1
EXHIBIT 4
IMPORTANT: PLEASE READ CAREFULLY BEFORE SIGNING. SIGNIFICANT
REPRESENTATIONS ARE CALLED FOR HEREIN.
BIG BUCK
BREWERY & STEAKHOUSE, INC.
SUBSCRIPTION AND INVESTMENT REPRESENTATION AGREEMENT FOR
10% CONVERTIBLE SECURED PROMISSORY NOTE DUE FEBRUARY 2003
Big Buck Brewery & Steakhouse, Inc.
000 Xxxxx Xxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Gentlemen:
THIS AGREEMENT is made effective this 4th day of February, 2000, by and
between Big Buck Brewery & Steakhouse, Inc., f/k/a/ Michigan Brewery, Inc., a
Michigan corporation (the "Company"), and Xxxxx County Employees' Retirement
System, a body politic of the State of Michigan (the "Subscriber"). In
consideration of the mutual promises contained herein, and other good and
valuable consideration, the parties hereto agree as follows:
1. Agreement of Loan; Purchase of Bank One's Interests; Security Interest.
a. Agreement of Loan. As set forth more fully below, Subscriber agrees to
pay to the Company and to Bank One, Michigan, f/k/a NBD Bank, N.A. ("Bank
One") an aggregate amount of $7,500,000 (the "Aggregate Consideration"), by
wire transfer of immediately available funds. In consideration therefor,
the Subscriber will receive (i) a $5,876,114.74 convertible secured
promissory note in the form of Exhibit A attached hereto (the "Convertible
Note A"), the principal of which is convertible into certain shares of the
common stock of the Company (the "Company's Common Stock") as described in
the Convertible Note A (as defined below); (ii) a Common Stock Purchase
Warrant entitling Subscriber to purchase up to 200,000 shares of the
Company's Common Stock in the form of Exhibit B attached hereto (the
"Warrant"), and (iii) all of the interest which Bank One has in and to all
of the obligations of the Company to Bank One under the loan documents as
more particularly described on Exhibit C as amended, restated and
consolidated as more particularly described on Exhibit D attached hereto.
For purposes of this Agreement, the documents and agreements described on
Exhibits C and D hereof and any other documents, instruments or agreements
executed in connection therewith are referred to collectively as the "Bank
One Loan Documents" and individually as a "Bank One Loan Document".
b. Purchase of Bank One's Interests. In connection with subsection (a)
above, Subscriber will purchase Bank One's interest under the Bank One Loan
Documents, as evidenced by the Amended, Restated and Consolidated
Convertible Note, dated February 4, 2000 executed by the Company in favor
of Subscriber in the principal amount of $1,623,885.26 (the "Convertible
Note B"). In furtherance thereof, $1,623,885.26 of the Aggregate
Consideration will be wire transferred to Bank One to purchase the Bank One
Loan Documents pursuant to instructions provided to Subscriber by Bank One.
Simultaneously with such payment, Bank One will execute the assignment and
transfer documents acceptable to Subscriber and Bank One. In addition, the
Company will execute the amendments, restatements and other documents and
agreements with Subscriber amending and restating the Bank One Loan
Documents as more particularly described on Exhibit D attached hereto.
2
c. Security Interest. Simultaneously with the execution of this Agreement
the Company grants the following interests to Subscriber, and will enter
into separate agreements (the "Security Agreements") with Subscriber
further evidencing such grants: (i) a pledge of the Company's limited
partnership interest in Buck & Bass, L.P., (ii) a pledge of the Company's
shares of the issued and outstanding common stock of BBBP Management
Company, (iii) a security interest, assignment or mortgage, as applicable,
in the Company's interest in all Assets, ownership interests, licenses, and
permits, including, without limitation, a mortgage encumbering the Gaylord
site and Auburn Hills site. The Company hereby covenants and agrees to
promptly execute any additional documentation or agreements which
Subscriber may reasonably request in furtherance of the foregoing,
including, but not limited to, an assignment of any lease or mortgage which
the Company may enter into in connection with the development of the
Detroit restaurant and/or brewery at Comerica Park, and any and all
financing statements or other filings as Subscriber may require in order to
perfect the interests granted above. All such documents referred to and
executed pursuant to this Section 4(c) are referred to herein collectively
as the "Security Documents" and individually as a "Security Document". For
purposes of this Section 4(c), "Assets" is defined as all of the Company's
accounts, chattel paper, documents, fixtures, equipment, general
intangibles, licenses, contract rights, instruments, inventory, vehicles,
chattels, machinery, furniture, goods and like personal property and
collateral of every kind, now or hereafter owned, bought for use and/or
used by the Company in its business or in which the Company now has or
hereafter obtains rights of any kind and wherever located.
d. For purposes of this Agreement, Convertible Note A and Convertible Note
B are sometimes referred to as the "Convertible Note".
2. Representations and Warranties of the Company. In consideration of
Subscriber's subscription for the Convertible Note, the Company represents and
warrants to Subscriber as follows, as of the date hereof, as of the date of
Subscriber's payment, and at all times any amounts are outstanding hereunder:
a. Organization. The Company is a duly organized and validly existing
corporation under the laws of the State of Michigan.
b. Good Standing. The Company is in good standing under the laws of the
State of Michigan, and there are no proceedings or actions pending to limit
or impair any of its powers, rights and privileges, or to dissolve it. The
Company is duly qualified to do business in every jurisdiction in which
such qualification is required.
c. Corporate Power. The Company has all required corporate power and
authority to carry on its business as presently conducted, to enter into
and perform this Agreement and the agreements contemplated hereby to which
it is a party and to carry out the transactions contemplated hereby and
thereby. The copies of the Restated Articles of Incorporation and by-laws
or other organizational documents of the Company, as amended to date, which
have been furnished to counsel for the Subscriber by the Company, are
correct and complete at the date hereof, and the Company is not in
violation of any term of its Restated Articles of Incorporation or by-laws.
The Company is not in violation of any term or provision of any agreement,
instrument, judgment, decree, order, statute, rule or government regulation
applicable to it or to which it is a party. The Company has the legal power
and authority to own its properties and assets and to carry out its
business as now being conducted and is qualified to do business in the
State of Michigan and in every jurisdiction where the nature of its
business or the property owned or operated by it makes such qualification
necessary; the Company has the legal power and authority to borrow money in
accordance with the terms of this Agreement, to execute and deliver the
loan documents hereby, to grant to Subscriber mortgages and security
interests as provided in such documents, if any, executed in conjunction
with this Agreement and to do any and all other things required of it
hereunder.
2
3
d. Corporate Authorization. The execution and delivery of this Agreement
and all documents executed pursuant hereto, including but not limited to
the Convertible Note and Warrant, and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by proper
corporate action of the Company. The execution of this Agreement, the
Warrant, the Convertible Note, all documents executed pursuant hereto, if
converted, the issuance of the Company's Common Stock in connection with
the Convertible Note and, if exercised, the issuance of the Company's
Common Stock in connection with the Warrant and the performance of any
transaction contemplated hereby will not: (i) violate, conflict with or
result in a default under any material contract or obligation to which the
Company is a party or by which any of its assets are bound, or any
provision of the Restated Articles of Incorporation or by-laws of the
Company, or cause the creation of any encumbrance upon any of the material
assets of the Company except for encumbrances created in favor of the
Subscriber; (ii) violate or result in a violation of, or constitute a
default (whether after the giving of notice, lapse of time or both) under,
any provision of any law, regulation or rule, or any order of, or any
restriction imposed by any court or other governmental agency applicable to
the Company; (iii) except for the filing of a Form D and Form 8-K with the
Commission, a Listing of Additional Shares form with NASDAQ or the
Securities Commission, and state blue sky filings, require from the Company
notice to, declaration or filing with, or consent or approval of any
governmental authority or other third party; or (iv) accelerate any
obligation under, or give rise to a right of termination of, any agreement,
permit, license or authorization to which the Company is a party or by
which the Company is bound.
e. Enforceability. This Agreement and all documents executed pursuant
hereto, including but not limited to the Convertible Note and Warrant,
constitute valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as enforceability may be
limited by the application of bankruptcy, insolvency, moratorium or similar
laws affecting the rights of creditors generally or by judicial limitations
on the right of specific performance. The Company's Common Stock issuable
upon conversion of the Convertible Note and exercise of the Warrant, has
been duly authorized by all necessary corporate action by the Company.
f. No Material Adverse Change. All financial data which has been or shall
hereafter be furnished to Subscriber for the purposes of, or in connection
with, this Agreement has been and/or shall be prepared in accordance with
generally accepted accounting principles consistently applied, and does or
will fairly present the financial condition of the Company as of the dates,
and the results of its operations for the periods, for which the same are
furnished to Subscriber. All financial data furnished to Subscriber in
connection with this Agreement fairly present the financial condition of
the Company as of the dates thereof and there has been no material adverse
change in the business, properties, operations or condition, financial or
otherwise, of the Company since October 3, 1999.
g. Material Liabilities/Indebtedness. There is not pending or, to the best
of the knowledge of the Company, threatened, any litigation, proceeding or
governmental investigation which could materially and adversely affect the
business, properties, operations or condition, financial or otherwise of
the Company or its ability to perform its covenants hereunder. Other than
as contemplated by this Agreement, the Company has not incurred any
material liabilities or indebtedness since October 3, 1999.
h. Current Public Information. Adequate current public information as
defined in Rule 144(c) of the Securities and Exchange Commission (the
"Commission") is available regarding the Company.
i. Good and Marketable Title. The Company has good and marketable title to
its properties given as security hereunder, subject only to following
("Permitted Liens"):
i. liens to secure taxes, assessments and other government charges or
claims for labor, material or supplies in respect of obligations not
overdue;
3
4
ii. deposits or pledges made in connection with, or to secure payment
of, workmen's compensation, unemployment insurance, old age pensions or
other social security obligations;
iii. liens of carriers, warehousemen, mechanics and materialmen, and
other like liens, in existence less than thirty (30) days from the date
of creation thereof in respect of obligations not overdue;
iv. encumbrances consisting of easements, rights of way, zoning
restrictions, restrictions on the use of real property and defects and
irregularities in the title thereto, and other minor liens or
encumbrances none of which interferes with the use of the property
affected thereby in the ordinary conduct of the business of the Company;
v. liens in favor of the Subscriber;
vi. liens on the Company's assets set forth in Schedule 2(i)(vi); and
vii. any leasings or borrowings by Buck & Bass, L.P. as to the Grapevine
site not to exceed $1,5000,000.
j. No Existing Defaults. The Company is not in default in the repayment of
any indebtedness for money borrowed by it nor has there occurred any event
which, with or without notice or the passage of time or both, would
constitute a default by the Company under any agreement or instrument
pertaining to any indebtedness for money borrowed by it following the
acquisition of the Bank One Loan Documents by the Subscriber.
k. Tax Returns Filed. Company has filed all reports and tax returns
required by any governmental authority to be filed by it prior to the date
hereof and Company has received no notice that such reports or returns have
been rejected, declared insufficient, or otherwise challenged by such
governmental authority.
3. Representations and Warranties of Subscriber. In consideration of the
Company's offer to sell the Convertible Note, Subscriber hereby represents and
warrants to the Company as follows:
a. Information About the Company. Subscriber has had the opportunity to ask
questions of, and receive answers from the Company, or an agent or a
representative of the Company, concerning the terms and conditions of the
investment and the business and affairs of the Company and to obtain any
additional information necessary to verify such information, and Subscriber
has received such additional information concerning the Company as
Subscriber considers necessary or advisable in order to form a decision
concerning an investment in the Company, specifically including, but not
limited to, the documents which the Company has publicly filed with the
Commission.
b. High Degree of Risk. Subscriber realizes that the Convertible Note is
highly speculative, and involves a high degree of risk, including the risks
of receiving no payment of principal or interest under the Convertible Note
and/or no return on the investment and of losing the investment in the
Company.
c. Ability to Bear the Risk. Subscriber is able to bear the economic risk
of an investment in the Convertible Note, including the total loss of such
investment.
d. Appropriate Investment. Subscriber believes, in light of the information
provided pursuant to Section 3(a) above, that subscribing for the
Convertible Note pursuant to the terms of this Agreement is an appropriate
and suitable investment for Subscriber.
4
5
e. Business Sophistication. Subscriber is experienced and knowledgeable in
financial and business matters, and capable of evaluating the merits and
risks of purchasing securities of the Company.
f. Residency. Subscriber is a body politic of the State of Michigan.
g. Status as an "Accredited Investor". The undersigned is an "accredited
investor" as defined in Rule 501(a) of Regulation D promulgated under the
Securities Act of 1933, as amended (alternatively referred to herein as the
"Act" or the "Securities Act"), because the undersigned is a plan
established and maintained by a state, its political subdivisions, or any
agency or instrumentality of a state or its political subdivisions, for the
benefit of its employees, with total assets in excess of $5,000,000.
4. Affirmative Covenants.
a. From the date of this Agreement through the date the Subscriber and its
successors and assigns no longer hold (i) any shares of the Company's
Common Stock issued upon conversion of the Convertible Note or exercise of
the Warrant, or (ii) any security convertible into the Company's Common
Stock, including without limitation, the Warrant and the Convertible Note:
i. Current Public Information. With a view to making available
registration as contemplated in this Agreement and the benefits of Rule
144 of the Securities Act, the Company will: (i) make available adequate
current public information as defined in Rule 144(c) of the Commission;
(ii) file with the Commission in a timely manner all reports and other
documents and information required of the Company under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and take such
other actions as may be necessary to assure the availability of Form S-3
for use in connection with the registration rights provided in this
Agreement; and (iii) furnish to Subscriber upon written request a
written statement as to the Company's compliance with the reporting
requirements of Rule 144 and the Exchange Act, a copy of the Company's
most recent annual and quarterly reports, and such other reports,
documents and other information in the possession of or reasonably
obtainable by the Company as the Subscriber may reasonably request.
ii. Reservation of Shares. The Company will reserve and keep available
for issuance to Subscriber that number of its authorized but unissued
shares of common stock which are issuable upon conversion of the
Convertible Note or upon exercise of the Warrant.
b. From the date of this Agreement through the date the Subscriber and its
successors and assigns no longer hold any securities convertible into the
Company's Common Stock, including without limitation the Warrant and the
Convertible Note:
i. Notice of Corporate Action. If at any time:
(A) The Company shall pay any dividend upon the Company's Common
Stock or make any distribution to the holders of the Company's Common
Stock (including, without limitation, a stock dividend);
(B) The Company shall offer for subscription purposes to the holders
of the Company's Common Stock any additional shares of stock of any
class or any other rights;
(C) There shall be any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the
Company with, or sale, conveyance, lease or other transfer of all or
substantially all of its assets to, another corporation;
5
6
(D) There shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company; or
(E) The Company shall establish a record date (or in lieu thereof,
the date the transfer books will be closed) for the purpose of
determining the holders of the Company's Common Stock entitled to
notice of and to vote at a meeting of shareholders at which any of
the above actions shall be considered or acted upon;
then, the Company shall give notice to the Subscriber of the date on which
the books of the Company shall close or a record shall be taken for each
such action. Such notice shall also specify the date as of which the
holders of the Company's Common Stock of record shall (i) participate in
such dividend, distribution or subscription rights; (ii) be entitled to
exchange their Common Stock for securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, or winding up; or (iii) be entitled to consider
or vote upon such action, as the case may be. Such written notice shall be
given at least twenty (20) days prior to the action in question and not
less than twenty (20) days prior to the record date for such action or the
date the Company's transfer books are closed in respect thereto.
c. From the date of this Agreement through the date the Subscriber and its
successors and assigns no longer hold the Convertible Note:
i. Ground Lease. The Company will use its best efforts to enter a
ground lease in connection with the development of a free standing
restaurant on Xxxxxxxx Avenue near Comerica Park in Detroit, Michigan,
and the Company will keep Subscriber apprised of the progress toward
entering such ground lease in accordance with applicable law.
ii. Brewery. The Company will use its best efforts to complete the
brewery at Comerica Park and the Company will keep Subscriber apprised
of the progress towards consummating such transaction in accordance with
applicable law.
iii. Insurance. Company will insure its assets for Subscriber's benefit
against loss or damage by fire, theft, burglary, pilferage, loss in
transit and such other hazards as Subscriber may specify, in amounts and
under policies and by insurers reasonably acceptable to Subscriber, and
all premiums shall be paid by Company when due and the policies or
certified copies of such policies delivered to Subscriber. If Company
fails to do so, Subscriber may procure such insurance and charge the
cost to Company's account. No cancellation of such insurance or material
change in the terms of any policy shall be made without the insurance
carrier giving Subscriber at least 30 days' prior written notice. In the
event of any casualty to Company's assets which is covered by insurance,
Company authorizes Subscriber to settle any claim or proceed to suit and
judgment for all insurance proceeds arising out of the casualty to such
assets, and upon receipt of payment of such proceeds, Subscriber may
apply all payments to the restoration or replacement of the assets so
long as there is no Event of Default as provided herein. If such Event
of Default exists, such proceeds will be applied in any manner elected
by Subscriber.
iv. Notice of Default. Immediately upon the Company's receipt of a
notice from any third party of, or upon the Company's obtaining
knowledge of the occurrence of any Event of Default the Company will
provide the Subscriber with a certified statement setting forth the
details of such Event of Default and the actions which the Company has
taken and proposes to take with respect thereto.
d. Amendment to Articles. The Company shall hold its next annual meeting of
shareholders no later than June 30, 2000. The Company will properly include
on the agenda for such Shareholders meeting the amendment of its Articles
of Incorporation to remove Articles VIII, IX and X. The Company will
include in its proxy a recommendation that the shareholders approve such
amendment. The Subscriber shall have
6
7
the right to review and approve the Company's proxy statement prior to
mailing. In the event the amendment to the Articles of Incorporation is not
approved by the Shareholders, the Subscriber, may at its option declare an
Event of Default under this Agreement and all obligations of the Company to
Subscriber shall become immediately due and payable.
e. Liquor Control Commission Approvals. In the event the Conversion of the
Convertible Note or the exercise of the Warrant, at any time, requires
notice to or the consent or approval of, any person, or is otherwise
subject to any restriction or limitation, including without limitation the
consent or approval of the Michigan Liquor Control Commission, or similar
entities in any other states, the Company shall give such notice, obtain
such consents or approvals, and/or have such restriction or limitation
removed at its sole cost and expense and shall pay all costs and expenses
of Subscriber incurred in giving any such notices, obtaining any such
consents or approvals or removing such restrictions or limitations. In the
event that a required consent is not given, a required approval is not
obtained and/or a restriction or limitation is not removed, the Subscriber
may revoke or amend any election to convert the Convertible Note or
exercise the Warrant and the Subscriber will be immediately put back in its
position as if such election was not made or was originally made as
amended. The Subscriber shall have the right to treat the failure to obtain
any such required consent or approval or remove any such restriction or
limitation as an Event of Default hereunder and all obligations of the
Company to the Subscriber shall become immediately due and payable,
notwithstanding that the Company may have used its best efforts to obtain
such consent or approval or remove such restriction or limitation.
f. Monthly Meetings with Subscriber. The top management of the Company,
including its Chief Executive Officer, shall meet on a monthly basis at
times and locations acceptable to all parties with representatives of the
Subscriber to discuss old business, new developments and any issues between
Subscriber and Company. Each party will comply with securities laws in the
treatment of confidential information disclosed in such monthly meetings.
5. Negative Covenants. The Company covenants and agrees that, so long as the
Convertible Note is outstanding:
a. Restrictions on Indebtedness. The Company will not create, incur,
assume, guarantee or be or remain liable, contingently or otherwise, with
respect to any indebtedness, except for indebtedness incurred in the
ordinary course of business not to exceed at any time more than $1,500,000
in the aggregate. Any such indebtedness, not in the ordinary course of
business or in excess of $1,500,000, will require the approval of
Subscriber which approval shall not be unreasonably withheld, except that
Subscriber will approve any indebtedness incurred to repay the Convertible
Note so long as such payment does not materially and adversely affect the
rights of Subscriber under the Convertible Note and Warrant.
b. Restrictions on Liens. The Company will not:
i. create, incur, or suffer to be created or incurred or to exist, any
lien of any kind upon any of its property or assets of any character
whether now owned or hereafter acquired, or upon the income or profits
therefrom except for Permitted Liens;
ii. transfer any property or assets or the income or profits therefrom
for the purpose of subjecting the same to the payment of indebtedness or
performance of any other obligation in priority to payment of its
general creditors;
iii. acquire, or agree or have an option to acquire, any property or
assets upon conditional sale or other title retention or purchase money
security agreement, device or arrangement except in the ordinary course
of business;
iv. suffer to exist for a period of more than thirty (30) days after
the same shall have been incurred, any indebtedness or claim or demand
against it that, if unpaid, might by law or upon
7
8
bankruptcy or insolvency, or otherwise, be given any priority whatsoever
over its general creditors; or
v. sell, assign, pledge or otherwise transfer any accounts, contract
rights, general intangibles, chattel paper or instruments, with or
without recourse.
c. Bankruptcy Events. The Company will not (i) make an assignment for the
benefit of creditors, (ii) admit in writing its inability to pay or
generally fail to pay its debts as they mature or become due, (iii)
petition or apply for the appointment of a trustee or other custodian,
liquidator or receiver of the Company or of any substantial part of its
assets (iv) commence any case or other proceeding relating to the company
under any bankruptcy, reorganization, arrangement, insolvency, readjustment
of debt, dissolution or liquidation or similar law of any jurisdiction, now
or hereafter in effect, (v) take any action to authorizing or in
furtherance of any of the foregoing, or (vi) indicate its approval of,
consent to or acquiescence in or shall fail to contest in a timely manner
any such petition or application filed, or any such case or other
proceeding commenced against the Company, unless the Company has obtained
the prior written consent of the Subscriber, which consent will be given in
the Subscriber's sole and absolute discretion.
d. Restrictions on Use of Funds.
i. The Company covenants and agrees that the proceeds which the
Company receives from the Convertible Note will be first applied to pay
in full the indebtedness of the Company to Crestmark Bank under the Loan
Agreement dated November 20, 1998, by and between the Company and
Crestmark Bank, as amended (the "Crestmark Loan Agreement") and the
purchase of the Bank One Loan Documents. For purposes of this Section
5(d), the balance of the Convertible Note proceeds, less the amount
necessary to (1) purchase the Bank One Loan Documents, (2) pay off
amount due under the Crestmark Loan and (3) pay closing costs for this
transaction, is referred to as the "Net Proceeds".
ii. The Company covenants and agrees that it will not use the Net
Proceeds which the Company receives from the Convertible Note for any
purpose except in connection with the development of a restaurant site
in Grapevine, Texas (the "Grapevine Restaurant").
iii. The Company covenants and agrees that the Net Proceeds which the
Company receives from the Convertible Note will be used for the
Grapevine Restaurant, in accordance with Schedule 5(d) unless otherwise
approved by Subscriber, in Subscriber's sole and absolute discretion
which consent will not be unreasonably withheld.
e. Restrictions on Distributions. Until the first to occur of (a) the
Subscriber exercising its Option (as defined in the Convertible Note) to
convert, or (b) the Company's obligations hereunder and under the
Convertible Note are satisfied in full, the Company will neither declare
nor pay any dividends nor make any other distribution, whether in cash or
in property, on any shares of its capital stock or membership interest, as
the case may be, nor without the prior written consent of Subscriber
purchase, redeem, retire or otherwise acquire for value any shares of its
capital stock or membership interest, as the case may be except for those
existing commitments of the Company described on Schedule 5(e).
f. Restrictions on Issuance. If, at any time, the Company's total
liabilities exceed its total assets, or if the Company is otherwise unable
to meet its obligations as they come due, the Company will not issue
additional convertible debt or equity securities, unless Subscriber
consents thereto in writing.
g. No New Approval Requirements. The Company will take no action which will
subject the exercise of the Subscriber's rights under this Agreement, the
Warrant or the Convertible Note to any restrictions, limitations or
additional third party consent or approval requirements, including without
limitation new liquor licenses which impose any such requirements,
restrictions or limitations without first obtaining the Subscribers prior
written consent, which consent shall not be unreasonably withheld.
8
9
6. Additional Covenants of the Company. All covenants made by the Company to
Bank One pursuant to the Bank One Loan Documents under Article V thereof are
incorporated herein as additional covenants made by the Company to and for the
benefit of Subscriber.
7. Events of Default and Acceleration. If any of the following events (each,
an "Event of Default" or, if the giving of notice or the lapse of time or both
is required, then, prior to such notice or lapse of time, a "Default") shall
occur:
a. the Company shall fail to pay any principal of or interest on the
Convertible Note when the same shall become due and payable, whether at the
stated date of maturity or any accelerated date of maturity or at any other
date fixed for payment; provided however, such failure shall not constitute
a default if the required payment is made within five days after the date
it first became due and payable and such failure has not occurred more than
two times in the preceding 12 months.
b. the Company shall fail to comply in any material respect with any of its
covenants contained in this Agreement, the Convertible Note, the Warrant,
the Bank One Loan Documents, the Security Agreements or any other document,
instrument or agreement entered into in connection with this Agreement;
c. the Company shall fail to perform any term, covenant or agreement
contained herein;
d. any representation or warranty of the Company in this Agreement or in
the Convertible Note or in any other document or instrument delivered
pursuant to or in connection with this Agreement shall prove to have been
false in any material respect upon the date when made or deemed to have
been made or repeated;
e. the Company shall make an assignment for the benefit of creditors, or
admit in writing its inability to pay or generally fail to pay its debts as
they mature or become due, or shall petition or apply for the appointment
of a trustee or other custodian, liquidator or receiver of the Company or
of any substantial part of its assets, or shall commence any case or other
proceeding relating to the Company under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation
or similar law of any jurisdiction, now or hereafter in effect, or shall
take any action to authorize or in furtherance of any of the foregoing, or
if any such petition or application shall be filed or any such case or
other proceeding shall be commenced against the Company and the Company
shall indicate its approval thereof, consent thereto or acquiescence
therein or shall fail to contest the same in a timely manner;
f. an involuntary petition shall be filed or an involuntary proceeding
shall be commenced seeking liquidation, reorganization or other relief in
respect of the Company or of its debts or any substantial part of its
assets, under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation or similar law of any
jurisdiction, now or hereafter in effect, and in any such case, such
proceeding or petition shall continue undismissed for sixty (60) days or an
order or decree approving or ordering any of the foregoing shall be
entered;
g. there shall remain in force, undischarged, unsatisfied and unstayed, for
more than sixty (60) days, whether or not consecutive, any uninsured final
judgment against the Company that, alone or with other outstanding
uninsured final judgments, undischarged against the Company, exceeds in the
aggregate $100,000;
h. if this Agreement, the Convertible Note or any of the documents executed
in connection herewith, shall be cancelled, terminated, revoked or
rescinded other than in accordance with the terms thereof or with the
express prior written agreement, consent or approval of the Subscriber, or
any action or suit at law, or in equity or other legal proceeding to
cancel, revoke or rescind any of such documents shall be commenced by or on
behalf of the Company, or any court or any other governmental or regulatory
9
10
authority or agency of competent jurisdiction shall make a determination
that, or issue a judgment, order, decree or ruling to the effect that, any
one or more of such documents is illegal, invalid or unenforceable in any
material respect in accordance with the terms thereof;
i. there shall occur a material and adverse effect as to the properties,
assets, business, condition (financial or otherwise), prospects or results
of operations of the Company; or
j. the Company shall fail to pay any principal of or premium of interest on
any indebtedness (other than that arising hereunder) when the same becomes
due and payable (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise); or any other event shall occur or
condition shall exist under any agreement or instrument relating to any
such indebtedness, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such
indebtedness; or any such indebtedness shall become or be declared to be
due and payable, or required to be prepaid (other than by a regularly
scheduled required prepayment), or the Company shall be required to
repurchase or offer to repurchase such indebtedness, prior to the stated
maturity thereof.
then, and in any such event, (A) if such event is an Event of Default specified
in Section (e) or(f) above with respect to the Company, automatically all
amounts owing with respect to this Agreement, the Convertible Note and the other
documents executed in connection herewith shall become immediately due and
payable without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Company and (B) if such event is any
other Event of Default the Subscriber shall by notice in writing to the Company,
declare all amounts owing with respect to this Agreement, the Convertible Note
and the other documents executed in connection herewith to be, and they shall
thereupon forthwith become, immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived by the Company. As to any non-monetary default, the Company shall receive
notice and a fifteen (15) day cure period (unless another cure period is
specifically granted, provided that such cure right shall not be extended more
than three (3) times in the preceding twelve (12) months.
8. Investment Purpose in Acquiring the Securities. Subscriber and the Company
acknowledge that the Convertible Note and the Common Stock into which the
Convertible Note may be converted (the "Securities") have not been registered
under the Act or applicable state securities laws, and that such securities will
be issued to Subscriber in reliance on exemptions from the registration
requirements of the Act and applicable state securities laws and in reliance on
Subscriber's representations and agreements contained herein. Subscriber is
subscribing to acquire the Securities for the account of Subscriber for
investment purposes only and not with a view to their resale or distribution.
Subscriber has no present intention to divide his, her, or its participation
with others or to resell or otherwise dispose of all or any part of the
Securities. In making these representations, Subscriber understands that, in the
view of the Commission, exemption of the Securities from the registration
requirements of the Act would not be available if, notwithstanding the
representations of Subscriber, Subscriber has in mind merely acquiring the
Securities for resale upon the occurrence or nonoccurrence of some predetermined
event.
9. Compliance with Securities Act. Subscriber agrees that if the Securities or
any part of any of the Securities are sold or distributed in the future,
Subscriber shall sell or distribute them pursuant to the requirements of the
Securities Act and applicable Blue Sky Laws (defined below). Subscriber agrees
that Subscriber will not transfer any part of the Securities without (i)
obtaining a "no action" letter from the Commission and applicable state
securities commissions, (ii) obtaining an opinion of counsel reasonably
satisfactory in form and substance to the counsel for the Company to the effect
that such transfer is exempt from the registration requirements under the Act
and applicable state securities laws, or (iii) the valid registration of the
Securities under the Act and all applicable state securities laws.
10. Restrictive Legend. Subscriber agrees that Company may place a restrictive
legend on the documents representing the Securities containing substantially the
following language:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, have not been
registered under any state
10
11
securities laws, and are subject to a Subscription and Investment
Representation Agreement. They may not be sold, offered for sale,
assigned, transferred, pledged, or otherwise disposed of in the
absence of either an effective registration under the Securities Act
of 1933, as amended, and under the applicable state securities laws,
or an opinion of counsel reasonably acceptable to the Company that
such transaction is exempt from registration under the Securities Act
of 1933, as amended, and under the applicable state securities laws.
11. Stop Transfer Order. Subscriber agrees that, if Subscriber fails to comply
with its obligations under Section 8 of this Agreement, the Company may place a
stop transfer order with its registrar and stock transfer agent covering all
documents or certificates representing the Securities.
12. Knowledge of Restriction upon Transfer of the Securities. Subscriber
understands that the Securities may not be freely transferable without
registration under or an exemption from registration under the Securities Act of
1933 and may in fact be prohibited from sale for an extended period of time and
that, as a consequence thereof, the undersigned may have to bear the economic
risk of investment in the Securities for an indefinite period of time and may
have extremely limited opportunities to dispose of the Securities. Subscriber
understands that Rule 144 of the Commission permits the transfer of "restricted
securities," such as the Securities, only under certain conditions, including a
minimum one-year holding period, and the availability to the public of certain
information concerning the Company.
13. Right of First Refusal.
a. General. For so long as the Convertible Note is outstanding, or the
Subscriber owns (or may acquire upon exercise of the Warrant) more than 15%
of the Company's Common Stock, the Company shall have the right to issue,
whether publicly or privately, additional debt or equity securities,
including without limitation promissory notes, debentures, preferred or
common stock, securities convertible into common or preferred stock and
secured or unsecured financings (collectively, "Additional Securities")
only if such issuance is made pursuant to and in accordance with the terms
of Sections 13(b) and (c) below, which Sections, among other things, grant
the Subscriber a right of first refusal with regard to any such issuance.
b. Obligations of Parties. The Company will not be permitted to issue any
Additional Securities pursuant to Section 13(a) unless (i) the Company
first notifies the Subscriber in writing of such proposed issuance and
attaches a copy of the terms thereof (including a copy of the offer and all
other pertinent documents) (the "Transfer Notice"), and (ii) the Subscriber
fails to purchase all of such Additional Securities and the Company
complies with Section 13(c). Upon receipt of a Transfer Notice, the
Subscriber shall have the right, exercisable by written notice (the
"Exercise Notice") given to the Company within forty-five (45) days after
the date on which such Transfer Notice was duly given, to purchase any
number of the Additional Securities specified in such Transfer Notice (the
"Offered Shares") as the Subscriber may elect, at the same price per
Offered Share and on the same terms and conditions per Offered Share as are
offered to the proposed purchaser or purchasers (the "Purchasers"). The
Exercise Notice will set forth the number of Offered Shares the Subscriber
wishes to purchase.
c. Failure to Exercise Right. The Subscriber's option to purchase the
Offered Shares will terminate upon Subscriber's failure to timely respond
within such forty-five (45) day period set forth in Section 13(b) above.
Any portion of Offered Shares which are not subscribed for by Subscriber
may be sold pursuant to the Transfer Notice, and the Company will be free
to sell the Offered Shares to the Purchasers. If the Company fails to close
a sale to Purchasers within ninety (90) days from the date the Transfer
Notice is delivered to Subscriber on the terms set forth in the Transfer
Notice, the Subscriber's option to purchase such Offered Shares shall be
reinstated.
14. Demand Registration. Any time after the Company's receipt of a Notice of
Conversion (as defined in the Convertible Note) and through the earlier of (i)
the sale or other disposition by Subscriber of all of the shares of
11
12
common stock issued or issuable upon conversion of the Convertible Note or
exercise of the Warrant (the "Registrable Shares") or (ii) the date upon which
all shares of common stock issued or issuable upon conversion of the Convertible
Note may be disposed of pursuant to Rule 144 of the Act, without restriction,
Subscriber, in addition to its rights under Sections 15 and 16, shall have the
right to demand up to two registrations on Form S-3 (or such other form which
the Company is eligible to use, including, if necessary Form S-1) for the sale
of Registrable Shares intended to be sold or disposed of by the Subscriber. Such
request shall be in writing and shall state the number of shares to be disposed
of and the intended method of disposition of such shares. Upon receipt of such
request, the Company shall register the Registrable Shares in accordance with
the request and the provisions of Section 17. Subscriber may only demand
registration pursuant to this Section 14 two (2) times for each twelve (12)
calendar month period; however, a registration shall not be deemed a
registration under this Section 14 unless such registration is continuously
effective for at least six (6) continuous months.
15. Piggyback Registration. If at any time after the date of this Agreement and
through the earlier of (i) the sale or other disposition by Subscriber of all of
its Registrable Shares or (ii) the date upon which all shares of common stock
issued or issuable upon conversion of the Convertible Note may be disposed of
pursuant to Rule 144 of the Act, without restriction, the Company proposes to
register under the Act (except by Form S-4 or Form S-8 or any successor forms
thereto) any of its equity securities, it will give written notice to the
Subscriber of its intention to do so and, on the written request of the
Subscriber received by the Company within 20 days after the Company's mailing of
any such notice (which written request shall specify the interest in the
Registrable Shares (issued or issuable upon conversion of the Convertible Note)
intended to be sold or disposed of by the Subscriber and describe the nature of
any proposed sale or other disposition thereof), the Company will use its best
efforts to cause all such Registrable Shares, to be included in the registration
statement proposed to be filed by the Company; provided, however, that, if a
greater number of Registrable Shares is offered for participation in the
proposed offering than in the reasonable opinion of the managing underwriter, if
any, of the proposed offering can be accommodated without adversely affecting
the proposed offering, then the amount of Registrable Shares proposed to be
offered by the Subscriber for registration, as well as the number of securities
of any other selling shareholders participating in the registration, shall be
proportionately reduced to a number deemed satisfactory by the managing
underwriter.
16. Shelf Registration. At any time after the date of this Agreement and
through the earlier of (i) the sale or other disposition by Subscriber of all of
its Registrable Shares or (ii) the date upon which all shares of common stock
issued or issuable upon conversion of the Convertible Note may be disposed of
pursuant to Rule 144 of the Act, without restriction, the Subscriber may notify
the Company that it desires to register any Registrable Shares pursuant to a
registration statement providing for the sale of Registrable Securities on a
continuous or delayed basis pursuant to Rule 415 of the Act, the Company shall
prepare and file a registration statement of the Company which covers any of the
Registrable Securities pursuant to the provisions of this Agreement, including
all pre-effective amendments and post-effective amendments thereto, the
prospectus and supplements thereto, all exhibits and all material incorporated
by reference in the registration statement providing for the sale of the
Registrable Securities by the Subscriber pursuant to Rule 415 of the Act and/or
any similar rule that may be adopted by the Commission. A registration pursuant
to this Section 16 shall also be treated as a registration under Section 14,
provided it meets the conditions set forth in the last sentence of Section 14.
17. Registration Procedures. In connection with the Company's registration
obligations pursuant to this Agreement, the Company shall as expeditiously as
possible, but no later than 45 days after receipt of a notice delivered pursuant
to Sections 14, 15 or 16:
a. prepare and file with the Commission a registration statement and use
its best efforts to cause such registration statement to become effective;
b. prepare and file with the Commission such amendments and supplements to
such registration statement and any prospectus included in any registration
statement at the time such registration statement becomes effective, as
amended or supplemented by any prospectus supplement, including
post-effective amendments and all material incorporated by reference in the
prospectus (the "Prospectus") used in connection therewith as may be
necessary to keep such registration statement continuously effective for
12
13
a period expiring on the earlier of (i) the date on which all of the
Registrable Securities covered by the Registration Statement have been sold
thereto, or (ii) the date on which all Registrable Securities may be sold
pursuant to Rule 144 of the Act without restriction;
c. furnish to the Subscriber, without charge, at least one signed copy of
the registration statement and any post-effective amendment thereto,
including financial statements and schedules, all documents incorporated by
reference therein and all exhibits (including those incorporated by
reference);
d. deliver to the Subscriber, without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as they may reasonably request, but only while the
Company is required to cause the registration statement to remain
effective;
e. use its reasonable efforts to register or qualify such Registrable
Securities for offer and sale under the securities or blue sky laws of such
U.S. States or possessions (the "Blue Sky Laws") as Subscriber may
reasonably request and do any and all other acts or things necessary or
advisable to enable Subscriber to consummate the disposition in such
jurisdictions of Registrable Securities owned by Subscriber; provided
however, that in no event shall the Company be obligated to qualify
generally to do business in any jurisdiction where it is not then qualified
or to take any action which would subject it to the service of process in
suits other than those arising out of the offer or sale of the securities
covered by such registration statement in any jurisdictions where it is not
then so subject;
f. cooperate with the Subscriber to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold,
free of any and all restrictive legends, which certificates shall be in
such denominations and registered in such names as the Subscriber may
request;
g. use its reasonable efforts to cause all Registrable Securities covered
by the Registration Statement to be listed on The NASDAQ Stock Market
System (or any other market or exchange on which the Company's Common Stock
is then quoted or listed);
h. notify the Subscriber at any time when a Prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any
event as a result of which the Prospectus included in such Registration
Statement contains an untrue statement of material fact or omits any fact
necessary to make the statements therein not misleading, and, at the
request of any such seller, the Company shall prepare a supplement or
amendment to such Prospectus so that, as thereafter delivered to the
purchasers of such Registrable Securities, such Prospectus shall not
contain any untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading;
i. advise the Subscriber, promptly after it shall receive notice or obtain
knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of such Registration Statement or the
initiation or threatening of any proceeding for such purpose and promptly
use all reasonable efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued; and
j. make available for inspection by the Subscriber and any attorney or
accountant retained by the Subscriber all financial and other records,
pertinent corporate documents and properties of the Company; provided that
such persons shall keep confidential any records, information or documents
of the Company unless a court or administrative agency requires the
disclosure of the records, information or documents or such records,
information or documents (A) become generally available to the public other
than as a result of a disclosure by any such persons, (B) were available to
such persons on a non-confidential basis prior to the disclosure of such
records, information or documents pursuant to this Agreement, or (C) become
available to such persons on a non-confidential basis from a source other
than the Company or its agents, advisors or representatives.
13
14
The Company may require the Subscriber to furnish to the Company
information regarding the Subscriber and the distribution of the Registrable
Securities as the Company may from time to time reasonably request in writing
and as necessary for the registration of the Shares.
The Subscriber agrees that, upon receipt of any notice from the Company of
the happening of any of the following: (i) the Commission's issuance of any stop
order denying or suspending the effectiveness of the Registration Statement or
the initiation or threatening of any proceeding for that purpose, (ii) the
Company's receipt of any stop order denying registration or suspending the
qualification of the Registrable Securities for sale or the initiation or
threatening of any proceeding for such purpose, (iii) the happening of any event
which makes any statement made in the Registration Statement, the Prospectus or
any document incorporated by reference therein untrue or which requires any
change in the Registration Statement, the Prospectus or any document
incorporated by reference therein to make the statements not include an untrue
statement of material fact or not omit any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing, the Shareholders shall discontinue the
disposition of Registrable Securities until the Subscriber receives a
supplemented or amended Prospectus from the Company or until the Company advises
the Subscriber in writing that the Subscriber may resume the use of the
Prospectus, and has received copies of any additional or supplemental filings
which are incorporated by reference in the Prospectus. If the Company so
directs, the Subscriber will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in the Subscriber's
possession, of the Prospectus covering the Registrable Securities at the time
the Subscriber received the notice.
18. Registration Expenses. The Company shall bear all expenses incurred in
connection with the registration of shares pursuant to this Agreement. Such
expenses shall include, without limitation, all printing, legal and accounting
expenses incurred by the Company, fees and expenses of compliance with the Blue
Sky Laws, and all registration and filing fees imposed by the Commission, any
state securities commission or The NASDAQ Stock Market. The Subscribers shall be
responsible for any brokerage fees or commissions and taxes of any kind
(including, without limitation, transfer taxes) with respect to any disposition,
sale or transfer of shares and for any legal, accounting and other expenses
incurred by the Subscribers.
19. Indemnification.
a. Indemnification by the Company. The Company agrees to indemnify and hold
harmless, to the full extent permitted by law, the Subscriber against all
losses, claims, damages, liabilities and expenses (including, without
limitation, reasonable attorneys' fees and expenses) to which the
Subscriber may become subject under federal or state securities laws or
otherwise which arise out of, or are caused by, the Company's violation of
any federal or state securities laws, including any untrue or alleged
untrue statement of a material fact contained in any registration
statement, Prospectus or preliminary prospectus or in any application or
other request that the Company files, including any application or request
filed under the Blue Sky Laws or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as the same are
caused by or contained in any written information furnished to the Company
by Subscriber expressly for use therein or by Subscriber's failure to
deliver a copy of the registration statement or Prospectus after the
Company has furnished the Subscriber with a sufficient number of copies of
the same.
b. Indemnification by Subscriber. In connection with any registration
statement in which any Subscriber's Registrable Securities are registered
and sold, the Subscriber shall furnish to the Company such information and
affidavits as the Company reasonably requests for use in connection with
any registration statement or Prospectus and agree to indemnify and hold
harmless, to the full extent permitted by law, the Company, its officers,
directors and each person who controls the Company (within the meaning of
the Securities Act) against any losses, claims, damages, liabilities and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) resulting from any untrue or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact
required to be stated in the registration statement, Prospectus,
preliminary Prospectus or any application filed under the Blue Sky Laws or
necessary to make the statements therein not misleading, but only to the
extent that the untrue
14
15
statement or omission is contained in any written information or affidavit
so furnished by the Subscriber to the Company expressly for inclusion in
the Registration Statement, Prospectus or application filed under the Blue
Sky Laws; provided, however, that the obligation to indemnify under this
Section 19(b) shall be limited to the net amount of proceeds received by
such holder from the sale of Registrable Securities pursuant to such
registration statement. The Company shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, to the
same extent as provided above with respect to information so furnished by
the persons specifically for inclusion in any Prospectus or registration
statement.
c. Conduct of Indemnification Proceedings. Any person entitled to
indemnification hereunder shall (i) promptly notify the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) permit
such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. Any person entitled to
indemnification hereunder shall have the right to employ separate counsel
and to participate in the defense of the claim, but the fees and expenses
of the counsel shall be at the expense of the person unless (A) the
indemnifying party has agreed to pay the fees or expenses, (B) the
indemnifying party shall have failed to assume the defense of the claim and
employ counsel reasonably satisfactory to the person, or (C) in the
reasonable judgment of the person, based upon advice of its counsel, a
conflict of interest may exist between the person and the indemnifying
party with respect to the claims (in which case, if the person notifies the
indemnifying party in writing that the person elects to employ separate
counsel at the expense of the indemnifying party, the indemnifying party
shall not have the right to assume the defense of the claim on behalf of
the person). If the indemnifying party assumes the defense, the
indemnifying party will not be subject to any liability for any settlement
made without its consent. The indemnifying party, however, may not
unreasonably withhold its consent. An indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim shall not be
obligated to pay the fees and expenses of more than one counsel in any
jurisdiction for all parties indemnified by the indemnifying party with
respect to the claim, unless in the reasonable judgment of any indemnified
party a conflict of interest may exist between such indemnified party and
any other of such indemnified parties with respect to the claim, in which
event the indemnifying party shall be obligated to pay the fees and
expenses of such additional counsel or counsels.
d. Contribution. If for any reason the indemnification provided for in the
preceding clauses (a) and (b) is unavailable to an indemnified party or
insufficient to hold it harmless as contemplated by the preceding clauses
(a) and (b), then the indemnifying party shall contribute to the amount
paid or payable by the indemnified party as a result of the loss, claim,
damage, liability or expense in the proportion as is appropriate to reflect
(i) the relative fault of the indemnified party and the indemnifying party,
and (ii) any other relevant equitable considerations. Notwithstanding the
foregoing, the Subscriber shall not be required to contribute any amount in
excess of the net amount of proceeds received by such holder from the sale
of Registrable Securities giving rise to the loss, claim, damage, liability
or expense.
e. Survival. The indemnities provided in this Section 19 shall survive the
Subscriber's transfer of any Registrable Securities.
20. Conditions Precedent. Subscriber will not make any advances under this
Agreement unless Subscriber has first received (a) fully executed copies of all
consents and waivers required in order to effectuate the transactions under this
Agreement, and (b) a legal opinion by Company's counsel satisfactory in form and
substance to Subscriber's counsel.
21. Costs and Expenses. The Company will pay all costs of collection, including
reasonable attorneys' fees and court costs, paid or incurred by Subscriber to
enforce this Agreement, the Convertible Note and any other Security Document or
other document executed in connection with the transactions described herein,
upon an Event of Default. The Company will pay all costs and expenses, including
reasonable attorneys' fees paid or incurred by the Subscriber in the
negotiation, drafting, closing or ongoing administration of this Agreement not
in excess of $5,000 a year and the transactions contemplated hereby. The costs
and expenses incurred by
15
16
Subscriber through the date of this Agreement will be payable to Subscriber
immediately upon the distribution of the proceeds of the Convertible Note.
22. Entities. If Subscriber is not an individual but an entity, the individual
signing on behalf of the entity and the entity, jointly and severally, agree and
certify that (a) the entity was not organized for the specific purpose of
acquiring the Securities, (b) this Agreement has been duly authorized by all
necessary action on the part of the entity, (c) this Agreement has been duly
executed by an authorized officer or representative of the entity, and (d) this
Agreement is a legal, valid and binding obligation of the entity enforceable in
accordance with its terms.
23. No Inconsistent Agreements. The Company will not, on or after the date of
this Agreement, enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the Subscriber in this Agreement or
otherwise conflicts with the provisions of this Agreement. The rights granted to
the Subscriber under this Agreement do not in any way conflict with and are not
inconsistent with any rights granted under any other agreement concerning the
Company's securities.
24. Binding Effect. This Agreement shall not be assignable by the Company, and
shall only be assignable by Subscriber in compliance with applicable state and
Federal securities laws. The provisions of this Agreement shall be binding upon
and inure to the benefit of the parties hereto, and their respective heirs,
legal representatives, successors, and assigns.
25. Representations to Survive Delivery. The representations, warranties, and
agreements of the Company and of Subscriber contained in this Agreement will
remain operative and in full force and effect and will survive the payment of
the purchase price pursuant to Section 1 above, the delivery of documents
representing the Securities, and the expiration or termination of the Bank One
Loan Documents.
26. Notices. Any notice, offer, demand, consent or other communication required
or permitted to be given under any provision of this Agreement shall be deemed
to have been sufficiently given for all purposes if it is in writing and it is
(a) delivered personally to the party to whom the same is directed, (b) sent by
first class mail, postage and charges prepaid, addressed to the party to whom
the same is directed, at his address set forth next to his name on the signature
page to this Agreement or (c) sent by facsimile transmission. Any party may
change its address for purposes of this Agreement by giving the other party
notice of such change in the manner hereinabove provided for the giving of
notices. Except as otherwise expressly provided in this Agreement, any such
notice or other communication sent by mail shall be deemed to be given on the
second business day after the date on which the same was deposited in a
regularly maintained receptacle for the deposit of the United States' mail,
addressed as provided above, if delivered personally on the date so delivered
and if sent by facsimile transmission, on the date indicated on the machine
generated receipt therefore.
27. Permitted Transactions. If the Company is solvent as determined by an
independent certified public accountant reasonably acceptable to Subscriber
(notwithstanding anything to the contrary in Sections 5(f) and 13(a) hereof and
the Convertible Note):
a. shares of common stock or options or warrants to purchase common stock
issued or issuable or granted to officers, directors, employees,
consultants, distributors, agents of the Company or other third parties
pursuant to any arrangement, plan or agreement currently in effect as
approved by the Company's Board of Directors (not to exceed as to any one
individual $500,000 in value at the time of such grant or issue); provided,
however, future shares of common stock or options or warrants to purchase
common stock issued or issuable or granted to consultants, distributors,
agents or other third parties of the Company shall require the consent of
the Subscriber which consent shall not be unreasonably withheld;
b. shares of preferred stock (and the common stock issuable upon conversion
thereof) or common stock issued or issuable in connection with an
acquisition approved by the Company's Board of Directors of all or part of
another corporation (an "Acquired Corporation") by merger or other
reorganization of otherwise, or by purchase of all or substantially all of
the assets of or from, such Acquired Corporation so long as such merger or
acquisition has been approved in advance by Subscriber;
c. shares of common stock issuable upon the exercise or conversion of
warrants, options, promissory notes or other rights to acquire common stock
of the Company outstanding on or before the date of this Agreement so long
as disclosed on Schedule 5(e); and
d. common stock or options or warrants issued or issuable or granted in
connection with any transactions approved in writing by the Subscriber,
which approval shall not be unreasonably withheld.
28. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan, exclusive of its conflict of
laws rules.
29. Entire Agreement. This Agreement and the exhibits hereto, the Convertible
Note, the Warrant and all Security Documents and other documents signed by both
parties in connection with the transactions contemplated herein constitute the
parties' entire understanding with respect to the subject matter hereof and each
such document is incorporated herein by reference.
(signatures begin on next page)
16
17
IN WITNESS WHEREOF, the undersigned has hereunto affixed its signature.
XXXXX COUNTY EMPLOYEES' RETIREMENT SYSTEM
By: /s/ Xxxxxx Xxx
---------------------------
Name: Xxxxxx Xxx
-------------------------
Its: Director
-------------------------
Address: 000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
The Company hereby accepts the subscription evidenced by this Subscription and
Investment Representation Agreement.
BIG BUCK BREWERY & STEAKHOUSE, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
-------------------------------------
Xxxxxxx X. Xxxxxxxx
President and Chief Executive Officer
Address: 000 Xxxxx Xxxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
17
18
SUBSCRIBER INFORMATION
Xxxxx County Employees' Retirement System
------------------------------------------
(Please print name in which the Securities are to be issued)
--------------------------------------------------------
Taxpayer I.D. No.
Address: 000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxx: Detroit State: Michigan Zip Code 48226
Telephone Number (000) 000-0000
Facsimile Number (000) 000-0000
E-mail Address
------------------------
18
19
EXHIBIT A TO SUBSCRIPTION AGREEMENT
THIS CONVERTIBLE SECURED PROMISSORY NOTE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, HAVE NOT BEEN REGISTERED UNDER ANY STATE SECURITIES
LAWS, AND ARE SUBJECT TO A SUBSCRIPTION AND INVESTMENT REPRESENTATION AGREEMENT.
THEY MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED, PLEDGED, OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF EITHER AN EFFECTIVE REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND UNDER THE APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO BIG BUCK
BREWERY & STEAKHOUSE, INC. THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND UNDER APPLICABLE STATE
SECURITIES LAWS.
BIG BUCK BREWERY & STEAKHOUSE, INC.
10% CONVERTIBLE SECURED PROMISSORY NOTE DUE FEBRUARY 2003
$5,876,114.74 GAYLORD, MICHIGAN
February 4, 2000
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby
acknowledged, the undersigned, Big Buck Brewery & Steakhouse, Inc., a Michigan
corporation (the "Maker" or "Company"), promises to pay to the order of Xxxxx
County Employees' Retirement System, a body politic of the State of Michigan
(the "Payee"), the principal sum of Five Million, Eight Hundred Seventy Six
Thousand, One Hundred Fourteen and 74/100 Dollars ($5,876,114.74) plus interest
at the rate specified below. The unpaid principal from time to time outstanding
shall bear interest prior to maturity at an annual rate of interest equal to ten
percent (10%) per annum, and all interest accrued on the unpaid principal
balance of this Promissory Note shall be due and payable in arrears as provided
below.
On March 1, 2000, Maker will pay interest only from the date of this Note
through February 29, 2000. Thereafter, the Maker agrees to pay principal and
interest hereunder to Payee in equal monthly installments in an amount which
would fully amortize the principal and interest due hereunder over a period of
300 months, beginning April 1, 2000, until February 1, 2003, on which date the
entire amount due hereunder, including all unpaid principal and interest shall
be due and payable in full.
All interest shall be payable in arrears. Interest hereon shall be
calculated on the basis of a 360-day year applied to the actual number of days
elapsed until all accrued and unpaid interest is paid in full. All interest due
and payable hereunder that is not paid when due for any reason shall be
cumulated, added to the principal and accrue interest at the highest lawful rate
per annum on that delinquent amount until paid, to the extent permitted by law.
All payments of interest and principal shall be payable in lawful currency of
the United States of America ("Currency"), unless and to the extent Payee
exercises Payee's option hereunder to convert all or part of the unpaid
principal balance of this Promissory Note into shares of common stock, par value
$0.01 per share (the "Shares"), of the Maker.
At any time prior to payment in full of this Note, Payee shall have the
option to convert all or part of the unpaid principal balance of this Promissory
Note into that number of Shares of the Maker (the "Option") equal to (i) all or
such part of the unpaid principal balance of the Promissory Note being converted
divided by (ii) $2.42 which is the average of the closing sale price of one
Share as quoted by The NASDAQ Stock Market for the five (5) trading days
immediately prior to the Maker's execution of this Promissory Note (the
"Conversion Price"), subject to the antidilution adjustments presented in the
following Sections, any fractional Shares to be paid in Currency. To exercise
the Option, Payee shall surrender this Promissory Note to the Maker, accompanied
by written notice of Payee's intention to exercise the Option, which notice
shall set forth the principal amount of this Promissory Note and such portion of
the unpaid principal balance of the Promissory Note, if not the entire unpaid
principal balance, to be converted into Shares (the "Notice of Conversion").
Within ten (10) business days after Maker's receipt of the Notice of Conversion
and Payee's surrender of this Promissory Note, Maker shall deliver
A-1
20
or cause to be delivered to the Payee, the Shares in the name of the Payee and a
duly executed, new promissory note in the principal amount of the balance
thereof, if any.
If the Maker shall at any time hereafter subdivide or combine its
outstanding Shares, or declare a dividend payable in its Shares, the Conversion
Price in effect immediately prior to the subdivision, combination, or record
date for such dividend payable in Shares shall forthwith be proportionately
increased, in the case of combination, or proportionately decreased, in the case
of subdivision or declaration of a dividend payable in Shares, and the number of
Shares into which the unpaid principal balance of the Promissory Note may be
converted upon exercise of the Option immediately preceding such event, shall be
changed to the number determined by dividing the then current Conversion Price
by the Conversion Price as adjusted after such subdivision, combination, or
dividend payable in Shares and multiplying the result of such division against
the number of Shares to be acquired upon the exercise of the Option immediately
preceding such event, so as to achieve an Conversion Price and number of Shares
purchasable after such event proportional to such Conversion Price and number of
Shares purchasable immediately preceding such event. All calculations hereunder
shall be made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be. In case of any capital reorganization or any reclassification
of the Shares, or in the case of any consolidation with or merger of the Maker
into or with another corporation, or the sale of all or substantially all of its
assets to another corporation, which is effected in such a manner that the
holders of Shares shall be entitled to receive stock, securities, or assets with
respect to or in exchange for Shares, then, as a part of such reorganization,
reclassification, consolidation, merger, or sale, as the case may be, lawful
provision shall be made so that the holder of this Promissory Note shall have
the right thereafter to receive, upon the exercise hereof, the kind and amount
of shares of stock or other securities or property which the holder would have
been entitled to receive if, immediately prior to such reorganization,
reclassification, consolidation, merger, or sale, the holder had held the number
of Shares into which the unpaid principal balance of the Promissory Note could
have been converted upon exercise of the Option. In any such case, appropriate
adjustment (as determined in good faith by the Board of Directors of the
Company) shall be made in the application of the provisions set forth herein
with respect to the rights and interest thereafter of the holder of the
Promissory Note, to the end that the provisions set forth herein (including
provisions with respect to adjustments of the exercise price) shall thereafter
be applicable, as nearly as reasonably may be, in relation to any shares of
stock or other property thereafter deliverable upon the exercise of the Option.
In the event the Maker shall at any time or from time to time, issue
Shares, options, warrants or rights to subscribe for Shares, or issue any
securities convertible into or exchangeable for Shares, for a consideration per
share (determined by dividing the Net Aggregate Consideration (as determined
below) by the aggregate number of Shares that would be issued if all such
Shares, options, warrants, rights or convertible securities were exercised or
converted to the fullest extent permitted by their terms) less than the
Conversion Price in effect immediately prior to the issuance of such options or
rights or convertible or exchangeable securities, the Conversion Price in effect
immediately prior to the issuance of such options, warrants or rights or
securities shall be reduced to an amount determined by multiplying such
Conversion Price by a fraction:
a. the numerator of which shall be (X) the number of shares of Company's
Common Stock of all classes outstanding immediately prior to the issuance
of such options, rights or convertible securities (excluding authorized but
unissued shares held by the Corporation but including all shares of Common
Stock issuable upon conversion or exercise of any outstanding Convertible
Preferred Stock, options, warrants, rights or convertible securities), plus
(Y) the number of shares of Company's Common Stock which the total amount
of consideration received by the Company for the issuance of such options,
warrants, rights or convertible securities plus the minimum amount set
forth in the terms of such security as payable to the Company upon the
exercise or conversion thereof (the "Net Aggregate Consideration") would
purchase at the Conversion Price prior to adjustment, and
b. the denominator of which shall be (X) the number of shares of Company's
Common Stock of all classes outstanding immediately prior to the issuance
of such options, warrants, rights or convertible securities (excluding
authorized but unissued shares held by the Company but including all shares
of Common Stock issuable upon conversion or exercise of any outstanding
Convertible Preferred Stock, options, warrants, rights or convertible
securities), plus (Y) the aggregate number of shares of Company's
A-2
21
Common Stock that would be issued if all such options, warrants, rights or
convertible securities were exercised or converted.
When delivered, all Shares shall be duly authorized, validly issued, fully
paid, and nonassessable. Maker shall take any and all action necessary to
maintain the required authority to issue the Shares to Payee in the event Payee
converts, or is required to convert, the unpaid principal balance of this
Promissory Note into Shares.
Prepayment of the principal of this Promissory Note is permitted, in whole
or in part, without premium or penalty of any kind; provided Maker provides
Payee with forty-five (45) days' prior written notice of its intention to prepay
the principal of this Promissory Note, in whole or in part, during which time
Payee may exercise the Option by delivering to the Maker Payee's Notice of
Conversion within forty-five (45) days following Payee's receipt of such notice
from the Maker. All partial prepayments of principal shall reduce the principal
balance hereunder in reverse order of maturity.
This Promissory Note is given in consideration of a loan by Payee to Maker
in the principal amount of this Promissory Note. This Promissory Note may not be
changed orally, but only by an agreement in writing signed by the parties
against whom enforcement of any waiver, change, modification, or discharge is
sought.
This Promissory Note and the payment due hereunder are secured by the
following documents executed simultaneously herewith: (a) a Security Agreement;
(b) a Stock Pledge and Security Agreement; (c) Limited Partnership Interest
Pledge and Security Agreement; (d) a Reassignment Agreement; and (e) any and all
other Security Documents as defined in the Agreement executed by the Maker in
favor of the Payee pursuant to the Agreement.
The holder of this Promissory Note and all successors thereof shall have
all of the rights of a holder in due course under the Uniform Commercial Code as
in effect in the State of Michigan and the other laws of the State of Michigan.
Maker hereby waives demand, presentment, protest, notice of protest and/or
dishonor, and all other notices or requirements that might otherwise be required
by law. The Maker promises to pay on demand all costs of collection, including
reasonable attorneys' fees and court costs, paid or incurred by Payee to enforce
this Promissory Note upon an Event of Default (as defined below) hereunder.
The occurrence of any of the following shall constitute an "Event of
Default" (or, if the giving of notice or the lapse of time or both is required,
then, prior to such notice or lapse of time, a "Default"):
a. the Maker shall fail to pay any principal of or interest on this
Promissory Note when the same shall become due and payable, whether at the
stated date of maturity or any accelerated date of maturity or at any other
date fixed for payment; provided however, such failure shall not constitute
a default if the required payment is made within five days after the date
it first became due and payable and such failure has not occurred more than
two times in the preceding 12 months; or
b. any Event of Default shall occur in the Subscription and Investment
Representation Agreement for 10% Convertible Secured Promissory Note Due
January 2003 between Maker and Payee of even date herewith after the
passage of any notice and cure period set forth herein;
c. the Company shall make an assignment for the benefit of creditors, or
admit in writing its inability to pay or generally fail to pay its debts as
they mature or become due, or shall petition or apply for the appointment
of a trustee or other custodian, liquidator or receiver of the Company or
of any substantial part of its assets, or shall commence any case or other
proceeding relating to the Company under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation
or similar law of any jurisdiction, now or hereafter in effect, or shall
take any action to authorize or in furtherance of any of the foregoing, or
if any such petition or application shall be filed or any such case or
other proceeding shall be commenced against the Company and the Company
shall indicate its approval thereof, consent thereto or acquiescence
therein or shall fail to contest the same in a timely manner;
A-3
22
d. an involuntary petition shall be filed or an involuntary proceeding
shall be commenced seeking liquidation, reorganization or other relief in
respect of the Company or of its debts or any substantial part of its
assets, under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation or similar law of any
jurisdiction, now or hereafter in effect, and in any such case, such
proceeding or petition shall continue undismissed for sixty (60) days or an
order or decree approving or ordering any of the foregoing shall be
entered;
then, and in any such event, (A) if such event is an Event of Default specified
in Section (c) or (d) above with respect to the Maker, automatically all amounts
owing with respect to the Agreement, this Promissory Note and the other
documents executed in connection herewith shall become immediately due and
payable without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Maker and (B) if such event is any
other Event of Default the Payee shall by notice in writing to the Maker,
declare all amounts owing with respect to the Agreement, this Promissory Note
and the other documents executed in connection herewith to be, and they shall
thereupon forthwith become, immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived by the Maker.
This Promissory Note, the Agreement and all security and other documents
signed by both parties in connection with the transactions contemplated herein
and therein constitute the parties' entire understanding with respect to the
subject matter hereof and the Agreement and each such security and other
documents is incorporated herein by this reference.
IN WITNESS WHEREOF, the Maker has caused this Promissory Note to be
executed in its corporate name by the signature of its duly authorized officer.
BIG BUCK BREWERY & STEAKHOUSE, INC.
By:
-----------------------------------------
Xxxxxxx X. Xxxxxxxx
President and Chief Executive Officer
A-4
