CONVERTIBLE NOTE
$4,000,000 February 12, 1997
FOR VALUE RECEIVED, the undersigned, COUNTRY STAR RESTAURANTS, INC., a
Delaware corporation ("Borrower" or the "Corporation"), HEREBY IRREVOCABLY
PROMISES TO PAY to the order of CAMERON CAPITAL LTD., a Bermuda corporation
(together with its successors and assigns, "Holder"), the principal sum of FOUR
MILLION AND 00/100 DOLLARS ($4,000,000) together with interest on the principal
balance hereof at the rates provided below from the date such principal is
advanced until payment in full thereof.
This Convertible Note is the Convertible Note referred to in, and is
entitled to the benefit of, the Loan and Security Agreement dated as of February
12, 1997 between Borrower and Holder (as amended, restated, supplemented, or
otherwise modified from time to time, the "Loan Agreement"), which Loan
Agreement, among other things, contains provisions for acceleration of the
maturity hereof and to which reference is hereby made for a more complete
statement of the terms and conditions under which the loan evidenced hereby was
made and is to be repaid. Any capitalized terms used herein, unless otherwise
defined herein, shall have the meanings given to such terms in the Loan
Agreement.
1. Payment of Principal. The entire principal balance of this Convertible
Note shall be payable in immediately available funds on October 9, 1999;
provided, however, that notwithstanding the foregoing, the principal balance
hereof shall be payable in full upon acceleration as provided in the Loan
Agreement. Such principal payment shall be accompanied by a premium calculated
in the same manner as the prepayment premium as set forth in Section 4.
2. Interest. Xxxxxxxx further promises to pay Holder interest on the
average daily outstanding principal amount hereof, on June 30 and December 31 of
each year, commencing on December 31, 1997, in arrears, at a rate of seven
percent (7%) per annum. Effective immediately upon the occurrence of an Event of
Default, the principal balance hereof and, to the extent permitted by applicable
law, any interest thereon not paid when due, shall bear interest payable upon
Holder's demand therefor at a rate which is ten percent (10.0%) in excess of the
rate otherwise payable under this Convertible Note.
3. Interest Payments After Default; Premium Payable if Registration Not
Effected.
a. Interest After Default. Following the occurrence of an Event of
Default and in addition to any other remedies Holder may have hereunder or under
the Loan Agreement, Borrower shall pay interest on the principal balance hereof
and, to the extent permitted by applicable law, any interest thereon not paid
when due, upon Xxxxxx's demand therefor from time to time at any time or, if no
such demand has been made, in accordance with the schedule set forth in Section
2 above.
b. Premium if Registration Not Effected. In the event the
Registration Statement required to be filed by the Company pursuant to the
Registration Rights Agreement of even date
between the Borrower and the Holder is not filed with the Securities and
Exchange Commission (the "Commission") on or before May 1, 1997, or declared
effective by the Commission on or before June 30, 1997, the Borrower shall, for
each month or portion thereof that said Registration Statement is not filed or
declared effective, as the case may be, in addition to the interest payable on
the Convertible Note, pay the Holder a premium equal to three percent (3%) of
the face amount of the Convertible Note, payable monthly in advance, commencing
May 2, 1997 or July 1, 1997 as the case may be. The premium to be paid, if any,
shall constitute liquidated damages for the Borrower's failure to cause the
Registration Statement to be filed or to become effective. The parties agree
that the foregoing damages are reasonable and that the anticipated damages for
the failure of the Borrower to effect such registration are uncertain in amount
and difficult to be proved. The premium shall be payable by wire transfer of
immediately available funds unless the Holder agrees to accept part or all of
the payment of the premium in Common Stock. In such event, the Borrower shall
issue to the Holder such number of fully paid and non-assessable shares of
Common Stock as shall have an aggregate average closing bid price (as reported
by The Nasdaq Stock Market) for the five (5) consecutive trading days prior to
the date such premium is payable equal in amount to the cash payment of the
premium which the Borrower and the Holder have elected to pay in kind.
4. Prepayments. Borrower may prepay the principal balance hereof in
immediately available funds in whole or in part at any time upon ten (10)
business days' prior written notice. During such ten (10) day period, Holder
may, in its sole discretion, in lieu of receiving such prepayment, convert this
Convertible Note in accordance with the terms hereof. Each prepayment of
principal shall be accompanied by payment of all accrued but unpaid interest on
the principal balance hereof to the date of prepayment. Any prepayment of less
than all of the outstanding principal hereunder shall be applied to the
installments of principal hereunder in the inverse order of maturity. Each
prepayment shall also be accompanied by a substitute Convertible Note duly
executed by Borrower in the same form as this Convertible Note, except that the
principal amount of such substitute Convertible Note shall reflect the reduced
principal amount under this Convertible Note. Upon receipt of such prepayment
from Borrower and such substitute Convertible Note, Xxxxxx will surrender this
Convertible Note to Borrower.
5. Computation of Interest; Method of Payments. Accrued interest charges
hereunder shall be computed on the basis of a year of 360 days for the actual
number of days elapsed. If any payment of principal or interest hereunder shall
become due on a day which is not a Business Day, such payment shall be made on
the next succeeding Business Day and, in the case of a principal payment, such
extension of time shall be included in computing interest in connection with
such payment.
Both principal and interest hereunder are payable in lawful money of the
United States of America to Holder at The Bank of Bermuda International, New
York, New York for credit to The Bank of Bermuda Limited, Xxxxxxxx Bermuda (or
to such other accounts as Holder may direct Borrower) by wire transfer in
immediately available funds prior to noon Atlantic standard time (AST) on the
date such payments are due, or as otherwise provided herein or in the Loan
Agreement; provided, however, that Holder may elect, in its sole discretion, to
receive payment for part or all of any accrued interest hereunder in shares of
Common Stock, in lieu of immediately available funds, in such number of shares
to be determined based upon the average closing bid price (as reported by
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the Nasdaq Stock Market) of the Common Stock for the five (5) consecutive
trading days immediately prior to the date that such interest is payable.
6. Other Charges. In addition to the interest charges described herein,
the Loan Agreement provides for the payment by Borrower of various other charges
and fees as set forth more fully in the Loan Agreement.
7. Acceleration. Upon and after the occurrence of an Event of Default,
this Convertible Note may, in accordance with the terms of the Loan Agreement,
and without demand, notice or legal process of any kind, be declared and
immediately shall become due and payable.
8. Certain Waivers by Xxxxxxxx. Demand, presentment, protest and notice of
nonpayment and protest, notice of intention to accelerate maturity, notice of
acceleration of maturity and notice of dishonor are hereby waived by Borrower.
9. Permissible Rates of Interest. In no contingency or event whatsoever
shall interest charged hereunder, however such interest may be characterized or
computed, exceed the highest rate permissible under any law which a court of
competent jurisdiction shall, in a final determination, deem applicable hereto.
In the event that such a court determines that Xxxxxx has received interest
hereunder in excess of the highest rate applicable hereto, Holder shall apply
such amounts in accordance with Section 3.2 of the Loan Agreement.
10. Conversion Rights.
a. Right to Convert. Part or all of the principal amount of this
Convertible Note may be converted, at the option of the Holder, at any time
after ninety (90) days from the date hereof and before it is paid in full in
accordance herewith, and without the payment of any additional consideration
thereof, into the number of fully paid, nonassessable shares of common stock,
$.001 par value per share, of the Corporation (the "Common Stock"), as is
determined by dividing the principal amount of this Convertible Note requested
by the Holder to be converted into Common Stock (as adjusted for stock splits,
stock dividends, combinations and similar recapitalizations affecting this
Convertible Note) by the lesser of (i) $1.33 (the "Fixed Conversion Price"), or
(ii) Eighty Percent (80%) of the average closing bid price (as reported by The
Nasdaq Stock Market) of the Common Stock for the five (5) consecutive trading
days immediately prior to the Date of Conversion, as defined below in Section
10.b.(ii) (such value is hereinafter referred to as the "Formula Conversion
Price"). Notwithstanding the foregoing, in no event shall the Convertible Note
be convertible into a cumulative aggregate number of shares of Common Stock in
excess of 3,000,000 (as adjusted for stock splits, reverse splits and similar
recapitalizations affecting such shares, the "Maximum Number of Shares"). In the
event the Holder of the Convertible Note (i) subsequent to having converted the
Convertible Note into the Maximum Number of Shares or (ii) upon the conversion
of the Convertible Note such that the number of shares of Common Stock issuable
upon conversion of the Convertible Note (without giving effect to the preceding
sentence) would exceed the Maximum Number of Shares, submit a written notice to
the Corporation demanding redemption ("Notice of Redemption") of the principal
and accrued interest remaining after the conversion of the Convertible Note into
the Maximum Number of Shares, the Corporation shall redeem such remaining
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principal balance and accrued interest for a price equal to such principal and
accrued interest plus a premium calculated in the same manner as the prepayment
premium described in Section 4 (the "Redemption Amount"). The Corporation shall
pay such Redemption Amount to the Holder within fifteen (15) calendar days of
the date of the Notice of Redemption, against delivery of the Convertible Note.
b. Mechanics of Conversion.
(i) No fractional shares of Common Stock shall be issued upon
conversion of this Convertible Note. In lieu of any fractional share to which
the Holder would otherwise be entitled, the Corporation shall round up to the
nearest whole share. In order to convert the Convertible Note into shares of
Common Stock, the Holder shall surrender the Convertible Note, either by
overnight courier or 2-day courier, to the office of the Corporation or its
transfer agent for the Convertible Notes, if any, and shall give written notice
to the Corporation at such office that the Holder elects to convert the same,
the principal amount of the Convertible Note so converted and a calculation of
the Conversion Price (with an advance copy of the notice by facsimile);
provided, however, that the Corporation shall not be obligated to issue
certificates evidencing shares of Common Stock issuable upon such conversion
unless the Convertible Note is delivered to the Corporation or its transfer
agent as provided above, or the Holder notifies the Corporation or its transfer
agent that the Convertible Note has been lost, stolen or destroyed and executes
an agreement satisfactory to the Corporation to indemnify the Corporation from
any loss incurred by it in connection with the Convertible Note.
(ii) The Corporation shall use its best efforts to issue and
deliver, within three (3) business days after delivery to the Corporation or its
transfer agent of such Convertible Note or such agreement of indemnification, to
the Holder of this Convertible Note at the address of the Holder on the books of
the Corporation, a certificate or certificates for the number of shares of
Common Stock to which the Holder shall be entitled as aforesaid. The date on
which notice of conversion is received by the Corporation (the "Date of
Conversion") shall be deemed to be the date of conversion, provided this
Convertible Note which may be converted is received by the Corporation or its
transfer agent, as the case may be, within three (3) business days thereafter
and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on such date. If the
Convertible Note to be converted is not received by the Corporation or its
transfer agent within three (3) business days after the Date of Conversion, the
notice of conversion shall become null and void. In addition, if the Convertible
Note should be converted in part only, the Corporation shall, upon surrender of
this Convertible Note, issue, execute and deliver a new Convertible Note
representing the balance of the Convertible Note not so converted.
c. Restriction on Conversion. In no event shall the Holder of this
Convertible Note be entitled to convert the Convertible Note to the extent such
conversion would result in such Holder's beneficially owning more than five
percent (5%) of the outstanding shares of the Corporation's Common Stock. For
these purposes, beneficial ownership shall be defined and calculated in
accordance with Rule 13d-3, promulgated under the Securities Exchange Act of
1934, as amended.
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11. Corporate Events.
a. Notices of Record Date. In the event of (i) any declaration by
the Corporation of a record date of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution (other than any record date declared in
connection with regularly scheduled dividend dates for the Corporation's 6%
Cumulative Convertible Series A Preferred Stock) or (ii) any capital
reorganization of the Corporation, any reclassification or recapitalization of
the capital stock of the Corporation, any merger or consolidation of the
Corporation and any other entity or person, or any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, the Corporation shall
mail to the Holder of the Convertible Note at least ten (10) days prior to the
record date specified therein, a notice specifying (A) the date on which any
such record date is to be declared for the purpose of such dividend or
distribution and a description of such dividend or distribution, (B) the date on
which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective,
and (C) the time, if any, that is to be fixed, as to when the holders of record
of Common Stock (or other securities) become eligible to receive securities or
other property deliverable upon such reorganization, reclassification, transfer,
consolidation, merger, dissolution or winding up.
b. Corporate Changes. The Fixed Conversion Price shall be
appropriately adjusted to reflect any stock dividend, stock split or share
combination of the Common Stock. If the Corporation shall, during the five (5)
consecutive trading-day period applicable in determining the Formula Conversion
Price for any shares of Common Stock, affect any stock dividend, stock split or
share combination, then for purposes of calculating the Formula Conversion Price
applicable to such conversion, the closing bid price for the Common Stock for
any trading day prior to such action which falls in such five (5) trading-day
period shall be adjusted to a price per share giving effect to such action. In
the event of a merger, reorganization, recapitalization or similar event of or
with respect to the Corporation (a "Corporate Change") (other than a Corporate
Change in which all or substantially all of the consideration received by the
holders of the Corporation's equity securities upon such Corporate Change
consists of cash or assets other than securities issued by the acquiring entity
or any affiliate thereof), the Convertible Note shall be assumed by the
acquiring entity and thereafter the Convertible Note shall be convertible into
such class and type of securities as the Holder would have received had the
Holder converted the Convertible Note immediately prior to such Corporate
Change, as appropriately adjusted to equitably reflect the Conversion Price and
any stock dividend, stock split or share combination of the Common Stock after
such corporate event, and in any such case appropriate provisions shall be made
with respect to the rights and interests of the Holder of the Convertible Note
to the end that the provisions hereof (including, without limitation, provisions
for the adjustment of the Conversion Price and of the number of shares issuable
upon conversion of the Convertible Note) shall thereafter be applicable, as
nearly as may be practicable in relation to any securities thereafter
deliverable upon the exercise hereof.
12. Spin Offs, Liquidating Distributions. In the event that the
Corporation shall make any distribution of its assets upon or with respect to
its capital stock, as a liquidating or partial liquidating dividend, or other
than as a dividend payable out of earnings or any surplus legally available for
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dividends under the laws of the state of incorporation of the Corporation, the
Holder of the Convertible Note shall, upon the exercise of his right to convert
after the record date for such distribution or, in the absence of a record date,
after the date of such distribution, receive, in addition to the shares of
Common Stock so converted, the amount of such assets (or, at the option of the
Corporation, a sum equal to the value thereof at the time of distribution as
determined by the Board of Directors in its sole discretion) which would have
been distributed to the Holder if he had exercised his right to convert
immediately prior to the record date for such distribution or, in the absence of
a record date, immediately prior to the date of such distribution.
13. Reservation of Stock Issuable Upon Conversion. Subject to the
limitation on the number of shares issuable upon conversion of the Convertible
Note set forth in Section 10(a) above, the Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock solely for the purpose of effecting the conversion of the Convertible
Note, such number of its shares of Common Stock as shall from time to time be
sufficient to affect the conversion of the entire outstanding principal balance
of this Convertible Note; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to affect the conversion
of the entire outstanding principal balance of this Convertible Note, the
Corporation will take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
14. Voting Rights. The Holder of this Convertible Note will not have any
voting rights, except as for the portions of this Convertible Note that have
been converted in accordance herein.
15. Notices. All notices, consents, waivers, and other communications
under this Convertible Note must made in accordance with the terms of Section 12
of the Loan Agreement.
16. Invalidity of Certain Provisions. Whenever possible, each provision of
this Convertible Note shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Convertible Note shall
be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Convertible Note.
17. Incorporation by Reference of Certain Provisions of the Loan
Agreement. All of the representations, warranties, covenants, promises and other
agreements of the parties set forth in the Loan Agreement are incorporated by
reference herein. Any Event of Default under the Loan Agreement shall be an
event of default hereunder.
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THIS CONVERTIBLE NOTE SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES
OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE INTERNAL LAWS AND
DECISIONS AND NOT THE CONFLICTS OF LAW PROVISIONS OF THE STATE OF ILLINOIS.
IN WITNESS WHEREOF, the undersigned has executed this Convertible Note on
behalf of the Corporation on the day first written above.
COUNTRY STAR RESTAURANTS, INC.
By: /s/ Xxxxx X. Xxxxxxxxx
-----------------------------
Xxxxx X. Xxxxxxxxx, President
ATTEST:
/s/ Xxxxxx X. Xxxxxxxx
-----------------------------
Xxxxxx X. Xxxxxxxx, Secretary
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