Exhibit 4.1
THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") AND APPLICABLE STATE SECURITIES LAWS. THIS NOTE AND THE
SECURITIES REPRESENTED HEREBY MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION UNDER SAID ACT AND ANY APPLICABLE
SECURITIES LAWS OR AN EXEMPTION THEREFROM UNDER SAID ACT OR LAWS. THE COMPANY
MAY REQUEST, AS A CONDITION TO ANY TRANSFER, AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO IT STATING THAT SUCH TRANSFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
THIS NOTE AND THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS
AND CONDITIONS OF THE REGISTRATION RIGHTS PROVISIONS ATTACHED HERETO AS EXHIBIT
A.
GOURMET GROUP, INC.
10% Convertible Note
Due ___________, 2007
No. __ US$
GOURMET GROUP, INC., a Nevada corporation (the "Issuer"), for value
received, hereby promises to pay to ______________________________, or
registered assigns, the principal sum of ______________________________
(US$__________) on __________, 2007 (the "Maturity Date"), together with
interest accruing thereon from ________ __, 2004 (the "Original Issue Date") at
the rate of ten percent (10%) per annum, compounded annually. In the event that
the Issuer does not make a required payment within fifteen (15) days after such
payment is due hereunder, the interest rate (to the extent that the payment of
such interest shall be legally enforceable) shall be fifteen percent (15%) per
annum on any outstanding principal and on any overdue interest, which amount
shall accrue daily, from the date such payment is due hereunder through and
including the date of payment.
Principal of this Note, and interest accrued thereon, shall be payable as
follows: interest accrued on this Note from the initial issue date to the first
anniversary thereof (the "First Anniversary Date") shall be payable on the First
Anniversary Date. Interest accruing after the First Anniversary Date on this
Note shall be payable quarterly in arrears on the last day of the third, sixth,
ninth, twelfth, fifteenth, eighteenth, twenty-first and twenty-fourth month
subsequent to the First Anniversary Date (the "Quarterly Payment Dates"). The
principal due under this Note shall be repaid in eight equal payments on each of
the Quarterly Payment Dates. Notwithstanding the foregoing, all principal then
outstanding on this Note and interest accrued thereon shall be due and payable
on the Acceleration Date (as defined in Section 15) against surrender of this
Note at the principal executive offices of the Issuer in the United States.
Payments of principal and of any interest on this Note shall be made in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts. Payments of principal of,
and interest on, this Note shall be made in accordance with the foregoing and
subject to applicable laws and regulations, by check mailed on or before the due
date for such payment to the person entitled thereto at such person's address
appearing on the Note Register (as hereinafter defined) or to such other address
as the holder of record of this Note (the "Registered Holder") may have
previously given notice to the Issuer in writing. If the principal on this Note
is accelerated, interest shall accrue and be payable until the date of payment.
The Issuer covenants that until this Note has been delivered to it for
cancellation, or monies sufficient to pay the principal of and interest in this
Note have been made available for payment and paid, it will at all times
maintain at its principal executive offices in the United States an office or
agency for the payment of the principal of and interest on the Notes as herein
provided. The Registered Holder will deliver this Note for cancellation
simultaneous with the payment of the final payment due hereunder.
1. Note.
This Note is one of a duly authorized issue of notes of the Issuer (herein
called the "Notes"), designated as "10% Convertible Note," limited in aggregate
principal amount to $1,500,000. The Notes have been offered and sold pursuant to
the Purchase Agreement, as defined below. The Notes are joint and several
direct, unconditional and general obligations of the Issuer.
2. Denominations. The Notes are issuable only in fully registered form and
in minimum authorized denominations of $50,000, subject to waiver by the Issuer.
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3. Transfer.
(a) So long as any Notes remain Outstanding (as defined in Section
13), the Issuer shall maintain at its principal executives offices in the United
States an office or agency where Notes may be presented or surrendered for
payment, where Notes may be surrendered for registration of transfer or
exchange, where Notes may be surrendered for conversion pursuant to Section 9
hereof, and where notices and demands to or upon the Issuer in respect of the
Notes may be served. The Issuer will at all times act as its own note registrar
and paying and transfer agent for such purposes, except that the stock transfer
agent then used by the Issuer will assist in the issuance of common stock on
conversion of the Notes, and agrees to cause to be kept at such office a
register (the "Note Register") in which, subject to such reasonable regulations
as it may prescribe, the Issuer will provide for the registration of Notes and
registration of transfers of Notes. As of the date this Note was originally
issued, such principal executive offices of the Issuer were located at ▇/▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇. The Issuer shall not change the location of its
principal executive offices unless the Issuer provides all Registered Holders
with no less than thirty (30) days prior written notice.
(b) The transfer of a Note is registrable on the Note Register upon
surrender of such Note at the principal executive offices of the Issuer duly
endorsed by, or accompanied by a written instrument of transfer in form
reasonably satisfactory to the Issuer duly executed by the Registered Holder
thereof, or the Registered Holder's attorney duly authorized in writing,
together with any certifications and representations which the Issuer may
reasonably require to reflect compliance with all applicable securities laws,
rules and regulations and the due authorization of the transaction. Upon such
surrender of this Note for registration of transfer, the Issuer shall execute
and deliver, in the name of the designated transferee or transferees, one or
more new Notes, dated the date of the execution thereof, of any authorized
denominations and of a like tenor, form and aggregate principal amount.
(c) At the option of the Registered Holder, upon request confirmed
in writing, Notes may be exchanged for Notes of any authorized denominations and
of a like tenor, form and aggregate principal amount upon surrender of the Notes
to be exchanged at the principal executive offices of the Issuer. Whenever any
Notes are so surrendered for exchange, the Issuer shall execute and deliver the
Notes which the Registered Holder making the exchange is entitled to receive.
Any registration of transfer or exchange will be effected only upon the Issuer
being reasonably satisfied with the documents of title and identity of the
person making the request and subject to compliance with applicable Federal and
state securities laws.
(d) All Notes issued upon any registration of transfer or exchange
of Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits, as the Notes surrendered upon such
registration of transfer or exchange. No service or other charges shall be made
for any registration of transfer or exchange, but the Issuer may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
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(e) Prior to due presentment of this Note for registration of
transfer, the Issuer may treat the person in whose name this Note is registered
as the owner hereof for all purposes, whether or not this Note be overdue, and
the Issuer shall not be affected by notice to the contrary.
4. Payments When Banking Institutions are Closed. In any case where the
due date for the payment of the principal of or interest on any Note shall be,
at any place of payment, a day on which banking institutions are authorized or
obligated by law to close, then payment of principal or interest, as the case
may be, need not be made on such date at such place but may be made on the next
succeeding day at such place which is not a day on which banking institutions
are authorized or obligated by law to close, with the same force and effect as
if made on the date for such payment, and interest shall accrue and be paid for
the period through and including the date of payment.
5. Taxes.
(a) The Issuer shall pay all stamp and other duties and taxes, if
any, which may be imposed by the United States or any political subdivision
thereof, any state or any political subdivision thereof or any other taxing
authority with respect to the issuance of the Notes.
(b) Except as specifically provided in this Note, the Issuer shall
not be required to make any payment with respect to any tax, assessment or other
governmental charge imposed by any government or any political subdivision or
taxing authorities thereof or therein.
6. Representations and Warranties of the Issuer. The Issuer hereby makes
to the Registered Holder as of the Original Issue Date the same representations
and warranties which the Issuer makes in Section 3 of that certain Note Purchase
Agreement ("Purchase Agreement") entered into between the Issuer and the
original Registered Holder of this Note on or about the Original Issue Date.
Such representations and warranties are incorporated herein by reference and are
hereby deemed to be made by the Issuer to the Registered Holder as though the
Registered Holder were the "Purchaser" in said Section 3 of the Purchase
Agreement.
7. Covenants of the Issuer. The Issuer hereby covenants and agrees for
itself and its subsidiaries that for so long as any of the Notes shall remain
Outstanding:
(a) it will duly and punctually pay the principal of and any
interest on the Notes in accordance with the terms hereof;
(b) it will do or cause to be done all things necessary to preserve
and keep in full force and effect its existence, rights (charters and statutory)
and franchises;
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(c) it will cause all material properties used or useful in the
conduct of its business to be maintained and kept in good condition, repair and
working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the reasonable judgment of the Issuer may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that the foregoing
shall not prevent the Issuer from discontinuing the operation or maintenance of
any such properties if such discontinuance is, in the reasonable judgment of the
Issuer, desirable in the conduct of its business or the business of any of its
subsidiaries, and not disadvantageous in any material respect to the holders of
Notes; and, provided, further, that the failure to comply herewith shall not be
deemed a breach or Event of Default (as hereinafter defined) hereof unless such
failure would have a material adverse effect on the business, financial
condition or results of operations of the Issuer and its subsidiaries, taken as
a whole (a "Material Adverse Effect");
(d) it will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all taxes, assessments and
governmental charges levied or imposed upon the Issuer or upon the income,
profits or property of the Issuer, and (ii) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon the
property of the Issuer; provided, however, that the Issuer shall not be required
to pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings; and, provided, further, that the failure
to comply herewith shall not be deemed a breach or Event of Default if it would
not have a Material Adverse Effect;
(e) it will furnish to each Registered Holder of Notes a copy of all
documents it is required to send to its shareholders at the time the same are
sent to shareholders, including, without limitation, annual reports and proxy
statements;
(f) as soon as it becomes aware of the same, it will give written
notice to each Registered Holder of Notes of any event or occurrence which by
itself or with notice or lapse of time or both would entitle the holders of the
Notes to declare the principal of and any interest on the Notes immediately due
and payable pursuant to Section 15 hereof;
(g) it will promptly obtain and maintain from time to time all
authorizations, permits, approvals, consents, licenses and exemptions which are
required under any applicable law or regulation to enable it to perform all of
its payment, conversion and other material obligations under the Notes or which
may be required for the validity or enforceability of the Notes; provided,
however, that the failure to obtain and maintain such authorizations, permits,
approvals, consents, licenses and exemptions as to material obligations other
than payment and conversion shall not constitute a breach or Event of Default
unless such non-compliance materially adversely affects the Issuer's ability to
comply with its obligations under the Notes; (h) it will duly and punctually
comply with and observe all statutes now or hereafter in force and all
ordinances, regulations and by-laws thereunder and all requirements and orders
of any government or other public authority, provided, however, that the failure
to comply herewith shall not be deemed a breach or Event of Default if it would
not have a Material Adverse Effect;
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(i) subject to reasonable limitations as may be imposed by the
Issuer, it will permit any representative of any Registered Holder or Holders of
at least $100,000 aggregate principal amount of the Notes to make, during normal
business hours and after reasonable notice, inspections of the property of, and
business operations being carried out by, the Issuer or any of its subsidiaries;
(j) subsequent to effecting the Charter Amendments, as defined in
the Purchase Agreement, it will authorize and reserve a sufficient number of
shares of its common stock, $.001 par value per share ("Common Stock"), to
provide for conversion of the Notes into shares of Common Stock; and
(k) it will lend the entire proceeds of each Note to Drinks
Americas, Inc. ("DA") promptly within three (3) business days of the Original
Issue Date of each of the Notes, upon delivery of a promissory note issued by
DA, evidencing such loan, substantially in the form attached hereto as Exhibit B
(collectively, the "DA Notes")
(l) it shall deposit all payments it receives with respect to the DA
Notes in a segregated bank account and it shall use the amounts deposited
therein exclusively to satisfy its obligations to pay principal and interest to
the Registered Holders under the Notes until the Notes are satisfied in full.
8. Registration Rights.
This Note is subject to the Registration Rights provisions set forth
in Exhibit A hereto. By accepting this Note or receiving any benefits hereunder,
the Registered Holder, and each successor Registered Holder, hereby agrees to
the provisions set forth in Exhibit A hereto.
9. Conversion Provisions.
(a) (i) Voluntary Conversion. Each Registered Holder of Notes may
convert all , and not less than all, of the principal amount of the Notes then
owned by such Registered Holder (and the interest accrued and unpaid thereon)
into shares of Common Stock of the Issuer at a conversion price equal to $0.75
(Seventy-Five Cents) per share of Common Stock, subject to adjustment as
provided in this Section 9 for a ninety-day period commencing on the later of
(i) the closing of the share exchange described in Sections 1 and 2 of that
certain Agreement and Plan of Share Exchange executed between the Issuer and DA,
attached as Exhibit C to the Purchase Agreement (the "Exchange Agreement") and
(ii) the commencement of trading of the Issuer or its Successor Company (as
hereinafter defined) on the Nasdaq Electronic Bulletin Board (the "NEBB").
Successor Company means the surviving entity resulting from the transitory
merger described in Section 2(c) of the Exchange Agreement. The conversion price
and the shares of the Company's common stock deliverable on conversation have
been determined taking into account the Reverse Split described in Section 2(c)
of the Exchange Agreement. If such Reverse Split is not effected as described in
Section 2(c) of the Exchange Agreement, the conversion price will be modified
accordingly.
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(a) (ii) Forced Conversion. Commencing on the tenth (10th) business
day after the first day on which a Registered Holder is entitled to exercise the
voluntary conversion rights provided in Section 9(a)(i), all, but not less than
all, of the principal amount of the Notes (and the interest accrued and unpaid
thereon) may be converted, at the option of Issuer, into shares of Common Stock
of the Issuer at the Conversion Price (as hereinafter defined), provided that
the closing bid price per share of the Common Stock of the Issuer, as reported
by Bloomberg, LP and quoted on the NEBB for the ten (10) consecutive trading
days immediately prior to the day notice of conversion under this Section
9(a)(ii) (the "Forced Conversion Notice") is sent to the Registered Holder, is
at least equal to the greater of $1 per share or the Conversion Price.
(b) The conversion right granted in Section 9(a)(i) hereof may be
exercised only by a Registered Holder of Notes, and in Section 9(a)(ii) only by
the Issuer and in each case the Registered Holder shall, by the surrender of the
certificate or certificates representing the Notes to be converted at the
principal executive offices of the Issuer against delivery of that number of
shares of Common Stock as shall be computed by dividing the face amount of the
Notes being converted by the Conversion Price on the Conversion Date. No
fractional shares shall be delivered on conversion of the Note and, in lieu
thereof, the number of shares of common stock deliverable on conversion shall be
rounded up to the next whole share. The Issuer will transmit the Common Stock
certificates issuable upon conversion of any Notes and a certificate
representing the balance of the Notes to the Registered Holder within ten (10)
business days after the Conversion Date. The term "Conversion Date" shall mean,
in the case of a Voluntary Conversion, the date the original Notice of
Conversion and Notes being converted are received by the Issuer, and in the case
of a Forced Conversion, the date the Notes being converted are received by the
Issuer. The term "Notice of Conversion" shall mean the written notice from the
Registered Holder to the Issuer requesting conversion of the Note or Notes
pursuant to this Section 9.
(c) All Common Stock which may be issued upon conversion of the
Notes will, upon issuance, be duly issued, fully paid and non-assessable and
free from all taxes, liens, and charges with respect to the issue thereof.
Subsequent to effecting the Charter Amendments, all times that any Notes are
Outstanding, the Issuer shall have authorized and shall have reserved for the
purpose of issuance upon such conversion into Common Stock of all Notes, a
sufficient number of shares of Common Stock to provide for the conversion of all
Outstanding Notes at then effective Conversion Price. Without limiting the
generality of the foregoing, if, at any time, the Conversion Price is decreased
or increased, the number of shares of Common Stock authorized and reserved for
issuance by the Issuer upon the conversion of the Notes shall be proportionately
increased or decreased, as the case may be.
(d) The Initial Conversion Price is $0.75 (Seventy-Five Cents) per
share of Common Stock (the "Initial Conversion Price"). The Initial Conversion
Price shall be adjusted as provided for below in this Section 9(d) (the Initial
Conversion Price and the Initial Conversion Price, as thereafter then adjusted,
shall be referred to as the "Conversion Price") and the Conversion Price from
time to time shall be further adjusted as provided for below in this Section
9(d). Upon each adjustment of the Conversion Price, the Registered Holders of
the Notes shall thereafter be entitled to receive upon conversion, at the
Conversion Price resulting from such adjustment, the number of shares of Common
Stock obtained by dividing the face amount of the Notes being converted by the
Conversion Price, as then adjusted. The Conversion Price shall be adjusted as
follows:
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(i) In the case of any amendment to the Certificate of Incorporation
of the Issuer to change the designation of the Common Stock or the rights,
privileges, restrictions or conditions in respect to the Common Stock or
division of the Common Stock, the Notes shall be adjusted so as to provide that
upon conversion thereof the Registered Holder shall receive, in lieu of each
share of Common Stock theretofore issuable upon such conversion, the kind and
amount of shares, other securities, money and property receivable upon such
designation, change or division by such holder issuable upon such conversion had
the conversion occurred immediately prior to such designation, change or
division. The Notes shall be deemed thereafter to provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 9. The provisions of this Subsection 9(d)(i) shall apply in
the same manner to successive reclassifications, changes, consolidations and
mergers.
(ii) If the Issuer shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares of Common Stock, or
declare a dividend or make any other distribution upon the Common Stock payable
in shares of Common Stock, the Conversion Price in effect immediately prior to
such subdivision or dividend or other distribution shall be proportionately
reduced, and conversely, in case the outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common Stock, the Conversion Price
in effect immediately prior to such combination shall be proportionately
increased.
(iii) Adjustments to Conversion Price.
(A) Upon Dilutive Issuances of Common Stock or Convertible
Securities. If the Issuer shall issue or sell shares of its Common Stock or
Common Stock Equivalents (as hereafter defined) without consideration or at a
price per share less than the Conversion Price, then the Conversion Price,
except as hereinafter provided, shall be reduced so as to be equal to an amount
determined by multiplying the Conversion Price by a fraction:
(1) the numerator of which shall be (x) the number of shares
of Common Stock outstanding immediately prior to the issuance of such additional
shares of Common Stock or Common Stock Equivalents (calculated on a
fully-diluted basis), plus (y) the number of shares of Common Stock or Common
Stock Equivalents which the aggregate consideration, if any, received by the
Issuer for the total number of such additional shares of Common Stock or Common
Stock Equivalents so issued would purchase at the Conversion Price in effect
immediately prior to such issuance, and
(2) the denominator of which shall be (x) the number of shares
of Common Stock outstanding immediately prior to the issuance of such additional
shares of Common Stock or Common Stock Equivalents (calculated on a
fully-diluted basis), plus (y) the number of such additional shares of Common
Stock or Common Stock Equivalents so issued.
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(B) Upon Dilutive Issuances of Warrants, Options and Purchase
Rights to Common Stock or Convertible Securities. For the purposes of this
Section 9(d)(iii), the issuance of any warrants, options, subscription or
purchase rights with respect to shares of Common Stock and the issuance of any
securities convertible into or exchangeable for shares of Common Stock, or the
issuance of any warrants, options, subscriptions or purchase rights with respect
to such convertible or exchangeable securities (collectively, "Common Stock
Equivalents"), shall be deemed an issuance of Common Stock with respect to
adjustments in the Conversion Price of the Notes. If, at the time of such
issuance or sale, the Consideration Per Share (as hereinafter defined) that may
be received by the Issuer for such Common Stock shall be less than the
Conversion Price then in effect, an adjustment to the Conversion Price shall be
made as provided herein. Any obligation, agreement or undertaking to issue
Common Stock Equivalents at any time in the future shall be deemed to be an
issuance of Common Stock Equivalents at the time such obligation, agreement or
undertaking is made or arises. No further adjustment of the Conversion Price
shall be made under this Section 9(d)(iii) upon the issuance of any shares of
Common Stock that are issued pursuant to the exercise, conversion or exchange of
any Common Stock Equivalents unless the actual Consideration Per Share resulting
from such exercise, conversion or exchange is less than the Consideration Per
Share based on which any adjustment previously made upon the issuance of any
such Common Stock Equivalents as above provided was calculated (or based on
which a determination was made that no adjustment was at that time required).
(C) Adjustments for Cancellation or Expiration of Common Stock
Equivalents. Should the Consideration Per Share of any such Common Stock
Equivalents be decreased from time to time, then, upon the effectiveness of each
such change, the Conversion Price will be that which would have been obtained
(A) had the adjustments made upon the issuance of such Common Stock Equivalents
been made upon the basis of the decreased Consideration Per Share of such
securities, and (B) had the adjustments made to the Conversion Price since the
date of issuance of such Common Stock Equivalents been made to such Conversion
Price as adjusted pursuant to clause (A) above. Any adjustment of the Conversion
Price pursuant to this paragraph which relates to any Common Stock Equivalent
shall be eliminated if, as, and when such Common Stock Equivalent expires or is
canceled without being exercised, or is repurchased by the Issuer at a price per
share at or less than the US$0.75, so that the Conversion Price for the Notes
effective immediately upon such cancellation or expiration shall be equal to the
Conversion Price that would have been in effect had the expired or canceled
Common Stock Equivalent not been issued. (D) Consideration Per Share. For
purposes of this Section 9(d)(iii), the consideration per share that may be
received by the Issuer upon the issuance and subsequent exercise, conversion or
exchange of Common Stock Equivalents (the "Consideration Per Share") shall be
determined as follows:
(1) The Consideration Per Share shall mean the amount equal to
the total amount of consideration, if any, received by the Issuer for the
issuance of such Common Stock Equivalents, plus the minimum amount of
consideration, if any, payable to the Issuer upon exercise, or conversion or
exchange thereof, divided by the aggregate number of shares of Common Stock that
would be issued if all such Common Stock Equivalents were exercised, exchanged
or converted.
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(2) The Consideration Per Share that may be received by the
Issuer shall be determined in each instance as of the date of issuance of Common
Stock Equivalents without giving effect to any possible future upward price
adjustments or rate adjustments that may be applicable with respect to such
Common Stock Equivalents.
(E) Consideration Other than Cash. If a part or all of the
consideration received by the Issuer in connection with the issuance of shares
of the Common Stock or the issuance of any of the securities described in this
Section 9(d)(iii) hereof consists of property other than cash, such
consideration shall be deemed to have a fair market value as is reasonably
determined in good faith by the Issuer's Board of Directors.
(F) Exceptions to Anti-dilution Adjustments; Reserved Employee
Shares. Section 9(d)(iii)(A) shall not apply with respect to:
(1) the issuance of shares of Common Stock upon the conversion
of any Notes;
(2) shares of Common Stock issued or issuable as a dividend or
other distribution on the Notes;
(3) shares of Common Stock (or options to purchase such shares
of Common Stock) issued, issuable, or that may be issued in the future or become
issuable to officers, employees, directors of, or consultants to, or strategic
partners of the Company pursuant to any option plan, stock purchase plan or
other stock bonus arrangement, as approved by the Board of Directors of the
Issuer;
(4) securities issuable pursuant to an underwritten public
offering;
(5) any securities issued in connection with any acquisition;
(6) debt securities with no equity feature; and (7) shares of
Common Stock issuable respect to the Reverse Split or the transitory merger
described in Section 2(c) of the Exchange Agreement.
(8) The Charter Amendments or the consequences thereof.
(9) Shares to be issued or are otherwise disclosed as being
issuable in the Exchange Agreement including Sections 2, 5(d) and 18 thereof.
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(iv) If any capital reorganization or reclassification of the
capital stock of the Issuer, or any consolidation or merger of the Issuer with
another corporation or entity, or the sale of all or substantially all of the
Issuer's assets to another corporation or other entity shall be effected in such
a way that holders of shares of Common Stock shall be entitled to receive
stocks, securities, other evidence of equity ownership or assets with respect to
or in exchange for shares of Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale (except as
otherwise provided below in this Section 9), lawful and adequate provisions
shall be made whereby the Registered Holder shall thereafter have the right to
receive upon the basis and upon the terms and conditions specified herein, such
shares of stock, securities, other evidence of equity ownership or assets as may
be issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of Common Stock
immediately theretofore purchasable and receivable upon the conversion of this
Note under this Section 9 had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case appropriate
provisions shall be made with respect to the rights and interests of such
Registered Holder to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Conversion Price and of the number
of shares of Common Stock receivable upon the conversion of this Note) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities, other evidence of equity ownership or assets thereafter
deliverable upon the conversion hereof (including an immediate adjustment, by
reason of such consolidation or merger, of the Conversion Price to the value for
the Common Stock reflected by the terms of such consolidation or merger if the
value so reflected is less than the Conversion Price in effect immediately prior
to such consolidation or merger). Subject to the terms of this Note, in the
event of a merger or consolidation of the Issuer with or into another
corporation or other entity as a result of which the number of shares of common
stock of the surviving corporation or other entity issuable to holders of Common
Stock of the Issuer, is greater or lesser than the number of shares of Common
Stock of the Issuer outstanding immediately prior to such merger or
consolidation, then the Conversion Price in effect immediately prior to such
merger or consolidation shall be adjusted in the same manner as though there
were a subdivision or combination of the outstanding shares of Common Stock of
the Issuer. The Issuer shall not effect any such consolidation, merger or sale,
unless, prior to the consummation thereof, the successor corporation (if other
than the Issuer) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and mailed or
delivered to the Registered Holder, the obligation to deliver to the Registered
Holder such shares of stock, securities, other evidence of equity ownership or
assets as, in accordance with the foregoing provisions, the Registered Holder
may be entitled to receive or otherwise acquire. If a purchase, tender or
exchange offer is made to and accepted by the holders of more than fifty percent
(50%) of the outstanding shares of Common Stock of the Issuer, the Issuer shall
not effect any consolidation, merger or sale with the Person having made such
offer or with any Affiliate (as hereinafter defined) of such Person, unless
prior to the consummation of such consolidation, merger or sale the Registered
Holder of this Note shall have been given a reasonable opportunity to then elect
to receive upon the conversion of this Note the amount of stock, securities,
other evidence of equity ownership or assets then issuable with respect to the
number of shares of Common Stock of the Issuer in accordance with such offer.
11
(e) Whenever the Conversion Price shall be adjusted pursuant to
Section 9(d) hereof, the Issuer shall issue a certificate signed by its
President or Vice President and by its Treasurer, Assistant Treasurer, Secretary
or Assistant Secretary, setting forth, in reasonable detail, the event requiring
the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated (including a description of the basis on which the
Board of Directors of the Issuer made any determination hereunder), and the
Conversion Price after giving effect to such adjustment, and shall cause copies
of such certificates to be mailed (by first-class mail, postage prepaid) to each
Registered Holder of Notes. The Issuer shall make such certificate and mail it
to each such holder promptly after each adjustment.
(f) No fractional Common Stock shall be issued in connection with
any conversion (or forced conversion, if applicable) of Notes, but in lieu of
such fractional shares, the Issuer shall make a cash payment therefor equal in
amount to the product of the applicable fraction multiplied by the Conversion
Price then in effect.
10. Charter Amendments. The Issuer intends to effect the Charter
Amendments described in Section 2(c) of the Exchange Agreement which will
include the transitory merger and Reverse Split described therein. The
conversion price contained herein assumes the Reverse Split has been effected.
Therefore, no adjustments to the conversion rights under the Notes will result
from the Charter Amendments. Furthermore, the Successor Company, resulting from
the transitory merger will be transferred and will assume all obligations of the
Issuer hereunder.
11. Assignment Rights. In the event that the exchange of shares described
in Sections 1 and 2 of the Exchange Agreement does not occur on or before 180
days after the Initial Closing as defined in the Purchase Agreement, each
Registered Holder upon delivery of the Note for cancellation shall have the
option to demand that DA Notes with the same principal amount as the Notes he
holds be assigned to him in full satisfaction of the Notes held by him (the
"Assignment"). Upon such Assignment, the Company will have no obligations to the
Registered Holder with respect to the Notes, including under the Purchase
Agreement, and all obligations owed by the Issuer to the Registered Holder with
respect to the Notes will be satisfied in full with no further action required
by any party.
12. Issuance of New Notes.
(a) If any mutilated Note is surrendered to the Issuer, the Issuer
shall execute and deliver in exchange therefor a new Note of like tenor and
principal amount, bearing a number not contemporaneously outstanding.
(b) If there is delivered to the Issuer (a) evidence to its
reasonable satisfaction of the destruction, loss or theft of any Note and (b)
such reasonable security or indemnity as may be required by it to save it
harmless, then, in the absence of notice to the Issuer that such Note has been
acquired by a bona fide purchaser, the Issuer shall execute and deliver in lieu
of any such destroyed, lost or stolen Note a new Note of like tenor and
principal amount and bearing a number not contemporaneously outstanding.
12
(c) Upon the issuance of any new Note under this Section 12, the
Issuer may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses connected therewith.
(d) Any new Note delivered pursuant to this Section 12 shall be so
dated that neither gain nor loss in interest shall result from such exchange.
(e) The provisions of this Section 12 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
13. Meetings.
(a) A meeting of holders of the Notes may be called at any time and
from time to time to make, give or take any request, demand, authorization,
direction, notice, consent, waiver or other action provided by the Notes to be
made, given or taken by holders of Notes or to modify, amend or supplement the
terms of the Notes as hereinafter provided. Notice of every meeting of holders
of Notes, setting forth the time and the place of such meeting and in general
terms the action proposed to be taken at such meeting, shall be given as
provided for in the terms of the Notes, not less than fifteen (15) nor more than
sixty (60) days prior to the date fixed for the meeting. Such meetings may be
called at any time for any such purpose by the Issuer or by the holders of at
least twenty-five percent (25%) in the aggregate principal amount of the
Outstanding Notes by, in the case of the holders, written request to the Issuer
setting forth in reasonable detail the action proposed to be taken at the
meeting. Upon receipt of any such request, the Issuer shall call such meeting
for such purposes by giving notice thereof.
(b) To be entitled to vote at any meeting of holders of Notes, a
person shall be a registered holder of Outstanding Notes or a person duly
appointed by an instrument in writing as proxy for such a holder. The persons
entitled to vote more than fifty percent (50%) in principal amount of the
Outstanding Notes shall constitute a quorum. The Issuer may make such reasonable
and customary regulations as it shall deem advisable for any meeting of holders
of Notes with respect to the appointment of proxies in respect of holders of
Notes, the record date for determining the registered owners of Notes who are
entitled to vote at such meeting (which date shall be set forth in the notice
calling such meeting hereinabove referred to and which shall be not less than
fifteen (15) nor more than sixty (60) days prior to such meeting), the
adjournment and chairmanship of such meeting, the appointment and duties of
inspectors of votes, the submission and examination of proxies, certificates and
other evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it shall deem appropriate.
(c) At any meeting of holders of Notes duly called and held as
specified above, upon the affirmative vote, in person or by proxy thereunto duly
authorized in writing, of the Registered Holders of not less than seventy-five
percent (75%) in aggregate principal amount of Outstanding Notes, or with the
written consent of the Registered Holders of not less than seventy-five percent
(75%) in aggregate principal amount of Outstanding Notes, the Issuer may modify,
amend or supplement the terms of the Notes in any way, and the holders of Notes
may make, take or give any request, demand, authorization, direction, notice,
consent, waiver or other action provided by the terms of the Notes to be made,
given or taken by holders of Notes; provided, however, that no such action may,
without the consent of Registered Holders of Notes owning ninety percent (90%)
or more in the aggregate principal amount of Outstanding Notes affected thereby,
(a) change the due date for the payment of the principal of or any interest on
any Note, (b) reduce the principal amount of any Note, the portion of such
principal amount which is payable upon acceleration of the maturity of such Note
or the interest rate thereon, (c) change the coin or currency in which or the
required places at which payment with respect to interest or principal in
respect of Notes is payable, (d) permit the Issuer to redeem the Notes (other
than as specifically provided in this Note), or (e) reduce the proportion of the
principal amount of Notes the vote or consent of the holders of which is
necessary to modify, amend or supplement the terms and conditions of the Notes
or to make, take or give any request, demand, authorization, direction, notice,
consent, waiver or other action provided hereby or thereby to be made, taken or
given.
13
(d) Any instrument given by or on behalf of any Registered Holder of
a Note in connection with any consent to or vote for any such modification,
amendment, supplement, request, demand, authorization, direction, notice,
consent, waiver or other action will be irrevocable once given and will be
conclusive and binding on all subsequent holders of such Note or any Note issued
directly or indirectly in exchange or substitution therefor or in lieu thereof.
Any such modification, amendment, supplement, request, demand, authorization,
direction, notice, consent, waiver or other action will be conclusive and
binding on all holders of Notes, whether or not they have given such consent or
cast such vote, and whether or not notation of such modification, amendment,
supplement, request, demand, authorization, direction, notice, consent, waiver
or other action is made upon the Notes. Notice of any modification or amendment
of, supplement to, or request, demand, authorization, direction, notice,
consent, waiver or other action with respect to the Notes shall be given to each
registered holder of Notes affected thereby, in all cases as provided herein.
(e) Notes executed and delivered after the effectiveness of any such
modification, amendment, supplement, request, demand, authorization, direction,
notice, consent, waiver or other action shall bear a notation in the form
reasonably approved by the Issuer as to any matter provided for in such
modification, amendment, supplement, request, demand, authorization, direction,
notice, consent, waiver or other action. New Notes modified to conform to any
such modification, amendment, supplement, request, demand, authorization,
direction, notice, consent, waiver or other action may be prepared by the Issuer
and executed and delivered in exchange for Outstanding Notes.
(f) For purposes of the provisions of the Notes, any Note executed
and delivered by the Issuer shall, as of any date of determination, be deemed to
be "Outstanding", except:
14
(i) Notes theretofore canceled by the Issuer or delivered to
the Issuer for conversion or cancellation or held by the Issuer for reissuance
but not reissued by the Issuer; or
(ii) Notes that have become due and payable at Maturity or
otherwise and with respect to which monies sufficient to pay the principal
thereof and any interest thereon shall have been made available to the
Registered Holders thereof; or
(iii) Notes in lieu of or in substitution for which other
Notes shall have been authenticated and delivered pursuant to the terms of the
Notes;
provided, however, that in determining whether the Registered Holders of the
requisite principal amount of Outstanding Notes are present at a meeting of
holders of Notes for quorum purposes or have consented to or voted in favor of
any request, demand, authorization, direction, notice, consent, waiver,
amendment, modification or supplement hereunder, Notes owned directly or
indirectly by the Issuer or any Affiliate of the Issuer shall be disregarded and
deemed not to be Outstanding.
14. Notice. Where the terms of the Notes provide for notice to the holders
of any event, such notice shall be sufficiently given if given in writing and
mailed, first class postage prepaid, to each Registered Holder affected by such
event, at his address as it appears in the register for the Notes. Any notice
may be waived in writing by the Person entitled thereto, either before or after
the event, and such waiver shall be equivalent of such notice.
15. Events of Default. The occurrence of any of the following events or
conditions shall constitute an event of default ("Event of Default") with
respect to the Issuer:
(a) Interest under this Note, or any of the other Notes, is not paid
when due; or
(b) The principal amount of this Note, or any of the other Notes, is
not paid when due; or
(c) The Issuer (i) becomes insolvent or is unable generally to pay
its debts or fails or admits in writing its inability generally to pay its debts
as they become due; (ii) makes a general assignment, arrangement or composition
with or for the benefit of its creditors; (iii) institutes or has instituted
against it a proceeding seeking a judgment of insolvency or bankruptcy or any
other relief under any bankruptcy or insolvency law or other similar law
affecting creditors' rights, (iv) has a distress, execution, attachment,
sequestration or other legal process levied, enforced or sued on or against all
or substantially all its assets; (v) causes or is subject to any event with
respect to it which, under the applicable laws of any jurisdiction, has an
analogous effect to any of the events specified in clauses (i) through (iv); or
(vi) takes any action in furtherance of, or indicating its consent to, approval
of, or acquiescence in, any of the foregoing acts; or
15
(d) The Issuer materially breaches any other covenant, agreement or
condition set forth in the Notes or in the Purchase Agreement and such breach
remains uncured for a period of fifteen (15) days after the Issuer is first
given written notice of such breach by a Registered Holder or Holder(s) of a
Note or Notes representing twenty-five percent (25%) or more of the aggregate
principal amount of the Notes; or
(e) Any representation or warranty made by the Issuer in any of the
Notes or in the Purchase Agreement shall prove to have been false, incorrect or
misleading in any material respect on the date as of which made; or
(f) The Issuer defaults under one or more bonds, debentures, notes
or other evidence of Indebtedness (as hereinafter defined) in excess of $100,000
in the aggregate, whether such Indebtedness is secured or unsecured and whether
such Indebtedness now exists or shall hereinafter be created, which default has
not been cured within a period of thirty (30) days after written notice is
delivered to the Issuer of such default; or
(g) Any final non-appealable judgment is entered against the Issuer
for an amount exceeding $100,000 or any of the Issuer's properties or assets is
attached or levied or a restraining notice is placed thereon, provided, however,
that no such judgment or action shall be deemed an Event of Default unless the
enforcement of such judgment or action would have a Material Adverse Effect on
the Issuer; or
(h) Any of the Notes or the Purchase Agreement is invalidated or
declared null and void by a court of competent jurisdiction.
Upon the occurrence and during the continuance of an Event of Default, a
Registered Holder or Registered Holders of a Note or Notes representing
twenty-five percent (25%) or more of the aggregate principal amount of the Notes
may, at their option, declare the principal of this Note and the interest
accrued hereon to be due and payable immediately (such date being the
"Acceleration Date") by written notice to the Issuer at its principal executive
offices, and unless all such defaults shall have been cured by the Issuer prior
to receipt of such written notice, the principal of this Note and the interest
accrued thereon shall become and be immediately due and payable, in which case
the Issuer shall immediately pay all such amounts without presentment, demand,
protest or notice of any kind.
16. Expenses of Enforcement. The Issuer shall pay all reasonable costs and
expenses incurred by the Registered Holder in the successful enforcement of the
provisions of this Note, including reasonable fees for attorneys and other
expenses of collection.
17. Governing Law; Jurisdiction. This Note shall be governed by and
construed in accordance with the laws of the State of New York without regard to
the conflicts-of-laws principles thereof. The Issuer hereby irrevocably (a)
submits to the jurisdiction of the courts situated in the State of New York for
the purpose of any suit, action or other proceeding arising out of or based upon
this Note ("Action"); (b) waives, to the extent not prohibited by applicable
law, rule or regulation, and agrees not to assert, by way of motion, as a
defense or otherwise, in any such Action, any claim that any such person is not
subject personally to the jurisdiction of the aforementioned courts, that its
property is exempt or immune from attachment or execution, that any such action
brought in the aforementioned court is brought in an inconvenient forum, that
the venue of any such action brought in the aforementioned court is improper, or
that this Note may not be enforced in or by such court, and (c) consents to
service of process in any such Action by recognized overnight courier service.
Nothing herein shall affect the right to serve process in any other manner
permitted by law.
16
18. Definitions. The following terms shall have the meaning ascribed to
them below:
"Affiliate" means any Person directly or indirectly controlling,
controlled by or under direct or indirect control with another Person.
"Contingent Obligations", as applied to any Person, means any direct
or indirect liability, contingent or otherwise, of that Person (i) with respect
to any Indebtedness, lease, dividend or other obligation of another if the
primary purpose or intent thereof by the Person incurring the Contingent
Obligation is to provide assurance to the obligee of such obligation of another
that such obligation of another will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected (in whole or in part) against loss in respect
thereof, (ii) with respect to any letter of credit issued for the account of
that person, unpaid bankers' acceptances, bankers' assurances or guarantees or
similar items, or (iii) under any Interest Rate Protection Agreement or any
long- term foreign currency exchange contract, currency swap agreement, currency
futures contract, currency option contract, synthetic capital or similar
arrangement designed to protect the Person entering into the same against
fluctuations in currency values. Contingent Obligations shall include, without
limitation, (A) the direct or indirect guaranty, endorsement, co-making,
discounting with recourse or sale with recourse by such Person of the obligation
of another, (B) the obligation to make take-or-pay or similar payments if
required regardless of non-performance by any other party or parties to an
agreement, and (C) any liability of such Person for the obligations of another
through any agreement (contingent or otherwise) (x) to purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide funds
for the payment or discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), (y) to maintain
the solvency, any balance sheet item, level of income or financial condition of
another, or (z) to make take-or-pay or similar payments if required regardless
of non-performance by any other party or parties to an agreement (provided,
however, that in the case of any agreement described under Sub-clauses (C)(x) or
(C)(y) of this sentence, the primary purpose or intent thereof is as described
in the preceding sentence). The amount of any Contingent Obligation of a Person
shall be equal to the amount of the obligation so guaranteed or otherwise
supported, subject to any limitation as to amount contained in the instrument or
agreement creating or evidencing such Contingent Obligation; or in the case of
Contingent Obligations referred to in clause (iii) above, the ▇▇▇▇-to-market
value of such Contingent Obligation at the relevant date of determination.
"Indebtedness" of any Person means, at any date of determination,
without duplication, (i) all obligations of such Person for borrowed money, (ii)
that portion of obligations with respect to capital leases that is properly
classified as a liability on a balance sheet of such Person in conformity with
GAAP, (iii) notes payable and drafts accepted of such Person representing
extensions of credit whether or not representing obligations for borrowed money,
(iv) any obligation of such Person owed for all or any part of the deferred
17
price of the property or services, which price or obligation is (x) due more
than (or has not been discharged prior to) three (3) months from the date of
incurrence of the obligation in respect thereof, or (y) evidenced by a note,
instrument or other written agreement, (v) all Contingent Obligations of such
Person, and (vi) all indebtedness of the type described in clauses (i) through
(v) above that is secured by any Lien on any property or asset owned or held by
such person (provided, however, that the amount of such indebtedness included as
Indebtedness under this clause (vi) shall not exceed the market value of the
property or asset subject to such Lien).
"Lien" means any mortgage, pledge, hypothecation, security interest,
encumbrance, charge or lien (statutory or otherwise) or assignment, deposit
arrangement or other preferential arrangement in respect of an interest in
property intended to secure, support or otherwise assure payment of an
obligation (including, without limitation, any conditional sale or other title
retention agreement and any lease having substantially the same economic effect
as the foregoing).
"Maturity" when used with respect to any Note, means the date on
which the principal of such Note or an installment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration or acceleration, call for redemption or otherwise.
"Person" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether Federal,
state, county, city, municipal or otherwise, including without limitation, any
instrumentality, division, agency, body or department thereof).
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed.
GOURMET GROUP, INC.
By:
--------------------------------
Name:
Title:
Dated: ____________, 2004
18
EXHIBIT A
REGISTRATION RIGHTS PROVISIONS
The following provisions are a part of the 10% Convertible Note
("Note") issued by Gourmet Group, Inc. (the "Company"). All capitalized terms
below shall have the same meanings as in the Note, unless otherwise defined.
References below to Sections are to Sections of this Exhibit A unless the
reference is to the Note.
1. Registration Rights. The Company and the Holders covenant and agree as
follows:
1.1 Certain Definitions. For purposes of this Section 1:
(a) "Exchange Act" means the Securities Exchange Act of 1934,
as amended;
(b) "Form S-3" means such form under the Securities Act as in
effect on the date hereof or any successor form under the Securities Act that
permits significant incorporation by reference of the Company's public filings
under the Exchange Act;
(c) "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.10;
(d) "Registrable Securities" means (i) the shares of Common
Stock issuable or issued upon conversion of the Note and (ii) any other shares
of Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
the shares listed in (i); provided, however, that the foregoing definition shall
exclude in all cases any Registrable Securities sold by a person in a
transaction in which his or her rights under this Exhibit A are not assigned.
Notwithstanding the foregoing, Common Stock or other securities shall only be
treated as Registrable Securities if and so long as they have not been (A) sold
to or through a broker or dealer or underwriter in a public distribution or a
public securities transaction, or (B) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Rule 144 thereof so that all transfer restrictions, and restrictive legends with
respect thereto, if any, are removed upon the consummation of such sale;
(e) "Registrable Securities then outstanding" shall be
determined by the number of shares of Common Stock outstanding which are, and
the number of shares of Common Stock issuable pursuant to then exercisable or
convertible securities which are, Registrable Securities;
(f) "SEC" means the Securities and Exchange Commission; and
(g) "Securities Act" means the Securities Act of 1933, as
amended.
A-1
1.2 Company Registration. If (but without any obligation to do so)
the Company proposes to register any of its stock under the Securities Act in
connection with the public offering of such securities solely for cash (other
than a registration relating solely to the sale of securities to participants in
a Company incentive stock plan or agreement or a transaction covered by Rule 145
under the Securities Act, a registration in which the only stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered, or any registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities), the
Company shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of any Holder given within twenty (20)
days after the Company gives such notice, and provided the Company pursues such
proposal, the Company shall, subject to the provisions of Section 1.8, use
commercially reasonable efforts to cause to be registered under the Securities
Act all of the Registrable Securities that each such Holder has requested to be
registered.
1.3 Obligations of the Company. Whenever required under this Section
1 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to one hundred twenty (120) days.
The Company shall not be required to file, cause to become effective or maintain
the effectiveness of any registration statement that contemplates a distribution
of securities on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement for up to one hundred twenty
(120) days.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
A-2
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, such obligation to continue for one hundred twenty (120) days from the
effective date of such registration statement.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Use its best efforts to furnish, at the request of any
Holder requesting registration of Registrable Securities, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 1, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
1.4 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
A-3
1.5 Expenses of Registration.
(a) Company Registration. All expenses (other than underwriting
discounts and commissions) incurred in connection with registrations, filings or
qualifications of Registrable Securities pursuant to Section 1.2 for each Holder
(which right may be assigned as provided in Section 1.10, including (without
limitation) all registration, filing, and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel for the selling Holder or
Holders selected by them with the approval of the Company, not to exceed
$10,000, which approval shall not be unreasonably withheld, shall be borne by
the Company.
1.6 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.2 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by the Company
(or by other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling stockholders according to
the total amount of securities entitled to be included therein owned by each
selling stockholder or in such other proportions as shall mutually be agreed to
by such selling stockholders). For purposes of the preceding parenthetical
concerning apportionment, for any selling stockholder which is a holder of
Registrable Securities and which is a partnership or corporation, the partners,
retired partners and stockholders of such holder, or the estates and family
members of any such partners and retired partners and any trusts for the benefit
of any of the foregoing persons shall be deemed to be a single "selling
stockholder," and any pro-rata reduction with respect to such "selling
stockholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling stockholder," as defined in this sentence.
1.7 Delay of Registration; Miscellaneous. No Holder shall have any
right to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1. In the event, prior to
the effective date, the Company wishes to abandon or discontinue its efforts to
have a registration statement it filed or proposed to file with the SEC declared
effective, it may do so in its sole and absolute discretion and no Holder shall
have any rights whatsoever as a result of such decision by the Company.
A-4
1.8 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Securities
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law; and the
Company will pay to each such Holder, underwriter or controlling person, as
incurred, any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
subsection 1.8(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable to any Holder, underwriter or controlling person
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 1.8(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.8(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that in no event shall any indemnity under this subsection
1.8(b) exceed the net proceeds from the offering received by such Holder, except
in the case of willful fraud by such Holder.
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(c) Promptly after receipt by an indemnified party under this
Section 1.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.8, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.8.
(d) If the indemnification provided for in this Section 1.8 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations; provided, that in no event shall any contribution by a Holder
under this Subsection 1.8(d) exceed the net proceeds from the offering received
by such Holder, except in the case of willful fraud by such Holder. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
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(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.8 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.9 Reports Under Exchange Act. With a view to making available to
the Holders the benefits of Rule 144 promulgated under the Securities Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration or pursuant to
a registration on Form S-3, the Company agrees to:
(a) use its best efforts to make and keep public information
available, as those terms are understood and defined in SEC Rule 144, so long as
the Company remains subject to the periodic reporting requirements under
Sections 13 or 15(d) of the Exchange Act; and
(b) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act.
1.10 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of Notes of at least $50,000 in principal amount, provided the Company
is, within a reasonable time after such transfer, furnished with written notice
of the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned; and provided,
further, that such assignment shall be effective only if immediately following
such transfer the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act.
1.11 "Market Stand-Off" Agreement.
(a) Market-Standoff Period; Agreement. In connection with an
underwritten public offering of securities and upon request of the Company or
the underwriters managing such offering of the Company's securities, each Holder
agrees not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any securities of the Company (other than
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time (not
to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the offering.
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(b) Limitations. The obligations described in Section 1.11(a)
shall apply only if all executive officers and directors of the Company enter
into similar agreements, and shall not apply to a registration relating solely
to employee benefit plans, or to a registration relating solely to a transaction
pursuant to Rule 145 under the Securities Act.
(c) Stop-Transfer Instructions. In order to enforce the
foregoing covenants, the Company may impose stop-transfer instructions with
respect to the securities of each Holder (and the securities of every other
person subject to the restrictions in Section 1.11(a)).
(d) Transferees Bound. Each Holder agrees that it will not
transfer securities of the Company unless each transferee agrees in writing to
be bound by all of the provisions of this Section 1.11.
(e) Termination of Registration Rights. No Holder shall be
entitled to exercise any right provided for in this Section 1 after the earlier
of (i) three (3) years following the date hereof, or (ii) such time as Rule 144
or another similar exemption under the Securities Act is available for the sale
of all of such Holder's shares during a three (3)-month period without
registration.
2. Miscellaneous.
2.1 Notices. All notices and other communications required or
permitted in this Exhibit, shall in given and be effective as provided in
Section 8.8 of the Purchase Agreement, or as provided in reasonable instructions
provided in writing by any Registered Holder to the Company.
2.2 Successors and Assigns. Except as otherwise provided in this
Exhibit, the terms and conditions of this Exhibit shall inure to the benefit of
and be binding upon the respective permitted successors and assigns of the
parties (including transferees of any of the Notes or any Common Stock issued
upon conversion thereof). Nothing in this Exhibit, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Exhibit, except as expressly provided in
this Exhibit.
2.3 Amendments and Waivers. Any term of this Exhibit may be amended
or waived only with the written consent of the Company and the holders of
sixty-six and two-thirds percent (66 2/3 %) of the Registrable Securities then
outstanding. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each party bound by this Exhibit, whether or not such
party has signed such amendment or waiver, each future holder of all such
Registrable Securities, and the Company.
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2.4 Survival. The provisions of this Exhibit shall survive the
conversion of the Notes into shares of Common Stock.
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