Exhibit 10.11
SECURITIES PURCHASE AGREEMENT
-----------------------------
BUFFALO WILD WINGS, INC.
1919 Interchange Tower
▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
As of December 2, 1999
GMN Investors II, L.P.
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Regent Capital Partners, L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Carefree Capital Partners,
Limited Partnership, a
Wyoming Limited Partnership
1919 Interchange Tower
▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
The undersigned, Buffalo Wild Wings, Inc., a Minnesota corporation (the
"Company"), hereby agrees with you as follows:
1. DEFINITIONS.
For all purposes of this Agreement the following terms shall have the
meanings set forth herein or elsewhere in the provisions hereof:
Adjusted Net Worth. Adjusted Net Worth shall mean, in connection with
any liquidation or sale of assets by the Company, the consolidated net worth of
the equity of the Company, immediately prior to such liquidation or immediately
after such sale, determined in accordance with Generally Accepted Accounting
Principles, taking into account (i) the total consideration received by the
Company for such transaction, (ii) the transaction costs incurred in connection
with such transaction, and (iii) any liabilities
-2-
(excluding any accrual for vacation time) of the Company whether or not to be
discharged in connection with such transaction.
Affiliate. Affiliate shall mean any Person directly or indirectly
controlling, controlled by or under direct or indirect common control with the
Company (or other specified Person) and shall include (a) any Person who is a
director or beneficial holder of at least 10% of any class of the then
outstanding capital stock (or other shares of beneficial interest) of the
Company (or other specified Person) and Family Members of any such Person, (b)
any Person of which the Company (or other specified Person) or an Affiliate (as
defined in clause (a) above) of the Company (or other specified Person) shall,
directly or indirectly, either beneficially own at least 10% of any class of the
then outstanding capital stock (or other shares of beneficial interest) or
constitute at least a 10% equity participant, and (c) in the case of a specified
Person who is an individual, Family Members of such Person; provided, however,
that neither GMN, RCP nor Carefree Capital shall be an Affiliate of the Company
for the purposes of this Agreement.
Capital Expenditures. Capital Expenditures shall mean amounts paid or
Indebtedness incurred by the Company or any of its Subsidiaries in connection
with the purchase or lease of fixed assets (both tangible and intangible) that
would be required to be capitalized and shown on the balance sheet of such
Person in accordance with Generally Accepted Accounting Principles.
Capital Transaction. Capital Transaction shall mean any of the
following: (i) one or more mergers, consolidations, liquidations, sales of more
than 50% of the assets of the Company or other similar corporate actions
pursuant to which the Company or the holders of equity interests in the Company
receive cash, securities or other property; (ii) at least a majority of the
voting securities of the Company is sold; or (iii) a Qualified Public Offering.
Carefree Capital shall mean Carefree Capital Partners, Limited
Partnership, a Wyoming Limited Partnership.
Charter. Charter shall include the articles or certificate of
incorporation, statute, constitution, joint venture or partnership agreement or
articles or other organizational document of any Person other than an
individual, each as from time to time amended or modified.
Closing. See Section 2.3.
Closing Date. See Section 2.3.
Code. Code shall mean the Internal Revenue Code of 1986, any successor
statute of similar import, and the rules and regulations thereunder,
collectively and as from time to time amended and in effect.
Commission. Commission shall mean the Securities and Exchange
Commission.
-3-
Common Stock. Common Stock shall mean, collectively, the Common Stock
of the Company described in Section 3.5(a) and in addition, any capital stock or
other securities into which or for which Common Stock shall have been converted
or exchanged pursuant to any recapitalization, reorganization or merger of the
Company.
Company. See preamble.
Consolidated or consolidated. Consolidated or consolidated shall mean,
with reference to any term defined herein, that term as applied to the accounts
of the Company and all of its Subsidiaries, consolidated in accordance with
Generally Accepted Accounting Principles.
Converted Common Shares. Converted Common Shares shall mean,
collectively, (a) shares of Common Stock issuable upon exercise of the
conversion rights of the Series A Preferred Stock in accordance with its terms,
(b) any shares of Common Stock into which such shares of Common Stock have been
converted, (c) any capital stock or other securities into which or for which
such Common Stock shall have been converted or exchanged pursuant to any
recapitalization, reorganization or merger of the Company, and (d) any shares of
capital stock issued with respect to the foregoing pursuant to a stock dividend
or stock split; provided that no Converted Common Shares which have been sold
pursuant to a Public Sale shall be considered to be outstanding Converted Common
Shares or Securities hereunder.
Default. Default shall mean an event or condition which with the
passage of time or giving of notice, or both, would become an Event of Default.
Determination Date. See Section 2.1 of the form of Warrant attached
hereto as Exhibit C.
Distribution. Distribution shall mean (a) the declaration or payment of
any dividend on or in respect of any shares of any class of capital stock of the
Company or other specified Person, (b) the purchase, redemption or other
retirement of any shares of any class of capital stock of the Company or other
specified Person, directly or indirectly or otherwise, or (c) any other
distribution on or in respect of any shares of any class of capital stock of the
Company or other specified Person.
EBITDA. EBITDA shall mean for any period, an amount equal to the sum of
(a) the consolidated net income of the Company and its Subsidiaries during such
period determined in accordance with Generally Accepted Accounting Principles
consistently applied, but excluding therefrom all extraordinary items of income
or loss, plus (b) all amounts deducted in the computation thereof on account of
(i) interest expense, (ii) taxes, (iii) depreciation, and (iv) amortization;
provided that interest expense with respect to Indebtedness for Borrowed Money
incurred in connection with the acquisition of a restaurant and which is in
excess of Capital Expenditures permitted for such period under the Plan shall
not be added
-4-
back to consolidated net income of the Company and its Subsidiaries (for
purposes of the calculation of Capital Expenditures, all Capital Expenditures in
connection with the opening of new restaurants for such period shall be counted
first).
Employment Agreements. Employment Agreements shall mean the employment
agreements between the Company and certain key employees listed on Schedule 1.1
hereto, in the forms attached as part of Schedule 1.1 hereto.
Environmental Laws. Environmental Laws shall mean any federal, state,
or local judgment, decree, order, law, license, rule or regulation relating to
health, safety or the environment.
ERISA. ERISA shall mean the federal Employee Retirement Income Security
Act of 1974, any successor statute of similar import, and the rules and
regulations thereunder, collectively and as from time to time amended and in
effect.
ERISA Affiliate. ERISA Affiliate shall mean, with respect to any
Person, any trade or business (whether or not incorporated) that is a member of
a group described in Section 414(b) or Section 414(c) of the Code of which such
Person is a member.
Events of Default. See Section 8.1.
Family Members. Family Members shall mean, as applied to any
individual, any parent, spouse, child, spouse of a child, brother or sister of
the individual, and each trust created for the benefit of one or more of such
Persons and each custodian of a property of one or more such Persons.
Financing Agreements. Financing Agreements shall include this
Agreement, the Securities, the Stockholders' Agreement, the Registration Rights
Agreement, the Employment Agreements and any and every other present or future
instrument or agreement from time to time entered into between the Company and
any of the Investors or any other Holder of the Securities and which relates to
this Agreement or is stated to be a Financing Agreement, as from time to time
amended or modified, and all statements, reports or certificates delivered by or
on behalf of the Company to any of the Investors or any other Holder of the
Securities in connection herewith or therewith.
Generally Accepted Accounting Principles. Generally Accepted Accounting
Principles shall mean accounting principles which are (a) consistent with the
principles promulgated or adopted by the Financial Accounting Standards Board
and its predecessors, in effect for the fiscal year of the Company and its
Subsidiaries ended December 27, 1998, (b) applied on a basis consistent with
prior periods, and (c) such that a certified public accountant would, insofar as
the use of accounting principles is pertinent, be in a position to deliver an
unqualified opinion as to financial statements in which such principles have
been properly applied.
GMN. GMN shall mean GMN Investors II, L.P., a Delaware limited
partnership.
-5-
Hazardous Substances. Hazardous Substances shall mean any hazardous
waste as defined by 42 U.S.C.ss.6903(5), any hazardous substances as defined by
42 U.S.C.ss.9601(14), any pollutant or contaminant as defined by 42
U.S.C.ss.9601(33), and any toxic substance, oil, petroleum, friable asbestos,
hazardous materials, or other substances regulated by any Environmental Laws.
Holder. Holder shall mean, as to any Security, the holder thereof,
unless such holder shall have presented such Security to the Company for
transfer and the transferee shall have been entered in the Company's stock
register (in the case of Series A Preferred Stock, Converted Common Shares or
Warrant Shares), or in the register referred to in Section 11.2(a) (in the case
of a Warrant), as a subsequent holder, in which case "Holder" shall mean such
subsequent holder.
Holder's Percentage. See Section 2.1 of the form of Warrant attached
hereto as Exhibit C.
Indebtedness. Indebtedness shall include all obligations, contingent
and otherwise, which in accordance with Generally Accepted Accounting Principles
should be classified upon the obligor's balance sheet as liabilities, or to
which reference should be made by footnotes thereto, including without
limitation, in any event and whether or not so classified: (i) all debt and
similar monetary obligations, whether direct or indirect; (ii) all liabilities
secured by any mortgage, pledge, security interest, lien, charge, or other
encumbrance existing on property owned or acquired subject thereto, whether or
not the liability secured thereby shall have been assumed; (iii) all guaranties,
endorsements and other contingent obligations whether direct or indirect in
respect of Indebtedness of others, including any obligation to supply funds to
or in any manner to invest in, directly or indirectly, the debtor, to purchase
Indebtedness, or to assure the owner of Indebtedness against loss, through an
agreement to purchase goods, supplies, or services for the purpose of enabling
the debtor to make payment of the Indebtedness held by such owner or otherwise;
and (iv) obligations to reimburse issuers of any letters of credit.
Indebtedness for Borrowed Money. Indebtedness for Borrowed Money shall
mean (a) all Indebtedness of the Company and its Subsidiaries for borrowed
money, whether current or funded, or secured or unsecured, (b) all Indebtedness
of the Company and its Subsidiaries for the deferred purchase price of property
or services represented by a note or other security, (c) all Indebtedness of the
Company and its Subsidiaries created or arising under any conditional sale or
other title retention agreement with respect to property acquired by the Company
or any of its Subsidiaries (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (d) all Indebtedness of the Company and its
Subsidiaries secured by a purchase money mortgage or other lien to secure all or
part of the purchase price of property subject to such mortgage or lien, (e) all
obligations under leases which shall have been or should be, in accordance with
Generally Accepted Accounting Principles, recorded as capital leases in respect
of which the Company or any of its Subsidiaries are liable as
-6-
lessee, (f) any liability of the Company or any of its Subsidiaries in respect
of banker's acceptances or letters of credit, (g) all interest, fees and other
expenses owed with respect to indebtedness described in the foregoing clause
(a), (b), (c), (d), (e) or (f) above, and (h) all Indebtedness referred to in
clause (a), (b), (c), (d), (e), (f) or (g) above which is directly or indirectly
guaranteed by the Company or any of its Subsidiaries, or which the Company or
any of its Subsidiaries has agreed (contingently or otherwise) to purchase or
otherwise acquire, or in respect of which the Company or any of its Subsidiaries
has otherwise assured a creditor against loss.
Investments. Investments shall mean (a) any share of capital stock,
units, interests, evidence of Indebtedness or other security issued by any other
Person, (b) any loan, advance, or extension of credit to, or contribution to the
capital of, any other Person, (c) any purchase of the securities of any other
Person, or commitment to make such purchase, and (d) any other investment in any
other Person; provided, however, that the term "Investment" shall not include
(i) trade and customer accounts receivable for services rendered in the ordinary
course of business and payable in accordance with customary trade terms, and all
letters of credit or other instruments securing or evidencing the same, (ii)
advances to employees for travel expenses, drawing accounts and similar
expenditures but only to the extent that (A) each such advance is in an amount
less than $5,000, (B) the aggregate amount of such advances outstanding to any
individual employee at any particular time does not exceed $10,000, and (C) all
such advances outstanding at any particular time do not exceed $50,000, (iii)
stock or other securities acquired in connection with the satisfaction or
enforcement of Indebtedness or claims due or owing to the Company or any of its
Subsidiaries or as security for any such Indebtedness or claim, (iv) any
acquisition of assets or stock of a Person which is permitted pursuant to
Section 6.13, and (v) those loans made to employees of the Company to purchase
Series A Preferred Shares and Warrants in the amounts set forth on Schedule 1.2
hereto.
Investors. Investors shall mean GMN, RCP, Carefree Capital and the
other investors listed on Exhibit A attached hereto, if any.
Lien. Lien shall mean (a) any encumbrance, mortgage, pledge, lien,
charge or other security interest of any kind upon any property or assets of any
character, or upon the income or profits therefrom; or (b) any acquisition of or
agreement to have an option to acquire any property or assets upon conditional
sale or other title retention agreement, device or arrangement (including a
capitalized lease); or (c) any sale, assignment, pledge or other transfer for
security of any accounts, general intangibles, or chattel paper, with or without
recourse.
Liquidity Event. Liquidity Event shall mean (i) the occurrence of a
Capital Transaction or (ii) the occurrence of any event or circumstance which
requires the Company to repay, repurchase, redeem or otherwise to retire any
equity security of the Company or which permits the holder of such equity
security to require any such repayment, repurchase, redemption or retirement.
-7-
Major Holder. Major Holder shall mean the holder or holders at the
relevant time (excluding the Company) of (a) in the case of the Series A
Preferred Stock, at least 10% of the then outstanding shares of Series A
Preferred Stock, (b) in the case of the Converted Common Shares, Warrants and
Warrant Shares, at least 10% of the total number of (i) the then outstanding
Converted Common Shares, (ii) Warrant Shares then issuable upon exercise of the
outstanding Warrants plus (iii) then outstanding Warrant Shares, and (c) if no
class of Securities is referred to, the Major Holders of the Series A Preferred
Stock and the Major Holders of the Converted Common Shares, Warrants and/or
Warrant Shares.
Majority Holders. Majority Holders shall mean the holder or holders at
the relevant time (excluding the Company) of (a) in the case of the Series A
Preferred Stock, 50.1% or more of the then outstanding shares of Series A
Preferred Stock, (b) in the case of the Converted Common Shares, Warrants and
Warrant Shares, 50.1% or more of the number of (i) the then outstanding
Converted Common Shares, (ii) Warrant Shares then issuable upon exercise of the
outstanding Warrants plus (iii) then outstanding Warrant Shares, and (c) if no
class of Securities is referred to, 50.1% or more of the then outstanding shares
of Series A Preferred Stock (on an as converted basis), Converted Common Shares,
Warrants (on an as converted basis) and Warrant Shares, considered collectively;
provided that for purposes of Section 8.2(b), Majority Holder shall only refer
to holder or holders at the relevant time (excluding the Company) of 50.1% or
more of the then outstanding Converted Common Shares; and provided further that
for purposes of Section 8.2(c), Majority Holder shall only refer to holder or
holders at the relevant time (excluding the Company) of 50.1% or more of the
number of Warrant Shares then issuable upon exercise of the outstanding Warrants
plus then outstanding Warrant Shares.
Management Stock Option Plan. Management Stock Option Plan shall mean
the Company's stock option plan in existence on the date hereof, pursuant to
which the Company has the right to grant options or warrants to employees or
consultants of the Company for up to a maximum of 1,500,000 shares of Common
Stock.
Permitted Indebtedness. See Section 6.9.
Permitted Liens. See Section 6.10.
Person. Person shall mean an individual, partnership, corporation,
limited liability company, association, trust, joint venture, unincorporated
organization, and any government, governmental department or agency or political
subdivision thereof.
Plan. Plan shall mean those certain financial projections attached
hereto as Schedule 1.3 and after the Company's fiscal year ending December 2003,
"Plan" shall mean the budget approved by the board of directors of the Company
for the relevant fiscal year of the Company; provided that for purposes of the
EBITDA projection for the Company's fiscal years ending December 2000 and 2001,
"Plan" shall mean those projections for those same fiscal years set forth on
page 10 of Schedule 1.3.
-8-
Projections. See Section 3.7(a)(iii).
Public Sale. Public Sale shall mean any sale of Common Stock or other
equity interest to the public pursuant to a public offering registered under the
Securities Act (other than pursuant to a Rule 145 transaction or on Form S-8) or
to the public through a broker or market-maker pursuant to the provisions of
Rule 144 (or any successor rule) adopted under the Securities Act or any other
public offering not required to be registered under the Securities Act.
Purchase Price. See Section 2.2.
Purchased Securities. See Section 2.2.
Qualified Public Offering. Qualified Public Offering shall mean the
closing of the Company's underwritten public offering pursuant to an effective
registration statement under the Securities Act covering the offer and sale of
shares of Common Stock in which not less than $20,000,000 in gross proceeds are
received by the Company for the account of the Company; provided that in the
case of a public offering underwritten by one or more of the investment banking
firms listed in Schedule 1.4 hereto, the amount of gross proceeds for purposes
of this definition shall be $15,000,000.
RCP. RCP shall mean Regent Capital Partners, L.P., a Delaware limited
partnership.
Real Property. See Section 3.13.
Registration Rights Agreement. Registration Rights Agreement means the
Registration Rights Agreement dated as of the date hereof among the Company,
GMN, RCP, Carefree Capital and certain other stockholders of the Company, as
such Agreement may be amended, restated, modified or supplemented in accordance
with the terms of this Agreement.
Related Agreements. Related Agreements shall mean, collectively, the
Financing Agreements, the Senior Debt Documents, the Charter of the Company and
the Statement of Designation of the Series A Preferred Stock of the Company.
Release. Release shall have the meaning specified in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
ss.ss.9601 et seq. and the regulations promulgated thereunder, as in effect from
time to time.
Restricted Payment. Restricted Payment shall mean any payment (whether
in cash, securities or other property) to or for the benefit of any Affiliate of
the Company or any of its Subsidiaries in respect of any Indebtedness owed by or
other obligation of the Company or such Subsidiary to such Affiliate.
-9-
Securities. Securities shall mean the Series A Preferred Shares, the
Converted Common Shares, the Warrants and the Warrant Shares.
Securities Act. Securities Act shall mean the Securities Act of 1933,
as amended, or any successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
Series A Preferred Shares. Series A Preferred Shares shall mean the
shares of Series A Preferred Stock of the Company issued to the Investors
pursuant to Sections 2.1 and 2.5 hereof and any capital stock or other
securities into which or for which such Series A Preferred Stock shall have been
converted or exchanged pursuant to any recapitalization, reorganization or
merger of the Company.
Series A Preferred Stock. Series A Preferred Stock shall mean the
Series A Preferred Stock, $.01 value per share, of the Company.
Senior Credit Agreement. Senior Credit Agreement shall mean the
Revolving & Term Credit Agreement dated March 26, 1999 between the Senior Lender
and the Company, as amended from time to time.
Senior Debt Documents. Senior Debt Documents shall mean the Senior
Credit Agreement and all "Loan Documents" as defined therein.
Senior Lender. Senior Lender shall mean ▇▇▇▇▇▇ Bank, National
Association.
Small Business Act. Small Business Act shall mean the Small Business
Investment Act of 1958, as amended, or any successor federal statute, and the
rules and regulations of the Small Business Administration thereunder (including
without limitation Title 13, Code of Federal Regulations, Sections 107 and 121),
all as the same shall be in effect from time to time.
Stockholders' Agreement. Stockholders' Agreement means the
Stockholders' Agreement dated as of the date hereof among the Company, the
Investors and certain other stockholders of the Company, as such Agreement may
be amended, restated, modified or supplemented in accordance with the terms of
this Agreement.
Subsidiary. Subsidiary shall mean any Person of which the Company or
other specified Person now or hereafter shall at the time own directly or
indirectly through a Subsidiary at least a majority of the outstanding capital
stock (or other shares of beneficial interest) entitled to vote generally.
Transfer Notice. See Section 12.2.
Warrants. Warrants shall mean the Warrants of the Company issued to the
Investors pursuant to Sections 2.1 and 2.5 hereof and any other Warrants
transferred to any other
-10-
holders pursuant to Section 12 hereof; provided that no Warrants which have been
sold pursuant to a Public Sale shall be considered to be outstanding Warrants or
Securities hereunder. For all purposes of this Agreement, until the
Determination Date, the number of shares of Common Stock issuable upon exercise
of the Warrants shall be deemed to be the maximum number of shares issuable
thereunder based upon the number of shares of all outstanding equity of the
Company on a fully diluted basis as of the date at issue including in such
number of shares the number of shares equal to the difference between the
1,500,000 options authorized under the Management Stock Option Plan and the
number of options actually outstanding thereunder.
Warrant Shares. Warrant Shares shall mean, collectively, (a) Common
Stock issuable upon exercise of the Warrants in accordance with their terms, (b)
any shares of Common Stock into which such shares of Common Stock have been
converted, (c) any capital stock or other securities into which or for which
such Common Stock shall have been converted or exchanged pursuant to any
recapitalization, reorganization or merger of the Company, and (d) any shares of
capital stock issued with respect to the foregoing pursuant to a stock dividend
or a stock split; provided that no Warrant Shares which have been sold pursuant
to a Public Sale shall be considered to be outstanding Warrant Shares or
Securities hereunder. For all purposes of this Agreement, until the
Determination Date, the number of shares of Common Stock issuable upon exercise
of the Warrants shall be deemed to be the maximum number of shares issuable
thereunder based upon the number of shares of all outstanding equity of the
Company on a fully diluted basis as of the date at issue including in such
number of shares the number of shares equal to the difference between the
1,500,000 options authorized under the Management Stock Option Plan and the
number of options actually outstanding thereunder.
2. SALE AND PURCHASE OF PURCHASED SECURITIES.
2.1. Sale and Purchase of Purchased Securities. The Company agrees to
issue and sell to you and, subject to all of the terms and conditions hereof and
in reliance on the representations and warranties set forth or referred to
herein, you agree to purchase the number of shares of Series A Preferred Stock
of the Company and the Common Stock Purchase Warrants for the purchase of that
percentage of shares of Common Stock of the Company issuable pursuant to the
Warrants as set forth on Exhibit A hereto, such Warrants to be in the form of
Exhibit C hereto.
2.2. Purchase Price. The aggregate purchase price for the Securities
purchased pursuant to Section 2.1 (the "Purchased Securities") is $6,476,211
(the "Purchase Price") and the portion of the Purchase Price payable by each
Investor is as set forth on Exhibit A hereto. The parties hereto agree that (a)
the aggregate purchase price for the Series A Preferred Shares is $6,476,135,
and (b) the aggregate purchase price for the Warrants is $76, and will be
reported as such by all parties for federal, state and local tax purposes.
2.3. Closing. The closing of the purchase and sale of the Purchased
Securities (the "Closing") will take place at the offices of ▇▇▇▇▇▇▇ ▇▇▇▇ LLP,
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇,
-▇▇-
▇▇ ▇▇▇▇▇, at 11:00 a.m. Eastern Standard Time on December 2, 1999, or at such
other time, date and place as the parties hereto may agree upon (the "Closing
Date"). At the Closing, the Company will deliver to you the Purchased Securities
against payment by you of the Purchase Price in immediately available funds and
in the case of Carefree Capital, also by the delivery of the original Credit
Line Note dated March 26, 1999 from the Company in favor of Carefree Capital
(under which approximately $1,586,666.67 in principal and interest is currently
outstanding) in partial payment of the portion of the Purchase Price payable by
it hereunder. Each of the Purchased Securities will be issued to you and
registered in your name in the records of the Company.
2.4. Use of Proceeds. The proceeds from the sale of the Purchased
Securities hereunder will be used solely to pay (i) the outstanding principal
and interest under those certain four promissory notes dated April 1998, as
amended, from the Company in favor of ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ Dryer, ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇, which outstanding principal and interest is
approximately $149,344.68 in the aggregate as of the date of this Agreement,
(ii) the outstanding principal and interest under that certain Promissory Note
dated December 1994 from the Company in favor of G. ▇▇▇▇▇ ▇▇▇▇, which
outstanding principal and interest is approximately $2,751.93 as of the date of
this Agreement, (iii) the outstanding principal and interest under that certain
Promissory Note from the Company in favor of Settler's Table, Inc., which
outstanding principal and interest is approximately $249.69 as of the date of
this Agreement, (iv) the outstanding principal and interest under that certain
Term Promissory Note dated March 26, 1999 from the Company in favor of ▇▇▇▇▇▇
Bank, National Association, which outstanding principal and interest is
approximately $201,828.12 as of the date of this Agreement, (v) the outstanding
principal and interest under that certain Promissory Note dated December 27,
1996 from the Company in favor of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, which outstanding
principal and interest is approximately $314,350.39 as of the date of this
Agreement, (vi) for expansion and other general working capital purposes and
(vii) the costs incurred in connection with the transactions described herein.
The Company agrees that it will not use any part of the proceeds from the sale
of the Purchased Securities to purchase or carry any "margin security" or
"margin stock", as such terms are defined in any regulation, rule or
interpretation of the Board of Governors of the Federal Reserve System.
2.5. Additional Issuances. The Company will have the right, until
December 31, 1999, to issue and sell to (a) one or more existing stockholders,
executive officers and directors of the Company, (b) Carefree Capital, and (c)
GMN and RCP, collectively, in such order, up to 725,844 additional shares of
Series A Preferred Stock and Common Stock Purchase Warrants for the purchase of
up to 23.81% of shares of Common Stock of the Company issuable pursuant to the
Warrants on the same terms and conditions as set forth in this Agreement. Such
issuance and sale will be effected, if at all, by the execution and delivery by
the purchaser of such shares of an Instrument of Adherence to this Agreement, in
the form of Exhibit B hereto, which will have the effect of amending this
Agreement to add such purchaser as an additional "Investor" party hereto, and
such amendment and the issuance and sale of such additional shares will for all
purposes be deemed to have occurred as of the Closing Date. Notwithstanding the
foregoing, any person who purchases shares
-12-
pursuant to this Section 2.5 that is already an "Investor" party to this
Agreement on the Closing Date shall not be required to sign an Instrument of
Adherence, but the sale of such additional shares will, nevertheless, for all
purposes be deemed to have occurred as of the Closing Date (provided that
dividends shall only commence accruing as of the date of actual issuance) and
shall be subject to all of the terms and conditions of this Agreement as if
issued to such Investor on the Closing Date.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
In order to induce each of you to enter into this Agreement and to
purchase the Purchased Securities, except as set forth on the Schedules attached
hereto, a copy of which has been furnished to each Investor, and which
exceptions and additional disclosures shall be deemed to be representations and
warranties as if made hereunder, the Company hereby makes the following
representations and warranties to each Investor severally as of the Closing and
immediately after giving effect to the Closing. The Schedules attached hereto
describe exceptions to these representations and warranties with reasonable
particularity and describe the relevant facts in reasonable detail and are
arranged in paragraphs corresponding to the numbered and lettered paragraphs in
this Section 3, provided that any exceptions described in response to one
paragraph shall be deemed to be exceptions to all applicable paragraphs.
3.1. Organization and Good Standing. The Company and each of its
Subsidiaries is duly organized and existing in good standing in its jurisdiction
of organization and is duly qualified as a foreign corporation and authorized to
do business in all other jurisdictions in which the nature of its business or
property makes such qualification necessary (which jurisdictions are listed in
Schedule 3.1 hereto), except where the failure to so qualify would not be
expected to materially adversely affect the Company's or such Subsidiary's
business or financial condition. The Company and each of its Subsidiaries has
the power to own its properties and to carry on its business as now conducted
and as proposed to be conducted.
3.2. Authorization. The execution, delivery and performance by the
Company of this Agreement and each Related Agreement to which the Company is a
party, and the issuance and sale by the Company of the Securities hereunder, (a)
are within the Company's power and authority, (b) have been duly authorized by
all necessary corporate proceedings, and (c) do not conflict with or result in
any breach of any provision of or the creation of any Lien upon any of the
property of the Company or its Subsidiaries or require any consent or approval
pursuant to the Charter or bylaws of the Company, except for such necessary
corporate approvals as shall have been received prior to the Closing Date, or
any law, regulation, order, judgment, writ, injunction, license, permit,
agreement or instrument.
3.3. Enforceability. The execution and delivery by the Company of this
Agreement and each of the Related Agreements to which the Company is a party,
and the issuance and sale by the Company of the Securities hereunder, will
result in legally binding obligations of the Company enforceable against the
Company in accordance with the respective terms and provisions hereof and
thereof, except to the extent that (a) such enforceability is limited by
-13-
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights, (b) the availability
of the remedy of specific performance or injunctive or other equitable relief is
subject to the discretion of the court before which any proceeding therefor may
be brought, and (c) the enforceability of the indemnity and contribution
provisions contained in the Registration Rights Agreement may be limited under
federal securities laws.
3.4. Governmental Approvals. The execution, delivery and performance by
the Company of this Agreement and each Related Agreement to which the Company is
a party, and the issuance and sale of the Securities hereunder, do not require
the approval or consent of, or any filing with, any governmental authority or
agency except for blue sky filings with state agencies.
3.5. Capitalization.
(a) Capital Stock. The authorized capital stock of the Company consists
of (i) 1,000,000 shares of undesignated stock, (ii) 4,000,000 shares of Series A
Preferred Stock and (iii) 15,000,000 shares of Common Stock, $.01 par value per
share (the "Common Stock"). On the Closing Date, after giving effect to the
transactions contemplated hereby and by the Related Agreements, the Company will
have no outstanding capital stock other than (i) 3,048,462 shares of Series A
Preferred Stock and (ii) 4,044,578 shares of Common Stock, all of which shares
will be owned as set forth in Schedule 3.5(a) hereto and will be duly
authorized, validly issued, fully paid and non-assessable. On the Closing Date,
after giving effect to the transactions contemplated hereby and by the Related
Agreements, each of the Subsidiaries of the Company will have the authorized,
issued and outstanding capital stock set forth in Schedule 3.5(a) hereto, all of
which outstanding shares of capital stock will be duly authorized, validly
issued, fully paid and non-assessable. Upon payment of the consideration for
additional shares of Series A Preferred Stock pursuant to Section 2.5, such
additional shares will be duly authorized, validly issued, fully paid and
non-assessable.
(b) Options, Etc. Except for the Warrants and the Series A Preferred
Shares or as set forth on Schedule 3.5(b) hereto, each of the Company and its
Subsidiaries has no outstanding rights (either pre-emptive or other) or options
to subscribe for or purchase, and no warrants or other agreements providing for
or requiring the issuance by any of the Company or its Subsidiaries of, any of
its capital stock or other equity interest, or any securities convertible into
or exchangeable for its capital stock or other equity interest.
(c) Reservation, Etc. Sufficient shares of authorized but unissued
Common Stock have been reserved by appropriate corporate action in connection
with the prospective conversion of the Series A Preferred Stock and the
prospective exercise of the Warrants. The issuance of the Converted Common
Shares, the Warrants and the shares of Warrant Shares (i) will not require any
further corporate action by the stockholders or directors of the Company, (ii)
will not be subject to pre-emptive rights in any present or future stockholders
of the Company, and (iii) will not conflict with any provision of any agreement
to which the Company is a party or by which it is bound. All Converted Common
Shares and Warrant
-14-
Shares, when issued upon exercise of, respectively, the conversion rights of the
Series A Preferred Stock or the Warrants, in accordance with their respective
terms, will be duly authorized, validly issued, fully paid and non-assessable.
3.6. Subsidiaries. Except as set forth on Schedule 3.6, the Company has
no Subsidiaries and does not own or hold of record and/or beneficially any
shares of any class of the capital of any corporation. The Company does not own
any legal and/or beneficial interests in any partnerships, business trusts or
joint ventures, or in any other unincorporated trade or business enterprises.
3.7. Reports and Financial Statements. (a) You have heretofore been
furnished with complete and correct copies of the following:
(i) the balance sheets and related statements of income
attached hereto as Schedule 3.7(a)(i) (collectively, the "Financial
Statements");
(ii) the pro forma consolidated balance sheet of the Company
and its Subsidiaries as at October 24, 1999 and the pro forma combined
historical income statements dated October 24, 1999, each of such
balance sheets and income statements taking into account all
transactions contemplated hereby and by the Related Agreements, such
balance sheet and income statements being attached hereto as Schedule
3.7(a)(ii); and
(iii) the projections of the future performance of the Company
and its Subsidiaries for the four-year period following the Closing
Date, on a consolidated basis, including income, net profits, and cash
flows, as attached hereto as Schedule 3.7(a)(iii) (the "Projections").
(b) Each of the Financial Statements was prepared in accordance with
Generally Accepted Accounting Principles applied on a basis consistent with
prior periods except as otherwise stated therein; each of the balance sheets of
the Company included in such financial statements fairly and accurately presents
the financial condition of the Company and its Subsidiaries as at the close of
business on the date thereof; and each of the statements of income and cash
flows of the Company and its Subsidiaries included in such financial statements
fairly and accurately presents the results of operations of the Company and its
Subsidiaries for the fiscal period then ended.
(c) The pro forma consolidated balance sheet of the Company and its
Subsidiaries and the pro forma consolidated income statements referred to in
Section 3.7(a)(ii) have been prepared by management of the Company on a
reasonable basis, taking into consideration the effect of the transactions
contemplated hereby and by the Related Agreements, and the Company is not aware
of any fact which casts any doubt on the accuracy or completeness thereof. After
giving effect to the transactions contemplated hereby and by the Related
Agreements, the Company and its Subsidiaries will have no material liabilities,
contingent or otherwise, which are not referred to in such balance sheet or in
the notes thereto.
-15-
(d) The Projections constitute a reasonable basis for the assessment of
the future performance of the Company and its Subsidiaries, on a consolidated
basis, during the periods indicated therein, and all material assumptions used
in the preparation of the Projections are set forth in the notes thereto or on
Schedule 3.7(d) attached hereto.
3.8. Material Adverse Change. There has been no material adverse change
in the business, assets, or financial condition of the Company or any of its
Subsidiaries since September 30, 1999.
3.9. Indebtedness and Liens. The Company has no Indebtedness or Liens
upon any of its properties other than Permitted Indebtedness and Permitted
Liens.
3.10. Related Agreements. You have heretofore or simultaneously
herewith been furnished with complete and correct copies of all of the Related
Agreements. This Agreement and the Related Agreements are the only material
agreements relating to the transactions contemplated hereby to which the Company
is a party. The Company is not in default on any of its obligations under this
Agreement or any Related Agreement to which the Company is a party and, to the
best knowledge of the Company without any independent investigation, no other
party to any Related Agreement is in default thereunder.
3.11. ERISA. Each of the Company and its Subsidiaries, and each of such
Person's employee benefit plans, if any, is in compliance in all material
respects with the requirements of applicable law, including but not limited to
ERISA and any applicable provisions of the Code. None of the Company or its
Subsidiaries nor any of their Affiliates maintains or contributes to, or has
previously maintained or contributed to, any defined benefit plan pursuant to a
collective bargaining agreement.
3.12. Solvency. Prior to, upon and immediately after consummation of
the transactions contemplated hereby and by the Related Agreements, the Company
is solvent, has tangible and intangible assets having a fair value in excess of
the amount required to pay its probable liabilities on its existing debts as
they become absolute and matured, and has access to adequate capital for the
conduct of its business and the ability to pay its debts from time to time
incurred in connection therewith as such debts mature.
3.13. Title to Assets; Leases. The Company and its Subsidiaries own all
of the assets reflected in the pro forma consolidated balance sheet of the
Company and its Subsidiaries as at the Closing Date, subject to no Liens other
than Permitted Liens. Neither the Company nor any of its Subsidiaries owns any
real property. The Company and each of its Subsidiaries enjoys peaceful and
undisturbed possession, and is in material compliance with the terms, (a) of all
leases of real property on which facilities operated by it are situated (the
"Real Property"), each of which is listed on Schedule 3.13 hereto, and (b) of
all leases of personal property, and all leases described in clauses (a) and (b)
above are valid and in full force and effect.
-16-
3.14. Litigation. There is no litigation, at law or in equity, or any
proceeding before any court, board or other governmental or administrative
agency or any arbitrator pending or, to the knowledge of the Company, threatened
which, individually or in the aggregate, is reasonably likely to result in any
final judgment or liability which, after giving effect to any applicable
insurance, could result in any material adverse change in the business, assets
or financial condition of the Company or any of its Subsidiaries or which seeks
to enjoin the consummation of, or which questions the validity of, any of the
transactions contemplated by this Agreement or any Related Agreement. No
judgment, decree or order of any court, board or other governmental or
administrative agency or arbitrator has been issued against or binds the Company
or any of its Subsidiaries or any of their assets which has or may have any
material adverse effect on the business, assets or financial condition of the
Company or any of its Subsidiaries.
3.15. Defaults. No Default or Event of Default exists on the date
hereof. Neither the Company nor any of its Subsidiaries is in default under any
provisions of its respective Charter or by-laws or under any material provisions
of any franchise, contract, agreement, lease or other instrument to which it is
a party or by which it or its property is bound or in material violation of any
law, judgment, decree or governmental order, rule or regulation.
3.16. Governmental Regulations. The Company is not a "holding company",
or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act of
1935; nor is the Company a "registered investment company", or an "affiliated
person" or a "principal underwriter" of a "registered investment company", as
such terms are defined in the Investment Company Act of 1940, as amended.
3.17. Representations and Warranties under Related Agreements. All
representations and warranties made by the Company or any of its Subsidiaries in
any of the Related Agreements or in the certificates delivered in connection
therewith are true and correct as of the date hereof with the same force and
effect as though made on and as of the date hereof, and such representations and
warranties are hereby confirmed to you and made representations and warranties
of the Company hereunder as fully as if set forth herein. To the best knowledge
of the Company without any independent investigation, all representations and
warranties made in the Related Agreements by or on behalf of any party thereto
other than the Company or its Subsidiaries are true and correct in all material
respects.
3.18. Tax Returns. The Company and its Subsidiaries have filed all tax
returns and reports which are required to be filed with any foreign, federal,
state or local governmental authority or agency, except where failure to file
such returns and reports with any such state or local governmental authority or
agency would not be expected to materially adversely affect the Company's or any
of its Subsidiaries' business or financial condition, and the Company and each
such Subsidiary has paid, or made adequate provision for the payment of, all
assessments received and all taxes which have or may become due under applicable
foreign, federal, state or local governmental law or regulations with respect to
the periods in
-17-
respect of which such returns and reports were filed. The Company knows of no
additional assessments since the date of such returns and reports, and, there
will be no additional assessments for which adequate reserves appearing on the
pro forma consolidated balance sheet referred to in Section 3.7(a)(ii) have not
been established. The Company and each of its Subsidiaries have made adequate
provision for all current taxes.
3.19. Environmental Compliance. The Company has taken reasonable steps
to investigate the condition and usage of the Real Property since its occupancy
thereof and the operations conducted thereon, and, based upon such diligent
inquiry, has determined that:
(a) The Company and each of its Subsidiaries has been issued
and is in compliance with all permits, certificates, approvals,
licenses and other authorizations relating to environmental matters and
required under applicable Environmental Laws for the conduct of its
business. None of the Company, its Subsidiaries, nor any operator of
the Real Property is in alleged violation of any Environmental Laws
which alleged violation would have a material adverse effect on the
business, assets, or financial condition of the Company or any of its
Subsidiaries.
(b) No Release of Hazardous Substance or other condition
exists at, on, or under any of the Real Property or any property
formerly owned or leased by the Company or any of its Subsidiaries for
which the Company or any of its Subsidiaries may be liable under any
Environmental Laws.
(c) Neither the Company nor any of its Subsidiaries has
received notice from any third party that it may be liable for any
costs or damages whatsoever arising out of the Release of Hazardous
Substances.
(d) To the knowledge of the Company, no underground storage
tank or receptacle, asbestos containing material, or equipment
containing polychlorinated biphenyls (PCBs) exists at any of the Real
Property.
(e) Any Hazardous Substances generated by the Company, its
Subsidiaries, or any operator of the Real Property have been
transported offsite only by licensed carriers in accordance with
applicable Environmental Law.
3.20. Labor Relations. The Company and its Subsidiaries are in
compliance with all applicable material federal and state laws respecting
employment and employment practices, terms and conditions of employment, wages
and hours, and nondiscrimination in employment, and are not engaged in any
unfair labor practice. There is no charge pending or, to the Company's
knowledge, threatened, against or with respect to the Company or any of its
Subsidiaries before any court or agency alleging unlawful discrimination in
employment practices, which, if decided adversely to the Company, would have a
material adverse effect on the Company's operations. There is no charge of or
proceeding with regard to any unfair labor practice against any of them pending
before the National Labor Relations Board, which, if decided adversely to the
Company, would have a material adverse effect on the Company's operations. There
is no labor strike, dispute, slow-down, or work stoppage
-18-
pending, or to the Company's knowledge, threatened against or involving the
Company or any of its Subsidiaries, which, if decided adversely to the Company,
would have a material adverse effect on the Company's operations. No employees
of the Company or any of its Subsidiaries are party to a collective bargaining
agreement, and no such collective bargaining agreement is currently being
negotiated. No one has petitioned and no one is now petitioning for union
representation of any employees of the Company. Neither the Company nor any of
its Subsidiaries has experienced any work stoppage or other material labor
difficulty.
3.21. Potential Conflicts of Interest. Except as set forth on Schedule
3.21, neither the Company nor any of its Subsidiaries, nor any of their
respective officers, directors, or to the best knowledge of the Company, key
employees, (i) owns, directly or indirectly, any interest in (excepting passive
holdings for investment purposes of not more than one percent (1%) of the
securities of any publicly held and traded company), or is an officer, director,
employee, or consultant of, any Person that is a competitor, lessor, lessee,
customer or supplier of the Company or any of its Subsidiaries; (ii) owns,
directly or indirectly, any interest in any tangible or intangible property used
in or necessary to the business of the Company or any of its Subsidiaries; or
(iii) has any cause of action or other claim whatsoever against the Company or
any of its Subsidiaries, or owes any amount to the Company or any of its
Subsidiaries, except for claims in the ordinary course of business, such as for
accrued vacation pay, accrued benefits under employee benefit plans, and similar
matters and agreements.
3.22. Material Contracts. Except for the contracts, agreements and
arrangements listed in Schedule 3.22 and contracts, agreements or other
arrangements that have been fully performed and with respect to which neither
the Company nor any of its Subsidiaries has any further obligations or
liabilities, neither the Company nor any of its Subsidiaries is a party to or
otherwise bound by (i) any agreement, instrument, or commitment that may affect
its ability to consummate the transactions contemplated hereby or by the Related
Agreements, or (ii) any other material agreement, instrument, or commitment,
including without limitation, any:
(a) agreement for the purchase, sale, lease or license by or from it of
(i) real estate requiring total payments in excess of $100,000 in any instance
or (ii) other services, products, or assets, requiring total payments in excess
of $100,000 in any instance, other than agreements for the purchase of inventory
in the ordinary course of its business;
(b) agreements requiring it to purchase all or substantially all of its
requirements for a particular product or service from a particular supplier or
suppliers, or requiring it to supply all of a particular customer's or
customers' requirements for a certain service or product;
(c) agreement or other commitment pursuant to which it has agreed to
indemnify or hold harmless any other person, to share tax liability of any other
person, or to refrain from competing with any other person;
-19-
(d) (i) employment agreement, (ii) consulting agreement, or (iii)
agreement providing for severance payments or other additional rights or
benefits (whether or not optional) in the event of a sale or other change in
control of it;
(e) agreement with any current or former Affiliate, stockholder,
officer, director, employee, or consultant of the Company or any of the
Company's Subsidiaries, or with any person in which any such Affiliate has an
interest;
(f) joint venture, partnership or teaming agreement;
(g) agreement with any domestic or foreign government or agency or
executive office thereof or any subcontract between it and any third party
relating to a contract between such third party and any domestic or foreign
government or agency or executive office thereof; or
(h) agreement the performance of which is reasonably likely to result
in a loss to it.
The Company has delivered to GMN, RCP and Carefree Capital correct and complete
copies of each agreement, instrument, and commitment listed in Schedule 3.22,
each as amended to date, except to the extent that the Company has noted thereon
that it has provided a form of a particular type of agreement. Each such
agreement, instrument, and commitment is a valid, binding and enforceable
obligation of the Company or its relevant Subsidiary and is in full force and
effect. Except as set forth in Schedule 3.22, neither the Company nor any of its
Subsidiaries is, nor to the Company's knowledge, is any other party thereto (nor
is the Company or any of its Subsidiaries, to the Company's knowledge,
considered by any other party thereto to be) in breach of or noncompliance with
any term of any such agreement, instrument, or commitment (nor is there, to the
Company's knowledge, any basis for any of the foregoing), except for breaches or
noncompliances that singly or in the aggregate would not have a material adverse
effect on the business, financial condition or operations of the Company or any
of its Subsidiaries. No claim, change order, request for equitable adjustment,
or request for contract price or schedule adjustment, between the Company or any
of its Subsidiaries and any supplier or customer, relating to any agreement,
instrument, or commitment listed in Schedule 3.22 is pending or, to the
Company's knowledge, threatened, other than those claims, change orders or
requests which could not result in a material adverse effect on the business,
financial condition or operations of the Company or any of its Subsidiaries. No
agreement, instrument, or commitment listed in Schedule 3.22 includes or
incorporates any provision, the effect of which may be to enlarge or accelerate
any of the obligations of the Company or any of its Subsidiaries or to give
additional rights to any other party thereto, or will terminate, lapse, or in
any other way be affected, by reason of the transactions contemplated by this
Agreement.
3.23. Intellectual Property.
(a) The Company or one of its Subsidiaries is the sole and exclusive
owner of or has the right to use, free and clear of any material obligations to
pay royalties or any other
-20-
similar obligations, and free and clear of all mortgages, liens or other
encumbrances of any kind, all (if any) franchises, patents, patent applications,
patent licenses, patent rights, trade secrets, trademarks, trademark rights,
trade names, trade name rights, brand names, copyrights, licenses, permits,
authorizations and other rights as are necessary for the conduct of its business
as currently conducted or currently proposed to be conducted, including but not
limited to trademarks for the name and logo "Buffalo Wild Wings", except to the
extent that the failure to have any of them would not have a material adverse
effect on the business, assets or financial condition of the Company or any of
such Subsidiaries. All of the foregoing are in full force and effect, and the
Company and each of its Subsidiaries is in compliance with the foregoing without
any known conflict with the valid rights of others which could affect or impair
in a material manner the business, assets or financial condition of the Company
or any of such Subsidiaries. Except as otherwise described in Schedule 3.23
there are no material licenses, sublicenses, covenants or agreements which have
been entered into by the Company or any of its Subsidiaries with respect to any
patents, trade secrets, trademarks, trade names, brand names or copyrights. None
of the Company nor any of its Subsidiaries is in default in any material respect
under or in relation to any such license, sublicense, covenant or agreement.
(b) There is no claim by or demand of any person pertaining to, and
there is no pending or, to the best knowledge of the Company, threatened action,
suit, proceeding or investigation relating to any rights of the Company or any
of its Subsidiaries in respect of any patents, trade secrets, trademarks, trade
names, brand names or copyrights used in the business or operations of the
Company or any of its Subsidiaries, the outcome of which could reasonably be
expected to have a material adverse effect on the business, financial condition
or operations of the Company or any of its Subsidiaries.
(c) No patent, trade secret, trademark, trade name, brand name or
copyright owned or used by the Company or any of its Subsidiaries (i) is, to the
Company's knowledge, being infringed by any person, or (ii) to the Company's
knowledge, infringes any patent, trade secret, trademark, copyright or other
intellectual property right of any person.
(d) Except as otherwise described in Schedule 3.23, none of the Company
nor any of its Subsidiaries is a party to or bound by any agreement or contract
(whether written or, to its knowledge, oral) containing any covenant prohibiting
the Company or any of its Subsidiaries from competing in any business of any
kind in any territory or from competing with any person, or prohibiting the
Company or any of its Subsidiaries from doing any kind of business with any
person.
3.24. Brokers. Except as set forth on Schedule 3.24, no finder, broker,
agent or other intermediary has acted for or on behalf of the Company or any or
its Subsidiaries in connection with the negotiation or consummation of the
transactions contemplated hereby, and no fee will be payable by the Company or
any of its Subsidiaries to any such person in connection with such transactions.
-21-
3.25. Real Property Holding Corporation. The Company hereby represents
and certifies that it is not a "United States real property holding corporation"
within the meaning of Section 897 of the Code, as amended, and Treasury
Regulation Section 1.897-2.
3.26. Year 2000. To the Company's knowledge, all hardware and software
products used by the Company and each of its Subsidiaries in the administration
and the business operations of such Person will be able to accurately process
date data (including, but not limited to calculating, comparing and sequencing)
from, into and between the twentieth century (through year 1999), the year 2000
and the twenty-first century, including leap year calculations, when used in
accordance with the product documentation accompanying such hardware and
software products.
3.27 Qualified Small Business Stock. The Company shall submit to its
stockholders (including the Investors) and to the Internal Revenue Service any
reports that may be required under Section 1202(d)(1)(C) of the Code and the
Regulations promulgated thereunder. In addition, within ten days after any
Investor written request therefor, the Company shall deliver to such Investor a
written statement indicating whether such Investor's interest in the Company
constitutes "qualified small business stock" as defined in Section 1202(c) of
the Code.
3.28. Disclosure. No representation, warranty or statement made in this
Agreement, any Related Agreement, the Plan or any agreement, certificate,
statement or document furnished by or on behalf of the Company in connection
herewith or therewith contains any untrue statement of material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances in which they were made, not
misleading.
4. REPRESENTATIONS AND WARRANTIES OF INVESTORS.
Each of you severally, and not jointly, represents and warrants to the
Company, as to yourself only, that, as of the Closing:
4.1. Organization and Good Standing. Such Investor is duly organized
and existing in good standing in its jurisdiction of organization and is
authorized to do business in all other jurisdictions in which the nature of its
business or property makes such qualification necessary, except where the
failure to so qualify would not be expected to materially adversely affect such
Investor's business or financial condition. Such Investor has the requisite
power to own its properties and to carry on its business as now conducted and as
proposed to be conducted.
4.2. Authority; Enforceability. Such Investor has all requisite power
and full legal right and authority to enter into this Agreement and each of the
Related Agreements to which it is a party, to perform all of its agreements and
obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby. This Agreement and each of the other Related
Agreements to which such Investor is a party has (or will have at Closing) been
duly executed and delivered by such Investor and constitutes
-22-
(or will constitute at Closing) its legal, valid, and binding obligation,
enforceable against it in accordance with its terms, except to the extent that
enforcement may be limited by any applicable bankruptcy, insolvency,
reorganization, or other laws affecting creditors' rights generally or by
general principles of equity.
4.3. Governmental Consents. No consent, approval or authorization of,
or registration, qualification or filing with, any governmental agency or
authority is required for the execution and delivery by such Investor of this
Agreement, or for the consummation by such Investor of the transactions
contemplated hereby.
4.4. Investment Representation. Such Investor is (i) an "accredited
investor" as defined in the Securities Act, and (ii) acquiring the Purchased
Securities for investment and not with a view to selling or otherwise
distributing the Purchased Securities; provided, however, that the disposition
of such Person's property shall at all times be and remain in its control,
subject to the provisions of Section 12 hereof.
4.5. Brokers. Such Investor has not retained or been represented by any
broker, agent, finder or other intermediary in connection with the negotiation
or consummation of the transactions contemplated by this Agreement.
5. CONDITIONS TO PURCHASE.
Each of your obligation to purchase the Purchased Securities pursuant
to this Agreement is subject to compliance by the Company with its agreements
herein contained, and to the satisfaction, on or prior to the Closing Date, of
the following conditions:
5.1. Financing Agreements. Each of the Financing Agreements shall have
been executed and delivered in a form satisfactory to you, and each of the
Financing Agreements shall be in full force and effect and no term or condition
thereof shall have been amended, modified or waived except with your prior
written consent. All covenants, agreements and conditions contained in the
Financing Agreements which are to be performed or complied with on or prior to
the Closing Date shall have been performed or complied with (or waived with your
prior written consent).
5.2. Charter Documents; Good Standing Certificates. You shall have
received (i) a copy, certified by the applicable Secretary of State to be true
and complete as of a date not more than five (5) days prior to the Closing Date,
of the Charters of the Company and each of its Subsidiaries, (ii) a copy,
certified by a duly authorized officer of the Company to be true and complete as
of the Closing Date, of the by-laws of each of the Company and its Subsidiaries,
and (iii) certificates, dated not more than 15 days prior to the Closing Date,
of the applicable Secretary of State as to the Company's and each of its
Subsidiaries' corporate good standing or qualification to do business, as the
case may be, in such state.
-23-
5.3. Proof of Corporate Action, Consents and Waivers. You shall have
received from the Company copies, certified by a duly authorized officer thereof
to be true and complete as of the Closing Date, of the records of (i) all action
taken to authorize the execution, delivery and performance of this Agreement and
each of the Related Agreements to which the Company is or is to become a party,
and (ii) all consents and waivers from stockholders of the Company and any other
third parties required for the Company's execution, delivery or performance of
any Financing Agreement.
5.4. Incumbency Certificate. You shall have received from the Company
an incumbency certificate, dated the Closing Date, signed by a duly authorized
officer of the Company and giving the name and bearing a specimen signature of
each individual who shall be authorized to sign, in the name and on behalf of
the Company, this Agreement and each of the Related Agreements to which the
Company is or is to become a party, and to give notices and to take other action
on behalf of the Company under each of such documents.
5.5. Legal Opinion. You shall have received from ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇,
P.A., counsel to the Company, a favorable opinion, in form acceptable to you and
your counsel and covering such matters with respect to the transactions
contemplated by this Agreement and the Related Agreements as you or your counsel
may reasonably request.
5.6. Representations and Warranties; Officers' Certificates. The
representations and warranties contained or incorporated by reference herein
shall be true and correct on and as of the Closing Date; no event or condition
shall have occurred or would result from the issuance of any of the Securities
which would be a Default or an Event of Default on and as of the Closing Date,
and the Company shall have performed and complied with all conditions and
agreements required to be performed or complied with by it prior to the Closing;
and you shall have received on the Closing Date a certificate to these effects
signed by an authorized officer of the Company.
5.7. Legality; Governmental Authorization. The purchase of the
Purchased Securities shall not be prohibited by any law or governmental order or
regulation, and shall not subject you to any penalty, special tax, or other
onerous condition. All necessary consents, approvals, licenses, permits, orders
and authorizations of, or registrations, declarations and filings with, any
governmental or administrative agency or of or with any other Person, with
respect to any of the transactions contemplated by this Agreement or any of the
Related Agreements shall have been duly obtained or made and shall be in full
force and effect.
5.8. Payment of Certain Fees and Disbursements. GMN and RCP shall have
received aggregate payments of $100,000 for all out-of-pocket expenses incurred
in connection with the transactions contemplated by this Agreement and the
Related Agreements, including, but not limited to, due diligence costs and
travel expenses and all legal fees reasonably charged and all charges for costs,
expenses and disbursements incurred by counsel to the Investors through the
Closing Date in connection with the transactions
-24-
contemplated by this Agreement and the Related Agreements. The Company shall
also pay all reasonable out-of-pocket expenses incurred by Carefree Capital in
connection with the transactions contemplated by this Agreement and the Related
Agreements, including, but not limited to, due diligence costs and travel
expenses.
5.9. SBIC Documentation. The Company shall have executed and delivered
to you all documents required by you in connection with the investment
contemplated hereby under the rules and regulations applicable to you by virtue
of your status as a "small business investment company", including without
limitation, SBA Form 480 (Size Status Declaration), SBA Form 652 (Assurance of
Compliance) and SBA Form 1031 (Portfolio Finance Report).
5.10. Board of Directors. The Board of Directors of the Company
immediately upon Closing shall include the members designated by GMN, RCP and
Carefree Capital, as set forth in the Stockholders' Agreement.
5.11. Statement of Designation of Series A Preferred Stock. The
Statement of Designation of Series A Preferred Stock of the Company, as set
forth in Exhibit D attached hereto, shall have been filed with the Minnesota
Secretary of State.
5.12. No Material Change. There shall not have been, or threatened to
be after giving effect to the transactions contemplated hereby, any material
damage to or loss or destruction of any properties or assets owned or leased by
the Company or any of its Subsidiaries (whether or not covered by insurance) or
any material adverse change in the business, financial condition or prospects of
the Company or any of its Subsidiaries or imposition of any laws, rules or
regulations which would materially adversely affect the business, operations,
prospects, properties, assets or condition (financial or otherwise) of the
Company or any of its Subsidiaries.
5.13. General. All instruments and legal, governmental, administrative
and corporate proceedings in connection with the transactions contemplated by
this Agreement and the Related Agreements shall be satisfactory in form and
substance to you, and you shall have received copies of all documents,
including, without limitation, records of corporate or other proceedings,
opinions of counsel, consents, waivers, licenses, approvals, permits and orders
which you have requested in connection therewith.
5.14. Stock Ledger. The Company shall have provided to GMN, RCP and
Carefree Capital with a copy of its stock ledger.
6. COVENANTS APPLICABLE TO THE COMPANY WHILE AT LEAST 10% OF SERIES A
PREFERRED SHARES ARE OUTSTANDING.
The Company covenants that, until less than ten percent (10%) of the
Series A Preferred Shares are outstanding (except as provided in Sections 6.13
and 6.18), the Company will comply and will cause each of the Company's
Subsidiaries to comply with Sections 6.1 through 6.18, unless otherwise
consented to in writing by the Holders:
-25-
6.1. Records and Accounts. The Company and each of its Subsidiaries
will keep true and accurate records and books of account in which full, true and
correct entries will be made in accordance with Generally Accepted Accounting
Principles and maintain adequate accounts and reserves for all taxes (including
income taxes), all depreciation, depletion, obsolescence and amortization of its
properties and all other contingencies.
6.2. Corporate Existence; Maintenance of Properties. The Company and
each of its Subsidiaries will preserve and keep in full force and effect its
legal existence, rights and qualifications to do business. Neither the Company
nor any of its Subsidiaries will engage in any business other than the business
currently being conducted by such Person. The Company and each of its
Subsidiaries will maintain all of its properties used or useful in the conduct
of its business in good condition, repair and working order and cause to be made
all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section 6.2
shall prevent the Company or any of its Subsidiaries from discontinuing the
operation and maintenance of any of such properties if such discontinuance is,
in the judgment of the Company, desirable in the conduct of such Person's
business and does not in the aggregate materially adversely affect the business,
assets or financial condition of the Company and its Subsidiaries.
6.3. Insurance. The Company and each of its Subsidiaries will maintain
with financially sound and reputable insurance companies, funds or underwriters
insurance of the kinds, covering the risks and in the relative proportionate
amounts usually carried by reasonable and prudent companies conducting
businesses similar to that of such Person.
6.4. Taxes. The Company and each of its Subsidiaries will pay and
discharge, or cause to be paid and discharged, before the same shall become
overdue, all material taxes, assessments and other governmental charges imposed
upon the Company and each of its Subsidiaries and their real properties, sales
and activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies, which if unpaid might by
law become a Lien or charge upon any of their properties; provided, however,
that any such tax, assessment, charge, levy or claim need not be paid if the
validity or amount thereof shall currently be contested in good faith by
appropriate proceedings and if the Company or any of its Subsidiaries shall have
set aside on its books adequate reserves with respect thereto; and provided,
further, that the Company and its Subsidiaries will pay or cause to be paid all
such taxes, assessments, charges, levies or claims forthwith upon the
commencement of foreclosure on any Lien which may have attached as security
therefor.
6.5. Inspection of Properties and Books. The Company and each of its
Subsidiaries shall permit each Major Holder or any designated representatives of
a Major Holder to visit and inspect, upon reasonable notice to the Company and
during normal business hours, any of the major properties of the Company and its
Subsidiaries such as their corporate headquarters, to examine the books of
account of the Company and its Subsidiaries (and to
-26-
make copies thereof and extracts therefrom), and to discuss the affairs,
finances and accounts of the Company and its Subsidiaries with, and to be
advised as to the same by, officers of such Persons, all at such reasonable
times and intervals as you may reasonably request.
6.6. Compliance with Laws, Contracts, Licenses, and Permits. The
Company and each of its Subsidiaries will comply with (a) all applicable laws
and regulations wherever its business is conducted except where failure to so
comply would not be expected to materially adversely affect the Company's or
such Subsidiary's business or financial condition, (b) the provisions of its
Charter and by-laws, (c) all material agreements and instruments by which it or
any of its properties may be bound (including, without limitation, the Related
Agreements), and (d) all applicable decrees, orders, and judgments. If any
authorization, consent, approval, operating right, permit or license from any
officer, agency or instrumentality of any government shall become necessary or
required in order that the Company or any of its Subsidiaries may fulfill any of
its obligations hereunder, the Company and its Subsidiaries will immediately
take or cause to be taken all reasonable steps within its power to obtain such
authorization, consent, approval, operating right, permit or license and furnish
you with evidence thereof.
6.7. Further Assurances. The Company and each of its Subsidiaries will
cooperate with you and execute such further instruments and documents as you
shall reasonably request to carry out to your satisfaction the transactions
contemplated by this Agreement and the Related Agreements.
6.8 Directors and Officers Insurance; Key-Man Insurance. The Company
will maintain directors and officers liability insurance in an amount of
$3,000,000 or such other increased amount as would be ordinarily prudent in the
future given the size and activities of the Company. The Company shall have
obtained by January 31, 2000 and will maintain key-man life insurance policies
covering each of ▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇, each in the amount of at least
$3,000,000, in form and substance satisfactory to GMN, RCP and Carefree Capital.
6.9. Restrictions on Indebtedness. Neither the Company nor any of its
Subsidiaries will create, incur, assume, guarantee or be or remain liable,
contingently or otherwise, with respect to any Indebtedness other than the
following ("Permitted Indebtedness"):
(a) current liabilities incurred in the ordinary course of
business not incurred through (i) the borrowing of money, or (ii) the
obtaining of credit except for credit on an open account basis
customarily extended in connection with normal purchases of goods and
services;
(b) Indebtedness in respect of taxes, assessments,
governmental charges or levies and claims for labor, materials and
supplies to the extent that payment therefor shall not at the time be
required to be made in accordance with the provisions of Section 6.4
hereof;
-27-
(c) Indebtedness in respect of judgments or awards which have
been in force for less than the applicable period for taking an appeal
so long as execution is not levied thereunder or in respect of which
the Company or any of its Subsidiaries shall at the time in good faith
be prosecuting an appeal or proceedings for review and in respect of
which a stay of execution shall have been obtained pending such appeal
or review;
(d) endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the
ordinary course of business;
(e) Indebtedness in respect of operating leases incurred in
the ordinary course of business;
(f) Indebtedness under or in respect of the agreements or
instruments existing on the date of this Agreement listed and described
on Schedule 6.9 hereto, but only to the extent of the amounts listed
thereon; provided that approval of the Board of Directors of the
Company shall be necessary for any draws under the Revolving Promissory
Note issued pursuant to the Senior Credit Agreement; and
(g) Indebtedness incurred in connection with any purchase
money or capital lease financing of any Capital Expenditures permitted
hereunder, provided that the aggregate principal amount of such
Indebtedness incurred by the Company and its Subsidiaries during any
fiscal year shall not exceed 110% of the projected Capital Expenditures
for such fiscal year as set forth in the Plan; provided further that if
the actual EBITDA for the prior 12 months is greater than 60% of
projected EBITDA for the same period as set forth in the Plan, the
aggregate principal amount of such Indebtedness incurred by the Company
and its Subsidiaries during any fiscal year shall not exceed 110% of
the projected Capital Expenditures for such fiscal year as set forth in
the Plan without the prior approval of the Company's board of directors
and shall not exceed 150% of the projected Capital Expenditures for
such fiscal year as set forth in the Plan without the prior approval of
the Holders.
6.10. Restrictions on Liens. Neither the Company nor any of its
Subsidiaries will create or incur or suffer to be created or incurred or to
exist any Lien or other security interest of any kind upon any of its property
or assets of any character whether now owned or hereafter acquired, or upon the
income or profits therefrom; or transfer any of such property or assets or the
income or profits therefrom for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors; or acquire, or agree or have an option to
acquire, any property or assets upon conditional sale or other title retention
or purchase money security agreement, device or arrangement; or suffer to exist
for a period of more than 30 days after the same shall have been incurred any
Indebtedness or claim or demand against it which if unpaid might by law or upon
bankruptcy or insolvency, or otherwise, be given any priority whatsoever over
its general creditors (other than those claims which the Company or such
-28-
Subsidiary is contesting in good faith by appropriate proceedings and as to
which the Company or such Subsidiary shall have set aside on its books, adequate
reserves with respect thereto); or sell, assign, pledge or otherwise transfer
any accounts, contract rights, general intangibles or chattel paper, with or
without recourse; provided, however, that the Company and its Subsidiaries may
create or incur or suffer to be created or incurred or to exist any of the
following ("Permitted Liens"):
(a) Liens to secure taxes, assessments and other government
charges or claims for labor, material or supplies in respect of
obligations not overdue (other than any such overdue taxes, levies,
claims, assessments or charges, to the extent the payment therefor
shall not at the time be required to be made in accordance with the
provisions of Section 6.4 hereof);
(b) Deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age
pensions or other social security obligations, liquor licensing
requirements or state franchising requirements;
(c) Liens in respect of judgments or awards, the Indebtedness
with respect to which is permitted by Section 6.9(c);
(d) Liens of carriers, warehousemen, mechanics and
materialmen, and other like liens, in existence less than 60 days from
the date of creation thereof or in respect of obligations not overdue
or, if overdue, all such liens that the Company or such Subsidiary is
contesting in good faith by appropriate actions which prevent
enforcement of the lien;
(e) Encumbrances consisting of easements, rights of way,
zoning restrictions, restrictions on the use of real property and
irregularities in the title thereto, landlord's or lessor's Liens under
leases to which the Company or any of its Subsidiaries is a party, and
other minor Liens or encumbrances none of which interferes materially
with the use of the property affected in the ordinary conduct of the
business of the Company and its Subsidiaries and which defects do not
individually or in the aggregate have a material adverse effect on the
business, assets or financial condition of the Company or any of its
Subsidiaries;
(f) Liens presently outstanding as shown on Schedule 6.10
hereto;
(g) Purchase money security interests in or purchase money
mortgages on real or personal property acquired after the date hereof
to secure purchase money Indebtedness permitted by Section 6.9(g),
incurred in connection with the acquisition of such property, which
security interests or mortgages cover only the real or personal
property so acquired; and
(h) any other Liens securing amounts not in excess of $10,000
in the aggregate.
-29-
6.11. Distributions. Neither the Company nor any of its Subsidiaries
shall make any Distribution except (a) the Company may (i) redeem the Series A
Preferred Shares in accordance with the terms of the Statement of Designation of
Series A Preferred Stock of the Company, as set forth in Exhibit D attached
hereto, (ii) pay dividends to the holders of Series A Preferred Stock, in
accordance with the terms of the Company's Charter, and (iii) repurchase the
Warrants in accordance with Section 8.2 hereof, and (b) any Subsidiary may make
Distributions to the Company.
6.12. Capital Expenditures. In any fiscal year, the Company and its
Subsidiaries together will not make any Capital Expenditures which aggregate
more than 110% of the projected Capital Expenditures for such fiscal year as set
forth in the Plan; provided that if actual EBITDA for the prior 12 months is
greater than 60% of projected EBITDA for the same period as set forth in the
Plan, the Company and its Subsidiaries together may make Capital Expenditures
which aggregate up to 150% of the projected Capital Expenditures for such fiscal
year as set forth in the Plan with the prior approval of the Company's board of
directors and Capital Expenditures in excess of 150% of such projected Capital
Expenditures with the prior approval of the Company's board of directors and the
Holders. In any fiscal year, the Company and its Subsidiaries together will not
make any Capital Expenditures on a single restaurant in excess of 150% of the
projected Capital Expenditures for such restaurant for such fiscal year as set
forth in the Plan without the prior approval of the Company's board of directors
or in excess of 200% of the projected Capital Expenditures for such restaurant
for such fiscal year as set forth in the Plan without the prior approval of the
Holders. The Company and its Subsidiaries will not open in any fiscal year a
number of restaurants greater than 120% of the number of restaurants projected
to be opened during such fiscal year as set forth in the Plan; provided that if
the actual EBITDA for the prior 12 months is greater than 60% of projected
EBITDA for the same period as set forth in the Plan, the Company and its
Subsidiaries together may open in any fiscal year a number of restaurants up to
150% of the number of restaurants projected to be opened during such fiscal year
as set forth in the Plan with the prior approval of the Company's board of
directors and a number of restaurants in excess of 150% of the number of
restaurants projected to be opened during such fiscal year as set forth in the
Plan with the prior approval of the Company's board of directors and the
Holders.
6.13. Merger, Consolidation, Purchase or Sale of Assets. Neither the
Company nor any of its Subsidiaries will (a) become a party to any merger or
consolidation; provided that any Subsidiary of the Company may merge or
consolidate with the Company or any other Subsidiary of the Company; or (b)
sell, lease, sublease or otherwise transfer or dispose of any portion of its
assets with an aggregate value in excess of $100,000 in any fiscal year (other
than sales of assets in the ordinary course of business consistent with past
practice). Neither the Company nor any of its Subsidiaries will (i) acquire all
or substantially all of the capital stock or assets of any Person or (ii)
acquire any material assets outside the ordinary course of business; provided
that the Company may acquire restaurants subject to the restrictions set forth
in Section 6.12. Notwithstanding anything herein to the contrary, the
-30-
preceding sentence of this Section 6.13 shall be in full force and effect
through the Determination Date.
6.14. Investments. The Company will not, nor will it permit any of its
Subsidiaries to, have outstanding or acquire or commit itself to acquire or hold
any Investment except for the Investments set forth on Schedule 6.14 and except
Investments in: (a) marketable direct obligations issued or guaranteed by the
United States of America which mature within one year from the date of
acquisition thereof or which are subject to a repurchase agreement, exercisable
within 90 days from the date of acquisition of such agreement, with any
commercial bank or trust company incorporated under the laws of the United
States of America or any State thereof or the District of Columbia, (b)
commercial paper maturing within one year from the date of acquisition thereof
and having, at the date of acquisition thereof, the highest rating obtainable
from ▇▇▇▇▇'▇ Investors Service, Inc. or Standard & Poor's Corporation, (c)
bankers' acceptances eligible for rediscount under Federal Reserve Board
requirements accepted by any commercial bank or trust company referred to in
clause (a) hereof, (d) certificates of deposit maturing within one year from the
date of acquisition thereof issued by any commercial bank or trust company
referred to in clause (a) hereof and having capital and surplus of at least
$100,000,000 and having at least an "A" rating or better, (e) certificates of
deposit issued by banks organized under the laws of any other jurisdiction, each
having combined capital and surplus of not less than $100,000,000, and having at
least an "A" rating or better, and (f) wholly-owned Subsidiaries of the Company.
6.15. Employee Benefit Plans. Attached hereto as Schedule 6.15 is a
list of all employee benefit plans of the Company and its Subsidiaries. The
Company and each of its Subsidiaries will take all actions necessary to
maintain, fund, and administer its employee benefit plans in accordance with
federal, state and local law. Without limiting the foregoing, each of the
Company and its Subsidiaries (a) will not permit the aggregate present value of
the unfunded vested accrued benefits under all employee benefit plans of the
Company or such Subsidiary or any ERISA Affiliate to exceed $10,000, and will
not take any action which would result in the foregoing; (b) will furnish to you
a copy of any actuarial statement related to any pension plan maintained, funded
or contributed to by the Company or such Subsidiary which is required to be
submitted under Section 103(d) of ERISA, no later than the date on which such
statement is submitted to the Department of Labor or the Internal Revenue
Service; (c) will furnish to you forthwith a copy of (i) any notice of a pension
plan termination sent to the Pension Benefit Guaranty Corporation under Section
4041(a) of ERISA with respect to any pension plan maintained, funded or
contributed to by the Company or such Subsidiary, or (ii) any notice, report or
demand sent or received by a pension plan under Sections 4041, 4042, 4043, 4063,
4065, 4066 and 4068 of ERISA; and (d) will furnish to you a copy of any request
for waiver from the funding standards or extension of the amortization periods
required by Sections 303 and 304 of ERISA or Section 412 of the Code with
respect to any pension plan maintained, funded or contributed to by the Company
or such Subsidiary no later than the date on which the request is submitted to
the Department of Labor or the Internal Revenue Service, as the case may be.
-31-
6.16. Activities and Use of Proceeds. (a) Neither the Company nor any
of its Subsidiaries will engage in any activity or use directly or indirectly
the proceeds from the sale of the Purchased Securities for any purpose for which
a "small business investment company" is prohibited from providing funds by the
Small Business Act.
(b) The Company will use the proceeds from the sale of the Purchased
Securities for the purposes set forth in Section 2.4 hereof. The Company will
deliver within ninety (90) days following the Closing Date a written report,
certified as correct by the Company's President, verifying the purposes and the
amounts for which proceeds from the Purchased Securities have been disbursed.
The Company will supply to each of the Investors such additional information and
documents as each of the Investors may reasonably request with respect to the
use of proceeds and will permit each of the Investors to have access to any and
all records and information and personnel as each of the Investors deems
necessary to verify such use of proceeds.
(c) The Company will not, without obtaining the prior written approval
of GMN and RCP and any other Holder of Securities which is a "small business
investment company", change within one year following the Closing Date the
Company's business activity to a business activity which a "small business
investment company" is prohibited from providing funds under the Small Business
Act, nor will the Company engage in any business activity other than that
engaged in by the Company and its Subsidiaries as of the Closing Date and
businesses reasonably related thereto.
6.17. Sale and Issuance of Capital Stock. Neither the Company nor any
of its Subsidiaries will (a) issue, sell, give away, transfer, pledge, mortgage,
assign or otherwise dispose of, (b) grant any rights (either preemptive or
other) or options to subscribe for or purchase, or (c) enter into any
agreements, or issue any warrants, providing for the issuance of any of its
capital stock or any securities convertible into or exchangeable for any of its
capital stock, except for the Series A Preferred Shares, the Converted Common
Shares, the Warrants, the Warrant Shares, the grant of options and warrants
pursuant to the Management Stock Option Plan and the issuance of shares of
Common Stock upon the exercise thereof, the issuance of shares of Common Stock
upon the exercise of the warrants listed on Schedule 3.5(b) hereto and the
issuance of shares of Common Stock to certain prior holders of bridge notes from
the Company who previously converted such notes into Common Stock. Neither the
Company nor any of its Subsidiaries will authorize or permit to be authorized
any additional class or series of capital stock or other equity interest or
increase the number of shares of authorized capital stock from that set forth in
Section 3.5(a) hereof. Notwithstanding anything in this Section 6.17 to the
contrary, the Company may issue its Common Stock by means of a Qualified Public
Offering.
6.18 Projected Monthly EBITDA. For purposes of those provisions in this
Agreement referencing projected EBITDA for a prior 12-month period as set forth
in the Plan, the Company agrees that (a) by no later than January 31, 2000, it
will provide to GMN, RCP and Carefree Capital projected monthly EBITDA for the
Company's fiscal year ending December 2000, which projected monthly EBITDA in
the aggregate shall equal the
-32-
projected annual EBITDA for such fiscal year as set forth in the Plan, and (b)
for each fiscal year thereafter the annual budget approved by the board of
directors of the Company shall include projected monthly EBITDA for such fiscal
year which, in the case of fiscal years ending December 2001, 2002 and 2003,
shall equal at least the projected annual EBITDA for such fiscal year as set
forth in the Plan. GMN, RCP and Carefree Capital shall have the right to review
and approve such monthly EBITDA projections, which approval shall not be
unreasonably withheld.
7. COVENANTS APPLICABLE TO THE COMPANY WHILE AT LEAST 10% OF SERIES A
PREFERRED SHARES ARE OUTSTANDING.
The Company covenants that, until less than ten percent (10%) of the
Series A Preferred Shares are outstanding (except as provided in Section 7.7),
the Company will comply and will cause each of the Company's Subsidiaries to
comply with Sections 7.1 through 7.12, unless otherwise consented to in writing
by the Holders:
7.1. Annual Statements. As soon as available and in any event within
120 days after the close of the fiscal year of the Company commencing with the
fiscal year ending on December 26, 1999, the Company will deliver to each Major
Holder consolidated and consolidating balance sheets and consolidated statements
of income and retained earnings and consolidated statements of cash flows of the
Company and its Subsidiaries audited by an independent public accounting firm
selected by the Company and acceptable to the Board of Directors (provided that
if the accounting firm approved by the Board of Directors is not one of the
so-called "Big 5 Accounting Firms", the accounting firm shall be subject to the
approval of the Holders), showing the consolidated financial condition of the
Company and its Subsidiaries as of the close of such fiscal year and the
consolidated results of the Company's and its Subsidiaries' operations during
such fiscal year. Each of the financial statements delivered hereunder shall be
certified without qualification (except any qualifications as the Holders may in
their discretion approve in writing) by such accounting firm to have been
prepared in accordance with Generally Accepted Accounting Principles
consistently applied, accompanied by an agreed upon procedures report from such
accounting firm and by the written statement of such accounting firm that no
Default or Event of Default exists, or if such firm shall have obtained
knowledge of any such Default or Event of Default or other event, setting forth
the nature thereof.
7.2. Quarterly Statements. Within 30 days after the end of each fiscal
quarter commencing with the first fiscal quarter ending after the Closing Date,
the Company will deliver to each Major Holder internal, unaudited consolidated
and consolidating balance sheets and consolidated statements of income, retained
earnings and cash flows of the Company and its Subsidiaries as of the end of
such fiscal quarter and for the year to date, certified by both the President
and the Treasurer or chief financial officer of the Company to be true and
correct and to have been prepared in accordance with Generally Accepted
Accounting Principles, consistently applied (subject to normal year-end
adjustments and the absence of footnotes).
-33-
7.3. Monthly Statements. Within 30 days after the end of each month
commencing with the month ending November 30, 1999, the Company will deliver to
each Major Holder internal, unaudited consolidated and consolidating balance
sheets and consolidated statements of income of the Company and its Subsidiaries
as of the end of each such month and for the year to date, certified by both the
President and the Treasurer or chief financial officer of the Company to be true
and correct and to have been prepared in accordance with Generally Accepted
Accounting Principles consistently applied (subject to normal year-end
adjustments and the absence of footnotes).
7.4. Other Financial Information. The Company will deliver to each
Major Holder, at least 30 days prior to the commencement of each fiscal year, an
annual budget and projected monthly balance sheets and statements of income for
such fiscal year, prepared on a comparative basis to the Projections and, as
soon as practical after preparation thereof, complete and correct copies of all
quarterly (if any) or annual budgetary analyses or forecasts of the Company in
the form customarily prepared by management for its own internal use or the use
of the board of directors of the Company. In addition, the Company will deliver
to each Major Holder copies of all documents and materials furnished from time
to time to any director on the Company's board of directors in connection with
any meeting thereof.
7.5. Officers' Certificates. Together with delivery of consolidated
financial statements of the Company pursuant to Sections 7.1 and 7.2 above, the
Company will deliver to each Major Holder a certificate of the President, chief
financial officer or Treasurer of the Company, (a) stating that such statements
have been prepared in accordance with Generally Accepted Accounting Principles
consistently applied and present fairly the consolidated financial position of
the Company and its Subsidiaries as of the dates specified and the results of
its consolidated operations and cash flows with respect to the periods specified
(subject in the case of interim financial statements only to normal year-end
audit adjustments and a lack of footnotes), and (b) stating that such officers
have caused the provisions of this Agreement and the Securities to be reviewed
and have no knowledge of any Default or Event of Default, or if either such
officer has such knowledge, specifying such Default or Event of Default and the
nature thereof, and what action the Company has taken, is taking or proposes to
take with respect thereto.
7.6. Notice of Litigation, Defaults, Etc. The Company will promptly
give notice to each Major Holder of any litigation or any administrative
proceeding to which the Company or any of its Subsidiaries may hereafter become
a party which may result in any material adverse change in the business, assets,
or financial condition of the Company or any of its Subsidiaries. Forthwith upon
any officer of the Company obtaining knowledge of any Default or Event of
Default hereunder, any default or event of default under any Related Agreement
or any agreement relating to any Indebtedness for Borrowed Money, the Company
will furnish a notice specifying the nature and period of existence thereof and
in the case of a Default or Event of Default hereunder, what action the Company
has taken, is taking or proposes to take with respect thereto. Promptly after
the receipt thereof, the
-34-
Company will provide copies of any reports as to
inadequacies in accounting controls submitted by independent accountants with
respect to the Company and its Subsidiaries.
7.7. Right to Attend Meetings. This Section 7.7 shall apply until the
earlier of (i) the later of the date on which less than 10% of the Series A
Preferred Shares are outstanding and the date on which the Investors own less
than 50% of the Securities and (ii) the date as of which the Company has not
dropped below $200,000,000 in market capitalization at any time during the
immediately preceding 12 months.
(a) The Company will call and hold a meeting of its board of directors
at least once each fiscal quarter. Pursuant to the terms and provisions of the
Stockholders' Agreement, GMN shall have the right to one seat on the board of
directors of the Company, which at the Closing Date will be occupied by ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, or such other person designated by GMN; RCP shall have the right to one
seat on the board of directors of the Company, which at the Closing Date will be
occupied by J. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ or such other person designated by RCP; and
Carefree Capital shall have the right to one seat on the board of directors of
the Company, which at the Closing Date will be occupied by ▇▇▇▇ ▇▇▇▇▇▇ or such
other person designated by Carefree Capital. Each of the persons designated by
GMN, RCP and Carefree Capital pursuant to the immediately preceding sentence
shall be subject to the approval of a majority of the other members of the board
of directors of the Company (including the members appointed by the other
Investors), which approval shall not be unreasonably withheld; provided that
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, J. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇ are hereby approved.
Pursuant to the terms and provisions of the Stockholders' Agreement, if the
Company's EBITDA for any twelve-month period, calculated on a rolling basis, is
less than 50% of the EBITDA projected in the Plan for the same twelve-month
period, the Investors shall have the right to appoint, collectively, two
additional members of the board of directors of the Company. Pursuant to the
Stockholders' Agreement, if (i) a Liquidity Event has not occurred by the sixth
anniversary date of this Agreement, or (ii) the Company has EBITDA in any
twelve-month period of less than $3,000,000, the Investors shall have the right
to appoint additional directors to the board of directors of the Company
sufficient to obtain voting control of such board. The Company will give the
directors designated by GMN, RCP and Carefree Capital prior written notice of
the time, place and subject matter of any proposed meeting (or action by written
consent) of the board of directors of the Company or any committee thereof in
accordance with the by-laws of the Company, such notice in all cases to include
true and complete copies of all documents furnished to any other director in
connection with such meeting or consent. The Company shall reimburse the
directors appointed pursuant to this Section 7.7 for all reasonable
out-of-pocket travel expenses incurred in connection with attendance at Board
meetings or committees thereof.
(b) If at any time an Investor is not entitled to such Investor's seat
on the board of the directors of the Company (because it chooses not to
designate any individual to fill such seat), such Investor shall be entitled to
have an observer at each board meeting and such observer shall be entitled to
receive notice and information as set forth in paragraph (a)
-35-
above. Any such observer will be entitled to attend any meeting of the Company's
board of directors or, if a meeting is held by telephone conference, to
participate therein by telephone.
(c) Within 90 days after the financial statements required by Section
7.1 hereof are furnished and upon prior written notice as provided by the
by-laws of the Company, the Company will hold an annual meeting of its
stockholders at which the principal executive, financial and operations officers
of the Company will present a review of, and will discuss with those in
attendance, in reasonable detail, the general affairs, management, financial
condition, results of operations and business prospects of the Company.
7.8. Other Information. The Company will deliver to each Person
entitled to receive notice pursuant to Section 7.7(a) of board meetings and
consents copies of all papers which may be distributed from time to time to the
directors or stockholders of the Company at such time as such papers are so
distributed to them. In addition, from time to time upon your request or upon
the request of any representative designated by the Holders, the Company will
furnish to any authorized officer or representative of such Person such
information regarding the business, affairs, prospects and financial condition
of the Company and its Subsidiaries as such officer or representative may
reasonably request. Each such officer or representative shall have the right
during normal business hours to examine the books and records of the Company and
its Subsidiaries, to make copies, notes and abstracts therefrom, including, but
not limited to, the stock ledger of the Company and the list of the current
members of the Board of Directors of the Company, and to make an independent
examination of the books and records of the Company and its Subsidiaries.
7.9. Confidentiality. Each Major Holder, and its agents and
representatives, will hold in confidence all proprietary information of the
Company and its Subsidiaries provided or made available to such Major Holder
pursuant to this Section 7 until such time as such information has become
publicly available other than as a consequence of any breach by a Major Holder
of its confidentiality obligations hereunder.
7.10. Amendment of Related Agreements, Etc. Neither the Company nor any
of its Subsidiaries shall agree to any amendment or modification of its Charter
or by-laws, or agree to any amendment or modification of or grant any waiver or
fail to enforce any of its rights pursuant to any of the Related Agreements,
unless approved in each case by the Major Holders in writing or as otherwise
provided therein.
7.11. Budget. The Company's annual budget delivered in accordance with
the provisions set forth in Section 7.4 hereof shall be subject to the approval
of the board of directors of the Company. If actual EBITDA for the prior 12
months is less than 60% of projected EBITDA for the same period as set forth in
the Plan, the Major Holders shall also be entitled to review and approve such
annual budget, and in such case, no material modification of such budget shall
thereafter be made without the written consent of the Major Holders.
-36-
7.12. Transactions with Affiliates. Neither the Company nor any of its
Subsidiaries will (a) engage in any transaction with any Affiliate, or (b) make
any Restricted Payment other than payments made pursuant to the terms of any
Related Agreement as in effect on the Closing Date and the payments made to the
Company's counsel, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, P.A. and Robbins, Kelly, ▇▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇, for legal services rendered.
8. DEFAULTS.
8.1. Events of Default. Holders of the Securities will be entitled to
exercise the remedies provided by Section 8.2 hereof in accordance with the
terms thereof if any one or more of the following events ("Events of Default")
shall occur:
(a) the Company shall fail to redeem any Series A Preferred
Shares when required to do so pursuant to the Company's Charter or
shall fail to pay any dividends thereon when due in accordance with the
terms of the Charter;
(b) the Company or any of its Subsidiaries shall fail to
perform or observe any covenant, agreement or provision applicable to
it set forth in Sections 6.8, 6.9 through 6.13, 6.17 and 6.18 hereof;
provided that the failure to perform or observe any covenant, agreement
or provision applicable to it in Section 6.8 due to a clerical error
shall not be an Event of Default unless such failure shall not be
rectified, waived or cured to the satisfaction of the Holders within
thirty (30) days of written notice thereof to the Company;
(c) the Company or any of its Subsidiaries shall fail to
perform or observe any material covenant, agreement or provision
applicable to it, under this Agreement or any other Financing Agreement
to which it is a party, other than those provisions set forth in
Sections 8.1(a) and (b) above, and such failure shall not be rectified,
waived or cured to the satisfaction of the Holders within thirty (30)
days of written notice thereof to the Company;
(d) any representation or warranty made by the Company to you
in connection with this Agreement or any Related Agreement or any
amendment to this Agreement or any Related Agreement shall prove to
have been materially false on the date as of which it was made;
(e) the Company or any of its Subsidiaries shall fail (i) to
make any required payment on any Indebtedness for Borrowed Money in
excess of $100,000 or (ii) to perform or observe any of the material
covenants or provisions required to be performed or observed by it
pursuant to any of the Related Agreements, as amended from time to time
consistent with Section 7.10 and, in the case of each of (i) and (ii),
(x) such failure shall continue, without having been duly cured, waived
or consented to, beyond the period of grace, if any, therein specified
and so as to permit the acceleration thereof, if any acceleration is
provided for therein, or (y) any security
-37-
interest in or other Lien on any property securing any such
Indebtedness shall be enforced through judicial proceedings or
foreclosure or repossession of collateral;
(f) a final judgment which in the aggregate with other
outstanding final judgments against the Company or any of its
Subsidiaries exceeds $100,000 shall be rendered against the Company or
any of its Subsidiaries if, within 30 days after entry thereof, such
judgment shall not have been satisfied and discharged or stayed pending
appeal or bonded, or within 30 days after expiration of such stay such
judgment shall not have been discharged;
(g) the Company or any of its Subsidiaries shall:
(i) commence a voluntary case under Title 11
of the United States Code as from time to time in effect, or
authorize, by appropriate proceedings of its board of
directors or other governing body, the commencement of such a
voluntary case;
(ii) have filed against it a petition
commencing an involuntary case under said Title 11 and such
petition shall not have been dismissed or stayed within 45
days;
(iii) seek relief as a debtor under any
applicable law, other than said Title 11, of any jurisdiction
relating to the liquidation or reorganization of debtors or to
the modification or alteration of the rights of creditors, or
consent to or acquiesce in such relief;
(iv) have entered against it an order by a
court of competent jurisdiction (x) finding it to be bankrupt
or insolvent, (y) ordering or approving its liquidation,
reorganization or any modification or alteration of the rights
of its creditors, or (z) assuming custody of, or appointing a
receiver or other custodian for, all or a substantial part of
its property; or
(v) make an assignment for the benefit of,
or enter into a composition with, its creditors, or appoint or
consent to the appointment of a receiver or other custodian
for all or a substantial part of its property;
(h) the Company or any of its Subsidiaries shall fail to
maintain in full force and effect any federal, state or local license,
permit or operating right material to the operation of its business;
(i) the employment of ▇▇▇▇▇ ▇▇▇▇▇ shall be terminated for any
reason, including by resignation, except upon such Person's death or
disability, and the Company shall not have hired a replacement for any
such Person who has been approved by the Holders in writing within 120
days thereafter, such approval not to be unreasonably withheld; or
-38-
(j) there occurs any "Event of Default" under any Senior Debt
Document, and such Event of Default shall not be waived by the Senior
Lender or cured within thirty (30) days of the Company or the Senior
Lender becoming aware thereof.
8.2. Remedies. Upon the occurrence and continuance of any of the Events
of Default under Section 8.1 hereof, in each and every such case,
(a) the Holders of the Series A Preferred Shares may proceed
to protect and enforce its or their rights by suit in equity, action at
law and/or other appropriate proceedings either for specific
performance of any covenant, provision or condition contained or
incorporated by reference in this Agreement or in any Related
Agreement or in the Company's Charter, or in aid of the exercise of any
power granted in this Agreement, any Related Agreement or in the
Company's Charter, and (unless there shall have occurred an Event of
Default under Section 8.1(g) hereof, in which case the Series A
Preferred Shares shall automatically be redeemable) the Holders of the
Series A Preferred Shares may by notice to the Company declare the
Series A Preferred Shares to be forthwith redeemable, and thereupon the
liquidation value of the Series A Preferred Shares, together with
dividends accrued thereon and all other sums, if any, payable under the
Company's Charter shall become so due and payable without presentation,
presentment, protest or further demand or notice of any kind, all of
which are hereby expressly waived, and such holder or holders may
proceed to enforce payment of such amount or part thereof in such
manner as it or they may elect;
(b) the Holders of the Converted Common Shares may proceed to
protect and enforce its or their rights by suit in equity, action at
law and/or other appropriate proceeding for specific performance of any
covenant, provision or condition contained or incorporated by reference
in this Agreement or in any Related Agreement, or in aid of the
exercise of any power granted in this Agreement or any Related
Agreement; and
(c) the Holders of the Warrants and the Warrant Shares may
proceed to protect and enforce its or their rights by suit in equity,
action at law and/or other appropriate proceeding for specific
performance of any covenant, provision or condition contained or
incorporated by reference in this Agreement or in any Related
Agreement, or in aid of the exercise of any power granted in this
Agreement or any Related Agreement, and any such holder or holders may
proceed to enforce payment of such amount or part thereof in such
manner as it or they may elect.
Notwithstanding anything herein to the contrary, the Holders may waive an Event
of Default or deem a default cured, in which case such waiver or deemed cure
shall be binding upon all other Holders.
-39-
8.3. Waivers; Certain Notices. The Company and each of its Subsidiaries
hereby waives, to the extent not prohibited by applicable law, (a) all
presentments, demands for performance and notices of nonperformance (except to
the extent specifically required by the provisions hereof), and (b) any
requirement of diligence or promptness on the part of any holder of Securities
in the enforcement of its rights under the provisions of this Agreement, the
Charter of the Company, or any Financing Agreement. Notwithstanding anything
herein to the contrary, the Investors shall not be required to give the Company
or any of its Subsidiaries notice in order to exercise their rights to
additional board seats pursuant to Section 7.
8.4. Course of Dealing. No course of dealing between the Company or any
of its Subsidiaries on the one hand, and you or any Holder of Securities, on the
other hand, shall operate as a waiver of any of your or its rights under this
Agreement, the Charter of the Company, or any Financing Agreement. No delay or
omission in exercising any right under this Agreement, the Charter of the
Company, or any Financing Agreement shall operate as a waiver of such right or
any other right. A waiver on any one occasion shall not be construed as a bar to
or waiver of any right or remedy on any other occasion.
9. REGISTRATION RIGHTS.
You will have certain registration rights with respect to the Converted
Common Shares, the Warrants and the Warrant Shares as set forth in the
Registration Rights Agreement.
10. SUBSEQUENT HOLDERS OF SECURITIES.
Whether or not any express assignment has been made in this Agreement,
the provisions of this Agreement and the Financing Agreements that are for your
benefit as the holder of any Securities are also for the benefit of, and
enforceable by, all subsequent holders of Securities.
11. REGISTRATION AND TRANSFER OF SECURITIES.
11.1. Transfer and Exchange of Series A Preferred Shares, Converted
Common Shares and Warrant Shares.
(a) The Company shall keep at its principal office or its counsel's
office a register in which shall be entered the names and addresses of the
Holders of the Series A Preferred Shares, the Converted Common Shares and the
Warrant Shares and the particulars (including without limitation the class
thereof, if applicable) of the respective Series A Preferred Shares and/or
Converted Common Shares and Warrant Shares held by them and of all transfers of
shares of Series A Preferred Shares and/or Converted Common Shares and Warrant
Shares or conversions of shares of Series A Preferred Shares from one class to
another, as applicable. References to the "holder" or "holder of record" of any
Series A Preferred Shares and/or Converted Common Shares and Warrant Shares
shall mean the holder thereof unless the holder shall have presented the stock
certificates evidencing same
-40-
to the Company for transfer and the transferee shall have been entered in said
register as a subsequent holder, in which case the terms shall mean such
subsequent holder. The ownership of any of the Series A Preferred Shares and/or
Converted Common Shares and Warrant Shares shall be proven by such register and
the Company may conclusively rely upon such register.
(b) Upon surrender at such office of any certificate representing
shares of Series A Preferred Shares and/or Converted Common Shares or Warrant
Shares for registration of exchange or (subject to compliance with the
applicable provisions of this Agreement, including without limitation the
conditions set forth in Section 12 hereof) transfer or conversion, the Company
shall issue, at its expense, one or more new certificates, in such denomination
or denominations as may be requested, for shares of such class of Series A
Preferred Shares and/or Converted Common Shares or Warrant Shares, as
applicable, as may be requested, and registered as such holder may request. Any
certificate representing shares of Series A Preferred Shares and/or Converted
Common Shares or Warrant Shares surrendered for registration of transfer shall
be duly endorsed, or accompanied by a written instrument of transfer duly
executed by the holder of such certificate or his attorney duly authorized in
writing. The Company will pay shipping and insurance charges, from and to each
holder's principal office, upon any transfer, exchange or conversion provided
for in this Section 11.1.
(c) Each certificate evidencing Series A Preferred Shares and/or
Converted Common Shares or Warrant Shares, whether originally or in substitution
for, or upon transfer, conversion or exchange of, any Series A Preferred Shares
or Converted Common Shares or upon the exercise of any Warrant, as applicable,
shall be registered on the date of execution thereof by the Company. The
registered holder of record shall be deemed to be the owner of the Series A
Preferred Shares and/or Converted Common Shares or Warrant Shares, as
applicable, for all purposes of this Agreement. All notices given hereunder to
the holder of record shall be deemed validly given if given in the manner
specified in Section 14 hereof.
11.2. Registration, Transfer and Exchange of Warrants.
(a) The Company shall keep at its principal office a register in which
shall be entered the names and addresses of the Holders of Warrants issued by it
and particulars of the respective Warrants held by them and of all transfers of
such Warrants. The ownership of any of the Warrants shall be proven by such
register and the Company may conclusively rely upon such register.
(b) The Holder of any of the Warrants may at any time and from time to
time prior to exercise, repurchase or redemption thereof surrender any Warrant
held by it for exchange or (subject to compliance with Section 12 hereof)
transfer at said office of the Company. On surrender for exchange of the
Warrants, properly endorsed, to the Company, the Company at its expense will
issue and deliver to or on the order of the Holder thereof a new Warrant or
Warrants of like tenor, in the name of such Holder or, upon payment by such
-41-
Holder of any applicable transfer taxes, as such Holder may direct, calling on
the face or faces thereof for in the aggregate the Holder's Percentage (if prior
to the Determination Date) or the number of shares of Warrant Shares called for
on the face or faces of the Warrants so surrendered. The Company will pay
shipping and insurance charges, from and to each Holder's principal office,
involved in the exchange or transfer of any Warrant.
(c) Each Warrant issued hereunder, whether originally or in
substitution for, or upon transfer or exchange of, any Warrant shall be
registered on the date of execution thereof by the Company. The registered
Holder of a Warrant shall be deemed to be the owner of such Warrant for all
purposes of this Agreement. All notices given hereunder to such Holder shall be
deemed validly given if given in the manner specified in Section 14 hereof.
11.3. Replacement of Securities. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Security and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity bond in such reasonable amount as the Company may determine (or,
in the case of any Security held by any Investor or another institutional
Holder, an unsecured indemnity agreement from such Investor or such other Holder
reasonably satisfactory to the Company) or, in the case of any such mutilation,
upon the surrender of such Security for cancellation to the Company at its
principal office, the Company, at its own expense, will execute and deliver, in
lieu thereof, a new Security of like tenor. Any Security in lieu of which any
such new Security has been so executed and delivered by the Company shall not be
deemed to be outstanding for any purpose of this Agreement.
12. RESTRICTIONS ON TRANSFER.
12.1. General Restriction. The Securities shall be transferable only
upon the satisfaction of the conditions set forth below in this Section 12.
12.2. Notice of Transfer. Prior to any transfer of any Securities, the
Holder thereof shall be required to give written notice to the Company
describing in reasonable detail the manner and terms of the proposed transfer
and the identity of the proposed transferee (the "Transfer Notice"), accompanied
by (a) (i) a certificate of such Holder or the proposed transferee certifying
that such transferee is an "accredited investor", as defined in the Securities
Act, and (ii) if requested by the Company, an opinion, addressed to the Company,
of ▇▇▇▇▇▇▇ ▇▇▇▇ LLP or other counsel reasonably acceptable to the Company, that
such transfer may be effected without registration of such Securities under the
Securities Act, and (b) the written agreement of the proposed transferee to be
bound by all of the provisions hereof and of the Financing Agreements,
applicable to holders of such Securities hereunder or thereunder.
12.3. Restrictive Legends. Except as otherwise permitted by this
Section 12, each Security shall bear the legend specified for such Security in
Schedule 12.3 hereto.
-42-
12.4. Termination of Restrictions. The restrictions imposed by this
Section 12 upon the transferability of Securities shall terminate as to any
particular Securities when such Securities shall have been effectively
registered under the Securities Act or sold pursuant to a Public Sale. Whenever
any of such restrictions shall terminate as to any Securities, the holder
thereof shall be entitled to receive from the Company, at such Person's expense,
new Securities without such legends.
13. EXPENSES; INDEMNITY.
(a) The Company hereby agrees to pay on demand all reasonable
out-of-pocket expenses incurred by you in connection with any amendments or
waivers (whether or not the same become effective) of this Agreement or any
Related Agreement or any additional equity or debt financing of the Company,
including without limitation the reasonable legal fees and all charges for
costs, expenses and disbursements of ▇▇▇▇▇▇▇ ▇▇▇▇ LLP, the special counsel to
the Investors, in connection with any amendments, modifications, approvals,
consents or waivers hereunder or under any Related Agreement or any additional
equity or debt financing of the Company.
(b) The Company hereby further agrees to indemnify, exonerate and hold
you and your stockholders, officers, directors, employees, general partners,
limited partners and agents free and harmless from and against any and all
actions, causes of action, suits, losses, liabilities, damages and expenses
(including, without limitation, reasonable attorneys' fees and disbursements),
incurred in any capacity by any of the indemnitees as a result of or relating to
(A) any transaction financed or to be financed in whole or in part directly or
indirectly with proceeds from the sale of any of the Securities, or (B) the
execution, delivery, performance or enforcement of this Agreement (including,
without limitation, any failure by the Company to comply with any of its
covenants hereunder), the Related Agreements or any instrument contemplated
hereby or thereby, except, in each such case, for any such liabilities arising
from any indemnitee's breach of this Agreement, gross negligence or willful
misconduct.
(c) The Company hereby indemnifies you against and agrees that it will
hold you harmless from any claim, demand or liability for any broker's, finder's
or placement fees alleged to have been incurred by it in connection with the
transactions contemplated by this Agreement or the Related Agreements.
(d) Except to the extent otherwise expressly provided herein, the
Company shall pay on demand interest at a rate per annum equal to the lesser of
the maximum rate of interest permitted by law or 16% (compounded monthly) on all
overdue amounts payable under this Agreement until such amounts shall be paid in
full.
(e) The obligations of the Company under this Section 13 shall survive
payment or transfer of the Securities and the termination of this Agreement.
-43-
(f) In the event of any dispute involving the terms of this Agreement
or any Related Agreement or the exercise, enforcement or preservation of rights
under this Agreement or any Related Agreement, the prevailing party shall be
entitled to collect reasonable fees and expenses incurred by the prevailing
party in connection with such dispute from the other parties to such dispute.
14. NOTICES.
Any notice or other communication in connection with this Agreement,
any other Financing Agreement or the Securities will be in writing and shall be
deemed to be properly delivered if either personally delivered or sent by
telecopier, overnight courier or mailed certified or registered mail, return
receipt requested, postage prepaid, to the recipient at the address specified
below:
If to the Company, then to its address set forth on page 1
hereof, to the attention of the President or at such other address as
such person shall have specified by notice actually received by the
addressor, with a copy to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq., ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇,
P.A., 1100 International Centre, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇-▇▇▇▇.
If to GMN, then to its address set forth on page 1 hereof, to
the attention of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, or at such other address as GMN
shall have specified by notice actually received by the addressor, with
a copy to ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq., ▇▇▇▇▇▇▇ ▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇.
If to RCP, then to its address set forth on page 1 hereof, to
the attention of J. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, or at such other address as RCP
shall have specified by notice actually received by the addressor, with
a copy to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Frome ▇▇▇▇▇▇▇▇▇▇ &
Wolosky, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇.
If to any other Holder of any Security, to it at its address
set forth in the applicable register referred to in Section 11 hereof.
If to Carefree Capital, then to its address set forth on page 1 hereof,
to the attention of ▇▇▇▇ ▇▇▇▇▇▇, or at such other address as Carefree
Capital shall have specified by notice actually received by the
addressor, with a copy to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ P.L.L.P,
4200 IDS Center, ▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Any such notice shall be effective (a) if delivered personally or by telecopier,
when received, (b) if sent by overnight courier, when receipted for, and (c) if
mailed as described above, five (5) days after being so mailed.
15. SURVIVAL AND TERMINATION OF COVENANTS.
-44-
All covenants, agreements, representations and warranties made herein
or in any other document referred to herein or delivered to you pursuant hereto
shall be deemed to have been relied on by you, notwithstanding any investigation
made by you or on your behalf, and shall survive the execution and delivery to
you hereof and of the Securities.
16. AMENDMENTS AND WAIVERS.
Except as provided in Section 2.5, any term of this Agreement may be
amended and the observance of any term of this Agreement 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, with respect to
any provision of this Agreement which by its terms operates for the benefit of
such respective Holders. Notwithstanding the foregoing and Section 20, (a)
without the prior written consent of each Holder of Series A Preferred Shares,
Warrants or Warrant Shares with respect to whom such amendment or waiver is
made, no such amendment or waiver shall extend the scheduled date of any
required repurchase or redemption of any Series A Preferred Share, Warrant or
Warrant Shares held by such Holder or reduce the repurchase or redemption price
payable thereon or change any conversion right, (b) without the written consent
of the percentage of Securities referred to in the definition of "Majority
Holders" as in effect on the Closing Date, reduce the percentage of Securities
the Holders of which are required to consent to any such amendment or waiver, or
(c) without the written consent of the percentage of the Holders of each
Security required to exercise the remedies provided in Section 8.2 hereof,
increase such required percentage. Any amendment or waiver effected in
accordance with this Section 16 shall be binding upon each Holder of any
Security sold pursuant to this Agreement and the Company.
17. CONSENT TO JURISDICTION.
EACH OF THE COMPANY AND THE HOLDERS HEREBY AGREES TO SUBMIT TO THE
NON-EXCLUSIVE JURISDICTION OF THE COURTS IN AND OF THE STATES OF MINNESOTA AND
NEW YORK OVER ANY SUIT, ACTION OR PROCEEDING EXISTING UNDER OR RELATING TO THIS
AGREEMENT, THE SECURITIES OR ANY OF THE OTHER FINANCING AGREEMENTS, AND CONSENTS
THAT SERVICE OF PROCESS WITH RESPECT TO ALL COURTS IN AND OF THE STATES OF
MINNESOTA AND NEW YORK MAY BE MADE BY REGISTERED MAIL TO IT AT ITS ADDRESS SET
FORTH ON PAGE 1 HEREOF OR ON THE REGISTER REFERED TO IN SECTION 11.
18. RIGHT TO PUBLICIZE
The Company hereby acknowledges that each of the Investors will have
the right to publicize its investment in the Company as contemplated hereby by
means of a tombstone advertisement or other customary advertisement in
newspapers and other periodicals which advertisement shall be subject to the
prior written consent of the Company, which consent shall not be unreasonably
withheld. The Investors hereby acknowledge that the Company
-45-
will have the right to publicize their investment in the Company as contemplated
hereby, which publication shall be subject to the prior written consent of the
Investors, which consent shall not be unreasonably withheld.
19. WAIVER OF JURY TRIAL.
EACH OF THE COMPANY AND THE HOLDERS HEREBY EXPRESSLY WAIVES ANY RIGHT
IT MAY HAVE TO A JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING EXISTING UNDER OR
RELATING TO THIS AGREEMENT, THE SECURITIES OR ANY OF THE OTHER FINANCING
AGREEMENTS.
20. CONSENTS, APPROVALS, ETC. BY INVESTORS.
Any provision of this Agreement requiring (i) the consent or approval
of, (ii) that an agreement be in form and substance or an action be satisfactory
to, (iii) a matter be acceptable to, (iv) a representative or board member be
designated or appointed by, (v) action be taken or any request made by or (vi)
an Event of Default be waived or a default be deemed cured by, the Investors or
the Holders shall only require the consent, approval, acceptance, designation,
appointment, action by or request of, the satisfaction of or the waiver or
deemed cured by, as the case may be, the Majority Holders. For the avoidance of
doubt, any of the foregoing required to be given by Major Holders, shall be
given by each Major Holder.
21. MISCELLANEOUS.
This Agreement and the other Financing Agreements set forth the entire
understanding of the parties hereto with respect to the transactions
contemplated hereby and supersede any prior written or oral understandings with
respect thereto. The invalidity or unenforceability of any term or provision
hereof shall not affect the validity or enforceability of any other term or
provision hereof. The headings in this Agreement are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof. THIS
AGREEMENT IS INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT AND MAY BE EXECUTED
IN ANY NUMBER OF COUNTERPARTS WHICH TOGETHER SHALL CONSTITUTE ONE INSTRUMENT AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC SUBSTANTIVE
LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT
OF LAW PROVISION OR RULE THAT WOULD CAUSE THE APPLICATION OF THE DOMESTIC
SUBSTANTIVE LAWS OF ANY OTHER STATE, AND SHALL BIND AND INURE TO THE BENEFIT OF
THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS.
-46-
22. AGREEMENT TO PROVIDE DOCUMENTS AND INFORMATION.
The Company, in applying for the issuance and renewal of liquor
licenses for its Company-owned restaurants, may be required to submit
documentation from, and personal information concerning, its individual
shareholders. Depending on the jurisdiction, this documentation may include but
not be limited to applications and authorizations for criminal background checks
signed by individual shareholders and fingerprint cards for individual
shareholders. The required information may include, among other things, personal
background information concerning the shareholder and the shareholder's family,
personal financial information, criminal conviction record, and involvement in
other businesses holding liquor licenses. The Investor agrees to timely submit
to the Company upon its request such documentation and information as may be
required in connection with any application for the issuance or renewal of a
liquor license for any of the Company-owned restaurants.
[The remainder of this page is intentionally left blank]
-47-
If the foregoing corresponds with your understanding of our agreement,
kindly sign this letter and the accompanying copies thereof in the appropriate
space below and return one counterpart of the same to the Company, at its
address first listed above.
Very truly yours,
BUFFALO WILD WINGS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
President and Chief Executive Officer
Accepted and agreed to:
GMN INVESTORS II, L.P.
By: GMN INVESTORS LLC,
its general partner
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President
REGENT CAPITAL PARTNERS, L.P.
By: REGENT CAPITAL HOLDINGS, II, L.P.,
its general partner
By: REGENT CAPITAL HOLDINGS, INC.,
its general partner
By: /s/ J. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------------
J. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
Managing Director
-48-
CAREFREE CAPITAL PARTNERS,
LIMITED PARTNERSHIP,
A WYOMING LIMITED PARTNERSHIP
By: CAREFREE CAPITAL, INC.,
its general partner
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title:
--------------------------------------
SCHEDULE 1.4
TO
SECURITIES PURCHASE AGREEMENT
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
Deutche Bank Alex. ▇▇▇▇▇, Inc.
US Bancorp ▇▇▇▇▇ ▇▇▇▇▇▇▇
CIBC World Markets
Credit Suisse First Boston
▇▇▇▇ ▇▇▇▇▇▇▇▇ Corp.
▇▇▇▇▇▇▇▇▇, Lufkin & ▇▇▇▇▇▇▇▇, Inc.
The Bear ▇▇▇▇▇▇▇ Companies, Inc.
The ▇▇▇▇▇▇▇ ▇▇▇▇▇ Group, Inc.
▇▇▇▇▇▇ Brothers Holdings, Inc.
McDonald Investments
▇▇▇▇▇▇▇ ▇▇▇▇▇ & Company, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇ Group, Inc.
▇▇▇▇▇▇▇ ▇▇▇▇▇ Barney Holdings, Inc.
▇▇ ▇▇▇▇▇ Securities Corp.
▇▇▇▇▇▇ ▇▇▇▇▇▇ Partners, LLC
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ & Company, LLC
Warburg Dillon ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ & Co.
Friedman, Billings, ▇▇▇▇▇▇ Group, Inc.
Prudential
Banc of America Securities, LLC.
EXHIBIT A
INVESTORS
----------------------------------- -------------------- ---------------- ----------------
Series A Preferred Percentage of Aggregate
Name Shares Warrant Shares Purchase Price
----------------------------------- -------------------- ---------------- ----------------
GMN Investors II, L.P. 1,075,928 35.29% $3,000,035
----------------------------------- -------------------- ---------------- ----------------
Regent Capital Partners, L.P. 537,964 17.65% $1,500,018
----------------------------------- -------------------- ---------------- ----------------
Carefree Capital Partners, Limited 708,726 23.25% $1,976,158
Partnership, a Wyoming Limited
Partnership
----------------------------------- -------------------- ---------------- ----------------
EXHIBIT B
INSTRUMENT OF ADHERENCE
TO
SECURITIES PURCHASE AGREEMENT
The undersigned ____________________, a ________________ ("Purchaser"),
hereby subscribes for and agrees to purchase _________ shares of the Series A
Preferred Stock, $.01 par value, and Common Stock Purchase Warrants for ___ % of
the shares of Common Stock (the "Purchased Shares"), of Buffalo Wild Wings,
Inc., a Minnesota corporation (the "Company"), issuable pursuant to the
Warrants, for cash in the aggregate amount of $___________, pursuant to the
terms (including, but not limited to, Section 2.5) of that certain Securities
Purchase Agreement dated as of December 2, 1999 by and among the Company and the
other parties indicated therein, as supplemented hereby (the "Purchase
Agreement"). The Purchaser agrees that (a) the aggregate purchase price for the
Series A Preferred Shares is $____________, and (b) the aggregate purchase price
for the Common Stock Purchase Warrants is $__________, and will be reported as
such by the Purchaser and the Company for federal, state and local tax purposes.
As a condition to such purchase, the Purchaser hereby agrees to become
and be deemed an "Investor" party to the Purchase Agreement (and hereby, among
other things, as of the date hereof makes those representations and warranties
set forth in Section 4 of the Purchase Agreement). The Purchaser also agrees
that the Purchased Shares are deemed to be "Purchased Securities" for all
purposes under the Purchase Agreement.
This Instrument of Adherence will be effective, and will become a part
of the Purchase Agreement, upon acceptance by the Company.
-------------------------------
By
-----------------------------
Name:________________________
Title:_______________________
ACCEPTED:
BUFFALO WILD WINGS, INC.
By
----------------------------
President
Date: ________________________
-2-
EXHIBIT C
FORM OF WARRANT
EXHIBIT D
STATEMENT OF DESIGNATION OF SERIES A PREFERRED STOCK
