LOAN AND INVESTMENT AGREEMENT
This LOAN AND INVESTMENT AGREEMENT is made and entered into as of
October 13, 1995, by and between S&D FOODS, INC., a California corporation
("Borrower"), and XXXXXXX X. STEEL ("Lender") with respect to the following
facts:
RECITALS
A. Borrower is engaged in the wholesale foods business and has need for
additional capital for purposes of financing its business in anticipation of
a private and subsequent public offering of its common stock.
B. Lender is willing, upon the terms and subject to the conditions set
forth in this Agreement, to make a loan to Borrower for the purposes
described above.
NOW, THEREFORE, in consideration of the foregoing premises and the
warranties, representations, covenants, agreements and undertakings contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 CERTAIN DEFINED TERMS. As used in the Transaction
Documents or in any other documents made or delivered pursuant thereto,
unless otherwise defined therein or the context shall otherwise require, the
following terms shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms
defined):
"AGREEMENT" means this agreement and any amendments, supplements or
modifications thereto.
"BUSINESS DAY" means a day on which banks are open for business in San
Francisco, California.
"COLLATERAL" is defined in the Security Agreement.
"COLLATERAL DOCUMENTS" means all present and future documents delivered
and to be delivered hereunder to create, perfect or maintain a security
interest or lien on any property to secure payment of the Indebtedness under
the Transaction Documents, or otherwise granting a lien to the Lender
pursuant to the Transaction Documents, including the Security Agreement the
UCCs.
"CONVERSION SHARES" means "Conversion Shares" as defined in the Note and
any other securities that may be issued or distributed therewith or with
respect thereto or in exchange or substitution therefor.
"CURRENT STOCKHOLDERS" means the persons shown as stockholders in
SCHEDULE 3.1.3.
"EFFECTIVE DATE" means the date of this Agreement.
"EVENT OF DEFAULT" is defined in Section 5.1.
"FINANCIAL STATEMENTS" means Borrower's Statements of Assets,
Liabilities and Equity as of June 30, 1995 and July 31, 1995 and Borrower's
Statements of Revenues, Expenses and Net Income for the Twelve months ended
June 30, 1995 and the one month ended July 31, 1995.
"INDEBTEDNESS" means, for any Person, (i) all indebtedness or other
obligations of such Person for borrowed money or for the deferred purchase
price of property or services, (ii) lease obligations direct, contingent or
otherwise, which have been or which in accordance with Statement of Financial
Accounting Standards No. 13, as from time to time amended, should be
capitalized, (iii) all indebtedness or other obligations of any other Person
for borrowed money or for the deferred purchase price of property or services
the payment or collection of which such Person has guaranteed (except by
reason of endorsement for collection in the ordinary course of business) or
in respect of which such Person is liable, contingently or otherwise,
including, without limitation, liability by way of agreement to purchase, to
provide funds for payment, to supply funds to or otherwise to invest in such
other Person, or otherwise to assure a creditor against loss, and (iv) all
indebtedness or other obligations of any other Person for borrowed money or
for the deferred purchase price of property or services secured by (or for
which the holder of such indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, deed of trust, pledge, lien
security interest or other charge or encumbrance upon or in property
(including, without limitation, accounts and contract rights) owned by such
person, whether or not such Person has assumed or become liable for the
payment of such indebtedness or obligations; PROVIDED, HOWEVER, that
Indebtedness shall not include trade accounts payable, accrued payroll and
other similar current liabilities incurred in the ordinary course of business.
"LIENS" means any deed of trust, mortgage, pledge, security interest,
encumbrance, lien or charge of any kind.
"NOTE" means the Convertible Promissory Note of Borrower to Lender in
the form of Exhibit A hereto, and any extensions, amendments, supplements or
modifications thereof.
"OBLIGATIONS" means all obligations of every nature of the Borrower from
time to time owed to the Lender under the Transaction Documents.
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"PAYMENT SHARES" means "Payment Shares" as defined in the Note and any
other securities that may be issued or distributed therewith or with respect
thereto or in exchange or substitution therefor.
"PERSON" means an individual, corporation, partnership, joint venture,
trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SECURITY AGREEMENT" means the Security Agreement of the Borrower in
the form of Exhibit B hereof, and any amendments, supplements and
modifications thereof.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement among
Borrower, the Current Stockholders, and Lender in the form of Exhibit C
hereto, and any amendments, supplements and modifications thereof.
"SECURITIES" means the Note, the Conversion Shares, the Payment Shares
and the Warrant Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"TRANSACTION DOCUMENTS" means this Agreement, the Note, the Security
Agreement, the Stockholders Agreement, the UCCs, the Warrant, and any other
documents to be executed and/or delivered under this Agreement or in
connection with the transactions contemplated hereby.
"WARRANT" means the warrant to Purchase Stock of Borrower to Lender in
the form of Exhibit D hereto, and any amendments, supplements and
modifications thereof, and any warrant issued in replacement thereof or in
exchange or substitution therefor.
"WARRANT SHARES" means "Warrant Shares" as defined in the Warrant and
any other securities that may be issued or distributed therewith or with
respect thereto or in exchange or substitution therefor.
SECTION 1.2 ACCOUNTING TERMS. All accounting terms, unless otherwise
specifically defined herein, shall be construed in accordance with generally
accepted accounting principles consistently applied, and all financial data
submitted pursuant to this Agreement shall be prepared in accordance with
such principles.
ARTICLE II
AMOUNT AND TERMS OF LOAN
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SECTION 2.1 LOAN. Subject to the terms and conditions of this
Agreement, Lender agrees to make a loan (the "Loan") to Borrower in the
amount of Five Hundred Thousand Dollars ($500,000.00) on the Effective Date.
SECTION 2.2 NOTE. The obligation of Borrower to repay the Loan made by
Lender shall be evidenced by, and the Loan shall be payable in accordance
with the terms of, the Note.
SECTION 2.3 OTHER TRANSACTION DOCUMENTS. To induce Lender to enter
into this Agreement and make this Loan, (i) Borrower shall execute and
deliver to Lender, on the Effective Date, concurrently with the execution and
delivery of this Agreement, the Note, the Security Agreement, the UCC'S, and
the Warrant, and (ii) Borrower and the Current Stockholders shall execute and
deliver to Lender, on the Effective Date, concurrently with the execution and
delivery of this Agreement, the Stockholders Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES BY BORROWER. In order to
induce Lender to enter into this Agreement and to make the Loan, Borrower
represents and warrants to Lender that:
3.1.1 ORGANIZATION AND QUALIFICATIONS. Borrower is a
corporation duly organized, validly existing and in good standing under the
laws of the State of California, and has all requisite authority and power
(corporate and other), all material governmental licenses, authorizations,
consents and approvals to carry on its business as presently conducted and as
contemplated to be conducted, to own, hold and operate its material
properties and assets as now owned, held and operated by it, to enter into
the Transaction Documents, to issue the Securities and to carry out the
provisions of the Transaction Documents and the Securities.
3.1.2 ARTICLES OF INCORPORATION AND BYLAWS. The copies of the
Articles of Incorporation ("Articles") and Bylaws of Borrower which have been
delivered to Lender prior to the execution of this Agreement, are true and
complete copies of such documents and have not been made or repealed.
Borrower is not in violation or breach of any of the provisions of the
Articles, the Bylaws or any of its other governing documents.
3.1.3 CAPITALIZATION AND RELATED MATTERS.
(a) As of the Effective Date and prior to giving effect to
the transactions contemplated in this Agreement, the authorized and issued
capital stock of Borrower and the options, warrants, calls, subscriptions,
rights (including any preemptive rights or rights of first refusal),
agreements or commitments of any character obligating Borrower to issue or
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register for sale under the Securities Act shares of capital stock or any
other equity security of Borrower consist solely of those described on
SCHEDULE 3.1.3.
(b) There are no outstanding contractual obligations
(contingent or otherwise) of Borrower to retire, repurchase, redeem or
otherwise acquire any outstanding shares of capital stock of, or other
ownership interests in, Borrower, or to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise) in any
other entity.
(c) The offer, issuance and sale of all outstanding
capital stock of Borrower were (i) exempt from the registration and
prospectus delivery requirements of the Securities Act, (ii) registered or
qualified (or exempt from registration or qualification) under the
registration or qualification requirements of all applicable state securities
laws, and (iii) accomplished in conformity with all other federal and
applicable state securities laws, rules and regulations.
(d) The issuance of the Securities has been duly
authorized and, upon delivery to Lender of a certificate or other instrument
evidencing any Securities, such Securities will have been validly issued,
will have the rights specified in the Transaction Documents, will be free of
preemptive rights, will be fully paid and non-assessable, and will be free
and clear of all Liens and restrictions, other than restrictions on transfer
imposed by the Transaction Documents.
(e) Borrower is not a participant in any joint venture,
partnership, joint operation or similar arrangement. Borrower does not own
or have any interest (by way of stock ownership or otherwise) in any firm,
corporation, association or business.
3.1.4 STOCKHOLDERS. SCHEDULE 3.1.3 contains a true and
complete list of the names and addresses of the record holders of all of the
outstanding equity securities of Borrower and of the holders of all outstanding
options or other rights to acquire equity securities of Borrower, such list
setting forth with respect to each holder the type and amount of the equity
securities beneficially owned or for which there exist acquisition rights. No
holder of any security of Borrower or any other Person is entitled to any
preemptive right, right of first refusal or similar right as a result of the
issuance of any Securities or otherwise. Except for this Stockholders
Agreement, there is no voting trust, agreement or arrangement among any of the
beneficial holders of the equity securities of Borrower affecting the exercise
of the voting rights of any such equity securities.
3.1.5 AUTHORIZATION AND VALIDITY OF TRANSACTION DOCUMENTS.
The execution, delivery and performance by Borrower of the Transaction Documents
and the offer, sale, issuance and delivery of the Securities, (a) are within
Borrower's corporate powers, (b) have been duly authorized by all necessary
corporate action, (c) do not require from the board of directors or shareholders
of Borrower any consent or approval that has not been validly and lawfully
obtained, (d) require no authorization, consent, approval, license, exemption of
or filing
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or registration with any court or governmental department, commission, board,
bureau, agency or instrumentality of government, except for post-sale filings
with the Securities and Exchange Commission and state securities commissions,
which filings shall be carried out in a timely fashion, (e) do not and will not
violate or contravene (i) any provision of law, (ii) any rule or regulation of
any agency or government, domestic or foreign, (iii) any order, writ, judgment,
induction, decree, determination or award, or (iv) any provision of the Articles
or Bylaws of Borrower, (f) do not and will not violate or be in conflict with,
result in a breach of or constitute (with or without notice or lapse of time or
both) a default under, or result in the termination of, or accelerate the
performance required by (or give any party any rights to terminate or accelerate
upon notice or lapse of time or both), any indenture, license, franchise, loan
or credit agreement, note, deed of trust, mortgage, security agreement or other
agreement, lease or instrument, commitment or arrangement to which Borrower is
a party or by which Borrower or its properties, assets or gifts is bound or
affected, (g) except as expressly provided in the Security Agreement, do not and
will not result in the creation of imposition of any Lien, (h) do not and will
not require the consent, approval or authorization of any other party to
agreements, licenses, leases, sales orders, permits, franchises, rights and
other obligations of Borrower, and (i) will not permit any governmental body to
impose any restrictions or limitations of any nature on Borrower or its
activities.
3.1.6 COMPLIANCE WITH LAWS. The business and operations of
Borrower has been and are being conducted in all material respects in accordance
with all applicable foreign, federal, state and local laws, rules and
regulations and all applicable orders, injunctions, decrees, writs, judgments,
determinations and awards of all courts and governmental agencies and
instrumentalities. Borrower is in compliance in all material respects with all
applicable federal and state securities laws, rules and regulations.
3.1.7 BINDING OBLIGATIONS. The Transaction Documents constitute
the legal, valid and binding obligations of Borrower and are and will be
enforceable against Borrower in accordance with their respective terms, and
the Stockholders Agreement constitute the legal, valid and binding obligation
of Borrower and the Current Stockholders and is and will be enforceable
against such parties in accordance with its terms.
3.1.8 SECURITIES LAWS. The offer, issue and sale of the
Securities are and will be (a) exempt from the registration and prospectus
delivery requirements of the Securities Act, (b) have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws and (c) accomplished in conformity with all applicable
federal and state securities laws, rules and regulations.
3.1.9 BROKERS OR FINDERS. No Person has, or as a result of the
transactions contemplated by the Transaction Documents, will have, any right
or claim against Borrower or Lender for any commission, fee or other
compensation as a finder, broker, or any similar capacity as a result of any
action by or on behalf of Borrower or any of its officers, directors,
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employees, agents or stockholders, except for Spelman & Co., Inc. whose fee
of $50,000 plus a $15,000 expense allowance will be paid by Borrower as
provided in the letter agreement between Spelman & Co., Inc. and Borrower
dated July 10, 1995 (the "Spelman Agreement"), which amount will be credited
against the fee payable in connection with the private placement offering
referred to in the Spelman Agreement, and Borrower will indemnify and hold
Lender harmless against any liability or expense arising out of, or in
connection with, any such right or claim.
3.1.10 FINANCIAL STATEMENTS. The Financial Statements (a) are
in accordance with the books and records of Borrower, (b) present fairly the
financial condition of Borrower at the dates therein specified and the
results of its operations and changes in financial condition for the periods
therein specified, and (c) have been prepared in accordance with generally
accepted accounting principles applied on a basis consistent with prior
accounting periods. Specifically, but not by way of limitation, the
financial statements disclose all of the debts, liabilities and obligations
of any nature (whether absolute, accrued, contingent or otherwise and whether
due or to become due) of Borrower as of each date which must be disclosed on
a balance sheet in accordance with generally accepted accounting principles.
Borrower maintains its books, record and accounts in accordance with good
business practice and in sufficient detail to reflect accurately and fairly
the transactions and disposition of its assets, liabilities and equities.
3.1.11 ABSENCE OF UNDISCLOSED LIABILITIES. Except as provided
in Schedule 3.1.11, there is not any material debt, obligation or liability
(whether accrued, absolute, contingent, liquidated or otherwise, whether due
or to become due, whether or not known to Borrower) arising out of any
transaction entered into at or prior to the Effective Date, or any act or
omission at or prior to the Effective Date, or any state of facts existing at
or prior to the Effective Date, including taxes with respect to or based upon
the transactions or events occurring at or prior to the Effective Date, and
including, without limitation, unfunded past service liabilities under any
pension, profit sharing or similar plan, except (a) to the extent set forth
on or reserved against in the Financial Statements, and (b) current
liabilities incurred and obligations under agreements entered into, in the
usual and ordinary course of business since the last date covered by the
financial statements contained therein, none of which (individually or in the
aggregate) materially and adversely affect the business, properties, finances
or prospects of Borrower.
3.1.12 CHANGES. Except as provided in Schedule 3.1.12, since
the last date covered by the Financial Statements, Borrower has not:
(a) Incurred any material debts, obligations or
liabilities, absolute, accrued, contingent or otherwise, whether due or to
become due, except current liabilities incurred in the usual and ordinary
course of business, none of which current liabilities (individually or in the
aggregate) materially and adversely affects the business, finances,
properties or prospects of Borrower.
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(b) entered into any transaction other than in the
usual and ordinary course of business, except for the Transaction Documents
and the transactions contemplated hereby;
(c) issued, granted or sold any shares of capital
stock or other equity securities of Borrower;
(d) declared, paid or set aside any dividends on or
made any other distributions with respect to, or purchased or redeemed,
any of its outstanding capital stock;
(e) suffered or experienced any change in, or
affecting, its condition (financial or otherwise), properties, assets,
liabilities, business, operations, results of operations or prospects other
than changes, events or conditions in the usual and ordinary course of its
business, none of which (either by itself or in conjunction with all such
other changes, events and conditions) has been materially adverse;
(f) made any loans to its employees, officers or
directors other than travel advances made in the ordinary course of business;
or
(g) suffered or experienced any change in the
relationship or course of dealings between it and any of its suppliers or
customers which has had or is likely to have an adverse effect on the results
of operations, conditions (financial or other), assets, liabilities, business
or prospects of Borrower.
3.1.13 TRADE NAMES, COPYRIGHTS, TRADEMARKS AND OTHER INTANGIBLE
ASSETS. Except as provided in Schedule 3.1.13, Borrower owns or has the
right to use all trademarks, trade names, service marks, copyrights, licenses
and patents and rights with respect to the foregoing used in or necessary for
the conduct of its business as now conducted or proposed to be conducted
without infringing upon or otherwise acting adversely to the right or claimed
right of any Person under or with respect to any of the foregoing (such
trademarks, trade names, service marks, copyrights, licenses and patents and
rights with respect thereto being herein referred to as the "Intellectual
Property").
3.1.14 TITLE TO PROPERTY AND ENCUMBRANCES. Except as provided in
Schedule 3.1.14, Borrower has good and marketable title to all of its
respective properties and assets, subject to no Lien, except those Liens, if
any, which are shown and described in the Financial Statements. The
consummation of the transactions contemplated by this Agreement will not have
any adverse effect on the title to any of Borrower's assets. Except for
changes in the ordinary course of business, Borrower currently owns all of
the assets shown on the latest balance sheet included in the Financial
Statements.
3.1.15 CONDITION OF PROPERTIES. All facilities, machinery,
equipment, fixtures, vehicles and other properties owned, leased or used by
Borrower are in good operating condition and repair, are reasonably fit and
usable for the purposes for which they are being used, are
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adequate and sufficient for borrower's business and conform in all material
respects with all applicable ordinances, regulations and laws.
3.1.16 INSURANCE COVERAGE. There is in full force and
effect one or more policies of insurance issued by insurers of recognized
responsibility, insuring Borrower and its properties and business against
such losses and risks, and in such amounts, as are customary in the case of
corporations of established reputation engaged in the same or similar
business and similarly situated and as required by any contract, agreement or
understanding to which Borrower is a party, or as required by any
governmental authority having jurisdiction over Borrower, its property or
business operations. Borrower has not been refused any insurance coverage
sought or applied for, and Borrower has no reason to believe that it will be
unable to renew its existing insurance coverage as and when the same shall
expire upon terms at least as favorable as those presently in effect, other
than possible increases in premiums that do not result from any act of
omission of Borrower. Borrower is not in default with respect to any material
provision contained in any insurance policy, and Borrower has not failed to
give any notice or present any presently existing claims under any insurance
policy in due and timely fashion.
3.1.17 LITIGATION. Except as provided in Schedule 3.1.17, there
is no legal action, suit arbitration or other legal, administrative or other
governmental litigation, inquiry or proceeding (whether federal, state,
local or foreign) pending or threatened against or affecting Borrower or its
properties, assets or business. Borrower (including without limitation
Borrower's respective properties, assets and business) is not subject to any
order, writ, judgment, injunction, decree, determination or award of any
court or of any governmental agency or instrumentality (whether federal,
state, local or foreign).
3.1.18 LICENSES. Borrower possesses from the appropriate
agency, commission, board, bureau, and governmental body and authority,
whether state, local, federal or foreign, all licenses, permits,
authorizations, approvals, franchises and rights which are necessary for
Borrower to engage in the businesses currently conducted and proposed to be
conducted by them, including without limitation the development, use, sale
and marketing of its existing and proposed products and services; and all
such certificates, licenses, permits, authorizations and rights have been
lawfully and validly issued, are in full force and effect, and to the
knowledge of Borrower will not be revoked, canceled, withdrawn, terminated or
suspended.
3.1.19 INTERESTED PARTY TRANSACTIONS. Except as disclosed in
SCHEDULE 3.1.19, no officer, director or stockholder owning 5% or more of any
class of securities of Borrower or any "affiliate" or "associate" (as such
terms are defined in Rule 405 promulgated under the Securities Act) of any
such Person has or had, either directly or indirectly, (a) an interest in any
Person which) (i) furnishes or sells services or products which are furnished
or sold or are proposed to be furnished or sold by Borrower, or (ii)
purchases from or sells or furnishes to, or proposes to purchase from, sell
to or furnish to, Borrower any goods or services, or (b) a beneficial
interest in any contract or agreement to which Borrower is a party or by
which it may be bound or affected.
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3.1.20 USE OF PROCEEDS. Borrower will use the proceeds from the
Loan exclusively for the purposes of sales, marketing, inventory, and
receivables.
3.1.21 DISCLOSURE. No representation or warranty contained in
this Agreement or information appearing in any writing furnished by Borrower to
Lender pursuant hereto or in connection herewith contains any untrue statement
of a material fact or facts or omits to state a material fact or facts necessary
to make the statements herein or therein not misleading. There is no fact which
Borrower has not disclosed to Lender in writing which materially and adversely
affects nor, insofar as Borrower can now foresee, will materially and adversely
affect, the properties, business, prospects, results of operations or condition
(financial or other) of Borrower or the ability of Borrower to perform this
Agreement.
SECTION 3.2. REPRESENTATIONS AND WARRANTIES BY LENDER. In order to
induce Borrower to enter into the Transaction Documents, Lender represents
and warrants to Borrower that:
3.2.1 NO REGISTRATION, ETC. Lender understands that (i) none
of the Securities have been registered under the Securities Act or
registered or qualified under any state securities law; (ii) none of
the Securities may be sold or otherwise transferred without either (A)
registration under the Securities Act and registration and/or
qualification under applicable state securities laws, or (B) an
exemption therefrom; (iii) except as provided in this Agreement,
Borrower will have no obligation to register any of the Securities
under the Securities Act or to register or qualify any of the
Securities under any state securities law, and Lender will not have
any right of any kind to require Borrower to register any of the
Securities under the Securities Act or to register or qualify any of
the Securities under any state securities laws.
3.2.2 OWN ACCOUNT. The Securities acquired by Lender are
being acquired, or will be acquired, by Lender solely for Lender's own
account (or, if Lender is a trustee, for the trust account for which
Lender is a trustee) for investment and not for resale or
distribution, and not with a view to or for sale in connection with
any distribution of the Securities.
3.2.3 KNOWLEDGE, ETC. Lender has sufficient knowledge and
experience in financial and business matters to be capable of
evaluating the risks and merits of investing in the Securities.
3.2.4 QUESTIONS, ETC . Lender, either individually or through
his investment and professional advisers, has had the opportunity to
ask questions of and receive answers from the Company concerning
Borrower and the Securities and has asked all questions and received
all answers as Lender deems necessary to invest in the Securities.
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3.2.5 ACCREDITED INVESTOR. Lender is an "accredited investor"
under the individual net worth and individual income tests of
Rule 501(a) of Regulation D under the Securities Act.
ARTICLE IV
COVENANTS OF BORROWER
SECTION 4.1 AFFIRMATIVE COVENANTS OF BORROWER. Borrower covenants and
agrees that, so long as the Note shall remain unpaid and any obligations
exist under any of the Transaction Documents, unless Lender shall otherwise
consent in writing, Borrower shall do all of the following:
4.1.1 PAYMENT OF INDEBTEDNESS, TAXES, ETC. Pay and perform its
Indebtedness and Obligations promptly and in accordance with normal terms and
pay and discharge all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits, or upon any properties
belonging to it, prior to the date on which penalties attach thereto, and all
lawful claims which, if unpaid, might become liens or charges upon any
properties of Borrower, provided that Borrower shall not be required to pay
except as otherwise provided for in any Transaction Document, any such tax,
assessment, charge, levy or claim during the period when such is being
contested in good faith and by proper proceedings, and adequate reserves for
the accrual of any of the same are maintained, if required by generally
accepted accounting principles.
4.1.2 MAINTENANCE OF INSURANCE. Maintain insurance in such form
and in such amounts and covering such risks as is usually carried by
companies engaged in similar business and owning similar properties in the
same general areas in which Borrower operates.
4.1.3 DIRECTORS/OFFICERS. Take all actions (and cause its
directors and stockholders to take all actions) necessary to (i) elect Xxxxx
Xxxx as the Chief Operating Officer of Borrower and (ii) if and when
requested by Lender, elect a person designated by Lender as a director to
serve on the Board of Directors (and each committee thereof) of Borrower and
each subsidiary of Borrower and replace any such person with another person
designated by Lender. The obligations of Borrower under this Section 4.1.3
shall terminate at such time as any Conversion Shares, Payment Shares or
Warrant Shares are issued.
4.1.4 PRESERVATION OF CORPORATE EXISTENCE, AND RIGHTS. Preserve
and maintain its corporate existence, rights, franchises and privileges in
its jurisdictions of incorporation, and qualify and remain qualified as a
corporation in each jurisdiction in which such qualification is necessary in
view of its business and operations and the ownership of its properties.
4.1.5 PRIVATE PLACEMENT. Take all such actions necessary to
offer and sell not less than $2,140,000 of shares of Common Stock of Borrower
pursuant to the terms of the
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Spelman Agreement (the "Private Placement"). In connection with the Private
Placement, Lender and the Current Stockholders shall enter into an agreement
with the principal subscribers in the Private Placement (e.g., each person
who subscribe for an equity interest of 5% or more) pursuant to which such
parties shall agree that, if any one or more of such parties proposes to sell
any equity securities of Borrower in any transaction (or series of
transactions) in which 25% or more of the outstanding equity securities of
any class of equity securities of Borrower are to be sold, each of the other
such parties shall be given the opportunity to sell a pro rata amount of
their equity securities of Borrower of the same class (which pro rata amount
would be the percentage that the total number of equity securities of such
class then held by each such party represents of the total number of equity
securities of such class than held by all such parties).
4.1.6 COMPLIANCE WITH LAWS. Comply with the requirements of all
applicable laws, rules, regulations, ordinances, and orders of any
governmental authority , non-compliance with which might adversely affect its
business or credit, and comply with all provisions of its Articles of
Incorporation and Bylaws.
4.1.7 INSPECTION/AUDIT RIGHTS. Upon reasonable notice, at any
reasonable time and from time to time, permit Lender or any agents or
representatives thereof, to examine and make copies of and abstracts from and
to otherwise audit the records and books of account of, and (at Lender's
expense) visit its properties to discuss the affairs, finances and accounts
of Borrower and its subsidiaries with any of its officers or directors.
Borrower shall furnish and make available to Lender all such documents and
information relating to Borrower and any subsidiary of Borrower as Lender may
from time to time reasonably request, and Lender (or a representative of
Lender) shall have the right to attend or participate by telephone in all
meetings of the Board of Directors (and each committee thereof) of Borrower
and each subsidiary of Borrower.
4.1.8 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Maintain records
and books of account in accordance with generally accepted accounting
principles on a basis consistently applied; and to furnish the same to Lender
at no expense to Lender reflecting all financial transactions.
4.1.9 MAINTENANCE OF PROPERTIES, ETC. Maintain and preserve all
of its properties, necessary or useful in the proper conduct of its business,
in good working order and condition, ordinary wear and tear excepted.
4.1.10 MAINTENANCE OF LICENSES. Maintain and keep in
effect licensing, permits, approvals, know-how and similar agreements
necessary in the proper conduct of its business.
4.1.11 NOTICE OF CERTAIN EVENTS. Promptly notify Lender in
writing of the occurrence of (a) any Event of Default or of any event which
would become an Event of Default upon the giving of notice, the lapse of
time, or otherwise, which notice shall be accompanied by a written notice of
the action that Borrower proposes to take as a result of such Event of
Default;
12
(b) change in the location of Borrower's chief executive office; (c) change
in the name or trade name of Borrower; (d) commencement of any litigation or
proceedings before any governmental or regulatory agency affecting Borrower,
except litigation or proceedings which, if adversely determined, could not
materially and adversely affect the financial condition of Borrower.
4.1.12 ADDITIONAL COVENANTS REGARDING TRANSACTION DOCUMENTS.
Obtain or cause to be obtained any consent or approval of any person or
entity that may be required to the execution, delivery or performance of the
Transaction Documents.
4.1.13 COMPLIANCE WITH LAWS. Comply in all respects with all
federal, state, local or foreign environmental protection laws and
regulations where the failure to comply with such laws and regulations would
have a material adverse effect upon the financial condition, business or
operations of Borrower.
4.1.14 RESERVATION OF SECURITIES. Borrower shall at all times
reserve and keep available out of its authorized and unissued stock and other
securities, for issuance and delivery to Lender as provided in the
Transaction Documents, all Securities that Borrower could be obligated to
issue or deliver under the provisions of the Transaction Documents.
4.1.15 FURTHER ASSURANCES. Upon the reasonable request of
Lender, do, execute, acknowledge and deliver or cause to be done, executed,
acknowledged and delivered all such other instruments, acts, deeds, and
assurances as may be required by Lender for the purpose of carrying out the
provisions and intent of the Transaction Documents.
SECTION 4.2 NEGATIVE COVENANTS OF BORROWER. So long as the Note shall
remain unpaid and obligations exist under this Agreement, without the prior
written consent of Lender, Borrower shall not:
4.2.1 INDEBTEDNESS, LIENS, ETC. Incur any Indebtedness, or
create, incur, assume or suffer to exist any mortgage, deed of trust, pledge,
lien, security interest, or other charge or encumbrance (including the lien
or retained security title of a conditional vendor) of any nature, upon or
with respect to any of its assets or properties, or assign or otherwise
convey any right to receive income or sell, convey, lease, assign or transfer
any substantial part of its assets outside the ordinary course of business,
or change the character of its business as conducted on the date hereof.
4.2.2 MERGERS, ETC. Merge into or consolidate with or into, or
sell, assign, lease or otherwise dispose of (whether in one transaction or in
a series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired in the ordinary course of business).
4.2.3 DIVIDENDS. Declare or pay any dividends or purchase,
redeem, retire or otherwise acquire for value any of its capital stock now or
hereafter outstanding, or return any
13
capital to its shareholders as such, or make any distribution of assets to
its shareholders as such, or issue any additional shares of capital stock or
in any way cause a dilution in the stock ownership interests in Borrower.
4.2.4 CHANGE IN NATURE OF BUSINESS. Make any material change in
the nature of its business.
SECTION 4.3 REGISTRATION RIGHTS. Lender (and any transferee of any of
the Securities) shall have the right to require Borrower to register the
Conversion Shares, the Payment Shares and the Warrant Shares under the
Securities Act and/or to register and/or to qualify (or exempt from
registration and/or qualification) the Conversion Shares, the Payment Shares
and the Warrant Shares under the registration, permit or qualification
requirements of any state securities laws, whenever Borrower takes any such
action with respect to any stock or other equity securities held by any other
Person, all on terms and subject to conditions no less favorable to Lender
(or such transferee) than the terms and conditions applicable to any such
other Person.
SECTION 4.4 STOCKHOLDER RIGHTS. So long as Lender and/or his heirs,
executors, personal representatives and transferees continue to hold at least
50% of the Conversion Shares, Payment Shares or Warrant Shares, as the case
may be, that are issued, Borrower shall do all of the following:
4.4.1 DIRECTORS/OFFICERS. Unless consented otherwise in writing
by Lender (or any such heir, executor, personal representative or
transferee), take all actions (and cause its directors and stockholders to
take all actions) necessary to (i) elect Xxxxx Xxxx as the Chief Operating
Officer of Borrower, and (ii) if and when requested by Lender (or any such
heir, executor, personal representative or transferee), elect a person
designated by Lender (or any such heir, executor, personal representative or
transferee) as a director to serve on the Board of Directors (and each
committee thereof) of Borrower and each subsidiary of Borrower and replace
any such person with another person designated by Lender (or any such heir,
executor, personal representative or transferee). If there is more than one
Person holding Conversion Shares, Payment Shares or Warrant Shares, the
rights granted under this Section 4.4.1 shall be exercised by the Person or
Persons holding a majority of the outstanding Conversion Shares, Payment
Shares or Warrant Shares, as the case may be, held by Lender and/or his
heirs, executors, personal representatives and transferees or, if there is no
such Person or Persons, such rights shall be exercised by the Lender or his
designee.
4.4.2 INSPECTION/AUDIT RIGHTS, Upon reasonable notice, at any
reasonable time and from time to time, permit Lender (and any such heir,
executor, personal representative or transferee) or any agents or
representatives thereof, to examine and make copies of and abstracts from and
to otherwise audit the records and books of account of, and, at Lender's (or
such heir's, executor's, personal representative's or transferee's) expense,
visit its properties to discuss the affairs, finances and accounts of
Borrower and its subsidiaries with any of its officers or directors.
Borrower shall furnish and make available to Lender (and any such heir,
executor,
14
personal representative or transferee) all such documents and information
relating to Borrower and any subsidiary of Borrower as Lender (or such heir,
executor, personal representative or transferee) may from time to time
reasonably request, and Lender (and any such heir, executor, personal
representative or transferee) or a representative of Lender (or any such
heir, executor, personal representative or transferee) shall have the right
to attend or participate by telephone in all meetings of the Board of
Directors (and each committee thereof) of Borrower and each subsidiary of
Borrower.
4.4.3 PREEMPTIVE RIGHTS. Give Lender (and any such heir,
executor, personal representative or transferee) the preemptive right to
purchase (at the same price and on the same terms and conditions as any other
Person) Lender's (or such heir's, executor's, personal representative's or
transferee's) pro rata share of any stock or other equity securities that
Borrower or any subsidiary may propose to sell or otherwise issue (which pro
rata share shall be based upon the percentage of the outstanding common stock
of Borrower represented by the shares of common stock of Borrower owned by
Lender (or such heir, executor, personal representative or transferee).
ARTICLE V
EVENTS OF DEFAULT AND REMEDIES
SECTION 5.1 EVENTS OF DEFAULT. The occurrence of any of the following
events shall be an Event of Default.
5.1.1 Failure to pay in full the amount of any principal of the
Note, or failure to pay any interest on the Note, when any such payment shall
be or become due; or
5.1.2 Any representation or warranty made in any of the
Transaction Documents or in any certificate, agreement, instrument or
statement contemplated by or made or delivered pursuant to or in connection
with any Transaction Documents, shall prove to have been incorrect when made
in any respect that is material to the transactions contemplated by the
Transaction Documents; or
5.1.3 Failure of Borrower or any other party other than Lender
to perform or observe any other term, covenant or agreement contained in any
of the Transaction Documents; or
5.1.4 Any of the Transaction Documents at any time after
execution and delivery and for any reason, shall cease to be in full force
and effect or shall be declared to be null and void, or the validity or
enforceability thereof shall be contested by Borrower or the Current
Stockholders or Borrower shall deny or disclaim any further liability or
obligation under any of the Transaction Documents to which Borrower and/or
the Current Stockholders are a party; or
15
5.1.5 A decree or order for relief shall be entered by a court
having jurisdiction in the premises in respect of Borrower in an involuntary
case under the Federal bankruptcy laws, as now or hereafter constituted, or
any other applicable federal or state bankruptcy, insolvency or other similar
law, or a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official shall be appointed for borrower or for any substantial part
of its properties, or the winding-up or liquidation of its affairs shall be
ordered and any such decree, order or appointment shall continue unstayed and
in effect for a period of 30 consecutive days.
5.1.6 Borrower shall commence a voluntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy, insolvency or other similar law, or
shall consent to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) of or for Borrower or any substantial part of its properties or
Borrower shall make any assignment for the benefit of creditors, or Borrower
shall fail generally to pay its debts as such debts become due, or Borrower
shall take corporate action in furtherance of any of the foregoing.
5.1.7 There shall occur any material adverse change in the
financial condition, business or operations of Borrower;
5.1.8 There shall occur any material adverse change
in the Collateral;
5.1.9 A final judgment or judgments for the payment of money in
excess of $25,000 in the aggregate shall have been rendered against Borrower
and the same shall have remained unsatisfied and in effect, without stay of
execution, for any period of sixty (60) days.
And in the case of events (other than (i) Note payment defaults, (ii)
Collateral defaults, (iii) any act, event or condition resulting in or
relating to an emergency situation or is incurable in the reasonable judgment
of Lender, or (iv) an event for which Borrower fails to give Lender notice as
required in Section 4.1.11(a) within a period of 10 days after obtaining
knowledge of any Event of Default or other event referred to therein, in each
of which cases, notice and opportunity to cure shall not be applicable), such
failure remains unremedied for 30 days after written notice thereof shall
have been given to Borrower.
SECTION 5.2 REMEDIES UPON DEFAULT. Upon the occurrence of and during
the continuance of any Event of Default, the Lender may exercise any and all
right and remedies granted to Lender under the Transaction Documents or by
law.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay
on the part of Lender, or any other holder of the Note in exercising any
right, power or remedy hereunder or
16
under the Note shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy
hereunder or under the Note. The remedies in the Transaction Documents are
cumulative and not exclusive of any remedies provided by law.
SECTION 6.2 AMENDMENTS, ETC. No amendment, modification, termination
or waiver of any provision of any Transaction Document nor consent to any
departure by Borrower or any other party other than Lender therefrom, shall
in any event be effective unless the same shall be in writing and signed by
Lender and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No notice to
or demand on Borrower in any case shall entitle Borrower to any other or
further notice or demand in similar or other circumstances.
SECTION 6.3 ADDRESSES FOR NOTICES, ETC. All notices, requests,
demands, directions and other communications provided for under this
Agreement shall be in writing and mailed, sent by FAX or otherwise delivered
to the applicable party at the address or FAX number indicated below:
If to Borrower:
S&D Foods, Inc.
0000 Xxxxxxx Xxxx
Xxxxxxxxxx, Xxxxxxxxxx 00000
Attn: President
FAX: (000) 000-0000
If to Lender:
Xxxxxxx X. Steel
c/o K.A. Steel Chemicals Inc.
0000 Xxxx Xxxxxx
Xxxxxx, XX 00000
FAX: 000-000-0000
or, as to each party, at such other FAX number or address as shall be
designated by such party in a written notice to each other party complying as
to delivery with the terms of this Section. All such notices, requests,
demands, directions and other communications shall, when mailed, be effective
when deposited in the mails addressed as aforesaid.
SECTION 6.4 COSTS, EXPENSES AND TAXES. Borrower shall pay any and all
documentary and other taxes (other than income or gross receipts taxes
generally applicable to banks) and fees or charges payable or determined to
be payable in connection with the execution, delivery, filing, or recording
of the Transaction Documents, or any other instrument or writing to be
delivered
17
thereunder, or in connection with any transaction pursuant thereto, and shall
reimburse, hold harmless, and indemnify Lender for, from, and against any and
all loss, liability, or legal or other expense with respect to or resulting
from any delay in paying or failing to pay any tax, fee or charge or that any
of them may suffer or incur by reason of the failure of Borrower to perform
any of its obligations under the Transaction Documents or any event of
default hereunder; PROVIDED, HOWEVER, that each party shall pay its own
attorneys' fees in connection with the preparation and review of the
Transaction Documents. The covenants and agreements of this Section 6.4
shall survive the repayment of the Note and the cancellation thereof.
SECTION 6.5 EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which counterparts of this Agreement taken together
shall constitute but one and the same instrument.
SECTION 6.6 BINDING EFFECT; ASSIGNMENT. This Agreement shall become
effective when it shall have been executed by the parties hereto and
thereafter shall be binding upon and inure to the benefit of and be enforced
by the parties hereto and their respective successors, assigns, heirs,
executors and personal representatives, and, in the case of any Security, any
person to whom such Security may be conveyed, transferred or assigned, except
that Borrower shall not have the right to assign its rights or obligations
hereunder or any interest herein without the prior written consent of Lender.
Lender shall be entitled to assign the Transaction Documents, in whole or in
part, by way of participation or otherwise, at any time.
SECTION 6.7 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Illinois, without
regard to the choice of law provisions thereof.
SECTION 6.8 SEVERABILITY OF PROVISIONS. Any provision of any
Transaction Document which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof or thereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
SECTION 6.9 HEADINGS. Article and Section headings in this Agreement
are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
SECTION 6.10 SECURITY. The Obligations, all amounts owing to Lender
under the Collateral Documents, and all amounts advanced or expended by
Lender for the maintenance or preservation of collateral shall be secured by
liens on the property described in the Collateral Documents.
18
SECTION 6.11 PAYMENTS ON NON-BUSINESS DAYS. If any payment to be made
hereunder or under the Note shall become due on a day other than a Business
Day, such payment shall be made on the next Business Day and such extension
of time shall be included in computing any interest in respect of such
payments.
SECTION 6.12 INTEGRATION; ENTIRE AGREEMENT. This Agreement, the Note,
the Transaction Documents, and other instruments and documents to be
delivered hereunder and thereunder are intended by the parties hereto and
thereto to be an integrated contract, which together, except as otherwise
provided herein, contain the entire understandings of the parties with
respect to the subject matter contained herein and therein. There are no
restrictions, warranties, representations, covenants or undertakings other
than those expressly set forth herein and therein. This Agreement, the Note,
the Transaction Documents and other documents to be delivered hereunder and
thereunder, except as otherwise provided for herein, supersede all prior
agreements and understandings between the parties with respect to such
subject matter. All exhibits attached to this Agreement are incorporated
herein by reference as though fully set forth.
SECTION 6.13 SURVIVAL OF AGREEMENTS. All agreements, covenants,
representations and warranties made herein shall survive the execution and
delivery of the Transaction Documents and the making of the Loan hereunder.
SECTION 6.14 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on
the part of the Lender or any holder of any Security in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege. All rights and remedies existing under the Transaction Documents
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
SECTION 6.15 INDEMNITY BY BORROWER. Borrower agrees to indemnify, save,
defend and hold harmless Lender and its directors, officers, agents, and
employees (collectively the "indemnitees") from and against any and all
claims, demands, actions, or causes of action that are asserted against any
indemnitee by any Person if the claim, demand, action or cause of action
directly or indirectly relates to a claim, demand, action or cause of action
that the Person has or asserts against Borrower, except to the extent such
claim, demand, action or cause of action arises from the negligence or
misconduct of Lender.
SECTION 6.16 FURTHER ASSURANCES. At any time or from time to time upon
the request of Lender, Borrower will execute and deliver such further
documents and do such other acts and things as Lender may reasonably request
in order to effect fully the purposes of the Transaction Documents and to
provide for the payment of all Obligations in accordance with the terms of
the Transaction Documents.
SECTION 6.17 TIME OF THE ESSENCE. With respect to all of the
Transaction Documents, time is of the essence.
19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, on the date
first above written.
S&D FOODS, INC.
By: /s/ XXXX XXXXXXXX
----------------------------------
Its: President
----------------------------------
/s/ XXXXXXX A STEEL
----------------------------------
XXXXXXX A STEEL
20
EXHIBIT A
S&D FOODS, INC.
CONVERTIBLE PROMISSORY NOTE
THIS NOTE AND THE SHARES THAT MAY BE ISSUED UNDER THE PROVISIONS OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR REGISTERED OR
QUALIFIED UNDER ANY STATE SECURITIES LAW AND MAY NOT BE OFFERED FOR SALE,, SOLD
OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO (A) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933 AND REGISTRATION AND/OR QUALIFICATION
OF THE SAME UNDER ANY APPLICABLE STATE SECURITIES LAW OR (B) AN EXEMPTION
THEREFROM.
$500,000 OCTOBER __, 0000
XXX XXXXXXXXX, XXXXXXXXXX
FOR VALUE RECEIVED, S&D FOODS, INC., a California corporation ("Maker"),
promises to pay to XXXXXXX X. STEEL ("Holder"), or order, the principal amount
of Five Hundred Thousand Dollars ($500,000), together with interest on such
amount, all as set forth below:
LOAN AND INVESTMENT AGREEMENT. This Note is the Convertible Promissory
Note referred to in that certain Loan and Investment Agreement of even
date herewith (the "Loan Agreement") between Maker and Holder. All
terms used in this Note that are defined in the Loan Agreement and not
otherwise defined herein shall have the meanings assigned to such terms
in the Loan Agreement.
INTEREST RATE. The outstanding principal of this Note shall bear
interest at the rate of ten and a quarter percent (10.25%) per annum.
Interest shall accrue on the outstanding principal of this Note from and
after the date of this Note and shall be calculated on the basis of a
365-day year.
MAXIMUM INTEREST. In no event whatsoever shall the amount paid, or
agreed to be paid, to Holder for the use, forbearance or detention of
money loaned hereunder or for the performance or payment of any covenant
or obligation contained herein, as interest or
1
otherwise, exceed the maximum amount permissible under applicable law. If
under any circumstance fulfillment of any covenant or obligation hereunder
exceeds the limit of validity prescribed by law, then, IPSO FACTO, the
obligation to be fulfilled shall be reduced to the limit of such validity,
and if under any circumstance Holder shall ever receive as interest under
this Note or otherwise an amount that would exceed the highest lawful rate,
such amount that would be excessive interest shall be applied to the
reduction of the unpaid principal hereof and not to the payment of interest
or, if such amount that would be excessive interest exceeds the unpaid
principal hereof, the amount thereof in excess of the unpaid principal hereof
shall be refunded to Maker. Nothing contained in this paragraph shall limit
or restrict Maker's covenants and obligations under the provisions of
CONVERSION RIGHT, STOCK PAYMENT RIGHT, DIVIDENDS/DISTRIBUTIONS, or ADJUSTMENT
EVENTS below.
MATURITY DATE/PAYMENT. All unpaid principal of this Note, together with all
accrued and unpaid interest, shall be due on March 31, 1996 ("Stated Maturity
Date"). Any payment with respect to this Note shall be applied first to the
payment of attorneys fees and costs and expenses of collection, if any, then to
accrued and unpaid interest, and then to unpaid principal. All payments of
principal and interest are to be made to Holder at K.A. Steel Chemicals Inc.,
0000 Xxxx Xxxxxx, Xxxxxx, XX 00000, Attn: Xxxxxxx X. Steel, or such other
address as Holder may specify to be the Place of Payment by notice given to
Maker as provided below under NOTICES (the "Place of Payment"), and, except as
expressly provided below under STOCK PAYMENT RIGHT, all payments of principal
and interest are to be made in lawful money of the United States of America.
All principal, interest and other amounts payable under this Note that remain
unpaid after the Stated Maturity Date shall bear interest from such date until
paid at the rate specified above under INTEREST XXXX.
SECURITY. The payment of principal and interest and all other obligations of
Maker in respect of this Note are secured by a first lien and security interest
in the Collateral under the Security Agreement.
CONVERSION RIGHT. Maker is currently contemplating a private placement of its
Common Stock (the "Private Placement"). This Note shall be convertible at any
time on or prior to the Stated Maturity Date (but in no event later than the
Stated Maturity Date) at the option of Holder (the "Conversion Right") into
shares of Maker's Common Stock ("Common Stock") at the lowest price per share at
which Common Stock is offered or sold in connection with the Private Placement
(the "Conversion Price"). If the Conversion Right is exercised, the number of
shares of Common Stock that Holder shall be entitled to receive upon exercise of
the Conversion Right shall equal the greater of (i) $500,000 divided by the
Conversion Price or (ii) the number of shares necessary to give Holder a __%
equity interest in Maker on a fully diluted basis as of the Conversion Date (as
defined below). The shares of Common Stock acquired upon exercise of the
Conversion Right are hereinafter referred to as the "Conversion Shares"). The
Conversion Right may be
2
exercised by Holder by giving notice to Maker as provided below under NOTICES
stating that Holder is exercising the Conversion Right. The date on which such
notice is given to Maker is the "Conversion Date", and all Conversion Shares
shall be issued to Holder as of the Conversion Date, with the result that Holder
shall be treated as the holder of record of the Conversion Shares on and as of
the Conversion Date. Within a period of ten (10) days after the Conversion
Date, Maker shall deliver to Holder, at the Place of Payment, a stock
certificate, dated the Conversion Date, for the Conversion Shares and a check in
payment of all accrued and unpaid interest on this Note, against delivery to
Maker by Holder of this Note marked canceled (or an Affidavit of Loss and
Indemnity Agreement in the form attached hereto duly completed and signed by
Holder).
STOCK PAYMENT RIGHT. If (i) prior to the Stated Maturity Date, Maker raises at
least $2,140,000 in cash from the sale of its Common Stock in the Private
Placement, (ii) on or prior to the Stock Payment Date (as defined below), no
Event of Default has occurred and is continuing, and no event has occurred and
is continuing which, upon the giving of notice, the lapse of time, or otherwise,
could become an Event of Default, and (iii) on or prior to the Stated Maturity
Date, Maker delivers to Holder a written certification from the President, of
Maker that the conditions described in clauses (i) and (ii) of this paragraph
have been satisfied (the date on which such certification is delivered to Maker
is the "Stock Payment Date"), then Maker shall have the right (the "Stock
Payment Right") to pay the unpaid principal of this Note, by delivering to
Holder, on the Stock Payment Date (but in no event later than the Stock Payment
Date), the number of shares of its Common Stock equal the greater of (i)
$500,000 divided by the Conversion Price or (ii) the number of shares necessary
to give Holder a __% equity interest in Maker on a fully diluted basis as of
the Stock Payment Date. The shares of Common Stock so delivered are hereinafter
referred to as the "Payment Shares"). The Payment Shares shall be issued to
Holder as of the Stock Payment Date, with the result that Holder shall be
treated as the holder of record of the Payment Shares on and as of the Stock
Payment Date. On the Stock Payment Date, Maker shall deliver to Holder, at the
Place of Payment, a stock certificate, dated the Stock Payment Date, for the
Payment Shares and a check in payment of all accrued and unpaid interest on this
Note through the Stock Payment Date, against delivery to Maker by Holder of this
Note marked canceled (or an Affidavit of Loss and Indemnity Agreement in the
form attached hereto duly completed and signed by Holder). Maker acknowledges
and agrees that, on the Stock Payment Date, the fair market value of the Payment
Shares, together with any other stock, securities or property that may be
delivered to Holder as provided below under DIVIDENDS/DISTRIBUTIONS, does not
and will not exceed the amount of unpaid principal and accrued and unpaid
interest that is being paid with the Payment Shares.
DIVIDENDS/DISTRIBUTIONS.
Whenever any Conversion Shares or Payment Shares are issued, Maker shall also
deliver to Holder, at the time the certificate representing such Conversion
Shares or Payment Shares
3
are delivered to Holder, any and all dividends and other distributions that
would have been paid or made to the Holder in respect of the Conversion Shares
or the Payment Shares if Holder had been the holder of record of such Conversion
Shares or Payment Shares on and as of the date of this Note and at all times
subsequent thereto through and including the Conversion Date or the Stock
Payment Date, as the case may be. The provisions of this paragraph shall
survive the surrender and cancellation of this Note.
ADJUSTMENT EVENTS. In the event that, on or after the date of this Note and
prior to the Conversion Date or the Stock Payment Date, as the case may, there
should be a merger, consolidation, reorganization, recapitalization, stock
dividend, stock split or other similar change in the corporate structure or
capitalization of Maker which affects the outstanding Common Stock (an
"Adjustment Event"), then, in the case of each such Adjustment Event, an
appropriate adjustment to reflect such Adjustment Event, as reasonably
determined in good faith by Maker and Holder, shall be made with respect to the
Conversion Price and the number and character of the securities which may be
issued in connection with the Conversion Right and the Payment Right and any and
all other provisions of this Note that may be affected thereby. Notice of each
Adjustment Event will be delivered to Holder by Maker not less than ten (10)
days prior to the date on which such Adjustment Event is to occur. The
provisions of this paragraph shall survive the surrender and cancellation of
this Note.
TRANSFER OF NOTE.
RIGHT TO TRANSFER. Subject to the provisions of SECURITIES LAWS below, Holder
may sell, assign or otherwise transfer this Note, in whole or in part, (i) at
any time prior to the exercise of the Conversion Right or the Stock Payment
Right, or (ii) if neither such right is exercised, at any time prior to the
payment of all principal, interest and other amounts payable hereunder.
TRANSFER PROCEDURE.
(i) This Note will be deemed to have been transferred only if and when Maker
has received all of the following items (the date on which all of such items are
received by Maker is hereinafter sometimes referred to as the "Transfer Date"):
(A) This Note (or an Affidavit of Loss and Indemnity Agreement in the form
attached hereto duly completed and signed by Holder) with a Notice of
Transfer in the form attached hereto duly completed and signed by Holder
and the proposed transferee; and
(B) Any written agreement that Maker may require Holder to furnish
pursuant to the provisions of SECURITIES LAWS below.
4
(ii) Within a period of ten days after the Transfer Date, Maker shall
deliver to the transferee and/or Holder, as the case may be:
(A) A new Note dated the Transfer Date issued in the name of the
transferee for the principal amount of this Note that is being
transferred; and
(B) If this Note is being transferred only in part, a new Note dated
the Transfer Date issued in the name of Holder for the remaining
principal amount of this Note.
(iii) This Note will be deemed to have been transferred to the proposed
transferee on the Transfer Date, and the proposed transferee will be deemed for
all purposes to have become the holder of this Note (with respect to the
principal amount of this Note that is being transferred) on and as of the
Transfer Date.
SECURITIES LAWS. By acceptance of this Note and any Conversion Shares or
Payment Shares, Holder agrees that:
SECURITIES LAW COMPLIANCE. Any sale, assignment or other transfer of this Note,
any Conversion Shares or any Payment Shares (and any other securities that may
be issued or distributed therewith or with respect thereto or in exchange or
substitution therefor) must be made in compliance with applicable federal and
state securities laws, and no sale, assignment or other transfer of this Note,
any Conversion Shares or any Payment Shares (or any other securities that may be
issued or distributed with respect thereto or issued in exchange or substitution
therefor) may be made that would violate any applicable federal and state
securities laws.
TRANSFEREE AGREEMENT. As a condition precedent to any proposed sale, assignment
or other transfer of this Note, any Conversion Shares or any Payment Shares (and
any other securities that may be issued or distributed therewith or with respect
thereto or in exchange or substitution therefor), Maker may require that Holder
furnish to Maker a written agreement from the proposed transferee, in form and
substance reasonably satisfactory to Maker and its legal counsel, concerning the
investment intent of the proposed transferee and other matters relating to
federal and state securities law compliance.
LEGENDS. Unless and until this Note, all Conversion Shares and all Payment
Shares (and any other securities that may be issued or distributed therewith or
with respect thereto or in exchange or substitution therefor) are freely
transferable without registration under the Securities Act of 1933 and/or
registration and/or qualification under any applicable state securities laws,
this Note and each certificate representing Conversion Shares or Payment Shares
(and any other securities that may be issued or distributed therewith or with
respect thereto or in exchange or substitution therefor) shall have endorsed
thereon a legend substantially as follows:
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"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAW AND MAY
NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933 AND REGISTRATION AND/OR QUALIFICATION OF SUCH SHARES UNDER ANY
APPLICABLE STATE SECURITIES LAW OR (B) AN EXEMPTION THEREFROM."
Maker may place such additional legends on this Note and any certificate
representing Conversion Shares or Payment Shares (and any other securities that
may be issued or distributed therewith or with respect thereto or in exchange or
substitution therefor) as Maker, upon the advice of its legal counsel, may from
time to time deem necessary or appropriate to comply with any applicable federal
or state securities laws.
SHARES DULY AUTHORIZED, ETC. All Conversion Shares and all Payment Shares will,
when delivered to Holder, be duly authorized, validly issued, fully paid and
nonassessable.
EVENTS OF DEFAULT/ACCELERATION. Upon the occurrence and during the continuance
of any Event of Default, at the election of Holder, all unpaid principal of this
Note, together with all accrued and unpaid interest may be declared (and, if so
declared, shall be and become) immediately due and payable, all without demand,
presentment or notice, each of which is hereby waived by Maker, and, following
any such election, Holder shall have and may exercise any and all rights and
remedies to which Holder may be entitled under this Note, the Security Agreement
or any other agreement or by law. The date on which such election is made is
the "Accelerated Maturity Date". All principal, interest and other amounts
payable under this Note that remain unpaid after the Accelerated Maturity Date
shall bear interest from such date until paid at the rate specified above under
INTEREST RATE.
ATTORNEYS' FEES AND COSTS. If Holder brings any legal action against Maker to
enforce any of the provisions of this Note or because of a breach or default by
Maker under this Note, Holder shall be entitled, in addition to any other relief
granted, to recover from Maker all costs and expenses incurred by Holder in
connection with such legal action, including, without limitation, all reasonable
attorneys' fees, and the right to recover such costs and expenses shall be
deemed to have accrued upon the commencement of such legal action and shall be
enforceable whether or not such legal action is prosecuted to judgment.
WAIVERS. Maker hereby (i) waives diligence, demand, presentment, notice of
non-payment, protest and notice of protest, (ii) expressly agrees that this
Note and any payment hereunder may be renewed, modified or extended from time
to time and at any time, (iii) consents to the acceptance or release of
security for this Note, and (iv) waives to
6
the fullest extent permitted by law the right to plead any and all statutes of
limitations as a defense to any demand on this Note or to any agreement to pay
this Note.
GOVERNING LAW/JURISDICTION AND VENUE. This Note shall be governed by and coded
in accordance with the internal laws of the State of Illinois, without reference
to its conflict of laws rules. Maker hereby consents and agrees that any
federal or state court located in the State of Illinois shall have jurisdiction
over Maker for any legal action that may be brought against Maker to enforce any
of the provisions of this Note or because of a breach or default by Maker under
this Note. Maker hereby waives any and all objections based on venue or
jurisdiction to any legal action brought in any such court for such purpose, and
Maker hereby agrees that, to the fullest extent permitted by law, service in any
such legal action may be made on Maker as provided below under NOTICES.
NOTICES. All notices, requests, demands and other communications under this
Note must be in writing and shall be deemed to have been duly given and
delivered (i) on the date of delivery if delivered personally or by fax to the
party to whom notice is to be given, or (ii) on the third (3rd) day after
mailing if mailed to the party to whom notice is given, by first class mail,
registered or certified, postage prepaid, and properly addressed as follows:
If to Holder:
Xxxxxxx X. Steel.
K.A. Steel Chemicals Inc.
0000 Xxxx Xxxxxx
Xxxxxx, XX 00000
FAX: (000) 000-0000
If to Maker:
S&D Foods, Inc.
0000 Xxxxxxx Xxxx
Xxxxxxxxxx, Xxxxxxxxxx 00000
Attn: President
FAX: (000) 000-0000
Either party may change the address or FAX number to which notices to such party
are to be addressed by giving the other party notice of such change in the
manner set forth above.
MISCELLANEOUS. The provisions of this Note shall inure to the benefit of and be
binding upon and enforceable against (i) the undersigned Maker and its
successors and assigns, including any person or entity that succeeds to all or
any substantial part of the business and assets of Maker, whether or not such
person or entity expressly assumes this
7
Note, and (ii) the named Holder and his heirs, executors, personal
representations, and any person or entity to whom this Note or any interest
herein may be conveyed, transferred or assigned. As used herein, the term
"Maker" shall include the undersigned Maker and its successors and assigns,
including any person or entity that succeeds to all or any substantial part
of the business and assets of Maker, whether or not such person or entity
expressly assumes this Note, and the term "Holder, shall include the named
Holder and his heirs, executors, personal representations, and any person
or entity to whom this Note or any interest herein may be conveyed,
transferred or assigned. Maker represents and warrants to Holder that all
obligations under this Note arise out of or in connection with business
purposes and do not relate to any personal, family or household purpose.
IN WITNESS WHEREOF, Maker has caused this Note to be executed by one of its duly
authorized officer on October __, 1995.
S&D FOODS, INC.,
a California corporation
By:
------------------------------------
Its:
-------------------------------
8
NOTICE OF TRANSFER
The Holder hereby:
(i) sells, assigns and offers this Note as to __________ unpaid
principal of this Note to the following proposed transferee:
Name:
--------------------------
Address:
--------------------------
--------------------------
--------------------------
Taxpayer I.D. No.: --------------------------
(ii) Requests that a new Note be issued in the name of the transferee for
the principal amount of this Note that is being transferred and that the same be
delivered to the transferee at the address set forth above; and
(iii) if this Note is being transferred only in part, requests that a
new Note be issued in the name of Holder for the remaining balance of the unpaid
principal of this Note and that the same be delivered to the Holder at the Place
or Payment.
Dated: 19
--------------, -- ---------------------------------
Signature
(Sign exactly as your name appears
in this Note)
The undersigned, being the proposed transferee named in this Notice of
Transfer, hereby accepts and agrees to be bound by all of the terms and
conditions of the new Note that is being issued to the undersigned.
Dated: 19
--------------, -- ---------------------------------
Signature
(Sign exactly as your name appears
in this Notice of Transfer)
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