THE SECURITIES EVIDENCED BY THIS CONVERTIBLE SUBORDINATED PROMISSORY NOTE (AND
THE COMMON SHARES INTO WHICH SUCH SECURITIES ARE CONVERTIBLE) ARE SUBJECT TO
AN INVESTMENT AGREEMENT DATED DECEMBER 31, 1996, AS AMENDED AND A STOCKHOLDERS
AGREEMENT DATED AS OF DECEMBER 31, 1996, COPIES OF WHICH ARE ON FILE AT THE
PRINCIPAL OFFICE OF THE CORPORATION AND WILL BE FURNISHED TO THE HOLDER ON
REQUEST TO THE SECRETARY OF THE CORPORATION. SUCH INVESTMENT AGREEMENT AND
STOCKHOLDERS AGREEMENT PROVIDE, AMONG OTHER THINGS, FOR CERTAIN RESTRICTIONS
ON VOTING, SALE, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE
SECURITIES EVIDENCED BY THIS NOTE, AND THE HOLDER HAS RIGHTS TO REQUIRE
REPURCHASE BY THE CORPORATION UPON THE OCCURRENCE OF CERTAIN EVENTS. THE
SECURITIES EVIDENCED BY THIS NOTE HAVE NOT BEEN REGISTERED PURSUANT TO THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW,
AND SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS THE SAME ARE REGISTERED AND QUALIFIED IN ACCORDANCE WITH THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS, OR IN THE OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE CORPORATION, SUCH REGISTRATION AND QUALIFICATION ARE NOT
REQUIRED.
AMENDED AND RESTATED SENIOR SUBORDINATED
CONVERTIBLE PROMISSORY NOTE DUE 2001
------------------------------------
NO. 01 Denver, Colorado
$1,500,000.00 Issuance Date: December 31, 1996
Effective Date: November 11, 1997
FOR VALUE RECEIVED, THE QUIZNO'S CORPORATION, a Colorado corporation with
an office at 0000 00xx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxxxxx 00000 ("Maker" or
"Corporation"), promises to pay to the order of RETAIL & RESTAURANT GROWTH
CAPITAL, L.P., a Delaware limited partnership having an office at 00000 X.
Xxxxxxx Xxxxxxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx 00000 (together with its
successors and assigns, "Payee"), at such office of Payee, or such other place
as Payee may designate from time to time in writing, the principal sum of One
Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) in lawful
money of the United States of America, together with interest thereon from the
date hereof as follows:
1. THE NOTE. This Amended and Restated Senior Subordinated
--------
Convertible Promissory Note Due 2001 (the "Note") is being issued by the Maker
pursuant to an Investment Agreement dated as of the date hereof by and among
the Payee and the Maker (as amended, from time to time, the "Investment
Agreement"), and Payee's rights and the Maker's obligations hereunder are
subject to the provisions of the Investment Agreement. Capitalized terms used
in this Note and not otherwise defined shall have the meanings those terms
have in the Investment Agreement. The obligations of the Maker under this
Note are secured by a Security Agreement dated as of the date hereof (the
"Security Agreement") and by a Pledge Agreement dated as of the date hereof
(the "Pledge Agreement"). Reference to the Investment Agreement, the Security
Agreement, and the Pledge Agreement shall in no way impair the negotiability
hereof or the absolute and unconditional obligation of the Maker to pay both
principal and interest hereon as provided herein. The principal balance of
the Note which is outstanding and unpaid from time to time is referred to as
the "Principal Amount".
2. INTEREST RATE. The Principal Amount shall bear interest at
-------------
an annual rate of twelve and three-quarters percent (12.75%) while no Event of
Default has occurred and is continuing and at an annual rate of eighteen
percent (18%) while an Event of Default has occurred and is continuing.
Interest shall be calculated on the basis of a 360 day year consisting of 12
months each of 30 days. Notwithstanding anything to the contrary contained
herein, the effective rate of interest hereunder shall not exceed the maximum
effective rate of interest permitted by applicable law or regulation,
including the regulations promulgated under 15 U.S.C. 662(5), that is Section
103(5) of the Small Business Investment Act of 1958, as amended. If the
amount of interest payable on any date under this Note would exceed the
maximum amount permitted by applicable law or regulation, then the amount of
interest payable on such date shall be reduced automatically to such maximum
amount. If any interest or other charges, charged, paid or payable by the
Maker in connection with this Note results in charging, compensation, payment
or earning of interest in excess of the maximum allowed by the applicable law
as aforesaid, then any and all such excess shall be and the same is hereby
waived by the Payee, and any and all such excess previously paid shall be
automatically credited against and in reduction of the Principal Amount.
3. PAYMENTS OF PRINCIPAL AND INTEREST. The Principal Amount
----------------------------------
shall be payable in full on December 31, 2001 (the "Maturity Date"). Interest
only on the Principal Amount shall be payable monthly in arrears on the first
day of each month by 2:00 p.m. Dallas time for the first eighteen months
subsequent to the Issuance Date beginning on February 1, 1997. Beginning at
the end of the nineteenth (19th) month from the Issuance Date and continuing
through the end of the fifty-ninth (59th) month from the Issuance Date,
principal and interest shall be payable monthly based on a five (5) year
straight line amortization schedule and using a simple interest calculation.
All remaining unpaid principal and accrued interest shall be payable at the
end of the sixtieth (60th) month after the Issuance Date. All amounts of
principal and interest payable hereunder shall be paid by the Maker by check
or wire transfer in immediately available and freely transferrable funds. All
payments shall be made at the Payee's address set forth in the first paragraph
of this Note, or such other place as may be designated by Payee in writing to
Maker.
4. CONVERSION PRINCIPAL. Up to an aggregate of One Million One
--------------------
Hundred Fifty-Five Thousand Eight Hundred Twenty-Five and 70/100 Dollars
($1,155,825.70) of the original Principal Amount (such amount, as reduced by
the prior conversion of any portion thereof, is referred to herein as the
"Conversion Principal") may be converted, in whole or in part, into the
Maker's Common Stock ("Common Stock") as provided in Section 7 below (such
event being referred to as a "Conversion"). Simultaneously with any
Conversion, the Maker shall execute and deliver to the Payee a new promissory
note for the remaining Principal Amount and accrued but unpaid interest (the
"Substitute Note"). Each Substitute Note shall be dated as of the date
hereof, shall have terms identical to the terms of this Note (other than the
amount and the amount of the Conversion Principal) shall be considered to have
renewed this note by amendment (and shall not be deemed a novation), and shall
be deemed to have been issued pursuant to the Investment Agreement and
Investment Documents and secured by the Security Agreement and Pledge
Agreement. That portion of the Principal Amount which exceeds the Conversion
Principal is referred to as the "Unconvertible Amount."
5. PREPAYMENTS.
-----------
Upon not less than thirty day's prior written notice to Payee, the Maker
may prepay this Note in whole or in part at any time without penalty in
amounts not less than $500,000. Partial prepayments shall be credited first
to accrued interest then to the outstanding Unconvertible Amount, and finally
to the Conversion Principal.
6. WARRANT.
-------
Each time a principal payment is made on the Conversion Principal of the
Note, the Maker shall issue a warrant in the form attached hereto as Exhibit A
---------
(with blanks appropriately completed) to purchase shares of the Maker's Common
Stock for the price and with such other rights as the Payee would have had if
the Note had not been prepaid. Payee shall pay a warrant price of $1,000 at
the time the first warrant is issued.
7. CONVERSION OF NOTE INTO COMMON STOCK.
------------------------------------
A. CONVERSION. The Conversion Principal (as set out in Section
----------
4) shall be convertible by the Payee at the office of the Corporation or any
transfer agent for the Note, at the option of the Payee without the payment of
additional consideration, at any time after the date of issuance of such Note
into the whole number of fully paid and nonassessable shares of Common Stock
determined by dividing the amount of this Note being converted by the
Conversion Price in effect at the time of conversion, plus, in lieu of any
fractional share to which such holder would otherwise be entitled, cash equal
to any remaining Conversion Principal amount of this Note which cannot be
converted into a full share. The "Conversion Price" shall initially be $3.10
and shall be adjusted and readjusted from time to time as provided in this
Note.
B. MECHANISMS OF CONVERSION. In order to convert this Note, the
------------------------
Payee shall surrender to the Corporation at the office of the Corporation or
of any transfer agent for the Note, this Note, accompanied by written notice
to the Corporation that the Payee elects to convert all or a specified amount
of the Conversion Principal and stating therein the Payee's name or the name
or names of Payee's nominees in which the Payee wishes the certificate or
certificates for Common Stock to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver to the Payee or to the Payee's
nominee or nominees, a certificate or certificates representing the number of
shares of Common Stock and a check for the amount of cash to which the Payee
shall be entitled as aforesaid and, if less than the full amount of this Note
is being converted, a New Note in the principal amount not being converted.
Any conversion made at the election of the Payee shall be deemed to have been
made immediately prior to the close of business on the date of such surrender
of this Note, and the person or persons entitled to receive the Common Stock
issuable upon conversion shall be treated for all purposes as the recordholder
or holders of such Common Stock on such date.
C. ADJUSTMENTS TO CONVERSION PRICE.
-------------------------------
(1) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS, NON PRO-RATA
REPURCHASES
------------------------------------------------------------
In case at any time or from time to time the Corporation
shall:
(a) take a record of the holders of its Other Stock (as defined
below) for the purpose of entitling them to receive a dividend payable in, or
other distribution of, Other Stock (other than Common Stock), or
(b) subdivide its outstanding shares of Other Stock into a
larger number of shares of Other Stock, or
(c) combine its outstanding shares of Other Stock into a smaller
number of shares of Other Stock,
then the Conversion Price in effect immediately after the happening of any
such event shall be proportionately decreased, in case of the happening of
events described in subparagraphs A or B above, or proportionately increased,
in case of the happening of events described in subparagraph C above. "Other
Stock" shall mean the Common Stock and shall also include all other stock of
the Corporation of any other class other than Convertible Stock. A
reclassification of the Other Stock into shares of Other Stock and shares of
any other class of stock shall be deemed a distribution by the Corporation to
the holders of its Other Stock of such shares of such other class of stock
within the meaning of this Subsection and, if the outstanding shares of Other
Stock shall be changed into a larger or smaller number of shares of Other
Stock as a part of such reclassification, shall be deemed a subdivision or
combination, as the case may be, of the outstanding shares of Other Stock
within the meaning of this Subsection c(i).
(2) REPURCHASE OF OTHER STOCK. In case at any time or from time
-------------------------
to time, the Corporation shall (except as hereinafter provided) repurchase any
Other Stock (the "Repurchased Stock"), then upon the consummation of such
repurchase the Conversion Price then in effect shall be decreased to an amount
determined by multiplying the Conversion Price in effect immediately prior to
such adjustment by a fraction, (x) the numerator of which is the Current
Market Price (as defined below) per share of Common Stock as determined on the
date on which such repurchase is made, and (y) the denominator of which is the
Current Market Price per share of Common Stock on the date immediately prior
to such repurchase (after giving effect to any stock splits, stock dividends
or other stock repurchases between the date of such repurchase and the date on
which such calculation is made); provided, however, that if the numerator of
-------- -------
such fraction is greater than the denominator of such fraction, then no
adjustment to the Conversion Price shall be made. No adjustment of the
Conversion Price shall be made under this Subsection upon the repurchase of
the Repurchased Stock if such repurchase, together with all repurchases during
the previous twelve (12) calendar months, is a repurchase of less than the sum
of (1) 5% of the issued and outstanding Other Stock determined as of the date
of such repurchase, plus (2) repurchases of stock options and Other Stock
----
underlying such stock options in a transaction or series of transactions
during such twelve (12) month period not exceeding $50,000 in the aggregate.
(3) ISSUANCE OF ADDITIONAL SHARES OF OTHER STOCK. "Additional
--------------------------------------------
Shares of Other Stock" shall mean all shares of Other Stock issued by the
Corporation after the date of this Note other than (i) the shares of Common
Stock issued to a holder of Convertible Stock upon conversion of such
Convertible Stock, and (ii) Permitted Common Stock Issuances. In case at any
time or from time to time, the Corporation shall (except as hereinafter
provided) issue, whether in connection with the merger of a corporation into
the Corporation or otherwise, any Additional Shares of Other Stock for a
consideration per share less than the Conversion Price then in effect (as so
adjusted from time to time for additional issuances, reductions and other
adjustments to the number of shares of Common Stock outstanding, including
without limitation stock splits, stock dividends, reverse stock splits, pro
rata repurchases, and any other good faith transfer of securities or other
transaction which results in an increase or decrease in the number of shares
of Common Stock outstanding) (such amount per share, the "Minimum Issue
Price") on the Computation Date (determined as set forth below), then the
Conversion Price shall be adjusted to be that number determined by multiplying
the Conversion Price in effect immediately prior to such adjustment by a
fraction (x) the numerator of which shall be the number of shares of Other
Stock then outstanding, plus the number of shares of Other Stock which the
aggregate consideration for the total number of such Additional Shares of
Other Stock so issued would purchase at the Minimum Issue Price per share of
Common Stock and (y) the denominator of which shall be the number of shares of
Other Stock then outstanding plus the number of such Additional Shares of
Other Stock so issued. The provisions of this Subsection shall not apply to
any issuance of Additional Shares of Other Stock for which an adjustment is
provided under Subsection 7(c)(i). No adjustment of the Conversion Price
shall be made under this Subsection upon the issuance of any Additional Shares
of Other Stock which are issued pursuant to the exercise of any warrants,
options or other subscription or purchase rights or pursuant to the exercise
of any conversion or exchange rights in any Convertible Securities, if any
such adjustment shall previously have been made upon the issuance of such
warrants, options or other rights or upon the issuance of such Convertible
Securities (or upon the issuance of any warrant or other rights therefor)
pursuant to Subsection (iv) or (v) of this Subsection 7(c). "Convertible
Securities" shall mean evidences of indebtedness, shares of stock or other
securities, which are convertible into or exchangeable for Additional Shares
of Other Stock, either immediately or upon the arrival of a specified date or
the happening of a specified event. For purposes of this Subsection, the
"Computation Date" shall be the earlier of (x) the date on which the
Corporation shall enter into a firm contract for the issuance of such
Additional Shares of Other Stock, or (y) the date of actual issuance of such
Additional Shares of Other Stock.
(4) ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS. In case at
---------------------------------------------
any time or from time to time, the Corporation shall take a record of the
holders of its Other Stock for the purpose of entitling them to receive a
distribution of, or shall otherwise issue, any warrants, options or other
rights to subscribe for or purchase any Additional Shares of Other Stock or
any Convertible Securities (other than Permitted Stock Issuances and Common
Stock issuable upon conversion of Convertible Stock), and the consideration
per share for which Additional Shares of Other Stock may at any time
thereafter be issuable pursuant to such warrants, options or other rights or
pursuant to the terms of such Convertible Securities shall be less than the
Minimum Issue Price then in effect on the Computation Date (as determined
below), then the Conversion Price shall be adjusted as provided in the second
sentence of Subsection 7(c)(iii). Such adjustment shall be made on the basis
that (i) the consideration per share for which such Additional Shares of Other
Stock may be issued equals a fraction, (x) the denominator of which is the
maximum number of Additional Shares of Other Stock issuable pursuant to all
such warrants, options or other rights or necessary to effect the conversion
or exchange of all such Convertible Securities, and (y) the numerator of which
is the minimum consideration received and receivable by the Corporation for
such Additional Shares of Other Stock pursuant to such warrants, options or
other rights or pursuant to the terms of such Convertible Securities, (ii) the
maximum number of Additional Shares of Other Stock issuable pursuant to all
such warrants, options or other rights or necessary to effect the conversion
or exchange of all such Convertible Securities shall be deemed to have been
issued as of the Computation Date (determined as set forth in the last
sentence of this Subsection), and (iii) the aggregate consideration for such
maximum number of Additional Shares of Other Stock shall be deemed to be the
minimum consideration received and receivable by the Corporation for the
issuance of such Additional Shares of Other Stock pursuant to such warrants,
options or other rights or pursuant to the terms of such Convertible
Securities.
For purposes of this Subsection, the "Computation Date" shall be the
earliest of (a) the date on which the Corporation shall take a record of the
holders of its Other Stock for the purpose of entitling them to receive any
such warrants, options or other rights, (b) the date on which the Corporation
shall enter into a firm contract for the issuance of such warrants, options or
other rights, and (c) the date of actual issuance of such warrants, options or
other rights.
(5) ISSUANCE OF CONVERTIBLE SECURITIES. In case at any time or
----------------------------------
from time to time, the Corporation shall take a record of holders of the Other
Stock for the purpose of entitling them to receive a distribution of, or shall
otherwise issue, any Convertible Securities (other than the Permitted Common
Stock Issuances and Convertible Stock) and the consideration per share for
which additional shares of other stock may at any time thereafter be issuable
pursuant to the terms of such Convertible Securities shall be less than the
Minimum Issue Price then in effect on the Computation Date (as determined
below), then the Conversion Price shall be adjusted as provided in the second
sentence of Subsection 7(c)(iii). Such adjustment shall be made on the basis
that (i) the amount of consideration per share for which such Additional
Shares of Other Stock may be issued equals a fraction (x) the denominator of
which is the maximum number of Additional Shares of Other Stock necessary to
effect the conversion or exchange of all such Convertible Securities, and (y)
the numerator of which shall be the minimum consideration received and
receivable by the Corporation for the issuance of such Additional Shares of
Other Stock pursuant to the terms of such Convertible Securities, (ii) the
maximum number of Additional Shares of Other Stock necessary to effect the
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued as of the Computation Date (determined as set forth in the
penultimate sentence of this Subsection), and (iii) the aggregate
consideration for such maximum number of Additional Shares of Other Stock
shall be deemed to be the minimum consideration received and receivable by the
Corporation for issuance of such Additional Shares of Other Stock pursuant to
the terms of such Convertible Securities.
For purposes of this Subsection, the "Computation Date" shall be the
earliest of (a) the date on which the Corporation shall take a record of the
holders of its Other Stock for the purpose of entitling them to receive any
such Convertible Securities, (b) the date on which the Corporation shall enter
into a firm contract for the issuance of such Convertible Securities, and (c)
the date of actual issuance of such Convertible Securities. No adjustment of
the Conversion Price shall be made under this Subsection upon the issuance of
any Convertible Securities which are issued pursuant to the exercise of any
warrants, options or other subscription or purchase rights therefor, if any
such adjustment shall previously have been made upon the issuance of such
warrants, options or other rights pursuant to Subsection 7(c)(iv).
(6) SUPERSEDING ADJUSTMENT OF CONVERSION PRICE. If at any time
------------------------------------------
after any adjustment of the Conversion Price shall have been made pursuant to
the foregoing Subsections 7(c)(iv) or 7(c)(v) on the basis of the issuance of
warrants, options or other rights or the issuance of other Convertible
Securities or after any new adjustment of the Conversion Price shall have been
made pursuant to this Subsection 7(c)(vi),
(a) such warrants, options or other rights or the right of
conversion or exchange in such other Convertible Securities shall expire, and
a portion of such warrants, options or rights, or the right of conversion or
exchange in respect of a portion of such other Convertible Securities, as the
case may be, shall not have been exercised, or
(b) the consideration per share for which Additional Shares of
Other Stock are issuable pursuant to such warrants, options, or rights or the
terms of such other Convertible Securities, shall be increased solely by
virtue of provisions therein contained for an automatic increase in such
consideration per share upon the arrival of a specified date or the happening
of a specified event, such previous adjustment shall be rescinded and annulled
and the Additional Shares of Other Stock which were deemed to have been issued
by virtue of the computation made in connection with the adjustment so
rescinded and annulled shall no longer be deemed to have been issued by virtue
of such computation. Thereupon, a recomputation shall be made of the effect
of such warrants, options or other rights, or other Convertible Securities on
the basis of:
i) treating the number of Additional Shares of Other Stock, if
any, theretofore actually issued or issuable pursuant to the previous exercise
of such warrants, options or other rights or such right of conversion or
exchange, as having been issued on the date or dates of such issuance as
determined for purposes of such previous adjustment and for the consideration
actually received therefor, and
ii) treating any such warrants, options or other rights or any
such other Convertible Securities which then remain outstanding as having been
granted or issued immediately after the time of such increase of the
consideration per share for such Additional Shares of Other Stock issuable
under such warrants, options or other rights or other Convertible Securities,
and, if and to the extent called for by the foregoing provisions of this
Subsection 7(c) on the basis aforesaid, a new adjustment of the Conversion
Price shall be made, and such new adjustment shall supersede the previous
adjustment so rescinded and annulled. If any such superseding adjustment of
the Conversion Price is made after conversion of the Note by a former holder
of this Note, in lieu of such adjustment, if, and only if, such former holder
owns shares of Common Stock of the Corporation obtained upon conversion of
this Note, the Corporation shall have the option to purchase the number of
shares of Common Stock from such former holder equal to the difference between
(x) the number of shares of Common Stock which such former Holder received
upon conversion prior to the adjustment, and (y) the number of shares of
Common Stock which such former Holder would have received on conversion had
such adjustment been made prior to conversion. The purchase price per share
of such stock shall be $0.01 per share.
(7) OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS
-----------------------------------------------------
SECTION. The following provisions shall be applicable to the making of
adjustments of the Conversion Price hereinbefore provided for in this
Subsection 7(c):
(A) TREASURY STOCK. The sale or other disposition of any issued
--------------
shares of Other Stock owned or held by or for the account of the Corporation
shall be deemed an issuance thereof for purposes of this Subsection 7(c).
(B) COMPUTATION OF CONSIDERATION. To the extent that any
----------------------------
Additional Shares of Other Stock or any Convertible Securities or any
warrants, options or other rights to subscribe for or purchase any Additional
Shares of Other Stock or any Convertible Securities shall be issued solely for
cash consideration, the consideration received by the Corporation therefor
shall be deemed to be the amount of cash received by the Corporation therefor,
or, if such Additional Shares of Other Stock or Convertible Securities are
offered by the Corporation for subscription, the subscription price, or, if
such Additional Shares of Other Stock or Convertible Securities are sold to
underwriters or dealers for public offering without a subscription offering,
the initial public offering price, in any such case excluding any amounts paid
or receivable for accrued interest or accrued dividends, and after deductions
for any compensation, underwriting discounts, placement fees or funding or
financing commitment fees (but before deduction for any other expenses) paid
or incurred by the Corporation for and in the underwriting of, or otherwise in
connection with, the issue thereof. To the extent that such issuance shall be
for a consideration other than solely for cash, then, except as herein
otherwise expressly provided, the amount of such consideration shall be deemed
to be the fair value of such consideration at the time of such issuance as
determined in good faith by the Corporation's Board of Directors. The
consideration for any Additional Shares of Other Stock issuable pursuant to
any warrants, options or other rights to subscribe for or purchase the same
shall be the consideration received or receivable by the Corporation for
issuing such warrant, options or other rights, plus the additional
consideration payable to the Corporation upon the exercise of such warrants,
options or other rights. The consideration for any Additional Shares of Other
Stock issuable pursuant to the terms of any Convertible Securities shall be
the consideration received or receivable by the Corporation for issuing any
warrants, options or other rights to subscribe for or purchase such
Convertible Securities, plus the consideration paid or payable to the
Corporation in respect of the subscription for or purchase of such Convertible
Securities, plus the additional consideration, if any, payable to the
Corporation upon the exercise of the right of conversion or exchange in such
Convertible Securities.
(C) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by
---------------------------
the preceding Subsections of this Subsection 7(c) shall be made whenever and
as often as any specified event requiring an adjustment shall occur, except
that no adjustment of the Conversion Price that would otherwise be required
shall be made (except in the case of a subdivision or combination of shares of
the Other Stock, as provided for in Subsection 7(c)(i)) unless and until such
adjustment, either by itself or with other adjustments not previously made,
adds or subtracts at least 1% to the Conversion Price, as determined in good
faith by the Board of Directors of the Corporation. Any adjustment
representing a change of less than such minimum amount shall be carried
forward and made as soon as such adjustment, together with other adjustments
required by this Subsection 7(c) and not previously made, would result in a
minimum adjustment. For the purpose of any adjustment, any specified event
shall be deemed to have occurred at the close of business on the date of its
occurrence. All calculations made under this Subsection shall be made to the
nearest cent. Notwithstanding any other provision of this Note, and except
for a combination of shares or other adjustment pursuant to Section 7(c)(i),
no adjustment to the Conversion Price shall be made which causes the
Conversion Price to be increased; and once the Conversion Price is adjusted
downward, it shall not be readjusted upward except as provided in subsection
7(c)(vi).
(D) FRACTIONAL INTERESTS. In computing adjustments under this
--------------------
Subsection 7(c), fractional interests in Other Stock shall be taken into
account to the nearest one-thousandth of a share.
(E) WHEN ADJUSTMENT NOT REQUIRED. If the Corporation shall take a
----------------------------
record of the holders of its Other Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and
shall, thereafter and before the distribution thereof to shareholders, legally
abandon its plan to pay or deliver such dividend, distribution, subscription
or purchase rights, then (i) thereafter no adjustment shall be required by
reason of the taking of such record and any such adjustment previously made in
respect thereof shall be rescinded and annulled, or (ii) in the event that any
such adjustment previously made in respect of such taking of record cannot be
rescinded or annulled as a result of the conversion of this Note after the
taking of such record occurs, in lieu of such recision or annulment of the
adjustment, the Corporation shall have the option to purchase the number of
shares of Common Stock from each former holder of this Note who owns shares
obtained upon conversion of this Note, equal to the difference between (x) the
number of shares of Common Stock which such former Holder had received upon
conversion after such record date, and (y) the number of shares of Common
Stock which such former Holder would have received on conversion had such
adjustment been annulled or rescinded prior to conversion. The purchase price
per share of such Common Stock shall be $.01 per share.
(8) MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS. In case the
----------------------------------------------
Corporation shall merge or consolidate into another corporation, or shall
sell, transfer or otherwise dispose of all or substantially all of its
property, assets or business to another corporation and such transaction does
not constitute an Event of Default (or the Payee waives its right to
accelerated payment under the Investment Agreement), and pursuant to the terms
of such merger, consolidation or disposition, shares of common stock of the
successor or acquiring corporation (or any parent thereof) are to be received
by or distributed to the holders of Other Stock of the Corporation, then the
holder of this Note shall have the right thereafter to receive, upon
conversion of this Note, shares of common stock equal to the number of shares
of common stock of the successor or acquiring corporation receivable upon or
as a result of such merger, consolidation or disposition of assets had the
holder of this Note converted it into Common Stock of the Corporation
immediately prior to such event. If, pursuant to the terms of such merger,
consolidation or disposition of assets, any cash, shares of stock or other
securities or property of any nature whatsoever (including warrants, options
or other subscription or purchase rights) are to be received by or distributed
to the holders of Other Stock of the Corporation (whether in addition to
common stock of the successor or acquiring corporation, or any parent thereof,
or otherwise) the Conversion Price in effect shall be adjusted to that number
determined by multiplying the Conversion Price then in effect by a fraction
(x) the numerator of which shall be the Current Market Price per share of
Common Stock immediately prior to the closing of such merger, consolidation or
disposition minus the portion applicable to one share of Common Stock of any
such cash so distributable and of the fair value of any such shares of stock
or other securities or property so received or distributed, and (y) the
denominator of which shall be the Current Market Price per share of Common
Stock immediately prior to the closing of such merger, consolidation or
disposition. The fair value of any such shares of stock or other securities
or property shall be determined pursuant to the Valuation Procedure. In case
of any such merger, consolidation or disposition of assets, the successor or
acquiring corporation shall expressly assume the due and punctual observance
and performance of each and every covenant and condition hereof to be
performed and observed by the Corporation and all of the obligations and
liabilities hereunder, subject to such modification as shall be necessary to
provide for adjustments to the Conversion Price which shall be as nearly
equivalent as practicable to the adjustments provided for in this Subsection
7(c). For the purposes of this Subsection 7(c)(viii), "common stock of the
successor or acquiring corporation" shall include stock of such corporation of
any class, which is not preferred as to dividends or assets over any other
class of stock of such corporation and which is not subject to redemption, and
shall also include any evidences of indebtedness, shares of stock or other
securities which are convertible into or exchangeable for any such stock,
either immediately or upon the arrival of a specified date or the happening of
a specified event, and any warrants, options or other rights to subscribe for
or purchase any such stock. The foregoing provisions of this Subsection shall
similarly apply to the successive mergers, consolidations or dispositions of
assets.
(9) SALE OF STOCK UNDER SECTION 11.1(B) OF INVESTMENT AGREEMENT.
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If the Principal Stockholders invest in the Common Stock of the Corporation
under Section 11.1(b)(ii) of the Investment Agreement, then the Conversion
Price shall be adjusted as follows: the new Conversion Price shall be equal
to a fraction, the numerator of which is the Conversion Principal outstanding,
and the denominator of which is the number of shares into which the Note is
convertible immediately prior to the adjustment, plus a number equal to ten
percent (10%) of the number of shares of Common Stock purchased by the
Principal Stockholders.
D. NO IMPAIRMENT. The Corporation will not through any
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reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Corporation but will at all times in good faith assist in the carrying out of
all the provisions of this Section 7 and in the taking of all such action as
may be necessary or appropriate in order to protect the conversion rights of
the holders of the Notes against impairment. Without limiting the generality
of the foregoing, the Corporation (i) will not permit the par value of any
shares of stock at the time receivable upon the conversion of the Notes to
exceed the Conversion Price then in effect, (ii) will take all such action as
may be necessary or appropriate in order that the Corporation may validly and
legally issue fully paid nonassessable shares of stock on the conversion of
the Notes, and (iii) will not take any action which results in any adjustment
of the Conversion Price if the total number of shares of Common Stock issuable
after the action upon the conversion of all of the Notes will exceed the total
number of shares of Common Stock then authorized by the Corporation's Restated
Articles of Incorporation and available for the purpose of issue upon such
conversion.
E. CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
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adjustment or readjustment of the Conversion Price pursuant to this Section 7,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to the Payee a
certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based,
including a statement of (i) the consideration received or to be received by
the Corporation for any Additional Shares of Other Stock issued or sold or
deemed to have been issued, (ii) the number of shares of Other Stock then
outstanding or deemed to be outstanding, and (iii) the Conversion Price in
effect immediately prior to such issue or sale and as adjusted and readjusted
on account thereof, showing how it was calculated. The Corporation shall, as
promptly as practicable following its receipt of the written request, but in
any event within five Business Days after receipt of such written request, of
the Payee furnish or cause to be furnished to the Payee a like certificate
setting forth (i) the Conversion Price at the time in effect, showing how it
was calculated, and (ii) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the
conversion of this Note.
F. NOTICES OF RECORD DATE. In the event of any taking by the
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Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid
in previous quarters) or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Corporation shall
mail to the Payee at least thirty days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend or distribution.
G. COMMON STOCK RESERVED. The Corporation shall at all times
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reserve and keep available out of its authorized but unissued Common Stock
such number of shares of Common Stock as shall from time to time be sufficient
to effect conversion of the Notes.
H. CLOSING OF BOOKS. The Corporation will not close its books
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against the permitted transfer of this Note or its conversion.
I. REGISTRATION; TRANSFER TAXES. The Corporation shall keep at
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its principal office (or such other place as the Corporation reasonably
designates) a register for the registration of the Notes. Upon the surrender
of this Note at such place, the Corporation shall, at the request of the Payee
execute and deliver a new certificate or certificates in exchange therefor
representing in the aggregate the amount of this Note represented by the
surrendered Note (and the Corporation forthwith shall cancel such surrendered
Note), subject to the requirements of applicable securities laws. Each such
new Note shall be registered in such name and shall represent such amount as
shall be requested by the Payee and shall be substantially identical in form
to this Note. The issuance of new Notes shall be made without charge to the
Payee for any issuance tax in respect of any transfer involved in the issuance
and delivery of any Note in a name of (i) the Payee, or (ii) any affiliate of
the Payee.
J. DEFINITIONS. The following terms shall have the following
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meanings, which meanings shall be equally applicable to the singular and
plural forms of such terms:
"Business Day" means any day which is not a Saturday or a Sunday or a
public holiday or a day on which banks are required or permitted to close
under the laws of the State of Texas.
"Common Stock" means the Common Stock of the Corporation, par value
$0.001.
"Convertible Stock" means the Corporation's Class A Cumulative
Convertible Preferred Stock, par value $0.001 per share, outstanding on the
date of this Note.
"Current Market Price" per share of Common Stock at the date herein
specified, shall be deemed to be the average of the Closing Prices for ten
consecutive Business Days immediately prior to the day in question or, if no
Closing Price is reported, the average of the closing bid and asked prices.
"Closing Prices" for each such Business Day shall be the last sale price
reported on the National Association of Securities Dealers Automated
Quotations System ("NASDAQ") on the preceding Business Day or, if the Common
Stock is an issue for which last sale prices are not reported on NASDAQ, the
closing bid quotation on such day (the closing bid quotation for a given day
shall be the highest bid quotation as quoted in any of The Wall Street
Journal, the national Quotation Bureau pink sheets, quotation sheets of
registered marketmakers and, if necessary, dealer's telephone quotations),
but, in each of the preceding two cases, if the relevant NASDAQ price or
quotation did not exist on such day, then the price or quotation on the next
preceding Business Day in which there was such a price or quotation.
"Other Stock" shall have the meaning assigned to it in Section 7(c)(i).
"Permitted Common Stock Issuances" means (i) shares of Common Stock or
options issuable under the Corporation's existing stock option plans and
401(k) plans, so long as such shares issued and outstanding under these plans
do not exceed fifteen percent (15%) of the issued and outstanding capital
stock of the Corporation on a fully diluted basis; (ii) shares of Common Stock
issuable upon conversion of this Note, and (iii) warrants issuable upon
prepayment of the Note and Common Stock issuable upon exercise thereof, (iv)
shares of Common Stock issuable upon conversion of the Convertible Stock, and
(v) shares of Common Stock issuable upon exercise of warrants of the
Corporation outstanding on the date hereof.
"Principal Stockholders" shall mean each of the Corporation's
stockholders owning five percent (5%) or more of the Corporation's issued and
outstanding capital stock on a fully diluted basis.
"Qualified Public Offering" means a secondary public offering of the
Corporation's stock which results in net proceeds to the Corporation of at
least $15,000,000.
8. SUBORDINATION. The holder hereof has agreed to subordinate
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the payments of this Note to certain lenders in certain circumstances upon the
terms and conditions set forth in the Investment Agreement.
9. EVENTS OF DEFAULT. The occurrence of any one or more of the
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Events of Default set forth in the Investment Agreement shall be an Event of
Default hereunder.
10. REMEDIES. Upon the occurrence of and during the
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continuation of any Event of Default, Payee shall have the rights, and shall
be entitled to the remedies, set forth in the Investment Agreement.
11. REMEDIES CUMULATIVE, ETC.
------------------------
a. No right or remedy conferred upon or reserved to Payee, or
now or hereafter existing at law or in equity or by statute or other
legislative enactment, is intended to be exclusive of any other right or
remedy, and each and every such right or remedy shall be cumulative and
concurrent, and shall be in addition to every other such right or remedy, and
may be pursued singly, concurrently, successively or otherwise, at the sole
discretion of Payee, and shall not be exhausted by any one exercise thereof
but may be exercised as often as occasion therefor shall occur. No act of
Payee shall be deemed or construed as an election to proceed under any one
such right or remedy to the exclusion of any other such right or remedy.
Furthermore, each such right or remedy of Payee shall be separate, distinct
and cumulative and none shall be given effect to the exclusion of any other.
The failure to exercise or delay in exercising any such right or remedy, or
the failure to insist upon strict performance of any term of this Note shall
not be construed as a waiver or release of the same, or of any event of
default thereunder, or of any obligation or liability of Maker thereunder.
b. Maker hereby waives presentment, demand notice of nonpayment,
protest, notice of protest or other notice of dishonor, and any and all other
notices in connection with any default in the payment of, or any enforcement
of the payment of all amounts due under this Note. To the extent permitted by
law, Maker waives the right to any stay of execution and the benefit of all
exemption laws now or hereafter in effect.
c. Maker and Payee each agree that any action or proceeding
against Maker to enforce this Note shall be commenced in any court having
jurisdiction in the County of Dallas in the State of Texas and Maker waives
personal service of process and agrees that a summons and complaint commencing
an action or proceeding in any such court shall be properly served and shall
confer personal jurisdiction if served by registered or certified mail in
accordance with the notice provisions set forth herein.
12. SEVERABILITY. If for any reason one or more of the
------------
provisions of this Note or their application to any person or circumstance
shall be held to be invalid, illegal or unenforceable in any respect or to any
extent, such provisions shall nevertheless remain valid, legal and enforceable
in all such other respects and to such extent as may be permissible. In
addition, any such invalidity, illegality or unenforceability shall not affect
any other provisions of this Note, but this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been contained therein.
13. SUCCESSORS AND ASSIGNS. This Note inures to the benefit of
----------------------
Payee and binds Maker, and their respective successors and assigns, and the
words "Payee" and "Maker" whenever occurring herein shall be deemed and
construed to include such respective successors and assigns.
14. NOTICES. All notices required to be given to any of the
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parties hereunder shall be given as provided in the Investment Agreement.
15. CAPTIONS. The captions or headings of the paragraphs in
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this Note are for convenience only and shall not control or affect the meaning
or construction of any of the terms or provisions of this Note.
16. GOVERNING LAW. This Note shall be governed by and construed
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in accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, Maker has executed this Promissory Note the day and
year first above written.
THE QUIZNO'S CORPORATION
By: /s/Xxxxxxx X. Xxxxxx
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Title: Vice President/General Counsel
