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EXHIBIT 4.7
WATERMARC FOOD MANAGEMENT CO.
00000 XXXXXXXX XXXXX, XXXXX 000
XXXXXXX, XXXXX 00000
Purchase Agreement
11% Convertible Subordinated Notes Due
June 30, 2002 (the "Notes")
Warrants to Purchase Common Stock
(the "Warrants")
(collectively the "Securities")
To: The Purchasers of the
above Securities listed in
Schedule 1 hereto:
Gentlemen:
WATERMARC FOOD MANAGEMENT CO., A TEXAS CORPORATION (THE "COMPANY"), IS
OFFERING (THE "OFFERING") THE SECURITIES PURSUANT TO ITS CONFIDENTIAL PRIVATE
PLACEMENT MEMORANDUM DATED JUNE 1, 1997 (THE "MEMORANDUM") OF WHICH THIS
PURCHASE AGREEMENT IS A PART. THE MEMORANDUM SHOULD BE REVIEWED CAREFULLY BY
ALL PURCHASERS AS IT CONTAINS FURTHER TERMS, CONDITIONS AND DISCLOSURES
RELATING TO THE SECURITIES IN ADDITION TO THOSE CONTAINED HEREIN WHICH TERMS,
CONDITIONS AND DISCLOSURES ARE INCORPORATED HEREIN BY REFERENCE AND CONSTITUTE
A PART OF THIS PURCHASE AGREEMENT AND MODIFY AND SUPPLEMENT THIS PURCHASE
AGREEMENT IN CERTAIN RESPECTS.
THE COMPANY HEREBY AGREES WITH YOU AS FOLLOWS:
1. AUTHORIZATION OF NOTES AND WARRANTS. The Company will
authorize the issuance and sale of up to $4,000,000 aggregate principal amount
of its 11% Convertible Subordinated Notes due June 30, 2002 (the "Notes"). The
Company will accept subscriptions to purchase a minimum of $25,000 of the Notes.
Each Note issued hereunder will mature on June 30, 2002 (the "Maturity Date"),
will bear interest on its unpaid principal balance at the rate of 11% per annum,
with accrued and unpaid interest being payable quarterly on March 31, June 30,
September 30, and December 31 each year, commencing on September 30, 1997. The
principal balance of the Notes shall be payable based upon an equal quarterly
amortization of unpaid principal due and owing as of June 30, 1999 which amount
will be payable quarterly commencing on September 30, 1999 through the Maturity
Date. The Notes will have the other terms and provisions as provided herein and
in the form of Note attached hereto as Exhibit 1. For each $25,000 Note, the
Company will issue warrants (the "Warrants") evidencing the right to purchase
2,500 shares of Common Stock, $.05 par value (the "Common Stock), of the
Company, at $1.50 per share, such number of shares and the purchase price being
subject to adjustment as provided in the Warrant. The Warrants will be in the
form of the Warrant attached hereto as Exhibit 2. Certain capitalized terms
used in this Agreement are defined in Section 14.
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2. PURCHASE AND SALE OF NOTES AND WARRANTS. The Company will
issue and sell to you and, subject to the terms and conditions of this Purchase
Agreement (including the Form of Note, Form of Warrant and the Memorandum,
collectively the "Agreement"), you will purchase from the Company, the
principal amount of Notes and number of Warrants, specified opposite your name
in the Schedule of Purchasers, in each case at the purchase price of 100% of
the principal amount thereof.
3. DELIVERY OF NOTES. All subscriptions for the Notes and
Warrants will be accepted when received and the purchases will be deemed final
and closed upon receipt and acceptance by the Company of an executed copy of
this Agreement and Subscription Agreement, a copy of which was provided with
the Company's Memorandum, along with payment of the applicable purchase price.
The Company will deliver to you the Note or Notes to be purchased by you,
subject to the provisions of this Section 3, in the form of one Note (or such
greater number of Notes as you may request) and a Warrant in the form of a
single Warrant (or such greater number of Warrants as you may request) to
purchase the number of shares of the Company's Common Stock equal to 2,500
multiplied by the number of Notes you purchase, dated the date of issuance and
registered in your name (or in the name of your nominee as indicated on the
Schedule of Purchasers or otherwise made known in writing by you to the Company
prior to the issuance thereof), against prior or, where applicable,
simultaneous delivery by you to the Company, or its order, of immediately
available funds in the amount of the purchase price therefor. The receipt and
acceptance by the Company of subscriptions for Notes and Warrants and the
issuance thereof are individually and collectively referred to as "subscription
closings" or "closings", whether one or more.
The closing, as necessary, will take place as subscriptions are
received at any time or times prior to September 30, 1997, unless the Offering
is extended by the Company at its sole discretion (the "Expiration Date").
4. REPRESENTATIONS AND WARRANTS. The Company represents and
warrants to you that:
4.1 ORGANIZATION, QUALIFICATIONS, STANDING, CAPITAL STOCK,
SUBSIDIARIES, ETC. The Company and its material Subsidiaries are
corporations duly organized, validly existing and in good standing
under the laws of their respective jurisdictions of incorporation,
have the corporate power to own their respective properties and to
carry on their respective businesses as the same are now being
conducted and are duly qualified to do business and are in good
standing in each jurisdiction in which the character of the respective
properties owned by them or the nature of their respective businesses
makes such qualification necessary. The authorized capital stock of
the Company consists of (a) 20,000,000 shares of common stock, $0.05
par value (the "Common Stock"), of which 13,670,847 shares were issued
and outstanding at March 30, 1997, and (b) 5,000,000 shares of
Preferred Stock, $1.00 par value, of which 329,540 shares of 9%
Cumulative Convertible Preferred Stock were issued and outstanding at
March 30, 1997. All of such outstanding shares have been validly
issued, are fully paid and nonassessable. The Company has reserved
approximately 3.4 million shares of such Common Stock for issuance
pursuant to previously outstanding options, warrants, and convertible
securities and has not reserved any shares of Common Stock for the
conversion of the Notes and/or the exercise of the Warrants
(collectively "Derivative Securities"). Except as stated in this
Section 4.1 or as described in the Memorandum, the Company has not
reserved any additional shares for issuance (except as expressly
required by this Agreement). Except as noted above, there are not
outstanding, nor is the Company subject to any formal agreement,
arrangement, or understanding under which there may become
outstanding, any option, warrant or other right to purchase or
subscribe to, any Derivative Securities as of March 30, 1997. The
Company has not reserved any shares of Common Stock underlying the
Rights of Xx. Xxxxxxxxxx to receive 7,500,000 shares of the Company's
Common Stock as described in the Memorandum. The Company currently
has an insufficient number of authorized shares of Common Stock for
issuance as a result of the Rights and the Derivative Securities.
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4.2 FINANCIAL STATEMENTS, SUBSEQUENT CHANGES, ETC. The Memorandum
includes a number of reports filed by the Company with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities and Exchange
Act of 1934, as amended (the "Exchange Act") including, but not limited to:
A-1 The Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1996 (the "Form 10-K");
A-2 The Company's Current Reports on Form 8-K, dated May 15, 1997, as
amended May 30, 1997;
A-3 The Company's Quarterly Reports on Form 10-Q, for the quarter ended
September 29, 1996;
A-4 The Company's Quarterly Reports on Form 10-Q, for the quarter ended
December 29, 1996;
A-5 The Company's Quarterly Reports on Form 10-Q, for the quarter ended
March 30, 1997; and
A-6 Proxy Statement for the Annual Meeting of Shareholders of the Company
held on December 13, 1996;
The foregoing reports are collectively referred to as the "SEC
Reports." The SEC Reports, copies of which have been furnished to you as
exhibits to and part of the Memorandum, contain consolidated balance sheets and
statements of operations, stockholder's equity and cash flow, including the
notes thereto which have been audited through June 30, 1996 (the "Audited
Financial Statements") and are unaudited for the three, six and nine month
periods ended September 29, 1996, December 29, 1996, and March 30, 1997,
respectively (the "Unaudited Financial Statements") (collectively the
"Financial Statements").
Subject to the assumptions and qualifications contained therein, and
the additional financial disclosures and risk factors contained in the
Memorandum, all of the Financial Statements fairly present the financial
condition of the Company and its consolidated Subsidiaries at the respective
dates of said balance sheets and the results of operations of the Company and
its consolidated Subsidiaries for the respective periods covered thereby. To
the best knowledge of the Company, such Financial Statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as otherwise noted
therein). To the best knowledge of the Company, there were no material
liabilities, direct or indirect, fixed or contingent, of the Company and its
consolidated Subsidiaries (on a consolidated basis) as of the respective dates
of such balance sheets which are not reflected therein or in the notes thereto
or in the Memorandum.
4.3 OTHER INFORMATION AS TO THE COMPANY. The Memorandum, together
with the Exhibits thereto and the documents incorporated by reference therein
(collectively the "Memorandum"), does not contain any misstatement of a material
fact or omit to state any material fact necessary to be stated therein or
necessary in order to make the statements therein not misleading; provided,
however, that with respect to all projections and estimates furnished to you or
statements or assumptions regarding future events, plans, contingencies, trends,
circumstances, intentions, proposals or other forward looking statements (the
"Forward Looking Statements"), the Company represents and warrants only that the
same were based, to the best of its knowledge, upon reasonable assumptions and
that nothing has occurred or, to the best of the Company's knowledge, may occur,
which has caused or may cause any Forward Looking Statement to be or to become
inaccurate in any material adverse respect as of the date hereof or if anything
has so occurred, the Company may furnish to you a revised statement. In the
event the Company has furnished to you information which corrects information
previously furnished, the information last furnished is deemed to govern for
purposes of this Section 4.3. The Company has no obligation to update the
Memorandum or any Forward Looking Statement during the Offering or before or
after any subscription.
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4.4 Due Authorization and Compliance with Other Instruments. This
Agreement is, and the Notes when executed and delivered will be, valid and
legally binding obligations of the Company and the Notes will be entitled to
the benefits of this Agreement. The shares of Common Stock issuable upon
exercise of the Warrants or conversion of the Notes hereunder have been duly
authorized and when issued will be validly issued, fully paid and
nonassessable. The shares of Common Stock issuable upon the exercise of the
Warrants or the conversion of the Notes have been authorized, are not subject
to any preemptive or similar rights on the part of holders of shares of capital
stock of the Company, and upon such exercise or conversion, will be validly
issued, fully paid and nonassessable. The Company does not have sufficient
authorized shares of Common Stock at this time for issuance upon exercise of
the Warrants and/or conversion of the Notes.
4.5 Offering of the Securities. Neither the Company nor anyone
authorized to act on its behalf has or will directly or indirectly sell or
offer the Securities or any part thereof or any similar securities to, or
solicit any offer to buy any thereof from, any Person so as to bring the issue
and sale of the Notes within the provisions of Section 5 of the Securities Act.
5. REDEMPTION OF NOTES.
5.1 Optional. The Company at its option may redeem, without penalty, all
or any portion of the outstanding principal of the Notes at any time, such
redemption to be accompanied by payment of all interest accrued and unpaid on
the principal being redeemed with each holder of the Notes being entitled to a
premium equal to 3% of the outstanding principal balance of the Notes redeemed
prior to June 30, 1998, which premium will be reduced by 1% for each year that
the Notes remain outstanding until June 30, 2000 when no premium will be paid
if the Notes are redeemed subsequent to such date. The right of the Company to
redeem the Notes pursuant to this Section 5.1 shall also be subject to the
Company having fully complied with the procedures set forth in Section 5.2
below.
5.2 Notice of Redemption, Etc. Notice of redemption shall be mailed to
the holders of the Notes not less than twenty (20) nor more than sixty (60)
days prior to the date fixed for redemption at its last address as it appears
upon the records of the Company. If the Notes are redeemed in part, the Company
shall, without charge to the holder or holders hereof, either (1) execute and
deliver to the holder or holders a like Note for the unredeemed balance of the
principal amount thereof, or (2) make note thereon of the principal amount
called for redemption and redeemed, upon surrender of the Notes at the office
of the Company. Following the date fixed for redemption, interest shall be
payable only on the portion of the Notes not called for redemption.
6. CONDITIONS PRECEDENT
6.1 Purchase Obligations. Your obligation to purchase from the Company
the principal amount of Notes specified opposite your name in the Schedule of
Purchasers shall be subject to the following conditions precedent:
(a) Representations and Defaults. The representations and warranties made by
the Company herein shall be true on and as of the date the Note is issued
with the same effects as if they had been made on and as of said date
(except as to any changes resulting from transactions expressly reflected
herein or contemplated hereby including the Memorandum) and no Event of
Default as defined in Section 11 hereof, nor any condition or event which,
after notice or lapse of time, or both, would constitute such an Event of
Default, shall exist.
(b) Documents. All proceedings to be taken in connection with the transactions
contemplated by this Agreement to be consummated by the Company prior to
acceptance of a subscription to purchase the Notes, and all documents
incident thereto, shall be delivered to you (including the Note and
Warrant) within ten (10) business days from acceptance of your
subscription.
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(c) No Material Adverse Change. As of the date of this Agreement, no
change has occurred in the business or financial condition of the
Company or any of its Subsidiaries that would have a Material
Adverse Change in the sole discretion of the Company and excluding
all events and risk factors described in the Memorandum.
7. COVENANTS OF THE COMPANY. The Company covenants and agrees that, so
long as any of the Notes are outstanding it will comply with the following
provisions, subject to the provisions of Section 16 hereof:
7.1 Use of Proceeds. The proceeds (net of costs directly related
to the preparation and negotiation of this Agreement and the offering and
sale of the Notes) derived from the sale of the Notes will be used (I) to
repay the Company's Subordinated Notes due on July 31, 1997 (the "July
Subordinated Notes") and, subject to payment of the Subordinated Notes,
(ii) to fund capital improvements to the Company's Marco's Mexican
Restaurants and for general working capital purposes.
7.2 Payment of Principal and Interest. The Company will make all
payments of principal of and interest on the Notes at the time the same
shall become due thereunder or hereunder.
7.3 Notice of Default. The Company will promptly notify you upon the
occurrence of any Event of Default hereunder (or the occurrence of any
event or existence of any condition which with notice or lapse of time, or
both, might become an Event of Default) or any event of default under any
instrument evidencing or pursuant to which there shall be issued any
indebtedness of the Company or Subsidiary for borrowed money.
7.4 Covenant to Provide Security. The Company hereby grants the
holders of the Notes a security interest in all of the outstanding common
stock (the "Marco's Stock") of Marco's Mexican Restaurants, Inc., a Texas
corporation and a wholly-owned subsidiary of the Company ("Marco's"). The
Marco's Stock is currently subject to a security agreement and pledge in
favor of the holders of the Company's 12% Subordinated Notes due July 31,
1997, in the principal amount of $3,000,000. Prior to payment of the July
Subordinated Notes in full the holders thereof shall have a prior,
perfected security interest and lien on the Marco's Stock and the lien
granted hereunder is subject to the rights of the holders of the July
Subordinated Notes. Upon payment of the July Subordinated Notes (if the
Offering is completed as described in the Memorandum), the Company will
execute and deliver a definitive pledge and security agreement (the "Pledge
Agreement") providing for the delivery, possession and pledge of the
Marco's Stock as security for the Notes with and to an independent third
party who shall serve as the agent and representative of the holders of the
Notes pursuant to the Pledge Agreement (the "Agent") and the Agent shall
have the right, responsibilities and duties provided for therein and herein
with respect to the Marco's Stock and the enforcement of the rights of the
holders of the Notes under this Purchase Agreement, the Notes and the
Pledge Agreement and shall hold, protect and preserve the security interest
in the Marco's Stock granted herein and therein. The holders of the Notes
hereby agree and appoint the Agent as their agent, representative, attorney
and designee to act on their behalf pursuant to the terms of the Note, this
Purchase Agreement and the Pledge Agreement, and hereby grant to such Agent
the power of attorney to enforce all rights of the holders of the Notes
with respect to the Marco's Stock and their security interest therein. The
Pledge Agreement shall contain customary and standard terms and conditions
utilized in commercial pledge and security agreements. The Agent shall be
obligated to protect and defend the rights of the holders of the Notes with
respect to the Marco's Stock and may take and is hereby authorized by the
Company and the holders of the Notes to take any and all actions on behalf
of, and as attorney for, the holders of the Notes, and the Agent is
authorized to execute any and all documents, agreements, instruments,
certificates and filings to protect the rights of the holders of the Notes,
subject to the right of the holders of 51% of the principal amount of the
Notes (excluding any principal amount held by Xx. Xxxxxxxxxx) to modify the
Pledge Agreement, change or terminate the Agent or direct the Agent to take
or not to take any action.
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8. PAYMENT, REGISTRATION AND TRANSFER OF NOTES. The Company will
promptly and punctually pay the interest on the Notes held by you without any
presentment thereof and without any notation of such payment being made thereon;
and the Company will pay all amounts payable to you in respect of principal and
interest on the Notes to you or your nominees at the address specified in
schedule 1, or at such other place as you may from time to time designate in
writing. The Company agrees to maintain an office (or to appoint an agent having
an office) in Houston, Texas, or such other city as the Company may designate by
notice in writing to you, at which Notes may be surrendered for transfer and
reissuance, for exchange, replacement, conversion or cancellation. The Company
shall keep or cause to be kept, at the office or agency so maintained, a
register or registers in which the Company or its agent shall register the names
and addresses of the holders of the Notes and shall transfer registered Notes in
accordance with this Agreement. Upon surrender for transfer of any registered
Note duly assigned by the registered holder (or its duly authorized attorney) to
the transferee(s) thereof and subject to satisfaction of the requirements set
forth in Section 13.4 hereof, the Company shall execute and deliver a new
registered Note (or Notes in appropriately subdivided denominations of
principal), dated the most recent date to which interest shall have been paid on
the surrendered Note, in an equal principal amount with notation of payments of
principal made thereon, or in a principal amount equal to the original principal
amount as reduced by payments of principal theretofore made on the Note
surrendered, in the name of, and payable to the order of, the transferee(s)
thereof. No service charge shall be assessed for any transfer, registration,
reissuance, exchange, conversion, or notation of payment hereunder.
9. SUBORDINATION OF NOTES. The Company covenants and agrees and
each holder of any Note, by acceptance thereof, likewise covenants and agrees
that the payment of the principal of and interest on the Notes shall be
subordinated in accordance with the provisions of this Section 9, and each
Person holding any Notes, whether upon original issue or upon transfer or
assignment thereof, accepts and agrees to be bound hereby.
9.1 Subordination to Senior Indebtedness. The indebtedness
evidenced by, and payment of the principal of and interest on, the Notes
shall be subordinated and subject in right of payment to the extent and
in the manner set forth in this Section 9 to the prior payment in full
of all Senior Indebtedness.
9.2 No Payment of Notes in Certain Events. No part of the
Notes shall have any claim to the assets of the company on a parity with
or prior to the claim of the Senior Indebtedness which includes the July
Subordinated Notes. In the event and during the continuation of a Senior
Indebtedness Default, no payment of principal or interest shall be made
on the Notes unless and until such Senior Indebtedness Default shall
have been waived or remedied, nor shall any such payment be made if
after giving effect, as if paid, to such payment, any Senior
Indebtedness Default would exist; provided, that with respect to a
Senior Indebtedness Default other than a default in the payment of
principal (including mandatory prepayments) or of sinking fund
installments, if any, with respect to, fees in respect of or interest
on, Senior Indebtedness, nothing in this Section 9.2 shall prevent any
regularly scheduled payment of principal or interest for a period longer
than the longer of (i) 90 days of (ii) any period during which a Senior
Indebtedness Default so exists or has been declared due and payable in
its entirety and such acceleration has not been rescinded or annulled or
such Senior Indebtedness has not been paid in full.
9.3 Priority of Payment of Senior Indebtedness in Certain
Events. Upon any payment or distribution of assets of the Company of any
kind or character, whether in cash, property, or securities, to
creditors, upon any dissolution or winding up or total or partial
liquidation or reorganization of the company, whether voluntary or
involuntary, assignment for the benefit of creditors, or in bankruptcy,
insolvency, receivership, reorganization or other proceedings, all
Senior Indebtedness shall first be paid in full or provision for the
payment thereof (subject to the power of a court of competent
jurisdiction to make other equitable provision), shall be made before
the holders of the Notes shall be entitled to retain any assets so paid
or distributed in respect thereof (for principal or interest); and upon
any such dissolution or winding up or liquidation or reorganization, any
payment or distribution of assets of the Company of any kind or
character, whether in cash, property, or securities, to which the
holders of the Notes would be entitled, except for these provisions,
shall be paid by the Company or by any receiver, trustee in bankruptcy,
liquidating trustee, agent, or other Person making such payment or
distribution, or by the holders of the Notes if received by them,
directly to the holders of Senior Indebtedness (pro rata to each
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holder on the basis of the respective amounts of Senior Indebtedness held by
such holder) or their representatives, to the extent necessary to pay all
Senior Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness, before any
payment or distribution is made to the holders of the Notes.
9.4 Payments Due Holders of Senior Indebtedness. In the event that
any payment or distribution of assets of the Company of any kind or character,
whether in cash, property, or securities, which, by virtue of the provisions of
Sections 9.2 or 9.3 should not be paid to the holders of the Notes, shall
nevertheless be received by the holders of the Notes before all Senior
Indebtedness is paid in full, or provision made for such payment, in accordance
with its terms, such payment or distribution shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holders of such Senior
Indebtedness or their representative or representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing any
of such Senior Indebtedness may have been issued, as their respective interests
may appear, or to a bank or trust Company having a combined capital and surplus
of not less than $10,000,000 which is in good standing and has its principal
office in the State of Texas, to be held in escrow, for application to the
payment of all Senior Indebtedness remaining unpaid to the extent necessary to
pay all such Senior Indebtedness in full in accordance with its terms, after
giving effect to any concurrent payment or distribution to or for the holders
of such Indebtedness.
9.5 Notice of Acceleration. The holders of the Notes agree to give
the holders of Senior Indebtedness notice in writing 20 days prior to declaring
the unpaid principal amount of the Notes immediately due and payable pursuant
to the provisions of Section 11.
9.6 Enforcement, Subrogation, Etc. The foregoing subordination
provisions shall be for the benefit of the present and future holders of the
Senior Indebtedness and may be enforced directly by such holders against the
holders of the Notes. Upon any payment or distribution of assets of the Company
referred to in Section 9.3, the holder of a Note shall be entitled to rely upon
a certificate of the receiver, trustee in bankruptcy, liquidating trustee, the
Company, any agent or other Person making such payment or distribution,
delivered to the holder of a Note for the purpose of ascertaining the Persons
entitled to participate in such distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertaining thereto or to the provisions of this Section 9. Subject
to the payment in full of all Senior Indebtedness, the holders of the Notes
together and pro rata with the holders of any other indebtedness of the Company
(which is subordinate in right of payment to the payment of other indebtedness
of the Company, but is not subordinate in right of payment to the Notes and by
its terms grants the right of subrogation to the holders thereof) shall be
subrogated to the rights of the holders of Senior Indebtedness to receive
payments or distributions of assets of the Company made on the Senior
Indebtedness until the principal of and interest on the Notes shall be paid in
full; and, for the purposes of such subrogation, no payments or distributions
to the holders of Senior Indebtedness of any cash, property, or securities to
which the holders of the Notes would be entitled except for these provisions
shall, as between the Company, its creditors, other than the holders of Senior
Indebtedness, and the holders of the Notes, be deemed to be a payment by the
Company to or on account of Senior Indebtedness, it being understood that these
provisions are intended solely for the purpose of defining the relative rights
of the holders of the Notes, on the one hand, and the holders of Senior
Indebtedness, on the other hand.
9.7 Obligations Unimpaired. Nothing contained in this Section 9 is
intended to or shall impair as between the Company, its creditors, other than
the holders of Senior Indebtedness, and the holders of the Notes, the
obligation of the Company, which shall be absolute and unconditional, to pay to
the holders of the Notes the principal of and premium, if any, and interest on
the Notes, as and when the same will become due and payable in accordance with
the terms thereof, or to affect the relative rights of the holders of the Notes
and creditors of the Company other than the holders of Senior Indebtedness, nor
shall anything herein or therein prevent the holder of any Note from exercising
all remedies otherwise permitted by applicable law upon default, subject to the
rights, if any, under this Section 9 of the holders of Senior Indebtedness in
respect of any required notice of the exercise of any such remedy or right, or
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property, or securities of the Company received upon the exercise of any
such remedy. Each holder of the Notes by his acceptance thereof shall be
deemed to acknowledge and agree that the subordination provisions of this
Section 9 are, and are intended to be, an inducement and a consideration to
each holder of any Senior Indebtedness, whether such Senior Indebtedness
was created or acquired before or after the issuance of the Notes, to
acquire and continue to hold, such Senior Indebtedness, and each holder of
Senior Indebtedness shall be deemed conclusively to have relied on such
subordination provisions in acquiring and continuing to hold, or in
continuing to hold, such Senior Indebtedness.
10. SUBSTITUTION OF NOTES. Upon receipt by the Company of satisfactory
evidence of the loss, theft, destruction, or mutilation of any Note, and of
satisfactory indemnity (which, in the case of any original purchaser of the
Notes, shall be a contractual obligation of such purchaser) and upon surrender,
at the office or agency maintained in accordance with Section 8 hereof, and
cancellation of any Note, if mutilated, the Company will execute and deliver a
new Note of like tenor, in lieu of such Note, dated the most recent date to
which interest on such Note shall have been paid.
11. EVENTS OF DEFAULT. If any one or more of the following events (herein
called "Events of Default") shall occur and be continuing:
(a) except and subject to the provisions of Section 9.2, default
shall be made in the payment of principal of any of the Notes when due and
payable, either at maturity or at a date fixed for prepayment or by
acceleration or otherwise;
(b) except and subject to the provisions of Section 9.2, default
shall be made in the payment of interest on the Notes when the same becomes
due and payable and the default continues for a period of 10 days;
(c) default shall be made in the due performance of observance of any
other material covenant, agreement, or provision herein to be performed or
observed by the Company or a breach shall exist in any material
representation or warranty herein contained, and such default or breach is
material and shall have continued for a period of 30 days after written
notice thereof to the Company from any holder or holders of Notes
aggregating not less than 51% of the aggregate principal amount of the
Notes then outstanding; provided, however, that if any such default or
breach shall be such that it cannot be cured or corrected within such
30-day period, such period shall be extended for such additional period of
time (not exceeding 30 days) as shall be necessary to effect such cure or
correction if curative or corrective action is instituted within said
30-day period and thereafter diligently pursued;
(d) the Company or any material Subsidiary shall (i) apply for or
consent to the appointment of a receiver, trustee, or liquidator of the
Company or such Subsidiary or any of its assets, (ii) make a general
assignment for the benefit of creditors, (iii) be adjudicated a bankrupt or
insolvent or (iv) file a voluntary petition in bankruptcy, or a petition or
answer seeking reorganization or an arrangement with creditors to take
advantage of any bankruptcy, reorganization, insolvency, readjustment of
debt, moratorium, dissolution, liquidation, or debtor relief law, or any
chapter of any such law, or an answer admitting the material allegations of
a petition filed against it in any proceeding under any such law or
chapter, or corporate action shall be taken by the Company or such material
Subsidiary for the purpose of effecting any of the foregoing; or an order,
judgment, or decree shall be entered, without the application, approval, or
consent of the Company, by any court of competent jurisdiction, approving a
petition seeking liquidation or reorganization of the Company or such
material Subsidiary or of all or a substantial part of the assets of the
Company or such material Subsidiary;
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(e) default shall occur with respect to any other indebtedness for
borrowed money of the Company or any Subsidiary or under any agreement
under which such indebtedness may be issued by the Company or any material
Subsidiary and such default shall continue for more than the period of
grace, if any, therein specified, if the aggregate amount of all such
indebtedness for which such default shall have occurred exceeds $2,000,000
and, if not already matured in accordance with its terms, such default
shall result in acceleration of the maturity of such indebtedness;
provided, however, that if such default shall be remedied or cured by the
Company or a Subsidiary, or waived by the holders of such indebtedness,
then the Event of Default hereunder by reason thereof shall be deemed
likewise to have been thereupon remedied, cured, or waived without further
action upon the part of and holders of the Notes; or
(f) final judgment for the payment in excess of $1,000,000 shall be
rendered against the Company or any material Subsidiary and the same shall
remain undischarged for a period of 90 days during which execution shall
not be effectively stayed by appeal, posting of a bond, or agreement of the
parties thereto;
then and in each and every such case the holders of Notes aggregating not
less than 51% of the aggregate principal amount of the Notes then outstanding
may by notice in writing to the Company declare the unpaid principal of the
Notes, with accrued interest and the premium chargeable thereon as though
payment hereunder were a redemption under Section 5.1, to be forthwith due and
payable and thereupon such principal, premium, if any, and interest shall be
due and payable without presentment, protest, or further demand or notice of
any kind, all of which are hereby expressly waived.
This Section 11, however, is subject to the condition that, if at any time
after the principal of the Notes shall have become so due and payable, and
before any judgment or decree for the payment of the monies so due, or any
thereof, shall be entered and if all arrears of interest upon the Notes and all
other sums payable under the Notes (except the principal of and premium on the
Notes which solely by reason of such declaration shall have become payable)
shall have been duly paid, then and in every such case the holders of Notes
aggregating not less than 51% of the aggregate principal amount of the Notes
then outstanding may, by written notice to the Company, either temporarily
suspend or permanently rescind and annul such declaration and its
consequences; but no such suspension or rescission and annulment shall extend
to or affect any prior, concurrent, or subsequent default or Event of Default
(other than the ones identified by the holders of the Notes declaring them due
as the ones upon which such declaration was based) or impair any right
consequent thereon.
Notwithstanding anything to the contrary herein, if default shall be made
in the payment of any principal of, or interest on, any Note when and as the
same shall become due and payable, either at maturity or at a date scheduled
for redemption (but not merely by virtue of any acceleration pursuant to the
foregoing provisions of this Section 11), the holder of such Note may by
notice in writing to the Company declare the unpaid principal of such Note, with
accrued interest, to be forthwith due and payable and thereupon such principal
and interest shall be due and payable without presentment, protest, or further
demand or notice of any kind, all of which are hereby expressly waived.
If any holder of a Note shall demand payment thereof or take any other
action (of which the Company has actual knowledge) in respect of an Event of
Default, the Company will forthwith give written notice thereof, specifying
such action and the nature of such event, to each holder of record of the Notes
then outstanding. The Company will also give prompt written notice to each
holder of record of the Notes at the time outstanding of any written notice of
suspension, rescission, or annulment given to it as aforesaid.
The Company covenants, that if default be made in any payment of
principal of or interest on any Note, it will pay to the holder thereof such
further amount as shall be sufficient to cover the cost and expense of
collection, including, without limitation, court costs and reasonable
compensation to the attorneys and counsel of the holder for all services
rendered in connection therewith.
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No course of dealing between the Company and any holder of a Note or
any delay on the part of the holder of a Note in exercising any rights
thereunder or hereunder shall operate as a waiver of any rights of any such
holder.
12. CONVERSION OF NOTES.
12.1 Voluntary Conversion. The holders of the Notes will be
entitled at any time prior to the close of business on the Maturity
Date, subject to redemption of the Notes by the Company, to convert the
entire principal amount and accrued interest due and owing thereunder
into shares of the Common Stock at the conversion price of $1.50 of
principal and accrued interest for one share of Common Stock.
12.2 Fractional Shares. In lieu of issuing any fraction of a
share upon the conversion of the Notes, the Company shall pay to the
holder thereof, for any fraction of a share otherwise issuable upon
conversion, cash equal to the same fraction of the closing bid price (or
last sales prices) of the Common Stock as quoted on the Nasdaq Small Cap
Market (or any over-the-counter market or exchange) on the trading day
preceding the date of conversion.
12.3 Adjustment of Conversion Price. The conversion price is
subject to adjustment if the Company at any time pays to the holders of
its Common Stock a dividend in Common Stock and the number of shares of
Common Stock issuable upon the conversion of the Notes shall be
proportionately increased, effective as of the close of business on the
Record Date for determination of the holders of the Common Stock
entitled to the dividend.
If the Company at any time subdivides or combines in a larger
or smaller number of shares its outstanding shares of Common Stock, then
the number of shares of Common Stock issuable upon the conversion of the
Notes shall be proportionately increased in the case of a subdivision
and decreased in the case of a combination, effective in either case at
the close of business on the date that the subdivision or combination
becomes effective.
In the Case of any reclassification of the Common Stock, any
consolidation of the Company with, or merger of the Company into any
other entity, any merger of any entity into the Company (other than a
merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock), any
sales or transfer of all or substantially all of the assets of the
Company or any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or other property, then provision
shall be made such that the holders of the Notes shall have the right
thereafter, during the period that the shares shall be convertible, to
convert the shares only into the kind and amount of securities, cash and
other property receivable upon such reclassification, consolidation,
merger, sale, transfer or share exchange by a holder of the number of
shares of Common Stock into which the Notes might be converted
immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange.
12.4 Mandatory Conversion. The Notes are subject to
mandatory conversion, either in whole or in part, at the option of the
Company, upon 30 days written notice, if at any time the closing bid
price or last sales price, as the case may be, of the Common Stock as
quoted on the Nasdaq Small Cap Market (or any exchange or
over-the-counter market) for a period of twenty (20) consecutive trading
days ending within fifteen (15) days of the date on which notice of
conversion is given exceeds $4.50 per share. Upon a mandatory conversion
of the Notes by the Company, such Notes shall be converted into shares
of Common Stock at the conversion ratio of $1.50 of principal and
accrued interest for one share of Common Stock. All of the provisions
with respect to conversion rights generally, including but not limited
to the adjustment of the conversion rate in certain events, shall be
applicable hereto in the event the Company exercises its option to cause
a mandatory conversion of the Notes.
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13. SECURITIES ACT.
13.1 Investment Intent, Etc. Each of you and each other Person who
has been designated by you as a registered holder to whom Notes will be
initially issued, by acceptance of such Notes, represent and in making this
sale it is specifically understood and agreed that you and each such other
Person are acquiring the Notes to be purchased for your, or such Person's, own
account, or for the account of one or more trusts which you, or such Person,
manage, and not with a view to or for sale in connection with any distribution
thereof, provided that the disposition of your, or such Person's property shall
at all times be and remain within your, or such Person's, control.
13.2 Restrictions on Transferability. The Notes shall not be
transferable except upon the conditions specified in this Section 13, which
conditions are intended to ensure compliance with the provisions of the
Securities Act in respect to the transfer of any Note.
13.3 Restrictive Legends. Each Note shall (unless otherwise
permitted by the provisions of Section 13.4 hereof) be stamped or otherwise
imprinted with a legend in substantially the following form:
"This Note has not been registered under the Securities Act of 1933, as
amended, and is transferable only upon the conditions specified in the
Purchase Agreement referred to herein."
Each certificate of Common Stock issued upon conversion of the Notes
pursuant to Section 12 hereof and each certificate for Common Stock issued to a
subsequent transferee shall (unless otherwise permitted by the provisions of
Section 13.4 hereof) be stamped or otherwise imprinted with a legend in
substantially the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 or any state securities act.
The shares have been acquired for investment and may not be sold,
transferred, pledged or hypothecated unless (i) they shall have been
registered under the Securities Act of 1933 and any applicable state
securities act, or (ii) the corporation shall have been furnished with
an opinion of counsel, satisfactory to counsel for the corporation, that
registration is not required under any such acts."
13.4 Notice of Proposed Transfers.
(a) Except as otherwise provided in paragraph (b) of this
Section 13.4 prior to any transfer or attempted transfer of any
Restricted Note or Restricted Common Stock, the holder thereof shall
give written notice to the Company of such holder's intention to effect
such transfer. Each such notice shall describe the manner and
circumstances of the proposed transfer and shall be accompanied by an
opinion of counsel for such holder satisfactory to the Company, to the
effect that such transfer may be affected without registration of such
Restricted Note or Restricted Common Stock, as the case may be, under
the Securities Act. If such notice is accompanied by such an opinion,
such holder shall be entitled to transfer such security in conformity
with the terms of such notice, and if the opinion of counsel so
specifies, the securities issued upon such transfer shall not bear the
restrictive legend set forth in section 13.3.
(b) The procedures set forth in paragraph (a) of this Section
13.4 shall not apply to any transfer by you (or a transferee pursuant to
this paragraph (b) of any Restricted Note or Restricted Common Stock to
any of your Subsidiaries or Affiliates; provided, however, that at the
time of such transfer the transferee shall execute and deliver to the
Company an "Investment Letter" containing substantially the
representations provided in Section 13.1 hereof with respect to the
Notes or Common Stock which are the subject of such transfer and its
agreement to be
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bound by the provisions of this Section 13. Notes or Common Stock issued
upon such transfer shall bear the appropriate restrictive legend set forth
in Section 13.3 hereof.
13.5 Required Registration. The Company shall use its best efforts to
effect, upon demand made by the holders of at least 51% of the number of shares
of Common Stock issued or issuable upon conversion of the Notes issued in the
Offering or upon exercise of the Warrants, the registration under the
Securities Act of all shares of Restricted Common Stock issued or issuable upon
such conversion or exercise and held by you and/or any other holder or holders
of shares of Restricted Common Stock (the holders of Restricted Common Stock
are sometimes referred to herein, as the "Eligible Holders") on a form
appropriate for the registration of the Restricted Common Stock in accordance
with the intended method of disposition of the Eligible Holders; provided,
however, that (i) if the Company is engaged in negotiations in respect of a
merger, acquisition, combination or other business opportunity or has filed, or
proposes to file, a registration statement under the Securities Act covering
shares of Common Stock or other securities for sale by the Company and in the
good faith judgment of the Board of Directors of the Company such transaction
would be adversely affected by such registration, the Company shall be entitled
to postpone the filing but, in no event for a period not to exceed 180 days and
(ii) at the time demand is made, the conversion price or exercise price is
equal to or less than the average of the closing bid price (or the last sales
price) of a share of Common Stock as quoted on the Nasdaq SmallCap Market or
any exchange or over-the-counter market in which trading in the Common Stock is
then reported for any period of ten (10) conservative trading days during the
90 days preceding the date demand is made.
13.6 Incidental Registration. If the Company at any time proposes to
register any of its Common Stock under the Securities Act (on a form available
for the registration of Restricted Common Stock by the holders thereof other
than a registration on Form S-8, or any successor or similar forms or a shelf
registration under Rule 415 for the sole purpose of registering shares to be
issued in connection with acquisitions), it will at each such time give written
notice to the Eligible Holders of its intention so to do and, upon written
request given by the Eligible Holders within 30 days after receipt of any such
notice (which request shall state the intended method of disposition of such
securities by such Eligible Holder), the Company will use its best efforts to
cause all or any Restricted Common Stock held by such Eligible Holder or which
such Eligible Holder is then entitled to acquire to be registered so as to
permit the sale or other disposition (in accordance with the intended methods
thereof), as aforesaid by such Eligible Holder, provided, however, that the
Company may at any time withdraw or cease proceeding with any such registration
if it shall at the same time withdraw or cease proceeding with the registration
of such other securities originally proposed to be registered. If an offering
pursuant to this Section 13.6 is to be made through underwriters, the managing
underwriter may, if in its reasonable opinion marketing factors so require,
limit (pro rata according to the market value of securities proposed to be
registered by each Eligible Holder) the number of (or eliminate entirely from
the offering all of the) securities which Eligible Holders may register
pursuant to this Section 13.6.
13.7 Registration Procedures. If and whenever the Company is required by
the provisions of Section 13.5 or 13.6 to use its best efforts to effect the
registration of any of its securities under the Securities Act, the Company
will, as promptly as possible:
(a) prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become effective and, in the case of a
registration required by Section 13.5, to remain effective for a period of
two years after the effective date of registration, or such shorter period
that terminates on the earlier or (i) a date specified by a majority of the
Eligible Holders (by number of shares) of the securities covered by the
registration statement or (ii) the date all the securities covered by the
statement have been sold or withdrawn, but in no case prior to the 90-day
period referred to in Rule 174 under the Securities Act;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary
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to keep such registration statement effective and to comply with the
requirements of the Securities Act, and the rules and regulations promulgated
by the Commission thereunder relating to the sale or other disposition of the
securities covered by such registration statement;
(c) furnish to each Eligible Holder selling securities in such offering
such numbers of copies of a prospectus, including a preliminary prospectus,
complying with the requirements of the Securities Act, and such other documents
as such Eligible Holder may reasonably request in order to facilitate the
public sale or other disposition of the securities owned by such Eligible
Holder; and
(d) use its best efforts to register or qualify the securities covered by
such registration statement under the securities or blue sky laws of such states
as each Eligible Holder selling securities in such offering shall request, and
do any and all such other acts and things as may be necessary or advisable to
enable such Eligible Holder to consummate the public sale or other disposition
in such jurisdictions of the securities owned by you; provided, however, that
the Company shall not be obligated to register or qualify such securities in any
jurisdiction in which such registration or qualification would require the
Company to qualify as a foreign corporation or file any general consent to
service of process where it is not so qualified or has not theretofore so
consented.
13.8 Expenses; Conditions Precedent. Except as provided below in this
Section 13.8, all expenses incurred by the Company or any holder of Restricted
Common Stock in connection with action taken by the Company to comply with this
Section 13, including, without limitation, all registration and filing fees,
printing expenses, accounting fees, fees and disbursements of counsel and other
experts, premiums for liability insurance obtained in connection with a
registration statement filed to effect such compliance, the expenses (including
counsel fees) of complying with securities or blue sky laws, and the fees and
disbursements of a single counsel retained by the Eligible Holders of more than
75% of the securities being offered, shall be paid by the Company. The Company
shall not be obligated in any way in connection with any registration pursuant
to this Section 13 for any underwriting discounts or commissions payable by any
Eligible Holder to any underwriter of securities to be sold by such Eligible
Holder. It shall be a condition precedent to the obligation of the Company to
take any action under Section 13.5 that the Company shall receive an undertaking
satisfactory to it from each Eligible Holder of securities registered or to be
registered as herein provided to pay all expenses required to be borne by such
Eligible Holder and to furnish or cause to be furnished to the Company
specifically for use in preparation of the registration statement and prospectus
written information concerning the securities held by such Eligible Holder and
also concerning any underwriter of such securities and the intended method of
disposition thereof as the Company shall reasonably request and as may be
required in connection with the action to be taken by the Company hereunder.
13.9 Company Indemnification. In the event of any registration of any
securities under the Securities Act pursuant to this Section 13, the Company
will indemnify and hold harmless each offering Eligible Holder, each underwriter
of such securities and each other Person, if any, who controls such Eligible
Holder, or such underwriter within the meaning of the Securities Act, against
any losses, claims, damages, or liabilities, joint or several, to which such
Eligible Holder, such underwriter or such controlling Person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement of any material fact contained in any registration
statement under which such securities were registered under the Securities Act,
any preliminary prospectus or final prospectus contained therein, or any
amendment or restatement thereto, or arise out of or are based upon 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; and will
reimburse such Eligible Holder, such underwriter and each such controlling
Person for any legal and any other expenses reasonably incurred by such Eligible
Holder, such underwriter, or such controlling Person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent
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that any such loss, claim, damage, or liability arises out of or is based upon
an untrue statement or an untrue statement or omission or alleged omission made
in said registration statement, said preliminary prospectus, or said prospectus
or said amendment or supplement in reliance upon and in conformity written
information furnished to the Company through an instrument duly executed by
such Eligible Holder or such underwriter specifically for use in the
preparation thereof.
13.10 Your Indemnification. In the event of any registration of any
securities under the Securities Act pursuant to this Section 13, such Eligible
Holder will (or will furnish the written undertaking of such other controlling
Person or Persons as shall be acceptable to the Company to) indemnify and hold
harmless the Company and each other Person, if any, who controls the Company
within the meaning of the Securities Act, against any losses, claims, damages,
or liabilities, joint or several, to which the Company or such controlling
Person may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereto,
or arise out of or are based upon 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, in each case to the extent that any such
loss, claim, damage, or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
said registration statement, said preliminary prospectus, or said prospectus or
said amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Eligible Holder or any underwriter
of such Eligible Holder's securities specifically for use in the preparation
thereof, and such Eligible Holder will (or will furnish the written undertaking
of such other Person or Persons as shall be acceptable to the Company to)
reimburse the Company and each such controlling Person for any legal and any
other expenses reasonably incurred by the Company or such controlling Person in
connection with investigation or defending any such loss, claim, damage, or
liability or action.
13.11 Conduct of Litigation; Procedure. If an action is brought
against any Person entitled to indemnification under Section 13.9 or 13.10
above (the "Indemnitee"), the Indemnitee shall promptly notify the Person or
Persons obligated to indemnify the Indemnitee (whether one or more, the
"Indemnitor") of such action and the Indemnitor shall assume the defense of
such action, including the employment of counsel, reasonably satisfactory to
Indemnitee, and the payment of all court costs and other expenses. The
Indemnitee shall have the right to employ its own counsel in any such action,
but the fees and expenses of such counsel shall be at the Indemnitee's expense
unless the Indemnitee shall have reasonably concluded that there may be
defenses available to it which are different from or additional to those
available to the Indemnitor (in which case the Indemnitor shall not have the
right to direct the defense of such action on behalf of Indemnitee), in any of
which events such fees and expenses shall be borne by the Indemnitor.
Notwithstanding anything to the contrary in this Section 13.11, the Indemnitor
shall not be liable for any settlement of any claim or action effected without
its written consent. The Company covenants and agrees that it will not settle
any action against it involving possible claims against an Indemnitee without
also using its best efforts to settle the action against such Indemnitee.
13.12 Termination of Restrictions. The restrictions imposed by this
Section 13 upon the transferability of the Restricted Notes and the Restricted
Common Stock, shall cease and terminate as to any particular Restricted Note or
share of Restricted Common Stock when such Note or share shall have been
effectively registered under the Securities Act and disposed of by the Holder
thereof in accordance with the method of disposition described in the
registration statement or when opinions of counsel shall have been given
pursuant to Section 13.4 hereof to the effect that the legend set forth in
Section 13.3 hereof is not required. Whenever the restrictions imposed by this
Section 13 shall terminate, as hereinabove provided, the holder of any
Restricted Note or Restricted Common Stock as to which such restrictions shall
have terminated shall be entitled to receive from the Company, without expense,
a new
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Note or stock certificate not bearing the restrictive legend set forth
in Section 13.3 hereof and not containing any other reference to the
restrictions imposed by this Section 13.
13.13 Transfer of Your Rights. Your rights under this Section
13 shall inure to the benefit of all Persons who shall at any time be
the holders of Restricted Notes or Restricted Common Stock originally
purchased by you hereunder, pro rata in accordance with their respective
interests and each such holder, by such holder's acceptance of such
Restricted Note or Restricted Common Stock, as the case may be, agrees
to be and shall be deemed to be bound by all of your covenants set forth
in this Section 13, to the extent that such covenants are applicable to
such holder's Restricted Notes or Restricted Common Stock.
14. DEFINITIONS.
"AFFILIATES" of any Person shall mean any Person directly or indirectly
controlling, controlled by or under direct or indirect common control with such
Person. A Person shall be deemed to control a corporation if such Person
possesses, directly or indirectly, the power to direct or cause the direction
of the management and policies of such corporation, whether through the
ownership of voting securities, by contract or otherwise. Each director,
executive officer, and holder of 5% or more of and class of the outstanding
voting securities of the Company shall be deemed to be an "Affiliate" of the
Company.
"BUSINESS DAY" shall mean any day that the NASDAQ system (or other
exchange or market on which the Company's securities are traded) is open for
trading.
"COMMISSION" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"ELIGIBLE HOLDER" shall have the meaning given such term in Section
13.5 hereof.
"EVENT OF DEFAULT" shall have the meaning given such term in Section 11
hereof.
"FORM 10-K" shall mean the Company's Annual Report Pursuant to Section
12 or Section 15(d) of the Securities Exchange Act of 1934 for the fiscal year
ended June 30, 1996.
"FORM 10-Q" shall mean the Company's Quarterly Report Pursuant to
Section 12 or 15(d) of the Securities Exchange Act of 1934 for the fiscal
quarters ended September 29, 1996, December 29, 1996 and March 31, 1997,
respectively.
"MATERIAL ADVERSE CHANGE" shall mean any single circumstance or event
(or series of circumstances or events) having a Material Adverse Effect.
"MATERIAL ADVERSE EFFECT" shall mean any material adverse effect on the
financial condition or business operations of the Company and any of its
Subsidiaries on a consolidated basis, excluding, however, all Forward Looking
Statements and the specific and general risk factors disclosed in the
Memorandum and the occurrence, results of consequences with respect thereto.
"NASDAQ" shall mean the National Association of Securities Dealers
Automatic Quotation system.
"PERSON" shall mean and include an individual, a partnership, a
corporation, a trust, a joint venture, an unincorporated organization, a
government or any department or agency thereof, and any other entity.
"RESTRICTED NOTE" shall mean any Note bearing the restrictive legend
set forth in Section 13.3 hereof.
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"RESTRICTED COMMON STOCK" shall mean shares of Common Stock on conversion
of the Notes or exercise of the Warrants issued pursuant to this Agreement and
evidenced by a certificate bearing the restrictive legend set forth in Section
13.3 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"SENIOR INDEBTEDNESS" shall mean the principal of (and premium, if any),
unpaid interest on, and any fees, expenses or other amounts or reimbursement
obligations on letters of credit in respect of, the following, whether
presently outstanding or hereafter incurred (a) all indebtedness (including
indebtedness of others guaranteed by the Company), whether outstanding on the
date hereof or thereafter created, incurred, assumed or guaranteed, of the
Company which is borrowed from and owed to any bank, insurance company, savings
and loan association, commercial finance company, commercial institution or
pension or profit sharing trust which makes loans or investments as a part of
its regular business, (b) the Company's 5-Year 9% Convertible Subordinated
Debentures due March 31, 1999, (c) the Company's 12% Subordinated Notes due
July 31, 1997, and (d) renewals, extensions, modifications and refunding of any
such indebtedness. Notwithstanding anything to the contrary in this Agreement.
"Senior Indebtedness" shall not include (A) any indebtedness of the types
referred to in clauses (a) through (d) in the preceding sentence if the terms
of the instrument provide that such indebtedness is not senior in right of
payment to the payment of principal of and interest on the Notes, (B) any
indebtedness of the Company which, by its terms or the terms of the instrument
creating or evidencing it, is subordinate in right of payment to or pari passu
with the Notes, (C) any indebtedness of the Company to any Affiliate, and (D)
any account payable created or assumed by the Company in the ordinary course of
business in connection with the obtaining of materials or services or any
obligation of the Company to any Affiliate. The exclusion of any indebtedness
from the definition of Senior Indebtedness is not intended and shall not be
deemed to limit the ability of the Company to grant any holder or guarantor,
which holder or guarantor may be an Affiliate, of indebtedness of the Company a
lien on or security interest in any assets of the Company to secure the
obligation or indebtedness of the Company to such person. Notwithstanding
anything to the contrary herein, it is intended that the Notes be secured by
100% of the outstanding stock (the "Marco's Stock") of Marco's Mexican
Restaurants, Inc., a Texas corporation and wholly-owned subsidiary of the
Company ("Marco's"), subject to such stock being released as security on the
full payment of the July Subordinated Notes as described in the Memorandum. The
holders of the Notes shall be entitled to the security afforded by a pledge of
the Marco's Stock and the receipt by the holders of the Notes of such security
and the sale thereof upon an Event of Default which results in the payment or
satisfaction of whole or in part of the Notes shall not be subject to the
payment or preferential rights of holders of any Senior Indebtedness and the
Notes are not subordinated to the extent of the right of the holders to receive
the benefits of the Marco's Stock as collateral.
"SENIOR INDEBTEDNESS DEFAULT" shall mean a default in payment of the
principal of or sinking fund installments, if any, due with respect to, fees in
respect of or interest on, any Senior Indebtedness, or any default, or any
event which, with notice or lapse of time or both, would constitute a default,
in any other agreement, term or condition contained in any agreement under
which any Senior Indebtedness is issued.
"SUBSIDIARY" shall mean any Person of which at the time of determination
the Company and/or one or more Subsidiaries owns or controls directly or
indirectly more than 50% of the shares of voting stock.
15. WAIVERS: MODIFICATIONS OF AGREEMENT. Any provision in this Agreement
to the contrary notwithstanding, changes in or additions to this Agreement or
the Notes may be made, and compliance with any covenant or condition herein set
forth may be omitted, if the Company (a) shall obtain from the holders of
record of Notes aggregating not less than 51% of the aggregate principal amount
of the Notes at the time outstanding (excluding the principal amount of the
Notes owned by Xxxxxx X. Xxxxxxxxxx) their consent thereto in writing and (b)
shall deliver copies of such consent in writing to any such holders of record
who did not execute the same; such consent, without limiting the foregoing,
shall be effective to reduce the principal of or rate of interest payable on,
or to postpone any date fixed for the payment of principal of or any
installment of interest on, the Notes held by all holders, to increase the
percentage specified in Section 11 hereof of the principal amount of
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the Notes the holders of which may, in accordance with the provisions of such
Section 11, accelerate the maturity of the Notes upon an Event of Default or to
reduce the percentage of the principal amount of the Notes (or Restricted
Common Stock) the consent of the holders of which shall be required under this
Section 15.
16. SURVIVAL OF COVENANTS, ETC. All covenants, agreements,
representations, and warranties made herein and in the Notes and in any
certificate delivered pursuant hereto shall survive any investigation made by
you and the execution and delivery to you of the Notes to be purchased by you
and your payment therefor.
17. BROKERS; ISSUANCE TAXES. The Company will hold you free and harmless
from any claim, demand, liability for, or expense in connection with, any
brokers' or finders' fees or commissions claimed by any Person assertedly
acting on behalf of the Company in connection with this Agreement or the
transactions contemplated herein and taxes (excluding federal income taxes), if
any, payable upon, or on account of, issuance of the Notes.
18. GOVERNING LAW. This Agreement and the Notes are being delivered in
the State of Texas and shall be governed by and construed according to the laws
of the State of Texas.
19. NOTICES. Any notice, consent, request, or other communication
required or permitted hereunder shall be in writing and shall be deemed given
when either (a) personally delivered to the intended recipient or (b) sent and
delivered, by certified or registered mail, return receipt requested, addressed
to the intended recipient as follows:
if to the Company, to: Watermarc Food Management Co.
00000 Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000;
Attention: Chief Financial Officer
if to any of you, to the address given for such of you on Schedule 1 hereto; if
to any other holder of a Note to the address of such holder given to the
Company in accordance with Section 8; and if to any other holder of Restricted
Common Stock, to the address of such holder as set forth in the stock transfer
records of the Company. Any Person (other than the Company) may change the
address to which notice is to be sent pursuant to the preceding sentence by
giving notice of such new address to the Company in accordance with this
Section 19. The Company may change the address to which notice is to be sent
hereunder by giving notice of such change, in accordance with this Section 19,
to each Person against whom such change shall be effective. Any notice mailed
as aforesaid shall, unless otherwise provided herein, be deemed given on the
fifth day after deposited in the United States mail in accordance with the
first sentence of this Section 19.
20. PARTIES IN INTEREST. All of the terms and provisions of this
Agreement shall bind and inure to the benefit of the parties hereto and their
respective successors and assigns.
21. BUSINESS DAYS. Should any installment of the principal of or interest
on any Note become due and payable upon a day other than a day on which
national banks located in Houston, Texas, are open for the conduct of banking
business, the maturity thereof shall be extended to the next succeeding day
upon which such banks are open for the conduct of banking business and, in the
case of an installment of principal, interest shall be payable thereon at the
rate per annum specified in such Note during such extension.
22. HEADINGS. The headings of the various sections and subsections hereof
have been inserted for convenience of reference only and shall not be deemed to
in any way modify any of the terms or provisions hereof.
23. COUNTERPARTS. This Agreement may be signed by each party hereto upon
a separate copy, in which event all of said copies shall constitute a single
counterpart of this Agreement. This Agreement may be
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executed in two or more counterparts, each of which shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
If the foregoing is in accordance with your understanding, please sign
the form of confirmation and acceptance on the enclosed counterpart of this
Agreement and return the same to the Company, whereupon this Agreement shall be
a binding agreement between you and the Company.
EXECUTED this ________ day of _____________, 1997.
WATERMARC FOOD MANAGEMENT CO.
By:
--------------------------------
Xxxxxx X. Xxxxxxxxxx, Chairman of
the Board and Chief Executive
Officer
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above written.
-------------------------------------
(Signature)
-------------------------------------
(Print Name)
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SCHEDULE 1
SCHEDULE OF PURCHASERS
PRINCIPAL
AMOUNT OF NUMBER OF
NAME ADDRESS NOTES WARRANTS
----------------------- -------------------- --------- ---------
19
