC. Also, we
sublease a restaurant facility in Montgomery, Alabama to Tanner's Montgomery,
Inc., which Mr. Tanner owns. Tanner's Montgomery pays us rent of $6,667 per
month under a lease that expires in February 2008. This restaurant was closed in
February 1999.
SECA VII, LLC a significant shareholder and an entity in which Mr. Walker,
one of our directors, is an equity owner, has loaned us $350,000 at an interest
rate of 12.5%. This loan matures upon the earlier of our receipt of the final
$2,000,000 of our financing commitment or July 31, 1999.
Mr. Gallagher is an officer of Santa Cruz Squeeze, Inc., which advanced
money to the Company in 1998 secured by a real estate lien note issued by the
Company in the approximate amount of $150,000. We paid this note in full prior
to the merger.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. We have filed certain of the exhibits required by Item 601 of
Regulation S-B with previous registration statements or reports. As
specifically noted in the footnotes to the following Index to Exhibits,
those exhibits are incorporated into this annual report on Form 10-KSB by
reference to the applicable statement or report.
Exhibit No. Title
- - ----------- -----
2.01 Agreement and Plan of Merger by and among Harvest Restaurant
Group, Inc., a Texas corporation, Hartan, Inc., a Texas
corporation, and TRC Acquisition Corporation, a Georgia
corporation, dated December 27, 1998. (4)
3.01 Articles of Incorporation, as amended.
3.02 Bylaws. (l)
<PAGE>
4.01 Loan Agreement by and among TRC Acquisition Corporation and
Sirrom Capital Corporation, dated October 22, 1996.
4.02 Assumption Agreement, Consent and First Amendment to Loan
Agreement, dated January 14, 1999, by and among Hartan, Inc.,
Harvest Restaurant Group, Inc., and Sirrom Capital Corporation.
4.03 Guaranty Agreement, dated January 14, 1999, Harvest Restaurant
Group, Inc., and Sirrom Capital Corporation.
4.04 Amended and Restated Secured Promissory Note, dated January 14,
1999, made by Hartan, Inc. for the benefit of Sirrom Capital
Corporation.
4.05 Amended and Restated Stock Purchase Warrant, dated January 14,
1999.
10.01 Incentive Stock Option Plan. (l)
10.02 TRC Acquisition Corporation 1996 Employee Stock Option Plan.
10.03 Settlement Agreement with Cluckers Wood Roasted Chicken, Inc. (l)
10.04 Employment Agreement, dated January 14, 1999, by and among
Harvest Restaurant Group, Inc., Hartan, Inc. and Clyde E. Culp,
III.
10.05 Severance Agreement, dated January 14, 1999, by and among Harvest
Restaurant Group, Inc., Hartan, Inc. and William J. Gallagher.
10.05(a) Letter Amendment to Severance Agreement, dated March 16, 1999.
10.06 Form of Subscription Agreement for Series D Convertible Preferred
Stock.
10.07 Form of Registration Rights Agreement for Series D Convertible
Preferred Stock.
10.08 Form of Warrant Agreement for Series D Convertible Preferred
Stock.
10.09 Letter Amendment, dated January 12, 1999.
10.10 Letter Amendment, dated January 13, 1999.
10.11 Agreement with Roasters Corp. (2)
10.12 Agreement with Pollo Operators, Inc. (2)
21 Subsidiaries.
23 Consent of Porter Keadle Moore, LLP.
27.1 Financial Data Schedule as of December 28, 1998.
- - -----------------
(1) Incorporated by reference to our definitive Registration Statement on Form
SB-2, file No. 33-95796 declared effective on July 9, 1996.
(2) Incorporated by reference to our definitive Registration Statement on
FormSB-2, file no. 333-21067 declared effective on June 11, 1997.
(3) Incorporated by reference to our definitive Registration Statement on Form
S-3, file no. 333-45189 declared effective on February 17, 1998.
(4) Filed as Exhibit 2.1 to our Current Report on Form 8-K, filed on January
21, 1999, and incorporated herein by reference.
(B) Reports on Form 8-K
We filed no reports on Form 8-K during the fourth quarter of 1998.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized, in Alpharetta, Georgia, on March 29, 1999.
TANNER'S RESTAURANT GROUP, INC.
By: /s/ Clyde E. Culp, III
-------------------------------------------
Name: Clyde E. Culp, III
Title: Chairman and Chief Executive Officer
In accordance with the Exchange Act, this Report has been signed by the
following persons on behalf of the Company in the capacities and on the dates
indicated.
Signature Title Date
- - --------- ----- ----
/s/ Clyde E. Culp, III Chairman of the Board of March 29, 1999
Clyde E. Culp, III Directors and Chief Executive
Officer
Richard E. Tanner Director
/s/ James R. Walker Director March 29, 1999
James R. Walker
/s/ William J. Gallagher Director March 26, 1999
William J. Gallagher
/s/ Timothy R. Robinson Chief Financial Officer and March 29, 1999
Timothy R. Robinson Secretary
/s/ Robert J. Hoffman Vice President of Operations March 29, 1999
Robert J. Hoffman
<PAGE>
Report of Independent Certified Public Accountants
The Board of Directors
Tanner's Restaurant Group, Inc.
We have audited the accompanying consolidated balance sheets of Tanner's
Restaurant Group, Inc. (formerly Harvest Restaurant Group, Inc.) and
subsidiaries as of December 27, 1998, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the years ended
December 27, 1998 and December 28, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tanner's Restaurant
Group, Inc and subsidiaries as of December 27, 1998 and the results of their
operations and their cash flows for the years ended December 27, 1998 and
December 28, 1997.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 15, the
Company has experienced significant net losses since October 15, 1996, has been
unable to generate positive cumulative cash flows from operations since that
date, and, at December 27, 1998, the Company has a significant working capital
deficiency. These facts raise substantial doubt about the Company's ability to
continue as a going concern. Note 15 also describes management plans to
alleviate these financial concerns. The consolidated financial statements do not
include any adjustments that might result from this uncertainty.
/s/ PORTER KEADLE MOORE, LLP
Atlanta, Georgia
March 5, 1999, except for Note 16,
as to which the date is March 12, 1999.
F-1
<PAGE>
Tanner's Restaurant Group, Inc.
Consolidated Balance Sheet
December 27,
1998
------------
ASSETS
Current assets:
Cash $ 222,163
Accounts receivable 130,086
Inventory 113,734
Prepaid expenses 21,989
-----------
Total current assets 487,972
Property and equipment, net 2,092,698
Intangible assets, net 3,119,870
Goodwill, net 1,002,303
Other assets 161,252
-----------
Total assets $ 6,864,095
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,390,697
Accrued expenses 2,254,666
Current portion of long-term debt 882,801
-----------
Total current liabilities 4,528,164
Long-term debt 2,306,884
-----------
Total liabilities 6,835,048
-----------
Commitments and contingencies
Stockholders' equity:
Preferred stock (see Note 7) 1,253,822
Common stock: $.01 par value; authorized 20,000,000 shares;
issued and outstanding 8,230,080 shares 82,301
Additional paid-in capital 9,082,929
Stock subscription receivable (4,000,000)
Accumulated deficit (6,390,005)
-----------
Total stockholders' equity 29,047
-----------
Total liabilities and stockholders' equity $ 6,864,095
===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
Tanner's Restaurant Group, Inc.
Consolidated Statements of Operations
For the Years Ended
----------------------------
December 27, December 28,
1998 1997
------------ ------------
Revenue
<S> <C> <C>
Restaurant sales revenue $ 10,830,898 8,041,660
Catering revenue 800,305 924,891
Franchise and royalty revenue 63,341
------------ ------------
Total revenue 11,694,544 8,966,551
------------ ------------
Costs and expenses
Restaurant and catering operating expenses:
Food, beverage and paper 4,114,903 3,086,448
Payroll and benefits 4,151,723 3,184,827
Depreciation and amortization 705,658 590,807
Other operating expenses 2,746,175 2,449,783
------------ ------------
Total restaurant and catering operating expenses 11,718,459 9,311,865
------------ ------------
Loss from restaurant and catering operations (23,915) (345,314)
General and administrative expenses 1,651,474 1,278,581
Write down of intangible asset 547,000
------------ ------------
Operating loss (2,222,389) (1,623,895)
Other income (expense):
Other income 25,081 27,038
Interest expense (700,451) (546,552)
------------ ------------
Net loss $ (2,897,759) $ (2,143,409)
============ ============
Basic and diluted loss per share $ (0.81) $ (0.63)
The accompanying notes are an integral part of these consolidated financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tanner's Restaurant Group, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
Common Stock Preferred Stock
Shares Amount Shares Amount
------ ------ ------ ------
TRC:
<S> <C> <C> <C> <C>
Balance, December 29, 1996 2,625,000 $ 26,250 -- --
Net loss -- -- -- --
Dividends accrued on
redeemable preferred stock -- -- -- --
Accretion on redeemable
preferred stock -- -- -- --
----------- ----------- ----------- -----------
Balance, December 28, 1997 2,625,000 26,250 -- --
Net loss -- -- -- --
Repricing of stock options -- -- -- --
Dividends accrued on
redeemable preferred stock -- -- -- --
Accretion on redeemable
preferred stock -- -- -- --
----------- ----------- ----------- -----------
Balance, December 27, 1998 2,625,000 26,250 -- --
Company:
Assumed cancellation of TRC Oldco
common shares in
connection with Merger (2,625,000) (26,250) -- --
Assumed issuance of Company
common stock in
connection with Merger 8,230,080 82,301 -- --
Assumed issuance of series A
preferred stock in
connection with Merger -- -- 500,124 $ 500,124
Assumed issuance of series D
preferred stock in connection
connection with Merger -- -- 9,198 9,198
Assumed issuance of series E
preferred stock in connection
connection with Merger -- -- 744,500 744,500
----------- ----------- ----------- -----------
Balance, December 27, 1998,
giving effect to Merger 8,230,080 $ 82,301 1,253,822 $ 1,253,822
=========== =========== =========== ===========
F-4
<PAGE>
Tanner's Restaurant Group, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
(Continued)
Additional Stock Stockholders'
Paid-In Subscription Accumulated Equity
Capital Receivable Deficit (Deficit)
------- ---------- ------- ---------
TRC:
Balance, December 29, 1996 -- -- $ (454,651) $ (428,401)
Net loss -- -- (2,143,409) (2,143,409)
Dividends accrued on
redeemable preferred stock -- -- (300,000) (300,000)
Accretion on redeemable
preferred stock -- -- (141,823) (141,823)
----------- ----------- ----------- -----------
Balance, December 28, 1997 -- -- (3,039,883) (3,013,633)
Net loss -- -- (2,897,759) (2,897,759)
Repricing of stock options $ 58,903 -- -- 58,903
Dividends accrued on
redeemable preferred stock -- -- (300,000) (300,000)
Accretion on redeemable
preferred stock -- -- (152,363) (152,363)
----------- ----------- ----------- -----------
Balance, December 27, 1998 58,903 -- (6,390,005) (6,304,852)
Company:
Assumed cancellation of TRC Oldco
common shares in
connection with Merger -- -- -- (26,250)
Assumed issuance of Company
common stock in
connection with Merger -- -- -- 82,301
Assumed issuance of series A
preferred stock in
connection with Merger -- -- -- 500,124
Assumed issuance of series D
preferred stock in connection
connection with Merger 5,396,433 $(4,000,000) -- 1,405,631
Assumed issuance of series E
preferred stock in connection
connection with Merger 3,627,593 -- -- 4,372,093
Balance, December 27, 1998,
giving effect to Merger $ 9,082,929 $(4,000,000) $(6,390,005) $ 29,047
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tanner's Restaurant Group, Inc.
Consolidated Statements of Cash Flows
For the Year Ended
--------------------------
Year ended Year ended
December 27, December 28,
1998 1997
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net loss $(2,897,759) (2,143,409)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 705,658 590,807
Loss on sale of property and equipment 24,690
Write down of intangible asset 547,000
Compensation expense related to repricing of stock options 58,903
Changes in assets and liabilities, net of effects of Merger:
Accounts receivable (28,536) (108,347)
Inventory 493 (57,715)
Prepaid expenses 31,041 24,183
Other assets (16,867) (6,995)
Accounts payable (153,643) 823,924
Accrued expenses and other liabilities 1,508,822 434,443
----------- -----------
Net cash used in operating activities (220,198) (443,109)
----------- -----------
Cash flows from investing activities, net of effect of Merger:
Net cash acquired in Merger 411,150
Proceeds from sale of property and equipment 365,496
Purchase of property and equipment (972,724) (1,922,168)
----------- -----------
Net cash used in investing activities (196,078) (1,922,168)
----------- -----------
Cash flows from financing activities, net of effect of Merger:
Cash overdraft (212,605) 212,605
Repayments of debt (164,543) (108,250)
Proceeds from issuance of long-term debt 1,016,617 2,195,100
Additions to deferred financing costs (1,030) (30,276)
----------- -----------
Net cash provided by financing activities 638,439 2,269,179
----------- -----------
Net change in cash and cash equivalents 222,163 (96,098)
Cash and cash equivalents, beginning of year 0 96,098
----------- -----------
Cash and cash equivalents, end of year $ 222,163 0
=========== ===========
Non-cash investing and financing activities:
Accretion of redeemable TRC Preferred Stock $ 152,363 $ 141,823
Dividends accrued on redeemable TRC Preferred Stock 300,000 300,000
Retirement of mortgage loan upon sale of property 939,101
Purchase price adjustment (411,590)
Exchange of TRC Preferred Stock for Series E preferred stock 3,825,093
Settlement of employment contract through issuance of Series E
preferred stock 547,000
Series A preferred stock acquired in connection with Merger 500,124
Stock subscription receivable for Series D preferred stock 4,000,000
Common stock issued and acquired in connection with Merger, net of
TRC common stock cancelled 56,051
Supplemental cash flow information:
Interest paid $ 423,661 $ 290,197
The accompanying notes are an integral part of these consolidated financial statements.
F-6
</TABLE>
<PAGE>
Tanner's Restaurant Group, Inc.
Notes to Consolidated Financial Statements:
1. Description of Business:
Tanner's Restaurant Group, Inc. (formerly Harvest Restaurant Group, Inc.)
and its wholly owned subsidiaries operate casual dining restaurants under
the name "Rick Tanner's Original Rotisserie Grill" that specialize in
fresh, convenient meals featuring rotisserie chicken entrees, barbecued
ribs, hamburgers, freshly prepared vegetables, salads, and other side
dishes. At December 27, 1998, there were 11 stores located in the Atlanta,
Georgia metropolitan area.
TRC Acquisition Corporation Merger
On January 14, 1999 Harvest Restaurant Group, Inc. ("Harvest" or the
"Company") and TRC Acquisition Corporation ("TRC") completed a forward
triangular merger (the "Merger") where Harvest acquired TRC. The effective
date of the Merger was December 27, 1998 and the consolidated financial
statements have been prepared assuming the Merger closed as of the end of
the day on December 27, 1998. In the Merger, shareholders of TRC received a
majority of the shares of common stock of Harvest. For this reason, the
Merger was treated as a reverse acquisition by TRC for accounting purposes.
As a result, the consolidated financial statements presented are those of
TRC rather than Harvest.
On October 15, 1996, TRC was formed as a corporation under the laws of the
state of Georgia to acquire all of the shares of the 11 corporations
commonly known as Tanner's Chicken Rotisserie ("Oldco"), including nine
restaurants, a catering business and a management company. The aggregate
purchase price was approximately $5.2 million, which included costs of the
acquisition. The aggregate purchase price included a cash payment of
approximately $1.6 million, an approximately $2.6 million, 10% convertible
subordinated debenture to the sole shareholder of Oldco and the issuance of
500 shares of TRC Class A Preferred Stock and 900,000 shares of common
stock. Additionally, the Company entered into a $2 million collateralized
promissory note. The estimated fair value of the net liabilities acquired
was approximately $200,000. The allocation of the purchase price resulted
in identifiable intangibles and goodwill of approximately $6.1 million
which are being amortized on a straight line basis over periods ranging
from five to 20 years.
2. Summary of Significant Accounting Policies:
The following is a summary of significant accounting policies of the
Company.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation.
Fiscal Year
The Company operates on a 52/53-week fiscal year ending on the last Sunday
in December. Accordingly, the consolidated financial statements presented
ended on December 27, 1998 and December 28, 1997. All general references to
years relate to fiscal years unless otherwise noted.
F-7
<PAGE>
Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:
2. Summary of Significant Accounting Policies, continued:
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash in banks and temporary
cash investments with original maturities of less than three months. At
times, cash and cash equivalent balances at a limited number of banks and
financial institutions may exceed insurable amounts. The Company believes
it mitigates its risks by depositing cash or investing in cash equivalents
in major financial institutions.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of food, beverages, paper products and supplies.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation.
The provision for depreciation has been calculated using the straight-line
method. Smallwares, consisting primarily of linens and silverware, are
expensed as incurred. The following represents the useful lives over which
the assets are depreciated:
Furniture and fixtures 5 years
Signage 7 years
Office equipment 5 years
Computer equipment 3 years
Kitchen and service equipment 7 years
Building 20 years
Leasehold improvements Life of lease
Expenditures for maintenance and repairs are charged to expense as
incurred.
Goodwill
Goodwill represents the excess of cost over fair value of net identifiable
assets acquired upon the October 15, 1996 acquisition and is being
amortized over 20 years using the straight-line method. Accumulated
amortization of goodwill amounted to $127,838 and $71,331 at December 27,
1998 and December 28, 1997, respectively.
F-8
<PAGE>
Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:
2. Summary of Significant Accounting Policies, continued:
Intangible Assets
Intangible assets consist primarily of employment contracts, recipes, and
the trained workforce acquired in the October 15, 1996 acquisition. These
intangible assets are being amortized over five to 15 years using the
straight-line method.
Impairment
The Company assesses the recoverability of its goodwill and intangible
assets by determining whether the amortization of the asset balance over
its remaining life can be recovered through undiscounted future operating
cash flows of the acquired operations, and a valuation allowance is
established for any amount over which the unamortized asset balance exceeds
those cash flows.
Deferred Financing Costs
Deferred financing costs are included in other assets and are amortized
over the period of the related financing. Accumulated amortization of
deferred financing costs amounted to $42,332 and $25,081 at December 27,
1998 and December 28, 1997, respectively.
Revenue Recognition
Revenue is recognized in the period for which related food and beverage
products are sold. Initial fees from the awarding of individual franchises
are deferred and recorded as revenue when the franchised restaurant is
opened.
Advertising
The Company expenses advertising costs as incurred. Total advertising
expense included in other operating expense was $586,686 and $585,516 for
the years ended December 27, 1998 and December 28, 1997, respectively.
Preopening Costs
Preopening costs are incurred before a restaurant is opened and consist
primarily of wages and salaries, hourly employee recruiting, license fees,
meals, lodging and travel plus the cost of hiring and training the
management teams. Preopening costs are expensed as incurred.
Income Taxes
The Company accounts for income taxes using the liability approach that
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's consolidated financial statements or tax returns. In estimating
future tax consequences, the Company considers all expected future events
other than enactments of changes in the tax law or rates.
F-9
<PAGE>
Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:
2. Summary of Significant Accounting Policies, continued:
Earnings Per Share
The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share, which
requires dual disclosure of earnings per share, basic and diluted. Basic
earnings per share equals net earnings divided by the weighted average
number of common shares outstanding and does not include the dilutive
effects of stock options or convertible securities. Diluted earnings per
share are computed by giving effect to the Company's dilutive stock
options, warrants and preferred stocks. The weighted average common shares
outstanding presented below has been adjusted to reflect the 1.57075 to 1
exchange ratio in the Merger. See Notes 8, 9 and 10 for further discussion
of options and warrants ("potential common stock equivalents"). These
potential common stock equivalents are excluded from the diluted earnings
per share calculations as they are antidulitive since the Company is
operating at a net loss. These securities could become dilutive when the
Company's operations result in a net profit.
The following table represents the calculation of basic and diluted
earnings per share:
For the Year Ended
---------------------------
December 27, December 28,
1998 1997
---- ----
Net loss $(2,897,759) $(2,143,409)
Less: Dividends on TRC Preferred Stock (Note 7) (300,000) (300,000)
Accretion on TRC Preferred Stock (Note 7) (152,363) (141,823)
----------- -----------
Net loss attributable to common shareholders (3,350,122) (2,585,232)
Weighted average common shares outstanding 4,123,219 4,123,219
Basic and diluted loss per share $ (0.81) $ (0.63)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
F-10
<PAGE>
Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:
3. Accounts Receivable:
Accounts receivable at December 27, 1998 consist of the following:
Catering $ 61,710
Other 24,517
Related party, net of allowance of $131,400 43,859
--------
$130,086
========
4. Property and Equipment:
Property and equipment at December 27, 1998 consist of the following:
Land $ 160,000
Construction in progress 192,303
Furniture and fixtures 82,793
Signage 45,840
Office and computer equipment 140,029
Kitchen and service equipment 864,425
Building 328,000
Leasehold improvements 542,659
-----------
2,356,049
Less accumulated depreciation (263,351)
-----------
Property and equipment, net $ 2,092,698
===========
Depreciation expense was $223,595 and $68,220 for the years ended December
27, 1998 and December 28, 1997, respectively.
5. Intangible Assets:
Intangible assets at December 27, 1998 consist of the following:
Management employment $ 583,000
Recipes 1,000,000
Pre-mixed ingredients 890,000
Trained and assembled workforce 760,000
Restaurant design 575,000
Other intangible assets 252,000
-----------
4,060,000
Less accumulated amortization (940,130)
-----------
Intangible assets, net $ 3,119,870
===========
In conjunction with the Merger (see Note 14) the shareholder of Oldco
canceled his employment agreement in exchange for 54,700 shares of the
Company's Series E preferred stock. Accordingly, the Company recorded a
non-cash charge of $547,000, based on the present value of the future cash
flows that would have resulted from this emloyment agreement.
F-11
<PAGE>
Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:
6. Long-Term Debt:
Long-term debt at December 27, 1998 consists of the following:
Collateralized promissory note $2,000,000
Note payable to SouthTrust Bank, collateralized by
certain restaurant equipment bearing interest
10,918 prime rate plus 2%, and maturing in
February 1999 10,918
Note payable to First Union Bank, collateralized
by restaurant equipment, bearing interest at
8.8% and maturing in December 2000 178,821
Note payable to shareholder, bearing interest at
12.5%, maturing at the earlier of July 31,
1999 or the Company receiving the final
$2,000,000 related to the issuance of the
Company's Series D preferred stock 350,000
Note payable to individual, bearing interest at
11.0%, payable in installments until the
balance is due when the Company receives the
final $2,000,000 related to the issuance of
the Company's Series D preferred stock 406,617
Note payable to Colonial Bank, collaterized by
restaurant equipment, bearing interest at
8.0%, and maturing in June 2005 243,329
----------
3,189,685
Less current maturities (882,801)
----------
$2,306,884
==========
In conjunction with the October 15, 1996 acquisition, the Company issued a
$2,649,046, 10% convertible subordinated debenture (the "Debenture") to the
sole shareholder of Oldco. In exchange for 323,500 shares of the Company's
Series E Preferred Stock, the shareholder cancelled this debenture valued
at $3,234,943 (including the principal and interest accrued thereon) and
terminated his employment agreement.
Effective October 15, 1996, the Company entered into a $2 million
collateralized promissory note with Sirrom Capital Corporation (the
"Note"). The Note matures on September 1, 2001 and bears interest at 13.5%
per annum. The payment terms require monthly payments of interest only
until maturity, upon which the outstanding principal balance will become
due. The Note is collateralized by substantially all of the Company's
assets. Three shareholders of the Company have pledged common shares in the
Company, totaling 1,806,363 shares, as collateral for performance under the
terms of the Note.
Based on the borrowing rates currently available to the Company for loans
with similar terms, the fair value of long-term debt approximates the book
value recorded.
F-12
<PAGE>
Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:
6. Long-Term Debt, continued:
The aggregate annual maturities of long-term debt for the years subsequent
to December 27, 1998 are as follows:
Fiscal year ending:
-------------------
1999 882,801
2000 126,398
2001 2,035,446
2002 38,433
2003 41,670
2004 45,181
2005 19,756
---------
3,189,685
=========
7. Capital Structure:
(a) TRC Acquisition Corporation
TRC had authorized 100 million shares of common stock and 1 million shares
of non-voting Preferred Stock, 2,000 shares of which were designated as
Class A Preferred Stock ("TRC Preferred Stock"). The TRC Preferred Stock
was entitled to a cumulative annual dividend at a rate of 10%. In the
Merger, the TRC Common Stock was exchanged for Harvest Common Stock and the
TRC Preferred Stock was exchanged for Harvest Series E Preferred Stock.
(b) Harvest Restaurant Group, Inc
The Company's articles of incorporation authorize the board of directors to
issue 20,000,000 shares of Common Stock, par value $0.01 per share, and
5,000,000 shares of Preferred Stock, par value $1.00 per share.
Series A Perferred Stock: The Company has designated 3,000,000 shares out
of a total of 5,000,000 authorized shares of its $1.00 par value preferred
stock as Series A Redeemable Convertible Preferred Stock ("Series A
Preferred Stock").
Dividends of the Series A Preferred Stock are cumulative and payable
quarterly in arrears at a quarterly rate of $.30 per share, representing a
yield of 12% per year. Dividends may be paid in cash or an equivalent value
of common stock. The Series A Preferred Stock has no voting rights and has
a liquidation preference of $10 per share ($5,001,240 at December 27,
1998). At December 27, 1998 dividends in arrears on this preferred stock
totaled $322,289.
The Series A Preferred Stock is convertible at the option of the holder
into shares of the Company's common stock. The initial conversion rate is
2.7 shares of common stock for each share of Series A Preferred Stock,
subject to adjustment in certain events. The Series A Preferred Stock will
automatically convert into the Company's common stock if the closing price
of the Series A Preferred Stock exceeds $20 per share for 10 consecutive
days. The Series A Perferred Stock may also be redeemed by the Company upon
30-days written notice at 110% of the average bid price for the 20 trading
days prior to the redemption date. The Company has the option to pay the
redemption in either cash or common stock.
F-13
<PAGE>
Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:
7. Capital Structure, continued:
Series D Preferred Stock: The Company has designated 9,200 shares out of a
total of 5,000,000 authorized shares of its $1.00 par value preferred stock
as Series D Redeemable Convertible Preferred Stock ("Series D Preferred
Stock"). The original issue price of the Series D Preferred Stock is $1,000
per share. Dividends on the Series D Preferred Stock accrue at an annual
rate of 7% of the original issue price, or $70 per share, and are payable
in cash or common stock, as determined by the holders, only at the time of
conversion of such shares. Dividends are cumulative from the date of issue.
Unless full cumulative dividends have been or are contemporaneously paid on
the Series D Preferred Stock, the Company may not declare or pay cash
dividends on the common stock, nor may it redeem, purchase or otherwise
acquire common stock, nor may it make any other distribution with respect
to the common stock or any class of capital stock on a parity with or
junior to the Series D Preferred Stock. Under the terms of the Company's
loan with Sirrom Capital Corporation, the Company may pay cash dividends on
the Series D Preferred Stock so long as (a) the Company makes an equal
payment on the Sirrom note; and (b) the Company is not in default under the
loan documents governing such loan and no default is created by such
payments.
The Series D Preferred Stock is convertible at the option of the holder
into shares of common stock for up to three years after initial issuance.
After three years, the Series D Preferred Stock will automatically convert
into shares of common stock. The conversion rate is equal to $1,000 divided
by 80% of the five-day average closing bid price of the common stock on the
NASDAQ Stock Market, the OTC Bulletin Board, or any other national
securities exchange on which the common stock is listed at the time of
conversion. The Company is not required to convert any shares if such
conversion would result in issuance of 20% or more of the issued and
outstanding common stock to the holders of the Series D Preferred Stock, as
provided by NASDAQ Marketplace Rule 4320(e)(21)(H), unless shareholder
approval of such conversion is obtained. In the event that such a
conversion is requested and the Company does not convert the Series D
Preferred Stock because of the NASDAQ rule, the Company will pay the holder
of the Series D Preferred Stock 125% of the principal amount of the issued
and outstanding Series D Preferred Stock plus accrued interest.
Holders of Series D Preferred Stock are allowed to convert the aggregate
amount of such holder's Series D Preferred Stock into common stock
beginning the date after a registration statement registering the common
stock has been declared effective by the SEC, but no sooner than 120 days
after the Company's shareholders approve an amendment to the articles of
incorportion increasing the number of authorized shares of common stock to
not less than 100,000,000 (see Note 16). If a registration statement has
not been declared effective as of a date that is 120 days after the
shareholders' meeting, holders of Series D Preferred Stock may not convert
their shares of Series D Preferred Stock until such a registration
statement is declared effective. In addition, a holder of Series D
Preferred Stock may not convert those shares into shares of common stock if
and to the extent that upon conversion such holder would own more than
4.99% of the outstanding common stock.
The holders of the Series D Preferred Stock have no preemptive rights or
other rights to subscribe for any other shares or securities of thc
Company. The third party investors who purchased Series D Preferred Stock
will be issued common stock purchase warrants, as described below.
The terms of the Series D Preferred Stock agreement which permit the
conversion of the Series D Preferred Stock at a discount to market is
considered a beneficial conversion feature (the "Beneficial Conversion
Feature"). However, since the preferred stock is presented at par value
with the excess of carrying value over par value included in additional
F-14
<PAGE>
Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:
7. Capital Structure, continued:
paid-in capital, the Company has not separately recorded the intrinsic
value of the Benefical Conversion Feature as a component of additional
paid-in capital. Additionally, the Company notes that future presentation
in stockholders' equity of the Beneficial Conversion Feature is not
impacted since the Series D Preferred Stock will likely become fully
convertible in the spring of 1999.
The third party investors who purchased Series D Preferred Stock will be
issued common stock purchase warrants, as described below.
Series E Preferred Stock: The Company has designated 745,000 shares out of
a total of 5,000,000 authorized shares of its $1.00 par value preferred
stock as Series E Redeemable Convertible Preferred Stock ("Series E
Preferred Stock"). In connection with the merger, the Company issued a
total of 744,500 shares of Series E Preferred Stock. The original issue
price of the Series E Preferred Stock is $10.00 per share. Dividends on the
Series E Preferred Stock accrue at an annual rate of 8% of the original
price, or $0.80 per share, and are payable in cash or common stock, as
determined by the Company, only at the time of conversion of such shares.
Dividends are cumulative from the date of issue. Unless full cumulative
dividends have been or are contemporaneously paid on Series E Preferred
Stock, the Company may not declare or pay cash dividends on the common
stock, nor may it redeem, purchase or otherwise acquire common stock, nor
may it make any other distribution with respect to the common stock or any
class of capital stock on a parity with or junior to the Series E Preferred
Stock. Under the terms of the Company's loan with Sirrom Capital
Corporation, the Company may not pay cash dividends on the Series E
Preferred Stock.
The Series E Preferred Stock is redeemable at the option of the Company at
any time after six months of issuance, in whole or in part, for $0.01 per
share, if the average closing bid price of the Company's common stock, as
quoted on any national securities exchange, NASDAQ, or the OTC Bulletin
Board exceeds $3.50 per share for five consecutive trading days.
Each share of Series E Preferred Stock is convertible at the option of the
holder into four shares of common stock at any time after six months from
the date of issuance, subject to adjustment. The Series E Preferred Stock
is non-voting, and it is ranked junior to the Company's Series A Preferred
Stock and Series D Preferred Stock. The holders of the Series E Preferred
Stock have no preemptive rights or other rights to subscribe for any other
shares or securities of the Company.
8. Redeemable Preferred Stock Purchase Warrants
At December 27, 1998 1,923,400 Redeemable Preferred Stock Purchase Warrants
were outstanding ("Preferred Warrants"). Each Preferred Warrant represents
the right to purchase one share of Series A Preferred Stock at an exercise
price of $10.50 per share until June 11, 2002, subject to adjustment.
Preferred Warrants may be redeemed, in whole or in part, at the Company's
option, upon 30-days' notice, at a redemption price equal to $0.01 per
Preferred Warrant if the closing price of the Series A Preferred Stock on
the NASDAQ SmallCap Market averages at least $11.00 per share for a period
of 20 consecutive trading days or if the Company redeems the Series A
Preferred Stock.
F-15
<PAGE>
Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:
9. Common Stock Purchase Warrants
At December 27, 1998 there where 2,300,000 Common Stock Purchase Warrants
outstanding (the "IPO Warrants"), plus an additional 300,000 warrants
issued to the underwriters of the offering of the IPO Warrants, plus an
additional 250,000 warrants issued in connection with other transactions.
Each IPO Warrant entitles the holder to purchase one share of common stock
at $4.00 per share until July 9, 2001, subject to adjustment. IPO Warrants
may be redeemed, in whole or in part, at the option of the Company, upon
30-days' notice, at a redemption price equal to $0.01 per IPO Warrant if
the closing price of the common stock on the NASDAQ SmallCap Market
averages at least $8.00 per share for a period of 20 consecutive trading
days. The other warrants are exerciseable at prices ranging from $2.00 per
share to $6.60 per share.
Through December 27, 1998, 171,939 stock options with an exercise price of
$.01 have been issued primarly to creditors to facilitate the financing
which has been received since December 28, 1997.
In connection with the issuance of the $2,000,000 collateralized promissory
note, the Company issued to Sirrom Capital Corporation a stock warrant to
purchase shares of the Company's common stock. The warrant is exercisable
at any time until November 30, 2001 at an exercise price of $0.01 per
share. At December 27, 1998 the lender has the right to purchase 589,031
shares. The warrant provides for increases in the number of common shares
available for purchase on an annual basis to 699,259 shares in October 1999
and 756,331 shares in October 2000. The lender has a put option to sell to
the Company this warrant within 30 days of the expiration of the warrant at
a purchase price equal to the fair market value of the common stock, as
defined.
As noted above, the third party investors who purchased Series D Preferred
Stock will be issued common stock purchase warrants to purchase 919,800
shares of common stock at a price of $2.00 per share. Such warrants are
exercisable for five years after issuance, and the Company is required to
register the shares underlying the warrants in the registration statement
filed by the Company with the SEC to register, among other things, the
shares of common stock reasonably anticipated to be issuable upon
conversion of the Series D Preferred Stock.
10. Stock Based Compensation
(a) Harvest Restaurant Group, Inc
The Company's 1994 Stock Option Plan provides for the granting of either
incentive stock options or non-qualified stock options. Options can be
issued to officers, employees, directors and outside consultants; however,
incentive stock options are issuable only to eligible officers and
employees. The Company has reserved a total of 500,000 shares of common
stock for the plan. Options to acquire 483,000 shares of common stock at
$1.00 per share were issued and exercisable at the time of the Merger.
(b) TRC Acquisition Corporation
TRC has granted options to purchase its common stock to certain key
employees and officers under fixed stock option agreements. In conjunction
with the Merger, these options were converted into options to acquire
Harvest common stock at the same ratio as the TRC common shareholders and
all options immediately vested. Accordingly, the number of shares under
option as presented below has been restated to reflect the 1.57075 to 1
exchange ratio in the Merger. Under these agreements, 1,561,326 shares of
the Company's common stock have been granted and reserved for stock option
awards. As of December 27, 1998, none of the options had been exercised or
forfeited. Awards granted to date have a term of six years. On December 15,
F-16
<PAGE>
Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:
10. Stock Based Compensation, continued:
1998 the Company's board of directors options from $8.75 to $0.01. The
revised exercise prices represented approximately 100% and 6%,
respectively, of the fair market value of the stock at the date of the
repricing. Accordingly, the Company recorded as compensation expense a
charge of approximately $58,903.
Further information relating to total options follows:
Weighted
Average
Exercise
Shares Price
------ -----
Outstanding at December 29, 1996 1,068,111 $ .11
Granted in 1997 20,812 .01
---------
Outstanding at December 28, 1997 1,088,923 .11
Granted in 1998 472,403 .01
Harvest options acquired 483,000 1.00
---------
Outstanding at December 27, 1998 2,044,326 $ .30
=========
The following table summarizes information concerning currently outstanding
and exercisable options:
Weighted-Average
Exercise Number Number Remaining
Price Outstanding Exercisable Life
----- ----------- ----------- ----
$0.01 854,488 854,488 4.6
$0.16 706,838 706,838 3.9
$1.00 483,000 483,000 2.7
--------- ---------
2,044,326 2,044,326
========= =========
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations in accounting
for its stock options. Accordingly, no compensation expense has been
recognized for its stock-based compensation plans, except in connection
with the December 15, 1998 repricing. Had compensation cost for the
Company's stock option plans been determined based upon the fair value
methodology prescribed under Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation", fiscal 1998 net loss
and loss per share would have been as follows. The fair value of the
options granted and repriced during 1998 was estimated using the minimum
value valuation model and the following assumptions: dividend yield 0%,
risk-free interest rate of 6%, and an expected life of 5 years.
F-17
<PAGE>
Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:
10. Stock Based Compensation, continued:
Net loss:
As reported $ (2,897,759)
Proforma (2,926,171)
Basic and diluted loss per share:
As reported (0.81)
Proforma (0.82)
The fair value of options granted in 1997 was insignificant.
11. Income Taxes:
The Company has available at December 27, 1998, unused federal and state
net operating loss carryforwards of approximately $5,000,000 expiring
beginning in 2012, which may be applied to reduce future taxable income.
Use of net operating loss carryforwards may be limited on an annual basis
due to changes in ownership.
The Company's net deferred tax asset of approximately $1,900,000 at
December 27, 1998 results principally from net operating loss carryforwards
and has been reduced by a valuation allowance of the same amount.
Management has determined that this valuation allowance is appropriate
because it is more likely than not that this net deferred tax asset will
not be realized.
12. Leases:
The Company has various leases for restaurants, equipment and office
facilities. Restaurant and office original lease terms range from four to
twenty years, with renewal options ranging from five to fifteen years.
Equipment leases are renewable annually. In the normal course of business,
some leases are expected to be renewed or replaced by leases on other
properties. Future minimum lease payments do not include amounts payable by
the Company for maintenance costs, real estate taxes and insurance, or
contingent rentals payable on a percentage of sales in excess of stipulated
amounts for restaurant facilities.
Future minimum lease payments under noncancelable operating leases at
December 27, 1998 are as follows:
Fiscal year ending:
1999 $ 769,209
2000 666,731
2001 560,601
2002 391,160
2003 289,989
Thereafter 3,163,868
----------
Total minimum lease payments 5,841,558
==========
The Company incurred rental expense for operating leases of $683,809 and
$468,877 during the years ended December 27, 1998 and December 28, 1997,
respectively.
F-18
<PAGE>
Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:
13. Commitments and Contingent Liabilities
The Company is a party to a number of lawsuits arising out of the normal
conduct of its business. While there can be no assurance as to their
ultimate outcome, management does not believe these lawsuits will have a
material adverse effect on the Company's financial condition, operating
results or cash flows.
14. Acquisition of TRC
As of December 27, 1998 TRC merged into a subsidiary of Harvest in a
forward triangular merger in which the former shareholders of privately
held TRC received 4,123,219 shares of common stock, representing
approximately 50.1% of the Company's outstanding shares of common stock.
The Company also issued 744,500 shares of Series E Preferred Stock in
connection with the Merger.
Since the TRC shareholders received a majority of the shares of stock of
the Company, the transaction is treated as a reverse acquisition of the
Company by TRC for accounting purposes. As a result, the historical
financial statements of the surviving company for the periods prior to the
merger are those of TRC rather than those of Harvest.
At the completion of the Merger, the Company will have issued 4,123,219
shares of common stock, 9,198 shares of Class D Preferred Stock, and
744,500 shares of Class E Preferred Stock to the TRC shareholders and to
other third party investors. Additionally, the 4,106,861 shares of common
stock of the Company and the 500,124 shares of Class A Preferred Stock of
the Company that was previously outstanding remained outstanding following
the Merger. The Company incurred issuance related costs of approximately
$600,000, which are presented as a reduction of additional paid-in capital.
The estimated fair value of the assets acquired and liabilities assumed
from Harvest were approximately $556,000 and $705,000, respectively. Since
Harvest had no ongoing operations either immediately before or following
the Merger, the transaction is presented as a capital stock transaction,
and no goodwill is recorded.
In connection with the Merger, outside investors agreed to invest
$6,000,000 in the Company in exchange for 9,198 shares of the Company's
Class D Preferred Stock. These shares are included in the number of shares
presented above, and at December 27, 1998, $4,000,000 of this commitment is
reflected in the consolidated balance sheet as a stock subscription
receivable. Through February 1999, the investors have funded to the Company
$4,000,000 of this commitment, including $2,000,000 invested in fiscal
1998, and have received 7,198 shares of Class D Preferred Stock. The
remaining $2,000,000 will be received upon the Company registering a
sufficient number of shares of common stock into which the Series D
Preferred Stock is convertible, which the Company expects to accomplish in
the spring of 1999.
Unaudited pro forma results of operations have not been presented due to
the fact that the historical results of Harvest are not reflective of its
ongoing operations after the Merger and are therefore not meaningful. After
the Merger, Harvest will continue to incur approximately $200,000 in
certain general and administrative costs, consisting primarily of
professional fees and services associated with public reporting and
corporate governance. Additionally, adjustments would be made to the
historical results of TRC to eliminate interest expense associated with the
subordinated convertible note. For the years ended December 27, 1998 and
December 28, 1997, this amounted to $264,905 each year.
F-19
<PAGE>
Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:
15. Significant Anticipated Transaction
As mentioned in Note 14, the Company has obtained a commitment from a group
of outside investors to invest $6,000,000 into the Company, and through
February 1999, these investors have invested $4,000,000 of this commitment.
Management of the Company believes that the successful completion of this
anticipated transaction is critical to continue its current plan of
operations. The significant net losses that have been incurred since
October 15, 1996, the negative working capital position, and the inability
to generate significant positive cash flows from operations all
significantly strain the Company's financial position. Management expects
that the $2,000,000 received during fiscal 1999 combined with its cost
containment and cash flow management strategies will enable the Company to
continue operations through the time that the final $2,000,000 is received.
Since management believes it is probable that the Company will receive the
final $2,000,000 in the spring of 1999, the consolidated financial
statements do not reflect any adjustments that will be necessary in the
event the Company does not receive that $2,000,000.
16. Subsequent Events
On March 12, 1999, the shareholders of the Company voted to amend the
Company's articles of incorporation to increase the number of authorized
shares of common stock from 20,000,000 to 200,000,000 and change the
Company's name to "Tanner's Restaurant Group, Inc."
F-20
<PAGE>
EXHIBIT INDEX
We have filed certain of the exhibits required by Item 601 of Regulation
S-B with previous registration statements or reports. As specifically noted in
the footnotes to the following Index to Exhibits, those exhibits are
incorporated into this annual report on Form 10-KSB by reference to the
applicable statement or report.
Exhibit No. Title
- - ----------- -----
2.01 Agreement and Plan of Merger by and among Harvest Restaurant
Group, Inc., a Texas corporation, Hartan, Inc., a Texas
corporation, and TRC Acquisition Corporation, a Georgia
corporation, dated December 27, 1998. (4)
3.01 Articles of Incorporation, as amended.
3.02 Bylaws. (l)
4.01 Loan Agreement by and among TRC Acquisition Corporation and
Sirrom Capital Corporation, dated October 22, 1996.
4.02 Assumption Agreement, Consent and First Amendment to Loan
Agreement, dated January 14, 1999, by and among Hartan, Inc.,
Harvest Restaurant Group, Inc., and Sirrom Capital Corporation.
4.03 Guaranty Agreement, dated January 14, 1999, Harvest Restaurant
Group, Inc., and Sirrom Capital Corporation.
4.04 Amended and Restated Secured Promissory Note, dated January 14,
1999, made by Hartan, Inc. for the benefit of Sirrom Capital
Corporation.
4.05 Amended and Restated Stock Purchase Warrant, dated January 14,
1999.
10.01 Incentive Stock Option Plan. (l)
10.02 TRC Acquisition Corporation 1996 Employee Stock Option Plan.
10.03 Settlement Agreement with Cluckers Wood Roasted Chicken, Inc. (l)
10.04 Employment Agreement, dated January 14, 1999, by and among
Harvest Restaurant Group, Inc., Hartan, Inc. and Clyde E. Culp,
III.
<PAGE>
10.05 Severance Agreement, dated January 14, 1999, by and among Harvest
Restaurant Group, Inc., Hartan, Inc. and William J. Gallagher.
10.05(a) Letter Amendment to Severance Agreement, dated March 16, 1999.
10.06 Form of Subscription Agreement for Series D Convertible Preferred
Stock.
10.07 Form of Registration Rights Agreement for Series D Convertible
Preferred Stock.
10.08 Form of Warrant Agreement for Series D Convertible Preferred
Stock.
10.09 Letter Amendment, dated January 12, 1999.
10.10 Letter Amendment, dated January 13, 1999.
10.11 Agreement with Roasters Corp. (2)
10.12 Agreement with Pollo Operators, Inc. (2)
21 Subsidiaries.
23 Consent of Porter Keadle Moore, LLP.
27.1 Financial Data Schedule as of December 28, 1998.
- - -----------------
(1) Incorporated by reference to our definitive Registration Statement on Form
SB-2, file No. 33-95796 declared effective on July 9, 1996.
(2) Incorporated by reference to our definitive Registration Statement on
FormSB-2, file no. 333-21067 declared effective on June 11, 1997.
(3) Incorporated by reference to our definitive Registration Statement on Form
S-3, file no. 333-45189 declared effective on February 17, 1998.
(4) Filed as Exhibit 2.1 to our Current Report on Form 8-K, filed on January
21, 1999, and incorporated herein by reference.
EXHIBIT 3.01
ARTICLES OF INCORPORATION
OF
CLUCKER'S TEX-MEX VENTURE, INC.
The undersigned, acting as incorporator of a corporation under the Texas
Business Corporation Act, as amended (the "Act"), hereby adopts the following
Articles of Incorporation for such corporation.
ARTICLE ONE
NAME
----
The name of the corporation is CLUCKER'S TEX-MEX VENTURE, INC. (the
"Corporation").
ARTICLE TWO
PERIOD OF DURATION
------------------
The period of duration of the Corporation is perpetual.
ARTICLE THREE
PURPOSES AND POWERS
-------------------
Section 1. Purposes. The purposes for which the Corporation is organized
are to transact any and all lawful business for which corporations may be
incorporated under the Act.
Section 2. Powers. Subject to any specific written limitations or
restrictions imposed by the Act, by other law, or by these Articles of
Incorporation, and solely in furtherance thereof, but not in addition to the
limited purposes set forth in Section 1 of this Article, the Corporation shall
have and exercise all of the powers specified in the Act, which powers are not
inconsistent with these Articles.
ARTICLE FOUR
CAPITALIZATION, PREEMPTIVE RIGHTS AND VOTING
--------------------------------------------
Section 1. Authorized Shares. The Corporation shall have authority to issue
two classes of shares to be designated respectively, "Common Stock" and
"Preferred Stock". The total number of shares which the Corporation is
authorized to issue is FIFTEEN MILLION (15,000,000) shares of which TEN MILLION
(10,000,000) shall be Common Stock and FIVE MILLION (5,000,000) shall be
Preferred Stock. Each share of Common Stock shall have a par value of ONE CENTS
($.01), and each share of Preferred Stock shall have a par value of ONE DOLLAR
($1.00).
The Preferred Stock authorized by these Articles of Incorporation may be
issued from time to time in one or more series, each of which shall have such
designation(s) or title(s) as may be fixed by the Board of Directors prior to
the issuance of any shares thereof. The Board of Directors is hereby authorized
to fix or alter the redemption, including sinking fund provisions, the
redemption price or prices, voting rights and liquidation preferences of any
wholly unissued series of Preferred Stock, and the number of shares constituting
any such series and the designation thereof, or any of them. The rights, powers,
preferences, limitations and restrictions, if any, accompanying such shares of
Preferred Stock shall be set forth by resolution of the Board of Directors
providing for the issue thereof prior to the issuance of any shares thereof, in
accordance with the applicable provisions of the Act. Each share of any series
of Preferred Stock shall be identical with all other shares of such series,
except as to the date from which dividends, if any, shall accrue.
<PAGE>
Section 2. Preemptive Rights. No holder of shares of capital stock of the
Corporation shall, as such holder, have any right to purchase or subscribe for
any capital stock of any class which the Corporation may issue or sell, whether
or not exchangeable for any capital stock of the Corporation of any class or
classes, whether issued out of unissued shares authorized by these Articles of
Incorporation as originally filed or by any amendment thereof, or out of shares
of capital stock of the Corporation acquired by it after the issue thereof; nor
shall any holder of shares of capital stock of the Corporation, as such holder,
have any right to purchase, acquire or subscribe for any securities which the
Corporation may issue or sell whether or not convertible into or exchangeable
for shares of capital stock of the Corporation of any class or classes, and
whether or not any such securities have attached or appurtenant thereto
warrants, options or other instruments which entitle the holders thereof to
purchase, acquire or subscribe for shares of capital stock of any class or
classes.
Section 3. Voting. In the exercise of voting privileges, each holder of
shares of the capital stock of the Corporation shall be entitled to one (1) vote
for each share held in his name on the books of the Corporation. In all
elections of Directors of the Corporation, cumulative voting is expressly
prohibited. As such, each holder of shares of capital stock of the Corporation
entitled to vote at the election of Directors shall have the right to vote, in
person or by proxy, all or any portion of such shares for or against each
individual Director to be elected and shall not be entitled to vote for or
against any one Director more than the aggregate number of shares held by such
holder which are entitled to vote on the election of Directors. With respect to
any action to be taken by the Shareholders of the Corporation as to any matter,
the affirmative vote of the holders of a majority of the shares of the capital
stock of the Corporation entitled to vote thereon and represented in person or
by proxy at a meeting of the Shareholders at which a quorum is present shall be
sufficient to authorize, affirm, ratify or consent to such action. Any action
required by the Act to be taken at any annual or special meeting of Shareholders
may be taken without a meeting, without prior notice, and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holder or holders of a majority of the outstanding shares of the
capital stock of the Corporation entitled to vote thereon.
ARTICLE FIVE
COMMENCEMENT OF BUSINESS
------------------------
The Corporation shall not commence business until it has received for the
issuance of its shares of Common Stock consideration of the value of at least
ONE THOUSAND AND N0/100 DOLLARS ($1,000.00) consisting of money paid, labor
done, or property actually received.
ARTICLE SIX
REGISTERED AGENT AND OFFICE
---------------------------
Section 4. Registered Office. The address of the initial registered office
of the Corporation is Billy Blues Food Corporation, 1250 Northeast Loop 410,
Suite 430, San Antonio, Texas 78209.
<PAGE>
Section 5. Registered Agent. The name of the initial registered agent of
the Corporation at such address is William J. Gallagher.
ARTICLE SEVEN
DIRECTORS
---------
Section 1. Initial Board of Directors. The business and affairs of the
Corporation shall be managed by or be under the direction of the Board of
Directors of the Corporation. The initial Board of Directors shall consist of
four members who need not be residents of the State of Texas or Shareholders of
the Corporation. The number of Directors of the Corporation may from time to
time be changed in accordance with the Bylaws of the Corporation and the Act.
Section 2. Names and Addresses. The names and addresses of the persons who
are to serve as Directors until the first annual meeting of Shareholders or
until their successors are elected and qualified, or until their earlier death,
resignation, or removal are as follows:
NAME ADDRESS CITY, STATE
- - ---- ------- -----------
William J. Gallagher 1250 NE Loop 410 San Antonio, Texas 78209
Suite 430
John H. Coleman, III 1250 NE Loop 410 San Antonio, Texas 78209
Suite 430
Dr. Henry Salzarulo 1250 NE Loop 410 San Antonio, Texas 78209
Suite 430
Sam Bell Steves 1250 NE Loop 410 San Antonio, Texas 78209
Rosser Suite 430
Section 3. Limitations on Liability of Directors. No Director of the
Corporation shall be personally liable to the Corporation or its Shareholders
for monetary damages for an act or omission in the Director's capacity as a
Director; provided, however, that the foregoing provision shall not eliminate or
limit the liability of a Director to the extent a Director is found liable for
(a) a breach of the Director's duty of loyalty to the Corporation or its
Shareholders, (b) an act or omission not in good faith that constitutes a breach
of duty of the Director to the Corporation or an act or omission that involves
intentional misconduct or a knowing violation of the law, (c) a transaction from
which the Director received an improper benefit, whether or not the benefit
resulted from an action taken within the scope of the Director's office, or (d)
an act or omission for which the liability of the Director is expressly provided
by an applicable statute.
If the Texas Miscellaneous Corporation Laws Act or other applicable
provision of Texas law hereafter is amended to authorize further elimination or
limitation of the liability of Directors, then the liability of a Director of
the Corporation, in addition to the limitation on the personal liability
provided herein, shall be limited to the fullest extent permitted by the Texas
Miscellaneous Corporation Laws Act or other applicable provision of Texas law as
amended. Any repeal or modification of this Section 3 by the Shareholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a Director of the Corporation existing
at the time of such repeal or modification.
<PAGE>
ARTICLE EIGHT
SPECIAL POWERS OF BOARD OF DIRECTORS
------------------------------------
In furtherance of, and not in limitation of the powers and authorities
conferred under the Act, the Board of Directors is expressly authorized:
1. To make, alter, amend and rescind the Bylaws of the Corporation; to
fix, adjust and maintain from time to time the amount to be reserved as working
capital; and to authorize and cause to be executed mortgages and liens upon the
real and personal property of the Corporation.
2. From time to time, to determine whether and to what extent and at
what times and places and under what conditions and provisions the accounts and
books of the Corporation shall be maintained and made available for inspection
of any Shareholder, and no Shareholder shall have any right to inspect any
account or books or records of the Corporation, except as provided in the Act,
or authorized by the Board of Directors.
3. If the Bylaws so provide, to designate two or more of their number
to constitute an executive committee, which committee shall, as provided in said
resolution or in the Bylaws of the Corporation, have and exercise any or all of
the powers of the Board of Directors in the management of the business and
affairs of the Corporation, except to the extent that the Act requires a
particular matter to be authorized by the Board of Directors.
ARTICLE NINE
ADDITIONAL POWERS IN BYLAWS
---------------------------
The Corporation may in its Bylaws confer powers and authorities upon the
Board of Directors in addition to the foregoing and to those expressly conferred
upon them by the Act.
ARTICLE TEN
TRANSACTIONS WITH INTERESTED DIRECTORS AND OFFICERS
---------------------------------------------------
No contract or transaction between the Corporation and one or more of its
Directors or Officers, or between the Corporation and any other corporation,
partnership, association or other organization in which one or more of the
Directors or Officers of the Corporation are directors, officers or partners, or
have a financial interest, shall be void or voidable solely by reason of such
relationship, or solely because the Director or Officer is present at or
participates in the meeting of the Board of Directors of the Corporation or
committee thereof that authorizes the contract or transaction, or solely because
his or their votes are counted for such purposes, if any one of the following
conditions are met:
1. The material facts concerning the relationship or interest of the
Director or Officer and the material facts concerning the contract or
transaction are disclosed or are known to the Board of Directors of the
Corporation or the committee thereof that considers the contract or transaction,
and the Board of Directors of the Corporation or committee thereof in good faith
authorizes the contract or transaction by the affirmative vote of a majority of
the disinterested Directors, even though the disinterested Directors be less
than a quorum; or
2. The material facts concerning the relationship or interest of the
Director of Officer and the material facts concerning the contract or
transaction are disclosed or are known to the Shareholders of the Corporation
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by the Shareholders of the Corporation at any annual or
special meeting of Shareholders called for that purpose; or
<PAGE>
3. The contract or transaction is fair to the Corporation at the time
it is authorized, approved or ratified by the Board of Directors of the
Corporation, a committee thereof, or the Shareholders of the Corporation.
Common or interested Directors may be counted in determining the
presence of a quorum at a meeting or the Board of Directors of the Corporation
or of a committee thereof that authorizes such contract or transaction.
ARTICLE ELEVEN
INDEMNIFICATION
---------------
Section 1. Mandatory Indemnification and Advancement of Expenses. Each
person who was or is made a party or is threatened to be made a party to or is
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative, any
appeal in such action, suit or proceeding, and any inquiry or investigation that
could lead to such an action, suit, or proceeding ("Proceeding"), by reason of
the fact that he is or was a Director or Officer of the Corporation, or who,
while a Director or Officer of the Corporation, is or was serving at the request
of the Corporation as a director, officer, partner, venturer, proprietor,
trustee, employee, agent, or similar functionary of another corporation,
partnership, joint venture, sole proprietorship, trust, employee benefit plan or
other enterprise, shall be indemnified and held harmless by the Corporation to
the fullest extent permitted by the Act against all judgments, penalties
(including excise and similar taxes), fines, settlements, and reasonable
expenses (including attorneys' fees) actually incurred by such person in
connection with such Proceeding. Such right shall be a contract right and shall
include the right to require advancement by the Corporation of reasonable
expenses (including attorneys' fees) incurred in defending any such Proceeding
in advance of its final disposition; provided, however, that the payment of such
expenses in advance of the final disposition of such Proceeding shall be made by
the Corporation only upon delivery to the Corporation of a written affirmation
by such person of his good faith belief that he has met the standard of conduct
necessary for indemnification under the Act and a written undertaking, by or on
behalf of such person, to repay all amounts so advanced if it should be
ultimately determined that such person has not satisfied such requirements.
Section 2. Nature of Indemnification. The indemnification and advancement
of expenses provided for herein shall not be deemed exclusive of any other
rights permitted by law to which a person seeking indemnification may be
entitled under any Bylaw, agreement, vote of Shareholders or disinterested
Directors or otherwise, and shall continue as to a person who has ceased to be a
Director or Officer of the Corporation and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 3. Insurance. The Corporation shall have power to purchase and
maintain insurance or another arrangement on behalf of any person who is or was
a director, Officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article Eleven or the Act.
<PAGE>
ARTICLE TWELVE
AMENDMENT OF BYLAWS
-------------------
The Shareholders of the Corporation hereby delegate to the Board of
Directors the power to adopt, alter, amend or repeal the Bylaws of the
Corporation. Such power shall be vested exclusively in the Board of Directors
and shall not be exercised by the Shareholders.
ARTICLE THIRTEEN
POWER TO CALL SPECIAL SHAREHOLDERS' MEETINGS
--------------------------------------------
Special meetings of the Shareholders of the Corporation may be called by
the President of the Corporation, the Board of Directors or holders of not less
than ten percent (10%) of all the shares entitled to vote at the proposed
special meeting of the Shareholders.
ARTICLE FOURTEEN
AMENDMENTS
----------
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in these Articles of Incorporation or in its Bylaws in the
manner now or hereafter prescribed by the Act or these Articles of
Incorporation, and all rights conferred on Shareholders herein are granted
subject to this reservation.
ARTICLE FIFTEEN
CAPTIONS
--------
The captions used in these Articles of Incorporation are for convenience
only and shall not be construed in interpreting the provisions hereof.
ARTICLE SIXTEEN
INCORPORATOR
------------
The name and address of the Incorporator are as follows:
NAME ADDRESS CITY, STATE
- - ---- ------- -----------
George L. Diamond 901 Main Street, Dallas, Texas 75202-3714
Suite 3300
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this l1th of
June, 1993.
INCORPORATOR:
/s/ George L. Diamond
---------------------
George L. Diamond
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
CLUCKER'S TEX-MEX VENTURE, INC.
-------------------------------
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, CLUCKER'S TEX-MEX VENTURE, INC., the undersigned corporation
(the "Corporation") adopts the following Articles of Amendment to its Articles
of Incorporation:
ARTICLE ONE : NAME
The name of the corporation is CLUCKER'S TEX-MEX VENTURE, INC.
ARTICLE TWO : AMENDMENTS
The following amendment to the Articles of Incorporation of the Corporation
was adopted by the Board of Directors of the Corporation on June 18, 1993 in
order to change the name of the Corporation.
2.1 Article 1 of the Articles of Incorporation of the Corporation is hereby
amended to read in its entirety as follows:
ARTICLE ONE
NAME
----
The name of the corporation is TEX-MEX VENTURE, INC. (the "Corporation").
ARTICLE THREE : OUTSTANDING SHARES
The number of shares of the Corporation outstanding at the time of such
adoption was zero (0) shares of the Common Stock, $0.01 par value per share; and
the number of shares of the Common Stock entitled to vote thereon was zero (0).
As such, the Board of Directors of the Corporation, consisting of four (4)
members, authorized and adopted the foregoing by written consent on even date,
with said Articles of Amendment being executed by the following three (3)
Directors constituting a majority of the Board of Directors of the Corporation.
Executed this 18th day of June, 1993.
CLUCKER'S TEX-MEX VENTURE, INC.
By: /s/ William J. Gallagher
----------------------------
WILLIAM J. GALLAGHER,
Director
By: /s/ Steves Rosser
---------------------
SAM BELL STEVES ROSSER,
Director
By: /s/ John H. Coleman, III
----------------------------
JOHN H. COLEMAN, III,
Director
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the provisions of Article 4.0 of the Texas Business Corporation
Act, the undersigned corporation adopts the following Articles of Amendment to
its Articles of Incorporation:
ARTICLE I
The name of the corporation is TEX MEX VENTURES, INC.
ARTICLE II
The following amendment to the Articles of Incorporation was adopted by
shareholders of the corporation on April 28, 1995.
The amendment alters Article I of the Original Articles of Incorporation
and the full text of each provision added is as follows:
"The name of the Corporation is CLUCKCORP INTERNATIONAL, INC."
ARTICLE III
The number of shares of the corporation outstanding at the time of such
adoption was 2,475,000, and the number of shares entitled to vote thereon was
2,475,000.
ARTICLE IV
The number of shares voted for such amendment was 1,672,500, and the number
of shares voted against such amendment was 0.
-OR-
The holders of all of the shares outstanding and entitled to vote on said
amendment have signed a consent in writing adopting said amendment and any
notice required has been given.
Dated: April 28, 1995
CLUCKCORP INTERNATIONAL, INC.
/s/ William J. Gallagher
------------------------
William J. Gallagher
Secretary
<PAGE>
STATEMENT OF CHANGE OF REGISTERED OFFICE/REGISTERED AGENT
---------------------------------------------------------
OF
CLUCKCORP INTERNATIONAL, INC.
(Formerly Tex Mex Venture, Inc.)
(A Profit Corporation)
1. The name of the corporation is:
Cluckcorp International, Inc.
2. The address, including street and number, of its present registered office
as shown in the records of the Secretary of State of Texas before filing
this statement is:
Billy Blues Food Corporation
1250 Northeast Loop 410, Suite 430
San Antonio, Texas 78209
3. The address, including street and number, to which its registered office is
to be changed is:
Gunn, Lee & Miller, P.C.
300 Convent Street, Suite 1650
San Antonio, Texas 78205
4. The name of its present registered agent, as shown in the records of the
Secretary of State of the State of Texas, before filing this statement is:
William Gallagher
5. The name of its new registered agent is:
Mark H. Miller
6. The address of its registered office and the address of the office of its
registered agent, as changed, will be identical.
7. Such change was authorized by:
|X| The Board of Directors
|_| An officer of the corporation so authorized by the Board of Directors
/s/ William Gallagher
---------------------
William Gallagher, Chairman of Board
<PAGE>
CLUCKCORP INTERNATIONAL, INC.
(a Texas corporation)
STATEMENT OF RESOLUTION
ESTABLISHING SERIES OF PREFERRED STOCK
Series A Redeemable Convertible Preferred Stock
To: The Secretary of State
of the State of Texas
Pursuant to the provisions of Article 2.13 of the Texas Business
Corporation Act (the "Act"), the undersigned corporation, CLUCKCORP
INTERNATIONAL, INC. (the "Corporation"), hereby submits the following statement
for the purpose of establishing and designating a series of shares of preferred
stock to be known as Series A Redeemable Convertible Preferred Stock and fixing
and determining the relative rights and preferences thereof:
ARTICLE ONE
NAME
----
1. The name of the Corporation is CLUCKCORP INTERNATIONAL, INC. and the
charter number of the Corporation is 01274398.
ARTICLE TWO
CORPORATE RESOLUTIONS
---------------------
1. The following resolution establishing and designating a series of
preferred stock, to-wit: the Series A Redeemable Convertible Preferred Stock
(the "Series A Preferred Stock"), and fixing and determining the relative rights
and preferences thereof was duly adopted by the Board of Directors of the
Corporation on May 19, 1997:
BE IT RESOLVED that, pursuant to the authority expressly granted and vested
in the Board of Directors of the Corporation in accordance with Article Four,
Section I of the Corporation's Articles of Incorporation, authorizing 5,000,000
shares of Preferred Stock (the "Preferred Stock"), $1.00 par value per share,
approved and adopted on June 17, 1993 by the affirmative vote of the holders of
more than the requisite majority of the issued and outstanding shares of Common
Stock of the Corporation entitled to vote thereon (being the only voting capital
stock of the Corporation then outstanding) in accordance with and pursuant to
the provisions of Article 2.13 of the Texas Business Corporation Act (the
"Act"), the Board of Directors of the Corporation does hereby approve and adopt
the following resolutions designating and authorizing for issuance, in
accordance with the provisions of Article 2.13 of the Act, the Series A
Preferred Stock of the Corporation, said resolutions hereby effected being prior
to the issuance of any shares of Preferred Stock, such shares of Series A
Preferred Stock to consist of 3,000,000 shares, each having a par value of $1.00
per share, and each of which shares of Series A Preferred Stock shall have the
dividend rights, voting powers, redemption provisions, liquidation preferences
and the relative, optional or other special rights, and shall be subject to the
qualifications, limitations or restrictions set forth below and the remaining
2,000,000 authorized shares of the Preferred Stock shall remain undesignated and
reserved for future issuance subject to the future action of the Board of
Directors of the Corporation.
<PAGE>
Rights and Preferences of Series A Preferred Stock
--------------------------------------------------
2. Dividends.
(a) Amount and Payment of Dividend. Subject to the limitations hereinafter
set forth, the holders of Series A Preferred Stock shall be entitled to receive,
but only when, if and as declared by the Board of Directors, dividends at the
rate of twelve percent (12%) per annum of the original issue price thereof of
Ten and No/100 Dollars ($10.00) per share, and no more, payable in arrears
quarterly in installments out of the funds of the Corporation legally available
therefor on March 31, June 30, September 30 and December 31 of each year (the
"Dividend Payment Date") commencing September 30, 1997. Such dividends may be
paid in cash or in shares of Common Stock of the Corporation as determined by
the Corporation's Board of Directors in its sole discretion; provided, however,
no fractional shares of Common Stock may be issued for dividends, any fractional
shares of Common Stock will be rounded to the nearest whole share, and provided
further that if any such dividend is paid in whole or in part by shares of
Common Stock, the number of shares of Common Stock to be issued as a stock
dividend shall be determined by the reported market price of a share of Common
Stock on the last day of the calendar quarter for such stock dividend. Any
shares of Series A Preferred Stock issued after the date hereof shall accrue
dividends from the date of issuance.
(b) Cumulative Rights. To the extent, if any, that dividends at the rate
set forth in Section 1(a) above shall not be paid or set apart in full for the
Series A Preferred Stock, the aggregate deficiency shall be cumulated and must
be fully paid or set apart for payment before any dividends may be paid upon or
set apart for the Common Stock of the Corporation or before the Corporation may
purchase any of its Common Stock or otherwise make any distribution on account
of its Common Stock or any other class of capital stock now or hereafter
authorized or issued by the Corporation which ranks on a parity with or junior
to the Series A Preferred Stock (other than (i) a dividend payable in Common
Stock, or (ii) by conversion into or exchange for capital stock of the
Corporation ranking junior to the Series A Preferred Stock as to dividends).
(c) No Interest on Accrued Dividends. Any accumulations of dividends on the
Series A Preferred Stock shall not bear interest.
(d) Declaration. Dividends on the Series A Preferred Stock shall be
declared if, when and as the Board of Directors of the Corporation shall in its
sole discretion deem advisable, and only from the surplus of the Corporation as
such shall be fixed and determined by the said Board of Directors. The
determination of the Board of Directors at any time of the amount of surplus
available for the payment of dividends shall be binding and conclusive on the
holders of the shares of Series A Preferred Stock then outstanding. If dividends
are not paid in full upon the Series A Preferred Stock and any other Preferred
Stock ranking on a parity as to dividends with the Series A Preferred Stock, all
dividends declared upon shares of Series A Preferred Stock and upon such other
shares of Preferred Stock will be declared pro rata so that in all cases the
amount of dividends declared per share on the Series A Preferred Stock and such
other Preferred Stock shall bear the same ratio to each other that the
accumulated dividends per share on the shares of the Series A Preferred Stock
and such other shares of Preferred Stock bear to each other. The holders of the
Series A Preferred Stock shall not be entitled to receive any dividends thereon
other than the dividends provided for in the preceding provisions of this
Section.
<PAGE>
2. Voting Rights and Notice of Meetings. The holders of the Common Stock
shall have the exclusive right and power to vote on any matter submitted to a
vote of the shareholders of the Corporation and the holders of the Series A
Preferred Stock shall have no right or power whether authorized by the Act or
otherwise to vote on any matter or in any proceeding or to be represented at or
to receive notice of any meeting of the shareholders.
3. Redemption.
(a) Selection of Shares for Redemption. At any time on or after nine months
from the initial date of issuance of the Series A Preferred Stock, the
Corporation may purchase or redeem all, or from time to time any part of, the
shares of Series A Preferred Stock then issued and outstanding; provided,
however, no shares of Series A Preferred Stock may be redeemed until all accrued
and unpaid dividends, if any, on all outstanding shares of Series A Preferred
Stock have been paid in full. If less than all of the shares of Series A
Preferred Stock then issued and outstanding are to be redeemed at one time, the
shares of Series A Preferred Stock to be redeemed shall be selected pro rata or
by lot in such manner as may be prescribed by the resolution of the Board of
Directors of the Corporation. The Corporation shall on the redemption date pay
the holders of the shares of Series A Preferred Stock so purchased or redeemed
the Redemption Price (as hereinafter defined) for such shares out of the funds
of the Corporation legally available therefor or through the issuance of Common
Stock of the Company in its sole discretion. Such redemption shall be effected
by call and written or printed notice (the "Redemption Notice") shall be given
to each holder of record of Series A Preferred Stock shares being called, either
personally or by mail to such holders last known address as shown on the records
of the Corporation, not less than thirty (30) days before the date fixed for
redemption. The Redemption Notice shall set forth (i) the shares of Series A
Preferred Stock, or part thereof, to be redeemed, (ii) the date fixed for
redemption, (iii) the Redemption Price, whether payable in cash or in Common
Stock, and (iv) the place at which the holders of Series A Preferred Stock may
obtain payment of the Redemption Price upon surrender of their respective share
certificates. The redemption price (the "Redemption Price") for the shares of
Series A Preferred Stock being redeemed shall be 110% of the average bid price
per share of the Series A Preferred Stock as quoted on the NASDAQ, or other
national securities exchange, for the 20 trading days prior to the redemption
date, plus all dividends accrued and unpaid on such shares of Series A Preferred
Stock.
(b) Surrender of Shares. On or after the date fixed for redemption, each
holder of Series A Preferred Stock called for redemption shall, unless such
holder shall have previously exercised such holder's option to convert the
Series A Preferred Stock into Common Stock in the manner set forth in Section 4
below, surrender such holder's certificates for such shares of Series A
Preferred Stock to the Corporation at the place designated in the Redemption
Notice and shall thereupon be entitled to receive the Redemption Price. Should
less than all the shares of Series A Preferred Stock represented by any
surrendered certificate be redeemed, a new certificate for the unredeemed shares
shall be issued to the holder of record of such unredeemed shares.
(c) Cessation of Rights as Shareholder. From and after the redemption date
(unless default shall be made by the Corporation in duly paying the Redemption
Price in which case all rights of the holders of Series A Preferred Stock shall
continue), the holders of the shares of the Series A Preferred Stock called for
redemption shall cease to have any rights as shareholders of the Corporation
except the right to receive, without interest, the Redemption Price thereof upon
surrender of the certificate(s) representing the shares of Series A Preferred
Stock being redeemed, and such shares shall not thereafter be transferred
(except with the consent of the Corporation) on the books of the Corporation and
shall not be deemed outstanding for any purpose whatsoever.
<PAGE>
(d) Cancellation of Redeemed Shares. All shares of Series A Preferred Stock
that are redeemed shall be canceled and such shares shall be restored to the
status of authorized but unissued shares of Preferred Stock.
(e) Deposit of Redemption Price into Trust. If, on or prior to any date
fixed for redemption of shares of Series A Preferred Stock as provided in this
Section, the Corporation deposits with any bank or trust company in Texas, or
any bank or trust company in the United States duly appointed and acting as
transfer agent for the Corporation, as a trust fund, a sum sufficient to redeem,
on the date fixed for redemption, the shares called for redemption, with
irrevocable instructions and authority to the bank or trust company to publish
the notice of redemption, or to complete such publication if already commenced,
and to pay, on and after the date fixed for redemption or prior to such date,
the Redemption Price of the shares to their respective holders on surrender of
their share certificates, then from and after the date of the deposit, even
though such date may be prior to the date fixed for redemption, the shares so
called shall be deemed to be redeemed and dividends on those shares shall cease
to accrue after the date fixed for redemption. The deposits shall be deemed to
constitute full payment of the shares to their holders and from and after the
date of the deposit the shares shall be deemed to be no longer outstanding, and
the holders of the shares shall cease to be shareholders with respect to such
shares and shall have no rights with respect to such shares, except the right to
receive from the bank or trust company payment of the Redemption Price of the
shares, without interest, on surrender of their certificates, or the right to
convert said shares to Common Stock as provided in Section 4 below. Any money so
deposited on account of the Redemption Price of Series A Preferred Stock shares
converted after the making of the deposit shall be repaid immediately to the
Corporation on the conversion of such preferred shares. Money so deposited and
unclaimed at the end of three (3) years shall be repaid to the Corporation and
thereafter the holders of such shares of Series A Preferred Stock called for
redemption shall look only to the Corporation for payment.
4. Conversion of Series A Preferred Stock.
(a) Conversion Right of Holder. Each share of the Series A Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after
nine months from the date of initial issuance of such share of Series A
Preferred Stock (or, if such share is called for redemption, at any time up to
and including, but not after, the close of business on the fifth full business
day prior to the date fixed for such redemption, unless default shall be made by
the Corporation in providing funds for the payment of the Redemption Price) into
fully-paid and nonassessable whole shares of Common Stock upon the terms and
conditions set forth in the following paragraphs of this Section.
(b) Mandatory Automatic Conversion. If at any time after nine months from
the date of initial issuance of such share of Series A Preferred Stock, the
closing price of the Series A Preferred Stock for a period of ten (10)
consecutive trading days equals or exceeds Twenty and No/100 Dollars ($20.00)
per share, all outstanding Series A Preferred Stock will automatically convert
into Common Stock at the Conversion Ratio set forth in Section 4(d) below.
(c) Exercise of Conversion Right. Any holder of the Series A Preferred
Stock electing to convert such stock into Common Stock pursuant to Section 4(a)
hereof shall deposit the certificates for the Series A Preferred Stock at the
Corporation's principal office, with the form of written notice to the
Corporation endorsed on such certificate(s) of his election to convert such
Series A Preferred Stock into Common Stock duly filled out and executed. The
<PAGE>
holder of any Series A Preferred Stock converted into Common Stock pursuant to
the provisions of Section 4(b) hereof shall deposit the certificates for the
Series A Preferred Stock at the Corporation's principal office within thirty
(30) days after receipt of written notice from the Corporation of the automatic
mandatory conversion. If the holder of the Series A Preferred Stock fails to
deliver the certificates for the Series A Preferred Stock to the Corporation
within such thirty (30) day period, the Corporation may nevertheless without
further notice to such holder treat such shares as being canceled upon issuance
of the appropriate number of shares of Common Stock to such holder. The
conversion right in respect of any such Series A Preferred Stock shall be deemed
to have been exercised at either (i) the date on which the certificates therefor
and such notice of election duly filled out and executed shall have been so
deposited with the Corporation in the event the conversion right is being
exercised by the holder of the Series A Preferred Stock pursuant to Section 4(a)
hereof, or (ii) thirty (30) days after the Corporation mails written notice to
the Series A Preferred Stock holder in the event the conversion is a mandatory
automatic conversion pursuant to Section 4(b). The person entitled to receive
the Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder of such Common Stock on such date; provided, however, that
the conversion right in respect of any certificate(s) so deposited after the
close of business on any day shall not be deemed to have been exercised until
the next succeeding business day. As soon as practicable, and in any event
within thirty (30) business days after the date of conversion of any Series A
Preferred Stock into Common Stock pursuant to Section 4(a) or 4(b) hereof, the
Corporation shall deliver to the person entitled thereto, certificate(s)
representing the shares of Common Stock to which such person shall be entitled
on such conversion. The Corporation, as a condition to the exercise of such
rights of conversion, may require the payment of a sum equal to any transfer tax
or other governmental charge (but not including any tax payable upon the issue
of stock deliverable upon such conversion) that may be imposed or required by
law, upon any transfer incidental or prior thereto, or the submission of proper
proof that the same has been paid.
(d) Conversion Ratio. For each share of Series A Preferred Stock converted
as provided in Section 4(a) or 4(b) hereof the Corporation shall deliver to the
holder thereof 2.7 shares of Common Stock subject to adjustment as provided in
Section 4(e) below; provided, however, the Corporation shall not be required, in
connection with any such conversion, to issue a fraction of a share of its
Common Stock nor to deliver any stock certificate representing a fraction
thereof.
(e) Adjustment of Conversion Ratio. The number of shares of Common Stock
into which, under the Conversion Ratio stated in Section 4(d) hereof, each share
of the Series A Preferred Stock is convertible, is based upon an assigned
conversion ratio of $3.70 (the "Conversion Price"). Such Conversion Ratio shall
be subject to adjustment from time to time in certain instances, as follows:
(1) On Recapitalization. On any recapitalization of the Corporation
through the subdivision or combination of its outstanding Common Stock
into a greater or smaller number of shares, the number of shares of
Common Stock into which the shares of Series A Preferred Stock may be
converted shall be increased or reduced in the same proportion.
(2) On Dividend or Distribution Payable in Common Stock or Convertible
Securities. If the Corporation takes a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend
or other distribution payable in Common Stock, or in securities
convertible into or exchangeable for Common Stock, the maximum number
of shares of Common Stock issuable in payment of such dividend or
distribution, or on conversion of or in exchange for the securities
convertible into or exchangeable for Common Stock, shall be deemed to
have been issued and to be outstanding as of such record date, and the
number of shares of Common Stock into which the shares of Series A
Preferred Stock may be converted shall be increased in proportion to
the increase of the number of outstanding shares of Common Stock
resulting therefrom.
<PAGE>
(3) On Capital Reorganization, Reclassification, Consolidation, Merger or
Sale of Corporate Assets. On any capital reorganization,
reclassification of the capital stock, consolidation, merger, or sale
or conveyance of all or substantially all of the assets of the
Corporation to another corporation, each share of Series A Preferred
Stock shall be convertible into the same kind and amounts of
securities, including share or other assets, or both, to which the
number of common shares of the Corporation which would have been
deliverable on conversion of such shares of Series A Preferred Stock
immediately prior to such reorganization, reclassification,
consolidation, merger, sale or conveyance would have been entitled.
Appropriate adjustments, as determined by the Board of Directors of
the Corporation, shall be made in the application of the provisions
herein set forth with respect to the rights and interests thereafter
of the holders of the Series A Preferred Stock so that said
provisions, including the provisions with respect to changes in, and
other adjustments of, the Conversion Rate, shall thereafter be
applicable, as nearly as reasonably may be, in relation to any
securities or other assets thereafter deliverable on conversion of the
shares of Series A Preferred Stock.
(f) Statement of Adjusted Amount. Whenever the amount of shares of Common
Stock or other securities deliverable on the conversion of Series A Preferred
Stock shall be adjusted pursuant to the provisions hereof, the Corporation shall
forthwith maintain at its office and file with the transfer agent or agents for
the Series A Preferred Stock and for Common Stock, a statement signed by the
President or Vice President of the Corporation and by its Chief Financial
Officer, stating the adjusted amount of the Common Stock or other securities
deliverable for each share of Series A Preferred Stock, calculated to the
nearest one hundredth (1/100) share, and setting forth in reasonable detail the
method of calculation and the facts requiring such adjustment and on which the
calculation is based. Each adjustment shall remain in effect until a subsequent
adjustment hereunder is required.
(g) Fractional Shares. Neither fractional shares nor scrip or other
certificates evidencing such shares shall be issued on conversion of the Series
A Preferred Stock as herein provided, but the Corporation shall, in lieu
thereof, round all such fractional shares to the nearest whole share.
(h) Payment of Taxes on Conversion of Series A Preferred Stock. The
Corporation shall pay any and all issue and other taxes that may be payable in
respect of any issue or delivery of Common Stock on conversion of shares of
Series A Preferred Stock pursuant hereto. The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of Common Stock in a name other than that in which the
shares of Series A Preferred Stock so converted were registered and no such
issue or delivery shall be made unless and until the person requesting it has
paid to the Corporation the amount of any such tax, or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(i) Reservation of Sufficient Common Stock. So long as any shares of Series
A Preferred Stock shall remain outstanding and the holders thereof shall have
the right to convert said shares in accordance with the provisions of this
Section 4, the Corporation will at all times reserve from the authorized and
unissued shares of its Common Stock a sufficient number of shares to provide for
such conversions, and will take such other corporation action as may be
necessary from time to time in order that it may validly and legally issue
fully-paid and non-assessable shares of such Common Stock upon conversion of the
Series A Preferred Stock.
<PAGE>
(j) Definition of Common Stock. In each case where reference is made to the
Common Stock of the Corporation in this Section, unless a different intention is
expressed, such reference is to the class of Common Stock of the Corporation as
such class of stock exists at the date of the adoption of these provisions, or
stock into which the same may be changed from time to time.
(k) Status of Converted Preferred Shares. All shares of Series A Preferred
Stock so converted shall be canceled and such shares shall be restored to the
status of authorized but unissued shares of Preferred Stock.
5. Liquidation Rights.
(a) Liquidation Preference Amount. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the business or affairs of
the Corporation, and after payment of, or adequate provision for payment of, the
debts, liabilities and other claims of the Corporation as determined by its
Board of Directors, each holder of the Series A Preferred Stock shall be
entitled to receive, out of the remaining net assets of the Corporation legally
available for distribution to its shareholders, before any payment or
distribution shall be made on the Common Stock, or on any other class of stock
of the Corporation ranking junior to the shares of Series A Preferred Stock upon
liquidation, the amount of Ten and No/100 Dollars ($10.00) per share of Series A
Preferred Stock, plus all accrued and unpaid dividends on each such share up to
the date fixed for distribution.
(b) Proportionate Distribution Where Assets Insufficient. In the event the
assets of the Corporation available for distribution to the holders of shares of
Series A Preferred Stock upon dissolution, liquidation or winding up of the
Corporation whether voluntary or involuntary, shall be insufficient to pay in
full all amounts to which such holders are entitled pursuant to paragraph (a) of
this Section, no such distribution shall be made on account of any shares of any
class of capital stock of the Corporation ranking on a parity with the shares of
Series A Preferred Stock upon such dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on account of the shares of
Series A Preferred Stock, ratably, in proportion to the full distributable
amounts for which holders of all such parity shares are respectively entitled
upon such dissolution, liquidation or winding up.
(c) Nonparticipation Right. After the payment to the holders of the shares
of Series A Preferred Stock of the full preferential amounts provided for in
either paragraph (a) or (b) of this Section, as applicable, the holders of
Series A Preferred Stock as such shall have no right or claim to any of the
remaining assets of the Corporation.
(d) Excluded Transactions. Neither the consolidation nor merger of the
Corporation with or into any other corporation, nor the sale, mortgage, exchange
or conveyance of all or substantially all of the properties, assets or business
of the Corporation, nor any liquidation, dissolution or winding up of the
Corporation occurring substantially concurrently with any such transaction shall
be deemed to be a liquidation, dissolution or winding up of the Corporation
within the meaning hereof, unless otherwise determined by the Board of Directors
of the Corporation.
<PAGE>
6. No Preemptive Rights. No holder of shares of the Series A Preferred
Stock shall, as such holder, have any preemptive right to subscribe to or
purchase any shares of any class of capital stock of the Corporation now or
hereafter authorized or issued, whether or not exchangeable for any capital
stock of the Corporation of any class or classes now or hereafter authorized or
issued; nor shall any holder of shares of the Series A Preferred Stock, as such
holder, have any right to purchase, acquire or subscribe for any securities
which the Corporation may issue or sell whether or not convertible into or
exchangeable for shares of capital stock of the Corporation of any class or
classes, and whether or not any such securities have attached or appurtenant
thereto warrants, options or other instruments which entitle the holders thereof
to purchase, acquire or subscribe for shares of capital stock of any class or
classes of the Corporation.
7. Determination of Market Value of Common Stock and Preferred Stock. The
determination of the per share market value of Common Stock and Preferred Stock
as set forth in previous Sections shall be determined using the last sale price
of the day or, where no sale is made on that day, the average of the closing bid
and asked prices for that day as reported by the NASDAQ Small Cap - Issue System
if the Common Stock is at the time listed thereon or, if it is not so listed, on
any other national securities exchange selected by the Corporation on which it
is at the time listed. If the Common Stock or Preferred Stock is not at the time
listed on any national securities exchange, its market value for the purposes
hereof shall be the fair value as determined and certified to the Corporation by
a member of a national securities exchange selected by the Corporation. If no
market value can be ascertained in accordance with the foregoing provisions, the
market value shall be fixed by the Board of Directors of the Corporation.
8. Covenants of the Corporation. The Corporation will not, by amendment to
its Articles of Incorporation, as amended, or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the preferences and limitations of Series
A Preferred Stock to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
set forth herein relating to Series A Preferred Stock and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the holders of the Series A Preferred Stock against dilution or other
impairment.
IN WITNESS WHEREOF, CLUCKCORP INTERNATIONAL, INC. has caused this Statement
of Resolution Establishing Series of Shares to be signed by William J.
Gallagher, its Chairman of the Board and Chief Executive Officer, and attested
by Steves Rosser, its Secretary, this 11th day of June, 1997.
CLUCKCORP INTERNATIONAL, INC.
By: /s/ William J. Gallagher
----------------------------
WILLIAM J. GALLAGHER,
Chairman of the Board and
Chief Executive Officer
By: /s/ Steves Rosser
---------------------
STEVES ROSSER,
Vice-President and Secretary
<PAGE>
HARVEST RESTAURANT GROUP, INC.
(a Texas corporation)
---------------------
SECOND AMENDED STATEMENT OF RESOLUTION
ESTABLISHING SERIES OF PREFERRED STOCK
--------------------------------------
Series B Convertible Preferred Stock
To: The Secretary of State
of the State of Texas
Pursuant to the provisions of Article 2.13 of the Texas Business
Corporation Act (the "Act"), the undersigned corporation, HARVEST RESTAURANT
GROUP, INC., formerly CluckCorp International, Inc. (the "Corporation"), hereby
submits the following statement for the purpose of establishing and designating
a series of shares of preferred stock to be known as Series B Convertible
Preferred Stock and fixing and determining the relative rights and preferences
thereof:
ARTICLE ONE
NAME
----
1. The name of the Corporation is HARVEST RESTAURANT GROUP, INC. and the
charter number of the Corporation is 01274398.
ARTICLE TWO
CORPORATE RESOLUTIONS
---------------------
1. Be it known that on May 19, 1997 the Corporation had established and
designated 3,000,000 shares of its preferred stock as Series A Redeemable
Convertible Preferred Stock ("Series A Preferred Stock").
2. The following resolution establishing and designating an additional
series of preferred stock, known as: the Series B Convertible Preferred Stock
(the "Series B Preferred Stock"), and fixing and determining the relative rights
and preferences thereof was duly adopted by the Board of Directors of the
Corporation on December 15, 1997. The Series B Preferred Stock shall rank junior
to the Series A Preferred Stock.
BE IT RESOLVED that, pursuant to the authority expressly granted and
vested in the Board of Directors of the Corporation in accordance with Article
Four, Section I of the Corporation's Articles of Incorporation, authorizing
5,000,000 shares of Preferred Stock (the "Preferred Stock"), $1.00 par value per
share, approved and adopted on June 17, 1993 by the affirmative vote of the
holders of more than the requisite majority of the issued and outstanding shares
<PAGE>
of Common Stock of the Corporation entitled to vote thereon (being the only
voting capital stock of the Corporation then outstanding) in accordance with and
pursuant to the provisions of Article 2.13 of the Texas Business Corporation Act
(the "Act"), the Board of Directors of the Corporation does hereby approve and
adopt the following resolutions designating and authorizing for issuance, in
accordance with the provisions of Article 2.13 of the Act, the Series B
Preferred Stock of the Corporation, said resolutions hereby effected being made
prior to the issuance of any shares of Series B Preferred Stock, such shares of
Series B Preferred Stock to consist of 1,000 shares, each having a par value of
$1.00 per share, and each of which shares of Series B Preferred Stock shall have
the dividend rights, voting powers, redemption provisions, liquidation
preferences and the relative, optional or other special rights, and shall be
subject to the qualifications, limitations or restrictions set forth below and
the remaining 1,999,000 authorized shares of the Preferred Stock shall remain
undesignated and reserved for future issuance subject to the future action of
the Board of Directors of the Corporation.
Rights and Preferences of Series B Preferred Stock
--------------------------------------------------
1. Dividends.
(a) Amount and Payment of Dividend. Subject to the limitations
hereinafter set forth, the holders of Series B Preferred Stock shall be entitled
to receive dividends at the rate of seven percent (7%) per annum of the original
issue price thereof of Ten Thousand and No/100 Dollars ($10,000.00) per share,
and no more, payable only at the time such shares are converted pursuant to
Section 4 hereof. Such dividends may be paid in cash or in shares of Series A
Preferred Stock or Common Stock of the Corporation as determined by the holders
of the Series B Preferred stock in its sole discretion; provided, however, no
fractional shares of either security may be issued for dividends, any fractional
shares will be rounded to the nearest whole share, and provided further that if
any such dividend is paid in whole or in part by shares of Series A Preferred
Stock or Common Stock, the number of shares of such security to be issued as a
stock dividend shall be determined by the reported market price of a share of
the respective security on the last day of the period for such stock dividend.
Any shares of Series B Preferred Stock issued after the date hereof shall accrue
dividends from the date of issuance.
(b) Cumulative Rights. To the extent, if any, that dividends at the
rate set forth in Section 1(a) above shall not be paid or set apart in full for
the Series B Preferred Stock, the aggregate deficiency shall be cumulated and
must be fully paid or set apart for payment before any dividends may be paid
upon or set apart for the Common Stock of the Corporation or before the
Corporation may purchase any of its Common Stock or otherwise make any
distribution on account of its Common Stock or any other class of capital stock
now or hereafter authorized or issued by the Corporation which ranks on a parity
with or junior to the Series B Preferred Stock (other than (i) a dividend
payable in Common Stock, or (ii) by conversion into or exchange for capital
stock of the Corporation ranking junior to the Series B Preferred Stock as to
dividends).
<PAGE>
(c) No Interest on Accrued Dividends. Any accumulations of dividends
on the Series B Preferred Stock shall not bear interest.
(d) Declaration. Dividends on the Series B Preferred Stock shall be
declared if, when and as the Board of Directors of the Corporation shall in its
sole discretion deem advisable, and only from the surplus of the Corporation as
such shall be fixed and determined by the said Board of Directors. The
determination of the Board of Directors at any time of the amount of surplus
available for the payment of dividends shall be binding and conclusive on the
holders of the shares of Series B Preferred Stock then outstanding. If dividends
are not paid in full upon the Series B Preferred Stock and any other Preferred
Stock ranking on a parity as to dividends with the Series B Preferred Stock, all
dividends declared upon shares of Series B Preferred Stock and upon such other
shares of Preferred Stock will be declared pro rata so that in all cases the
amount of dividends declared per share on the Series B Preferred Stock and such
other Preferred Stock shall bear the same ratio to each other that the
accumulated dividends per share on the shares of the Series B Preferred Stock
and such other shares of Preferred Stock bear to each other. The holders of the
Series B Preferred Stock shall not be entitled to receive any dividends thereon
other than the dividends provided for in the preceding provisions of this
Section.
2. Voting Rights and Notice of Meeting. The holders of the Common Stock
shall have the exclusive right and power to vote on any matter submitted to a
vote of the shareholders of the Corporation and the holders of the Series B
Preferred Stock shall have no right or power whether authorized by the Act or
otherwise to vote on any matter or in any proceeding or to be represented at or
to receive notice of any meeting of the shareholders.
3. Redemption.
Neither the Corporation nor the Holders of the Series B Preferred Stock
shall have any rights of redemption as to the shares of Series B Preferred Stock
issued and outstanding.
4. Conversion of Series B Preferred Stock.
(a) Conversion Right of Holder. Each share of the Series B Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
after the date of initial issuance of such share of Series B Preferred Stock and
up until 3 years thereafter, into either fully-paid and nonassessable whole
shares of Series A Preferred Stock or Common Stock upon the terms and conditions
set forth in the following paragraphs of this Section. However, that if by
choosing to convert into one security rather than the other would cause the
Corporation to be in violation of a NASDAQ or NASD rule or listing requirement,
then the holder shall be precluded from converting into such security. The
option of the holder to convert each share of Series B Preferred Stock into
shares of Common Stock is available only if: (i) the closing bid price of the
Company's Common Stock equals or exceeds $3.00 per share on the date of
conversion, or (ii) if a majority of the then current Board of Directors of the
Company approves a written notice of conversion submitted by the holder
requesting conversion into Common Stock, or (iii) if the holder was otherwise
precluded from converting into the Series A Preferred Stock.
<PAGE>
(b) Automatic Conversion. The holder's conversion right shall expire
three (3) years after the date of issuance. Upon three years from the date of
issuance, all shares of Series B Preferred Stock that remain outstanding will
automatically convert into shares of the Corporation's Series A Preferred Stock,
however, if the Series A Preferred Stock is not actively traded at the time,
then the Series B Preferred Stock shall automatically convert into shares of the
Corporation's Common Stock. The Conversion Rate to be utilized for the automatic
conversion shall the rate specified in Section 4(d) which yields the largest
number of shares to the holder.
(c) Exercise of Conversion Right. Any holder of the Series B Preferred
Stock electing to convert such stock into Series A Preferred Stock or Common
Stock pursuant to Section 4(a) hereof shall deliver the certificates for the
Series B Preferred Stock to the Corporation's principal office or the office of
the Corporations Transfer Agent, with the form of written notice to the
Corporation endorsed on such certificate(s) of his election to convert such
Series B Preferred Stock into either Series A Preferred Stock or Common Stock
duly filled out and executed. The conversion right in respect of any such Series
B Preferred Stock pursuant to Section 4(a) hereof shall be deemed to have been
exercised at the date on which the holder delivers such notice of conversion
duly filled out and executed to the Corporation or the Corporation's transfer
agent (the "Date of Election"). A facsimile notice of conversion will be
accepted by the Corporation as a valid notice of election, so long as the holder
then delivers the original certificates within three business days thereafter.
The person entitled to receive the Series A Preferred Stock or Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder of such security on such date; provided, however, that the conversion
right in respect of any notice received after the close of business (11:59 PM
EST) on any day shall not be deemed to have been exercised until the next
succeeding business day. As soon as practicable, and in any event within three
(3) business days after the date of receipt of the original certificates of any
Series B Preferred Stock to be converted pursuant to Section 4(a) hereof, the
Corporation shall deliver to the person entitled thereto, certificate(s)
representing the shares of Series A Preferred Stock or Common Stock to which
such person shall be entitled on such conversion. The Corporation, as a
condition to the exercise of such rights of conversion, may require the payment
of a sum equal to any transfer tax or other governmental charge (but not
including any tax payable upon the issue of stock deliverable upon such
conversion) that may be imposed or required by law, upon any transfer incidental
or prior thereto, or the submission of proper proof that the same has been paid.
(d) Conversion Rate. The number of shares of Series A Preferred Stock
or Common Stock issuable upon conversion of each share of Series B Preferred
Stock shall be as follows:
<PAGE>
(1) Conversion into Series A Preferred Stock: Equal to $10,000,
divided by the lower of: (1) 105% of the average closing bid price of the Series
A Preferred Stock during the five trading day period immediately proceeding the
Date of Issuance or (2) 80% of the average closing bid price of the Series A
Preferred Stock during the five trading day period immediately proceeding the
Date of Election as defined in Section 4(c) hereof, provided, however, the
Corporation shall not be required, in connection with any such conversion, to
issue a fraction of a share of its Series A Preferred Stock nor to deliver any
stock certificate representing a fraction thereof.
(2) Conversion into Common Stock. Equal to $10,000, divided by
80% of the average closing bid price of the Common Stock during the five trading
day period immediately proceeding the Date of Election as defined in Section
4(a) hereof; provided, however, in order for any conversion into Common Stock to
take place, the price of the Common Stock must be above the minimum price level
as set forth in Section 4(a) hereof. Notwithstanding the preceding sentence,
Buyer or holder can convert into Common Stock regardless of its price if
approved by a majority of the then current Board of Directors, or if he
otherwise would be precluded from converting into Company's Series A Preferred.
In addition, the Corporation shall not be required, in connection with any such
conversion, to issue a fraction of a share of its Common Stock nor to deliver
any stock certificate representing a fraction thereof.
(3) Limitations on Conversion. Any holder of the Series B
Preferred Stock will be allowed to convert 50% of the aggregate amount of such
holder's Series B Preferred Stock beginning the day after the registration
statement registering the underlying shares of Series A Preferred Stock or
Common Stock has been declared effective, but no sooner than 60 days from the
date the Series B Preferred Stock is issued. Any holder of the Series B
Preferred Stock will be allowed to convert any and all remaining shares of
holder's Series B Preferred Stock beginning 120 days after the issuance of the
Series B Preferred Stock; provided, however, that if on the 120th day after the
issuance of the Series B Preferred Stock the registration statement has not yet
been declared effective all holders must wait until the registration statement
is declared effective before converting any and all of their Series B Preferred
Stock.
(e) Adjustment of Conversion Rate. The number of shares of Series A
Preferred Stock and Common Stock into which share of the Series B Preferred
Stock is convertible shall be subject to adjustment from time to time in certain
instances, as follows:
(1) On Recapitalization. On any recapitalization of the
Corporation through the subdivision or combination of its outstanding Series A
Preferred Stock or Common Stock into a greater or smaller number of shares, the
number of shares of Common Stock into which the shares of Series B Preferred
Stock may be converted shall be increased or reduced in the same proportion.
<PAGE>
(2) On Capital Reorganization, Reclassification, Consolidation,
Merger or Sale of Corporate Assets. On any capital reorganization,
reclassification of the capital stock, consolidation, merger, or sale or
conveyance of all or substantially all of the assets of the Corporation to
another corporation, each share of Series B Preferred Stock shall be convertible
into the same kind and amounts of securities, including share or other assets,
or both, into which the number of shares of capital stock of the Corporation
which would have been deliverable on conversion of such shares of Series B
Preferred Stock immediately prior to such reorganization, reclassification,
consolidation, merger, sale or conveyance would have been entitled. Appropriate
adjustments, as determined by the Board of Directors of the Corporation, shall
be made in the application of the provisions herein set forth with respect to
the rights and interests thereafter of the holders of the Series B Preferred
Stock so that said provisions, including the provisions with respect to changes
in, and other adjustments of, the Conversion Rate, shall thereafter be
applicable, as nearly as reasonably may be, in relation to any securities or
other assets thereafter deliverable on conversion of the shares of Series B
Preferred Stock.
(f) Statement of Adjusted Amount. Whenever the amount of shares of
Series A Preferred Stock or Common Stock or other securities deliverable on the
conversion of Series B Preferred Stock shall be adjusted pursuant to the
provisions hereof, the Corporation shall forthwith maintain at its office and
file with the transfer agent or agents, a statement signed by the President or
Vice President of the Corporation and by its Chief Financial Officer, stating
the adjusted amount of any securities deliverable for each share of Series B
Preferred Stock, calculated to the nearest one hundredth (1/100) share, and
setting forth in reasonable detail the method of calculation and the facts
requiring such adjustment and on which the calculation is based. Each adjustment
shall remain in effect until a subsequent adjustment hereunder is required.
(g) Fractional Shares. Neither fractional shares nor scrip or other
certificates evidencing such shares shall be issued on conversion of the Series
B Preferred Stock as herein provided, but the Corporation shall, in lieu
thereof, round all such fractional shares to the nearest whole share.
(h) Payment of Taxes on Conversion of Series B Preferred Stock. The
Corporation shall pay any and all issue and other taxes that may be payable in
respect of any issue or delivery of Series A Preferred Stock or Common Stock on
conversion of shares of Series B Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of Series A
Preferred Stock or Common Stock in a name other than that in which the shares of
Series B Preferred Stock so converted were registered and no such issue or
delivery shall be made unless and until the person requesting it has paid to the
Corporation the amount of any such tax, or has established, to the satisfaction
of the Corporation, that such tax has been paid.
(i) Reservation of Sufficient Series A Preferred Stock and Common
Stock. So long as any shares of Series B Preferred Stock shall remain
outstanding and the holders thereof shall have the right to convert said shares
in accordance with the provisions of this Section 4, the Corporation will at all
times reserve from the authorized and unissued shares of its Series A Preferred
Stock and Common Stock a sufficient number of shares to provide for such
conversions, and will take such other corporation action as may be necessary
from time to time in order that it may validly and legally issue fully-paid and
non-assessable shares of such Series A Preferred Stock or Common Stock upon
conversion of the Series B Preferred Stock.
<PAGE>
(j) Definition of Series A Preferred Stock and Common Stock. In each
case where reference is made to the Series A Preferred Stock or Common Stock of
the Corporation in this Section, unless a different intention is expressed, such
reference is to the series or class of Series A Preferred Stock or Common Stock
of the Corporation as such series or class of stock exists at the date of the
adoption of these provisions, or stock into which the same may be changed from
time to time.
(k) Status of Converted Preferred Shares. All shares of Series B
Preferred Stock so converted shall be canceled and such shares shall be restored
to the status of authorized but unissued shares of Preferred Stock.
5. Liquidation Rights.
(a) Liquidation Preference Amount. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the business or affairs of
the Corporation, and after payment of, or adequate provision for payment of, the
debts, liabilities and other claims of the Corporation as determined by its
Board of Directors, each holder of the Series B Preferred Stock shall be
entitled to receive, out of the remaining net assets of the Corporation legally
available for distribution to its shareholders, before any payment or
distribution shall be made on the Common Stock, or on any other class of stock
of the Corporation ranking junior to the shares of Series B Preferred Stock upon
liquidation, the amount of Ten Thousand and No/100 Dollars ($10,000.00) per
share of Series B Preferred Stock, plus all accrued and unpaid dividends on each
such share up to the date fixed for distribution.
(b) Proportionate Distribution Where Assets Insufficient. In the event
the assets of the Corporation available for distribution to the holders of
shares of Series B Preferred Stock upon dissolution, liquidation or winding up
of the Corporation whether voluntary or involuntary, shall be insufficient to
pay in full all amounts to which such holders are entitled pursuant to paragraph
(a) of this Section, no such distribution shall be made on account of any shares
of any class of capital stock of the Corporation ranking on a parity with the
shares of Series B Preferred Stock upon such dissolution, liquidation or winding
up unless proportionate distributive amounts shall be paid on account of the
shares of Series B Preferred Stock, ratably, in proportion to the full
distributable amounts for which holders of all such parity shares are
respectively entitled upon such dissolution, liquidation or winding up.
(c) Nonparticipation Right. After the payment to the holders of the
shares of Series B Preferred Stock of the full preferential amounts provided for
in either paragraph (a) or (b) of this Section, as applicable, the holders of
Series B Preferred Stock as such shall have no right or claim to any of the
remaining assets of the Corporation.
<PAGE>
(d) Excluded Transactions. Neither the consolidation nor merger of the
Corporation with or into any other corporation, nor the sale, mortgage, exchange
or conveyance of all or substantially all of the properties, assets or business
of the Corporation, nor any liquidation, dissolution or winding up of the
Corporation occurring substantially concurrently with any such transaction shall
be deemed to be a liquidation, dissolution or winding up of the Corporation
within the meaning hereof, unless otherwise determined by the Board of Directors
of the Corporation.
6. No Preemptive Rights. No holder of shares of the Series B Preferred
Stock shall, as such holder, have any preemptive right to subscribe to or
purchase any shares of any class of capital stock of the Corporation now or
hereafter authorized or issued, whether or not exchangeable for any capital
stock of the Corporation of any class or classes now or hereafter authorized or
issued; nor shall any holder of shares of the Series B Preferred Stock, as such
holder, have any right to purchase, acquire or subscribe for any securities
which the Corporation may issue or sell whether or not convertible into or
exchangeable for shares of capital stock of the Corporation of any class or
classes, and whether or not any such securities have attached or appurtenant
thereto warrants, options or other instruments which entitle the holders thereof
to purchase, acquire or subscribe for shares of capital stock of any class or
classes of the Corporation.
7. Determination of Market Value of Capital Stock of Corporation. The
determination of the per share market value of Common Stock and Preferred Stock
as set forth in previous Sections shall be determined using the previous five
day average closing bid price for the day or, where no sale is made on that day,
the average of the closing bid and asked prices for that day as reported by the
NASDAQ Small Cap - Issue System if the securities are at the time listed thereon
or, if it is not so listed, on any other national securities exchange selected
by the Corporation on which it is at the time listed. If the Common Stock or
Preferred Stock is not at the time listed on any national securities exchange,
its market value for the purposes hereof shall be the average closing bid price
for the last three trading days the Preferred Stock or Common Stock was listed
on any national securities exchange.
8. Covenants of the Corporation. The Corporation will not, by amendment to
its Articles of Incorporation, as amended, or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the preferences and limitations of Series
B Preferred Stock to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
set forth herein relating to Series B Preferred Stock and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the holders of the Series B Preferred Stock against dilution or other
impairment.
<PAGE>
IN WITNESS WHEREOF, HARVEST RESTAURANT GROUP, INC. has caused this Second
Amended Statement of Resolution Establishing Series of Shares to be signed by
Steves Rosser, its Vice-President and Secretary, this 12th day of May, 1998.
HARVEST RESTAURANT GROUP, MC.
By: /s/ Steves Rosser
STEVES ROSSER,
Vice-President and Secretary
<PAGE>
HARVEST RESTAURANT GROUP, INC.
(a Texas corporation)
---------------------
STATEMENT OF RESOLUTION
ESTABLISHING SERIES OF PREFERRED STOCK
--------------------------------------
Series C Convertible Preferred Stock
To: The Secretary of State
of the State of Texas
Pursuant to the provisions of Article 2.13 of the Texas Business
Corporation Act (the "Act"), the undersigned corporation, HARVEST RESTAURANT
GROUP, INC., formerly CluckCorp International, Inc. (the "Corporation"), hereby
submits the following statement for the purpose of establishing and designating
a series of shares of preferred stock to be known as Series C Convertible
Preferred Stock and fixing and determining the relative rights and preferences
thereof:
ARTICLE ONE
NAME
----
1. The name of the Corporation is HARVEST RESTAURANT GROUP, INC. and the
charter number of the Corporation is 01274398.
ARTICLE TWO
CORPORATE RESOLUTIONS
---------------------
1. Be it known that on May 19, 1997, the Corporation had established and
designated 3,000,000 shares of its preferred stock as Series A Redeemable
Convertible Preferred Stock ("Series A Preferred Stock") and on December 22,
1997, the Corporation had established and designated 1,000 shares of its
preferred stock as Series B Convertible Preferred Stock.
2. The following resolution establishing and designating an additional
series of preferred stock, known as: the Series C Convertible Preferred Stock
(the "Series C Preferred Stock, and fixing and determining the relative rights
and preferences thereof was duly adopted by the Board of Directors of the
Corporation on July 2, 1998. The Series C Preferred Stock shall rank junior to
the Series A Preferred Stock and on parity with the Series B Preferred Stock.
<PAGE>
BE IT RESOLVED that, pursuant to the authority expressly granted and
vested in the Board of Directors of the Corporation in accordance with Article
Four, Section 1 of the Corporation's Articles of Incorporation, authorizing
5,000,000 shares of Preferred Stock (the "Preferred Stock"), $1.00 par value per
share, approved and adopted on June 17, 1993 by the affirmative vote of the
holders of more than the requisite majority of the issued and outstanding shares
of Common Stock of the Corporation entitled to vote thereon (being the only
voting capital stock of the Corporation then outstanding) in accordance with and
pursuant to the provisions of Article 2.13 of the Texas Business Corporation Act
(the "Act"), the Board of Directors of the Corporation does hereby approve and
adopt the following resolutions designating and authorizing for issuance, in
accordance with the provisions of Article 2.13 of the Act, the Series C
Preferred Stock of the Corporation, said resolutions hereby effected being made
prior to issuance of any shares of Series C Preferred Stock, such shares of
Series C Preferred Stock to consist of 1,000 shares, each having a par value of
$1.00 per share, and each of which shares of Series C Preferred Stock shall have
the dividend rights, voting powers. redemption provisions, liquidation
preferences and the relative, optional or other special rights, and shall be
subject to the qualifications, limitations or restrictions set forth below and
the remaining authorized shares of the Preferred Stock shall remain undesignated
and reserved for future issuance subject to the future action of the Board of
Directors of the Corporation.
Rights and Preferences of Series C Preferred Stock
--------------------------------------------------
1. Dividends.
(a) Amount and Payment of Dividend. Subject to the limitations
hereinafter set forth, the holders of Series C Preferred Stock shall be entitled
to receive dividends at the rate of seven percent (7%) per annum of the original
issue price thereof of Ten Thousand and No/100 Dollars ($10,000.00) per share,
and no more, payable only at the time such shares are converted pursuant to
Section 4 hereof. Such dividends may be paid in cash or in shares of Common
Stock of the Corporation as determined by the holders of the Series C Preferred
stock in its sole discretion; provided, however, no fractional shares of either
security may be issued for dividends any fractional shares will be rounded to
the nearest whole share, and provided further that it any such dividend is paid
in whole or in part by shares of Common Stock, the number of Shares of such
security to be issued as a stock dividend shall be determined by the reported
market price of a share of the respective security on the last day of the period
for such stock dividend. Any shares of Series C Preferred Stock issued after the
date hereof shall accrue dividends from the date of issuance.
(b) Cumulative Rights. To the extent, if any, that dividends at the
rate set forth in Section 1(a) above shall not be paid or set apart in full for
the Series C Preferred Stock, the aggregate deficiency shall be cumulated and
must be fully paid or set apart for payment before any dividends may be paid
upon or set apart for the Common Stock of the Corporation or before the
Corporation may purchase any of its Common Stock or otherwise make any
distribution on account of its Common Stock or any other class of capital stock
now or hereafter authorized or issued by the Corporation which ranks on a parity
with or junior to the Series C Preferred Stock (other than (i) a dividend
payable in Common Stock, or (ii) by conversion into or exchange for capital
stock of the Corporation ranking junior to the Series C Preferred Stock as to
dividends).
<PAGE>
(c) No Interest on Accrued Dividends. Any accumulations of dividends
on the Series C Preferred Stock shall not bear interest.
(d) Declaration. Dividends on the Series C Preferred Stock shall be
declared if when and as the Board of Directors of the Corporation shall in its
sole discretion deem advisable, and only from the surplus of the Corporation as
such shall be fixed and determined by the said Board of Directors. The
determination of the Board of Directors at any time of the amount of surplus
available for the payment of dividends shall be binding and conclusive on the
holders of the shares of Series C Preferred Stock then outstanding. If dividends
are not paid in full upon the Series C Preferred Stock and any other Preferred
Stock ranking on a parity as to dividends with the Series C Preferred Stock, all
dividends declared upon shares of Series C Preferred Stock and upon such other
shares of Preferred Stock will be declared pro rata so that in all cases the
amount of dividends declared per share on the Series C Preferred Stock and such
other Preferred Stock shall bear the same ratio to each other that the
accumulated dividends per share on the shares of the Series C Preferred Stock
and such other shares of Preferred Stock bear to each other. The holders of the
Series C Preferred Stock shall not be entitled to receive any dividends thereon
other than the dividends provided for in the preceding provisions of this
Section.
2. Voting Rights and Notice of Meeting. The holders of the Common Stock
shall have the exclusive right and power to vote an any matter submitted to a
vote of the shareholders of the Corporation and the holders of the Series C
Preferred Stock shall have no right or power whether authorized by the Act or
otherwise to vote on any matter or in any proceeding or to be represented at or
to receive notice of any meeting of the shareholders.
3. Redemption.
Neither the Corporation nor the Holders of the Series C Preferred Stock
shall have any rights of redemption as to the shares of Series C Preferred Stock
issued and outstanding.
4. Conversion of Series C Preferred Stock.
(a) Conversion Right of Holder. Each share of the Series C preferred
Stock shall be convertible, at the option of the holder thereof, at any time
after the due of initial issuance of such share of Series C Preferred Stock and
up until 3 years thereafter, into either fully-paid and non-assessable whole
shares of Common Stock upon the terms and conditions set forth in the following
paragraphs of this Section. Nothing contained herein shall required the Company
to issue upon receipt of a notice of conversion in excess of 20% of its issued
and outstanding Common Stock as provided in NASDAQ Marketplace Rule
4320(e)(21)(H) (the "NASD 20% Rule") unless and until the shareholder approval
has been obtained by the Company. In the event that the Company does not issue
its Common Stock after receipt of a conversion notice because of the 20% Rule,
then in such event, the Company shall pay to the holder 125% of the principal
amount of Preferred Stock issued and outstanding plus accrued interest within
five (5) business days of receipt of the faxed notice of conversion from the
holder.
<PAGE>
(b) Automatic Conversion. The holder's conversion right shall expire
three (3) years after the date of issuance. Upon three years from the date of
issuance, all shares of Series C Preferred Stock that remain outstanding will
automatically convert into shares of the Corporation's Common Stock. The
Conversion Rate to be utilized for the automatic conversion shall the rate
specified in Section 4(d) which yields the largest number of shares to the
holder.
(c) Exercise of Conversion Right. Any holder of the Series C Preferred
Stock electing to convert such stock into Common Stock pursuant to Section 4(a)
hereof shall deliver the certificates for the Series C Preferred Stock to the
Corporation's principal office or the office of the Corporations Transfer Agent,
with the form of written notice to the Corporation endorsed on such
certificate(s) of his election to convert such Series C Preferred Stock into
Common Stock duly filled out and executed. The conversion right in respect of
any such Series C Preferred Stock pursuant to Section 4(a) hereof shall be
deemed to have been exercised at the date on which the holder delivers such
notice of conversion duly filled out and executed to the Corporation or the
Corporation's transfer agent (the "Date of Election"). A facsimile notice of
conversion will be accepted by the Corporation as a valid notice of election, so
long as the holder then delivers the original certificates within three business
days thereafter. The person entitled to receive the Series A Preferred Stock or
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such security on such date; provided, however, that the
conversion right in respect of any notice received after the close of business
(11:59 PM EST) on any day shall not be deemed to have been exercised until the
succeeding business day. As soon as practicable, and in any event within three
(3) business days after the date of receipt of the original certificates of any
Series C Preferred Stock to be converted pursuant to Section 4(a) hereof, the
Corporation shall deliver to the person entitled thereto, certificate(s)
representing the shares of Series A Preferred Stock or Common Stock to which
such person shall be entitled on such conversion. The Corporation, as a
condition to the exercise of such rights of conversion, may require the payment
of a sum equal to any transfer tax or other governmental charge (but not
including any tax payable upon the issue of stock deliverable upon such
conversion) that may be imposed or required by law, upon any transfer incidental
or prior thereto, or the submission of proper proof that the same has been paid.
(d) Conversion Rate. The number of shares of Common Stock issuable
upon conversion of each share of Series C Preferred Stock shall be as follows:
(1) [LEFT INTENTIONALLY BLANK]
<PAGE>
(2) Conversion into Common Stock. Equal to $10,000, divided by
80% of the average closing bid price of the Common Stock during the five trading
day period immediately proceeding the Date of Election as defined in Section
4(a) hereof. In addition, the Corporation shall not be required, in connection
with my such conversion, to issue a fraction of a share of its Common Stock nor
to deliver any stock certificate representing a fraction thereof.
(3) Limitations on Conversion. Any holder of the Series C
Preferred Stock will be allowed to convert 50% of the aggregate amount of such
holders Series C Preferred Stock beginning the day after the registration
statement registering the Common Stock has been declared effective, but no
sooner than 60 days from the date the Series C Preferred Stock is issued. Any
holder of the Series C Preferred Stock will be allowed to convert any and all
remaining shares of holder's Series C Preferred Stock be within 120 days after
the issuance of the Series C Preferred Stock; provided, however, that if on the
120th day after the issuance of the Series C Preferred Stock the registration
statement has not yet been declared effective all holders must wait until the
registration statement is declared effective before converting any and all of
their Series C Preferred Stock.
(e) Adjustment of Conversion Rate. The number of shares of Common
Stock into which share of the Series C Preferred Stock is convertible shall be
subject to adjustment from time to time in certain instances, as follows:
(1) On Recapitalization. On any recapitalization of the
Corporation through the subdivision or combination of its outstanding Common
Stock into a greater or smaller number of shares, the number of shares of Common
Stock into which the shares of Series C Preferred Stock may be converted shall
be increased or reduced in the same proportion.
(2) On Capital Reorganization, Reclassification, Consolidation,
Merger or Sale of Corporate Assets. On my capital reorganization,
reclassification of the capital stock, consolidation, merger, or sale or
conveyance of all or substantially all of the assets of the Corporation to
another corporation, each share of Series C Preferred Stock shall be convertible
into the same kind and amounts of securities, including shares or other assets,
or both, into which the number of shares of capital stock of the Corporation
which would have been deliverable on conversion of such shares of Series C
Preferred stock immediately prior to such reorganization, reclassification,
consolidation, merger, sale or conveyance would have been entitled. Appropriate
adjustments, as determined by the Board of Directors of the Corporation, shall
be made in the application of the provisions herein set forth with respect to
the rights and interests thereafter of the holders of the Series C Preferred
Stock so that said provisions, including the provisions with respect to changes
in, and other adjustments of, the Conversion Rate, shall thereafter be
applicable, as nearly as reasonably may be, in relation to any securities or
other assets thereafter deliverable on conversion of the shares of Series C
Preferred Stock.
<PAGE>
(f) Statement of Adjusted Amount. Whenever the amount of shares of
Common Stock deliverable on the conversion of Series C Preferred Stock shall be
adjusted pursuant to the provisions hereof, the Corporation shall forthwith
maintain at its office and file with the transfer agent or agents, a statement
signed by the President or Vice President of the Corporation and by its Chief
Financial Officer, stating the adjusted amount of any securities deliverable for
each share of Series C Preferred Stock, calculated to the nearest one hundredth
(1/100) share, and setting forth in reasonable detail the method of calculation
and the facts requiring such adjustment and on which the calculation is based.
Each adjustment shall remain in effect until a subsequent adjustment hereunder
is required.
(g) Fractional Shares. Neither fractional shares nor scrip or other
certificates evidencing such shares shall be issued on conversion of the Series
C Preferred Stock as herein provided, but the Corporation shall, in lieu
thereof, round all such fractional shares to the nearest whole share.
(h) Payment of Taxes on Conversion of Series C Preferred Stock. The
Corporation shall pay any and all issue and other taxes that may be payable in
respect of any issue or delivery of Common Stock on conversion of shares of
Series C Preferred Stock pursuant hereto. The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of Common Stock in a name other than that in which the
shares of Series C Preferred Stock so converted were registered and no such
issue or delivery shall be made unless and until the person requesting it has
paid to the Corporation the amount of any such tax, or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(i) Reservation of Sufficient Common Stock. So long as any shares of
Series C Preferred Stock shall remain outstanding and the holders thereof shall
have the right to convert said shares in accordance with the provisions of this
Section 4, the Corporation will at all times reserve from the authorized and
unissued shares of its Common Stock a sufficient number of shares to provide for
such conversions, and will take such other corporation action as may be
necessary from time to time in order that it may validly and legally issue
fully-paid and non-assessable shares of such Common Stock upon conversion of the
Series C Preferred Stock.
(j) Definition of Common Stock. In each case where reference is made
to the Common Stock of the Corporation in this Section, unless a different
intention is expressed, such reference is to the series or class of Common Stock
of the Corporation as such series or class of stock exists at the date of the
adoption of these provisions, or stock into which the same may be changed from
time to time.
(k) Status of Converted Preferred Shares. All shares of Series C
Preferred Stock so converted shall be canceled and such shares shall be restored
to the status of authorized but unissued shares of Preferred Stock.
<PAGE>
5. Liquidation Rights.
(a) Liquidation Preference Amount. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the business or affairs of
the Corporation, and after payment of, or adequate provision for payment of, the
debt liabilities and other claims of the Corporation as determined by its Board
of Directors, each holder of the Series C Preferred Stock shall be entitled to
receive, out of the remaining net assets of the Corporation legally available
for distribution to its shareholders, before any payment or distribution shall
be made on the Common Stock, or on any other class of stock of the Corporation
ranking junior to the shares of Series C Preferred Stock upon liquidation, the
amount of Ten Thousand and No/100 Dollars ($10,000.00) per share of Series C
Preferred Stock, plus all accrued and unpaid dividends on each such share up to
the date fixed for distribution.
(b) Proportionate Distribution Where Assets Insufficient. In the event
the assets of the Corporation available for distribution to the holders of
shares of Series C Preferred Stock upon dissolution, liquidation or winding up
of the Corporation whether voluntary or involuntary, shall be insufficient to
pay in full all amounts to which such holders are entitled pursuant to paragraph
(a) of this Section, no such distribution shall be made on account of any shares
of any class of capital stock of the Corporation ranking on a parity with the
shares of Series C Preferred Stock upon such dissolution, liquidation or winding
up unless proportionate distributive amounts shall be paid on account of the
shares of Series C Preferred Stock, ratably, in proportion to the full
distributable amounts for which holders of all such parity shares are
respectively entitled upon such dissolution, liquidation or winding up.
(c) Nonparticipation Right. After the payment to the holders of the
shares of Series C Preferred Stock of the full preferential amounts provided for
in either paragraph (a) or (b) of this Section, as applicable, the holders of
Series C Preferred Stock as such shall have no right or claim to any of the
remaining assets of the Corporation.
(d) Excluded Transactions. Neither the consolidation nor merger of the
Corporation with or into any other corporation, nor the sale, mortgage, exchange
or conveyance of all or substantially all of the properties, assets or business
of the Corporation, nor any liquidation, dissolution or winding up of the
Corporation occurring substantially concurrently with any such transaction shall
be deemed to be a liquidation, dissolution or winding up of the Corporation
within the meaning hereof, unless otherwise determined by the Board of Directors
of the Corporation.
6. No Preemptive Rights. No holder of shares of the Series C Preferred
Stock shall, as such holder, have any preemptive right to subscribe to or
purchase any shares of any class of capital stock of the Corporation now or
hereafter authorized or issued, whether or not exchangeable for any capital
stock of the Corporation of any class or classes now or hereafter authorized or
issued; nor shall any holder of shares of the Series C Preferred Stock, as such
holder, have any right to purchase, acquire or subscribe for any securities
which the Corporation may issue or sell whether or not convertible into or
exchangeable for shares of capital stock of the Corporation of any class or
classes, and whether or not any such securities have attached or appurtenant
thereto warrants, options or other instruments which entitle the holders thereof
to purchase, acquire or subscribe for shares of capital stock of any class or
classes of the Corporation.
<PAGE>
7. Determination of Market Value of Capital Stock of Corporation. The
determination of the per share market value of Common Stock as set forth in
previous Sections shall be determined using the previous five day average
closing bid price for the day or, where no sale is made on that day, the average
of the closing bid and asked prices for that day as reported by the NASDAQ Small
Cap - Issue System if the securities are at the time listed thereon or, if it is
not so listed, on any other national securities exchange selected by the
Corporation on which it is at the time listed. If the Common Stock is not at the
time listed an any national securities exchange, its market value for the
purposes hereof shall be the average closing bid price for the last three
trading days the Common Stock was listed on any national securities exchange.
8. Covenants of the Corporation. The Corporation will not, by amendment to
its Articles of Incorporation, as amended, or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the preferences and limitations of Series
C Preferred Stock to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
set forth herein relating to Series C Preferred Stock and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the holders of the Series C Preferred Stock against dilution or other
impairment.
IN WITNESS WHEREOF, HARVEST RESTAURANT GROUP, INC. has caused this
Statement of Resolution Establishing Series of Shares to be signed by Steves
Rosser, its Vice-President and Secretary, this 8th day of July, 1999.
HARVEST RESTAURANT GROUP, INC.
By: /s/ Steves Rosser
STEVES ROSSER,
Vice-President and Secretary
<PAGE>
HARVEST RESTAURANT GROUP, INC.
(a Texas corporation)
---------------------
STATEMENT OF RESOLUTION
ESTABLISHING SERIES OF PREFERRED STOCK
--------------------------------------
Series D Convertible Preferred Stock
To: The Secretary of State
Of the State of Texas
Pursuant to the previous of Article 2.13 of the Texas Business Corporation
Act (the "Act"), the undersigned corporation, HARVEST RESTAURANT GROUP, INC.,
formerly CluckCorp International, Inc. (the "Corporation"), hereby submits the
following statement of the purpose of establishing and designating a series of
shares of preferred stock to be known as Series D Convertible Preferred Stock
and fixing and determining the relative rights and preferences thereof:
ARTICLE ONE
NAME
----
1. The name of the corporation is HARVEST RESTAURANT GROUP, INC. and the
charter number of the Corporation is 01274398.
ARTICLE TWO
CORPORATE RESOLUTIONS
---------------------
1. Be it known that on May 19, 1997, the Corporation had established and
designated 3,000,000 shares of its preferred stock as Series A Redeemable
Convertible Preferred Stock ("Series A Preferred Stock"); on December 15, 1997,
the Corporation had established and designated 1000 shares of its preferred
stock as Series B Convertible Preferred Stock ("Series B Preferred Stock"); and
on July 2, 1998, the Corporation had established and designated 1000 shares of
its preferred stock as Series C Convertible Preferred Stock ("Series C Preferred
Stock").
2. The following resolution establishing and designating an additional
series of preferred stock, known as: the Series D Convertible Preferred Stock
(the "Series D Preferred Stock"), and fixing and determining the relative rights
and preferences thereof was duly adopted by the Board of Directors of the
Corporation on December 22, 1998. This resolution supercedes the Statement of
Resolution Establishing Series of Preferred Stock, known as Series D Convertible
Preferred Stock, that was filed with the Secretary of State of Texas on January
14, 1999. The Series D Preferred Stock has been created as part of a
recapitalization of the Corporation and the Series D Preferred Stock will be
issued for cash and in exchange for all outstanding shares of Series B Preferred
Stock and all outstanding shares of Series C Preferred Stock. The Series D
Preferred Stock shall rank junior to the Series A Preferred Stock.
<PAGE>
BE IT RESOLVED that, pursuant to the authority expressly granted and vested in
the Board of Directors of the Corporation in accordance with Article Four,
Section 1 of the Corporation's Articles of Incorporation, authorizing 5,000,000
shares of Preferred Stock (the "Preferred Stock"), $1.00 par value per share,
approved and adopted on June 17, 1993 by the affirmative vote of the holders of
more than the requisite majority of the issued and outstanding shares of Common
Stock of the Corporation entitled to vote thereon (being the only voting capital
stock of the Corporation then outstanding) in accordance with and pursuant to
the provisions of Article 2.13 of the Texas Business Corporation Act (the
"Act"), the Board of Directors of the Corporation does hereby approve and adopt
the following resolutions designating and authorizing for issuance, in
accordance with the provisions of Article 2.13 of the Act, Nine Thousand Two
Hundred (9,200) shares of the Series D Preferred Stock of the Corporation, each
having a par value of $1.00 per share, said resolutions hereby effected being
made prior to the issuance of any shares of Series D Preferred Stock, such
shares of Series D Preferred Stock to be exchanged for the outstanding shares of
Series B Preferred Stock and the shares of Series C Preferred Stock, and
purchased for cash in the amount subscribed to, and each of which shares of
Series D Preferred Stock shall have the dividend rights, voting powers,
redemption provisions, liquidation preferences and the relative, optional and
other special rights, and shall be subject to the qualifications, limitations or
restrictions set forth below; and the remaining authorized shares of the
Preferred Stock shall remain undesignated and reserved for future issuance
subject to the future action of the Board of Directors of the Corporation.
ARTICLE THREE
RIGHTS AND PREFERENCES OF SERIES D PREFERRED STOCK
--------------------------------------------------
1. Dividends.
(a) Amount and Payment of Dividend. Subject to the limitations
hereinafter set forth, the holders of Series D Preferred Stock shall be entitled
to receive dividends at the rate of seven percent (7%) per annum of the original
issue price thereof of One Thousand and No/100 Dollars ($1,000.00) per share,
and no more, payable only at the time such shares are converted pursuant to
Section 4 hereof. Such dividends may be paid in cash or in shares of Common
Stock of the Corporation as determined by the holders of the Series D Preferred
Stock in their sole discretion; provided, however, no fractional shares of
either security may be issued for dividends, any fractional shares will be
rounded to the nearest whole share, and provided further that if any such
dividend is paid in whole or in part by shares of Common Stock, the number of
shares of such security to be issued as a stock dividend shall be determined by
the Market Value (as defined in Section 7 below) of a share of Common Stock as
of the last day of the period for such stock dividend. Any shares of Series D
Preferred Stock issued after the date hereof shall accrued dividends from the
date of issuance.
(b) Cumulative Rights. To the extent, if any, that dividends at the
rate set forth in Section 1(a) above shall not be paid or set apart in full for
the Series D Preferred Stock, the aggregate deficiency shall be cumulated and
must be fully paid or set apart for payment before any dividends may be paid
upon or set apart for the Common Stock of the Corporation or before the
Corporation may purchase any of its Common Stock or otherwise make any
distribution on account of its Common Stock or any other class of capital stock
now or hereafter authorized or issued by the Corporation which ranks on a parity
with or junior to the Series D Preferred Stock (other than (i) a dividend
payable in Common Stock, (ii) by conversion into or exchange for capital stock
of the Corporation ranking junior to the Series D Preferred Stock as to
dividends, or (iii) a dividend payable in compliance with Section 1(d) below).
<PAGE>
(c) No Interest on Accrued Dividends. Any accumulations of dividends
on the Series D Preferred Stock shall not bear interest.
(d) Declaration. Dividends on the Series D Preferred Stock shall be
declared if, when and as the Board of Directors of the Corporation shall in its
sole discretion deem advisable, and only from the surplus of the Corporation as
such shall be fixed and determined by the said Board of Directors. The
determination of the Board of Directors at any time of the amount of surplus
available for the payment of dividends shall be binding and conclusive on the
holders of the shares of Series D Preferred Stock then outstanding. If dividends
are not paid in full upon the Series D Preferred Stock and any other Preferred
Stock ranking on a parity as to dividends with the Series D Preferred Stock, all
dividends declared upon shares of Series D Preferred Stock and upon such other
shares of Preferred Stock will be declared pro rata so that in all cases the
amount of dividends declared per share on the Series D Preferred Stock and such
other Preferred Stock shall bear the same ratio to each other that that
accumulated dividends per share on the shares of the Series D Preferred Stock
and such other shares of Preferred Stock bear to each other. The holders of the
Series D Preferred Stock shall not be entitled to receive any dividends thereon
other than the dividends provided for in the preceding provisions of this
Section.
2. Voting Rights and Notice of Meetings. The holders of the Common Stock
shall have the exclusive right and power to vote on any matter submitted to a
vote of the shareholders of the Corporation, and the holders of the Series D
Preferred Stock shall have no right or power whether authorized by the Act or
otherwise to vote on any matter or in any proceeding or to be represented at or
to receive notice of any meeting of the shareholders.
3. Redemption.
Neither the Corporation nor the Holders of the Series D Preferred
Stock shall have any rights of redemption as to the shares of Series D Preferred
Stock issued and outstanding.
4. Conversion of Series D Preferred Stock.
(a) Conversion Right of Holder. Each share of the Series D Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
after the date of initial issuance of such share of Series D Preferred Stock
(subject to Section 4(d)(3) below) and up until three years thereafter, into
fully-paid and non-assessable whole shares of Common Stock upon the terms and
conditions set forth in the following paragraphs of this Section. Nothing
contained herein shall required the Company to issue upon receipt of a notice of
conversion in excess of 20% of its issued and outstanding Common Stock as
provided in NASDAQ Marketplace Rule 4320(e)(21)(H) (the "NASD 20% Rule") unless
and until the shareholder approval has been obtained by the Company. In the
event that the Company does not issue its Common Stock after receipt of a
conversion notice because of the 20% Rule, then in such event, the Company shall
pay to the holder 125% of the principal amount of Preferred Stock for which a
notice of conversion was given and which was not converted for such reason, plus
accrued interest within five (5) business days of receipt of the faxed notice of
conversion from such holder.
<PAGE>
(b) Automatic Conversion. The holder's conversion right shall expire
three (3) years after the date of issuance. Upon three years from the date of
issuance, all shares of Series D Preferred Stock that remain outstanding will
automatically convert into shares of the Corporation's Common Stock. The
Conversion Rate to be utilized for the automatic conversion shall the rate
specified in Section 4(d) which yields the largest number of shares to the
holder.
(c) Exercise of Conversion Right. Any holder of the Series D Preferred
Stock electing to convert such stock into Common Stock pursuant to Section 4(a)
hereof shall deliver the certificates for the Series D Preferred Stock to the
Corporation's principal office or the office of the Corporation's Transfer
Agent, with the form of written notice to the Corporation endorsed on such
certificate(s) of his election to convert such Series D Preferred Stock into
Common Stock duly filled out and executed. The conversion right in respect of
any such Series D Preferred Stock pursuant to Section 4(a) hereof shall be
deemed to have been exercised at the date on which the holder delivers such
notice of conversion duly filled out and executed to the Corporation or the
Corporation's transfer agent (the "Date of Election"). A facsimile notice of
conversion will be accepted by the Corporation as a valid notice of election, so
long as the holder then delivers the original certificates within three business
days thereafter. The person entitled to receive the Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder of such
security on such date; provided, however, that the conversion right in respect
of any notice receive after the close of business (11:59 PM EST) on any day
shall not be deemed to have been exercised until the next succeeding business
day. As soon as practicable, and in any event within three (3) business days
(five business days if the Common Stock is then being quoted on the OTC Bulletin
Board) after the date of receipt of the original certificates of any Series D
Preferred Stock to be converted pursuant to Section 4(a) hereof, the Corporation
shall deliver to the person entitled thereto, certificate(s) representing the
shares of Common Stock to which such person shall be entitled on such
conversion. The Corporation, as a condition to the exercise of such rights of
conversion, may require the payment of a sum equal to any transfer tax or other
governmental charge (but not including any tax payable upon the issue of stock
deliverable upon such conversion) that may be imposed or required by law, upon
any transfer incidental or prior thereto, or the submission of proper proof that
the same has been paid.
(d) Conversion Rate. The number of shares of Common Stock issuable
upon conversion of each share of Series D Preferred Stock shall be as follows:
(1) [LEFT INTENTIONALLY BLANK]
(2) Conversion into Common Stock. Equal to $1,000, divided by 80%
of the Market Value (as defined in Section 7 below) as of the Date of Elections
defined in Section 4(a) hereof. In addition, the Corporation shall not be
required, in connection with any such conversion, to issue a fraction of a share
of its Common Stock nor to deliver any stock certificate representing a fraction
thereof.
(3) Limitations on Conversion. Any holder of the Series D
Preferred Stock will be allowed to convert the aggregate amount of such holder's
Series D Preferred Stock beginning the day after the registration statement
registering the Common Stock has been declared effective by the Securities and
Exchange Commission, but no sooner than 120 days after the Corporation's
shareholders approve an amendment to the Corporation's Articles of Incorporation
increasing the number of authorized shares of Common Stock to not less than
100,000,000 (the "Shareholders Meeting"). If on the 120th day after the
Shareholders Meeting the registration statement has not yet been declared
effective, all holders must wait until the registration statement is declared
effective before converting any and all of their Series D Preferred Stock.
<PAGE>
(e) Adjustment of Conversion Rate. The number of shares of Common
Stock into which each share of the Series D Preferred Stock is convertible shall
be subject to adjustment from time to time in certain instances, as follows:
(1) On Recapitalization. On any recapitalization of the
Corporation through the subdivision or combination of its outstanding Common
Stock into a greater or smaller number of shares, the number of shares of Common
Stock into which the shares of Series D Preferred Stock may be converted shall
be increased or reduced in the same proportion.
(2) On Capital Reorganization, Reclassification, Consolidation,
Merger or Sale of Corporate Assets. On any capital reorganization,
reclassification of the capital stock, consolidation, merger, or sale or
conveyance of all or substantially all of the assets of the Corporation to
another corporation, each share of Series D Preferred Stock shall be convertible
into the same kind and amounts of securities, including shares or other assets,
or both, that the holder of such share would have received had he converted such
share of Series D Preferred Stock into Common Stock immediately prior to such
reorganization, reclassification, consolidation, merger, sale or conveyance.
Appropriate adjustments, as determined by the Board of Directors of the
Corporation, shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the holders of the Series
D Preferred Stock so that said provisions, including the provisions with respect
to changes in, and other adjustments of, the Conversion Rate, shall thereafter
be applicable, as nearly as reasonably may be, in relation to any securities or
other assets thereafter deliverable on conversion of the shares of Series D
Preferred Stock.
(f) Statement of Adjusted Amount. Whenever the amount of shares of
Common Stock deliverable on the conversion of Series D Preferred Stock shall be
adjusted pursuant to the provisions hereof, the Corporation shall forthwith
maintain at its office and file with the transfer agent or agents, a statement
signed by the President or Vice President of the Corporation and by its Chief
Financial Officer, stating the adjusted amount of any securities deliverable for
each share of Series D Preferred Stock, calculated to the nearest one hundredth
(1/100) share, and setting forth in reasonable detail the method of calculation
and the facts requiring such adjustment and on which the calculation is based.
Each adjustment shall remain in effect until a subsequent adjustment hereunder
is required.
(g) Fractional Shares. Neither fractional shares nor scrip or other
certificates evidencing such shares shall be issued on conversion of the Series
D Preferred Stock as herein provided, but the Corporation shall, in lieu
thereof, round all such fractional shares to the nearest whole share.
(h) Payment of Taxes on Conversion of Series D Preferred Stock. The
Corporation shall pay any and all issue and other taxes that may be payable in
respect of any issue or delivery of Common Stock on conversion of shares of
Series D Preferred Stock pursuant hereto. The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of Common Stock in a name other than that in which the
shares of Series D Preferred Stock so converted were registered, and no such
issue or delivery shall be made unless and until the person requesting it has
paid to the Corporation the amount of any such tax, or has established, to the
satisfaction of the Corporation, that such tax has been paid.
<PAGE>
(i) Reservation of Sufficient Common Stock. So long as any shares of
Series D Preferred Stock shall remain outstanding and the holders thereof shall
have the right to convert said shares in accordance with the provisions of this
Section 4, the Corporation will at all times after the Shareholders Meeting
reserve from the authorized and unissued shares of its Common Stock a sufficient
number of shares to provide for such conversions, and will take such other
corporation action as may be necessary from time to time in order that it may
validly and legally issue fully-paid and non-assessable shares of such Common
Stock upon conversion of the Series D Preferred Stock.
(j) Definition of Common Stock. In each case where reference is made
to the Common Stock of the Corporation in this Section, unless a different
intention is expressed, such reference is to the series or class of Common Stock
of the Corporation as such series or class of stock exists at the date of the
adoption of these provisions, or stock into which the same may be changed from
time to time.
(k) Status of Converted Preferred Shares. All shares of Series D
Preferred Stock so converted shall be canceled and such shares shall be restored
to the status of authorized but unissued shares of Preferred Stock.
5. Liquidation Rights.
(a) Liquidation Preference Amount. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the business or affairs of
the Corporation, and after payment of, or adequate provision for payment of, the
debts, liabilities and other claims of the Corporation as determined by its
Board of Directors, each holder of the Series D Preferred Stock shall be
entitled to receive, out of the remaining net assets of the Corporation legally
available for distribution to its shareholders, before any payment or
distribution shall be made on the Common Stock, or on any other class of stock
of the Corporation ranking junior to the shares of Series D Preferred Stock upon
liquidation, the amount of One Thousand and No/100 Dollars ($1,000.00) per share
of Series D Preferred Stock, plus all accrued and unpaid dividends on each such
share up to the date fixed for distribution.
(b) Proportionate Distribution Where Assets Insufficient. In the event
the assets of the Corporation available for distribution to the holders of
shares of Series D Preferred Stock upon dissolution, liquidation or winding up
of the Corporation, whether voluntary or involuntary, shall be insufficient to
pay in full all amounts to which such holders are entitled pursuant to paragraph
(a) of this Section, no such distribution shall be made on account of any shares
of any class of capital stock of the Corporation ranking on a parity with the
shares of Series D Preferred Stock upon such dissolution, liquidation or winding
up unless proportionate distributive amounts shall be paid on account of the
shares of Series D Preferred Stock, ratably, in proportion to the full
distributable amounts for which holders of all such parity shares are
respectively entitled upon such dissolution, liquidation or winding up.
(c) Nonparticipation Right. After the payment to the holders of the
shares of Series D Preferred Stock of the full preferential amounts provided for
in either paragraph (a) or (b) of this Section, as applicable, the holders of
Series D Preferred Stock as such shall have no right or claim to any of the
remaining assets of the Corporation.
<PAGE>
(d) Excluded Transactions. Neither the consolidation nor merger of the
Corporation with or into any other corporation, nor the sale, mortgage, exchange
or conveyance of all or substantially all of the properties, assets or business
of the Corporation, nor any liquidation, dissolution or winding up of the
Corporation occurring substantially concurrently with any such transaction shall
be deemed to be a liquidation, dissolution or winding up of the Corporation
within the meaning hereof, unless otherwise determined by the Board of Directors
of the Corporation.
6. No Preemptive Rights. No holder of shares of the Series D Preferred
Stock shall, as such holder, have any preemptive right to subscribe to or
purchase any shares of any class of capital stock of the Corporation nor or
hereafter authorized or issued, whether or not exchangeable for any capital
stock of the Corporation of any class or classes now or hereafter authorized or
issued; nor shall any holder of shares of the Series D Preferred Stock, as such
holder, have any right to purchase, acquire or subscribe for any securities
which the Corporation may issue or sell whether or not convertible into or
exchangeable for shares of capital stock of the Corporation of any class or
classes, and whether or not any such securities have attached or appurtenant
thereto warrants, options or other instruments which entitle the holders thereof
to purchase, acquire or subscribe for shares of capital stock of any class or
classes of the Corporation.
7. Determination of Market Value of Capital Stock of Corporation. The
determination of the per share "Market Value" of Common Stock as set forth in
previous Sections shall be determined using the previous five day average
closing bid price for the day or, where no sale is made on that day, the average
of the closing bid and asked prices for that day on the NASDAQ Stock Market or
the OTC Bulletin Board if the securities are at the time listed or quoted
thereon, respectively, or, if it is not so listed or quoted, on any other
national securities exchange selected by the Corporation on which it is at the
time listed. If at the applicable time the Common Stock is quoted on the OTC
Bulletin Board, the foregoing calculations shall be based on a Trade and Quote
Summary Report from the OTC Bulletin Board Research Service if available, and if
not, on any other publicly available data reasonably deemed reliable by the
Corporation.
8. Covenants of the Corporation. The Corporation will not, by amendment to
its Articles of Incorporation, as amended, or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the preferences and limitations of Series
D Preferred Stock to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
set forth herein relating to Series D Preferred Stock and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the holders of the Series D Preferred Stock against dilution or other
impairment.
IN WITNESS WHEREOF, HARVEST RESTAURANT GROUP, INC. has caused this
Statement of Resolution Establishing Series of Shares to be signed by Timothy R.
Robinson, its Chief Financial Officer, this _______ day of February, 1999.
HARVEST RESTAURANT GROUP, INC.
By:
Name:
Title:
<PAGE>
HARVEST RESTAURANT GROUP, INC.
(a Texas corporation)
---------------------
STATEMENT OF RESOLUTION
ESTABLISHING SERIES OF PREFERRED STOCK
--------------------------------------
Series E Convertible Preferred Stock
To: The Secretary of State
of the State of Texas
Pursuant to the provisions of Article 2.13 of the Texas Business
Corporation Act (the "Act"), the undersigned corporation, HARVEST RESTAURANT
GROUP, INC., (the "Corporation"), hereby submits the following statement for the
purpose of establishing and designating a series of shares of preferred stock to
be known as Series E Convertible Preferred Stock and fixing and determining the
relative rights and preferences thereof:
ARTICLE ONE
NAME
----
1. The name of the Corporation is HARVEST RESTAURANT GROUP, INC., and the
charter number of the Corporation is 01274398.
ARTICLE TWO
CORPORATE RESOLUTIONS
---------------------
1. Be it known that on May 19, 1997 the Corporation had established and
designated 3,000,000 shares of its preferred stock as Series A Redeemable
Convertible Preferred Stock ("Series A Preferred Stock") and on December 22,
1997 the Corporation had established and designated 1,000 shares of its
preferred stock as Series B Convertible Preferred Stock ("Series B Preferred
Stock"), on July 2, 1998 the Corporation had established and designated 1,000
shares of its preferred stock as Series C Convertible Preferred Stock ("Series C
Preferred Stock"), and on December 22, 1998, the Corporation had established and
designated 8,600 shares of its preferred stock as Series D Convertible Preferred
Stock ("Series D Preferred Stock") for which all outstanding shares of Series B
Preferred Stock and Series C Preferred Stock were exchanged.
2. The following resolution establishing and designating an additional
series of preferred stock, known as: the Series E Convertible Preferred Stock
(the "Series E Preferred Stock"), and fixing and determining the relative rights
and preferences thereof was duly adopted by the Board of Directors of the
Corporation on December 22, 1998. The Series E Preferred Stock shall rank junior
to the Series A Preferred Stock and the Series D Preferred Stock.
<PAGE>
BE IT RESOLVED that, pursuant to the authority expressly granted and vested
in the Board of Directors of the Corporation in accordance with Article Four,
Section 1 of the Corporation's Articles of Incorporation, authorizing 5,000,000
shares of Preferred Stock (the "Preferred Stock"), $1.00 par value per share,
approved and adopted on June 17, 1993 by the affirmative vote of the holders of
more than the requisite majority of the issued and outstanding shares of Common
Stock of the Corporation entitled to vote thereon (being the only voting capital
stock of the Corporation then outstanding) in accordance with and pursuant to
the provisions of Article 2.13 of the Texas Business Corporation Act (the
"Act"), the Board of Directors of the Corporation does hereby approve and adopt
the following resolutions designating and authorizing for issuance, in
accordance with the provisions of Article 2.13 of the Act, 745,000 shares of the
Series E Preferred Stock of the Corporation, each having a par value of $1.00
per share, said resolutions hereby effected being made prior to the issuance of
any shares of Series E Preferred Stock, and each of which shares of Series E
Preferred Stock shall have the dividend rights, voting powers, redemption
provisions, liquidation preferences and the relative, optional or other special
rights, and shall be subject to the qualifications, limitations or restrictions
set forth below and the remaining authorized shares of the Preferred Stock shall
remain undesignated and reserved for future issuance subject to the future
action of the Board of Directors of the Corporation.
Rights and Preferences of Series E Preferred Stock
--------------------------------------------------
1. Dividends.
(a) Amount and Payment of Dividend. Subject to the limitations hereinafter
set forth, the holders of Series E Preferred Stock shall be entitled to receive
dividends at the rate of eight percent (8%) per annum of the original issue
price thereof of Ten and No/100 Dollars ($10.00) per share, and no more, payable
only at the time such shares are converted pursuant to Section 4 hereof. Such
dividends may be paid in cash or in shares of Common Stock of the Corporation as
determined by the Board of Directors of the Corporation in its sole discretion;
provided, however, no fractional shares may be issued for dividends, any
fractional shares will be rounded to the nearest whole share, and provided
further that if any such dividend is paid in whole or in part by shares of
Common Stock, the number of shares of such security to be issued as a stock
dividend shall be determined by the Market Value (as defined in Section 7 below)
of a share of Common Stock on the last day of the period for such stock
dividend. Any shares of Series E Preferred Stock issued after the date hereof
shall accrue dividends from the date of issuance.
(b) Cumulative Rights. To the extent, if any, that dividends at the rate
set forth in Section 1(a) above shall not be paid or set apart in full for the
Series E Preferred Stock, the aggregate deficiency shall be cumulated and must
be fully paid or set apart for payment before any dividends may be paid upon or
set apart for the Common Stock of the Corporation or before the Corporation may
purchase any of its Common Stock or otherwise make any distribution on account
of its Common Stock or any other class of capital stock now or hereafter
authorized or issued by the Corporation which ranks on a parity with or junior
to the Series E Preferred Stock (other than (i) a dividend payable in Common
Stock, (ii) by conversion into or exchange for capital stock of the Corporation
ranking junior to the Series E Preferred Stock as to dividends, or (iii) a
dividend payable in compliance with Section 1(d) below).
<PAGE>
(c) No Interest on Accrued Dividends. Any accumulations of dividends on the
Series E Preferred Stock shall not bear interest.
(d) Declaration. Dividends on the Series E Preferred Stock shall be
declared if, when and as the Board of Directors of the Corporation shall in its
sole discretion deem advisable, and only from the surplus of the Corporation as
such shall be fixed and determined by the said Board of Directors. The
determination of the Board of Directors at any time of the amount of surplus
available for the payment of dividends shall be binding and conclusive on the
holders of the shares of Series E Preferred Stock then outstanding. If dividends
are not paid in full upon the Series E Preferred Stock and any other Preferred
Stock ranking on a parity as to dividends with the Series E Preferred Stock, all
dividends declared upon shares of Series E Preferred Stock and upon such other
shares of Preferred Stock will be declared pro rata so that in all cases the
amount of dividends declared per share on the Series E Preferred Stock and such
other Preferred Stock shall bear the same ratio to each other that the
accumulated dividends per share on the shares of the Series E Preferred Stock
and such other shares of Preferred Stock bear to each other. The holders of the
Series E Preferred Stock shall not be entitled to receive any dividends thereon
other than the dividends provided for in the preceding provisions of this
Section.
2. Voting Rights and Notice of Meetings. The holders of the Common Stock shall
have the exclusive right and power to vote on any matter submitted to a vote of
the shareholders of the Corporation and the holders of the Series E Preferred
Stock shall have no right or power whether authorized by the Act or otherwise to
vote on any matter or in any proceeding or to be represented at or to receive
notice of any meeting of the shareholders.
3. Redemption by Corporation.
The Corporation shall have the right to redeem the shares of Series E
Preferred Stock at any time after six months from the date of issuance for $.01
per share, if the Market Value of the Common Stock exceeds $3.50 per share as of
the date of redemption. Notice of redemption must be mailed at least 30 days in
advance to each holder of record of the Series E Preferred Stock to the holder's
address as shown on the stock transfer books of the Corporation. On the
redemption date, the shares of Series E Preferred Stock will automatically
convert to into Common Stock at the conversion rate as set forth in Section 4
below. Upon conversion all rights of the holders of such Series E Preferred
Stock will terminate.
4. Conversion of Series E Preferred Stock
(a) Conversion Right of Holder. Each share of the Series E Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after six
months from the date of issuance of such share of Series E Preferred Stock into
fully paid and nonassessable whole shares of Common Stock upon the terms and
conditions set forth in the following paragraphs of this Section.
(b) Exercise of Conversion Right. Any holder of the Series E Preferred
Stock electing to convert such stock into Common Stock pursuant to Section 4(a)
hereof shall deliver the certificates for the Series E Preferred Stock to the
Corporation's principal office or the office of the Corporation Transfer Agent,
with the form of written notice to the Corporation endorsed on such
certificate(s) of his election to convert such Series E Preferred Stock into
Common Stock duly filled out and executed. The conversion right in respect of
any such Series E Preferred Stock pursuant to Section 4(a) hereof shall be
deemed to have been exercised at the date on which the holder delivers such
notice of conversion duly filled out and executed to the Corporation or the
Corporation's transfer agent to the Corporation (the "Date of Election"). A
facsimile notice of conversion will be accepted by the Corporation as a valid
<PAGE>
notice of election, so long as the holder then delivers the original
certificates within three business days thereafter. The person entitled to
receive the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder of such security on such date; provided, however,
that the conversion right in respect of any notice receive after the close of
business (11:59 PM EST) on any day shall not be deemed to have been exercised
until the next succeeding business day. As soon as practicable, and in any event
within three (3) business days (five business days if the Common Stock is then
being quoted on the OTC Bulletin Board) after the date of receipt of the
original certificates of any Series E Preferred Stock to be converted pursuant
to Section 4(a) hereof, the Corporation shall deliver to the person entitled
thereto, certificate(s) representing the shares of Common Stock to which such
person shall be entitled on such conversion. The Corporation, as a condition to
the exercise of such rights of conversion, may require the payment of a sum
equal to any transfer tax or other governmental charge (but not including any
tax payable upon the issue of stock deliverable upon such conversion) that may
be imposed or required by law, upon any transfer incidental or prior thereto, or
the submission of proper proof that the same has been paid.
(c) Conversion Rate. The number of shares of Common Stock issuable upon
conversion of each share of Series E Preferred Stock shall be equal to $10.00,
divided by $2.50; provided, however, the Corporation shall not be required, in
connection with any such conversion, to issue a fraction of a share of its
Common nor to deliver any stock certificate representing a fraction thereof.
(d) Adjustment of Conversion Rate. The number of shares of Common Stock
into which share of the Series E Preferred Stock is convertible shall be subject
to adjustment from time to time in certain instances, as follows:
(1) Recapitalization. On any recapitalization of the Corporation
through the split, reverse split, subdivision or combination of its
outstanding Common Stock into a greater or smaller number of shares, the
number of shares of Common Stock into which the shares of Series E
Preferred Stock may be converted shall be increased or reduced in the same
proportion by an adjustment to the conversion rate.
(2) On Capital Reorganization, Reclassification, Consolidation, Merger
or Sale of Corporate Assets. On any capital reorganization,
reclassification of the capital stock, consolidation, merger, or sale or
conveyance of all or substantially all of the assets of the Corporation to
another corporation, each share of Series E Preferred Stock shall be
convertible into the same kind and amounts of securities, including share
or other assets, or both, that the holder of such share would have received
had he converted such share of Series E Preferred Stock into Common Stock
immediately prior to such reorganization, reclassification, consolidation,
merger, sale or conveyance. Appropriate adjustments, as determined by the
Board of Directors of the Corporation, shall be made in the application of
the provisions herein set forth with respect to the rights and interests
thereafter of the holders of the Series E Preferred Stock so that said
provisions, including the provisions with respect to changes in, and other
adjustments of, the Conversion Rate, shall thereafter be applicable, as
nearly as reasonably may be, in relation to any securities or other assets
thereafter deliverable on conversion of the shares of Series E Preferred
Stock.
(e) Statement of Adjusted Amount. Whenever the amount of shares of Common
Stock deliverable on the conversion of Series E Preferred Stock shall be
adjusted pursuant to the provisions hereof, the Corporation shall forthwith
<PAGE>
maintain at its office and file with the transfer agent or agents, a statement
signed by the President or Vice President of the Corporation and by its Chief
Financial Officer, stating the adjusted amount of any securities deliverable for
each share of Series E Preferred Stock, calculated to the nearest one hundredth
(1/100th) share, and setting forth in reasonable detail the method of
calculation and the facts requiring such adjustment and on which the calculation
is based. Each adjustment shall remain in effect until a subsequent adjustment
hereunder is required.
(f) Fractional Shares. Neither fractional shares nor scrip or other
certificates evidencing such shares shall be issued on conversion of the Series
E Preferred Stock as herein provided, but the Corporation shall, in lieu
thereof, round all such fractional shares to the nearest whole share.
(g) Payment of Taxes on Conversion of Series E Preferred Stock. The
Corporation shall pay any and all issue and other taxes that may be payable in
respect of any issue or delivery of Common Stock on conversion of shares of
Series E Preferred Stock pursuant hereto. The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of Common Stock in a name other than that in which the
shares of Series E Preferred Stock so converted were registered, and no such
issue or delivery shall be made unless and until the person requesting it has
paid to the Corporation the amount of any such tax, or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(h) Reservation of Sufficient Common Stock. So long as any shares of Series
E Preferred Stock shall remain outstanding and the holders thereof have the
right to convert said shares in accordance with the provisions of this Section
4, the Corporation will at all times reserve from the authorized and unissued
shares of its Common Stock a sufficient number of shares to provide for such
conversions, and will take such other corporation action as may be necessary
from time to time in order that it may validly and legally issue fully-paid and
non-assessable shares of such Common Stock upon conversion of the Series E
Preferred Stock.
(i) Definition of Common Stock. In each case where reference is made to the
Common Stock of the Corporation in this Section, unless a different intention is
expressed, such reference is to the series or class of Common Stock of the
Corporation as such series or class of stock exists at the date of the adoption
of these provisions, or stock into which the same may be changed from time to
time.
(j) Status of Converted Preferred Shares. All shares of Series E Preferred
Stock so converted shall be canceled and such shares shall be restored to the
status of authorized but unissued shares of Preferred Stock.
5. Liquidation Rights.
(a) Liquidation Preference Amount. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the business or affairs of
the Corporation, and after payment of, or adequate provision for payment of, the
debts, liabilities and other claims of the Corporation as determined by its
Board of Directors, each holder of the Series E Preferred Stock shall be
entitled to receive, out of the remaining net assets of the Corporation legally
available for distribution to its shareholders, before any payment or
distribution shall be made on the Common Stock, or on any other class of stock
of the Corporation ranking junior to the shares of Series E Preferred Stock upon
liquidation, the amount of Ten Dollars ($10.00) per share of Series E Preferred
Stock, plus all accrued and unpaid dividends on each such share up to the date
fixed for distribution.
<PAGE>
(b) Proportionate Distribution Where Assets Insufficient. In the event the
assets of the Corporation available for distribution to the holders of shares of
Series E Preferred Stock upon dissolution, liquidation or winding up of the
Corporation whether voluntary or involuntary, shall be insufficient to pay in
full all amounts to which such holders are entitled pursuant to paragraph (a) of
this Section, no such distribution shall be made on account of any shares of any
class of capital stock of the Corporation ranking on a parity with the shares of
Series E Preferred Stock upon such dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on account of the shares of
Series E Preferred Stock, ratably, in proportion to the full distributable
amounts for which holders of all such parity shares are respectively entitled
upon such dissolution, liquidation or winding up.
(c) Nonparticipation Right. After the payment to the holders of the shares
of Series E Preferred Stock of the full preferential amounts provided for in
either paragraph (a) or (b) of this Section, as applicable, the holders of
Series E Preferred Stock as such shall have no right or claim to any of the
remaining assets of the Corporation.
(d) Excluded Transactions. Neither the consolidation nor merger of the
Corporation with or into any other corporation, nor the sale, mortgage, exchange
or conveyance of all or substantially all of the properties, assets or business
of the Corporation, nor any liquidation, dissolution or winding up of the
Corporation occurring substantially concurrently with any such transaction shall
be deemed to be a liquidation, dissolution or winding up of the Corporation
within the meaning hereof, unless otherwise determined by the Board of Directors
of the Corporation.
6. No Preemptive Rights. No holder of shares of the Series E Preferred Stock
shall, as such holder, have any preemptive right to subscribe to or purchase any
shares of any class of capital stock of the Corporation now or hereafter
authorized or issued, whether or not exchangeable for any capital stock of the
Corporation of any class or classes now or hereafter authorized or issued; nor
shall any holder of shares of the Series E Preferred Stock, as such holder, have
any right to purchase, acquire or subscribe for any securities which the
Corporation may issue or sell whether or not convertible into or exchangeable
for shares of capital stock of the Corporation of any class or classes, and
whether or not any such securities have attached or appurtenant thereto
warrants, options or other instruments which entitle the holders thereof to
purchase, acquire or subscribe for shares of capital stock of any class or
classes of the Corporation.
7. Determination of Market Value of Capital Stock of Corporation. The
determination of the per share "Market Value" of Common Stock as set forth in
previous Sections shall be determined using the previous five day average
closing bid price for the day or, where no sale is made on that day, the average
of the closing bid and asked prices for that day on the NASDAQ Stock Market or
the OTC Bulletin Board if the securities are at the time listed or quoted
thereon, respectively, or, if it is not so listed or quoted, on any other
national securities exchange selected by the Corporation on which it is at the
time listed. If at the applicable time the Common Stock is quoted on the OTC
Bulletin Board, the foregoing calculations shall be based on a Trade and Quote
Summary Report from the OTC Bulletin Board Research Service if available, and if
not, on any other publicly available data reasonably deemed reliable by the
Corporation.
8. Covenants of the Corporation. The Corporation will not, by amendment to its
Articles of Incorporation, as amended, or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities, or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of the preferences and limitations of Series E Preferred
Stock to be observed or performed hereunder by the Corporation, but will at all
times in good faith assist in the carrying out of all the provisions set forth
herein relating to Series E Preferred Stock and in the taking of all such action
as may be necessary or appropriate in order to protect the rights of the holders
of the Series E Preferred Stock against dilution or other impairment.
<PAGE>
IN WITNESS WHEREOF, HARVEST RESTAURANT GROUP, INC. has caused this
Statement of Resolution Establishing Series of Shares to be signed by William J.
Gallagher, its Chairman of the Board and Chief Executive Officer, and attested
by Joseph Fazzone, its Secretary, this _______th day of December, 1998.
HARVEST RESTAURANT GROUP, INC.
By:/s/ William J. Gallagher
---------------------------
WILLIAM J. GALLAGHER,
Chairman of the Board and
Chief Executive Officer
By:/s/ Joseph Fazzone
---------------------
JOSEPH FAZZONE,
Chief Financial Officer and
Secretary
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
ARTICLE ONE:
NAME
----
The name of the corporation is CLUCKCORP INTERNATIONAL, INC.
ARTICLE TWO:
AMENDMENTS
----------
The following amendments to the Articles of incorporation were adopted by
the Shareholders of the Corporation on September 30, 1997, in order to change
the name of the Corporation and increase the number of authorized shares of
common stock of the Corporation.
Article One of the Amended Articles of Incorporation of the Corporation is
hereby amended to read in its entirety as follows:
ARTICLE ONE:
NAME
----
The name of the corporation is HARVEST RESTAURANT GROUP, INC. (the
"Corporation").
2.2 Article Four, Section 1, of the Amended Articles of incorporation of
the Corporation is hereby amended to read in its entirety as follows.
ARTICLE FOUR:
CAPITALIZATION, PREEMPTIVE RIGHTS AND VOTING
--------------------------------------------
Section 1. Authorized Shares. The Corporation shall have authority to issue
two classes of shares to be designated respectively, "Common Stock" and
"Preferred Stock." The total number of shares which the Corporation is
authorized to issue is Twenty-Five Million (25,000,000) shares of which Twenty
Million (20,000,000) shall be Common Stock and five million (5,000,000) shall be
Preferred Stock. Each share of Common Stock shall have par value of ONE CENT
($.01), and each share of Preferred Stock shall have a par value of ONE DOLLAR
($1.00).
The Preferred Stock authorized by these Articles of Incorporation may be
issued from time to time in one or more series, each of which shall have such
designation(s) or title(s) as may be fixed by the Board of Directors prior to
the issuance of any shares thereof. The Board of Directors is hereby authorized
to fix or alter the redemption, including sinking fund provisions, the
redemption price or prices, voting rights and liquidation preferences of any
wholly unissued series of Preferred Stock, and the number of shares constituting
any such series and the designation thereof, or any of them. The rights, powers,
preferences, limitations and restrictions, if any, accompanying such shares of
Preferred Stock shall be set forth by resolution of the Board of Directors
providing for the issue thereof prior to the issuance of any shares thereof, in
accordance with the applicable provisions of the Act. Each share of any series
of Preferred Stock shall be identical with all other shares of such series,
except as to the date from which dividends, if any, shall accrue.
<PAGE>
ARTICLE THREE:
OUTSTANDING SHARES
------------------
The number of shares of common stock of the Corporation outstanding at the
time of the adoption of the foregoing amendments to the Articles of
Incorporation of the Corporation was 2,369,030; and the number of shares of
common stock entitled to vote thereon was 2,369,030. The number of shares of
preferred stock of the Corporation outstanding at the time of the adoption of
the foregoing amendments to the Articles of Incorporation of the Corporation was
515,000: and the number of shares of preferred stock entitled to vote thereon
was 0.
ARTICLE FOUR:
ADOPTING AMENDMENTS
-------------------
4.1 The total number of shares of common stock voted for the amendment of
Article One of the Articles of Incorporation as set forth above was 1,430,483;
and the number of shares of common stock voted against such amendment was
11,300. The owners of 927,247 shares of common stock did not vote. The owners of
the preferred stock were not entitled to vote on said amendment of Article One
of the Articles of Incorporation.
4.2 The number of shares of common stock voted for the amendment of Article
Four of the Articles of Incorporation as set forth above was 1,305,458; and the
number of shares of common stock voted against such amendment was 113,825. The
owners of 949,747 shares of common stock did not vote. The owners of the
preferred stock were not entitled to vote on said amendment of Article Four of
the Articles of Incorporation.
Executed this 30th day of September, 1997.
CLUCKCORP INTERNATIONAL, INC.
By:/s/ William J. Gallagher
---------------------------
William J. Gallagher
Chief Executive Officer
<PAGE>
HARVEST RESTAURANT GROUP, INC.
ARTICLES/CERTIFICATE OF CORRECTION
This correction is submitted pursuant to Article 1302-7.01, Texas
Miscellaneous Corporation Laws Act for a corporation, to correct a document
which is an inaccurate record of the entity action, contains an inaccurate or
erroneous statement, or was defectively or erroneously executed, sealed,
acknowledged or verified.
ARTICLE ONE
The name of the entity is HARVEST RESTAURANT GROUP, INC., fka CLUCKCORP
INTERNATIONAL, INC.
ARTICLE TWO
The document to be corrected is the Articles of Amendment to the Articles
of Incorporation which were filed in the Office of the Secretary of State on the
1st day of October, 1997.
ARTICLE THREE
The inaccuracy, error, or defect to be corrected is:
"4.1 The total number of shares of common stock voted for the amendment of
Article One of the Articles of Incorporation as set forth above was 1,430,483;
and the number of shares of common stock voted against such amendment was
11,300. The owners of 927,247 shares of common stock did not vote. The owners of
the preferred stock were not entitled to vote on said amendment of Article One
of the Articles of Incorporation.
4.2 The number of shares of common stock voted for the amendment of Article
Four of the Articles of Incorporation as set forth above was 1,305,458; and the
number of shares of common stock voted against such amendment was 113,825. The
owners of 949,747 shares of common stock did not vote. The owners of the
preferred stock were not entitled to vote on said amendment of Article Four of
the Articles of Incorporation."
ARTICLE FOUR
As corrected, the inaccurate, erroneous, or defective portion of the
document reads as follows:
"4.1 The total number of shares of common stock voted for the amendment of
Article One of the Articles of Incorporation as set forth above was 1,745,930;
the number of shares of common stock voted against such amendment was 11,300;
and 3,800 shares of common stock voted to abstain. The owners of 608,000 shares
of common stock did not vote. The owners of the preferred stock were not
entitled to vote on said amendment of Article One of the Articles of
Incorporation.
4.2 The number of shares of common stock voted for the amendment of Article
Four of the Articles of Incorporation as set forth above was 1,620,405; the
number of shares of common stock voted against such amendment was 113,825; and
26,800 shares of common stock voted to abstain. The owners of 608,000 shares of
common stock did not vote. The owners of the preferred stock were not entitled
to vote on said amendment of Article Four of the Articles of Incorporation."
By:/s/ William J. Gallagher
---------------------------
William J. Gallagher
Chief Executive Officer
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
ARTICLE ONE:
NAME
----
The name of the corporation is HARVEST RESTAURANT GROUP, INC.
ARTICLE TWO:
AMENDMENTS
----------
The following amendments to the Articles of Incorporation were adopted by
the Shareholders of the Corporation on March 12, 1999, in order to change the
name of the Corporation and increase the number of authorized shares of common
stock of the Corporation.
2.1 Article One of the Articles of Incorporation of the Corporation is
hereby amended to read in its entirety as follows:
ARTICLE ONE:
NAME
----
The name of the corporation is TANNER'S RESTAURANT GROUP, INC. (the
"Corporation").
2.2 Article Four, Section 1, of the Articles of Incorporation of the
Corporation is hereby amended to read in its entirety as follows:
ARTICLE FOUR:
CAPITALIZATION, PREEMPTIVE RIGHTS AND VOTING
--------------------------------------------
Section 1. Authorized Shares. The Corporation shall have authority to issue
two classes of shares to be designated respectively, "Common Stock" and
"Preferred Stock". The total number of shares that the Corporation is
authorized to issue is Two Hundred Five Million (205,000,000) shares, of
which Two Hundred Million (200,000,000) shall be Common Stock and Five
Million (5,000,000) shall be Preferred Stock. Each share of Common Stock
shall have a par value of ONE CENT ($.01), and each share of Preferred
Stock shall have a par value of ONE DOLLAR ($1.00).
The Preferred Stock authorized by these Articles of Incorporation may be
issued from time to time in one or more series, each of which shall have
designation(s) or title(s) as may be fixed by the Board of Directors prior to
the issuance of any shares thereof. The Board of Directors is hereby authorized
to fix or alter the redemption, including sinking fund provisions, the
<PAGE>
redemption price or prices, voting rights and liquidation preferences of any
wholly unissued series of Preferred Stock, and the number of shares constituting
any such series and the designation thereof, or any of them. The rights, powers,
preferences, limitations and restrictions, if any, accompanying such shares of
Preferred Stock shall be set forth by resolution of the Board of Directors
providing for the issue thereof prior to the issuance of any shares thereof, in
accordance with the applicable provisions of the Act. Each share of any series
of Preferred Stock shall be identical with all other shares of such series,
except as to the date from which dividends, if any, shall accrue.
ARTICLE THREE:
OUTSTANDING SHARES
------------------
The number of shares of common stock of the Corporation outstanding on the date
of record for determining the shareholders entitled to vote upon the adoption of
the foregoing amendments to the Articles of Incorporation of the Corporation was
8,241,609; and the number of shares of common stock entitled to vote thereon was
8,241,609. The number of shares of preferred stock of the Corporation
outstanding on the date of record for determining the shareholders of record
entitled to vote upon the adoption of the foregoing amendments to the Articles
of Incorporation of the Corporation was 1,247,552; and the number of shares of
preferred stock entitled to vote thereon was 0.
ARTICLE FOUR:
ADOPTING AMENDMENTS
-------------------
4.1 The total number of shares of common stock voted for the amendment of
Article One of the Articles of Incorporation as set forth above was
7,352,794, and the number of shares of common stock voted against such
amendment was 31,480. The owners of 857,335 shares of common stock did
not vote. The owners of the preferred stock were not entitled to vote
on said amendment of Article One of the Articles of Incorporation.
4.2 The number of shares of common stock voted for the amendment of
Article Four of the Articles of Incorporation as set forth above was
7,228,549 and the number of shares of common stock voted against such
amendment was 151,674. The owners of 861,386 shares of common stock
did not vote. The owners of the preferred stock were not entitled to
vote on said amendment of Article Four of the Articles of
Incorporation.
Executed this 12th day of March, 1999
HARVEST RESTAURANT GROUP, INC.
By: /s/ Clyde E. Culp, III
--------------------------
Clyde E. Culp, III
Chairman and Chief Executive Officer
LOAN AGREEMENT
--------------
THIS LOAN AGREEMENT ("Agreement"), dated as of the 22nd day of October,
1996, is made and entered into on the terms and conditions hereinafter set
forth, by and between TRC Acquisition Corporation, a Georgia corporation
("Borrower"), and SIRROM CAPITAL CORPORATION, a Tennessee corporation
("Lender").
RECITALS:
---------
WHEREAS, Borrower has requested that Lender make available to Borrower a
term loan in the original principal amount of Two Million and No/100ths Dollars
($2,000,000) (the "Loan") on the terms and conditions hereinafter set forth, and
for the purpose(s) hereinafter set forth; and
WHEREAS, in order to induce Lender to make the Loan to Borrower, Borrower
has made certain representations to Lender; and
WHEREAS, Lender, in reliance upon the representations and inducements of
Borrower set forth herein, has agreed to make the Loan upon the terms and
conditions hereinafter set forth.
AGREEMENT:
----------
NOW, THEREFORE, in consideration of the agreement of Lender to make the
Loan, the mutual covenants and agreements hereinafter set forth, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender hereby agree as follows:
ARTICLE 1
THE LOAN
--------
1.1 Evidence of Loan Indebtedness and Repayment. Subject to the terms and
conditions hereof, Lender shall make the Loan to Borrower by wire transfer in
immediately available funds. The Loan shall be advanced to Borrower in two
advances (individually, an "Advance" and collectively, the "Advances"). The
first Advance shall be in the principal amount of $1,000,000 and shall be made
on the date hereof. The second Advance shall be in the principal amount of
$1,000,000 and shall be requested by Borrower and made by Lender on or before
October 31, 1997. Lender's obligation to fund the second Advance shall be
contingent upon Borrower having opened two new restaurants within one year from
the date hereof The Loan shall be evidenced by two Secured Promissory Notes,
each in the original principal amount of the applicable Advance, each
substantially in the form of Exhibit A attached hereto and incorporated herein
by this reference (individually a "Note" and collectively the "Notes"), each
dated as of the date of the applicable Advance, executed by Borrower, in favor
of Lender. The Loan shall be payable in accordance with the terms of the Notes;
provided, however, that all indebtedness evidenced by the Notes shall be due and
payable immediately upon Borrower's successful completion of an offering of
stock of Borrower pursuant to a registration statement filed with and declared
effective by the Securities Exchange Commission pursuant to the Securities Act
of 1933. The Notes, this Agreement and any other instruments and documents
executed by Borrower, any guarantor of Borrower, or any shareholder of Borrower,
now or hereafter evidencing, securing or in any way related to the indebtedness
evidenced by the Notes are herein individually referred to as a "Loan Document"
and collectively referred to as the "Loan Documents."
<PAGE>
1.2 Processing Fee. Borrower shall pay a processing fee of $50,000 to
Lender of which $25,000 has been paid and $25,000 shall be paid at closing.
1.3 Purpose(s) of Loan and Use of Proceeds. The purposes of the Loan shall
be (i) to provide working capital to Borrower, (ii) to pay all costs and
expenses incurred by the parties hereto in connection with the making and
documenting of the Loan, including attorneys' fees and expenses, (iii) to
finance the acquisition by Borrower of the stock of certain entities comprising
the business of Tanner's Rotisserie Chicken, and (iv) to finance new store
expansion by Borrower. The proceeds of the Loan shall not be used for any other
purpose.
1.4 Prepayment. Borrower may prepay the indebtedness evidenced by the Note
in whole or in part at any time and from time to time without premium or
penalty.
ARTICLE 2
REPRESENTATIONS AND WARRANTEES
------------------------------
2.1 Borrower's Representations. Borrower hereby represents and warrants to
Lender as follows:
(a) Corporate Status. Borrower is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Georgia and has the corporate power to own and operate its properties, to
carry on its business as now conducted and to enter into and to perform its
obligations under this Agreement and the other Loan Documents to which it
is a party. Borrower is duly qualified to do business and in good standing
in Georgia and each other state in which a failure to be so qualified and
in good standing would have a material adverse effect on Borrower's
financial positions or its ability to conduct its business in the manner
now conducted.
(b) Subsidiaries. Schedule 2.1(b) hereto is a complete list of each
corporation, partnership, joint venture or other business organization (the
"Subsidiary" or, with respect to all such organizations, the
"Subsidiaries") in which Borrower or any Subsidiary owns, directly or
indirectly, any capital stock or other equity interest, or with respect to
which Borrower or any Subsidiary, alone or in combination with others, owns
33% or more of such organization, which list shows the jurisdiction of
incorporation or other organization and the percentage of stock or other
equity interest of each Subsidiary owned by Borrower. Each Subsidiary which
is a corporation is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and is duly
qualified to transact business as a foreign corporation and is in good
standing in the jurisdictions listed in Schedule 2.1(b), which are the only
jurisdictions where the properties owned or leased or the business
transacted by it makes such licensing or qualification to do business as a
<PAGE>
foreign corporation necessary, and no other jurisdiction has demanded,
requested or otherwise indicated that (or inquired whether) it is required
so to qualify. Each Subsidiary which is not a corporation is duly organized
and validly existing under the laws of the jurisdiction of its
organization. The outstanding capital stock of each Subsidiary which is a
corporation is validly issued, fully paid and nonassessable. Borrower and
the Subsidiaries have good and valid title to the equity interests in the
Subsidiaries shown as owned by each of them on Schedule 2.1(b), free and
clear of all liens, claims, charges, restrictions, security interests,
equities, proxies, pledges or encumbrances of any kind, except as set forth
on Schedule 2.1(b). Except where otherwise indicated herein or unless the
context otherwise requires, any reference to Borrower herein shall include
Borrower and all of its Subsidiaries.
(c) Authorization. Borrower has full legal right, power and authority
to conduct its business and affairs. Borrower has full legal right, power
and authority to enter into and perform its obligations under the Loan
Documents, without the consent or approval of any other person, firm,
governmental agency or other legal entity. The execution and delivery of
this Agreement, the borrowing hereunder, the execution and delivery of each
Loan Document to which Borrower is a party, and the performance by Borrower
of its obligations thereunder are within the corporate powers of Borrower
and have been duly authorized by all necessary corporate action properly
taken, have received all necessary governmental approvals, if any were
required, and do not and will not contravene or conflict with any provision
of law, any applicable judgment, ordinance, regulation or order of any
court or governmental agency, the articles of incorporation or bylaws of
Borrower, or any agreement binding upon Borrower. The officer(s) executing
this Agreement, the Note and all of the other Loan Documents to which
Borrower is a party are duly authorized to act on behalf of Borrower.
(d) Validity and Binding Effect. This Agreement and the other Loan
Documents are the legal, valid and binding obligations of Borrower,
enforceable in accordance with their respective terms, subject to
limitations imposed by bankruptcy, insolvency, moratorium or other similar
laws affecting the rights of creditors generally or the application of
general equitable principles.
(e) Capitalization. As of the date hereof, the authorized capital
stock of Borrower consists solely of (i) 100,000,000 shares of common
stock, no par value per share ("Common Stock"), of which (A) 2,625,000
shares are issued and outstanding (the "Common Shares"), (B) 375,000 shares
of which shall be reserved for issuance upon exercise of the Stock Purchase
Warrant dated as of the date hereof and issued to Lender (the "Warrant"),
(C) 700,000 shares reserved for issuance upon exercise of stock options,
and (D) 300,000 shares reserved for issuance pursuant to an Incentive Stock
Option Plan to be implemented by Borrower; provided, however, that the
number of shares reserved for issuance upon exercise of the Warrant shall
be increased from time to time in accordance with the terms of the Warrant;
<PAGE>
and (ii) 1,000,000 shares of preferred stock, $ 1.00 par value per share
("Preferred Stock") (Common Stock and Preferred Stock are sometimes
referred to herein collectively as the "Stock"), of which 2,000 shares are
designated as Class A Preferred Stock, all of which are issued and
outstanding (the "Preferred Shares") (the Common Shares and the Preferred
Shares are sometimes referred to herein collectively as the "Shares"). As
of the date hereof, Borrower shall not have outstanding any stock or
securities convertible or exchangeable for any shares of its Stock or
containing any profit participation features, ',nor shall it have
outstanding any rights or options to subscribe for or to purchase its Stock
or any stock or securities convertible into or exchangeable for its Stock
or any stock appreciation rights or phantom stock plans, except as set
forth on Schedule 2.1(e) and for the Warrant. Schedule 2.1(e) accurately
sets forth the following with respect to all outstanding options and rights
to acquire the Borrower's Stock from Borrower: (i) the total number of
shares issuable upon exercise of all outstanding options, (ii) the range of
exercise prices for all such outstanding options, (iii) the number of
shares issuable, the exercise price and the expiration date for each such
outstanding option and (iv) with respect to all outstanding options,
warrants and rights to acquire Borrower's capital stock other than the
Warrant, the holder, the number of shares covered, the exercise price and
the expiration date. As of the date hereof, Borrower shall not be subject
to any obligation (contingent or otherwise) to repurchase, redeem, retire
or otherwise acquire any shares of its capital stock or any warrants,
options or other rights to acquire its capital stock, except as set forth
in the Warrant or on Schedule 2.1(e). As of the date hereof, all of the
outstanding shares of Borrower's capital stock shall be validly issued,
fully paid and nonassessable. Except as set forth on Schedule 2.1(e), there
are no statutory or contractual preemptive rights, rights of first refusal,
anti-dilution rights or any similar rights, held by stockholders or option
holders of Borrower, with respect to the issuance of the Warrant or the
issuance of the Common Stock upon exercise of the Warrant. All such rights
granted in the documents listed on Schedule 2.1(e) have been effectively
waived with regard to the issuance of the Warrant, the exercise of the
Warrant and the issuance of the Common Stock upon exercise of the Warrant.
Borrower has not violated any applicable federal or state securities laws
in connection with the offer, sale or issuance of any of its capital stock,
and the offer, sale and issuance of the Warrant hereunder do not require
registration under the Securities Act or any applicable state securities
laws. To the best of Borrower's knowledge, there are no agreements among
Borrower's stockholders with respect to any other aspect of Borrower's
affairs, except as set forth on Schedule 2.1(e).
(f) Trademarks, Patents, Etc. Schedule 2.1(f) is an accurate and
complete list of all patents, trademarks, tradenames, trademark
registrations, service names, service marks, copyrights, licenses, formulas
and applications therefor owned by Borrower or used or required by Borrower
in the operation of its business, title to each of which is, except as set
<PAGE>
forth in Schedule 2.1(f) hereto, held by Borrower free and clear of all
adverse claims, liens, security agreements, restrictions or other
encumbrances. Except as set forth on Schedule 2.1(f), Borrower has not
received notice of any (and is not otherwise aware of any) infringement
action, lawsuit, claim or complaint which asserts that Borrower's
operations violate or infringe the rights or the trade names, trademarks,
trademark registration, service name, service mark or copyright of others
with respect to any apparatus or method of Borrower or any adversely held
trademark, trade name, trademark registration, service name, service mark
or copyright, nor is Borrower in any way making use of any confidential
information or trade secrets of any person except with the consent of such
person.
(g) No Conflicts. Consummation of the transactions hereby contemplated
and the performance of the obligations of Borrower under and by virtue of
the Loan Documents will not result in any breach of, or constitute a
default under, any mortgage, security deed or agreement, deed of trust,
lease, bank loan or credit agreement, corporate charter or bylaws,
agreement or certificate of limited partnership, partnership agreement,
license, franchise or any other instrument or agreement to which Borrower
is a party or by which Borrower, or its respective properties may be bound
or affected or to which Borrower has not obtained an effective waiver,
unless such breach or default would not have a material adverse effect on
Borrower's business and operations.
(h) Litigation. Except as set forth on Schedule 2.1(h), Borrower has
not received notice of any (and Borrower is not otherwise aware of any)
actions, suits or proceedings pending, or, to the knowledge of Borrower,
threatened, against or affecting Borrower or involving the validity or
enforceability of any of the Loan Documents at law or in equity, or before
any governmental or administrative agency; and to Borrower's knowledge,
Borrower is not in default with respect to any order, writ, injunction,
decree or demand of any court or any governmental authority.
(i) Financial Statements. The financial statements of Borrower, dated
September 1, 1996, attached hereto as Schedule 2.1(i)(A), are true and
correct in all material respects, and except as otherwise stated therein,
have been prepared on the basis of accounting principles consistently
applied, and fairly present the financial condition of Borrower as of the
date(s) thereof. No material adverse change has occurred in the financial
condition of Borrower since the date(s) thereof, and no additional
borrowings have been made by Borrower since the date(s) thereof other than
as set forth on Schedule 2.1(i)(B).
(j) No Defaults. Borrower is not in default in any respect in the
performance, observance or fulfillment of any of the obligations, covenants
or conditions contained in any agreement or instrument material to its
business to which it is a party, including but not limited to this
Agreement and the other Loan Documents, and no other default or event has
occurred and is continuing that with notice or the passage of time or both
would constitute a default or event of default under any of same.
<PAGE>
(k) Compliance With Law. Borrower has obtained all material licenses,
permits and approvals and authorizations necessary or required in order to
conduct its business and affairs as heretofore conducted and as hereafter
intended to be conducted. To Borrower's knowledge, Borrower is in
compliance with all laws, regulations, decrees and orders applicable to it
(including but not limited to laws, regulations, decrees and orders
relating to environmental, occupational and health standards and controls,
antitrust, monopoly, restraint of trade or unfair competition), except to
the extent that noncompliance, in the aggregate, cannot reasonably be
expected to have a material adverse effect on its business, operations,
property or financial condition and will not materially adversely affect
Borrower's ability to perform its obligations under the Loan Documents.
(l) Debt. Schedule 2.1(l) is a complete and correct list of all credit
agreements, indentures, purchase agreements, promissory notes and other
evidences of indebtedness, guaranties, capital leases and other
instruments, agreements and arrangements presently in effect providing for
or relating to extensions of credit (including agreements and arrangements
for the issuance of letters of credit or for acceptance financing) in
respect of which Borrower, or any of the properties thereof is in any
manner directly or contingently obligated; and the maximum principal or
face amounts of the credit in question that are outstanding and that can be
outstanding are correctly stated, and all liens of any nature given or
agreed to be given as security therefor are correctly described or
indicated in such Schedule.
(m) Taxes. Borrower has filed or caused to be filed all tax returns
that to Borrower's knowledge are required to be filed (except for returns
that have been appropriately extended), and has paid, or will pay when due,
all taxes shown to be due and payable on said returns and all other taxes,
impositions, assessments, fees or other charges imposed on them by any
governmental authority, agency or instrumentality, prior to any delinquency
with respect thereto (other than taxes, impositions, assessments, fees and
charges currently being contested in good faith by appropriate proceedings,
for which appropriate amounts have been reserved). Except as set forth on
Schedule 2.1 (m, to Borrower's knowledge, no tax liens have been filed
against Borrower, or any of the property thereof.
(n) Certain Transactions. Except as set forth on Schedule 2.1(n)
hereto, Borrower is not indebted, directly or indirectly, to any of its
shareholders, officers, or directors or to their respective spouses or
children, in any amount whatsoever; none of said shareholders, officers or
directors or any members of their immediate families, are indebted to
Borrower or have any direct or indirect ownership interest in any firm or
corporation with which Borrower has a business relationship, or any firm or
corporation which competes with Borrower, except that shareholders,
officers and/or directors of Borrower may own no more than 4.9% of
outstanding stock of publicly traded companies which may compete with
Borrower. No officer or director of Borrower or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with Borrower. Borrower is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
<PAGE>
(o) Statements Not False or Misleading. No representation or warranty
given as of the date hereof by Borrower contained in this Agreement or any
schedule attached hereto or any statement in any document, certificate or
other instrument furnished or to be furnished by Borrower to Lender
pursuant hereto, taken as a whole, contains or will (as of the time so
furnished) contain any untrue statement of a material fact, or omits or
will (as of the time so furnished) omit to state any material fact which is
necessary in order to make the statements contained therein not misleading.
(p) Margin Regulations. Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock. No
proceeds received pursuant to this Agreement will be used to purchase or
carry any equity security of a class which is registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended.
(q) Significant Contracts. Schedule 2.1(q) is a complete and correct
list of all contracts, agreements and other documents pursuant to which
Borrower receives revenues in excess of $25,000 per fiscal year. Each such
contract, agreement and other document is in full force and effect as of
the date hereof and Borrower knows of no reason why such contracts,
agreements and other documents would not remain in full force and effect
pursuant to the terms thereof.
(r) Environment. Borrower has duly complied with, and its business,
operations, assets, equipment, property, leaseholds or other facilities are
in compliance with, the provisions of all federal, state and local
environmental, health, and safety laws, codes and ordinances, and all rules
and regulations promulgated thereunder, except to the extent that failure
to do so would not have a material adverse effect on its business. Borrower
has been issued and will maintain all required federal, state and local
permits, licenses, certificates and approvals relating to (1) air
emissions; (2) discharges to surface water or groundwater; (3) noise
emissions; (4) solid or liquid waste disposal; (5) the use, generation,
storage, transportation or disposal of toxic or hazardous substances or
wastes (which shall include any and all such materials listed in any
federal, state or local law, code or ordinance and all rules and
regulations promulgated thereunder as hazardous or potentially hazardous);
or (6) other environmental, health or safety matters, except to the extent
that failure to do so would not have a material adverse effect on its
business. Borrower has not received notice of, and does not know of, any
violations of any federal, state or local environmental, health or safety
laws, codes or ordinances, and any rules or regulations promulgated
thereunder with respect to its businesses, operations, assets, equipment,
property, leaseholds, or other facilities. Except in accordance with a
valid governmental permit, license, certificate or approval, Borrower has
not received notice of, and does not know of any, emission, spill, release
<PAGE>
or discharge into or upon (1) the air; (2) soils, or any improvements
located thereon; (3) surface water or groundwater; or (4) the sewer, septic
system or waste treatment, storage or disposal system servicing the
premises, of any toxic or hazardous substances or wastes at or from the
premises. Borrower has not received notice of, and does not know of any,
complaint, order, directive, claim, citation or notice by any governmental
authority or any person or entity with respect to (1) air emissions; (2)
spills, releases or discharges to soils or improvements located thereon,
surface water, groundwater or the sewer, septic system or waste treatment,
storage or disposal systems servicing the premises; (3) noise emissions;
(4) solid or liquid waste disposal; (5) the use, "generation, storage,
transportation or disposal of toxic or hazardous substances or waste; or
(6) other environmental, health or safety matters affecting Borrower or its
business, operations, assets, equipment, property, leaseholds or other
facilities. Borrower has no indebtedness, obligation or liability (absolute
or contingent, matured or not matured), with respect to the storage,
treatment, cleanup or disposal of any solid wastes, hazardous wastes or
other toxic or hazardous substances (including without limitation any such
indebtedness, obligation, or liability ,with respect to any current
regulation, law or statute regarding such storage, treatment, cleanup or
disposal).
(s) Fees; Commissions. Borrower has not agreed to pay any finder's
fee, commission, origination fee (except for the processing fees due
pursuant to Section 1.2) or other fee or charge to any person or entity
with respect to the Loan and investment transactions contemplated
hereunder.
(t) ERISA. Borrower does not have any Plans (as defined in Section
3.11 hereof).
(u) Title to Properties. Borrower has good, indefeasible and insurable
title to, or valid leasehold interests in, all its real properties and good
title to its other assets, free and clear of all liens other than Permitted
Liens (as defined in Section 3.15 hereof).
(v) Material Adverse Effect. No event has occurred which has resulted
or which Borrower reasonably believes could be expected to result in a
material adverse effect on Borrower or Borrower's ability to perform its
obligations under the Loan Documents. No default or event of default under
any other agreement will occur as a result of the transactions contemplated
by this Agreement or by the Warrant.
(w) Financial Solvency. Borrower is not entering into the arrangements
contemplated by this Agreement and the other Loan Documents with actual
intent .to hinder, delay or defraud either present or future creditors. On
and as of the date hereof on a pro forma basis after giving effect to the
transactions contemplated by the Loan Documents and to all debts incurred
<PAGE>
or to be created in connection herewith, the present fair salable value of
the assets of Borrower will exceed the amount that will be required to pay
the probable liability of Borrower's existing debts as they become absolute
and mature. For purposes of this Section 2.1(w) "debt" means any liability
on a (i) right to payment whether or not such a right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured, or unsecured; or (ii)
right to an equitable remedy for breach of performance if such breach gives
rise to a payment, whether or not such a right to an equitable remedy is
reduced to judgment, fixed, contingent, unmatured, disputed, undisputed,
secured, or unsecured.
(x) Offering of Note and Warrant. Neither Borrower nor anyone acting
on its behalf has offered the Note, the Warrant or any similar securities
for sale to, or solicited any offer to buy any of the same from, or
otherwise approached or negotiated in respect thereof, with, any person
other than Lender and not more than 35 other institutional investors.
Neither Borrower nor anyone acting on its behalf has taken, or will take,
any action which would subject the issuance or sale of the Note and Warrant
to Section 5 of the Securities Act of 1933, as amended, or the registration
or qualification provisions of the blue sky laws of any state.
(y) Registration Rights. Except as described in the Warrant, Borrower
is not under any obligation to register under the Securities Act of 1933,
as amended, or the Trust Indenture Act of 1939, as amended, any of its
presently outstanding securities or any of its securities that may
subsequently be issued.
(z) Employees. Borrower has no current labor problems or disputes
which have resulted or Borrower reasonably believes could be expected to
have a material adverse effect on its business.
(aa) Issuance Taxes. All taxes imposed on Borrower in connection with
the issuance, sale and delivery of the Note, the Warrant and the capital
stock issuable upon exercise of the Warrant have been or will be fully
paid, and all laws imposing such taxes have been or will be fully satisfied
by Borrower.
(bb) List of Deposit Institutions. Schedule 2.1(bb) hereto sets forth
a true and complete list of all deposit institutions at which Borrower has
or maintains an account or deposits of any kind.
(cc) Locations and Names. Borrower has not, during the five years
preceding the date of this Agreement, been known as or used any other
corporate, trade or fictitious name, nor acquired all or substantially all
of the assets, capital stock or operating units of any person. Borrower has
not, during the five years ,preceding the date of this Agreement, had a
business location at any address other than addresses set forth on Schedule
2.1(cc).
<PAGE>
ARTICLE 3
COVENANTS AND AGREEMENTS
------------------------
Borrower covenants and agrees that during the term of this Agreement:
3.1 Payment of Obligations. Borrower shall pay the indebtedness evidenced
by the Note according to the terms thereof, and shall timely pay or perform, as
the case may be, all of the other obligations of, Borrower to Lender, direct or
contingent, however evidenced or denominated, and however and whenever incurred,
including but not limited to indebtedness incurred pursuant to any present or
future commitment of Lender to Borrower, together with interest thereon, and any
extensions, modifications, consolidations and/or renewals thereof and any notes
given in payment thereof
3.2 Financial Statements and Reports. Borrower shall furnish to Lender (i)
as soon as practicable and in any event within ninety (90) days after the end of
each fiscal year of Borrower, a consolidated balance sheet of Borrower as of the
close of such fiscal year, a consolidated statement of earnings and retained
earnings of Borrower as of the close of such fiscal year and a consolidated
statement of cash flows for Borrower for such fiscal year, prepared in
accordance with generally accepted accounting principles consistently applied
("GAAP"), audited by an independent certified public accountant acceptable to
Lender and certified by an officer of Borrower and accompanied by a certificate
of the President of Borrower, stating that to the best of the knowledge of such
officer, Borrower has kept, observed, performed and fulfilled each covenant,
term and condition of this Agreement and the other Loan Documents during the
preceding fiscal year and that no Event of Default, as herein defined, has
occurred and is continuing (or if an Event of Default has occurred and is
continuing, specifying the nature of same, the period of existence of same and
the action Borrower has taken or proposes to take in connection therewith), (ii)
within fifteen (15) days of the end of each calendar month, a consolidated
balance sheet of Borrower as of the close of such month and a consolidated
statement of earnings and retained earnings of Borrower as of the close of such
month, all in reasonable detail (including financial information for the
preceding six (6) months), and prepared substantially in accordance with GAAP
(except for the absence of footnotes and subject to year-end adjustments), and
(iii) with reasonable promptness, such other financial data as Lender may
reasonably request. Without Lender's prior written consent (which consent shall
not be unreasonably withheld), Borrower shall not modify or change any
accounting policies or procedures in effect on the date hereof.
3.3 Maintenance of Books and Records, Inspection. Borrower shall maintain
its books, accounts and records in accordance with GAAP, and after reasonable
notice from Lender, shall permit Lender, its officers, employees and any
professionals designated by Lender in writing, at Borrower's expense, to visit,
inspect and/or audit any of its properties, books and financial records, and to
discuss its accounts, affairs and finances with Borrower or the principal
officers of Borrower during reasonable business hours, all at such times as
Lender may reasonably request; provided that no such visit, inspection and/or
audit shall materially interfere with the conduct of Borrower's business and
prior to an Event of Default (as hereinafter defined), Borrower shall only be
liable for the expenses of one such visit, inspection, and/or audit per year.
<PAGE>
3.4 Insurance. Without limiting any of the requirements of any of the other
Loan Documents, Borrower shall maintain in amounts customary for entities
engaged in comparable business activity (i) to the extent required by applicable
law, worker's compensation insurance (or maintain a legally sufficient amount of
self insurance against worker's compensation liabilities, with adequate
reserves, under a plan approved by Lender, such approval not to be unreasonably
withheld or delayed) and (ii) fire and "all risk" casualty insurance on its
properties against such hazards and in at least such amounts as are customary in
Borrower's business. Borrower will make reasonable efforts to obtain and
maintain public liability insurance in an amount, and at a cost, deemed
reasonable to the Borrower's Board of Directors. At the request of Lender,
Borrower will deliver forthwith a certificate specifying the details of such
insurance in effect.
3.5 Taxes and Assessments. Borrower shall (i) file all tax returns and
appropriate schedules thereto that are required to be filed under applicable
law, prior to the date of delinquency, (ii) pay and discharge all taxes,
assessments and governmental charges or levies imposed upon Borrower upon its
income and profits or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and (iii) pay all taxes, assessments and
governmental charges or levies that, if unpaid, might become a lien or charge
upon any of its properties; provided, however, that Borrower in good faith may
contest any such tax, assessment, governmental charge or levy described in the
foregoing clauses (ii) and (iii) so long as appropriate reserves are maintained
with respect thereto.
3.6 Corporate Existence. Borrower shall maintain its corporate existence
and good standing in the state of its incorporation, and its qualification and
good standing as a foreign corporation in each jurisdiction in which such
qualification is necessary pursuant to applicable law, unless failure to
maintain good standing would not have a material affect on Borrower's ability to
meet its obligations under the Loan Documents.
3.7 Compliance with Law and Other Agreements. Except where the failure to
do so would not materially adversely affect Borrower's operations or its ability
to fulfill its obligations under the Loan Documents, Borrower shall maintain its
business, operations and property owned or used in connection therewith in
compliance with (i) all applicable federal, state and local laws, regulations
and ordinances governing such business operations and the use and ownership of
such property, and (ii) all agreements, licenses, franchises, indentures and
mortgages to which Borrower is a party or by which Borrower or any of its
properties is bound. Without limiting the foregoing, Borrower shall pay all of
its indebtedness promptly in accordance with the terms thereof.
<PAGE>
3.8 Notice of Default. Borrower shall give written notice to Lender of the
occurrence of any default, event of default or Event of Default under this
Agreement or any other Loan Document promptly upon the occurrence thereof
3.9 Notice of Litigation. Borrower shall give notice, in writing, to Lender
of (i) any actions, suits or proceedings instituted by any persons whomsoever
against Borrower, or affecting any of the assets of Borrower, wherein the amount
at issue is in excess of Twenty-Five Thousand and No/100ths Dollars($25,000.00),
and (ii) any dispute, not resolved within sixty (60) days of the commencement
thereof, between Borrower on the one hand and any governmental regulatory body
on the other hand, which dispute might materially interfere with the normal
operations of Borrower.
3.10 Conduct of Business, Name and Location of Business. Borrower will
continue to engage in a business of the same general type and manner as
conducted by it on the date of this Agreement. Borrower will not change its name
or any location of its business without providing Lender with 10 days' written
notice of such change. In the event Borrower makes a change of its name or
location of business, Borrower shall promptly execute any and all financing
statements, and amendments or continuations thereof and any other documents that
Lender may reasonably request to evidence, continue, and/or perfect any security
interest in or pledge of collateral securing the Loan.
3.11 ERISA Plan. If Borrower has in effect, or hereafter institutes, a
pension plan that is subject to the requirements of Title IV of the Employee
Retirement Income Security Act of 1974, Pub. L. No. 93-406, September 2, 1974,
88 Stat. 829, 29 U.S.C.A. ss. 1001 et seq. (1975), as amended from time to time
("ERISA"), then the following warranty and covenants shall be applicable during
such period as any such plan (the "Plan") shall be in effect: (i) Borrower
hereby warrants that no fact that might constitute grounds for the involuntary
termination of the Plan, or for the appointment by the appropriate United States
District Court of a trustee to administer the Plan, exists at the time of
execution of this Agreement, (ii) Borrower hereby covenants that throughout the
existence of the Plan, Borrower's contributions under the Plan will meet the
minimum funding standards required by ERISA and Borrower will not institute a
distress termination of the Plan, and (iii) Borrower covenants that it will send
to Lender a copy of any notice of a reportable event (as defined in ERISA)
required by ERISA to be filed with the Labor Department or the Pension Benefit
Guaranty Corporation, at the time that such notice is so filed.
3.12 Dividends, Distributions, Stock Rights, etc. Borrower shall not
declare or pay any dividend of any kind (other than stock dividends payable to
all holders of any class of capital stock), in cash or in property, on any class
of the capital stock of Borrower, or purchase, redeem, retire or otherwise
acquire for value any shares of such stock, nor make any distribution of any
kind in cash or property in respect thereof, nor make any return of capital of
shareholders, nor make any payments in cash or property in respect of any stock
options, stock bonus or similar plan (except as required or permitted
hereunder), nor grant any preemptive rights with respect to the capital stock of
Borrower, without the prior written consent of Lender. Notwithstanding the
foregoing, beginning January 1, 1999, Borrower may make dividend payments up to
but not exceeding $300,000 to holders of Preferred Stock in each year that
Borrower had a cash balance of $2,700,000 (determined in accordance with GAAP)
on the last day of the immediately preceding fiscal year of Borrower; provided,
however, that Borrower shall make principal prepayments on the Loan in the same
amount of any such dividend payments.
<PAGE>
3.13 Guaranties, Loans: Payment of Debt. Without Lender's prior express
written consent, Borrower shall not guarantee.-nor be liable in any manner,
whether directly or indirectly, or become contingently liable after the date of
this Agreement in connection with the obligations or indebtedness `6f any person
or entity whatsoever, except for the endorsement of negotiable instruments
payable to Borrower for deposit or collection in the ordinary course of
business. Without Lender's prior express written consent, Borrower shall not (i)
make any loan, advance or extension of credit to any person other than in the
normal course of its business, or (ii) make any payment on any subordinated
debt.
3.14 Debt. Without the express prior written consent of Lender, Borrower
shall not create, incur, assume or suffer to exist indebtedness of any
description whatsoever, (excluding (i) the indebtedness evidenced by the Note,
(ii) the endorsement of negotiable instruments payable to Borrower for deposit
or collection in the ordinary course of business, (iii) indebtedness incurred in
the ordinary course of business (each of which, individually, does not exceed
$25,000), (iv) the indebtedness listed on Schedule 2.1(l) hereto) and (v)
purchase money indebtedness for new equipment (which does not exceed $50,000 in
the aggregate during any fiscal year of Borrower).
3.15 No Liens. Borrower shall not create, incur, assume or suffer to exist
any lien, security interest, security title, mortgage, deed of trust or other
encumbrance upon or with respect to any of its properties, now owned or
hereafter acquired, except the following permitted liens (the "Permitted
Liens"):
(a) liens in favor of Lender;
(b) liens for taxes or assessments or other governmental charges,
levies or similar charges if not yet due and payable;
(c) liens in connection with the leasing of equipment in favor of the
Lessor of such equipment;
(d) liens described on Schedule 2.1(1) hereto;
(e) purchase money security interests granted by Borrower (i) at a
time when no potential default or Event of Default has occurred and is
continuing hereunder, unless Lender otherwise consents thereto in writing,
(ii) encumbering equipment purchased by Borrower in connection with the
transaction in which such purchase money security interest is granted,
(iii) securing indebtedness in an amount not exceeding the lesser of (A)
$50,000 incurred in the aggregate during any fiscal year, or (B) the fair
market value or the purchase price of the applicable equipment, as to each
such purchase money security;
<PAGE>
(f) any lien which may be granted to a surety which insures Borrower's
performance under any contract entered into by Borrower in the ordinary
course of business, but only to the extent that such lien encumbers only
such contract and the sums payable to Borrower thereunder and no other
asset of Borrower, and then only if Borrower provides Lender with at least
thirty (30) calendar days advance notice of the granting of such lien and
the "entry into the related surety arrangement; and
(g) subsequently arising liens which are approved in advance by Lender
in writing.
3.16 Mergers, Consolidations, Acquisitions and Sales. Without the prior
written consent of Lender, Borrower shall not (a) be a party to any merger,
consolidation or corporate reorganization, nor (b) purchase or otherwise acquire
all or substantially all of the assets or stock of, or any partnership or joint
venture interest in, any other person, firm or entity, nor (c) sell, transfer,
convey, grant a security interest in or lease all or any substantial part of its
assets, nor (d) create any Subsidiaries nor convey any of its assets to any
Subsidiary. Without prior written notice to Lender, Borrower shall not open any
new restaurants. Notwithstanding the foregoing, if Borrower opens a new
restaurant, Borrower shall, or shall cause each new restaurant to, execute all
documents reasonably necessary for Lender to perfect a security interest in the
assets of the new restaurant and a pledge of the stock of the new restaurant to
the extent the new restaurant is set up as a new subsidiary of Borrower.
3.17 Transactions With Affiliates. Borrower shall not enter into any
transaction, including, without limitation, the purchase, sale or exchange of
property or the rendering of any service, with any affiliate, except in the
ordinary course of and pursuant to the reasonable requirements of Borrower's
business and upon fair and reasonable terms no less favorable to Borrower than
Borrower would obtain in a comparable arm's length transaction with a person not
an affiliate. For the purposes of this Section 3.17, "affiliate" shall mean a
person, corporation, partnership or other entity controlling, controlled by or
under common control with Borrower.
3.18 Environment. Borrower shall be and remain in compliance with the
provisions of all federal, state and local environmental, health, and safety
laws, codes and ordinances, and all rules and regulations issued thereunder;
notify Lender immediately of any notice of a hazardous discharge or
environmental complaint received from any governmental agency or any other
party; notify Lender immediately of any hazardous discharge from or affecting
Borrower's premises; immediately contain and remove the same, in compliance with
all applicable laws; promptly pay any fine or penalty assessed in connection
therewith; permit Lender to inspect the premises, to conduct tests thereon, and
to inspect all books, correspondence, and records pertaining thereto; and at
Lender's request, and at Borrower's expense, provide a report of a qualified
environmental engineer, satisfactory in scope, form, and content to Lender, and
such other and further assurances reasonably satisfactory to Lender that the
condition has been corrected.
<PAGE>
ARTICLE 4
CONDITIONS TO CLOSING
---------------------
4.1 Closing of the Loan. The obligation of Lender to fund the Loan on the
date hereof (the "Closing Date") is subject to the fulfillment, on or prior to
the Closing Date, of each of the following conditions:
(a) Borrower shall have performed and complied in all material
respects with all of the covenants, agreements, obligations and conditions
required by this Agreement.
(b) Lender shall have received an opinion of the Borrower's counsel,
Nelson, Mullins, Riley & Scarborough, L.L.P., dated the Closing Date, in
form and substance satisfactory to Lender's counsel, Chablis & Banner, PLO.
(c) Borrower shall have delivered to Lender the Note executed by
Borrower.
(d) Borrower shall have delivered to Lender a Stock Purchase Warrant
executed by Borrower, in a form acceptable to Lender.
(e) Borrower shall have delivered to Lender a Security Agreement
executed by Borrower (in form acceptable to Lender) and related BCC-1
Financing Statement(s) (in form acceptable to Lender) executed by Borrower.
(f) Borrower shall have delivered to Lender a Pledge and Security
Agreement (in a form acceptable to Lender) and related stock proxy, stock
power, and stock certificate (all in form acceptable to Lender), executed
by Borrower, respectively, and related stock pledge letter (all in form
acceptable to Lender) executed by each of the Subsidiaries.
(g) Borrower shall have delivered to Lender a Security Agreement
executed by each of the Subsidiaries (in a form acceptable to Lender) and
related UCC-1 Financing Statement(s) (in a form acceptable to Lender)
executed by each of the Subsidiaries (as applicable).
(h) Borrower shall have delivered to Lender a Pledge and Security
Agreement (in a form acceptable to Lender) and related stock proxies, stock
powers, and stock certificates (all in a form acceptable to Lender)
executed by Clyde E. Culp, III, Richard E. Tanner and John D. Feltman,
respectively, and related stock pledge letters (all in a form acceptable to
Lender) executed by Borrower.
<PAGE>
(i) [Intentionally omitted]
(j) Borrower shall have delivered to Lender a Landlord's Consent and
Subordination of Lien, executed by each of Borrower's and each of the
Subsidiaries' landlords, in a form acceptable to Lender.
(k) Lender shall have received copies of the articles of incorporation
and other publicly filed organizational documents of Borrower and each of
the Subsidiaries, certified by the Secretary of State or other appropriate
public official in the jurisdictions in which Borrower and each-W the
Subsidiaries are incorporated.
(l) Lender shall have received certified (as of the date of this
Agreement) copies of all corporate action taken by Borrower and each of the
Subsidiaries, including resolutions of the Board of Directors, authorizing
the execution, delivery and performance of the Loan Documents.
(m) Lender shall have received a certificate as to the legal existence
and good standing of Borrower and each of the Subsidiaries, issued by the
Secretary of State or other appropriate public official in the
jurisdictions in which Borrower and each of Subsidiaries are incorporated.
(n) Lender shall have received certificates of the Secretaries of
State or other appropriate public officials as to Borrower's or
Subsidiaries' qualification to do business and good standing in each
jurisdiction in which a failure to be so qualified would have a material
adverse effect on its or their financial positions or its ability to
conduct its business in the manner now conducted and as hereafter intended
to be conducted.
(o) Borrower shall have delivered to Lender an Assignment of Life
Insurance Policy as Collateral (in a form acceptable to Lender) executed by
Borrower in duplicate, and a Life Insurance Assignment Questionnaire
executed by Borrower covering the life of Clyde E. Culp, III, in a form
acceptable to Lender.
(p) Lender shall have received an Intercreditor Agreement (in a form
acceptable to Lender) executed by Borrower and Richard E. Tanner.
(q) Lender shall have received an Authorization Agreement for
Pre-Authorized Payments (Debit) executed by Borrower and Borrower's bank.
(r) Lender shall have received a Consent and Acknowledgement of Lien
and Security Interest (in form acceptable to Lender) executed by Richard E.
Tanner.
<PAGE>
(s) Lender shall have received Intercreditor Estoppel Agreements (in
form acceptable to Lender) executed by all senior lenders of the
Subsidiaries.
4.2 Second Advance. The obligation of Lender to fund the Second Advance of
Loan on the date of such Advance is subject to the fulfillment, on or prior to
such date, of each of the following conditions:
(a) An Event of Default (as herein defined) shall not have occurred
and be continuing.
(b) Lender shall have received an opinion of the Borrower's counsel,
Nelson, Mullins, Riley & Scarborough, L.L.P., dated the date of such
Advance, regarding the enforceability of the promissory note delivered in
connection therewith, in form and substance satisfactory to Lender's
counsel, Chambliss & Bahner, PLLC.
(c) Borrower shall have delivered a Note executed by Borrower in the
original principal amount of the applicable Advance.
(d) Borrower shall have delivered a Closing Certificate (in a form
acceptable to Lender), executed by Borrower.
ARTICLE 5
DEFAULT AND REMEDIES
--------------------
5.1 Events of Default. The occurrence of any of the following shall
constitute an Event of Default hereunder:
(a) Default by Borrower in the payment of the principal of or interest
on the indebtedness evidenced by the Note in accordance with the terms of
the Note, which default is not cured within five (5) days;
(b) Any misrepresentation by Borrower, any guarantor of Borrower, or
any shareholder, subsidiary, or affiliate of Borrower as to any material
matter hereunder or under any of the other Loan Documents, or delivery by
Borrower of any schedule, statement, resolution, report, certificate,
notice or writing to Lender that is untrue in any material respect on the
date as of which the facts set forth therein are stated or certified;
(c) Failure of Borrower, any guarantor of Borrower, or any
shareholder, subsidiary, or affiliate of Borrower to perform any of its
obligations, covenants or agreements under this Agreement, the Note or any
of the other Loan Documents;
<PAGE>
(d) Borrower (i) shall generally not pay or shall be unable to pay its
debts as such debts become due and such failure continues beyond any
applicable grace period (unless disputed) and adequate reserves are
maintained; or (ii) shall make an assignment for the benefit of creditors
or petition or apply to any tribunal for the appointment of a custodian,
receiver or trustee for it or a substantial part of its assets; or (iii)
shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, whether now or hereafter in effect; or (iv)
shall have had any such petition or application filed or any such
proceeding commenced against it in which an order for relief is entered or
an adjudication or appointment is made; or (v) shall indicate, by any act
or intentional and purposeful omission, its consent to, approval of or
acquiescence in any such petition, application, proceeding or order for
relief or the appointment of a custodian, receiver or trustee for it or a
substantial part of its assets; or (vi) shall suffer any such
custodianship, receivership or trusteeship to continue undischarged for a
period of sixty (60) days or more;
(e) Borrower shall be liquidated, dissolved, partitioned or
terminated, or the charter thereof shall expire be revoked;
(f) A default or event of default shall occur under any of the other
Loan Documents and, if subject to a cure right, such default or event of
default shall not be cured within the applicable cure period;
(g) Borrower shall default in the timely payment or performance of any
obligation now or hereafter owed to Lender in connection with any other
indebtedness of Borrower now or hereafter owed to Lender and, if subject to
a cure right, such default or event of default shall not be cured within
the applicable cure period;
(h) Borrower shall have defaulted and continue to be in default in the
timely payment or performance of any other indebtedness or obligation and
such failure continues beyond any applicable grace period (unless disputed)
and adequate reserves are maintained, which in the aggregate exceeds
Twenty-Five Thousand and No/100ths Dollars ($25,000.00) or materially
adversely affects Borrower's financial condition;
(i) Except with Lender's consent, Clyde E. Culp, III, shall no longer
be significantly involved in the management and/or daily operations of
Borrower;
With respect to any Event of Default described above that is capable
of being cured and that does not already provide its own cure procedure (a
"Curable Default"), the occurrence of such Curable Default shall not
constitute an Event of Default hereunder if such Curable Default is fully
cured and/or corrected within thirty (30) days (ten (10) days, if such
Curable Default may be cured by payment of a sum of money) of notice
thereof to Borrower given in accordance with the provisions hereof;
provided, however, that this provision shall not require notice to Borrower
and an opportunity to cure any Curable Default of which Borrower has had
actual knowledge for the requisite number of days set forth.
<PAGE>
5.2 Acceleration of Maturity, Remedies. Upon the occurrence of any Event of
Default described in subsection 5.1(d), the indebtedness evidenced by the Note
as well as any and all other indebtedness of Borrower to Lender shall be
immediately due and payable in full; and upon the occurrence of any other Event
of Default described above, Lender at any time thereafter may at its option
accelerate the maturity of the indebtedness evidenced by the Note as well as any
and all other indebtedness of Borrower to Lender; all without notice of any
kind. Upon the occurrence of any such Event of Default and the acceleration of
the maturity of the Indebtedness evidenced by the Note:
(a) Lender shall be immediately entitled to exercise any and all
rights and remedies possessed by Lender pursuant to the terms of the Note
and all of the other Loan Documents; and
(b) Lender shall have any and all other rights and remedies that
Lender may now or hereafter possess at law, in equity or by statute.
5.3 Remedies Cumulative, No Waiver. No right, power or remedy conferred
upon or reserved to Lender by this Agreement or any of the other Loan Documents
is intended to be exclusive of any other right, power or remedy, but each and
every such right, power and remedy shall be cumulative and concurrent and shall
be in addition to any other right, power and remedy given hereunder, under any
of the other Loan Documents or now or hereafter existing at law, in equity or by
statute. No delay or omission by Lender to exercise any right, power or remedy
accruing upon the occurrence of any Event of Default shall exhaust or impair any
such right, power or remedy or shall be construed to be a waiver of any such
Event of Default or an acquiescence therein, and every right, power and remedy
given by this Agreement and the other Loan Documents to Lender may be exercised
from time to time and as often as may be deemed expedient by Lender.
5.4 Proceeds of Remedies. Any or all proceeds resulting from the exercise
of any or all of the foregoing remedies shall be applied as set forth in the
Loan Document(s) providing remedy or remedies exercised; if none is specified,
or if the remedy is provided by this Agreement, then as follows:
First, to the actual and reasonable costs and expenses, including,
without limitation, reasonable attorney's fees incurred by Lender in
connection with the exercise of its remedies;
Second, to the actual and reasonable expenses of curing the default
that has occurred, in the event that Lender elects, in its sole discretion,
to cure the default that has occurred;
<PAGE>
Third, to the payment of the obligations of Borrower under the Loan
Documents (the "Obligations"), including but not limited to the payment of
the principal of and interest on the indebtedness evidenced by the Note, in
such order of priority as Lender shall determine in its sole discretion;
and
Fourth, the remainder, if any, to Borrower or to any other person
lawfully thereunto entitled.
ARTICLE 6
TERMINATION
-----------
6.1 Termination of this Agreement. This Agreement shall remain in full
force and effect until the later of (i) the Maturity Date (as defined in the
Note), or (ii) the payment by Borrower of all amounts owed to Lender, at which
time Lender shall cancel the Note and deliver it to Borrower; provided, however,
that if at any time Borrower has satisfied all obligations to Lender, Borrower
may terminate this Agreement by providing written notice to Lender.
ARTICLE 7
MISCELLANEOUS
-------------
7.1 Performance By Lender. If Borrower shall default in the payment,
performance or observance of any covenant, term or condition of this Agreement,
which default is not cured within the applicable cure period, then Lender may,
at its option, pay, perform or observe the same, and all payments made or costs
or expenses incurred by Lender in connection therewith (including but not
limited to reasonable attorney's fees), with interest thereon at the highest
default rate provided in the Note (if none, then at the maximum rate from time
to time allowed by applicable law), shall be immediately repaid to Lender by
Borrower and shall constitute a part of the Obligations. Lender shall be the
sole judge of the necessity for any such actions and of the amounts to be paid.
7.2 Successors and Assigns Included in Parties. Whenever in this Agreement
one of the parties hereto is named or referred to, the heirs, legal
representatives, successors, successors-in-title and assigns of such parties
shall be included, and all covenants and agreements contained in this Agreement
by or on behalf of Borrower or by or on behalf of Lender shall bind and inure to
the benefit of their respective heirs, legal representatives,
successors-in-title and assigns, whether so expressed or not.
7.3 Costs and Expenses. Borrower agrees to pay all reasonable costs and
expenses incurred by Lender in connection with the making of the Loan, including
but not limited to filing fees, recording taxes, indebtedness taxes, and
reasonable attorneys' fees, promptly upon demand of Lender. Borrower further
agrees to pay all premiums for insurance required to be maintained by Borrower
pursuant to the terms of the Loan Documents and all of the out-of-pocket costs
and expenses incurred by Lender in connection with the collection of the Loan,
amendment to the Loan Documents, or prepayment of the Loan, including but not
limited to reasonable attorneys' fees, promptly upon demand of Lender.
<PAGE>
7.4 Assignment. The Note, this Agreement and the other Loan Documents may
be endorsed, assigned and/or transferred in whole or in part by Lender, and any
such holder and/or assignee of the same shall succeed to and be possessed of the
rights and powers of Lender under all of the same to the extent transferred and
assigned. Lender may grant participations in all or any portion of its interest
in the indebtedness evidenced by the Note, and in such event Borrower shall
continue to make payments due under the Loan Documents to Lender and Lender
shall have the sole responsibility of allocating and forwarding such payments in
the appropriate manner and amounts. Borrower shall not assign any of its rights
nor delegate any of its duties hereunder or under any of the other Loan
Documents without the prior express written consent of Lender.
7.5 Time of the Essence. Time is of the essence with respect to each and
every covenant, agreement and obligation hereunder and under all of the other
Loan Documents.
7.6 Severability. If any provision(s) of this Agreement or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provisions
to other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
7.7 Interest and Loan Charges Not to Exceed Maximum Allowed by Law.
Anything in this Agreement, the Note or any of the other Loan Documents to the
contrary notwithstanding, in no event whatsoever, whether by reason of
advancement of proceeds of the Loan, acceleration of the maturity of the unpaid
balance of the Loan or otherwise, shall the interest and loan charges agreed to
be paid to Lender for the use of the money advanced or to be advanced hereunder
exceed the maximum amounts collectible under applicable laws in effect from time
to time. It is understood and agreed by the parties that, if for any reason
whatsoever the interest or loan charges paid or contracted to be paid by
Borrower in respect of the indebtedness evidenced by the Note shall exceed the
maximum amounts collectible under applicable laws in effect from time to time,
then ipso facto, the obligation to pay such interest and/or loan charges shall
be reduced to the maximum amounts collectible under applicable laws in effect
from time to time, and any amounts collected by Lender that exceed such maximum
amounts shall be applied to the reduction of the principal balance of the
indebtedness evidenced by the Note and/or refunded to Borrower so that at no
time shall the interest or loan charges paid or payable in respect of the
indebtedness evidenced by the Note exceed the maximum amounts permitted from
time to time by applicable law.
7.8 Article and Section Headings: Defined Terms. Numbered and titled
article and section headings and defined terms are for convenience only and
shall not be construed as amplifying or limiting any of the provisions of this
Agreement.
<PAGE>
7.9 Notices. Any and all notices, elections or demands permitted or
required to be made under this Agreement or any of the Loan Documents shall be
in writing, signed by the party giving such notice, election or demand and shall
be delivered personally, telecopied, or sent by certified mail or overnight via
nationally recognized courier service (such as Federal Express), to the other
party at the address set forth below, or at such other address as may be
supplied in writing and of which receipt has been acknowledged in writing. The
date of personal delivery, telecopy or telex or two (2) business days after the
date of mailing (or the next business day after delivery to such courier
service), as the case may be, shall be the date of such notice, election or
demand. For the purposes of this Agreement:
The Address of Lender is: Sirrom. Capital Corporation
Suite 200
500 Church Street
Nashville, TN 37219
Attention: Kathy Harris
Telecopy: 615/726-1208
with a copy to: Chambliss & Bahner, PLLC
1000 Tallan Building
Two Union Square
Chattanooga, TN 37402
Attention: J. Patrick Murphy, Esq.
Telecopy: 423/265-9574
The Address of Borrower is: TRC Acquisition Corporation
2662 Holcomb Bridge Road
Suite 320
Alpharetta, Georgia 30202
Attention: Clyde E. Culp, III
Telecopy: (770) 518-1443
with a copy to: Nelson, Mullins, Riley & Scarborough, L.L.P.
1201 Peachtree Street, N.E.
400 Colony Square
Suite 2200
Atlanta, GA 30361
Attention: Jonathan R. Coe
Telecopy: (404) 817-6050
7.10 Entire Agreement. This Agreement and the other Loan Documents between
Borrower and Lender represent the entire agreement between the parties
concerning the subject matter hereof, and all oral discussions and prior
agreements are merged herein; provided, if ere is a conflict between this
Agreement and any other Loan Documents executed contemporaneously herewith with
respect to the Obligations, the provision of this Agreement all control. The
execution and delivery of this Agreement and the other Loan Documents by e
Borrower were not based upon any fact or material provided by Lender, nor was
the Borrower induced or influenced to enter into this Agreement or the other
Loan Documents by any representation, statement, analysis or promise by Lender.
<PAGE>
7.11 Governing Law and Amendments. This Agreement and all of the Loan
documents shall be construed and enforced under the laws of the State of
Tennessee applicable contracts to be wholly performed in such State except to
the extent certain rights and privileges may be granted Lender under applicable
federal laws in which event federal law shall control. No amendment or
modification hereof shall be effective except in a writing executed by each of
the parties hereto.
7.12 Survival of Representations and Warranties. All covenants,
representations and warranties contained herein or in any of the Loan Documents,
or made by or furnished on behalf of the Borrower in connection herewith or any
of the Loan Documents, shall survive the execution and delivery of this
Agreement and all other Loan Documents and shall continue in full force and
effect so long as the Obligations are unpaid.
7.13 Jurisdiction and Venue. Borrower hereby consents to the jurisdiction
of the courts of the State of Tennessee and the-"United States District Court
for the Middle District of Tennessee, as well as to the jurisdiction of all
courts from which an appeal may be taken from such courts, for the purpose of
any suit, action or other proceeding arising out of any of its obligations
arising under this Agreement or any other Loan Documents or with respect to the
transactions contemplated hereby, and expressly waives any and all objections it
may have as to venue in any of such courts.
7.14 Waiver of Trial by Jury. LENDER AND BORROWER HEREBY WAIVE TRIAL BY
JURY IN ANY ACTIONS, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT
OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS
AGREEMENT OR THE LOAN DOCUMENTS.
7.15 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
7.16 Construction and Interpretation. Should any provision of this
Agreement require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that the
terms hereof shall be more strictly construed against one party by reason of the
rule of construction that a document is to be more strictly construed against
the party that itself or through its agent prepared the same, it being agreed at
the Borrower, Lender and their respective agents have participated in the
preparation eof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be executed by their duly authorized officers, as
of the day and year above written.
LENDER:
-------
SIRROM CAPITAL CORPORATION, a Tennessee.
corporation
By: /s/ Illegible
Title: Chief Operating Officer
BORROWER:
TRC ACQUISITION CORPORATION, a Georgia
corporation
By: /s/ John Feltman
Title: /s/ President
<PAGE>
Exhibit A - Form of Note
Schedule 2.1(b) - Subsidiaries
Schedule 2.1(e) - Options, Warrants, Stock Rights, Etc.
Schedule 2.1(f) - Trademarks, Patents, Etc.
Schedule 2.1(h) - Litigation
Schedule 2.1(i)(A) and (B) - Financial Statements
Schedule 2.1(l) - Debt and Liens
Schedule 2.1(m) - Taxes
Schedule 2.1(n) - Shareholder Loans
Schedule 2.1(q) - Significant Contracts
Schedule 2.1(bb) - Deposit Institutions
Schedule 2.1(cc) - Names and Locations
ASSUMPTION AGREEMENT, CONSENT AND
---------------------------------
FIRST AMENDMENT TO LOAN AGREEMENT
---------------------------------
THIS ASSUMPTION AGREEMENT, CONSENT AND FIRST AMENDMENT TO LOAN AGREEMENT
("Agreement"), dated as of the 14th day of January, 1999, is made and entered
into on the terms and conditions hereinafter set forth by and among SIRROM
CAPITAL CORPORATION, a Tennessee corporation ("SCC"), SIRROM FUNDING
CORPORATION, a Tennessee corporation and assignee of SCC ("SFC") (SCC and SFC
are hereinafter referred to collectively as "Lender") and HARTAN, INC., a Texas
corporation ("Hartan") and wholly owned subsidiary of Harvest Restaurant Group,
Inc. ("Harvest").
W I T N E S S E T H:
--------------------
WHEREAS, SCC has previously made a term loan to TRC Acquisition Corporation
("TRC") in the original principal amount of Two Million and No/100ths Dollars
($2,000,000.00) (the "Loan") on the terms and conditions set forth in that
certain Loan Agreement dated October 22, 1996, by and between SCC and TRC (as
now or hereafter amended, the "Loan Agreement");
WHEREAS, the Loan is evidenced by a Secured Promissory Note dated October
22, 1996 in the original principal amount of $1,000,000 made and executed by
TRC, payable to the order of SCC and a Secured Promissory Note dated February
25, 1997 in the original principal amount of $1,000,000 made and executed by
TRC, payable to the order of SCC (collectively the "Note");
WHEREAS, the Note has been amended and restated by that certain Amended and
Restated Secured Promissory Note of even date herewith in the original principal
amount of $2,000,000 made and executed by Hartan in favor of SCC (the "Amended
and Restated Note");
WHEREAS, the Loan is further evidenced and secured by certain agreements,
documents and instruments as more particularly described in the Loan Agreement
and defined therein as the "Loan Documents";
WHEREAS, the Loan has been assigned by SCC to SFC with SCC retaining
certain rights in the Loan and Loan Documents;
WHEREAS, on or before the date hereof, pursuant to the Amended and Restated
Agreement and Plan of Merger by and among Harvest, Hartan and TRC (the "Merger
Agreement") TRC will merge with and into Hartan (the "Merger");
WHEREAS, the Loan Agreement requires the consent of Lender for the Merger;
and
WHEREAS, TRC, Hartan and Harvest have requested that Lender consent to the
Merger.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Consent. Lender hereby consents to the Merger on the terms and
conditions set forth in the Merger Agreement subject to the following conditions
precedent:
(i) Hartan's execution and delivery to Lender of an Amended and
Restated Note;
(ii) Hartan's delivery to Lender of an Amended and Restated Stock
Purchase Warrant (the "Amended and Restated Warrant") and Warrant
Valuation Letter executed by Harvest in form and substance
satisfactory to Lender;
(iii)Hartan's delivery to Lender of a Guaranty Agreement executed by
Harvest (the "Guaranty") in form and substance satisfactory to
Lender;
(iv) Hartan's delivery to Lender of an Amended and Restated Guaranty
executed by That Chicken Place, Inc., Tanner's/Vinings, Inc.,
Tanner's Oaks, Inc., Tanner's Spalding, Inc., Tanner's Mill,
Inc., Tanner's-Tucker, Inc., Northwest Store, Inc. (formerly
Tanner's-Rome, Inc.), Tanner's Lilburn, Inc., Tanner's Catering,
Inc. and Central Administration, Inc. (formerly Tanner's
Management, Inc.);
(v) Hartan's delivery to Lender of a Pledge and Security Agreement,
together with related stock certificate, stock proxy, stock
pledge letter and stock power executed by Harvest in form and
substance satisfactory to Lender;
(vi) Hartan's delivery to Lender of new stock certificates, stock
proxies, stock pledge letters and stock powers executed by the
original shareholders of TRC;
(vii)Hartan's delivery to Lender of an opinion letter of Hartan's
counsel, Nelson Mullins Riley & Scarborough, L.L.P., in form and
substance satisfactory to Lender;
(viii) Hartan's payment of the Closing Expenses (as hereinafter
defined);
(ix) Hartan's delivery to Lender of corporate resolutions of Hartan,
TRC and Harvest authorizing and approving the transactions
contemplated by and described in this Agreement;
(x) Hartan's delivery to Lender of good standing certificates for
Hartan and Harvest for Texas and Georgia;
(xi) Hartan's delivery to Lender of executed copies of all of the
documents executed in connection with the Merger; and
2
<PAGE>
(xii)Hartan's delivery to Lender of executed originals of all of the
UCC-1s and UCC-3s described on Exhibit A attached hereto.
2. Assumption of Obligations under Amended and Restated Note. Without
limiting, releasing or otherwise affecting the liability of TRC or any other
person, firm or entity which may now or hereafter be liable for payment of the
indebtedness evidenced by the Note or the Amended and Restated Note, Hartan
hereby agrees to be directly and personally liable to Lender for payment of (a)
the principal sum of $2,000,000, evidenced by the Amended and Restated Note,
together with (b) interest on the outstanding principal balance at the rate of
thirteen and one-half percent (13.5%) per annum (computed on the basis of a
360-day year) (the "Assumed Indebtedness"); such principal and interest being
payable as set forth in the Amended and Restated Note. Hartan agrees that its
obligation with respect to the Assumed Indebtedness shall be governed by the
terms and conditions of the Amended and Restated Note.
3. Assumption of Other Obligations; Grant of Security Interest. Hartan
agrees that all obligations of TRC under the Loan Documents shall be the
obligations of Hartan. Accordingly, Hartan hereby grants to Lender a security
interest in all of its Collateral (as defined in the Security Agreement by and
between TRC and Lender dated October 22, 1996) and Hartan pledges, hypothecates,
assigns, sets over and delivers unto Lender and hereby grants to Lender a
security interest in the collateral described on Schedule A to the Pledge and
Security Agreement by and between TRC and Lender dated October 22, 1996 together
with all proceeds thereof and all cash, additional securities or other property
at any time and from time to time receivable or otherwise distributable in
respect of, in exchange for, or in substitution for any and all such pledged
securities.
4. Amendment to Loan Agreement. Section 3.12 of the Loan Agreement is
amended to provide that Hartan may pay dividends to Harvest in amounts necessary
for Harvest to pay cash dividends on its Series A Preferred Stock as set forth
in Harvest's current Articles of Incorporation so long as (i) the Fixed Charge
Coverage Ratio (as defined in the Guaranty) is 1.1 to 1 or above, (ii) Hartan
makes a principal payment on the Amended and Restated Note in the same amount of
the dividends on the Series A Preferred Stock simultaneously with paying such
dividends, and (iii) no Event of Default (as defined in the Loan Agreement) has
occurred and is continuing and to pay cash dividends on its Series D Preferred
Stock as set forth in Harvest's current Articles of Incorporation so long as (i)
Hartan makes a principal prepayment on the Amended and Restated Note in the same
amount of the dividends on the Series D Preferred Stock simultaneously with
paying such dividends and (ii) no Event of Default (as defined in the Loan
Agreement) has occurred and is continuing.
5. Miscellaneous. It is further agreed as follows:
(a) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Tennessee.
(b) Amendment. This Agreement cannot be amended, rescinded,
supplemented or modified except in writing signed by the parties hereto.
3
<PAGE>
(c) Binding Effect. This Agreement will inure to the benefit of, and
bind the respective heirs, personal representatives, successors and assigns of
the parties hereto.
(d) Headings. Paragraph or other headings contained in this Agreement
are for reference purposes only and are not intended to affect in any way the
meaning or interpretation of this Agreement.
(e) Counterpart Execution. This Agreement may be executed in
counterparts, each of which will be deemed an original document, but all of
which shall constitute a single agreement. This document will not be binding on
or constitute evidence of a contract between the parties until such time as a
counterpart of this document has been executed by each party and a copy thereof
delivered to each party to this Agreement.
(f) Cooperation. Prior to and at all times following the closing date,
all the parties hereto agree to execute and deliver, or to cause to be executed
and delivered, such documents and to do, or cause to be done, such other acts
and things as may reasonably be requested by any of the parties hereto to assure
that the benefits of this Agreement are realized by Lender and Hartan.
(g) Closing Expenses. Except as expressly set forth to the contrary
herein, TRC or Hartan shall pay or cause to be paid in full all out-of-pocket
expenses of the Lender incurred in connection with the execution and delivery of
this Agreement and related documents and the consummation of the transactions
contemplated by such documents and any and all outstanding invoices of Lender's
attorney (collectively the "Closing Expenses"); and TRC and Hartan shall pay or
cause to be paid in full all of the out-of-pocket expenses incurred by Lender in
connection with the execution and delivery of this Agreement and related
documents and the consummation of the transactions contemplated by such
documents.
(h) Assignment. The Loan has been assigned by SCC to SFC with SCC
retaining certain rights in the Loan and Loan Documents, and the Amended and
Restated Note and the Amended and Restated Warrant will be assigned by SCC to
SFC upon their delivery to SCC.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be executed by their duly authorized
representatives, as of the date first above written.
HARTAN:
HARTAN, INC., a Texas corporation
By: /s/ Clyde E. Culp, III
Title: Chief Executive Officer
LENDER:
SIRROM CAPITAL CORPORATION, a
Tennessee corporation
By: /s/ Elizabeth Lurding
Title: Vice President
SIRROM FUNDING CORPORATION, a
Tennessee corporation
By: /s/ Betty Lou Burrett
Title: Treasurer
The undersigned acknowledged and agree that pursuant to the terms of their
Pledge and Security Agreements dated October 22, 1996 between SCC and the
undersigned, respectively, the stock of the undersigned in Harvest Restaurant
Group, Inc. secures the Loan, and the undersigned agree to execute and deliver
to Lender new stock powers and stock proxies and to deliver to Lender the stock
certificates representing the ownership of the undersigned in Harvest Restaurant
Group, Inc.
/s/ Richard E. Tanner
Richard E. Tanner
BROOKHAVEN CAPITAL CORPORATION
By: /s/ John D. Feltman
Title: /s/ Chairman
/s/ Clyde E. Culp, III
Clyde E. Culp, III
5
<PAGE>
EXHIBIT A
---------
1. UCC-3s (reflecting merger of TRC Acquisition Corporation with and into
Hartan, Inc.)
* TRC Acquisition Corporation (Fulton County)
* Tanner's Inc., a tradename of TRC Acquisition Corporation (Fulton
County)
* Tanner's Rotisserie Chicken, a tradename of TRC Acquisition
Corporation (Fulton County)
* Tanner's Restaurants, a tradename of TRC Acquisition Corporation
(Fulton County)
2. UCC-1s (reflecting name of new borrower after merger)
* Hartan, Inc.
* TRC Acquisition Corporation, a tradename of Hartan, Inc.
* Tanner's Inc., a tradename of Hartan, Inc.
* Tanner's Rotisserie Chicken, a tradename of Hartan, Inc.
* Tanner's Restaurant, a tradename of Hartan, Inc.
3. UCC-3s (changing name from Tanner's Management, Inc. to Central
Administration, Inc.)
* Tanner's Management, Inc. (Fulton County)
* Tanner's Rotisserie Chicken (Fulton County)
4. UCC-1 (reflecting name change)
* Central Administration, Inc. (Fulton County) (2)
5. UCC-3s (changing name from Tanner's-Rome, Inc. to Northwest Store, Inc.)
* Tanner's-Rome, Inc. (Fulton County)
* Tanner's Rotisserie Chicken (Fulton County)
6. UCC-1 (reflecting name change)
* Northwest Store, Inc. (Fulton County) (2)
6
GUARANTY AGREEMENT
------------------
THIS GUARANTY AGREEMENT ("Guaranty"), dated January 14, 1999, is made and
entered into upon the terms hereinafter set forth, by HARVEST RESTAURANT GROUP,
INC., a Texas corporation ("Guarantor"), in favor of SIRROM CAPITAL CORPORATION,
a Tennessee corporation ("Lender").
RECITALS:
---------
WHEREAS, pursuant to a Loan Agreement dated October 22, 1996, by and
between TRC Acquisition Corporation, a Georgia corporation ("TRC") and Lender
(the "Loan Agreement"), Lender has made a loan to TRC in the original principal
amount of $2,000,000 (the "Loan");
WHEREAS, the Loan is evidenced by an Amended and Restated Secured
Promissory Note of even date herewith, in the Loan amount, made and executed by
Hartan, Inc., a Texas corporation ("Hartan") payable to the order of Lender
(herein referred to, together with any extensions, modifications, renewals
and/or replacements thereof, as the "Note");
WHEREAS, pursuant to an Assumption Agreement and Consent of even date
herewith Hartan is assuming all of the obligations of TRC under the Loan
Documents (as defined in the Loan Agreement);
WHEREAS, on or before the date hereof, TRC will merge with and into Hartan
pursuant to the terms and conditions of an Amended and Restated Agreement and
Plan of Merger by and among Harvest Restaurant Group, Inc., Hartan and TRC (the
"Merger");
WHEREAS, it is a condition of Lender's agreement to consent to the Merger
that Guarantor execute and deliver this Guaranty to Lender; and
WHEREAS, Guarantor desires to execute and deliver this Guaranty to Lender
in order to induce Lender to consent to the Merger, which will be to the direct
interest, advantage and benefit of Guarantor, who is the parent of Hartan.
AGREEMENT:
----------
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and to induce Lender to consent to the Merger, Guarantor hereby
agrees as follows:
1. Guarantor hereby guarantees to Lender the full and prompt payment and
performance of (a) the indebtedness evidenced by the Amended and Restated Note,
principal and any and all interest accrued or to accrue thereon, (b) the
obligations of Hartan to Lender pursuant to the Amended and Restated Note, the
Loan Agreement and any and all other instruments, documents and/or agreements
now or hereafter further evidencing, securing or otherwise related to the
indebtedness evidenced by the Amended and Restated Note (collectively the "Loan
<PAGE>
Documents") and (c) any and all other indebtednesses and other obligations of
Hartan to Lender, direct or contingent (including but not limited to obligations
incurred as indorser, guarantor or surety), however evidenced or denominated,
and however and whenever incurred, including but not limited to indebtednesses
incurred pursuant to any present or future commitment of Lender to Hartan (the
aforesaid indebtedness and other obligations are sometimes herein collectively
referred to as the "Guaranteed Obligations"). Guarantor hereby agrees that if
the Guaranteed Obligations are not timely paid and/or performed, as the case may
be, in accordance with the terms thereof, Guarantor immediately will pay and/or
perform such Guaranteed Obligations. If for any reason any payment or obligation
in respect of the Guaranteed Obligations shall be determined at any time to be a
voidable preference or otherwise shall be set aside or required to be returned
or repaid, this Guaranty nevertheless shall remain in full force and effect and
shall be fully enforceable against Guarantor for the payment or obligation set
aside, returned or repaid, as well as any other Guaranteed Obligations still
outstanding, notwithstanding the fact that this Guaranty may have been
cancelled, released and/or returned to Guarantor by Lender.
2. In addition to the obligations of Guarantor to Lender pursuant to
Section 1 hereof, Guarantor further agrees to pay any and all expenses
(including without limitation attorneys' fees) reasonably incurred by Lender in
endeavoring to collect and/or enforce the obligations of Guarantor under this
Guaranty.
3. Guarantor shall furnish to Lender (a) as soon as practicable and in any
event within one hundred twenty (120) days after the end of each fiscal year of
Guarantor, an audited balance sheet of Guarantor as of the close of such fiscal
year, an audited statement of operations of Guarantor as of the close of such
fiscal year and an audited statement of cash flows for Guarantor for such fiscal
year, prepared in accordance with generally accepted accounting principles
consistently applied and accompanied by an unqualified audit report prepared by
an independent certified public accountant acceptable to Lender showing the
financial condition of Guarantor at the close of such fiscal year and the
results of its operations during such fiscal year and (b) within thirty (30)
days of the end of each calendar month, a status report indicating the financial
performance of Guarantor during such month and the financial position of
Guarantor as of the end of such month in the same format required by Lender for
Hartan under the Loan Agreement.
4. Guarantor hereby waives notice of any breach or default by Hartan, and
hereby further waives presentment, demand, notice of dishonor and protest with
respect to any instrument now or hereafter evidencing any of the Guaranteed
Obligations.
5. Any act of Lender consisting of a waiver of any of the terms, covenants
or conditions of the Guaranteed Obligations, or the giving of any consent to any
matter or thing relating to the Guaranteed Obligations, or the granting of any
indulgences or extensions of time to Hartan, may be done without notice to
Guarantor and without releasing the obligations of Guarantor hereunder.
6. The obligations of Guarantor hereunder shall not be released by Lender's
receipt, application or release of any security given for the payment,
performance and observance of any of the Guaranteed Obligations. Similarly, the
obligations of Guarantor hereunder shall not be released by any modification of
any of the terms of the Guaranteed Obligations made by Lender and Hartan, but in
the case of any such modification, the liability of Guarantor shall be deemed
modified in accordance with the terms of any such modification.
2
<PAGE>
7. The liability of Guarantor hereunder shall in no way be affected by (a)
the release or discharge of Hartan in any creditors' receivership, bankruptcy or
other proceedings, (b) the impairment, limitation or modification of the
liability of Hartan or the estate of Hartan in bankruptcy, or of any remedy for
the enforcement of any of the Guaranteed Obligations resulting from the
operation of any present or future provision of the Federal bankruptcy law or
any other statute or the decision of any court, (c) the rejection or
disaffirmance of any instrument, document or agreement evidencing any of the
Guaranteed Obligations in any such proceedings, (d) the assignment or transfer
of any of the Guaranteed Obligations by Lender, (e) the death or any disability
or other defense of Hartan, or (f) the cessation from any cause whatsoever of
the liability of Hartan with respect to the Guaranteed Obligations.
8. Until all of the covenants, terms and conditions of Hartan with respect
to the Guaranteed Obligations are fully paid, performed, kept and/or observed,
Guarantor, (a) shall have no rights of reimbursement or subrogation against
Hartan or any of its property by reason of any payment or acts of performance by
Guarantor in compliance with the obligations of Guarantor hereunder, (b) waives
any right to enforce any remedy that Guarantor now or hereafter shall have
against Hartan by reason of any one or more payments or acts of performance in
compliance with the obligations of Guarantor hereunder, and (c) subordinates any
liability or indebtedness of Hartan now or hereafter held by Guarantor to the
obligations of Hartan to Lender under the Guaranteed Obligations.
9. This is a guaranty of payment and performance and not of collection. The
liability of Guarantor hereunder shall be direct and immediate and not
conditional or contingent upon the pursuit of any remedies against Hartan or any
other person, nor against any collateral available to Lender. Guarantor hereby
waives any right to require that an action be brought against Hartan or any
other person or to require that resort be had to any collateral in favor of
Lender prior to discharging its obligations hereunder. Guarantor further waives
any right of Guarantor to require that an action be brought against Hartan under
the provisions of Title 47, Chapter 12, Tennessee Code Annotated, as the same
may be amended from time to time.
10. Guarantor hereby consents and agrees that all payments and credits
received from Hartan or Guarantor or realized from any collateral may be applied
by Lender to the Guaranteed Obligations in such priority as Lender in its sole
judgment shall see fit.
11. In the event that Guarantor consists of more than one person or entity,
the obligations of Guarantor hereunder shall be joint and several, and all
references herein to "Guarantor" shall refer to each of said persons or entities
jointly and severally. This Guaranty is assignable by Lender, and any assignment
of the Guaranteed Obligations or any portion thereof by Lender shall operate to
vest in the assignee the rights and powers of Lender hereunder to the extent of
such assignment. This Guaranty shall be binding upon Guarantor and Guarantor's
heirs, representatives, successors, successors-in-title and assigns, and shall
inure to the benefit of Lender, its successors, successors-in-title and assigns.
3
<PAGE>
12. This Guaranty shall be construed in accordance with and governed by the
laws of the State of Tennessee applicable to contracts to be performed within
said State. No amendment or modification hereof shall be effective unless
evidenced by a writing signed by Guarantor and Lender. When used herein, the
singular shall include the plural, and vice versa, and the use of any gender
shall include all other genders, as appropriate.
13. Guarantor hereby waives notice of acceptance of this Guaranty by
Lender.
14. Guarantor hereby consents to the jurisdiction of the courts of the
State of Tennessee and the United States District Court for the Middle District
of Tennessee, as well as to the jurisdiction of all courts from which an appeal
may be taken from such courts, for the purpose of any suit, action or other
proceeding arising out of any of its obligations arising under this Agreement or
with respect to the transactions contemplated hereby, and expressly waives any
and all objections it may have as to venue in any of such courts.
15. LENDER AND GUARANTOR HEREBY WAIVE TRIAL BY JURY IN ANY ACTIONS,
PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT, AT LAW OR IN
EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT.
16. This Guaranty may be executed in any number of counterparts and by
different parties to this Guaranty in separate counterparts, each of which when
so executed shall be deemed to be an original and all of which taken together
shall constitute one and the same Guaranty.
17. Without the prior written consent of Lender, Guarantor shall not
declare or pay any dividend of any kind (other than stock dividends payable to
all holders of any class of capital stock), in cash or in property, on any class
of the capital stock of Guarantor, or purchase, redeem, retire or otherwise
acquire for value any shares of such stock, nor make any distribution of any
kind in cash or property in respect thereof, nor make any return of capital of
shareholders, nor make any payments in cash or property in respect of any stock
options, stock bonus or similar plan nor grant any preemptive rights with
respect to the capital stock of Guarantor.
Notwithstanding the foregoing:
A. So long as (i) the Fixed Charge Coverage Ratio (as hereinafter
defined) is 1.1 to 1 or above, (ii) Guarantor causes Hartan to make a principal
prepayment on the Note equal to the aggregate amount of the dividends being paid
on the Series A Preferred Stock simultaneously with paying such dividends and
(iii) no Event of Default (as defined in the Loan Agreement) has occurred and is
continuing, Guarantor may pay cash dividends on its Series A Preferred Stock as
set forth in Guarantor's current Articles of Incorporation; provided, however
that no cash dividend shall be paid on the Series A Preferred Stock if the
payment of such dividend would cause the Fixed Charge Coverage Ratio to be less
than 1.1 to 1. Fixed Charge Coverage Ratio shall be the quotient of (i) the sum
of net income, plus interest expense, plus taxes, plus depreciation, plus
amortization, plus rental payments for leased real estate, plus lease payments
for capitalized obligations, divided by (ii) the sum of current interest expense
on indebtedness, plus the amount of current maturities of long term
indebtedness, plus the amount of rental payments for leased real estate, plus
lease payments for capitalized obligations, all of the foregoing determined in
accordance with generally accepted accounting principles on a consolidated basis
for the most recent fiscal year end.
4
<PAGE>
B. So long as (i) Guarantor causes Hartan to make a principal
prepayment on the Note equal to the aggregate amount of the dividends being paid
on the Series D Preferred Stock simultaneously with paying such dividends and
(ii) no Event of Default (as defined in the Loan Agreement) has occurred and is
continuing, Guarantor may pay cash dividends on its Series D Preferred Stock as
set forth in Guarantor's Articles of Incorporation as amended on or about the
date that the Articles and Certificate of Merger relating to the Merger are
filed with the Secretaries of State of Georgia and Texas.
C. Guarantor may pay dividends in shares of its Common Stock to all
holders of any series of its preferred stock pursuant to the terms of such
series of preferred stock; and issue shares of its capital stock upon the
conversion by any holder or holders of shares of any series of its preferred
stock pursuant to the terms of such series of preferred stock.
IN WITNESS WHEREOF, the undersigned Guarantor has executed this Guaranty,
or has caused this Guaranty to be executed by its duly authorized
representative, as of the date first above written.
HARVEST RESTAURANT GROUP, INC.
By: /s/ Timothy R. Robinson
Title: VP CFO
ACCEPTED this 23rd day of January, 1999.
SIRROM CAPITAL CORPORATION,
a Tennessee corporation
By: /s/ Elizabeth Lurding
Title: /s/ Vice President
5
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY,
WITHOUT A VIEW TO RESALE OR DISTRIBUTION AND MAY NOT BE PLEDGED, HYPOTHECATED,
SOLD, MADE SUBJECT TO A SECURITY INTEREST, OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO MAKER THAT
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS.
AMENDED AND RESTATED
SECURED PROMISSORY NOTE
-----------------------
$2,000,000 January 14, 1999
FOR VALUE RECEIVED, the undersigned, HARTAN, INC., a Texas corporation
("Maker"), promises to pay to the order of SIRROM CAPITAL CORPORATION, a
Tennessee corporation ("Payee"; Payee and any subsequent holder[s] hereof are
hereinafter referred to collectively as "Holder"), at the office of Payee at P.
O. Box 30378, Nashville, Tennessee 37241-0378, or at such other place as Holder
may designate to Maker in writing from time to time, the principal sum of TWO
MILLION AND NO/100THS DOLLARS ($2,000,000), together with interest on the
outstanding principal balance hereof from the date hereof at the rate of
thirteen percent and one-half (13.5%) per annum (computed on the basis of a
360-day year); provided, however, that Holder may charge and receive interest
upon any renewal or extension hereof at the greater of (i) the rate set out
above, or (ii) any rate agreed to by the undersigned that is not in excess of
the maximum rate of interest allowed to be charged under applicable law (the
"Maximum Rate") at the time of such renewal or extension.
Interest only on the outstanding principal balance hereof shall be due and
payable monthly, in arrears, with the first installment being payable on the
first (1st) day of February, 1999, and subsequent installments being payable on
the first (1st) day of each succeeding month thereafter until October 21, 2001
(the "Maturity Date"), at which time the entire outstanding principal balance,
together with all accrued and unpaid interest, shall be immediately due and
payable in full. Notwithstanding the foregoing, if Maker successfully completes
a bona fide underwritten public offering of stock of Maker with net proceeds to
Maker of at least $10,000,000 pursuant to a registration statement filed with
the and declared effective by the Securities Exchange Commission pursuant to the
Securities Act of 1933, the entire principal balance, together with all accrued
and unpaid interest hereunder, shall be immediately due and payable upon the
closing of such offering.
The indebtedness evidenced hereby may be prepaid in whole or in part, at
any time and from time to time, without penalty. Any such prepayments shall be
credited first to any accrued and unpaid interest and then to the outstanding
principal balance hereof.
<PAGE>
Time is of the essence of this Note. It is hereby expressly agreed that in
the event that any default be made in the payment of principal or interest as
stipulated above, which default is not cured within five (5) days; or in the
event that any default or event of default shall occur under that certain Loan
Agreement dated October 22, 1996, between TRC Acquisition Corporation and Payee
(as may be amended from time to time, the "Loan Agreement"), which default or
event of default is not cured following the giving of any applicable notice and
within any applicable cure period set forth in said Loan Agreement; or should
any default by Maker be made in the performance or observance of any covenants
or conditions contained in any other instrument or document now or hereafter
evidencing, securing or otherwise relating to the indebtedness evidenced hereby
(subject to any applicable notice and cure period provisions that may be set
forth therein); then, and in such event, the entire outstanding principal
balance of the indebtedness evidenced hereby, together with any other sums
advanced hereunder, under the Loan Agreement and/or under any other instrument
or document now or hereafter evidencing, securing or in any way relating to the
indebtedness evidenced hereby, together with all unpaid interest accrued
thereon, shall, at the option of Holder and without notice to Maker, at once
become due and payable and may be collected forthwith, regardless of the
stipulated date of maturity. Upon the occurrence of any default as set forth
herein, at the option of Holder and without notice to Maker, all accrued and
unpaid interest, if any, shall be added to the outstanding principal balance
hereof, and the entire outstanding principal balance, as so adjusted, shall bear
interest thereafter until paid at an annual rate (the "Default Rate") equal to
the lesser of (i) the rate that is four percentage points (4.0%) in excess of
the above-specified interest rate, or (ii) the Maximum Rate in effect from time
to time, regardless of whether or not there has been an acceleration of the
payment of principal as set forth herein. All such interest shall be paid at the
time of and as a condition precedent to the curing of any such default.
In the event this Note is placed in the hands of an attorney for
collection, or if Holder incurs any costs incident to the collection of the
indebtedness evidenced hereby, Maker and any endorsers hereof agree to pay to
Holder an amount equal to all such actual and reasonable costs incurred,
including without limitation all actual reasonable attorney's fees and all court
costs.
Presentment for payment, demand, protest and notice of demand, protest and
nonpayment are hereby waived by Maker and all other parties hereto. No failure
to accelerate the indebtedness evidenced hereby by reason of default hereunder,
acceptance of a past-due installment or other indulgences granted from time to
time, shall be construed as a novation of this Note or as a waiver of such right
of acceleration or of the right of Holder thereafter to insist upon strict
compliance with the terms of this Note or to prevent the exercise of such right
of acceleration or any other right granted hereunder or by applicable laws. No
extension of the time for payment of the indebtedness evidenced hereby or any
installment due hereunder, made by agreement with any person now or hereafter
liable for payment of the indebtedness evidenced hereby, shall operate to
release, discharge, modify, change or affect the original liability of Maker
hereunder or that of any other person now or hereafter liable for payment of the
indebtedness evidenced hereby, either in whole or in part, unless Holder agrees
otherwise in writing. This Note may not be changed orally, but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
The indebtedness and other obligations evidenced by this Note are further
evidenced by (i) the Loan Agreement and (ii) certain other instruments and
documents, as may be required to protect and preserve the rights of Maker and
Payee as more specifically described in the Loan Agreement.
2
<PAGE>
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise, shall the amount paid or
agreed to be paid to Holder for the use of the money advanced or to be advanced
hereunder exceed the Maximum Rate. If, from any circumstances whatsoever, the
fulfillment of any provision of this Note or any other agreement or instrument
now or hereafter evidencing, securing or in any way relating to the indebtedness
evidenced hereby shall involve the payment of interest in excess of the Maximum
Rate, then, ipso facto, the obligation to pay interest hereunder shall be
reduced to the Maximum Rate; and if from any circumstance whatsoever, Holder
shall ever receive interest, the amount of which would exceed the amount
collectible at the Maximum Rate, such amount as would be excessive interest
shall be applied to the reduction of the principal balance remaining unpaid
hereunder and not to the payment of interest. This provision shall control every
other provision in any and all other agreements and instruments existing or
hereafter arising between Maker and Holder with respect to the indebtedness
evidenced hereby.
This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of Tennessee, except to the
extent that federal law may be applicable to the determination of the Maximum
Rate.
As used herein, the terms "Maker" and "Holder" shall be deemed to include
their respective successors, legal representatives and assigns, whether by
voluntary action of the parties or by operation of law.
This Note evidences an amendment and restatement of the Secured Promissory
Note dated October 22, 1996 executed by TRC Acquisition Corporation payable to
Payee and the Secured Promissory Note dated February 25, 1997 executed by TRC
Acquisition Corporation payable to Payee (the "Original Notes"). Nothing in this
Note shall constitute a novation of the Original Notes. The Original Notes have
been assigned by Holder to Sirrom Funding Corporation (a wholly owned subsidiary
of Payee) with Holder retaining certain rights, and this Note will also be
assigned to Sirrom Funding Corporation.
MAKER:
------
HARTAN, INC., a Texas corporation
By: /s/ Timothy R. Robinson
Title: VP CFO
3
AMENDED AND RESTATED
STOCK PURCHASE WARRANT
----------------------
This Warrant is issued this 14th day of January, 1999, by HARVEST
RESTAURANT GROUP, INC., a Texas corporation (the "Company"), to SIRROM CAPITAL
CORPORATION, a Tennessee corporation (SIRROM CAPITAL CORPORATION and any
subsequent assignee or transferee hereof are hereinafter referred to
collectively as "Holder" or "Holders").
RECITALS:
---------
WHEREAS, Holder made a term loan to TRC Acquisition Corporation, a Georgia
corporation ("TRC") in the original principal amount of Two Million and
No/100ths Dollars ($2,000,000) (the "Loan") pursuant to the terms of a Loan
Agreement dated October 22, 1996 by and between TRC and Holder (the "Loan
Agreement");
WHEREAS, in connection with the Loan, TRC granted Holder the right to
purchase certain shares of common stock of TRC pursuant to that certain Stock
Purchase Warrant dated October 22, 1996 (the "Original Warrant");
WHEREAS, the Loan is evidenced by a Secured Promissory Note dated October
22, 1996 in the original principal amount of $1,000,000 made and executed by
TRC, payable to the order of Holder and a Secured Promissory Note dated February
25, 1997 in the original principal amount of $1,000,000 made and executed by
TRC, payable to the order of Holder (collectively the "Note");
WHEREAS, the Note has been amended and restated by that certain Amended and
Restated Secured Promissory Note of even date herewith in the original principal
amount of $2,000,000 made and executed by Hartan, Inc., a Texas corporation and
wholly owned subsidiary of the Company ("Hartan") in favor of Holder (the
"Amended and Restated Note");
WHEREAS, pursuant to an Assumption Agreement and Consent of even date
herewith, Hartan is assuming all of the obligations of TRC under the Loan
Documents (as defined in the Loan Agreement);
WHEREAS, pursuant to a Guaranty Agreement of even date herewith, the
Company is guaranteeing the obligations of Hartan in connection with the Loan;
WHEREAS, on or before the date hereof TRC will merge with and into Hartan
(the "Merger");
WHEREAS, TRC, Hartan and the Company have requested that Holder consent to
the Merger;
WHEREAS, the Original Warrant has been assigned by Holder to Sirrom Funding
Corporation, a wholly owned subsidiary of Holder, with Holder retaining certain
rights and this Warrant will also be assigned to Sirrom Funding Corporation; and
WHEREAS, this Warrant shall amend, restate and replace the Original
Warrant.
<PAGE>
AGREEMENT:
----------
1. Issuance of Warrant; Term. For and in consideration of SIRROM CAPITAL
CORPORATION having made loans to TRC which are being assumed by Hartan in the
aggregate principal amount of $2,000,000, as evidenced by the Amended and
Restated Note, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company hereby confirms and
ratifies the grant to Holder on October 22, 1996 of the right to purchase
375,000 shares of TRC's common stock, which the Company represents equaled not
less than 12.5% of the common stock of TRC on October 22, 1996, calculated on a
fully diluted basis after exercise ("Base Amount"). Pursuant to the terms of the
Original Warrant, the Base Amount increased on October 22, 1998 to 409,682
shares. As a result of the Merger, in light of Section 9(b) of the Original
Warrant, the Base Amount is adjusted on the date hereof to 643,509 shares of the
Company's common stock ("Common Stock") (calculated by multiplying 409,682
shares by 1.57075, the exchange ratio used in the Merger, referred to herein as
the "Exchange Ratio", and rounding all fractions upward to the next whole
number) and the Company hereby grants to Holder the right to purchase the Base
Amount (as adjusted from time to time pursuant to the terms of this Warrant) of
Common Stock provided that in the event that the indebtedness evidenced by the
Amended and Restated Note is outstanding on the following dates, the Base Amount
shall be increased to the corresponding number set forth below:
Date Base Amount
------------------------ ------------------------------
October 22, 1999 699,259 shares of Common
Stock, which is equal to
445,175 shares of TRC common
stock prior to the Merger, the
amount set forth in the
Original Warrant multiplied by
the Exchange Ratio.
October 22, 2000 756,331 shares of Common
Stock, which is equal to
481,509 shares of TRC common
stock prior to the Merger, the
amount set forth in the
Original Warrant multiplied by
the Exchange Ratio.
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." This Warrant shall be exercisable at
any time and from time to time from the date hereof until November 30, 2001. For
purposes of this Warrant the term "fully diluted basis" shall be determined in
accordance with generally accepted accounting principles as of the date hereof.
<PAGE>
2. Exercise Price. The exercise price (the "Exercise Price") per share for
which all or any of the Shares may be purchased pursuant to the terms of this
Warrant shall be One Cent ($.01).
3. Exercise. This Warrant may be exercised by the Holder hereof (but only
on the conditions hereinafter set forth) as to all or any increment or
increments of Ten Thousand (10,000) Shares (or the balance of the Shares if less
than such number), upon delivery of written notice of intent to exercise to the
Company at the following address: 2662 Holcomb Bridge Road, Suite 320,
Alpharetta, Georgia 30022, Attention: Chief Financial Officer, or such other
address as the Company shall designate in a written notice to the Holder hereof,
together with this Warrant and payment to the Company of the aggregate Exercise
Price of the Shares so purchased. The Exercise Price shall be payable, at the
option of the Holder, (i) by wire transfer, certified cashiers or bank check,
(ii) by the surrender of the Amended and Restated Note or portion thereof having
an outstanding principal balance equal to the aggregate Exercise Price or (iii)
by the surrender of a portion of this Warrant having an aggregate Fair Market
Value (as hereinafter defined) equal to the aggregate Exercise Price. Upon
exercise of this Warrant as aforesaid, the Company shall as promptly as
practicable, and in any event within fifteen (15) days thereafter, execute and
deliver to the Holder of this Warrant a certificate or certificates for the
total number of whole Shares for which this Warrant is being exercised in such
names and denominations as are requested by such Holder. If this Warrant shall
be exercised with respect to less than all of the Shares, the Holder shall be
entitled to receive a new Warrant covering the number of Shares in respect of
which this Warrant shall not have been exercised, which new Warrant shall in all
other respects be identical to this Warrant. The Company covenants and agrees
that it will pay when due any and all state and federal issue taxes which may be
payable in respect of the issuance of this Warrant or the issuance of any Shares
upon exercise of this Warrant.
4. Covenants and Conditions. The above provisions are subject to the
following:
(a) Neither this Warrant nor the Shares have been registered under the
Securities Act of 1933, as amended ("Securities Act") or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution or resale and may
not be pledged, hypothecated, sold, made subject to a security interest, or
otherwise transferred without (i) an effective registration statement for
such Warrant under the Securities Act and such applicable Blue Sky Laws, or
(ii) an opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to the Company and its counsel, that registration is not
required under the Securities Act or under any applicable Blue Sky Laws
(the Company hereby acknowledges that Bass, Berry & Sims is acceptable
counsel). Transfer of the shares issued upon the exercise of this Warrant
shall be restricted in the same manner and to the same extent as the
Warrant and the certificates representing such Shares shall bear
substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES
LAW AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION
STATEMENT UNDER THE ACT OR SUCH APPLICABLE STATE SECURITIES
LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR
(II) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY,
REGISTRATION UNDER SUCH SECURITIES ACTS OR SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
<PAGE>
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect
the compliance of the issuance of this Warrant and any shares of Common
Stock issued upon exercise hereof with applicable federal and state
securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, liens, charges and preemptive rights,
if any, with respect thereto or to the issuance thereof. The Company shall
at all times reserve and keep available for issuance upon the exercise of
this Warrant such number of authorized but unissued shares of Common Stock
as will be sufficient to permit the exercise in full of this Warrant.
5. Below Market Value Issuances.
(a) In the event that the Company sells shares of the Company's
capital stock at a price below Fair Market Value, the number of shares of
Common Stock issuable upon exercise of this Warrant shall be equal to the
product obtained by multiplying the number of shares then issuable pursuant
to this Warrant prior to such sale by a fraction, the numerator of which
shall be the product of (x) the total number of shares of Common Stock
outstanding on a fully diluted basis immediately after such issuance or
sale, multiplied by (y) the fair market value immediately prior to such
issuance or sale and the denominator of which shall be the sum of (i) the
number of shares of Common Stock outstanding on a fully diluted basis
immediately prior to such issuance or sale multiplied by the fair market
value immediately prior to such issuance or sale, plus (ii) the aggregate
amount of the consideration received by the Company upon such issuance or
sale (as illustrated on Schedule I hereto).
(b) No adjustment to the number of shares of Common Stock issuable
upon exercise of this Warrant shall be made under this Section 5 (i) upon
the issuance of shares of Common Stock upon the exercise or conversion of
any of the warrants, options and/or preferred stock described on Schedule
II hereto; and (ii) if it would result in less than a 0.1% change in number
of Shares to be issued; provided, however, that in such case any adjustment
that would otherwise be required then to be made shall be carried forward
and shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried forward, shall
amount to at least a 0.1% change in the number of Shares to be issued.
<PAGE>
6. Transfer of Warrant. Subject to the provisions of Section 4 hereof, this
Warrant may be transferred, in whole or in part, to any person or business
entity, by presentation of the Warrant to the Company with written instructions
for such transfer. Upon such presentation for transfer and subject to the terms
of Section 4 hereof, the Company shall promptly execute and deliver a new
Warrant or Warrants in the form hereof in the name of the assignee or assignees
and in the denominations specified in such instructions. The Company shall pay
all expenses incurred by it in connection with the preparation, issuance and
delivery of Warrants under this Section.
7. Warrant Holder Not Shareholder; Rights Offering; Preemptive Rights;
Preference Rights. Except as otherwise provided herein, this Warrant does not
confer upon the Holder, as such, any right whatsoever as a shareholder of the
Company. Notwithstanding the foregoing, if the Company should offer to all of
the Company's shareholders the right to purchase any securities of the Company,
then all shares of Common Stock that are subject to this Warrant shall be deemed
to be outstanding and owned by the Holder and the Holder shall be entitled to
participate in such rights offering. The Company shall not grant any preemptive
rights with respect to any of its capital stock without the prior written
consent of the Holder. Other than securities described on Schedule II hereto,
the Company shall not issue any securities which entitle the holder thereof to
obtain any preference over holders of Common Stock upon the dissolution,
liquidation, winding-up, sale, merger, or reorganization of the Company without
the prior written consent of the Holder.
8. Observation Rights. The Holder of this Warrant shall (a) receive notice
of and be entitled to attend or may send a representative to attend all meetings
of the Company's Board of Directors in a non-voting observation capacity, (b)
subject to reasonable confidentiality requirements of the Company, receive
copies of all notices, packages and documents provided to members of the
Company's Board of Directors for each board of directors meeting, and (c)
receive copies of all actions taken by written consent by the Company's Board of
Directors, from the date hereof until such time as the indebtedness evidenced by
the Amended and Restated Note has been paid in full.
9. Adjustment Upon Changes in Stock.
(a) If all or any portion of this Warrant shall be exercised
subsequent to any stock split, stock dividend, recapitalization,
combination of shares of the Company, or other similar event, occurring
after the date hereof, then the Holder exercising this Warrant shall
receive, for the aggregate price paid upon such exercise, the aggregate
number and class of shares which such Holder would have received if this
Warrant had been exercised immediately prior to such stock split, stock
dividend, recapitalization, combination of shares, or other similar event.
If any adjustment under this Section 9(a) would create a fractional share
of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares subject
to this Warrant shall be the next higher number of shares, rounding all
fractions upward. Whenever there shall be an adjustment pursuant to this
Section 9(a), the Company shall forthwith notify the Holder or Holders of
this Warrant of such adjustment, setting forth in reasonable detail the
event requiring the adjustment and the method by which such adjustment was
calculated.
<PAGE>
(b) If all or any portion of this Warrant shall be exercised
subsequent to any merger, consolidation, exchange of shares, separation,
reorganization or liquidation of the Company, or other similar event,
occurring after the date hereof, as a result of which shares of Common
Stock shall be changed into the same or a different number of shares of the
same or another class or classes of securities of the Company or another
entity, then the Holder exercising this Warrant shall receive, for the
aggregate price paid upon such exercise, the aggregate number and class of
shares which such Holder would have received if this Warrant had been
exercised immediately prior to such merger, consolidation, exchange of
shares, separation, reorganization or liquidation, or other similar event.
If any adjustment under this Section 9(b) would create a fractional share
of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares subject
to this Warrant shall be the next higher number of shares, rounding all
fractions upward. Whenever there shall be an adjustment pursuant to this
Section 9(b), the Company shall forthwith notify the Holder or Holders of
this Warrant of such adjustment, setting forth in reasonable detail the
event requiring the adjustment and the method by which such adjustment was
calculated.
10. Put Agreement.
(a) The Company hereby irrevocably grants and issues to Holder the
right and option to sell to the Company (the "Put") this Warrant for a
period of 30 days immediately prior to the expiration thereof, at a
purchase price (the "Purchase Price") equal to the Fair Market Value (as
hereinafter defined) of the shares of Common Stock issuable to Holder upon
exercise of this Warrant less the exercise price of such Shares.
(b) The Company shall pay to the Holder, in cash or certified or
cashier's check, the Purchase Price in exchange for the delivery to the
Company of this Warrant within thirty (30) days of the receipt of written
notice, addressed as set forth in Section 3 hereto, from the Holder of its
intention to exercise the Put.
(c) The Fair Market Value of the shares of Common Stock of the Company
issuable pursuant to this Warrant shall be determined as follows:
(i) Using the previous five day average closing bid price for the
day or, where no sale is made on that day, the average of the closing
bid and asked prices for that day on the Nasdaq Stock Market or the
OTC Bulletin Board if the securities are at the time listed or quoted
thereon, respectively, or, if it is not so listed or quoted, on any
other national securities exchange selected by the Company on which it
is at the time listed. If at the applicable time the Common Stock is
quoted on the OTC Bulletin Board, the foregoing calculations shall be
based on a Trade and Quote Summary Report from the OTC Bulletin Board
Research Service if available, and if not, on any other publicly
available data reasonably deemed reliable by the Company.
(ii) By mutual agreement of the Company and the Holder;
<PAGE>
(iii) By an investment banking company selected by the Company
and the Holder;
(iv) If the Company and the Holder cannot agree on an investment
banking company, then the Company and the Holder shall each appoint an
independent, experienced appraiser who is a member of a recognized
professional association of business appraisers. The two appraisers
shall determine the value of the shares of Common Stock which would be
issued upon the exercise of the Warrant, taking into consideration all
factors deemed by such appraiser to be relevant, including that such
shares would constitute a minority interest, and would lack liquidity,
and further assuming that the sale would be between a willing buyer
and a willing seller, both of whom have full knowledge of the
financial and other affairs of the Company, and neither of whom is
under any compulsion to sell or to buy.
(v) If the highest of the two appraisals is not more than 10%
more than the lowest of the appraisals, the Fair Market Value shall be
the average of the two appraisals. If the highest of the two
appraisals is 10% or more than the lowest of the two appraisals, then
a third appraiser shall be appointed by the two appraisers, and if
they cannot agree on a third appraiser, the American Arbitration
Association shall appoint the third appraiser. The third appraiser,
regardless of who appoints him or her, shall have the same
qualifications as the first two appraisers.
(vi) The Fair Market Value after the appointment of the third
appraiser shall be the mean of the three appraisals.
(vii) The fees and expenses of the appraisers shall be paid
one-half by the Company and one-half by the Holder.
(d) The Put shall terminate upon the Company's successful completion
of a bona fide underwritten public offering of its capital stock with net
proceeds to the Company of at least $10,000,000 ("IPO").
11. Registration.
(a) The Company and the holders of the Shares agree that if at any
time after the date hereof the Company's Board of Directors shall authorize
the filing of a registration statement with respect to any of its Common
Stock on a form suitable for a secondary offering (excluding Form S-4 and
Form S-8 or the successors thereto), it will give notice in writing to such
effect to the registered holder(s) of the Shares at least thirty (30) days
prior to such filing, and, at the written request of any such registered
holder, made within ten (10) days after the receipt of such notice, will
include therein at the Company's cost and expense (excluding underwriting
discounts, commissions and filing fees attributable to the Shares included
therein) such of the Shares as such holder(s) shall request; provided,
however, that if the offering being registered by the Company is
underwritten and if the representative of the underwriters certifies in
writing that the inclusion therein of the Shares would materially and
adversely affect the sale of the securities to be sold by the Company
thereunder, then the Company shall be required to include in the offering
only that number of securities, including the Shares, which the
underwriters determine in their sole discretion will not jeopardize the
success of the offering (the securities so included to be apportioned pro
rata among all selling shareholders according to the total amount of
securities entitled to be included therein owned by each selling
shareholder).
<PAGE>
(b) Whenever required under this Agreement to use its best efforts to
effect the registration of any of the Shares, the Company shall, as
expeditiously as reasonably possible:
(i) Prepare and file with the Securities and Exchange Commission
(the "Commission") a registration statement covering such Shares and
use its best efforts to cause such registration statement to be
declared effective by the Commission as expeditiously as possible and
to keep such registration effective until the earlier of (A) the date
when all Shares covered by the registration statement have been sold
or (B) two hundred seventy (270) days from the effective date of the
registration statement; provided, that contemporaneously with a
registration statement or prospectus or any amendment or supplements
thereto, the Company will furnish to each Holder of Shares covered by
such registration statement and the underwriters, if any, copies of
all such documents proposed to be filed. If an amendment to the
Company's registration statement is filed, the Company will
contemporaneously with such filing deliver a copy to the Holder.
(ii) Prepare and file with the Commission such amendments and
post-effective amendments to such registration statement as may be
necessary to keep such registration statement effective during the
period referred to in Section 11(b)(i) and to comply with the
provisions of the Securities Act with respect to the disposition of
all securities covered by such registration statement, and cause the
prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed with the Commission pursuant to
Rule 424 under the Securities Act.
(iii) Furnish to the selling Holder(s) such numbers of copies of
such registration statement, each amendment thereto, the prospectus
included in such registration statement (including each preliminary
prospectus), each supplement thereto and such other documents as they
may reasonably request in order to facilitate the disposition of the
Shares owned by them.
(iv) Use its best efforts to register and qualify under such
other securities laws of such jurisdictions as shall be reasonably
requested by any selling Holder and do any and all other acts and
things which may be reasonably necessary or advisable to enable such
selling Holder to consummate the disposition of the Shares owned by
such Holder, in such jurisdictions; provided, however, that the
Company shall not be required in connection therewith or as a
condition thereto to qualify to transact business or to file a general
consent to service of process in any such states or jurisdictions.
<PAGE>
(v) Promptly notify each selling Holder of the happening of any
event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact
or omits any material fact necessary to make the statements therein
not misleading and, at the request of any such Holder, the Company
will prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Shares, such prospectus
will not contain an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not
misleading.
(vi) Provide a transfer agent and registrar for all such Shares
not later than the effective date of such registration statement.
(vii) [Intentionally Omitted]
(viii) [Intentionally Omitted]
(ix) Promptly notify the selling Holder(s) and the underwriters,
if any, of the following events and (if requested by any such person)
confirm such notification in writing: (A) the filing of the prospectus
or any prospectus supplement and the registration statement and any
amendment or post-effective amendment thereto and, with respect to the
registration statement or any post-effective amendment thereto, the
declaration of the effectiveness of such documents, (B) any requests
by the Commission for amendments or supplements to the registration
statement or the prospectus or for additional information, (C) the
issuance or threat of issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or the
initiation of any proceedings for that purpose, and (D) the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Shares for sale in any jurisdiction or the
initiation or threat of initiation of any proceeding for such
purposes.
(x) [Intentionally Omitted]
(xi) [Intentionally Omitted]
(xii) [Intentionally Omitted]
(xiii) [Intentionally Omitted]
(xiv) [Intentionally Omitted]
(c) After the date hereof, the Company shall not grant to any holder
of securities of the Company any registration rights which have a priority
greater than or equal to those granted to Holders pursuant to this Warrant
without the prior written consent of the Holder(s).
<PAGE>
(d) The Company's obligations under Section 11(a) above with respect
to each holder of Shares are expressly conditioned upon such holder's
furnishing to the Company in writing such information concerning such
holder and the terms of such holder's proposed offering as the Company
shall reasonably request for inclusion in the registration statement. If
any registration statement including any of the Shares is filed, then the
Company shall indemnify each holder thereof (and each underwriter for such
holder and each person, if any, who controls such underwriter within the
meaning of the Securities Act) from any loss, claim, damage or liability
arising out of, based upon or in any way relating to any untrue statement
of a material fact contained in such registration statement or any omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, except for any such
statement or omission based on information furnished in writing by such
holder of the Shares expressly for use in connection with such registration
statement; and such holder shall indemnify the Company (and each of its
officers and directors who has signed such registration statement, each
director, each person, if any, who controls the Company within the meaning
of the Securities Act, each underwriter for the Company and each person, if
any, who controls such underwriter within the meaning of the Securities
Act) and each other such holder against any loss, claim, damage or
liability arising from any such statement or omission which was made in
reliance upon information furnished in writing to the Company by such
holder of the Shares expressly for use in connection with such registration
statement.
(e) For purposes of this Section 11, all of the Shares shall be deemed
to be issued and outstanding.
12. Certain Notices. In case at any time the Company shall propose to:
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in stock or
make any special dividend or other distribution to the holders of its
Common Stock;
(c) offer for subscription to the holders of any of its Common Stock
any additional shares of stock in any class or other rights;
(d) reorganize, or reclassify the capital stock of the Company, or
consolidate, merge or otherwise combine with, or sell all or substantially
all of its assets to, another corporation; or
(e) voluntarily or involuntarily dissolve, liquidate or wind up the
affairs of the Company;
then, in any one or more of said cases, the Company shall give to the
Holder of the Warrant, by certified or registered mail, (i) at least twenty
(20) days' prior written notice of the date on which the books of the
Company shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in
respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, and (ii) in the case
of such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, at least twenty (20) days' prior
written notice of the date when the same shall take place. Any notice
required by clause (i) shall also specify, in the case of any such
dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and any notice required
by clause (ii) shall specify the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, as the
case may be.
<PAGE>
13. Rights of Co-Sale.
(a) Co-Sale Right. Prior to an IPO and excluding any sale pursuant to
the exemptions set forth in Rule 144 promulgated under the Securities Act,
neither Clyde E. Culp, III, John D. Feltman nor Richard E. Tanner
(individually a "Selling Shareholder" and collectively the "Selling
Shareholders") shall enter into any transaction that would result in the
sale by him of any Common Stock now or hereafter owned by him, unless prior
to such sale the Selling Shareholder shall give notice to Holder of his
intention to effect such sale in order that Holder may exercise its rights
under this Section 13 as hereinafter described. Such notice shall set forth
(i) the number of shares to be sold by the Selling Shareholder, (ii) the
principal terms of the sale, including the price at which the shares are
intended to be sold, and (iii) an offer by the Selling Shareholder to use
his best efforts to cause to be included with the shares to be sold by him
in the sale, on a share-by-share basis and on the same terms and
conditions, the Shares issuable or issued to Holder pursuant this Warrant.
(b) Rejection of Co-Sale Offer. If Holder has not accepted such offer
in writing within a period of ten (10) days from the date of receipt of the
notice, then the Selling Shareholder shall thereafter be free for a period
of ninety (90) days to sell the number of shares specified in such notice,
at a price no greater than the price set forth in such notice and on
otherwise no more favorable terms to the Selling Shareholder than as set
forth in such notice, without any further obligation to Holder in
connection with such sale. In the event that the Selling Shareholder fails
to consummate such sale within such ninety-day period, the shares specified
in such notice shall continue to be subject to this Section.
(c) Acceptance of Co-Sale Offer. If Holder accepts such offer in
writing within ten (10) day period, such acceptance shall be irrevocable
unless the Selling Shareholder shall be unable to cause to be included in
his sale the number of Shares of stock held by Holder and set forth in the
written acceptance. In that event, the Selling Shareholder and Holder shall
participate in the sale pro rata, with the Selling Shareholder and Holder
each selling half the total number of such shares to be sold in the sale.
14. Equity Participation. This Warrant is issued in connection with the
Loan Agreement. It is intended that this Warrant constitute an equity
participation under and pursuant to T.C.A. ss.47-24-101, et seq. and that such
equity participation be permitted under said statutes and not constitute
interest on the Amended and Restated Note. If under any circumstances
whatsoever, fulfillment of any obligation of this Warrant, the Loan Agreement,
or any other agreement or document executed in connection with the Loan
Agreement, shall violate the lawful limit of any applicable usury statute or any
other applicable law with regard to obligations of like character and amount,
then the obligation to be fulfilled shall be reduced to such lawful limit, such
that in no event shall there occur, under this Warrant, the Loan Agreement, or
any other document or instrument executed in connection with the Loan Agreement,
any violation of such lawful limit, but such obligation shall be fulfilled to
the lawful limit. If any sum is collected in excess of the lawful limit, such
excess shall be applied to reduce the principal amount of the Amended and
Restated Note.
<PAGE>
15. Governing Law. This Warrant shall be governed by the laws of the State
of Tennessee applicable to agreements made entirely within the State.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above written.
HARVEST RESTAURANT GROUP, INC.,
a Texas corporation
By: /s/ Clyde E. Culp, III
Title: Chairman and Chief Executive
Officer
SIRROM CAPITAL CORPORATION,
a Tennessee corporation
By:
Title:
SIRROM FUNDING CORPORATION,
a Tennessee corporation
By:
Title:
The undersigned, being all of the Shareholders of the Company, join in the
execution of this Warrant for the purposes of acknowledging and agreeing to be
bound by Section 13 hereof:
/s/ John D. Feltman
John D. Feltman
/s/ Clyde E. Culp, III
Clyde E. Culp, III
/s/ Richard E. Tanner
Richard E. Tanner
HIGHLIGHTED
TRC ACQUISITION CORPORATION
1996 EMPLOYEE STOCK OPTION PLAN
Table of Contents
-----------------
1. Purpose............................................................1
2. Administration.....................................................1
3. Eligibility........................................................2
4. Shares.............................................................2
5. Incentive Stock Options............................................3
6. Nonqualified Stock Options.........................................3
7. Terms and Conditions of Options....................................3
8. Agreement by Optionee Regarding Withholding Taxes..................8
9. Term of Plan.......................................................8
10. Definitions........................................................8
11. Amendment and Termination of the Plan..............................9
12. Approval of Stockholders...........................................9
13. Effect of Headings.................................................9
<PAGE>
TRC ACQUISITION CORPORATION
1996 EMPLOYEE STOCK OPTION PLAN
-------------------------------
1. Purpose. This 1996 Stock Option Plan (the "Plan") is intended to
encourage stock ownership by employees of TRC Acquisition Corporation, a Georgia
corporation (the "Corporation"), its divisions and Subsidiary Corporations, so
that they may acquire or increase their proprietary interest in the Corporation,
and to encourage such employees to remain in the employ of the Corporation and
to put forth maximum efforts for the success of the business. It is further
intended that options granted by the Committee (as defined in Section 2 below)
pursuant to Section 5 thereof shall constitute :incentive stock options"
("Incentive Stock Options") within the meaning of IRC section 422A, as
thereafter amended, and the Regulations issued thereunder (the "Code"), and
options granted by the Committee pursuant to Section 6 hereof shall constitute
"nonqualified stock options" ("Nonqualified Stock Options"); the Nonqualified
Stock Options together with Incentive Stock Options, being referred herein as
the " options".
2. Administration. The Plan shall be administered by the Stock Option and
Compensation Committee (the "Committee"), consisting of not less than three
members of the Board of Directors of the Corporation (the "Board"), none of whom
are then under consideration for participation in the Plan or any other plan of
the Corporation or any of its affiliates entitling the participants therein to
acquire stock, stock options or stock appreciation rights of the Corporation or
any of its affiliates. Initially, the Committee shall consist of the Chairman,
and Directors Bolton and Walker.
2.1. Delegation of Authority. The Committee further delegates to the
Chairman authority to grant options pursuant to this Plan to any person who is
not immediately prior to such grant a direct or indirect shareholder of the
Corporation or an officer or director of the Corporation provided further that
each such grant pursuant to this delegation may not exceed 10% of the initial
number of the shares authorized for option grants as described in Section 4.
hereof and provided further that the terms of such grant shall provided for
level annually graded vesting over a period of not less than 3 years from the
date of the grant and are not otherwise contrary to terms to the Plan.
2.2. Authority. The Committee shall have the authority in its
discretion, subject to and not inconsistent with the express provisions of the
Plan, to administer the Plan and to exercise all the powers and authorities
either specifically granted to it under the Plan or necessary or advisable in
the administration of the Plan subject to allowable terms as set forth in
Section 4. of the Plan. Such authority shall include, without limitation, the
authority to grant options; to determine which Options shall constitute
Incentive Stock Options and which Options shall constitute Nonqualified Stock
options; to determine the purchase price of the shares of Common Stock covered
1
<PAGE>
by each option (the "Option Price"); to determine the persons to whom, and the
time or times at which, Options shall be granted; to determine the number of
shares of Common Stock to be covered by each Option; to interpret the Plan; to
prescribe, amend and rescind rules and Regulations relating to the Plan; to
determine the terms and provisions of the Option Agreements (which need not be
identical) evidencing Options granted under the Plan; and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
The Committee may delegate to one or more of its members or to one or more
agents such administrative duties as it may deem advisable, and the Committee or
any delegate may employ one or more persons to render advise with respect to any
responsibility the Committee or such person may have under the Plan
2.3. Rules. The Board shall fill all vacancies, however caused, in the
Committee. The Board may from time to time appoint additional members to the
Committee, and may at any time remove one or more Committee members and
substitute others. One member of the Committee shall be selected as chairman by
the Board. The Committee shall hold its meeting at such times and places as it
shall deem advisable. All determinations of the Committee shall be made by a
majority of its members either present in person or participating by conference
telephone at a meeting or by written consent. The Committee may appoint a
secretary and make such rules and regulations for the conduct of its business as
it shall deem advisable, and shall keep minutes of its meetings.
2.4. Liability. No member of the Board or Committee shall be liable
for any action taken or determination made in good faith with respect to the
Plan or any Option.
3. Eligibility. Options may be granted to employees (including, without
limitation, officers and directors who are employees) of the Corporation or its
present or future divisions and Subsidiary Corporations. In determining the
persons to whom Options shall be granted and the number of shares to be covered
by each Option, the Committee shall take into account the duties of the
respective persons, their present and potential contributions to the success of
the Corporation and such other factors as the Committee shall deem relevant in
connection with accomplishing the purpose of the Plan. A person to whom an
Option has been granted is sometimes referred to herein as an "Optionee." An
Optionee shall be eligible to receive more than one Option during the term of
the Plan, but only on the terms and subject to the restrictions hereinafter set
forth.
4. Shares. The shares subject to Options hereunder shall be shares of the
Corporation's Common Stock (the "Common Stock"). Such shares may, in whole or in
part, be authorized but unissued shares or shares that shall have been or that
may be reacquired by the Corporation. The aggregate number of shares of Common
Stock as to which Options may be granted from time to time under the Plan shall
not exceed:
(a) Seven Hundred Thousand (700,000) shares of Common Stock at an
exercise price of Eight Dollars and Seventy-Five Cents ($8.75) per share;
plus
(b) Three Hundred Thousand (300,000) shares at an exercise price of No
Dollars and One Cent ($.01) per share.
2
<PAGE>
The limitation established by the preceding sentence shall be subject to
adjustment as provided in Section 7.9 hereof. If any outstanding Option expires
or is terminated without having been exercised in full, the shares of Common
Stock allocable to the unexercised portion of such Option shall (unless the Plan
shall have been terminated) become available for subsequent grants of Options.
4.1. Restrictions on Shares. All shares issued pursuant to this Plan
shall be subject to certain provisions of the Shareholders Agreement dated
October 15, 1996 pertaining to the Common Stock of the Corporation, specifically
Sections 1-3, 7-14, 16-17 and 19-24. All option agreements made pursuant to this
Plan and shares issued pursuant to such options shall include a legend or notice
to identify the applicability of restrictions imposed by the said Shareholders
Agreement and by applicable securities laws. Restrictions and rights provided by
the Shareholders Agreement shall control any conflicting or ambiguous provisions
of options granted pursuant to this Plan.
5. Incentive Stock Options. Options granted pursuant to Section 5 are
intended to constitute Incentive Stock Options and shall be subject to the
following special terms and conditions, in addition to the general terms and
conditions specified in Section 7 hereof.
5.1. Value of Shares. The aggregate Fair Market Value (determined as
of the date the Incentive Stock Option is granted) of the shares of Common Stock
with respect to which Options granted under this Plan and all other option plans
of the Corporation and any Subsidiary Corporation become exercisable for the
first time by an Optionee during any calendar year shall not exceed $100,000.00.
5.2. Ten Percent Stockholder. In the case of an Incentive Stock Option
granted to a 10% Stockholder, (a) the Option Price shall not be less than 110%
of the Fair Market Value of the shares of Common Stock of the Corporation on the
date of grant of such Incentive Stock Option, and (b) the exercise period shall
not exceed 5 years from the date of grant of such Incentive Stock Option.
6. Nonqualified Stock Options. Options granted pursuant to this Section 6
are intended to constitute Nonqualified Stock Options and shall be subject only
to the general terms and conditions specified in Section 7 hereof.
7. Terms and Conditions of Options. Each Option shall be evidenced by a
written Option Agreement between the Corporation and the Optionee, which
agreement shall comply with and be subject to the following terms and
conditions:
7.1. Number of Shares. Each Option Agreement shall state the number of
shares of Common Stock to which the Option relates.
3
<PAGE>
7.2. Type of Option. Each Option Agreement shall specifically identify
the portion, if any, of the Option which constitutes an Incentive Stock Option
and the portion, if any, and such option shall otherwise constitute a
Nonqualified Stock Option.
7.3. Option Price. Each Option Agreement shall state the Option Price.
In the case of Incentive Stock Options, the Option Price shall be not less than
100% of the Fair Market Value of the shares of Common Stock of the Corporation
on the date of grant of the Option. The Option Price shall be subject to
adjustment as provided in Section 7.9 hereof. The date on which the Committee
adopts a resolution expressly granted an Option shall be considered the day on
which such Option is granted.
7.4. Medium and Time of Payment. The Option Price shall be paid in
full, at the time of exercise, in cash or in shares of Common Stock having a
Fair Market Value equal to such Option Price or in a combination of cash and
such shares, and may be effected in whole or in part (a) with monies received
from the Corporation at the time of exercise as a compensatory cash payment, or
(b) with monies borrowed from the Corporation pursuant to repayment terms and
conditions as shall be determined from time to time by the Committee, in its
discretion, separately with respect to each exercise of Options and each
Optionee; provided, however, that each such method and time for payment and each
such borrowing and terms and conditions of repayment shall be permitted by and
be in compliance with applicable law, and provided, further, if the Option Price
is paid the monies borrowed from the Corporation, such fact shall be noted
conspicuously on the certificate evidencing such shares in accordance with
applicable law.
7.5. Term and Exercise of Options. Options shall be exercisable over
the exercise period as and at the times and upon the conditions that the
Committee may determine, as reflected in the Option Agreement; provided,
however, that the Committee shall have the authority to accelerate the
exercisability of any outstanding Option at such time and under such
circumstances as it, in its sole discretion, deems appropriate. The exercise
period shall be determined by the Committee for all Options; provided, however,
that such exercise period shall not exceed 10 years from the date of grant of
such Option. The exercise period shall be subject to earlier termination as
provided in Sections 7.6 and 7.7 hereof. An Option may be exercised, as to any
or all full shares of Common Stock as to which the Option has become
exercisable, by giving written notice of such exercise to the Committee;
provided, however, that an Option may not be exercised at any one time as to
fewer than 100 shares (or such number of shares as to which the Option is then
exercisable if such number of shares is less than 100).
7.6. Termination. Except as provided in Section 7.5 and in this
Section 7.6 hereof, an Option may not be exercised unless the Optionee is then
in the employ of the Corporation or a division or Subsidiary Corporation (or a
corporation issuing or assuming the Option in a transaction to which IRC section
425(a) applies), and unless the Optionee has remained continuously so employed
since the date of grant of the Option. If the employment of an Optionee shall
terminate (other than by reason of death, disability or retirement), all Options
4
<PAGE>
of such Optionee that are exercisable at the time of such termination may,
unless earlier terminated in accordance with their terms, be exercised within
three months after such termination; provided, however, that if the employment
of an Optionee shall terminate for cause, all Options granted to such Optionee
shall, to the extent not theretofore exercised, terminate forthwith. Nothing in
the Plan or in any Option shall confer upon an individual any right to continue
in the employ of the Corporation or any of its divisions or Subsidiary
Corporations or interfere in any way with the right of the Corporation or any
such division or Subsidiary Corporation to terminate such employment.
7.7. Death, Disability or Retirement. If an Optionee shall die while
employed by the Corporation, or a Subsidiary Corporation thereof, or within
three months after the termination of such Optionee's employment, other than for
cause, or if the Optionee's employment shall terminate by reason of disability
or retirement, all Options theretofore granted to such Optionee (to the extent
otherwise exercisable) may, unless earlier terminated in accordance with their
terms, be exercised by the Optionee or by the Optionee's estate or by a person
who acquired the right to exercise such Option by bequest or inheritance or
otherwise by reason of the death or disability of the Optionee, at any time
within one year after the date of death, disability or retirement of the
Optionee.
7.8. Nontransferability of Options. Options granted under the Plan
shall not be transferable otherwise than (a) by will; (b) by the laws of descent
and distribution; or (c) to a revocable inter vivos trust for the primary
benefit of the Optionee and his or her spouse. Options may be exercised, during
the lifetime of the Optionee, only by the Optionee, his or her guardian, legal
representative or the Trustee of an above described trust.
7.9. Effect of Certain Corporate Changes.
(1) If there is any change in the number of shares of Common
Stock through the declaration of stock dividends, or through
recapitalization resulting in stock splits, or combinations or
exchanges of such shares, the number of shares of Common Stock
available for Options, the number of such shares covered by
outstanding Options and the price per share of such Options shall be
proportionately adjusted by the Committee to reflect any increase or
decrease in the number of issued shares of Common Stock; provided,
however, that any fractional shares resulting from such adjustment
shall be eliminated.
(2) In the event of the proposed dissolution or liquidation of
the Corporation, in the event of any corporate separation or division,
including, but not limited to, split-up, split-off or spin-off, or in
the event of a merger or consolidation of the Corporation with another
corporation, the Committee may provide that the holder of each Option
then exercisable shall have the right to exercise such Option (at its
then Option Price) solely for the kind and amount of shares of stock
and other securities, property, cash or any combination thereof
receivable upon such dissolution, liquidation, or corporate separation
5
<PAGE>
or division, or merger or consolidation by a holder of the number of
shares of Common Stock for which such Option might have been exercised
immediately prior to such dissolution, liquidation, or corporate
separation or division, or merger or consolidation; or the Committee
may provide, in the alternative, that each Option granted under the
Plan shall terminate as of the date to be fixed by the Committee;
provided, however, that not less than 30-days' written notice of the
date so fixed shall be given to each Optionee, who shall have the
right, during the period of 30 days preceding such termination, to
exercise the Options as to all or any part of the shares of Common
Stock covered thereby, including shares as to which such Options would
not otherwise be exercisable; provided, further, that failure to
provide such notice shall not invalidate or affect the action with
respect to which such notice was required.
(3) If while unexercised Options remain outstanding under the
Plan, the stockholders of the Corporation approve a definitive
agreement to merge or consolidate the Corporation with or into another
corporation or to sell or otherwise dispose of all or substantially
all of its assets, or adopt a plan of liquidation (each, "Disposition
Transaction"), then the Committee may (a) make an appropriate
adjustment to the number and class of shares available for options,
and to the amount and kind of shares or other securities or property
(including cash) receivable upon exercise of any outstanding options
after the effective date of such transaction, and the price thereof,
or, in lieu of such adjustment, provide for the cancellation of all
options outstanding at or prior to the effective date of such
transaction; (b) provide that exercisability of all Options shall be
accelerated, whether or not otherwise exercisable, or (c) in its
discretion, permit Optionees to surrender outstanding options for
cancellation; provided, however, that if the stockholders approve such
Disposition Transaction within five years of the date of adoption of
this Plan and before the Corporation is taken public, the Committee
shall provide for the alternative in (b) above. Upon any cancellation
of an outstanding Option pursuant to this Section, the Optionee shall
be entitled to receive, in exchange therefor, a cash payment under any
such Option in an amount per share determined by the Committee in its
sole discretion, but not less than the difference between the per
share exercise price of such Option and the Fair Market Value of a
share of the Corporation Common Stock on such date as the Committee
shall determine.
(4) Paragraphs (2) and (3) of this Section 7.9 shall not apply to
a merger or consolidation in which the Corporation is the surviving
corporation and shares of Common Stock are not converted into or
exchanged for stock, securities of any other corporation, cash or any
other thing of value. Notwithstanding the preceding sentence, in case
of any consolidation or merger of another corporation into the
Corporation in which the Corporation is the surviving corporation and
in which there is a reclassification or change (including a change to
the right to receive cash or other property) of the shares of Common
6
<PAGE>
Stock (other than a change in par value, or from par value to no par
value, or as a result of a subdivision or combination, but including
any change in such shares into two or more classes or series of
shares), the Committee may provide that the holder of each Option then
exercisable shall have the right to exercise such Option solely for
the kind and amount of shares of stock and other securities (including
those of any new direct or indirect parent of the Corporation),
property, cash or any combination thereof receivable upon such
reclassification, change, consolidation or merger by the holder of the
number of shares of Common stock for which such Option might have been
exercised.
(5) In the event of a change in the Common Stock of the
Corporation as presently constituted which is limited to a change of
all of its authorized shares with par value into the same number of
shares with a different par value or without par value, the shares
resulting from any such change shall be deemed to be the Common Stock
within the meaning of the Plan.
(6) To the extent that the foregoing adjustments relate to stock
or securities of the Corporation, such adjustments shall be made by
the Committee, whose determination in that respect shall be final,
binding and conclusive, provided that each Incentive Stock Option
granted pursuant to this Plan shall not be adjusted in a manner that
causes such option to fail to continue to qualify as an Incentive
Stock Option within the meaning of IRC section 422A.
(7) Except as hereinbefore expressly provided in this Section
7.9, the Optionee shall have no rights by reason of any subdivision or
consolidation of shares of stock or any class or the payment of any
stock dividend or any other increase or decrease in the number of
shares of stock of any class or by reason of any dissolution,
liquidation, merger, or consolidation or spin-off of assets or stock
of another corporation; and any issue by the Corporation of shares of
stock of any class shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares
of Common Stock subject to the Option. The grant of an Option pursuant
to the Plan shall not affect in any way the right or power of the
Corporation to make adjustments, reclassifications, reorganizations or
changes of its capital or business, structures or to merge or to
consolidate or to dissolve, liquidate or sell, or transfer all or part
of its business or assets.
7.10. Rights of a Shareholder. An Optionee or a transferee of an
Option shall have no rights as a shareholder with respect to any shares covered
by the Option until the date of the issuance of a certificate evidencing such
shares. No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distribution of other rights
for which the record date is prior to the date such certificate is issued,
except as provided in Section 7.9 hereof.
7
<PAGE>
7.11. Other Provisions. The Option Agreements authorized under the
Plan shall contain such other provisions, including, without limitation, (a) the
imposition of restrictions upon the exercise of an option; (b) in the case of an
Incentive Stock Option, the inclusion of any condition not inconsistent with
such Option qualifying as an Incentive Stock Option; and (c) conditions relating
to compliance with applicable federal and state securities laws, as the
Committee shall deem advisable.
8. Agreement by Optionee Regarding Withholding Taxes. If the Committee
shall so require, as a condition of the exercise, each Optionee shall agree that
(a) no later than the date of exercise of any Option, the Optionee will pay to
the Corporation or make arrangements satisfactory to the Committee regarding
payment of any federal, state or local taxes of any kind required by law to be
withheld upon the exercise of such Options, and (b) the Corporation shall, to
the extent permitted or required by law, have the right to deduct federal, state
and local taxes of any kind required by law to the withheld upon the exercise of
such Option from any payment of any kind otherwise due to the Optionee.
9. Term of Plan. Options may be granted pursuant to the Plan from time to
time within a period of 10 years from the date the plan is adopted by the Board,
or the date the Plan is approved by the stockholders of the Corporation,
whichever is earlier.
10. Definitions. As used in this Plan, the following words and phrases
shall have the meaning indicated:
(a) "Disability" shall mean an Optionee's inability to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death or that has lasted or
can be expected to last for a continuous period of not less than one year.
(b) "Fair Market Value" per share as of a particular date shall mean
(i) the closing sales price per share of Common Stock on a national securities
exchange for the last preceding date on which there was a sale of such Common
Stock on such exchange; or (ii) if the shares of Common Stock are then traded on
an over-the-counter market, the average of the closing bid and asked prices for
the shares of Common Stock in such over-the-counter market for the last
preceding date on which there was a sale of such Common Stock in such market; or
(iii) in case no reported sale takes place, the average of the closing bid and
asked prices on the National Association of Securities Dealers' Automated
Quotations System ("NASDAQ") or any comparable system, or if the shares of
Common stock are not listed on NASDAQ or comparable system, the closing sale
price or, in case no reported sale takes place, the average of the closing bid
and asked prices, as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by the Corporation for that
purpose; or (iv) if the shares of Common Stock are not then listed on a national
securities exchange or traded in an over-the-counter market, such value as the
Committee in its discretion may determine.
8
<PAGE>
(c) "Parent Corporation" shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations ending with the employer
corporation if, at the time of granting an Option, each of the corporations
other than the employer corporation owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
(d) "Subsidiary Corporation" shall mean any corporation (other than
the Corporation) in an unbroken chain of corporations beginning with the
employer corporation if, at the time of granting an option, each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
(e) "Ten Percent Stockholder" shall mean an optionee who, at the time
an Incentive Stock Option is granted, owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Corporation or of its
Parent or Subsidiary Corporations.
11. Amendment and Termination of the Plan. The Board at any time and from
time to time may suspend, terminate, modify or amend the Plan; provided,
however, that any amendment that would materially increase the aggregate number
of shares of Common Stock as to which Options may be granted under the Plan or
materially increase the benefits accruing to participants under the Plan or
materially modify the requirements as to eligibility for participation in the
Plan shall be subject to the approval of the holders of a majority of the Common
Stock issued and outstanding, except that any such increase or modification that
may result from adjustments authorized by Section 7.9 hereof shall not require
such approval. Except as provided in Section 7 hereof, no suspension,
termination, modification or amendment of the Plan may adversely affect any
Option previously granted, unless the written consent of the Optionee is
obtained.
12. Approval of Stockholders. The plan shall take effect upon its adoption
by the Board of Directors but shall be subject to the approval of the holders of
a majority of the issued and outstanding shares of Common Stock of the
Corporation, which approval must occur within 12 months after the date the Plan
is adopted by the Board.
13. Effect of Headings. The section and subsection headings contained
herein are for convenience only and shall not affect the construction hereof.
9
<PAGE>
Approved by the Board of Directors on
Approved by the Shareholders on
- - --------------------------------------
Secretary
Approved by Sirrom Capital Corporation on
- - --------------------------------------
Title
Approved by the Shareholders on
- - --------------------------------------
Secretary
10
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement"), is made and entered into as of the
14th day of January, 1999, by and between Clyde E. Culp, III (hereinafter
referred to as "Employee"), Harvest Restaurant Group, Inc., a corporation
organized under the laws of the State of Texas (hereinafter referred to as
"Harvest" or the "Company"), and Hartan, Inc., a corporation organized under the
laws of the State of Texas and a wholly-owned subsidiary of Harvest ("Hartan").
In consideration of the premises and the mutual promises and agreements
contained herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
Section 1. Scope of Employment.
-------------------------------
1.1 Employment. Subject to the terms hereof, the Company hereby agrees to
employ Employee, and Employee hereby accepts such employment. Employee shall
hold the title of Chairman and Chief Executive Officer of the Company and in
that capacity Employee shall have such authority and responsibilities as are
consistent with his position and which may be set forth in this Agreement, in
the Bylaws, or assigned by the Board of Directors from time to time (the
"Services"). The Company may, at its discretion, assign to Employee such
additional or different title or titles, having equivalent stature to those
titles currently held, as are appropriate to the Services being performed by
Employee. At the request and in the discretion of the Company, Employee shall
serve as an officer and/or director of any subsidiary or affiliate of the
Company, including Hartan, and shall perform services for any such subsidiary or
affiliate as are appropriate to and consistent with the Services being performed
by Employee for the Company. Employee shall devote his time, energy and skill to
performing his obligations hereunder and shall perform his obligations hereunder
diligently, faithfully and to the best of Employee's abilities. Employee may
devote reasonable periods of time to serve as a director or advisor to, or as an
owner of, other organizations, to perform charitable and other community
activities, and to manage his personal investments; provided, however, that such
activities do not materially interfere with the performance of his duties
hereunder.
1.2 Place of Performance. During the term of his employment hereunder (the
"Term"), Employee shall be based at the corporate offices of the Company,
currently in Atlanta, Georgia except for reasonably required travel on business.
1.3 Compliance with Policies. Subject to the terms of this Agreement,
during the Term, Employee shall comply in all material respects with all
policies and procedures applicable to similarly situated employees of the
Company generally and to Employee specifically.
<PAGE>
Section 2. Term.
----------------
The Term shall be for a period of five (5) years, ending on the fifth
anniversary of the date of this Agreement, subject, however, to prior
termination as provided for in this Agreement.
Section 3. Compensation; Expenses.
----------------------------------
3.1 Base Salary. Employee shall be paid a base salary (the "Base Salary")
during the Term at a rate of Two Hundred Thousand Dollars ($200,000.00) per
annum. The Base Salary and all payments pursuant to this Section 3 shall be (a)
payable on a normal payroll schedule, and (b) subject to any withholdings and
deductions required by applicable law. Employee shall receive an increase in
salary each year on his anniversary date, based on the recommendation of the
Board of Directors.
3.2 Stock Option Plan. The Company agrees to implement or utilize a stock
option plan and Employee shall be eligible for participation in that plan.
3.3 Expense Reimbursement. The Company shall pay or reimburse Employee for
all reasonable business expenses incurred or paid by Employee in the course of
performing his duties hereunder and in accordance with Company policy. As a
condition to such payment or reimbursement, however, Employee shall maintain and
provide to the Company, upon the Company's request, reasonable documentation and
receipts for such expenses.
3.4 Bonus. Employee shall be entitled to receive an annual bonus based on a
bonus program approved by the Employee and the Board of Directors. Such annual
bonus will be determined in accordance with goals set by Employee and the Board
of Directors and shall permit Employee to earn a bonus in an amount potentially
equal to his annual salary.
Section 4. Employee Benefits.
-----------------------------
4.1 Benefit Plans. During the Term, Employee shall be entitled to
participate in such of the Company's retirement, supplemental retirement, life,
health, disability and other insurance programs, as well as other benefit
programs, which are generally available to other similarly situated employees of
the Company, subject to the Company's policies with respect to all such benefits
or insurance programs or plans. The Company shall not, by virtue of this
provision, be under any obligation to Employee to continue to maintain any
particular plan or program or any particular benefit level under any plan or
program.
2
<PAGE>
4.2 Key Man Insurance. If the Employee's employment with the Company shall
be terminated during the Term by reason of the Employee's death, the Company
shall pay to the Employee's estate within 15 days after the Termination Date a
lump sum cash payment of at least $1 million paid from a key man life insurance
policy to be purchased by the Company.
Section 5. Termination.
-----------------------
5.1 Death or Total Disability. Employee's employment hereunder shall
terminate upon Employee's death. The Company may, in accordance with applicable
state and federal laws and regulations, terminate Employee's employment
hereunder in the event of Employee's total disability (total disability meaning
the inability of Employee to perform substantially all of his current duties as
required hereunder for a continuous period of 90 days because of mental or
physical condition, illness or injury)
5.2 Cause. The Company may terminate Employee's employment hereunder for
"Cause." "Cause" shall mean (a) Employee's default, willful malfeasance, fraud
or dishonesty in the performance of his obligations hereunder; (b) Employee's
breach of or failure to observe the terms of this Agreement in any material
respect; or (c) Employee's engaging in conduct or activities involving moral
turpitude that is reasonably likely to cause material damage to the business or
reputation of the Company, any affiliate of the Company, or any personnel
thereof.
5.3 Resignation or Termination without Cause. Either party may terminate
Employee's employment hereunder without cause upon thirty (30) days written
notice to the other party.
5.4 Termination Date and Notice of Termination. Any termination of
Employee's employment by the Company (other than termination upon the death of
Employee) shall be communicated by written notice to Employee, and the date of
termination shall be the date on which such notice is given.
5.5 Severance Payments. For purposes of this Agreement, Employee's
entitlement to any severance payments upon termination of this Agreement will be
as set forth below:
(a) Termination Without Cause. If Employee is terminated without Cause
or if there is a Change of Control (as defined below), Employee will be entitled
to a payment equal to his remaining Base Salary for the period beginning on the
date of termination and ending on the fifth anniversary of the date of this
Agreement, together with a payment in an amount equal to the average of the
annual bonuses received by Employee for the years ending prior to the date of
termination multiplied by the number of years remaining between the date of
termination and the fifth anniversary of the date of this Agreement. For
purposes of this Agreement, a demotion or a requirement of relocation from
Employee's applicable principal place of residence as described in Section 1.2
will be deemed to be a termination without Cause.
3
<PAGE>
(b) Voluntary Termination. If Employee voluntarily terminates this
Agreement for any reason, Employee will be entitled to the lesser of (x) a
payment equal to six (6) months' Base Salary at Employee's then current rate
together with an amount equal to one-half of the average of Employee's annual
bonuses awarded pursuant to this Agreement for each year preceding the date of
termination, to be paid in six (6) monthly installments; or (y) his remaining
Base Salary through the fifth anniversary of the date of this Agreement.
Employee will provide a minimum of thirty (30) days prior written notice of
Employee's resignation to the Company's Board of Directors. The Company may
accept such resignation effective as of any date during such thirty (30) day
period as the Company deems appropriate, provided that for the duration of such
thirty (30) day period, Employee will receive his Base Salary and be entitled to
participate at the Company's expense in any Company-sponsored benefit programs
in which Employee was a participant as of the effective date of Employee's
resignation. In the event that the Company does not accept Employee's
resignation prior to the end of the end of the thirty-day period, Employee's
resignation shall be deemed effective on the thirtieth day.
(c) Termination for Cause. Employee will not be entitled to any
payment whatsoever if this Agreement is terminated "for Cause," unless a payment
is approved by the Board in its sole discretion; provided, however, that
Employee will receive such Base Salary that is accrued but unpaid up to the date
of such termination for Cause.
(d) Treatment of Stock Options upon Termination. In the event that
Employee voluntarily terminates this Agreement or is terminated for Cause,
Employee shall retain all vested but unexercised stock options. In the event of
a termination without Cause, or a Change in Control, Employee shall be entitled
to retain all stock options that have been earned, whether vested or not vested.
(e) Change in Control. For purposes of this Agreement a "Change in
Control" shall mean an event as a result of which: (i) any "person", "groups" or
"companies" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934 (the "Exchange Act")), is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act, except that a person, groups
or companies shall be deemed to have "beneficial ownership" of all securities
that such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 50.1% of the total voting power of the voting stock of the Company; (ii)
the Company consolidates with, or merges with or into another corporation or
sells, assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any person or any corporation consolidates
with, or merges with or into, the Company pursuant to a transaction in which the
outstanding voting stock of the Company is changed into or exchanged for cash,
securities or other property, other than any such transaction where (A) the
outstanding voting stock of the Company is changed into or exchanged for (x)
voting stock of the surviving or transferee corporation or (y) cash, securities
(whether or not including voting stock) or other property, and (B) the holders
of the voting stock of the Company immediately prior to such transaction own,
directly or indirectly, not less than 50.1% of the voting power of the voting
stock of the surviving corporation immediately after such transaction, except
4
<PAGE>
that a merger of the Company with or into any of its subsidiaries, whether now
in existence or hereafter formed or acquired, shall not constitute a "Change in
Control"; or (iii) individuals who at the Effective Date constitute the Board
(together with any new directors whose election or nomination for election was
approved by the Board in existence on the Effective Date) cease for any reason
to constitute a majority of the Board; or (iv) the Company is liquidated or
dissolved or adopts a plan of liquidation.
Section 6. Pay or Play.
-----------------------
Nothing herein shall be deemed to obligate the Company to use Employee's
services pursuant hereto or otherwise and the Company shall have fully
discharged its obligations to Employee by providing Employee with the
compensation and benefits specified hereunder.
Section 7. Representations.
---------------------------
7.1 Of Employee. Employee represents and warrants to the Company that (a)
his execution, delivery and performance of this Agreement do not and will not
conflict with, violate, or constitute a breach of or default under any provision
of law or regulation applicable to him or any provision of any agreement,
contract or other instrument to which he is a party or otherwise bound; (b) this
Agreement constitutes the legal, valid and binding obligation of Employee,
enforceable against Employee in accordance with its terms; and (c) he has not
received any legal advice contrary to his representations or warranties set
forth in this Section 7.1.
7.2 Of the Company. The Company represents and warrants to Employee that
(a) this Agreement has been duly executed and delivered by the Company; (b) the
execution, delivery and performance of this Agreement by the Company have been
duly authorized by all necessary corporate action; (c) this Agreement
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms; (d) the execution, delivery
and performance of this Agreement by the Company do not and will not conflict
with, violate, or constitute a breach of the Articles of Incorporation or Bylaws
of the Company or any of its subsidiaries or any law or regulation applicable to
the Company or any of its subsidiaries; and (e) the Company has not received any
legal advice contrary to the Company's representations and warranties set forth
in this Section 7.2.
Section 8. Nondisclosure Covenant.
----------------------------------
Through exercise of his rights and performance of his obligations under
this Agreement, Employee will be exposed to "Trade Secrets" and "Confidential
Information" (as those terms are defined in the next sentences). "Trade Secrets"
5
<PAGE>
shall mean information or data of or about the Company or any affiliated entity,
including, but not limited to, technical or nontechnical data, recipes,
formulas, patterns, compilations, programs, devices, methods, techniques,
drawings, processes, financial data, financial plans, products plans, or lists
of actual or potential customers, clients, distributors, or licensees, that: (i)
derive economic value, actual or potential, from not being generally known to,
and not being readily ascertainable by proper means by, other persons who can
obtain economic value from their disclosure or use; and (ii) are the subject of
efforts that are reasonable under the circumstances to maintain their secrecy.
To the extent that the foregoing definition is inconsistent with a definition of
"trade secret" mandated under applicable law, the latter definition shall govern
for purposes of interpreting Employee's obligations under this Agreement.
"Confidential Information" shall mean valuable, non-public, competitively
sensitive data and information relating to the business of the Company or any
affiliated entity, other than Trade Secrets, including (without limitation) oral
and written information concerning the Company or its affiliates relating to
financial position and results of operations (revenues, margins, assets, net
income, etc.), annual and long-range business plans, marketing plans and
methods, account invoices, customer information, personnel information, and
accounting and vendor information. Employee acknowledges and agrees that any
unauthorized disclosure or use of any of the Trade Secrets or Confidential
Information would be wrongful and would likely result in immediate and
irreparable injury to the Company. Except as required to perform his obligations
under this Agreement or except with the Company's prior written permission,
Employee shall not, without the express prior written consent of the Company,
redistribute, market, publish, disclose or divulge to any other person or
entity, or use or modify for use, directly or indirectly in any way for any
person or entity: (i) any Trade Secrets at any time (during or after the Term)
during which such information or data shall continue to constitute a "trade
secret" under applicable law; and (ii) any Confidential Information during the
Term and for a period of twelve (12) months thereafter. Employee agrees to
cooperate with any reasonable confidentiality requirements of the Company.
Employee shall immediately notify the Company of any unauthorized disclosure or
use of any Trade Secrets or Confidential Information of which Employee becomes
aware.
Section 9. Restrictive Covenants.
---------------------------------
9.1 Non-Competition. During Employee's employment with the Company and for
a period of twelve (12) months after termination, Employee will not (without the
prior consent of the Company) compete with the Company or any of its affiliates
by (i) serving as an officer, director, or employee of, (ii) directly or
indirectly, forming, or (iii) directly or indirectly, acquiring more than a 5%
investment in, a Competing Business in the Territory. Notwithstanding the above,
the Company acknowledges and agrees that Employee may continue those activities
which the Employee was engaged in prior to execution of this Agreement,
including his involvement with Long John Silver's, Wrapsters, El Chico Holdings,
Donato's and Bakery Resources Group. As used herein, the "Territory" shall mean
the area within a five (5) mile radius of the Company restaurants listed on
6
<PAGE>
Exhibit A attached hereto. "Competing Business" shall mean development,
acquisition or franchising of restaurants in the casual dining or "sit- down"
category (i.e., not "fast food") which primarily offer rotisserie chicken,
prepared ribs, prepared chicken fingers, or prepared chicken wings as primary
menu items, and shall also mean the operation of a catering business which
offers such items. The parties recognize the number and location of the
restaurants listed on Exhibit A may change during the Term of this Agreement and
agree to negotiate in good faith to amend this Agreement to reflect such changes
as and when appropriate.
9.2 Non-Solicitation. During the Term and for a period of twelve (12)
months thereafter, Employee will not (without the prior consent of the Company)
(i) solicit, divert, or hire away, or (ii) attempt to solicit, divert, or hire
away, any Employee to, or full-time employee of the Company or any of its
affiliates, to go to work for a Competing Business. Both parties agree that the
prohibitions contained in the preceding sentence shall not apply to the hiring
by Employee of any former employee of the Company who voluntarily resigned from
or was terminated by the Company prior to any solicitation or attempted
solicitation of that former employee by Employee.
Section 10. Return of Materials.
--------------------------------
At any point during the initial Term or any renewal Term, at the specific
request of the Company, or, in any event, as promptly as practicable after
Employee's employment hereunder has been terminated, Employee will return to the
Company all Work Product (including any copies or reproductions thereof and any
materials constituting or containing Trade Secrets or Confidential Information
of the Company) that are in Employee's possession or control.
Section 11. Acknowledgement.
----------------------------
The parties acknowledge and agree that the covenants of Employee in
Sections 8, 9, 10 and 11 (collectively, the "Protective Covenants") are
reasonable as to time, scope and territory given the Company's need to protect
its substantial investment in its Confidential Information, Trade Secrets and
customer and employee relationships, and particularly given (a) the compensation
and benefits that are to be provided Employee, and (b) the complexity and
competitive nature of the Company. Notwithstanding Section 13 below, the parties
further acknowledge that any breach or threatened breach of a Protective
Covenant by Employee is likely to result in irreparable injury to the Company,
and therefore, in addition to all remedies provided at law or in equity (which
remedies shall be cumulative and not mutually exclusive), Employee agrees that
the Company shall be entitled to file suit in a court of competent jurisdiction
to seek a temporary restraining order and a permanent injunction to prevent a
breach or contemplated breach of the Protective Covenant.
7
<PAGE>
Section 12. Arbitration.
------------------------
Any controversy or claim against the Company or any of its officers,
directors, employees or agents arising from, out of or relating to this
Agreement, the breach thereof (other than controversies or claims arising from,
out of or relating to the Protective Covenants, with respect to which either
party may seek injunctive and/or other equitable relief in a court of competent
jurisdiction as set forth in Section 14.2), or the employment or termination
thereof of Employee by the Company which would give rise to a claim under
federal, state or local law (including but not limited to claims based in tort
or contract, claims for discrimination under state or federal law, and/or claims
for violation of any federal, state or local law, statute or regulation)
("Claims"), shall be submitted to an impartial mediator ("Mediator") selected
jointly by the parties. Both parties shall attend a mediation conference and
attempt to resolve any and all Claims. If they are not able to resolve all
Claims, any unresolved Claims, including any dispute as to whether a matter
constitutes a Claim which must be submitted to arbitration, shall be determined
by final and binding arbitration in Georgia in accordance with the Model
Employment Dispute Resolution Rules ("Rules") of the American Arbitration
Association, by an experienced employment arbitrator licensed to practice law in
the State of Georgia in accordance with the Rules, except as herein specified.
The arbitrator shall be selected by alternate striking from a list of six
arbitrators, half of which shall be supplied by the Company and half by
Employee. The party not initiating the arbitration shall strike first. The
process shall be repeated twice until an arbitrator is selected. If an
arbitrator is still not selected, the Mediator shall provide a list of three
names which will be alternately struck, with the party initiating the
arbitration striking first, until a selection is made.
A demand for arbitration shall be made within a reasonable time after the
Claim has arisen. In no event shall the demand for arbitration be made after the
date when institution of legal and/or equitable proceedings based on such Claim
would be barred by the applicable statute of limitations. Each party to the
arbitration will be entitled to be represented by counsel and will have the
opportunity to take one deposition of an opposing party or witness before the
arbitration hearing. By mutual agreement of the parties, additional depositions
may be taken. The arbitrator shall have the authority to hear and grant a motion
to dismiss and/or for summary judgment, applying the standards governing such
motions under the Federal Rules of Civil Procedure. Each party shall have the
right to subpoena witnesses and documents for the arbitration hearing. A court
reporter shall record all arbitration proceedings.
With respect to any Claim brought to arbitration hereunder, either party
may be entitled to recover whatever damages would otherwise be available to that
party in any legal proceeding based upon the federal and/or state law applicable
to the matter and as specified by Section 14.2. The decision of the arbitrator
may be entered and enforced in any court of competent jurisdiction by either the
Company or Employee. Each party shall pay the fees of their respective attorneys
(except as otherwise awarded by the arbitrator), the expenses of their witnesses
and any other expenses connected with presenting their Claim or defense. Other
costs of the arbitration, including the fees of the Mediator, the arbitrator,
the cost of any record or transcript of the arbitration, administrative fees,
and other fees and costs, shall be borne equally by the parties, one-half by
8
<PAGE>
Employee, on the one hand, and one-half by the Company, on the other hand.
Should Employee or the Company pursue any dispute or matter covered by this
Section by any method other than said arbitration, the responding party shall be
entitled to recover from the other party all damages, costs, expenses, and
attorneys' fees incurred as a result of such action. The provisions contained in
this Section 13 shall survive the termination and/or expiration of this
Agreement.
The parties indicate their acceptance of the foregoing arbitration
requirement by initialing below:
/s/ Timothy R. Robinson /s/ Clyde E. Culp, III
----------------------- -------------------------------
For the Company Employee
Section 13. Miscellaneous.
--------------------------
13.1 Binding Effect. This Agreement shall inure to the benefit of and shall
be binding upon Employee and his executor, administrator, heirs, personal
representative and assigns, and the Company and its successors and assigns;
provided, however, neither party hereto shall be entitled to assign any of its
rights, or delegate any of its duties (except, in the case of Employee,
customary delegation of authority not inconsistent with this Agreement; and
except, in the case of the Company, to any person or entity acquiring all or
substantially all of the assets of the Company or to any entity controlling,
controlled by or under common control with the Company), hereunder without the
prior written consent of the other party.
13.2 Governing Law. This Agreement shall be deemed to be made in, and in
all respects shall be interpreted, construed and governed by and in accordance
with, the laws of the State of Georgia. The parties hereto agree that the state
or federal courts in the State of Georgia shall have personal jurisdiction over
them with respect to, and shall be the exclusive forum for the resolution of,
any matter or controversy arising from or with respect to the Protective
Covenants. Service of a summons and complaint concerning any such matter or
controversy may, in addition to any other lawful means, be effected by sending a
copy of such summons and complaint by certified mail to the party to be served
as specified in Section 14.4 hereof.
13.3 Headings. The section and subsection headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
13.4 Notices. Unless otherwise agreed to in writing by the Parties hereto,
all communications provided for hereunder shall be in writing and shall be
deemed to be given when delivered if delivered in person or by telecopy, or five
(5) business days after being sent by first-class mail, registered or certified,
return receipt requested, with proper postage prepaid, and
9
<PAGE>
(a) If to the Employee, addressed to;
Mr. Clyde E. Culp, III
Harvest Restaurant Group, Inc.
2662 Holcomb Bridge Road
Suite 320
Alpharetta, Georgia 30022
Telecopy: (770) 518-1443
(b) If to the Company, addressed to:
Timothy R. Robinson
Harvest Restaurant Group, Inc.
2662 Holcomb Bridge Road
Suite 320
Alpharetta, Georgia 30022
Telecopy: (770) 518-1443
with a copy to:
Wade H. Stribling, Esq.
Nelson Mullins Riley & Scarborough, L.L.P.
First Union Plaza, Suite 1400
999 Peachtree Street, N.W.
Atlanta, Georgia 30309
Telecopy: (404) 817-6194
or to such other person or address as shall be furnished in writing by any party
to the other prior to the giving of the applicable notice or communication. The
copy to Mr. Stribling, however, shall not constitute notice.
13.5 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
13.6 Entire Agreement. This Agreement is intended by the parties to be the
final expression of their agreement with respect to the subject matter hereof
and is the complete and exclusive statement of the terms thereof,
notwithstanding any representations, statements or agreements to the contrary
heretofore made. This Agreement may be modified only by a written instrument
signed by each of the parties hereto.
13.7 Severability. All provisions of this Agreement are severable from one
another, and the unenforceability or invalidity of any provision of this
Agreement shall not affect the validity or enforceability of the remaining
10
<PAGE>
provisions of this Agreement; provided, however, that should any judicial body
interpreting this Agreement deem any provision to be unreasonably broad in time,
territory, scope or otherwise, the Company and Employee intend for the judicial
body, to the greatest extent possible, to reduce the breadth of the provision to
the maximum legally allowable parameters rather than deeming such provision
totally unenforceable or invalid.
13.8 Waiver. The waiver by either the Company or Employee of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any prior or subsequent breach of the same provision by the other party or a
waiver of a breach of another provision of this Agreement by the other party. No
waiver or modification of any provision of this Agreement shall be valid unless
in writing and duly executed by the party to be charged with the waiver or
modification.
[The remainder of this page has been left blank intentionally.]
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
CLYDE E. CULP, III
/s/ Clyde E. Culp, III
HARVEST RESTAURANT GROUP, INC.
By: /s/ Timothy R. Robinson
Name: Timothy R. Robinson
Title: VP CFO
HARTAN, INC.
By: /s/ Timothy R. Robinson
Name: Timothy R. Robinson
Title: VP CFO
12
<PAGE>
EXHIBIT A
---------
Corporate Office Tanner's Tucker
TRC Acquisition Corporation Tanner's Tucker, Inc.
2662 Holcomb Bridge Road Suite 320 4450 Hugh Howell Road
Alpharetta, Ga 30302 Tucker, Ga 30084
Tanner's Northridge Tanner's Lilburn
That Chicken Place Inc. Tanner's Lilburn, Inc.
350 Northridge Road 521 Indian Trail NW
Atlanta, Ga 30338 Lilburn, Ga 30247
Tanner's Vinings Tanner's Fayetteville
Tanner's Vinings, Inc. 94 Pavillion Parkway
3220 Cobb Parkway Fayetteville, Ga 30214
Atlanta, Ga 30339
Tanner's Oaks Tanner's Suwanee
Tanner's Oaks Inc. 525 Peachtree Industrial Blvd.
4920 Roswell Road Suwanee, Ga 30174
Atlanta, Ga 30342
Tanner's Spalding Tanner's Canton
Tanner's Spalding Inc. 1453 Riverstone Parkway
6275 Spalding Drive Suite 100
Norcross, Ga 30092 Canton, Ga 30114
Tanner's Emory Tanner's Catering
Tanner's Mill Inc. Tanner's Catering, Inc.
1371 Clairmont Road 6470 Spalding Drive, Suite P
Decatur, Ga 30033 Norcross, Ga 30092
Tanner's Lawrenceville Tanner's Montgomery
Tanner's Lawrenceville, Inc. 3433 McGehee Road
650 Gwinnett Drive, Suite 203 Montgomery, Al 36111
Lawrenceville, Ga 30245
13
SEVERANCE AGREEMENT
AND GENERAL RELEASE
This SEVERANCE AGREEMENT AND GENERAL RELEASE ("Agreement") of claims, dated
December ____, 1998, is entered into by and among Harvest Restaurant Group, Inc.
(the "Company"), Hartan, Inc., a Texas corporation that is a wholly-owned
subsidiary of the Company ("Hartan"), their predecessors, successors,
subsidiaries, including affiliates, assigns and past, present or future
officers, directors, agents, attorneys, and employees, including the officers
and directors of their successors and assigns (hereinafter collectively referred
to as "Releasees"), on the one hand, and William J. Gallagher ("Employee"), on
the other hand.
R E C I T A L S:
WHEREAS, Employee for a time was employed by and served the Company as an
officer and director;
WHEREAS, pursuant to the terms of that certain Amended and Restated
Agreement and Plan of Merger (the "Merger Agreement") by and among the Company,
Hartan, and TRC Acquisition Corporation, a Georgia corporation ("TRC"), TRC will
merge with and into Hartan, with Hartan to be the surviving corporation in the
merger, and thereby become a wholly-owned subsidiary of the Company;
WHEREAS, in accordance with the terms of the Merger Agreement, Employee has
agreed to resign from his positions with the Company, Hartan, and all of their
subsidiaries, including, but not limited to, Harvest Restaurants, Inc., Cluckers
Restaurants, Inc., Harvest Rotisserie on Tezel, Inc., and Red Line Food Court,
Inc. in exchange for the consideration set forth herein; and,
WHEREAS, the parties wish to preserve the good will which exists between
them, and to settle all disputes which may exist between them.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and for other good and sufficient consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
1.
Employee hereby resigns his employment with the Company, Hartan, and all of
their subsidiaries, including, but not limited to, Harvest Restaurants, Inc.
("Harvest Restaurants"), Cluckers Restaurants, Inc. ("Cluckers"), Harvest
Rotisserie on Tezel, Inc. ("Tezel"), and Red Line Food Court, Inc. ("Red Line")
effective December ____, 1998 (hereinafter referred to as the "separation
date"). After the separation date, Employee will have no right to further
<PAGE>
employment with the Company, Hartan, Harvest Restaurants, Cluckers, Tezel, Red
Line, or any of their subsidiaries; he shall not apply for re-employment with
the Company, Hartan, Harvest Restaurants, Cluckers, Tezel, Red Line, or any of
their subsidiaries; and none of the Company, Hartan, Harvest Restaurants,
Cluckers, Tezel, Red Line, or any of their subsidiaries will have any obligation
to employ him. Pursuant to the Amended and Restated Agreement and Plan of Merger
by and among the Company, Hartan, and TRC, Employee may serve on the Board of
Directors of the Company should he be elected to the Board of Directors and
agree to serve.
2.
As consideration for the foregoing, Employee shall receive from Company the
following:
(1) A promissory note, in substantially in the form of Exhibit A attached
hereto (the "$50,000 Note"), evidencing the obligation of the Company
to pay Employee a severance payment of $50,000, to be paid in
installments on the following schedule:
(a) the Company will pay Employee a consulting fee of $10,000 in the
first week of January, 1999;
(b) the Company will pay Employee a consulting fee of $10,000 in the
first week of February, 1999;
(c) the Company will pay Employee a fee of $30,000 on the earlier to
occur of: (i) the date on which the Company receives the final
$2,000,000 installment of funding from the holder of the
Company's Series D Convertible Preferred Stock; (ii) the date on
which the sale of the Tezel Property (defined below) is
completed; or (iii) June 30, 1999.
(2) A promissory note, in substantially the form of Exhibit B attached
hereto (the "$150,000 Note"), evidencing the obligation of the Company
to pay Employee a severance payment of $150,000, to be paid on the
earlier of: (i) March 1, 1999, or (ii) the date on which the sale of
the Tezel Property (defined below) is completed.
(3) A deed of trust, securing both the $50,000 Note and the $150,000 Note,
on the Tezel Property in substantially the form of Exhibit C attached
hereto (the "Deed of Trust"). The "Tezel Property" is defined as being
that property described on Exhibit A to the Deed of Trust.
2
<PAGE>
(4) Certain furnishings and personal effects that are listed on Exhibit D
attached hereto.
3.
Except for certain indemnification obligations of TRC, its successors and
assigns set forth in Section 10.2 of the Merger Agreement, Employee hereby
forever fully releases, remises, acquits, and discharges Releasees and covenants
not to sue or otherwise institute or cause to be instituted or in any way
participate in (except at the request of the Company) legal or administrative
proceedings against Releasees with respect to any matter whatsoever, including
but not limited to any matter arising out of or connected with his employment
with the Company or the termination of that employment including any and all
liabilities, claims, demands, contracts, debts, obligations, and causes of
action of every nature, kind, and description, in law, equity, or otherwise,
whether or not now known or ascertained, which heretofore do or may exist.
4.
Employee waives any rights he may have had or now has to pursue any and all
remedies available to him under any cause of action against any of the
Releasees, including but not limited to any matter arising out of or connected
with his employment with the Company, including without limitation, claims of
wrongful discharge, emotional distress, defamation, breach of contract, breach
of the covenant of good faith and fair dealing, the Employee Retirement Income
Security Act, and any other laws and regulations relating to employment,
including any and all employment laws of the state of Texas. Employee further
acknowledges and expressly agrees that he is waiving any and all rights he may
have had or now has to pursue any claim of discrimination, including but not
limited to, any claim of discrimination based on sex, age, race, national
origin, disability, or on any other basis, under Title VII of the Civil Rights
Act of 1964, the Americans with Disabilities Act of 1990, the Equal Pay Act of
1963, the Age Discrimination in Employment Act of 1967, the Civil Rights Act of
1866, any other analogous law of the state of Texas, and all other laws and
regulations relating to employment.
5.
Upon execution of this Agreement, the only payments and benefits that
Employee is entitled to receive from the Company are those specified in this
Agreement.
3
<PAGE>
6.
This Agreement supersedes the January 1, 1998 Employment Agreement between
the parties and any other agreements regarding Employee's employment with or
furnishing consulting services to the Company and any of its subsidiaries,
including any agreements with TRC regarding employment or consulting services
(including, but not limited to, a letter agreement dated July 8, 1998 between
TRC and Employee), and that Employment Agreement and those other agreements
regarding Employee's employment with or furnishing consulting services to the
Company or any of its subsidiaries are hereby terminated.
7.
Employee agrees to maintain in strict confidence and not to use or disclose
any Trade Secrets of the Company at any time, for so long as the information
remains a Trade Secret. As provided by Georgia statutes, "Trade Secret" shall
mean any information (including, but not limited to, technical or non-technical
data, a formula, a pattern, a compilation, a program, a device, a method, a
technique, a drawing, a process, financial data, financial plans, product plans,
or a list of actual or potential customers) that: (i) derives economic value,
actual or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use; and (ii) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.
8.
In addition, Employee agrees to maintain in strict confidence and not to
use or disclose any Confidential Information of the Company for a period of
twelve (12) months from the date of this Agreement. "Confidential Information"
shall mean any internal, non-public information (other than Trade Secrets
already addressed above) concerning the Company's financial position and results
of operations (including revenues, margins, assets, net income, etc.); pricing
structure; annual and long-range business plans; product or service plans;
marketing plans and methods; training, educational and administrative manuals;
customer and supplier information and purchase histories; and employee lists.
The provisions of Sections 7 and 8 above shall be sufficient to protect Trade
Secrets and Confidential Information of third parties provided to the Company
under an obligation of secrecy.
9.
If any provision of this Agreement is found to be unenforceable, it shall
not affect the enforceability of the remaining provisions and the Court shall
enforce all remaining provisions to the extent permitted by law.
10.
This Agreement shall bind and benefit Employee's heirs, executors,
administrators, successors, assigns, and each of them; it shall also bind and
benefit the Company and its successors and assigns.
4
<PAGE>
11.
This Agreement shall be deemed to have been entered into in the state of
Texas and shall be construed and interpreted in accordance with the laws of that
state.
12.
Any notice Employee is required to provide to the Company pursuant to this
Agreement shall be made via certified mail, return receipt requested or Federal
Express, signature required, in the manner set forth below. Notice will be
effective upon the date of receipt by the Company. In addition, Employee shall
send a copy of the notice to Wade H. Stribling, Esq., at the address listed
below, at the same time and by the same method of delivery as to the Company.
However, the copy to Mr. Stribling shall not constitute notice to the Company.
NOTICE TO COMPANY: Mr. Clyde E. Culp, III
2662 Holcomb Bridge Road
Suite 320
Alpharetta, Georgia 30022
COPY TO MR. STRIBLING: Wade H. Stribling, Esq.
Nelson Mullins Riley & Scarborough, L.L.P.
First Union Plaza
Suite 1400
999 Peachtree Street, N.E.
Atlanta, Georgia 30309
13.
The parties have read and understand the foregoing Agreement, and they
affix their signatures hereto voluntarily and without coercion. Employee further
acknowledges that he has been advised to consult with an attorney of his own
choosing concerning the waivers contained in and the terms of this Agreement,
and that the waivers he has made and the terms he has agreed to herein are
knowing, conscious, and with full appreciation that he is forever foreclosed
from pursuing any of the rights so waived
[The remainder of this page has been left blank intentionally.] .
5
<PAGE>
Employee:
Dated: , 1998 /s/ William J. Gallagher
----------------------- -----------------------------------
William J. Gallagher
Harvest Restaurant Group, Inc.
Dated: , 1998 By: /s/ Joe Fazzone
----------------------- ---------------------------------
Name: Joe Fazzone
Title: CFO
Hartan, Inc.
Dated: , 1998 By: /s/ Joe Fazzone
---------------------- ---------------------------------
Name: Joe Fazzone
Title: Secretary
6
<PAGE>
EXHIBIT A
---------
REAL ESTATE LIEN NOTE
---------------------
Date: December , 1998
Maker: Harvest Restaurant Group, Inc. and Hartan, Inc.
Payee: William J. Gallagher
Place for Payment: 1250 NE Loop 410, Ste. 335, San Antonio, Bexar County, Texas
78209
Principal Amount: FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00)
Annual Interest Rate on Unpaid
Principal from Date of Funding: Zero Percent (0.00%) per annum.
Annual Interest Rate on Matured, Unpaid Amounts:
All matured and unpaid principal and interest shall bear interest at the
maximum rate of interest permitted by applicable United States Federal or
Texas State Law (to the extent not pre-empted by federal law, if any) as
may be applicable to this Note.
Terms of Payment (principal and interest):
One payment of principal in the amount of $10,000.00 shall be due and
payable (i) on January 4, 1999 and (ii) on February 1, 1999. Thereafter,
the unpaid principal balance of this Note shall be due and payable on the
earlier to occur of (i) the sale by Maker of the property described on
Exhibit "A" attached hereto and made a part hereof for all purposes or (ii)
the Final Funding (as defined below), but in no event later than June 30,
1999. For purposes hereof, the sale of the property means the closing and
funding and the receipt by Maker from the purchaser of the sales proceeds.
The "Final Funding" shall mean the receipt by Maker of the funds described
in Section 1.2.1(d) of the Amended and Restated Agreement and Plan of
Merger by and among Harvest Restaurant Group, Inc., Hartan, Inc. and TRC
Acquisition Corporation, dated as of December ___ , 1998.
Security for Payment:
Payment of this Note is secured by a Deed of Trust to ROBERT A. ROSENTHAL,
Trustee, covering certain property set out and described on Exhibit "A"
attached hereto and made a part hereof for all purposes.
Maker promises to pay to the order of Payee at the place for payment and
according to the terms of payment the principal amount plus interest at the
rates stated above. All unpaid amounts shall be due by the final scheduled
payment date.
For purposes of the Note, (i) Grantor shall be in default for failure to make a
payment hereunder if Grantor does not make such payment within five (5) days
after Grantor receives written notice advising Grantor that Beneficiary has
failed to receive Grantor's payment as and when the same became due and (ii)
Grantor shall be in default under any of the terms of the Deed of Trust or any
1
<PAGE>
other Loan Documents if, within twenty (20) days after Grantor's receipt of
written notice from Beneficiary advising Grantor of the terms which are in
violation, Grantor has not fulfilled or satisfied such terms (the number of days
set forth in (i) and (ii) above referred to as the "Cure Period"). For purposes
of this subparagraph "written notice" means notice as described in the Deed of
Trust as well as notice by facsimile transmission which shall be deemed received
upon Beneficiary's receipt of written confirmation to that effect.
On default in the payment of this Note or in the performance of any obligation
described herein or in any instrument securing or collateral to it (collectively
the "Loan Documents"), this Note and all obligations in all instruments securing
or collateral to it shall become immediately due at the election of Payee. Maker
and each surety, endorser, and guarantor waive all demands for payment,
presentations for payment, notices of intention to accelerate maturity, notice
of acceleration, protests, and notices of protest.
If this Note or any instrument securing or collateral to it is given to an
attorney for collection or enforcement, or if suit is brought for collection or
enforcement, or if it is collected or enforced through probate, bankruptcy, or
other judicial proceeding, then Maker shall pay Payee reasonable attorney's fees
of at least twelve percent (12.0%) on the amount of principal and interest then
owing.
Nothing in this Note shall authorize the collection of interest in excess of the
highest rate allowed by law.
Maker reserves the right to prepay this Note in any amount at any time prior to
maturity without penalty. Prepayments shall be applied toward the payment of the
installments of principal last maturing hereon, but interest shall immediately
cease upon amounts of principal prepaid hereon.
Each Maker, if there is more than one, is responsible for the entire amount of
this Note.
The terms Maker and Payee and other nouns and pronouns include the plural if
more than one. The terms Maker and Payee also include their respective heirs,
personal representatives, and assigns.
The failure of any holder hereof to exercise its rights hereunder upon any act
or acts of default shall not act as a waiver thereof, nor as a waiver of any
subsequent act or acts of default.
The Maker warrants and represents to the Payee and all other holders of this
Note that all loans evidenced by this Note are and will be for business,
commercial, investment or other similar purposes and not primarily for personal,
family, household or agricultural use, as such terms are used in Chapter One of
Title 79, Texas Revised Civil Statutes, 1925, as amended.
The Payee reserves the right, in its sole discretion, with notice to the Maker
or any other person, to sell participations or assign its interest, or both, in
all or any part of this Note or any loan evidenced by this Note.
This Note and the Loan Documents embody the entire agreement and understanding
between the Payee and the Maker and other parties with respect to the loans to
be evidenced by this Note and supersede all prior conflicting or inconsistent
agreements, consents and understandings relating to such subject matter. The
Maker acknowledges and agrees that there are no oral agreements between the
Maker and the Payee which have not been incorporated in this Note and the Loan
Documents.
2
<PAGE>
This Note shall be governed by and construed in accordance with applicable law.
Since it is the intention of the parties hereto to strictly conform to the
applicable usury laws, all agreements between Maker and Payee, whether now
existing or hereafter arising and whether written or oral, are hereby expressly
limited so that in no event, whether by reason of acceleration of maturity of
this Note or otherwise, shall the amount paid or agreed to be paid to the Payee
for the use, forbearance or detention of money hereunder or otherwise exceed the
maximum amount permissible under applicable law. If the applicable law is ever
revised, repealed or judicially interpreted so as to render usurious any
consideration called for, contracted for, charged, taken, reserved or received
with respect to this Note, the security documents, the loan evidenced by this
Note, or any other agreement between the parties or their affiliates, or if the
fulfillment of any provision hereof or any note, deed of trust, loan agreement,
or other document, evidencing or securing the indebtedness evidenced hereby, at
the time of performance of such provision shall be due, shall involve
transcending the limit of validity prescribed by law, then ipso facto the
obligation to be fulfilled shall be reduced to the limit of such validity; and
if Lender shall ever receive anything of value deemed interest under applicable
law which would exceed interest at the highest lawful rate, an amount equal to
any excess of interest shall be applied to the reduction of the principal amount
owing on this Note or amounts owed pursuant to other loan documents and not to
the payment of interest, or if such excess of interest exceeds the unpaid
balance of principal of this Note or amounts owed pursuant to other loan
documents, such excess shall be refunded to the Maker. All interest paid or
agreed to be paid to Payee shall, to the extent permitted by applicable law, be
amortized, prorated, allocated, and spread throughout the full stated term
(including any renewal or extension) of such indebtedness or until payment in
full, whichever is longer, so that the amount of interest on account of such
indebtedness does not exceed the maximum permitted by applicable law. The
provision of this paragraph shall control all existing and future agreements
between Maker and Payee.
THIS LOAN IS PAYABLE IN FULL AT MATURITY. MAKER MUST REPAY THE ENTIRE PRINCIPAL
BALANCE OF THIS LOAN AND UNPAID INTEREST THEN DUE. THE PAYEE IS UNDER NO
OBLIGATION TO REFINANCE THE LOAN AT THAT TIME. MAKER WILL, THEREFORE, BE
REQUIRED TO MAKE PAYMENT OUT OF OTHER ASSETS THAT MAKER MAY OWN, OR MAKER WILL
HAVE TO FIND A LENDER, WHICH MAY BE THE PAYEE MAKER HAS THIS LOAN WITH, WILLING
TO LEND MAKER THE MONEY. IF MAKER REFINANCES THIS LOAN AT MATURITY MAKER MAY
HAVE TO PAY SOME OR ALL OF THE CLOSING COSTS NORMALLY ASSOCIATED WITH A NEW LOAN
EVEN IF MAKER OBTAINS REFINANCING FROM THE SAME PAYEE. THE PAYEE MAY CONSIDER AN
APPLICATION TO REFINANCE THE PRINCIPAL BALANCE AT THE TIME PAYMENT IS DUE ON THE
SAME BASIS AS ALL OTHER NEW MORTGAGE LOAN APPLICATIONS.
MAKER:
HARTAN, INC. HARVEST RESTAURANT GROUP, INC.
By: /s/ William Gallagher By: /s/ William Gallagher
Name: William Gallagher Name: William Gallagher
Title: CEO Title: CEO
3
<PAGE>
EXHIBIT A
PROPERTY DESCRIPTION
--------------------
Lot 4, Block 1, New City Block 18829, Great Northwest, Unit 91-A, an addition to
the City of San Antonio, Bexar County, Texas, according to the map or plat
thereof, recorded in Volume 9516, Page 108, Deed and Plat Records of Bexar
County, Texas.
4
<PAGE>
EXHIBIT B
---------
REAL ESTATE LIEN NOTE
---------------------
Date: December , 1998
Maker: Harvest Restaurant Group, Inc. and Hartan, Inc.
Payee: William J. Gallagher
Place for Payment: 1250 NE Loop 410, Ste. 335, San Antonio, Bexar County, Texas
78209
Principal Amount: ONE HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($150,000.00)
Annual Interest Rate on Unpaid
Principal from Date of Funding: Zero Percent (0.00%) per annum.
Annual Interest Rate on Matured, Unpaid Amounts:
All matured and unpaid principal and interest shall bear interest at the
maximum rate of interest permitted by applicable United States Federal or
Texas State Law (to the extent not pre-empted by federal law, if any) as
may be applicable to this Note.
Terms of Payment (principal and interest):
The unpaid principal balance of this Note shall be due and payable on the
earlier to occur of (i) March 1, 1999 or (ii) the sale by Maker of the
property described on Exhibit "A" attached hereto and made a part hereof
for all purposes. For purposes of this Note, the sale of the property means
the closing and funding, and the receipt by Maker from the purchaser of the
sales proceeds.
Security for Payment:
Payment of this Note is secured by a Deed of Trust to ROBERT A. ROSENTHAL,
Trustee, covering certain property set out and described on Exhibit "A"
attached hereto and made a part hereof for all purposes.
Maker promises to pay to the order of Payee at the place for payment and
according to the terms of payment the principal amount plus interest at the
rates stated above. All unpaid amounts shall be due by the final scheduled
payment date.
For purposes of the Note, (i) Grantor shall be in default for failure to make a
payment hereunder if Grantor does not make such payment within five (5) days
after Grantor receives written notice advising Grantor that Beneficiary has
failed to receive Grantor's payment as and when the same became due and (ii)
Grantor shall be in default under any of the terms of the Deed of Trust or any
other Loan Documents if, within twenty (20) days after Grantor's receipt of
written notice from Beneficiary advising Grantor of the terms which are in
violation, Grantor has not fulfilled or satisfied such terms (the number of days
set forth in (i) and (ii) above referred to as the "Cure Period"). For purposes
of this subparagraph "written notice" means notice as described in the Deed of
Trust as well as notice by facsimile transmission which shall be deemed received
upon Beneficiary's receipt of written confirmation to that effect.
1
<PAGE>
On default in the payment of this Note or in the performance of any obligation
described herein or in any instrument securing or collateral to it (collectively
the "Loan Documents"), this Note and all obligations in all instruments securing
or collateral to it shall become immediately due at the election of Payee. Maker
and each surety, endorser, and guarantor waive all demands for payment,
presentations for payment, notices of intention to accelerate maturity, notice
of acceleration, protests, and notices of protest.
If this Note or any instrument securing or collateral to it is given to an
attorney for collection or enforcement, or if suit is brought for collection or
enforcement, or if it is collected or enforced through probate, bankruptcy, or
other judicial proceeding, then Maker shall pay Payee reasonable attorney's fees
of at least twelve percent (12.0%) on the amount of principal and interest then
owing.
Nothing in this Note shall authorize the collection of interest in excess of the
highest rate allowed by law.
Maker reserves the right to prepay this Note in any amount at any time prior to
maturity without penalty. Prepayments shall be applied toward the payment of the
installments of principal last maturing hereon, but interest shall immediately
cease upon amounts of principal prepaid hereon.
Each Maker, if there is more than one, is responsible for the entire amount of
this Note.
The terms Maker and Payee and other nouns and pronouns include the plural if
more than one. The terms Maker and Payee also include their respective heirs,
personal representatives, and assigns.
The failure of any holder hereof to exercise its rights hereunder upon any act
or acts of default shall not act as a waiver thereof, nor as a waiver of any
subsequent act or acts of default.
The Maker warrants and represents to the Payee and all other holders of this
Note that all loans evidenced by this Note are and will be for business,
commercial, investment or other similar purposes and not primarily for personal,
family, household or agricultural use, as such terms are used in Chapter One of
Title 79, Texas Revised Civil Statutes, 1925, as amended.
The Payee reserves the right, in its sole discretion, with notice to the Maker
or any other person, to sell participations or assign its interest, or both, in
all or any part of this Note or any loan evidenced by this Note.
This Note and the Loan Documents embody the entire agreement and understanding
between the Payee and the Maker and other parties with respect to the loans to
be evidenced by this Note and supersede all prior conflicting or inconsistent
agreements, consents and understandings relating to such subject matter. The
Maker acknowledges and agrees that there are no oral agreements between the
Maker and the Payee which have not been incorporated in this Note and the Loan
Documents.
This Note shall be governed by and construed in accordance with applicable law.
Since it is the intention of the parties hereto to strictly conform to the
applicable usury laws, all agreements between Maker and Payee, whether now
existing or hereafter arising and whether written or oral, are hereby expressly
limited so that in no event, whether by reason of acceleration of maturity of
this Note or otherwise, shall the amount paid or agreed to be paid to the Payee
for the use, forbearance or detention of money hereunder or otherwise exceed the
maximum amount permissible under applicable law. If the applicable law is ever
revised, repealed or judicially interpreted so as to render usurious any
2
<PAGE>
consideration called for, contracted for, charged, taken, reserved or received
with respect to this Note, the security documents, the loan evidenced by this
Note, or any other agreement between the parties or their affiliates, or if the
fulfillment of any provision hereof or any note, deed of trust, loan agreement,
or other document, evidencing or securing the indebtedness evidenced hereby, at
the time of performance of such provision shall be due, shall involve
transcending the limit of validity prescribed by law, then ipso facto the
obligation to be fulfilled shall be reduced to the limit of such validity; and
if Lender shall ever receive anything of value deemed interest under applicable
law which would exceed interest at the highest lawful rate, an amount equal to
any excess of interest shall be applied to the reduction of the principal amount
owing on this Note or amounts owed pursuant to other loan documents and not to
the payment of interest, or if such excess of interest exceeds the unpaid
balance of principal of this Note or amounts owed pursuant to other loan
documents, such excess shall be refunded to the Maker. All interest paid or
agreed to be paid to Payee shall, to the extent permitted by applicable law, be
amortized, prorated, allocated, and spread throughout the full stated term
(including any renewal or extension) of such indebtedness or until payment in
full, whichever is longer, so that the amount of interest on account of such
indebtedness does not exceed the maximum permitted by applicable law. The
provision of this paragraph shall control all existing and future agreements
between Maker and Payee.
THIS LOAN IS PAYABLE IN FULL AT MATURITY. MAKER MUST REPAY THE ENTIRE PRINCIPAL
BALANCE OF THIS LOAN AND UNPAID INTEREST THEN DUE. THE PAYEE IS UNDER NO
OBLIGATION TO REFINANCE THE LOAN AT THAT TIME. MAKER WILL, THEREFORE, BE
REQUIRED TO MAKE PAYMENT OUT OF OTHER ASSETS THAT MAKER MAY OWN, OR MAKER WILL
HAVE TO FIND A LENDER, WHICH MAY BE THE PAYEE MAKER HAS THIS LOAN WITH, WILLING
TO LEND MAKER THE MONEY. IF MAKER REFINANCES THIS LOAN AT MATURITY MAKER MAY
HAVE TO PAY SOME OR ALL OF THE CLOSING COSTS NORMALLY ASSOCIATED WITH A NEW LOAN
EVEN IF MAKER OBTAINS REFINANCING FROM THE SAME PAYEE. THE PAYEE MAY CONSIDER AN
APPLICATION TO REFINANCE THE PRINCIPAL BALANCE AT THE TIME PAYMENT IS DUE ON THE
SAME BASIS AS ALL OTHER NEW MORTGAGE LOAN APPLICATIONS.
MAKER:
HARVEST RESTAURANT GROUP, INC.
By: /s/ William Gallagher
Name: William Gallagher
Title: CEO
HARTAN, INC.
By: /s/ William Gallagher
Name: William Gallagher
Title:CEO
3
<PAGE>
EXHIBIT A
PROPERTY DESCRIPTION
--------------------
Lot 4, Block 1, New City Block 18829, Great Northwest, Unit 91-A, an addition to
the City of San Antonio, Bexar County, Texas, according to the map or plat
thereof, recorded in Volume 9516, Page 108, Deed and Plat Records of Bexar
County, Texas.
4
<PAGE>
EXHIBIT C
---------
HARVEST RESTAURANT GROUP, INC. to
WILLIAM J. GALLAGHER
DEED OF TRUST
THE STATE OF TEXAS ss.
ss. KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF BEXAR ss.
THAT HARVEST RESTAURANT GROUP, INC., of BEXAR COUNTY, TEXAS (the
"Grantor"), for the purpose of securing the indebtedness hereinafter described,
and in consideration of the sum of TEN DOLLARS ($10.00) to him in hand paid by
the Trustee hereinafter named, the receipt of which is hereby acknowledged, and
for the further consideration of the uses, purposes and trusts, hereinafter set
forth has GRANTED, SOLD and CONVEYED, and by these presents does GRANT, SELL and
CONVEY unto ROBERT A. ROSENTHAL, Trustee, of Bexar County, Texas, and his
substitutes or successors, all of the following described property (the "Land")
situated in BEXAR COUNTY, TEXAS, to wit:
See Exhibit "A" attached hereto and made a part hereof for all purposes,
and all improvements (the "Improvements") now or hereafter situated thereon,
inclusive of all goods which are or are to become fixtures now or hereafter
located in and about such improvements, including, without limitation, all
heating, air-conditioning, ventilating, plumbing, electrical fixtures, and
wiring, replacements thereof and additions thereto, all of which Grantor
represents and agrees are and will be a part of and affixed to said land, as
well as all rights which are appurtenant (the Land and the Improvements
collectively referred to as the "Property").
TO HAVE AND TO HOLD the above described property, together with the rights,
privileges and appurtenances thereto belonging unto the said Trustee, and to his
substitutes or successors forever. And Grantor does hereby bind himself, his
heirs, executors, administrators and assigns to warrant and forever defend the
said premises unto the said Trustee, his substitutes or successors and assigns
forever, against the claim, or claims, of all persons claiming by, through or
under Grantor or to claim the same or any part thereof.
This conveyance, however, is made in TRUST to secure the payment of two (2)
certain Real Estate Lien Notes (the "Notes") of even date herewith in the
principal sum of (i) ONE HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS ($150,000.00)
and (ii) FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00), each executed by
Hartan, Inc. and Grantor, payable to the order of WILLIAM J. GALLAGHER, in the
City of San Antonio, Bexar County, Texas, as therein provided; bearing interest
as therein stipulated, providing for acceleration of maturity and for attorneys
fees, as well as (i) all renewals, extensions, modifications and rearrangements
of and substitutions for the Notes, (ii) any and all sums, together with
interest accruing thereon as herein provided, which may be advanced by
Beneficiary to and/or owed by Grantor or Hartan, Inc. under and pursuant to the
1
<PAGE>
terms of this instrument and (iii) all obligations and indebtedness of Grantor
or any other person or entity under any document or instrument now or hereafter
evidencing or securing payment or performance of all or any part of the Notes
(the Notes and the indebtedness described in items (i), (ii) and (iii) above
sometimes referred to as the "Indebtedness").
For purposes of the Note, (i) Grantor shall be in default for failure to make a
payment hereunder if Grantor does not make such payment within five (5) days
after Grantor receives written notice advising Grantor that Beneficiary has
failed to receive Grantor's payment as and when the same became due and (ii)
Grantor shall be in default under any of the terms of the Deed of Trust or any
other Loan Documents if, within twenty (20) days after Grantor's receipt of
written notice from Beneficiary advising Grantor of the terms which are in
violation, Grantor has not fulfilled or satisfied such terms (the number of days
set forth in (i) and (ii) above referred to as the "Cure Period"). For purposes
of this subparagraph "written notice" means notice as described in the Deed of
Trust as well as notice by facsimile transmission which shall be deemed received
upon Beneficiary's receipt of written confirmation to that effect.
Should Grantor do and perform all of the covenants and agreements herein
contained and make prompt payment of the indebtedness hereby secured as the same
shall become due and payable, then this conveyance shall become null and void
and of no further force and effect, and the liens herein and hereby created
shall at Grantor's expense be released by the owner and holder thereof
(hereinafter called "Beneficiary", whether one or more).
The Grantor covenants and agrees as follows:
(a) To the best of Grantor's knowledge, that it is lawfully seized of said
property, and has the right to convey the same; that said property is free from
all liens and encumbrances, except as herein provided.
(b) To protect the title and possession of said property to the extent
Grantor owns the property and to pay when due all taxes and assessments now
existing or hereafter levied or assessed upon said property, or the interest
therein created by this instrument, and to the extent this lien is a first lien,
to preserve and maintain the liens hereby created as first and prior liens on
said property including any improvements hereafter made a part of the realty.
(c) To keep the improvements on said property in good repair and condition
(normal wear and tear excepted) and not to permit or commit any waste thereof
and to keep said buildings occupied so as not to impair the insurance carried
thereon.
(d) To obtain and maintain an insurance policy with coverage including
fire, extended coverage, including windstorm coverage, vandalism and malicious
mischief, and any other hazard or hazards as may reasonably be required from
time to time by Beneficiary, upon all improvements now standing or hereafter
created upon said property, from the date of this Deed of Trust until the
indebtedness secured herein is paid in full, said insurance to be in an amount
at least equal to one hundred percent (100%) of the replacement costs of the
2
<PAGE>
improvements when issued and renewed in such form and with such Insurance
Company or Companies as may be reasonably approved by Beneficiary and to deliver
to Beneficiary the notices of such insurance having attached thereto a standard
mortgage clause to protect Beneficiary; to deliver renewals of such policy or
policies to Beneficiary at least ten (10) days before any such insurance policy
shall expire; any proceeds which Beneficiary may receive under any such policy,
or policies, may be applied by Beneficiary at its option, to reduce the
indebtedness hereby secured, whether then matured or to mature in the future,
and in such manner as Beneficiary may elect, or Beneficiary may permit Grantor
to use said proceeds to repair or replace all improvements damaged or destroyed
and covered by said policy.
(e) To promptly and faithfully comply with, conform to, and obey all
present and future judicial decisions, statutes, rulings, rules, regulations,
permits, certificates or ordinances of any governmental authority in any way
applicable to Grantor or the property including, but not limited to, the
ownership, use, operation, occupancy, possession, maintenance, alteration,
repair or reconstruction thereof, whether or not same shall necessitate
structural changes in, improvements to, or interfere with the use and enjoyment
of the Property.
(f) In the event Grantor shall fail to keep the improvements on the
Property hereby conveyed in good repair and condition (normal wear and tear
excepted), or to pay promptly when due all taxes and assessments as aforesaid,
or to preserve the prior lien of this Deed of Trust herein created on the
Property herein described or to keep the buildings and improvements insured, as
aforesaid, or to deliver the policy, or policies, of insurance or the renewal
thereto to Beneficiary, then Beneficiary may at its option, but without being
required to do so, make such repairs, pay such taxes and assessments, purchase
any tax title thereon, remove any prior liens, and prosecute or defend any suits
in relation to the preservation of the prior lien of this Deed of Trust herein
created on the Property, or insure and keep insured the improvements thereon in
an amount not to exceed that above stipulated; and any sums which may be so used
and paid out by Beneficiary and all sums paid for insurance premiums, as
aforesaid, including the costs, expenses and attorney's fees paid in any suit
affecting the Property when necessary to protect the liens hereof, shall bear
interest from the dates of such payments at the rate stated in the Notes and
shall be paid by Grantor to Beneficiary upon demand, at the place at which the
above-described Notes are payable, and shall be deemed a part of the debt hereby
secured and recoverable as such in all respects.
(g) That in the event of the default continues in the payment of any
installment, principal or interest, of the Notes hereby secured after expiration
of all applicable cure periods, in accordance with the terms hereof, or any
breach of the covenants herein contained to be performed by Grantor after
expiration of applicable cure periods, then and in any of such events
Beneficiary may elect, Grantor hereby expressly waiving presentment and demand
for payment, to declare the entire principal indebtedness hereby secured with
all interest accrued thereon and all other sums hereby secured immediately due
and payable, and in the event of default in the payment of said debt when due or
declared due, it shall thereupon, or any time thereafter, be the duty of the
Trustee, or his successor or substitute as hereinafter provided, at the request
of the Beneficiary (which request is hereby conclusively presumed), to enforce
3
<PAGE>
this trust; and after advertising the time, place and terms of the sale of the
above described and conveyed Property, then subject to the lien hereof, and
mailing and filing notices as required by Section 51.002, Texas Property Code,
as then amended, and otherwise complying with that statute or any subsequent
statute specifying the procedure for conducting non-judicial foreclosure sales,
the Trustee shall sell the above described Property, then subject to the lien
hereof, at public auction in accordance with such notices on the first Tuesday
in any month between the hours of ten o'clock A.M. and four o'clock P.M., but
not later than three (3) hours after the time of the sale specified in the
Notice of Sale, to the highest bidder for cash, selling all of the Property as
an entirety or in such parcels as the Trustee acting may elect, and make due
conveyance to the purchaser or purchasers, with limited warranty binding the
Grantor, its heirs and assigns; and out of the money arising from such sale, the
Trustee acting shall first pay all expenses of advertising said sale and making
the conveyance, including a commission of five percent (5.0%) to himself, which
commission shall be due and owing in addition to the Attorney's fees provided
for in said Notes, and then to Beneficiary the full amount of principal,
interest, Attorney's fees and other charges due and unpaid on said Notes and all
other indebtedness secured hereby, rendering the balance of the sale price, if
any, to Grantor, his heirs or assigns; and the recitals in the conveyance to
said purchaser or purchasers shall be full and conclusive evidence of the truth
of the matters therein stated, and all prerequisites to said sale shall be
presumed to have been performed, and such sale and conveyance shall be
conclusive against Grantor, his heirs and assigns.
It is agreed that in the event a foreclosure hereunder shall be commenced by the
Trustee, or his substitute or successor, Beneficiary may at any time before the
sale of the Property direct the Trustee to abandon said sale, and may then
institute suit for the collection of said Notes, and for foreclosure of the
liens herein created; and it is further agreed that if Beneficiary should
institute suit for the collection thereof, and for a foreclosure of the liens
herein created, that he may at any time before entry of final judgment in said
suit dismiss the same, and require the said Trustee, his substitute or
successor, to sell the Property in accordance with the power of sale herein
granted.
Beneficiary shall have the right to purchase at any sale of the Property, if it
is the highest bidder, and to have the amount for which the Property is sold
credited on the debt then owing.
Beneficiary in any event is hereby authorized to appoint a substitute trustee,
or a successor trustee, to act instead of the Trustee named herein without other
formality than the designation in writing of a substitute or successor trustee,
and the authority hereby conferred shall extend to the appointment of other
successor and substitute trustees successively until the indebtedness hereby
secured has been paid in full, or until the Property is sold hereunder and each
substitute and successor trustee shall succeed to all of the rights and powers
of the original trustee named herein.
In the event of a sale of the Property herein described, or any portion thereof,
under the terms of the power of sale herein created, Grantor, his heirs and
assigns, shall forthwith upon the making of such sale surrender and deliver
possession of the Property so sold to the purchaser at such sale, and in the
event of their failure to do so they shall thereupon from and after the making
of such sale be, and continue as, tenants at will of such purchaser, and in the
event of Grantor's failure to surrender possession of the Property upon demand,
4
<PAGE>
the purchaser, his heirs or assigns, shall be entitled to institute and maintain
an action for forcible detainer of the Property in the Justice of the Peace
Court in the Justice Precinct in which the Property, or any part thereof, is
situated.
It is agreed that the lien hereby created shall take precedence over and be a
prior lien to any other lien of any character (other than those liens currently
on the Property), whether vendor's, materialmen's or mechanic's lien, hereafter
created on the above described Property.
It is further agreed that if Grantor, its heirs, successors or assigns, while
the owner of the herein described Property, should commit an act of bankruptcy,
or authorize the filing of a voluntary petition in bankruptcy which is not
dismissed within sixty (60) days, or should an act of bankruptcy be committed
and involuntary proceedings instituted or threatened, or should the Property
herein conveyed be taken over by a Receiver for Grantor, his heirs or assigns,
the Notes herein described shall, at the option of Beneficiary, immediately
become due and payable and the acting Trustee may then proceed to sell the same
under the provisions hereof.
ARBITRATION
Except for "Core Proceedings" under the United States Bankruptcy Code,
Beneficiary and Grantor agree to submit to binding arbitration all claims,
disputes and controversies between or among them, whether in tort, contract or
otherwise (and their respective employees, officers, directors, attorney and
other agents) arising out of or relating to in any way (i) the loan and related
loan and security documents which are the subject of this Agreement and its
negotiations, execution, collateralization, administration, repayment,
modification, extension, substitution, formation, inducement, enforcement,
default or termination; or (ii) requests for additional credit. Any arbitration
proceeding will (i) proceed in San Antonio, Texas; (ii) be governed by the
Federal Arbitration Act (Title 9 of the United States Code); and (iii) be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association ("AAA").
The Arbitration requirement does not limit the right of either party to (i)
foreclose against real or personal property collateral; (ii) exercise self-help
remedies relating to collateral or proceeds of collateral such as setoff or
repossession; or (iii) obtain provisional ancillary remedies such as replevin,
injunctive relief, attachment or the appointment of a receiver, before, during
or after the pendency of any arbitration proceeding. This exclusion does not
constitute a waiver of the right or obligation of either party to submit any
dispute to arbitration, including those arising from the exercise of the actions
detailed in sections (i), (ii) and (iii) of this paragraph.
Any arbitration proceeding will be before a single arbitrator selected according
to the Commercial Arbitration Rules of the AAA. The arbitrator will be a neutral
attorney who has practiced in the area of commercial law for a minimum of ten
years. The arbitrator will determine whether or not an issue is arbitratable and
will give effect to the statutes of limitation in determining any claim.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction.
5
<PAGE>
1. Motion Practice: In any arbitration proceeding the arbitrator will
decide (by documents only or with a hearing at the arbitrator's discretion) any
pre-hearing motions which are similar to motions to dismiss for failure to state
a claim or motions for summary adjudication.
2. Discovery: In any arbitration proceeding discovery will be permitted and
will be governed by the Texas Rules of Civil Procedure. All discovery must be
completed no later than 20 days before the hearing date and within 180 days of
the commencement of arbitration proceedings. Any requests for an extension of
the discovery periods, or any discovery disputes, will be subject to final
determination by the arbitrator upon a showing that the request for discovery is
essential for the party's presentation and that no alternative means for
obtaining information is available.
3. Payment of Arbitration Costs and Fees: The arbitrator shall award costs
and expenses of the arbitration proceeding in accordance with the provisions of
the loan agreement, promissory notes and/or other loan documents.
It is agreed that an extension, or extensions, may be made of the time of
payment of all, or any part, of the indebtedness hereby secured, and that any
part of the above described Property may be released for the liens hereby
created without altering or affecting the priority of the said liens in favor of
any junior encumbrancer, mortgagee or purchaser, or any person acquiring any
interest in the Property herein conveyed, or any part thereof, it being the
intention of the Parties hereto to preserve the liens hereby created on the
Property herein described and all improvements thereon, and that may be
hereafter constructed thereon, first and superior to any liens that may be
placed on the Property, or that may be fixed, given or imposed by law on the
Property after the execution of this instrument notwithstanding any such
extension of the time of payment, or the release of a portion of the Property
from said liens.
In the event any portion of the indebtedness herein described cannot be lawfully
secured by the liens herein given and created upon the herein described
Property, it is agreed that the first payments made on said indebtedness shall
be applied to the discharge of that portion of said indebtedness.
Beneficiary shall be entitled to receive any and all sums which may become
payable to Grantor for condemnation of the Property, or any part thereof, for
public or quasi-public use, or by virtue of private sale in lieu thereof, and
any sums which may be awarded or become payable to Grantor for damages caused by
public works or construction on or near the Property. All such sums are hereby
assigned to Beneficiary, who may, after deducting therefrom all expenses
actually incurred, including attorney's fees, release same to Grantor or apply
the same to the reduction of the indebtedness hereby secured, whether then
matured or to mature in the future, or on any money obligation hereunder, as and
in such manner as Beneficiary may elect. Beneficiary shall not be, in any event
or circumstances, liable or responsible for failure to collect, or exercise
diligence in the collection of, any such sums.
6
<PAGE>
Nothing herein or in said Notes contained shall ever entitle Beneficiary, upon
the arising of any contingency whatsoever, to receive or collect interest in
excess of the highest rate allowed by the applicable law on the principal
indebtedness hereby secured or on any money obligation hereunder and in no event
shall Grantor be obligated to pay interest thereon in excess of such rate.
The failure of the Beneficiary to exercise its rights hereunder with respect to
any one event or events of default by Grantor shall not act as a waiver thereof
nor as a waiver of any subsequent act or acts of default by Grantor.
If, without the prior written consent of Beneficiary, which consent will not be
unreasonably withheld, all or any part of the Property or an interest therein,
or if a beneficial interest in the borrower (if borrower is not a natural person
or persons, but is a corporation, partnership, trust or other legal entity) is
sold, transferred, assigned or conveyed in any way (including a contract of sale
or a contract of deed), or if the herein described Property is further
mortgaged, pledged or encumbered, without Beneficiary's prior written consent,
the Beneficiary may, at Beneficiary's option, declare all of the sums secured by
this Deed of Trust to be immediately due and payable and exercise any and all of
the rights, remedies and recourses provided herein or in any other document
securing the indebtedness, and the exercise of such option may be made by
Beneficiary at any time until the expiration of one (1) year after the receipt
by Beneficiary of written notice of such sale, lease, other disposition,
encumbrance or change in ownership. However, this option shall not be exercised
by Beneficiary if exercise is prohibited by federal law as of the date of this
security agreement.
ENVIRONMENTAL PROVISIONS
Grantor represents, warrants and covenants that Grantor will keep the property
in substantially the same condition and in compliance with all laws, ordinances,
rules and regulations, including all applicable environmental laws and
regulations. Grantor covenants that Grantor will not dispose of or otherwise
release onto the property any hazardous substance or solid waste as those terms
are defined under any federal or state law and in the event of any spill on or
contamination of the property, Grantor will promptly take all reasonable
measures necessary to remedy the situation and restore the property to its
condition prior to the contamination.
It is expressly understood and agreed that should Grantor, his heirs or assigns,
fail to pay any other indebtedness, or any part thereof, principal or interest,
as the same shall become due and payable after expiration of applicable cure
periods, which may be secured by a prior lien or liens on the property herein
described, the indebtedness hereby secured, at the option of the holder thereof,
shall become due and payable.
This Deed of Trust shall be governed by and construed in accordance with
applicable law. Since it is the intention of the parties hereto to strictly
conform to the applicable usury laws, all agreements between Grantor and
Beneficiary, whether now existing or hereafter arising and whether written or
oral, are hereby expressly limited so that in no event, whether by reason of
acceleration of maturity of the Notes or otherwise, shall the amount paid or
7
<PAGE>
agreed to be paid to the Lender for the use, forbearance or detention of money
hereunder or otherwise exceed the maximum amount permissible under applicable
law. If the applicable law is ever revised, repealed or judicially interpreted
so as to render usurious any consideration called for, contracted for, charged,
taken, reserved or received with respect to the Notes, the security documents,
the loan evidenced by the Notes, or any other agreement between the parties or
their affiliates, or if the fulfillment of any provision hereof or any notes,
deed of trust, loan agreement, or other document, evidencing or securing the
indebtedness evidenced hereby, at the time of performance of such provision
shall be due, shall involve transcending the limit of validity prescribed by
law, then ipso facto the obligation to be fulfilled shall be reduced to the
limit of such validity; and if Lender shall ever receive anything of value
deemed interest under applicable law which would exceed interest at the highest
lawful rate, an amount equal to any excess of interest shall be applied to the
reduction of the principal amount owing on the Notes or amounts owed pursuant to
other loan documents and not to the payment of interest, or if such excess of
interest exceeds the unpaid balance of principal of the Notes or amounts owed
pursuant to other loan documents, such excess shall be refunded to the Grantor.
All interest paid or agreed to be paid to Beneficiary shall, to the extent
permitted by applicable law, be amortized, prorated, allocated, and spread
throughout the full stated term (including any renewal or extension) of such
indebtedness or until payment in full, whichever is longer, so that the amount
of interest on account of such indebtedness does not exceed the maximum
permitted by applicable law. The provision of this paragraph shall control all
existing and future agreements between Grantor and Beneficiary.
Upon the occurrence and during the continuance of any Event of Default,
Beneficiary is hereby authorized at any time and from time to time, without
notice to Grantor (any such notice being expressly waived by Grantor), to set
off and apply all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by the
Beneficiary to or for the credit or the account of Grantor against any and all
of the obligations of Grantor now or hereafter existing pursuant to the Loan
Documents, irrespective of whether or not the Beneficiary agrees promptly to
notify Grantor after any such setoff and application, provided that the failure
to give such notice shall not affect the validity of such setoff and application
or create any liability on the part of the Beneficiary. The rights of the
Beneficiary under this section are in addition to other rights and remedies
(including, without limitation, other rights of setoff) which the Beneficiary
may have.
Grantor expressly represents that this Deed of Trust and the Notes hereby
secured are given for and represent the sum of $150,000.00 and the sum of
$50,000.00 advanced by Beneficiary to the Grantor herein, the payment of which
is hereby secured, in payment of the purchase price of the Property, and this
Deed of Trust is given as additional security for the payment of said
indebtedness.
Since this loan is payable in full at maturity (as set forth in the Real Estate
Lien Note), Grantor recognizes that it must repay the full remaining principal
balance of the loan and any accrued but unpaid interest at that time. Grantor
acknowledges and agrees that William J. Gallagher has not agreed to and has no
duty to extend or modify the maturity of the Notes. While William J. Gallagher
may agree to extend or modify the maturity of this loan or to make a new loan,
8
<PAGE>
he is under no obligation to do so. Grantor will, therefore, be required to make
payable out of other assets that it owns or it will have to find a lender
willing to lend it money. Grantor realizes that if it refinances this loan at
maturity, it may have to pay some or all of the closing costs normally
associated with a new loan even if this loan is obtained from William J.
Gallagher.
The plural reference to any party shall include the singular and the singular
reference to any party shall include the plural. All of the covenants and
agreements herein undertaken to be performed by and the rights conferred upon
the respective parties shall be binding upon and inure to the benefit of not
only said parties respectively, but also their respective heirs, executors,
administrators, grantees, successors and assigns.
THIS WRITTEN DEED OF TRUST REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENT OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
EXECUTED this, the 23rd day of December, 1998.
GRANTOR:
HARVEST RESTAURANT GROUP, INC.
By: /s/ William Gallagher
Name: William Gallagher
Title: CEO
ACKNOWLEDGMENT
STATE OF TEXAS ss.
ss.
COUNTY OF BEXAR ss.
This instrument was acknowledged before me on the 23rd day of December,
1998 by William J. Gallagher, Chief Executive Officer of Harvest Restaurant
Group, Inc., a Texas corporation, on behalf of said corporation.
/s/
----------------------------------
Notary Public, State of Texas
9
<PAGE>
PLEASE RETURN TO:
William J. Gallagher
1250 NE Loop 410, Ste. 335
San Antonio, Texas 78209
PREPARED BY:
Robert A. Rosenthal, Esq.
Rosenberg, Tuggey, Agather
Rosenthal & Rodriguez
A Professional Corporation
140 E. Houston St., 2nd Floor
San Antonio, Texas 78205
10
<PAGE>
EXHIBIT A
PROPERTY DESCRIPTION
--------------------
Lot 4, Block 1, New City Block 18829, Great Northwest, Unit 91-A, an addition to
the City of San Antonio, Bexar County, Texas, according to the map or plat
thereof, recorded in Volume 9516, Page 108, Deed and Plat Records of Bexar
County, Texas.
11
<PAGE>
EXHIBIT D
---------
List of furniture located at the corporate offices of Harvest Restaurant Group,
Inc. in San Antonio, Texas:
1. Pipe clamped desk with chair, located in the office of William
Gallagher;
2. Pipe clamped files and storage, located in the office of William
Gallagher;
3. Pipe clamped conference table with deck chairs;
4. One desk with chair;
5. Bookcase;
6. Three file cabinets;
7. Harvest prints.
EXHIBIT 10.05(a)
TANNER'S CORPORATION
March 16, 1999
Mr. William Gallagher
1250 NE Loop 410, Suite 335
San Antonio, Texas 78209
Dear Bill:
As we discussed, I offer the following to resolve our dispute over the payment
of your severance.
Upon settlement of the Broadway matter, the Company will forward to you the net
proceeds. This should be approximately $30,000 and this should satisfy the terms
of the $50,000 note. Upon settlement of the South Padre matter, the Company will
forward the amount that has been garnished. This should be approximately
$36,000. This letter should serve as authorization for Tim Tuggey to transfer
such funds, once received, to you.
Additionally, the Company will pay you $5,000 per week until the earlier of such
time that the Tezel property is sold and the proceeds are received or the next
round of financing is closed. At that time, the balance of the amount owed will
be paid. Each $5,000 payment shall be due on Monday of each week with the first
payment being due on Tuesday, March 16, 1999 and the second payment being due on
Monday, March 22, 1999. Payments will be made weekly from then on.
Sincerely,
/s/ Tim Robinson
Tim Robinson
Vice President/CFO
Acknowledged and agreed to this 16th day of March 1999.
By: /s/ William Gallagher
REGULATION D SUBSCRIPTION AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES AUTHORITIES. THEY
MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION TO THE REGISTRATION REQUIREMENTS OF THOSE
SECURITIES LAWS.
THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED
HEREIN BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED
BY ANY FEDERAL, STATE OR FOREIGN SECURITIES AUTHORITIES, NOR HAVE ANY SUCH
AUTHORITIES REVIEWED OR DETERMINED THE ACCURACY OF THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. INVESTORS
MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT TERMS AND CONDITIONS OF
THE PROPOSED INVESTMENT AND THEIR OWN ASSESSMENT OF THE RISKS INVOLVED.
This Regulation D Securities Subscription Agreement (the "Agreement") is
executed by the undersigned (the "Subscriber") in connection with the offer to
the Subscriber of, and the subscription by the Subscriber for, shares of Series
D Preferred Stock, $1.00 par value per share (the "Preferred Stock"), of HARVEST
RESTAURANT GROUP, INC., a Texas corporation (the "Company") and warrants (the
"Warrants") to purchase shares of the Company's Common Stock, $.01 par value per
share (the "Common Stock"). The Preferred Stock shall be issued in exchange for
the 133.2 outstanding shares of Series B Preferred Stock and 200 outstanding
shares of Series C Preferred Stock of the Company and upon payment of the sums
stated below. Each share of Preferred Stock has a stated value (i.e., is in the
face amount) of One Thousand Dollars ($1,000.00).
1. Exchange of Outstanding Series B and C Preferred Stock.
1.1 Exchange of Outstanding Series B Preferred Stock. For each share
of Series B Preferred Stock exchanged, the holder thereof shall receive fifteen
(15) shares of Preferred Stock. Based on the $1,000 stated value per share of
the Preferred Stock, this exchange ratio values each share of Series B Preferred
Stock at Fifteen Thousand Dollars ($15,000), or One Hundred Fifty percent (150%)
of original issue price.
1
<PAGE>
1.2 Exchange of Outstanding Series C Preferred Stock. For each share
of Series C Preferred Stock exchanged, the holder thereof shall receive thirteen
(13) shares of Preferred Stock. Based on the $1,000 stated value of the
Preferred Stock, this exchange ratio values each share of Series B Preferred
Stock at Thirteen Thousand Dollars ($13,000), or One Hundred Thirty percent
(130%) of original issue price. (The shares of Preferred Stock issued in
exchange for the outstanding Series B Preferred Stock and Series C Preferred
Stock as provided in this Section 1 are sometimes referred to in this Agreement
as the "Exchange Shares.")
2. Offering Shares. The Company is also offering to qualified investors
(the "Offering") up to an aggregate stated value (face amount) of Preferred
Stock of Four Million Dollars Six Hundred Thousand Dollars ($ 4,600,000)
(representing 4,600 shares) for an aggregate purchase price of Four Million
Dollars ($4,000,000.00) (the "Offering"). The Preferred Stock issued for cash
shall be the "Offering Shares."
2.1 Subscription for 2,600 Shares of Preferred Stock for the Series C
Escrow Money. Two Million Dollars ($2,000,000; the "Series C Escrow Money") was
placed in escrow in July 1998 for the intended subsequent purchase of 200 shares
of Series C Preferred Stock. Because the conditions for the release of the
Series C Escrow Money from escrow were not met, the Series C Escrow Money was
never released from escrow and, accordingly, the 200 shares of Series C
Preferred Stock originally intended to be purchased with such funds were never
issued. In light of those circumstances, the Subscriber will be credited, for
purposes of the Subscriber's acquiring a portion of the Offering Shares, with
the portion of the Series C Escrow Money specified on the appropriate line in
Section 11 below (assuming the Series C Escrow Money is placed into escrow as
provided elsewhere in this Agreement), multiplied by One Hundred and Thirty
percent (130%). Therefore, the Subscriber shall receive, for each Ten Thousand
Dollar ($10,000) increment contributed from the Series C Escrow Money, thirteen
(13) shares of Preferred Stock having a stated value of One Thousand Dollars
($1,000) per share, or an aggregate stated value of Thirteen Thousand Dollars
($13,000).
2.2 Subscription for 2,000 Shares of Preferred Stock for $2,000,000
Not Previously Placed in Escrow. Upon funding of a Two Million Dollar
($2,000,000) portion of the subscription amount hereunder (and only upon such
funding) as herein provided, the shall receive, for each Ten Thousand Dollar
($10,000) increment funded by the Subscriber, ten (10) shares of Preferred Stock
having a stated value of One Thousand Dollars ($1,000) per share, or an
aggregated stated value of Ten Thousand Dollars ($10,000).
2.3 Warrants. Subscribers shall be given Warrants, the form of which
is attached hereto as Exhibit D, to purchase 100,000 shares of the Company's
Common Stock, for each $1,000,000 or pro-rata investment thereof, at a price of
$2.00 per share. Such Warrants are to be exercisable for five (5) years after
closing, and the Company shall register the shares underlying the Warrants in
the registration statement filed by the Company with the Securities and Exchange
Commission (the "SEC") to register, among other things, the shares of Common
Stock reasonably anticipated to be issuable upon conversion of the Preferred
Stock (the "Registration Statement").
2
<PAGE>
2.4 Terms of Preferred Stock - Statement of Resolution. The terms of
the Preferred Stock, including the terms on which the Preferred Stock may be
converted into Common Stock, are set forth in the Statement of Resolution of
Series D Preferred Stock (the "Statement of Resolution"), substantially in the
form attached hereto as Exhibit A. The solicitation of this Subscription by the
Company, and, if accepted by the Company, the sale of the shares of Preferred
Stock subscribed for, are being made in reliance upon the provisions of
Regulation D ("Regulation D") promulgated under the Securities Act of 1933, as
amended (the "Securities Act"). The Preferred Stock, the Shares issuable upon
conversion thereof (the "Conversion Shares"), the Warrants and the shares of
Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") are
sometimes referred to herein collectively as the "Securities."
The undersigned Subscriber and the Company, upon acceptance of this
Agreement, hereby covenant, warrant, represent, agree and acknowledge as
follows:
3. Offering.
3.1 Offer to Subscribe; Purchase Price and Closing; and Placement
Fees.
Subject to satisfaction of the conditions to the closing of a purchase and
sale of Preferred Stock as to each purchaser of Preferred Stock (the "Closing")
set forth in Section 3.4 below, the Subscriber hereby offers to subscribe for
and purchase shares of Preferred Stock, for the purchase price(s) set forth in
Section 11 of this Agreement and in exchange for the Series B Preferred Stock
and Series C Preferred Stock, all in accordance with the terms and conditions of
this Agreement.
3.2 Exchange Shares Closing.
As to the Exchange Shares, they shall be issued upon fulfillment of Section
3.4.
3.3 Offering Shares Closings. As to the Offering Shares:
(1) Assuming that funds representing the Series C Escrow Money,
together with subscription agreements for all of the shares of Preferred Stock
offered in this Offering (which subscription agreements have been accepted by
the Company), are deposited into the Company's designated escrow account for
this Offering (the "Escrow Account"), and that the general conditions set forth
in Section 3.4 have been satisfied, the Closing shall be deemed to occur when
this Agreement has been executed by both the Subscriber and the Company,, in
consideration for the Company's delivery of certificates representing the shares
of Preferred Stock so subscribed for at the times described herein.
3
<PAGE>
(2) Notwithstanding the foregoing, the Offering Shares proceeds
(or portions thereof, as applicable) shall not be released, nor the Offering
Shares delivered (or portions thereof delivered, as applicable), except as the
conditions in Section 3.5 are fulfilled.
The parties hereto acknowledge that J.P. Carey Securities Inc. is acting as
the placement agent (the "Placement Agent") for the placement of the Preferred
Stock and will be compensated by the Company in shares of Common Stock and
warrants to purchase Common Stock of the Company. The Placement Agent has acted
solely as placement agent and consultant in connection with the offer and sale
by the Company of the Preferred Stock pursuant to this Agreement and the
ancillary documents referenced herein or attached hereto as exhibits. The
information and data contained in the Disclosure Documents (as defined in
Section 6.2 hereof) have not been subjected to independent verification or
investigation by the Placement Agent, and no representation or warranty is made
by the Placement Agent as to the accuracy or completeness of the information
contained in the Disclosure Documents.
3.4 General Conditions to Subscriber's Obligations. The Subscriber's
obligations hereunder are conditioned upon the occurrence of all of the
following:
(a) the following documents shall have been deposited with the
Company's escrow agent for the Offering ("Escrow Agent"): the
Registration Rights Agreement, substantially in the form attached
hereto as Exhibit B (executed by the Company), and the Statement of
Resolution, substantially in the form attached hereto as Exhibit A
(together with evidence showing that it has been duly filed with the
Secretary of State of Texas);
(b) corresponding Subscription Agreement(s) accepted by the Company
have been received by the Escrow Agent;
(c) the escrow agreement ("Escrow Agreement") to which the Escrow
Agent is a party and which governs the Escrow Account shall have been
fully executed by all parties, and the Series C Escrow Money shall
have been funded into the Escrow Account by wire transfer in United
States Dollars ; and
(d) share certificates evidencing the 133.2 outstanding shares of
Series B Preferred Stock and 200 outstanding shares of Series C
Preferred Stock shall have been received by the Escrow Agent.
3.5 Conditions to Offering Shares Closings. The Subscriber's
obligations regarding the Offering Shares are conditioned upon the occurrence of
the following:
(a) Sections 3.3 and 3.4 are satisfied;
(b) One Million Dollars ($1,000,000.00) of the Series C Escrow Money
shall be released to the Company upon filing by the Company of a
preliminary proxy statement (the "Preliminary Proxy Statement") with
the SEC, one of the purposes of which will be to solicit shareholder
approval of an amendment to the Articles of Incorporation of the
Company to increase its number of authorized shares of common stock to
not less than 100,000,000, and upon such release, the Company shall
issue and deliver to the Subscribers in the Offering, based upon
instructions in Section 11 of the Subscribers' subscription
agreements, certificates evidencing an aggregate of One Thousand Three
Hundred (1,300) shares of Preferred Stock;
4
<PAGE>
(c) the remaining One Million Dollars ($1,000,000.00) of the Series C
Escrow Money shall be released to the Company upon mailing of the
definitive proxy statement (the "Definitive Proxy Statement") to the
shareholders of the Company, and upon such release, the Company shall
issue and deliver to the Subscribers in the Offering, based upon
instructions in Section 11 of the Subscribers' subscription
agreements, certificates evidencing an aggregate of One Thousand Three
Hundred (1,300) shares of Preferred Stock; and
(d) Two Million Dollars ($2,000,000) shall be funded by the
Subscribers directly to the Company upon the effective date of the
Registration Statement (of which effective date the Subscribers shall
be given not less than five (5) days' prior written notice) pursuant
to the Registration Rights Agreement attached as Exhibit B, and upon
such funding, the Company shall issue and deliver to the Subscribers
in the Offering, based upon instructions in Section 11 of the
Subscribers' subscription agreements, certificates evidencing an
aggregate of Two Thousand (2,000) shares of Preferred Stock.
4. Representations and Warranties of the Subscriber. The Subscriber hereby
represents and warrants to the Company as follows (which representations and
warranties shall be true as of the date of Closing):
4.1 Accredited Investor. The Subscriber hereby represents and warrants
to the Company that it is an "accredited investor," as defined in Rule 501 of
Regulation D, and has marked the applicable box set forth in Section 11 of this
Agreement signifying such status.
4.2 Investment Experience; Access to Information; Independent
Investigation.
4.2.1 Access to Information. The Subscriber or its professional
advisor has been granted the opportunity to ask questions of and receive answers
from representatives of the Company, and its officers, directors, employees and
agents concerning the terms and conditions of the Offering, and the Company and
its business and prospects, and to obtain any additional information which the
Subscriber or its professional advisor deems necessary to verify the accuracy of
the information received. The foregoing, however, does not limit or modify the
Subscriber's right to rely upon representations and warranties of the Company in
Section 6 of this Agreement.
5
<PAGE>
4.2.2 Ability to Evaluate. The Subscriber has such knowledge and
experience in financial and business matters that it is fully capable of
evaluating the merits and risks of an investment in the Company, including
without limitation those set forth in the Disclosure Documents (as defined below
in Section 6.2).
4.2.3 Disclosure Documents. The Subscriber has received and
reviewed the Disclosure Documents (as defined below in Section 6.2). The
foregoing, however, does not limit or modify the Subscriber's right to rely upon
the representations and warranties of the Company in Section 6 of this
Agreement.
4.2.4 Investment Experience; Fend for Self. The Subscriber has
substantial experience in investing in securities and has made investments in
securities other than those of the Company. The Subscriber acknowledges that it
is able to fend for itself in the transaction contemplated by this Agreement and
that it has the ability to bear the economic risk of its investment in the
Company. The Subscriber has not been organized for the purpose of investing in
securities of the Company, although such investment is consistent with its
purposes.
4.2.5 Not an Affiliate. The Subscriber is not an officer,
director or "affiliate" (as that term is defined in Rule 415 of the Securities
Act) of the Company.
4.3 Exempt Offering Under Regulation D
4.3.1 Investment; No Distribution. The Subscriber is acquiring
the shares of Preferred Stock subscribed for (the "Preferred Shares") and the
accompanying Warrants solely for investment purposes for the Subscriber's own
account (or for beneficiaries' accounts over which the Subscriber has investment
discretion but no discretionary authority as to voting or disposition) and not
with a view to a distribution of all or any part thereof. The Subscriber is
aware that there are legal and practical limits on its ability to sell or
dispose of the Securities, and therefore, that the Subscriber must bear the
economic risk of its investment for an indefinite period of time. The Subscriber
has adequate means of providing for its current needs and anticipated
contingencies and has no need for liquidity of this investment. The Subscriber's
commitment to illiquid investments is reasonable in relation to its net worth.
4.3.2 No General Solicitation. The Preferred Shares and the
accompanying Warrants were not offered to the Subscriber through, and the
Subscriber is not aware of, any form of general solicitation or general
advertising, including, without limitation, (i) any advertisement, articles,
notice or other communication published in any newspaper, magazine or similar
media or broadcast over television or radio, and (ii) any seminar or meeting
whose attendees have been invited by any general solicitation or general
advertising.
4.3.3 No Registration of Preferred Shares and Conversion Shares.
The Subscriber understands that neither the Preferred Shares nor the Conversion
Shares are not registered and therefore are "restricted securities" under the
federal securities laws inasmuch as they are being acquired from the Company in
a transaction not involving a public offering, and that, under such laws and
applicable regulations, such securities may not be transferred or resold without
registration under the Securities Act or pursuant to an exemption therefrom. In
this connection, the Subscriber represents that it is familiar with Rule 144
under the Securities Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act. The Subscriber further
understands, however, that the Company is obligated to register the resale of
the Conversion Shares within one hundred twenty (120) days after the
shareholders' meeting to which the Definitive Proxy statement relates.
6
<PAGE>
4.3.4 Disposition. Without in any way limiting the
representations set forth above, the Subscriber further agrees not to make any
disposition of all or any portion of the Securities unless and until:
(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition
is made in accordance with such Registration Statement; or
(b) The Subscriber shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition,
and (ii) if reasonably requested by the Company, the Subscriber shall
have furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require
registration of the Securities under the Securities Act. It is agreed
that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in extraordinary circumstances.
4.4 Due Authorization.
4.4.1 Authority. The Subscriber, if executing this Subscription
Agreement in a representative or fiduciary capacity, has full power and
authority to execute and deliver this Subscription Agreement and each other
document referred to herein for which a signature is required in such capacity
and on behalf of the subscribing individual, partnership, trust, estate,
corporation or other entity for whom or which the Subscriber is executing this
Subscription Agreement.
4.4.2 Due Authorization. The Subscriber is duly and validly
organized, validly existing and in good standing as such entity under the laws
of the jurisdiction of its organization, with full power and authority to
purchase the Preferred Shares and accompanying Warrants subscribed for and to
execute and deliver this Agreement.
5. Acknowledgements. The Subscriber is aware of the following:
5.1 Risks of Investment. The Subscriber recognizes that investment in
the Company involves certain risks, including the potential loss of the
Subscriber's investment herein. The Subscriber recognizes that this Agreement
and the exhibits hereto do not purport to contain all the information which
would be contained in a registration statement under the Securities Act;
7
<PAGE>
5.2 No Government Approval. The Subscriber acknowledges that no
federal, state or foreign agency has passed upon or reviewed the terms and
conditions of the Offering or made any finding or determination as to the
fairness of the Offering;
5.3 Restrictions on Transfer. The Subscriber may not sell, transfer,
assign, pledge or otherwise dispose of all or any portion of the Securities in
the absence of either an effective registration statement or an exemption from
the registration requirements of the Securities Act and applicable state
securities law;
5.4 Exempt Transaction. The Preferred Shares and accompanying Warrants
are being offered and sold in reliance on specific exemptions from the
registration requirements of federal and state law and the Subscriber's
representations, warranties, agreements, acknowledgements and applicability of
such exemptions and the suitability of the Subscriber to acquire Preferred
Shares.
5.5 Legends. It is understood that any certificates evidencing the
Preferred Shares and (prior to registration as provided in Section 7) the
Conversion Shares shall bear the following legend:
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities
laws, nor the securities laws of any other jurisdiction. They may not
be sold or transferred in the absence of an effective registration
statement under those securities laws or an opinion of counsel,
reasonable satisfactory to the Company, that the sale or transfer is
pursuant to an exemption to the registration requirements of those
securities laws."
5.6 Convertibility of Preferred Shares. The Subscriber acknowledges
that the Preferred Shares are not convertible until a date that will be no
sooner than 120 days after the shareholders approve an amendment to the
Company's Articles of Incorporation to increase the number of authorized shares
of Common Stock to not less than 100,000,000. Notwithstanding the provisions
hereof or of the Preferred Shares, in no event (except with respect to automatic
conversion date, set forth in the Statement of Resolution, upon the maturity of
the Preferred Shares) shall the holder be entitled to convert any Preferred
Shares to the extent after such conversion, the sum of (1) the number of Common
Stock beneficially owned and through the Subscriber and its (other than shares
of Common Stock which may be deemed beneficially owned through the ownership of
the unconverted portion of the Preferred Shares), and (2) the number of shares
of Common Stock issuable upon the conversion of the Preferred Shares with
respect to which the determination of this provision is being made, would result
in beneficial ownership by the Subscriber and its affiliates of more than 4.99%
of the outstanding shares of Common Stock. For purposes of this provision to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act (as defined below), except as
otherwise provided in clause 1) of such provision.
8
<PAGE>
6. Representations and Warranties of the Company. The Company hereby makes
the following representations and warranties to the Subscriber, except as
disclosed in the Disclosure Documents or otherwise disclosed to Subscriber,
which representations and warranties shall be true as of the date of acceptance
of this Agreement by the Company and as of Closing:
6.1 Organization, Good Standing, and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas, USA and has all requisite corporate power and authority
to carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on the business or properties of the Company and its subsidiaries taken
as a whole. The Company is not the subject of any pending or, to its knowledge,
threatened or contemplated investigation or administrative or legal proceeding
by the Internal Revenue Service, the taxing authorities of any state or local
jurisdiction, or the Securities and Exchange Commission, or any state securities
commission, or any other governmental entity, which have not been disclosed in
the Disclosure Documents (as defined in Section 6.2 below).
6.2 Corporate Condition. The Company has timely filed all forms, and
reports and documents with the Securities and Exchange Commission required to be
filed by it under the Securities Exchange Act 1934, as amended (the "Exchange
Act") through the date hereof (collectively, the "SEC Reports"). Each of the SEC
Reports, at the time filed, complied in all material respects with the
requirements of the Exchange Act. The Company has made available to the
Subscriber a copy of the Company's Form 10-KSB/A for the fiscal year ended
December 28, 1997, and a copy of the Company's Forms 10-QSB, 8-K and S-3 filed
by the Company since January 1, 1998 (the "Most Recent Filings Report"). There
have been no material adverse changes in the Company's business, prospects,
operations or financial condition since the date of the Most Recent Filings
Report. The SEC Reports, the most Recent Filings Reports and any other report
furnished by the Company to the Subscriber are referred to collectively as the
"Disclosure Documents." The financial statements contained in the Disclosure
Documents have been prepared in accordance with generally accepted accounting
principles, consistently applied, and fairly present in all material respects
the consolidated financial condition of the Company as of the dates of the
balance sheets included therein and the consolidated results of its operations
and cash flows for the periods then ended. Without limiting the foregoing, there
are no material liabilities, contingent or actual that are not disclosed in the
Disclosure Documents (other than liabilities incurred by the Company in the
ordinary course of its business, consistent with its past practice, after the
periods covered by the Disclosure Documents). The Company has paid all material
taxes which are due, except for taxes which it reasonably disputes. There is no
material claim, litigation, or administrative proceeding pending, or, to the
best of the Company's knowledge, threatened or contemplated against the Company,
except as disclosed in the Disclosure Documents. This Agreement and the
Disclosure Documents do not contain any untrue statement of material fact and do
not omit to state any material fact required to be stated therein or herein
necessary to make the statements contained therein or herein not misleading in
the light of the circumstances under which they were made.
9
<PAGE>
6.3 Authorization. All corporate action on the part of the Company by
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations of
the Company hereunder and the authorization, issuance and delivery of the
Preferred Shares (and reservation for issuance), of the Conversion Shares
obtainable on conversion of the Preferred Shares and the Warrant Shares have
been taken, and this Agreement, the Statement of Resolution and the Registration
Rights Agreement constitute valid and legally binding obligations of the
Company, enforceable in accordance with their terms. The Company has obtained
all consents and approvals required for it to execute, deliver and perform this
Agreement and the Registration Rights Agreement.
6.4 Valid Issuance of Preferred Shares and Conversion Shares. The
Preferred Shares, when issued, sold and delivered in accordance with the terms
hereof, for the consideration expressed herein, will be validly issued, fully
paid and nonassessable and, based in part upon the representations of the
Subscriber in this Agreement, will be issued in compliance with all applicable
federal and state securities laws. The Conversion Shares when issued in
accordance with the terms of the Statement of Resolution shall be duly and
validly issued and outstanding, fully paid and nonassessable, and based in part
on the representations and warranties of the Subscriber, will be issued in
compliance with all applicable U.S. federal and state securities laws. The
Securities will be issued free of any preemptive rights. The Company is
currently preparing the Preliminary Proxy Statement so that the Company will
have a sufficient number of shares of Common Stock reserved and authorized for
issuance upon conversion of the Preferred Stock. The Company will use its best
efforts to file the Preliminary Proxy Statement with the SEC on a timely basis.
6.5 Compliance with Other Instruments. The Company is not in violation
or default of any provisions of its Articles of Incorporation or Bylaws as
amended and in effect on and as of the date of this Agreement or of any material
provision of any material instrument or contract to which it is a party or by
which it is bound or, to its knowledge, of any provision of any federal or state
judgment, writ, decree, order, statute, rule or governmental regulation
applicable to the Company, which would have a material adverse affect on the
Company's business or prospects, except as described in the Disclosure
Documents. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision, instrument
or contract or an event which results in the creation of any lien, charge or
encumbrance upon any assets of the Company. (Notwithstanding the foregoing, the
Company presently lacks enough authorized shares of Common Stock to support
conversion of its outstanding shares of Preferred Stock.)
10
<PAGE>
6.6 Reporting Company. The Company is subject to the reporting
requirements of the Exchange Act, and has a class of securities registered under
Section 12 or Section 15 of the Exchange Act. The Company undertakes to furnish
the Subscriber with copies of such publicly disclosable information as may be
reasonably requested by the Subscriber prior to consummation of this Offering
and thereafter as long as the Subscriber holds the Securities.
6.7 Capitalization; Authorized and Issued Shares. The authorized and
issued shares of Preferred Stock, Common Stock and warrants, options,
instruments convertible into Common Stock and rights to acquire Preferred or
Common Stock, as of the effective date of the merger of TRC Acquisition
Corporation into Hartan, Inc., a wholly owned subsidiary of the Company, are set
forth on Exhibit C.
6.8 Compliance with Laws. As of the date hereof, the conduct of the
business of the Company complies in all material respects with all material
statutes, laws, regulations, ordinances, rules, judgments, orders or decrees
applicable thereto. The Company has not received notice of any alleged violation
of any statute, law, regulations, ordinance, rule, judgment, order or decree
from any governmental authority. The Company shall comply with all applicable
securities laws with respect to the Offering.
6.9 No Rights of Participation. No person or entity, including, but
not limited to, current or former shareholders of the Company, underwriters,
brokers, agents or other third parties, has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the Offering which has not been waived.
6.10 Disclosures. There is no fact known to the Company (other than
general economic conditions known to the public generally) that has not been
disclosed in the Disclosure Documents that (a) could reasonably be expected to
have a material adverse effect on the business, financial condition or results
of operations of the Company, or which could reasonably be expected to
materially and adversely affect the properties or assets of the Company or (b)
could reasonably be expected to materially and adversely affect the ability of
the Company to perform its obligations pursuant to this Agreement and the
issuance of the Securities.
6.11 Representations True and Correct. The foregoing representations,
warranties and agreements are true, correct and complete in all material
respects, and shall survive the Last Closing and the issuance of the Preferred
Shares.
6.12 Underwriter's Fees and Rights of First Refusal. The Company is
not obligated to pay any compensation or other fees, costs or related
expenditures in cash or securities to any underwriter, broker, agent or other
representative other than the Placement Agent in connection with the Offering.
11
<PAGE>
7. Covenants of the Company.
7.1 Independent Auditors. The Company shall, until at least three (3)
years after the date of the Closing, maintain as its independent auditors an
accounting firm authorized to practice before the Securities and Exchange
Commission.
7.2 Corporate Existence and Taxes. The Company shall, until at least
three (3) years after the date of Closing, maintain its corporate existence in
good standing (provided, however, that the foregoing covenant shall not prevent
the Company from entering into any merger or corporate reorganization so long as
the surviving entity in such transaction, if not the Company, assumes all of the
Company's obligations with respect to the Securities) and shall pay all its
taxes when due, except for taxes which the Company disputes.
7.3 Registration of Conversion Shares and Warrant Shares. The Company
will register the Conversion Shares and the Warrant Shares on the terms of the
Registration Rights Agreement (substantially in the form attached as Exhibit B).
7.4 Rights of First Refusal. The Company shall not issue any debt or
equity securities for cash in private (non-registered) capital raising
transactions ("Future Offerings") for a period beginning on the date hereof and
ending one hundred eighty (180) days after the Closing without providing the
Placement Agent and the Subscriber the option to purchase the securities being
offered in the Future Offerings on the same terms as contemplated by such Future
Offerings.
7.5 Filings with Securities and Exchange Commission. Upon request, the
Company shall provide the Subscriber with copies of its annual reports on Form
10-KSB, quarterly reports on Form 10-QSB and current reports on Form 8-K for as
long as the Preferred Shares remain outstanding.
7.6 Payments for Late Conversion or Failure to Reserve Authorized but
Unissued Common.
7.6.1 Payments for Late Conversion. As set forth in the Statement
of Resolution, the Company shall use all reasonable efforts to issue and deliver
to the Subscriber or any party receiving Preferred Shares by transfer from the
Subscriber (together with the Subscriber, sometimes referred to herein as the
"Holder"), within three (3) business days (the "Deadline") after the Holder has
fulfilled all conditions and delivered all necessary documents duly executed and
in proper form, required for conversion pursuant to the Statement of Resolution,
including the original certificate(s) representing the Shares to be converted,
all in accordance with the subscription documents (or, in the case of lost or
stolen certificates, after provision of security or indemnification), a
certificate or certificates for the number of shares of Common Stock to which
the Holder shall be entitled upon submission of a notice of conversion. The
Company understands that a delay in the issuance of the Conversion Shares beyond
the Deadline could result in economic loss to the Holder. As compensation to the
Holder for such loss, the Company agrees to pay the Holder for late issuance of
Conversion Shares upon Conversion in accordance with the following schedule
(where "No Business Days Late" is defined as the number of business days beyond
the Deadline):
12
<PAGE>
Late Payment
For Each Preferred
No. Business Days Late Share Being Converted
---------------------- ---------------------
3 $50
4 $100
5 $150
6 $200
7 $250
8 $300
9 $400
10 $500
greater than 10 $500 +$50 for each Business
Day Late beyond 10 days
The Company shall pay any late payments to Holder incurred under this
Section by check upon the earlier to occur of: (i) issuance of Conversion Shares
to the Holder or (ii) each monthly anniversary of the receipt by the Company of
such Holder's Notice of Conversion. Nothing herein shall limit the Holder's
right to pursue actual damages for the Company's failure to issue and delivery
Conversion Shares to the Subscriber in accordance with the terms of the
Statement of Resolution.
7.6.2 Payments for Failure to Reserve Authorized but Unissued
Common Stock. If, at any time a Holder or Holders of Shares submit a notice of
conversion and the Company does not have sufficient authorized but unissued
Conversion Shares available to effect, in full, a conversion of the Series D
Preferred Stock under Section 4 of the Statement of Resolution (a "Conversion
Default", the date of such default being referred to herein as the "Conversion
Default Date"), the Company shall issue to such Holder(s), pro rata, all of the
Conversion Shares of Common Stock which are available, and the notice of
conversion as to any Conversion Shares of Series D Preferred Stock requested to
be converted but not converted (the "Unconverted Preferred Conversion Shares")
shall become null and void. The Company shall provide notice of such Conversion
Default ("Notice of Conversion Default") to all Holders of outstanding Preferred
Stock, by facsimile, within one (1) business day of such default (with the
original delivered by overnight or two (2) day courier). No Holder may submit a
notice of conversion after receipt of a Notice of Conversion Default until the
13
<PAGE>
date additional Conversion Shares are authorized by the Company. The Company
will use best efforts to authorize an appropriate number of additional shares as
soon as practicable. If the Company is unable to cure the Conversion Default
within forty-five (45) days, then the Company agrees to make to all Holders of
outstanding Preferred Shares a payment (the "Conversion Default Payments") for a
Conversion Default in the amount of (N/365) X .25 X the stated value (face
amount) of the outstanding Preferred Stock held by each Holder, where N=the
number of days from the Conversion Default Date to the date (the "Authorization
Date") that the Company authorizes a sufficient number of Conversion Shares to
effect conversion of all remaining shares of Preferred Stock. The Company shall
send notice ("Authorization Notice") via facsimile, with a copy by overnight or
two (2) day courier, to all Holders of outstanding Preferred Shares that
additional Conversion Shares have been authorized, the Authorization Date and
the amount of Holder's accrued Conversion Default Payments. The accrued
Conversion Default Payments for each calendar month shall be paid in cash or
shall be convertible into Common Stock in accordance with the Conversion
Formula, at the Holder's option, payable as follows: (i) in the event Holder
elects to take such payment in cash, cash payments shall be made to each Holder
of outstanding Preferred Shares by the fifth (5th) day of the following calendar
month or (ii) in the event the Holder elects to make such payment in stock, the
Holder may convert such payment amount into Common Stock in accordance with the
Conversion Formula at any time after the fifth (5th) day of the calendar month
following the month the Authorization Notice was received, until the automatic
conversion date set forth in the Statement of Resolution. Nothing herein shall
limit the Holder's right to seek actual damages for the Company's failure to
maintain a sufficient number of authorized Conversion Shares of Common Stock.
7.7 Removal of Legend Upon Registration. Restrictive legends will be
removed from the Common Stock when registered under the Registration Statement,
or, if registration is not timely, the legend may be removed or modified
appropriately when the Holder demonstrates entitlement to sell Conversion Shares
without registration and without the applicability of a restrictive legend.
7.8 Listing. The Company shall use its best efforts to list its Common
Stock on the Nasdaq Small Cap Market or another national securities exchange or
national quotation system.
8. Miscellaneous.
8.1 Representations and Warranties Survive the Closing; Severability.
The Subscriber's and the Company's representations and warranties shall survive
the Closing of the transaction provided for hereby notwithstanding any due
diligence investigation made by or on behalf of the party seeking to rely
thereon. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that no such severability shall be effective if it
materially changes the economic benefit of this Agreement to any party.
14
<PAGE>
8.2 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Subscriber may assign its rights hereunder in connection with
any private sale of the Shares, so long as, as a condition precedent to such
transfer, the Transferee executes an acknowledgement agreeing to be bound by the
applicable provisions of this Agreement.
8.3 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Georgia without respect to conflict of laws.
8.4 Execution in Counterparts Permitted. This Agreement may be
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
8.5 Titles and Subtitles; Gender. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. The use in this Agreement of a
masculine, feminine or neither pronoun shall be deemed to include a reference to
the others.
8.6 Written Notices, Etc. Any notice, demand or request required or
permitted to be given by the Company or the Subscriber pursuant to the terms of
this Agreement shall be in writing and shall be deemed given when delivered
personally, or by facsimile (with a hard copy to follow by overnight or two (2)
day courier), addressed to the parties at the addresses and/or facsimile
telephone number of the parties set forth at the end of this Agreement or such
other address as a party may request by notifying the other in writing.
8.7 Expenses. Each of the Company and the Subscriber shall pay all
costs and expenses that it respectively incurs, with respect to the negotiation,
execution, delivery and performance of this Agreement.
8.8 Entire Agreement; Written Amendments Required. This Agreement, the
Statement of Resolution, the Preferred Stock certificates, the Registration
Rights Agreement and the other documents delivered pursuant hereto constitute
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and thereof, and no party shall be liable or bound to any
other party in any manner by any warranties, representations or covenants except
as specifically set forth herein. Neither this Agreement nor any terms hereof
may be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge or termination is sought.
9. Subscription and Wiring Instructions; Irrevocability.
15
<PAGE>
9.1 Subscription
(a) Wire transfer of Subscription Funds. Subscriber shall send a
signed Subscription Agreement by facsimile to the Escrow Agent at
999 Peachtree Street, N.E., Suite 1400, Atlanta, Georgia 30309,
Attn.: Wade H. Stribling, Esq. and its subscription funds by wire
transfer, to the Escrow Agent as follows:
Bank: First Union National Bank of Georgia
999 Peachtree Street, N.E.
Atlanta, Georgia 30309
ABA Routing No.: #0610-0022-7
Account No.: #2080000501679
ATTN: Wade H. Stribling, Esq.
Re: Tanner's
Notify: (404) 817-6191
(b) Irrevocable Subscription. The Subscriber hereby acknowledges and
agrees, subject to the provisions of any applicable laws
providing for the refund of subscription amounts submitted by the
Subscriber, that this Agreement is irrevocable and that the
Subscriber is not entitled to cancel, terminate or revoke this
Agreement; provided, however, that if the conditions to Closing
are not satisfied or if the Disclosure Documents are discovered
prior to Closing to contain statements which are materially
inaccurate, or omit statements of material facts, the Subscriber
may revoke or cancel this Agreement.
(c) Company's Right to Reject Subscription. This Agreement shall be
accepted by the Company when the Company countersigns this
Agreement. The Subscriber hereby confirms that the Company has
full right in its sole discretion to accept or reject the
subscription of the Subscriber, in whole or in part, provided
that, if the Company decides to reject such subscription, the
Company must do so promptly and in writing. In the case of
rejection, the Company will promptly return any rejected payments
and (if rejected in whole) copies of all executed subscription
documents (including without limitation this Agreement) to
Subscriber.
9.2 Acceptance of Subscription. In the case of acceptance of this
subscription, ownership of the number of securities being purchased hereby will
pass to the Subscriber upon the Closing.
9.3 Subscriber to Forward Original Signed Subscription Agreement to
Company. The Subscriber agrees to courier to the Company its original inked
signed Subscription Agreement within three (3) days after faxing said signed
Agreement to the Placement Agent.
16
<PAGE>
10. Indemnification. The Company agrees to indemnify and hold harmless the
Subscriber and the Placement Agent and each of their officers, directors,
employees and agents, and each person who controls Subscriber or the Placement
Agent within the meaning of the Act or the Exchange Act (each, a "Subscriber
Indemnified Party") against any losses, claims, damages or liabilities, joint or
several, to which it, they or any of them, may become subject and not otherwise
reimbursed arising from or due to any untrue statement of a material fact or the
omission to state any material fact required to be stated in order to make the
statements not misleading in any representation or warranty made by the Company
contained in this Agreement or in any statements contained in the Disclosure
Documents.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought, such
Indemnified Party will, if a claim in respect thereof is to be made against the
other party (hereinafter "Indemnitor") under this Section 10, deliver to the
Indemnitor a written notice of the commencement thereof and the Indemnitor shall
have the right to participate in and to assume the defense thereof with counsel
reasonably selected by the Indemnitor, provided, however, that an Indemnified
party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of such counsel to be paid by the Company, if
representation of such Indemnified party by the counsel retained by the
Indemnitor would be inappropriate due to actual or potential conflicts or
interest between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
Indemnitor within a reasonable time of the commencement of any such action, if
prejudicial to the Indemnitor's ability to defend such action, shall relieve the
Indemnitor of any liability to the Indemnified Party under this Section 10, but
the omission to so deliver written notice to the Indemnitor will not relieve it
of any liability that it may have to any Indemnified Party other than under this
Section 10 to the extent it is prejudicial.
17
<PAGE>
11. Number of Shares and Purchase Price. The undersigned Subscriber hereby
subscribes for and agrees to purchase __________________ shares of Series D
Preferred Stock with a stated value of $1,000 per share , as follows:
Number of shares of Series B Preferred Stock exchanged by Subscriber
___________________, multiplied by 15 = _______________________, the number of
Exchange Shares to be received for Series B Preferred Stock.
Number of shares of Series C Preferred Stock exchanged by Subscriber
___________________, multiplied by 13 = _______________________, the number of
Exchange Shares to be received for Series C Preferred Stock.
Amount of the Series C Escrow Money deemed to be provided by Subscriber
$_____________, multiplied by 130% = $____________________, divided by $1,000 =
___________________, the number of Offering Shares to be received for the Series
C Escrow Money.
Number of Offering Shares subscribed for as provided in Section 3.5(d)
__________________, multiplied by $1,000 = $__________________________, the
amount Subscriber agrees to pay as provided in Section 3.5(d).
12. Accredited Investor. The Subscriber is (please check applicable box):
(a) [ ] a corporation, business trust, or partnership not formed for
the specific purpose of acquiring the securities offered,
with total assets in excess of $5,000,000.
(b) [ ] any trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated
person who has such knowledge and experience in financial
and business matters that he is capable of evaluating the
merits and risks of the prospective investment.
(c) [ ] an individual, who
[ ] is a director, executive officer or general partner of the
issuer of the securities being offered or sold or a
director, executive officer or general partner of a general
partner of that issuer.
[ ] has an individual net worth, or joint net worth with that
person's spouse, at the time of his purchase exceeding
$1,000,000.
18
<PAGE>
[ ] had an individual income in excess of $200,000 in each of
the two most recent years or joint income with that person's
spouse in excess of $300,000 in each of those years and has
a reasonable expectation of reaching the same income level
in the current year.
(d) [ ] an entity owner of which is an entity described in (a) or
(b) above or is an individual who could check one (1) of the
first three (3) boxes under subparagraph (c) above.
13. Other Exemptions. The Subscriber and the Company acknowledge and agree
that the reliance on Regulation D as an exemption from registration is not
exclusive and shall not preclude the Company from claiming the availability of
any other exemption, nor shall it preclude the Subscriber from relying on any
exemption from registration with respect to the acquisition of the Securities or
any resale of the Securities.
The undersigned acknowledges that this Agreement and the subscription
represented hereby shall not be effective unless accepted by the Company as
indicated below.
IN WITNESS WHEREOF, the undersigned Subscriber does hereby execute this
Agreement this _______ day of ________________, 1998.
- - ----------------------------- -----------------------------
Name of Company You Represent EXACT NAME IN WHICH YOU WANT
THE SECURITIES TO BE REGISTERED
(if applicable)
- - ----------------------------- DELIVERY INSTRUCTIONS:
Your Signature Please type or print address where
your security is to be delivered
- - ----------------------------- ATTN:
Your Name: Please Print -----------------------------
- - ----------------------------- -----------------------------
Title/Representative Capacity Street Address
(if applicable)
- - ----------------------------- -----------------------------
Place of Execution of this Agreement City, State or Province, Country,
Offshore Postal Code
-----------------------------
Telephone Number
-----------------------------
Facsimile Number
ACCEPTANCE BY COMPANY:
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY AND THE COMPANY AGREES TO BE
BOUND BY THE TERMS AND CONDITIONS THEREOF THIS _____ DAY OF
_______________________, 1998.
By:
Name:
Title:
Attest:
Name:
Title:
19
<PAGE>
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Preferred
Stock)
The undersigned Holder hereby irrevocably elects to convert ___________
shares of Series D Preferred Stock, represented by stock certificate No(s).
______________ (the "Preferred Stock Certificates") into shares of common stock
("Common Stock") of Harvest Restaurant Group, Inc. (the "Company") according to
the conditions of the Statement of Resolution of Series D Preferred Stock, as of
the date written below, in connection with the resale of the underlying Common
Stock. If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such Certificates. With respect to those
shares to be issued in the name of a person other than the Holder, the Holder
should execute a Notice of Transfer or Assignment Form with the signature of the
Holder and the signature of each other person in whose name the shares are to be
issued guaranteed by a commercial bank or trust company in the United States or
a member firm of the New York Stock Exchange. No fee will be charged to the
Holder for any conversion, except for transfer taxes, if any. A copy of each of
the Preferred Stock Certificates being converted its attached hereto.
Date of Conversion:
Applicable Conversion Price:
Number of Shares of
Common Stock to be Issued:
Name of Holder:
By:
Title:
Address:
20
<PAGE>
EXHIBIT "A"
-----------
FORM STATEMENT OF RESOLUTION
FOLLOWS DIRECTLY BEHIND THIS PAGE
21
<PAGE>
EXHIBIT "B"
-----------
FORM REGISTRATION RIGHTS AGREEMENT
FOLLOWS DIRECTLY BEHIND THIS PAGE
22
<PAGE>
EXHIBIT "C"
-----------
CAPITALIZATION
FOLLOWS DIRECTLY BEHIND THIS PAGE
23
<PAGE>
EXHIBIT "D"
-----------
FORM OF WARRANT AGREEMENT WITH SUBSCRIBER
Follows Directly Behind This Page
24
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of
December ___, 1998, by and between Harvest Restaurant Group, Inc., a Texas
corporation (the "Company"), the subscribers (hereinafter referred to as
"Subscribers" or "Investors") and the Placement Agent (as defined in the
Subscription Agreement) to the Company's offering ("Offering") of Eight Thousand
Six Hundred (8,600) shares of Series D Convertible Preferred Stock (the
"Preferred Stock") and warrants to purchase additional shares of the Company's
Common Stock (the "Warrants") pursuant to the Regulation D Securities
Subscription Agreements between the Company and the Subscribers (the
"Subscription Agreements"), the terms of which are incorporated herein and made
a part hereof.
1. Definitions. For purposes of this Agreement:
(a) The terms "register", "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933 (the "Act") and
pursuant to Rule 415 under the Act or any successor rule, and the declaration or
ordering of effectiveness of such registration statement or document;
(b) For purposes of the Required Registration under Section 2 hereof,
the term "Registrable Securities" means the shares and warrants of the Company's
Common Stock, together with any capital stock issued in replacement of, in
exchange for or otherwise in respect of such Common Stock (the "Common Stock"),
issuable or issued upon conversion of the Series D Preferred Stock (the
"Preferred Stock") issued to Subscribers in the Offering (as defined in the
Subscription Agreement).
For purposes of a Demand Registration under Section 3 hereof or a
Piggyback Registration under Section 4 hereof, the term "Registrable Securities"
shall have the meaning set forth above, except that the following shall not
constitute Registrable Securities for purposes of a Demand Registration under
Section 3 hereof or a Piggyback Registration under Section 4 hereof:
1. shares of Common Stock obtainable on conversion of the Preferred
Stock (in whole or in part) shall not constitute Registrable
Securities if those shares of Common Stock may be resold in a public
transaction without registration under the Act, including, without
limitation, pursuant to Rule 144 under the Act; and
2. any Registrable Securities resold in a public transaction shall
cease to constitute Registrable Securities.
<PAGE>
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock which have been
issued or are issuable upon conversion of the Preferred Stock at the time of
such determination;
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any permitted assignee thereof;
(e) The term "Initiating Holders" means (i) holders of Registrable
Securities obtained or obtainable upon conversion of at least Five Hundred (500)
shares of Preferred Stock; and
(f) The term "Due Date" means the date which is one hundred twenty
(120) days after the shareholders meeting to which the Definitive Proxy
Statement (as defined in the Subscription Agreement) relates.
(g) The terms "Offering" and "Closing" shall have the meanings
ascribed to them in the Subscription Agreement.
2. Required Registration.
(a) Within one hundred twenty (120) days after the meeting regarding
the Proxy, the Company shall file a registration statement ("Registration
Statement") on Form S-3,SB-2 (or other suitable form), covering the resale of
all shares of Registrable Securities then outstanding.
(b) The Company shall use all reasonable efforts to have the
Registration Statement declared effective on or before the Due Date.
(c) If the Registration Statement is not declared effective by the Due
Date as a result of the Company's failure to file such Registration Statement
timely or failure to strive diligently to have such Registration Statement
declared effective by the Due Date, the Company shall pay the Investors an
amount equal to one percent (1%) per month of the aggregate amount of Preferred
Stock sold in the Offering, compounded monthly and accruing daily, until the
Registration Statement or a registration statement filed pursuant to Section 3
or Section 4 is declared effective, payable in cash. A two percent (2%) per
month penalty payable in cash will be provided to the Investors should the
Registration Statement not be declared effective on or before the date that is
181 days after the Closing. The accrual amount payable will be tolled for any
periods occasioned by a delay of a Registration Statement under Section 3 as a
result of the choice of the Holders to have that Registration Statement
underwritten.
(d) If the Registration Statement is not declared effective by the Due
Date, but all the Registrable Securities held by an Investor are available for
sale by the Investor, in the opinion of counsel to the Investor (reasonably
acceptable to the Company to permit such sale) (the "Opinion"), without
compliance with the registration and prospectus delivery requirements of the
Act, so that all transfer restrictions and restrictive legends pertaining to the
Registrable Securities may be removed prior to and upon the consummation of such
<PAGE>
sale, then the registration contemplated hereby shall no longer be required with
respect to such Investor's Registrable Securities upon the furnishing to the
Company of the Opinion, and the Company will cooperate fully with the Investor
and use its best efforts to facilitate removal of restrictive legends and
transfer restrictions pertaining to the Registrable Securities. Such efforts
shall include, but not be limited to, undertaking to furnish such opinions of
counsel to the Company as the Company's transfer agent may reasonably require.
3. Demand Registration.
(a) If the Registration Statement described in Section 2 above is not
effective by the Due Date, Initiating Holders may notify the Company in writing
and demand that the Company file a registration statement under the Securities
Act (a "Demand Registration Statement") covering the resale of the Registrable
Securities then outstanding. Upon receipt of such notice, the Company shall,
within ten (10) days thereafter, give written notice of such request to all
Holders and shall, subject to the limitations of subsections 3(b) and 5(b), as
soon as practicable, and in any event within ninety (90) days after the receipt
of such request, file a registration under the Act of all Registrable Securities
which the Holders request, by notice given to the Company.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 3
and the Company shall include such information in the written notice to other
Holders referred to in subsection 3(a). In such event, the right of any other
Holder to include his Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company as provided in subsection 6(f)) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders, and reasonably
acceptable to the Company. The Holder will not be required to make any
representation other than as to its ownership of the Registrable Securities and
its intended method of distribution.
(c) The Company is obligated to effect only one (1) demand
registration pursuant to Section 3 of this Agreement. The Company agrees to
include all Registrable Securities held by all Holders in such Registration
Statement without cutback or reduction. In the event the Company breaches its
obligation of the preceding sentences, any Holders of the Registrable Securities
which were not included in such Registration Statement shall be entitled to a
second demand registration for such excluded securities and the Company shall
keep such registration statement effective as required by Section 7.
<PAGE>
4. Piggyback Registration. If the Registration Statement described in
Section 2 is not effective by the Due Date, and no demand for a Demand
Registration Statement has been made pursuant to Section 3, and if (but without
any obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holders) any of its Common Stock under the Act in connection with the public
offering of such securities solely for cash (other than a registration relating
solely for the sale of securities to participants in a Company stock or options
plan or a registration on Form S-4 promulgated under the Act or any successor or
similar form registering stock issuable upon a reclassification, upon a business
combination involving an exchange of securities or upon an exchange offer for
securities of the issuer or another entity), the Company shall, at such time,
promptly give each Holder written notice of such registration (a "Piggyback
Registration Statement"). Upon the written request of each Holder given by fax
within ten (10) days after mailing of such notice by the Company, which request
shall state the intended method of disposition of such shares by such Holder,
the Company shall cause to be included in such registration statement under the
Act all of the Registrable Securities that each such Holder has requested to be
registered ("Piggyback Registration"); nothing herein shall prevent the Company
from withdrawing or abandoning the registration statement prior to its
effectiveness.
5. Limitation on Obligations to Register.
(a) In the case of a Piggyback Registration on an underwritten public
offering by the Company, if the managing underwriter determines and advises in
writing that the inclusion in the registration statement of all Registrable
Securities proposed to be included would interfere with the successful marketing
of the securities proposed to be registered by the Company, then the number of
such Registrable Securities to be included in the registration statement shall
be allocated among all Holders who had requested Piggyback Registration, in the
proportion that the number of Registrable Securities which each such Holder,
including Placement Agent, seeks to register bears to the total number of
Registrable Securities sought to be included by all Holders, including Placement
Agent.
(b) Notwithstanding anything to the contrary herein, the Company shall
have the right (i) to defer the initial filing or request for acceleration of
effectiveness of any Demand Registration Statement or Piggyback Registration
Statement or (ii) after effectiveness, to suspend effectiveness of any such
registration statement, if, in the good faith judgment of the board of directors
of the Company and upon the advice of counsel to the Company, such delay in
filing or requesting acceleration of effectiveness or such suspension of
effectiveness is necessary in light of (i) the requirement by the underwriter in
a public offering by the Company that such Registration Statement be delayed or
suspended or (ii) the existence of material non-public information (financial or
otherwise) concerning the Company, disclosure of which at the time is not, in
the opinion of the board of directors of the Company upon the advice of counsel,
(A) otherwise required and (B) in the best interests of the Company; provided,
however, that solely in the case of a demand registration the Company will not
delay filing or suspend effectiveness of such registration for more than three
(3) months from the date of the demand, unless it is then engaged in an
acquisition that would make such registration impracticable, in which case it
will use its best efforts to eliminate such impracticability as soon as possible
after such three (3) month period.
<PAGE>
(c) In the event the Company believes that shares sought to be
registered under Section 2, Section 3 or Section 4 by Holders do not constitute
"Registrable Securities" by virtue of Section 1(b) of this Agreement, and the
status of those Shares as Registrable Securities is disputed, the Company shall
provide, at its expense, an opinion of counsel, reasonably acceptable to the
Holders of the Securities at issue (and satisfactory to the Company's transfer
agent to permit the sale and transfer) that those securities may be sold
immediately, without restriction or resale, without registration under the Act,
by virtue of Rule 144 or other applicable exemptions.
(d) The Company is not obligated to effect a Demand Registration under
Section 3: (i) during the ninety (90) day period after the Due Date, so long as
the Registration Statement required under Section 2 has been filed, and the
Company is using all reasonable efforts to obtain a declaration of the
effectiveness of the Registration Statement during such period or, (ii) if in
the opinion of counsel to the Company reasonably acceptable to the person or
persons from whom written request for registration has been received (and
satisfactory to the Company's transfer agent to permit the transfer) that
registration under the Act is not required for the immediate transfer of all of
the Registrable Securities pursuant to Rule 144 or other applicable exemption.
6. Obligations to Increase the Number of Available Shares. In the
event that the number of shares available under a registration statement filed
pursuant to Section 2 or Section 3 is insufficient to cover all of the
Registrable Securities then outstanding, the Company shall amend that
registration statement, or file a new registration statement, or both, so as to
cover all shares of Registrable Securities then outstanding. The Company shall
effect such amendment or new registration within sixty (60) days of the date the
registration statement filed under Section 2 or Section 3 is insufficient to
cover all the shares of Registrable Securities then outstanding. Any
Registration Statement filed hereunder shall, to the extent permissible by the
Rules of the Securities and Exchange Commission ("SEC"), state that, in
accordance with Rule 416 under the Act, such Registration Statement also covers
such indeterminate numbers of additional shares of Common Stock as may become
issuable upon conversion of the Preferred Stock to prevent dilution resulting
from stock changes or by reason of changes in the conversion price in accordance
with the terms thereof. Unless and until such amendment or new registration
statement is effective, the Investors shall have the rights described in Section
2(c) above.
7. Obligations of the Company. Whenever required under this Agreement
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective.
<PAGE>
(b) 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.
(c) With respect to any Registration Statement filed pursuant to this
Agreement, keep such registration statement effective until the earlier of (i)
the Holders of Registrable Securities covered by such registration statement
have completed the distribution described in the registration statement; or (ii)
nine (9) months after the effective date of registration.
(d) Furnish to the 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 Registrable Securities owned by them.
(e) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders of
the Registrable Securities covered by such registration statement, provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.
(f) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(g) Notify each Holder of Registrable Securities 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 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.
(h) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Agreement, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Agreement, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the outside
counsel of recognized standing (or reasonably acceptable to Holder) representing
the Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities and (ii) a letter dated such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
<PAGE>
(i) As promptly as practicable after becoming aware of such event,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the 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, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement to correct such untrue statement or
omission, and deliver a number of copies of such supplement or amendment to each
Investor as such Investor may reasonably request.
(j) Provide Holders with written notice of the date that a
registration statement registering the resale of the Registrable Securities is
declared effective by the SEC.
(k) Provide Holders and their representatives the opportunity to
conduct a reasonable due diligence inquiry of Company's pertinent financial and
other records and make available its officers, directors and employees for
questions regarding such information as it relates to information contained in
the registration statement subject to all information received by the Holders
and their representatives being kept confidential.
(l) Provide Holders and their representatives the opportunity to
review the registration statement and all amendments thereto a reasonable period
of time prior to their filing with the SEC.
8. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
regard to each selling Holder that such selling Holders shall furnish to the
Company such information regarding themselves, the Registrable Securities held
by them, and the intended method of disposition of such securities as shall be
required to effect the registration of their Registrable Securities or to
determine that registration is not required pursuant to Rule 144 or other
applicable provision of the Act.
9. Expenses of Required and Demand Registration. All expenses other
than underwriting discounts and commissions and fees and expenses of counsel to
the selling Holders incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company, shall be borne by the Company.
10. Expenses of Company Registration. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registration
pursuant to Section 4 for each Holder, including (without limitation) all
registration, filing, and qualification fees, printers and accounting fees
relating or apportionable thereto but excluding underwriting discounts and
commissions and fees and expenses of counsel to the selling Holders relating to
Registrable Securities.
<PAGE>
11. Indemnification. In the event any Registrable Securities are
included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the officers and directors of each Holder, any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the
Securities Exchange Act of 1934, as amended (the " 1934 Act"), against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
by the Company of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, the 1934 Act or any state securities law;
and the Company will reimburse each such Holder, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 11(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, officer, director, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder, severally and
not jointly, will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
person, if any, who controls the Company within the meaning of the Act, any
underwriter and any other Holder selling securities in such registration
statement or any of its directors or officers or any person who controls such
Holder, against any losses, claims, damages, or liabilities (joint or several)
to which the Company or any such director, officer, controlling person, or
underwriter or controlling person, or other such Holder or director, officer or
controlling person may become subject, under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will reimburse any legal or other expenses reasonably incurred by the
Company and any such director, officer, controlling person, underwriter or
controlling person, other Holder, officer, director, or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 11(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that, in no event shall any indemnity under this subsection
10(b) exceed the net proceeds from the offering received by such Holder.
<PAGE>
(c) Promptly after receipt by an indemnified party under this Section
11 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 11, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonably incurred fees and
expenses of one such counsel to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential conflicting
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
11, but the omission so to deliver written notice to the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 11.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 10 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and each holder of Registrable
Securities agree to contribute to the aggregate claims, losses, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which the
Company and one or more of the holders of Registrable Securities may be subject
in such proportion as is appropriate to reflect the relative fault of the
Company and the holders in connection with the statements or omissions which
resulted in such Losses; provided, however, that in no case shall any holder be
responsible for any amount in excess of the net purchase price of securities
sold by it under the registration statement. Relative fault shall be determined
by reference to whether any alleged untrue statement or omission relates to
information provided by the Company or by the holders. The Company and the
holders agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 11, each person who
controls a holder of Registrable Securities within the meaning of either the Act
or the 1934 Act and each director, officer, partner, employee and agent of a
holder shall have the same rights to contribution as such holder, and each
person who controls the Company within the meaning of either the Act or the 1934
Act and each director of the Company, and each officer of the Company who has
signed the registration statement, shall have the same rights to contribution as
the Company, subject in each case to the applicable terms and conditions of this
paragraph (d).
<PAGE>
(e) The obligations of the Company and Holders under this Section 11
shall survive the redemption and conversion, if any, of the Preferred Stock, the
completion of any offering of Registrable Securities in a registration statement
under this Agreement, and otherwise.
12. Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration, the
Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company, if
true, that it has complied with the reporting requirements of SEC Rule 144, the
Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested in availing any
Holder of any rule or regulation of the SEC which permits the selling of any
such securities without registration.
13. Amendment of Registration Rights. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of a majority of the Registrable
Securities provided that the amendment treats all Holders equally. Any amendment
or waiver effected in accordance with this paragraph shall be binding upon each
Holder, each future Holder, and the Company.
14. Notices. All notices required or permitted under this Agreement
shall be made in writing signed by the party making the same, shall specify the
section under this Agreement pursuant to which it is given, and shall be
addressed if to (i) the Company: 2662 Holcomb Bridge Road, Suite 320,
Alpharetta, Georgia 30302, Facsimile No. (770) 518-1444 and (ii) the Holders at
their respective last address as the party shall have furnished in writing as a
new address to be entered on such register. Any notice, except as otherwise
provided in this Agreement, shall be made by fax and shall be deemed given at
the time of transmission of the fax.
<PAGE>
15. Termination. This Agreement shall terminate on the earlier to
occur of (a) the date that is five (5) years from the date of this Agreement and
(b) the date the distribution of all Registrable Securities described in any
registration statement filed pursuant to this Agreement is completed; but
without prejudice to (i) the parties' rights and obligations arising from
breaches of this Agreement occurring prior to such termination (ii) other
indemnification obligations under this Agreement or (iii) the Company's
obligation to maintain the effectiveness of a registration statement filed prior
thereto in accordance with the terms hereof, and to fulfill its obligation
hereunder in respect thereof until it is no longer required to maintain the
effectiveness thereof.
16. Assignment. No assignment, transfer or delegation, whether by
operation of law or otherwise, of any rights or obligations under this Agreement
by the Company or any Holder, respectively, shall be made without the prior
written consent of the majority in interest of the Holders or the Company,
respectively; provided that the rights of a Holder may be transferred to a
subsequent holder of the Holder's Registrable Securities (provided such
transferee shall provide to the Company, together with or prior to such
transferee's request to have such Registrable Shares included in a Demand
Registration or Piggyback Registration, a writing executed by such transferee
agreeing to be bound as a Holder by the terms of this Agreement); and provided
further that the Company may transfer its rights and obligations under this
Agreement to a purchaser of all or a substantial portion of its business if the
obligations of the Company under this Agreement are assumed in connection with
such transfer, either by merger or other operation of law (which may include
without limitation a transaction whereby the Registrable Shares are converted
into securities of the successor in interest) or by specific assumption executed
by the transferee.
17. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Georgia without giving effect to
conflict of laws.
(b) Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
(c) Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any holder of any Registrable Shares, upon any
breach or default of the Company under this Agreement, shall impair any such
right, power or remedy of such holder nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereunder occurring, nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions of
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
<PAGE>
(d) Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the Investors,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
(e) Severability. In the case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
The foregoing Registration Rights Agreement is hereby executed as of
the date first above written.
HARVEST RESTAURANT GROUP, INC.
By:
Name:
Title:
INVESTOR(S)
Investor's Name
By:
(Signature)
Name:
Title:
Address:
WARRANT AGREEMENT
-----------------
WARRANT AGREEMENT dated as of December ___, 1998 between HARVEST RESTAURANT
GROUP, INC., a Texas corporation (the "Company"), and the undersigned purchaser
("Purchaser") of shares of the Company's Series D Preferred Stock (the
"Preferred Stock").
W I T N E S S E T H :
---------------------
WHEREAS, the Company has agreed to issue to Purchaser warrants ("Warrants")
to purchase up to 100,000 shares (the "Shares") of common stock of the Company,
$.01 par value per share (the "Common Stock") for each $1,000,000 of Series D
Preferred Stock issued pursuant to that certain Regulation D Subscription
Agreement executed by the Company and Purchaser (such Subscription Agreement
providing for the issuance of one warrant to purchase shares of Preferred
Stock); and
WHEREAS, the Warrants issued pursuant to this Agreement are being issued by
the Company to Purchaser and/or its designees, in consideration for the purchase
by Purchaser of Shares of Preferred Stock;
NOW, THEREFORE, in consideration of the premises, the agreements herein set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Grant.
Purchaser and/or its designees are hereby granted the right to purchase, at
any time from December ____, 1998 until 5:00 P.M., Atlanta, Georgia time, on
December ____, 2003 (the Warrant Exercise Term"), up to _________ shares at an
initial Exercise Price (subject to adjustment as provided in Article 7 hereof)
of $2.00 per Share.
2. Warrant Certificates.
The warrant certificates (the "Warrant Certificates") delivered and to be
delivered pursuant to this Agreement shall be in the form set forth as Exhibit
A, attached hereto and made a part hereof, with such appropriate insertions,
omissions, substitutions and other variations as required or permitted by this
Agreement.
3. Exercise of Warrants.
3.1 Exercise for Cash. The Exercise Price may be paid in cash or by
check to the order of the Company, or any combination of cash or check, subject
to adjustment as provided in Article 7 hereof. Upon surrender of the Warrant
Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
Shares purchased, at the Company's executive offices (currently located at 2662
Holcomb Bridge Road, Suite 320, Alpharetta, Georgia 30202) the registered holder
of a Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a
certificate or certificates for the Shares so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holder hereof, in whole or in part (but not as to fractional shares of the
Common Stock). In the case of the purchase of fewer than all the Shares
purchasable under any Warrant Certificate, the Company shall cancel said Warrant
Certificate upon the surrender thereof and shall execute and deliver a new
Warrant Certificate of like tenor for the balance of the Shares to be purchased
thereunder.
<PAGE>
3.2 Cashless Exercise. At any time during the Warrant Exercise Term,
the Holder may, at its option, exchange this Warrant, in whole or in part (a
"Warrant Exchange"), into the number of shares of Common Stock determined in
accordance with this Section 3.2, by surrendering this Warrant at the principal
office of the Company, accompanied by a notice stating such Holder's intent to
effect such exchange, the number of shares of Common Stock into which this
Warrant is to be exchanged, and the date on which the Holder requests that such
Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall
take place on the date specified on the Notice of Exchange or, if later, the
date the Notice of Exchange is received by the Company (the "Exchange Date").
Certificates for the shares of Common Stock issuable upon such Warrant Exchange
and, if applicable, a new Warrant of like tenor evidencing the balance of the
shares of Common Stock remaining subject to Warrant, shall be issued as of the
Exchange Date and delivered to the Holder within seven (7) days following the
Exchange Date. In connection with any Warrant Exchange, this Warrant shall
represent the right to subscribe for and acquire the number of shares of Common
Stock (rounded to the next highest integer) equal to (x) the number of shares of
Common Stock specified by the Holder in its Notice of Exchange up to the maximum
number of shares of Common Stock subject to this Warrant (the "Total Number")
less (y) the number of shares of Common Stock equal to the quotient obtained by
dividing (A) the product of the Total Number and the existing Exercise Price by
(B) the Market Price, as defined below.
4. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of certificates for the
Shares shall be made forthwith (and in any event within five (5) business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the issuance thereof, and such
certificates shall be issued in the name of, or in such names as may be directed
by, the Holder thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any such certificates in a name other than that
of the Holder, and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares shall
be executed on behalf of the Company by the manual or facsimile signature of the
present or any future Chairman or Vice Chairman of the Board of Directors, Chief
Executive Officer or President or Vice President of the Company under its
corporate seal reproduced thereon, attested to by the manual or facsimile
signature of the present or any future Secretary or Assistant Secretary of the
Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
<PAGE>
The Warrant Certificates and, upon exercise of the Warrants, in part or in
whole, certificates representing the Shares shall bear a legend substantially
similar to the following:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may not be
offered or sold except (i) pursuant to an effective registration statement
under the Act, (ii) to the extent applicable, pursuant to Rule 144 under
the Act (or any similar rule under such Act relating to the disposition of
securities), or (iii) upon the delivery by the holder to the Company of an
opinion of counsel, reasonably satisfactory to counsel to the issuer,
stating that an exemption from registration under such Act is available.
5. Price.
5.1. Initial and Adjusted Exercise Price. The initial Exercise Price
of each Warrant shall be $2.00 per Share. The adjusted Exercise Price shall be
the price which shall result from time to time from any and all adjustments of
the initial Exercise Price in accordance with the provisions of Article 7
hereof.
5.2. Exercise Price. The term "Exercise Price" herein shall mean the
initial Exercise Price or the adjusted Exercise Price, depending upon the
context.
6. Registration Rights.
6.1. Not Registered Under the Securities Act of 1933. The Warrants and
the Shares have not been registered as of the date of issuance of the Warrants
under the Securities Act of 1933, as amended ("the Act").
6.2. Registrable Securities. As used herein the term "Registrable
Security" means each of the Warrants, the Shares and any shares of Common Stock
issued upon any stock split or stock dividend in respect of such Shares;
provided, however, that with respect to any particular Registrable Security,
such security shall cease to be a Registrable Security when, as of the date of
determination, (i) it has been effectively registered under the Securities Act
and disposed of pursuant thereto, (ii) registration under the Securities Act is
no longer required for the immediate public distribution of such security or
(iii) it has ceased to be outstanding. The term "Registrable Securities" means
any and/or all of the securities falling within the foregoing definition of a
"Registrable Security." In the event of any merger, reorganization,
consolidation, recapitalization or other change in corporate structure affecting
the Common Stock, such adjustment shall be made in the definition of "Registrabl
Security" as is appropriate in order to prevent any dilution or enlargement of
the rights granted pursuant to this Article 6.
<PAGE>
6.3. Registration Rights. Holders of Registrable Securities hereunder
shall have the registration rights set forth in that certain Registration
Agreement by and among the Company and the purchasers of the Preferred Stock.
7. Adjustments of Exercise Price and Number of Shares.
7.1. Computation of Adjusted Price. Except as hereinafter provided, in
case the Company shall at any time after the date hereof issue or sell any
shares of Common Stock (other than the issuances or sales referred to in Section
7.6 hereof), including shares held in the Company's treasury and shares of
Common Stock issued upon the exercise of any options, rights or warrants to
subscribe for shares of Common Stock (other than the issuances or sales of
Common Stock pursuant to rights to subscribe for such Common Stock distributed
to all the shareholders of the Company and Holders of Warrants pursuant to
Section 7.6 hereof) and shares of Common Stock issued upon the direct or
indirect conversion or exchange of securities for shares of Common Stock, for a
consideration per share less than either the Exercise Price in effect
immediately prior to the issuance or sale of such shares or the "Market Price"
(as defined in Section 7.1(vi) hereof) per share of Common Stock or without
consideration, then forthwith upon such issuance or sale, the Exercise Price
shall (until another such issuance or sale) be reduced to the price (calculated
to the nearest full cent) equal to the price determined by multiplying the
Exercise Price in effect immediately prior to such issuance or sale by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to such issuance or sale and the
number of shares of Common Stock which the amount of all consideration, if any,
received by the Company upon such issuance or sale would purchase at the Market
Price, and the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such issuance or sale.
For the purposes of any computation to be made in accordance with this
Section 7.1, the following provisions shall be applicable:
In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if such securities shall
be sold to underwriters or dealers for public offering without a subscription
offering, the initial public offering price) before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or others performing similar services, or any
expenses incurred in connection therewith.
(i) In case of the issuance or sale (otherwise than as a dividend or
other distribution on any stock of the Company) of shares of Common Stock
for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash shall be deemed to be
the value of such consideration as determined in good faith by the Board of
Directors of the Company.
<PAGE>
(ii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the
record date for the determination of shareholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued
without consideration.
(iii) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for
a consideration other than cash immediately prior to the close of business
on the date fixed for the determination of security holders entitled to
receive such shares, and the value of the consideration allocable to such
shares of Common Stock shall be determined as provided in subsection (ii)
of this Section 7.1.
(iv) The number of shares of Common Stock at any one time outstanding
shall include the aggregate number of shares issued or issuable upon the
exercise of options, rights, warrants and upon the conversion or exchange
of convertible or exchangeable securities.
(v) As used herein, the phrase "Market Price," at any date shall be
determined using the previous five day average closing bid price for the
day or, where no sale is made on that day, the average of the closing bid
and asked prices for that day on the Nasdaq Stock Market or the OTC
Bulletin Board if the securities are at the time listed or quoted thereon,
respectively, or, if it is not so listed or quoted, on any other national
securities exchange selected by the Company on which it is at the time
listed. If at the applicable time the Common Stock is quoted on the OTC
Bulletin Board, the foregoing calculations shall be based on a Trade and
Quote Summary Report from the OTC Bulletin Board Research Service if
available, and if not, on any other publicly available data reasonably
deemed reliable by the Company.
7.2. Options, Rights, Warrants and Convertible and Exchangeable
Securities. Except in the case of the Company issuing rights to subscribe for
shares of Common Stock distributed to all the shareholders of the Company and
Holders of Warrants pursuant to Section 7.8 hereof, if the Company shall at any
time after the date hereof issue options, rights or warrants to subscribe for
shares of Common Stock, or issue any securities convertible into or exchangeable
for shares of Common Stock, (i) for a consideration per share less than (a) the
Exercise Price in effect immediately prior to the issuance of such options,
rights or warrants, or such convertible or exchangeable securities, or (b) the
Market Price, or (ii) without consideration, the Exercise Price in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, as the case may be, shall be reduced to
a price determined by making a computation in accordance with the provisions of
Section 7.1 hereof, provided that:
(a) The aggregate maximum number of shares of Common Stock, as
the case may be, issuable under all the outstanding options, rights or warrants
shall be deemed to be issued and outstanding at the time all the outstanding
options, rights or warrants were issued, and for a consideration equal to the
<PAGE>
minimum purchase price per share provided for in the options, rights or warrants
at the time of issuance, plus the consideration (determined in the same manner
as consideration received on the issue or sale of shares in accordance with the
terms of the Warrants), if any, received by the Company for the options, rights
or warrants, and if no minimum price is provided in the options, rights or
warrants, then the consideration shall be equal to zero; provided, however, that
upon the expiration or other termination of the options, rights or warrants, if
any thereof shall not have been exercised, the number of shares of Common Stock
deemed to be issued and outstanding pursuant to this subsection (a) (and for the
purposes of subsection (v) of Section 7.1 hereof) shall be reduced by such
number of shares as to which options, warrants and/or rights shall have expired
or terminated unexercised, and such number of shares shall no longer be deemed
to be issued and outstanding, and the Exercise Price then in effect shall
forthwith be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of shares actually issued
or issuable upon the exercise of those options, rights or warrants as to which
the exercise rights shall not have expired or terminated unexercised.
(b) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or sale of
shares of Common Stock in accordance with the terms of the Warrants) received by
the Company for such securities, plus the minimum consideration, if any,
receivable by the Company upon the conversion or exchange thereof; provided,
however, that upon the termination of the right to convert or exchange such
convertible or exchangeable securities (whether by reason of redemption or
otherwise), the number of shares deemed to be issued and outstanding pursuant to
this subsection (b) (and for the purpose of subsection (v) of Section 7.1
hereof) shall be reduced by such number of shares as to which the conversion or
exchange rights shall have expired or terminated unexercised, and such number of
shares shall no longer be deemed to be issued and outstanding and the Exercise
Price then in effect shall forthwith be readjusted and thereafter be the price
which it would have been had adjustment been made on the basis of the issuance
only of the shares actually issued or issuable upon the conversion or exchange
of those convertible or exchangeable securities as to which the conversion or
exchange rights shall not have expired or terminate unexercised.
(c) If any change shall occur in the price per share provided for
in any of the options, rights or warrants referred to in subsection (a) of this
Section 7.2, or in the price per share at which the securities referred to in
subsection (b) of this Section 7.2 are convertible or exchangeable, the options,
rights or warrants or conversion or exchange rights, as the case may be, shall
be deemed to have expired or terminated on the date when such price change
became effective in respect of shares not theretofore issued pursuant to the
exercise or conversion or exchange thereof, and the Company shall be deemed to
have issued upon such date new options, rights or warrants or convertible or
exchangeable securities at the new price in respect of the number of shares
issuable upon the exercise of such options, rights or warrants or the conversion
or exchange of such convertible or exchangeable securities.
<PAGE>
7.3. Subdivision and Combination. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
7.4. Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Article 7, the number of
Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest full Share by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of Shares issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
7.5. Reclassification, Consolidation, Merger, etc. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger in which the Company is the surviving corporation
and which does not result in any reclassification or change of the outstanding
shares of Common Stock, except a change as a result of a subdivision or
combination of such shares or a change in par value, as aforesaid), or in the
case of a sale or conveyance to another corporation of the property of the
Company as an entirety, the Holders shall thereafter have the right to purchase
the kind and number of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance as if the Holders were the owners of the shares of Common Stock
underlying the Warrants immediately prior to any such events at a price equal to
the product of (x) the number of shares issuable upon exercise of the Warrants
and (y) the Exercise Price in effect immediately prior to the record date for
such reclassification, change, consolidation, merger, sale or conveyance as if
such Holders had exercised the Warrants.
7.6. No Adjustment of Exercise Price in Certain Cases. No adjustment
of the Exercise Price shall be made:
(a) Upon the issuance or sale of shares of Common Stock upon the
exercise of the Warrants; or
(b) Upon (i) the issuance of options pursuant to the Company's
employee stock option plans in effect on the date hereof or the issuance or sale
by the Company of any shares of Common Stock pursuant to the exercise of any
such options, or (ii) the issuance or sale by the Company of any shares of
Common Stock pursuant to the exercise of any options or warrants previously
issued and outstanding on the date hereof; or
(c) Upon the issuance of shares of Common Stock pursuant to
contractual obligations existing on the date hereof; or
(d) If the amount of said adjustment shall be less than ____
cents ($____) per Share, provided, however, that in such case any adjustment
that would otherwise be required then to be made shall be carried forward and
shall be made at the time of and together with the next subsequent adjustment
which, together with any adjustment so carried forward, shall amount to at least
_____ cents ($_____) per Share.
<PAGE>
7.7. Dividends and Other Distributions with Respect to Outstanding
Securities. In the event that the Company shall at any time prior to the
exercise of all Warrants declare a dividend (other than a dividend consisting
solely of shares of Common Stock or a cash dividend or distribution payable out
of current or retained earnings) or otherwise distribute to its shareholders any
monies, assets, property, rights, evidences of indebtedness, securities (other
than shares of Common Stock), whether issued by the Company or by another person
or entity, or any other thing of value, the Holder or Holders of the unexercised
Warrants shall thereafter be entitled, in addition to the shares of Common Stock
or other securities receivable upon the exercise thereof, to receive, upon the
exercise of such Warrants, the same monies, property, assets, rights, evidences
of indebtedness, securities or any other thing of value that they would have
been entitled to receive at the time of such dividend or distribution. At the
time of any such dividend or distribution, the Company shall make appropriate
reserves to ensure the timely performance of the provisions of this Subsection
7.7.
7.8. Subscription Rights for Shares of Common Stock or Other
Securities. In the case the Company or an affiliate of the Company shall at any
time after the date hereof and prior to the exercise of all the Warrants issue
any rights to subscribe for shares of Common Stock or any other securities of
the Company or of such affiliate to all the shareholders of the Company, the
Holders of the unexercised Warrants shall be entitled, in addition to the shares
of Common Stock or other securities receivable upon the exercise of the
Warrants, to receive such rights at the time such rights are distributed to the
other shareholders of the Company.
8. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the
surrender hereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of Shares in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
9. Elimination of Fractional Interests.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock and shall not be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock.
<PAGE>
10. Reservation and Listing of Securities.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Warrants, such number of shares of Common Stock as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock issuable upon such exercise shall be duly and validly issued,
fully paid, non-assessable and not subject to the preemptive rights of any
shareholder. As long as the Warrants shall be outstanding, the Company shall use
its best efforts to cause all shares of Common Stock issuable upon the exercise
of the Warrants to be listed on or quoted by the Nasdaq Stock Market or listed
on such national securities exchanges as requested by Purchaser.
11. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as conferring upon
the Holder or Holders the right to vote or to consent or to 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. If, however, at any time prior to the expiration of
the Warrants and their exercise, any of the following events shall occur:
(a) the Company shall take 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, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common Stock 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) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or the issuance of any convertible
or exchangeable securities or subscription rights, options or warrants, or any
proposed dissolution, liquidation, winding up or sale.
<PAGE>
12. Notices.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly made when delivered, or mailed
by registered or certified mail, return receipt requested:
(a) If to a registered Holder of the Warrants, to the address of such
Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 of this
Agreement or to such other address as the Company may designate by notice to the
Holders.
13. Supplements and Amendments.
The Company and Purchaser may from time to time supplement or amend this
Agreement without the approval of any Holders of Warrant Certificates in order
to cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any provisions herein, or to make
any other provisions in regard to matters or questions arising hereunder which
the Company and Purchaser may deem necessary or desirable and which the Company
and Purchaser deem not to adversely affect the interests of the Holders of
Warrant Certificates.
14. Successors.
All the covenants and provisions of this Agreement by or for the benefit of
the Company and the Holders inure to the benefit of their respective successors
and assigns hereunder.
15. Termination.
This Agreement shall terminate at the close of business on December ___,
2003. Notwithstanding the foregoing, this Agreement will terminate on any
earlier date when all Warrants have been exercised and all the Shares issuable
upon exercise of the Warrants have been resold to the public; provided, however,
that the provisions of Article 6 shall survive such termination until the close
of business on December ___, 2003.
16. Governing Law.
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Georgia and for all
purposes shall be construed in accordance with the laws of said State.
17. Benefits of This Agreement.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and Purchaser and any other registered holder
or holders of the Warrant Certificates, Warrants or the Shares any legal or
equitable right, remedy or claim under this Agreement; and this Agreement shall
be for the sole and exclusive benefit of the Company and the Placement Agent and
any other holder or holders of the Warrant Certificates, Warrants or the Shares.
<PAGE>
18. Limited Transferability.
The Warrants shall be transferable or assignable by Purchaser, in whole or
in part, only (i) to any successor firm or corporation of Purchaser, (ii) to any
of the directors, officers, employees, attorneys, consultants, partners, agents
or subsidiaries of Purchaser or of any such successor firm or (iii) in the case
of an individual, pursuant to such individual's last will and testament or the
laws of descent and distribution and is so transferable only upon the books of
the Company which it shall cause to be maintained for the purpose. The Company
may treat the registered holder of the Warrants as he or it appears on the
Company's books at any time as the Holder for all purposes. The Company shall
permit any holder of a Warrant or his duly authorized attorney, upon written
request during ordinary business hours, to inspect and copy or make extracts
from its books showing the registered holders of the Warrants.
19. Counterparts.
This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
HARVEST RESTAURANT GROUP, INC.
By:
Name:
Title:
Attest:
Name:
Title:
PURCHASER:
By:
Name:
Title:
Attest:
Name:
Title
<PAGE>
EXHIBIT A
---------
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., ATLANTA, GEORGIA TIME, __________________, 2003
No. A-1 _____ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that _____________________ is the
registered holder of _________ Warrants to purchase, at any time from December
____, 1998 until 5:00 P.M. Atlanta, Georgia time on December ____, 2003
("Expiration Date"), up to _________ shares ("Shares") of fully-paid and
non-assessable common stock, $.01 par value ("Common Stock"), of Harvest
Restaurant Group, Inc., a Texas corporation (the "Company"), at the initial
exercise price, subject to adjustment in certain events (the "Exercise Price"),
of $2.00 per Share upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the warrant agreement dated as of December
____, 1998 between the Company and _____________________ (the "Warrant
Agreement"). Payment of the Exercise Price may be made in cash, or by certified
or official bank check in New York Clearing House funds payable to the order of
the Company, or any combination of cash or check.
No Warrant may be exercised after 5:00 P.M., Atlanta, Georgia time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to in a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
<PAGE>
The Warrant Agreement provides that upon the occurrence of certain events,
the Exercise Price and/or number of the Company's securities issuable thereupon
may, subject to certain conditions, be adjusted. In such event, the Company
will, at the, request of the holder, issue a new Warrant Certificate evidencing
the adjustment in the Exercise Price and the number and/or type of securities
issuable upon the exercise of the Warrants; provided, however, that the failure
of the Company to issue such new Warrant Certificates shall not in any way
change, alter, or otherwise impair, the rights of the holder as set forth in the
Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferees) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated: _______________ HARVEST RESTAURANT GROUP, INC.
By:
Name:
Title:
Attest:
Name:
Title
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ____________ Shares and
herewith tenders in payment for such Shares cash or a certified or official bank
check payable in _____________________________ to the order of
______________________________. in the amount of $_______________, all in
accordance with the terms hereof. The undersigned requests that a certificate
for such Shares be registered in the name of
_____________________________________________________, whose address is
_______________________________________________________________, and that such
Certificate be delivered to ____________________________________________, whose
address is _______________________________________________________________.
Dated: Signature:
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
________________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _____________________________________________ hereby
sells, assigns and transfers unto ______________________________ (Please print
name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ____________________________,
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.
Dated: Signature:
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
________________________________
(Insert Social Security or Other
Identifying Number of Holder)
LAW OFFICES
Nelson Mullins Riley & Scarborough, L.L.P.
A REGISTERED LIMITED LIABILITY PARTNERSHIP
999 PEACHTREE STREET, N.E.
FIRST UNION PLAZA
SUITE 1400
Atlanta, Georgia 30309
TELEPHONE (404) 817-6000
FACSIMILE (404) 817-6050
www.nmrs.com
Wade H. Stribling OTHER OFFICES:
(404) 817-6126 Charleston, South Carolina
Internet Address: [email protected] Charlotte, North Carolina
Columbia, South Carolina
Greenville, South Carolina
Myrtle Beach, South Carolina
January 12, 1999
Via Facsimile
- - -------------
Mr. Jack Canouse
J.P. Carey, Inc.
Mr. Steve Hicks
Southridge Capital Management, Inc.
Re: Series D Preferred Stock of Harvest Restaurant Group, Inc.
Gentlemen:
A number of subscribers for the Series D Preferred Stock of Harvest
Restaurant Group, Inc. executed Regulation D Subscription Agreements but did not
fill in Section 11, which is understandable given the complexity of this
transaction. Nevertheless, it is imperative that each Section 11 be completed.
By your signature to this letter, you authorize this firm to fill in Section 11
of the executed Subscription Agreements for each of the subscribers in the
respective amounts set forth below. Please note that the subscriptions
pertaining to the replacement $500,000 in the fourth column of the table below
are being subscribed for together with the Series C Escrow Money, and will
therefore the amounts in the two columns will be added together in Section 11 of
the Subscription Agreement, on account of the fact that they are being converted
into Series D shares at the same rate.
Also, pleased be advised that we have received partial signature pages from
Canadian Advantage, L.P., but did not think, based on information received from
Jack, that this entity had any funds in the transaction. Please let us know if
and where this entity fits in.
<TABLE>
<CAPTION>
Subscriber Amount in Series C Amount in Escrowed Amount of Replacement Final $2,000,000
$1,500,000 $500,000
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sovereign Partners, L.P. 1,000,000 250,000 100,000 400,000
Atlantis 375,000 93,750 200,000 300,000
Dominion Capital 625,000 156,250 200,000 800,000
GPS 0 300,000 0 150,000
Atlas 0 300,000 0 150,000
Brito 0 200,000 0 100,000
Grimaldi 0 200,000 0 100,000
==============================================================================================================
TOTALS: 2,000,000 1,500,000 500,000 2,000,000
==============================================================================================================
</TABLE>
<PAGE>
Please review this information carefully and let us know if it is accurate
and complete. Then, with the authority given to us by your signature below, we
will fill in the appropriate pages of the Subscription Agreement.
Please feel free to call either me or Bob Copps to discuss this information
at any time.
Sincerely,
Wade H. Stribling
AGREED TO AND ACCEPTED:
J.P. CAREY, INC.
By: ____________________
Name:
Title:
SOUTHRIDGE CAPITAL MANAGEMENT
By: ____________________
Name:
Title:
LAW OFFICES
Nelson Mullins Riley & Scarborough, L.L.P.
A REGISTERED LIMITED LIABILITY PARTNERSHIP
999 PEACHTREE STREET, N.E.
FIRST UNION PLAZA
SUITE 1400
Atlanta, Georgia 30309
TELEPHONE (404) 817-6000
FACSIMILE (404) 817-6050
www.nmrs.com
Wade H. Stribling OTHER OFFICES:
(404) 817-6126 Charleston, South Carolina
Internet Address: [email protected] Charlotte, North Carolina
Columbia, South Carolina
Greenville, South Carolina
Myrtle Beach, South Carolina
January 13, 1999
Via Facsimile
- - -------------
To: All Subscribers for Series D Preferred Stock of Harvest Restaurant Group,
Inc.:
From: Wade H. Stribling, Esq.
In connection with the closing of the TRC/Harvest merger and the concurrent
recapitalization of Harvest, you signed forms of a Regulation D Subscription
Agreement, Registration Rights Agreement, Warrant Agreement and an Escrow
Agreement (collectively the "Subscription Documents"). The terms and conditions
of the Escrow Agreement require the Escrow Agent to be in receipt of original
executed copies of the Subscription Documents as signed by each Subscriber and
the Issuing entity. By signing below, you acknowledge your agreement to allow
the Escrow Agent to accept facsimile copies in lieu of original executed copies
of the Subscription Documents, and you acknowledge that each party to the
Subscription Documents may rely upon facsimile transmissions of the Subscription
Documents by the other party and that such Subscription Documents shall be
binding upon the executing party. Your signature below indicates your agreement
with the foregoing and as such, the Subscription Documents will be deemed to be
amended accordingly. Once you have signed this letter agreement, please fax it
to me immediately at (404) 817-6194.
Please contact me at (404) 817-6126 if you have any questions or comments.
AGREED TO AND ACCEPTED THIS 13th DAY OF JANUARY, 1999:
---------------------------------
Name:
----------------------------
Title:
---------------------------
EXHIBIT 21
Subsidiaries
------------
1. Hartan, Inc., a Texas corporation
2. Harvest Restaurants, Inc., a Texas corporation
3. Cluckers Restaurants, Inc., a Texas corporation
4. Harvest Rotisserie on Tezel, Inc., a Texas corporation
5. Red Lion Food Court, Inc., a Texas corporation
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report, dated March 5, 1999, accompanying the consolidated
financial statements of Tanner's Restaurant Group, Inc. and subsidiaries
included in the Annual Report on Form 10-K for the year ended December 27, 1998.
We hereby consent to the incorporation by reference of said report in the
Registration Statement of Tanner's Restaurant Group, Inc. (formerly Harvest
Restaurant Group, Inc.) on Form S-8 (File No. 333-65719).
/s/ PORTER KEADLE MOORE, LLP
Atlanta, Georgia
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> DEC-27-1998
<CASH> 222,163
<SECURITIES> 0
<RECEIVABLES> 261,486
<ALLOWANCES> 131,400
<INVENTORY> 113,734
<CURRENT-ASSETS> 487,972
<PP&E> 2,356,049
<DEPRECIATION> 263,351
<TOTAL-ASSETS> 6,864,095
<CURRENT-LIABILITIES> 4,528,164
<BONDS> 3,189,685
0
1,253,822
<COMMON> 82,301
<OTHER-SE> 1,307,076
<TOTAL-LIABILITY-AND-EQUITY> 6,864,095
<SALES> 11,694,544
<TOTAL-REVENUES> 11,719,625
<CGS> 4,114,803
<TOTAL-COSTS> 11,718,459
<OTHER-EXPENSES> 2,898,925
<LOSS-PROVISION> 131,400
<INTEREST-EXPENSE> 700,451
<INCOME-PRETAX> (2,897,759)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,897,759)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,897,759)
<EPS-PRIMARY> (0.81)
<EPS-DILUTED> (0.81)
</TABLE>
