Exhibit 10.18
INVESTMENT AGREEMENT
$2,000,000 SENIOR SUBORDINATED CONVERTIBLE
PROMISSORY NOTE DUE 2001
BETWEEN
RETAIL & RESTAURANT GROWTH CAPITAL, L.P.
AND
THE QUIZNO'S CORPORATION
DECEMBER 31, 1996
TABLE OF CONTENTS
Please perform the macro TOCFIX to correct the First Level of the
Table of Contents.
Page
Recitals 1
Article 1-Amount and Terms of the Loan 1
1.1 The Loan 1
1.2 The Note 1
1.3 Subordination 1
1.4 Use of Proceeds 2
1.5 Security for Obligations 2
Article 2-Closing 2
2.1 Closing 2
Article 3-Representations and Warranties 2
3.1 Organization, Standing, etc. of the Company 3
3.2 Capitalization; Ownership of Company 3
3.3 Subsidiaries 3
3.4 Reservation of Common Stock 4
3.5 Authorization; Compliance with Other Instruments 4
3.6 Financial Information; Disclosure, etc. 4
3.7 Licenses; Franchises, etc 4
3.8 Tax Returns and Payments 5
3.9 Indebtedness, Liens and Investments, and Leases
of Personal Property 5
3.10 Title to Properties; Liens 5
3.11 Litigation, etc. 6
3.12 Governmental Consent 6
3.13 Employee Retirement Income Security Act of 1974 6
3.14 Environmental Matters 7
3.15 Intellectual Property 8
3.16 Insurance 8
3.17 Competitors 8
3.18 Senior Management Compensation 8
3.19 Clubs, Airplanes and Motor Vehicles 9
3.20 Customers and Suppliers 9
3.21 Contracts 9
3.22 Management Practices 10
3.23 Inventories; Receivables 10
3.24 Good Repair 11
3.25 Payables 11
3.26 Corporate Documents; Minute Books 11
3.27 Disclosure 11
3.28 Offering 11
3.29 Employees' Violations of Prior Agreements 11
3.30 Powers of Attorney 11
3.31 Information Provided to SEC 11
3.32 Compliance With Laws 12
3.33 Conflicts of Interest 12
3.34 Transactions with Affiliates 12
Article 4-Conditions of Lending 12
4.1 The Note 12
4.2 Opinions and Certificates 12
4.3 Small Business Administration Documentation 13
4.4 No Default; Representations and Warranties, etc. 13
4.5 Payment of Financing Fee 13
4.6 Fees and Expenses 13
4.7 Stockholders Agreement 13
4.8 Pledge Agreement 13
4.9 Security Agreement; UCC Financing Statements 13
4.10 Registration Rights Agreement 14
4.11 Waiver of First Refusal Rights 14
4.12 Consent of Third Parties 14
4.13 Retirement of Indebtedness 14
4.14 Retirement of Schaden Loans 14
Article 5-Affirmative Covenants 14
5.1 Financial Statements, etc. 15
5.2 Inspection 16
5.3 Accounting System 17
5.4 Legal Existence; Compliance with Laws, etc. 17
5.5 Insurance 17
5.6 Payment of Taxes 18
5.7 Payment of Other Indebtedness, etc. 18
5.8 Further Assurances 18
5.9 Additional Information 18
5.10 Compliance with ERISA 18
5.11 Securities Filings After Closing 19
5.12 Reimbursement of Expenses 19
5.13 Reservation of Common Stock 19
Article 6-Negative Covenants 19
6.1 Prepayment of Indebtedness 19
6.2 Mortgages, Liens, etc. 19
6.3 Loan, Guarantees and Investments 20
6.4 Sale of Assets 21
6.5 Dividends, Distributions, etc. 21
6.6 Creation and Acquisition of Subsidiaries 21
6.7 Mergers and Consolidations 21
6.8 Issuance of Stock to Officers, Directors
and Employees 22
6.9 Capital Expenditures 22
6.10 Transactions with Affiliates 22
6.11 Environmental Liabilities 22
6.12 Compensation of Officers 23
6.13 Prepayment of Obligations to Affiliates 23
6.14 Current Business 23
Article 7-Financial Covenants 23
7.1 Indebtedness 23
7.2 Minimum Operating Cash Flow Levels 24
7.3 Financial Ratios 24
7.4 Net Worth 25
Article 8-RRGC's Put Option 25
8.1 Put Option 25
8.2 Price 25
8.3 Payment 25
Article 9-SBIC Provisions 25
9.1 Small Business Concern 25
9.2 Informational Covenant 26
9.3 Use of Proceeds 26
9.4 Activities and Proceeds 26
Article 10-Representations and Warranties of RRGC and
Restrictions on Transfer Imposed by the Securities Act
of 1933 27
10.1 Representations and Warranties by XXXX 00
(x) Xxxxxxxxxx Xxxxxx 00
(x) Shares Not Registered 27
(c) No Transfer 28
(d) Permitted Transfers 28
(e) Accredited Investor 28
(f) Knowledge and Experience 28
(g) Organization, Power and Authority 28
10.2 Legends 29
10.3 Removal of Legend and Transfer Restrictions 30
10.4 Rule 144 30
10.5 Transfer of Rights 30
Article 11-Defaults; Remedies 30
11.1 Events of Default; Acceleration 31
11.2 Remedies on Default, etc. 33
11.3 Fees 33
11.4 Course of Dealings 34
Article 12-Registration 34
12.1 Definitions 34
12.2 Demand Registration 35
12.3 Registration Procedures 35
12.4 Limitations on Demand Registrations 37
12.5 Piggyback Registration 38
12.6 Limitations on Piggyback Registration 38
12.7 Designation of Underwriter 39
12.8 Form S-3 Registration 39
12.9 Cooperation by Prospective Sellers 40
12.10 Expenses of Xxxxxxxxxxxx 00
12.11 Indemnification 42
12.12 Rights that may be Granted to Subsequent RRGC 44
12.13 Transfer of Registration Rights 45
12.14 "Stand-Off" Agreement 45
12.15 Delay of Registration 45
Article 13-Definitions 45
Article 14-Taxes and Fees; Indemnification 51
14.1 Taxes, Placement Fee 51
14.2 Indemnification 51
Article 15-Waivers 52
15.1 Waivers 52
Article 16-Miscellaneous 52
16.1 Waivers and Amendments 52
16.2 Lost Notes, Warrants or Stock Certificates 52
16.3 Notices 52
16.4 Fees and Expenses 54
16.5 Calculations 54
16.6 Survival of Agreements 54
16.7 Counterparts 54
16.8 Entire Agreement 54
16.9 Governing Law; Jurisdiction; Waiver of Jury
Trial 54
Exhibits
Exhibit 1.2 Note
Exhibit 1.3 Subordination Agreement
Exhibit 1.4 Use of Proceeds
Exhibit 1.5 Security Agreement
Exhibit 1.5 Pledge Agreement
Exhibit 4.2(a) Opinion of Company's Counsel
Exhibit 4.7 Stockholders Agreement
Exhibit 4.10 (Reserved)
Schedules
Schedule 1.3 Permitted Term Indebtedness
Schedule 3.1 Qualifications to do Business
Schedule 3.2 Capitalization
Schedule 3.3 Subsidiaries
Schedule 3.5 Third Party Consents
Schedule 3.6 Financial Information
Schedule 3.7 Licenses
Schedule 3.8 Tax Returns
Schedule 3.9 Indebtedness, Liens, Investments and Leases of
Personal Property
Schedule 3.10 Real Property
Schedule 3.11(a) Litigation
Schedule 3.11(b) Litigation Opinion
Schedule 3.14 Environmental Matters
Schedule 3.15(a) Intellectual Property
Schedule 3.15(b) Exceptions to Intellectual Property
Schedule 3.16 Insurance
Schedule 3.17 Competitors
Schedule 3.18 Senior Management Compensation
Schedule 3.19 Clubs, Airplanes and Motor Vehicles
Schedule 3.20 Customers and Suppliers
Schedule 3.21(a) Contracts and Commitments
Schedule 3.21(b) Franchise and Area Directorship Agreements
Schedule 3.22 Management Practices
Schedule 3.23 Aged Accounts Receivable
Schedule 3.24 Good Repair
Schedule 3.25 Payables
Schedule 3.29 Employees' Violations of Prior Agreements
Schedule 3.30 Powers of Attorney
Schedule 3.34 Affiliate Transactions
Schedule 9.4 Business Activity
INVESTMENT AGREEMENT
This Investment Agreement is made as of December
31, 1996, by and between The Quizno's Corporation, a Colorado
corporation (the "Company"), and Retail & Restaurant Growth
Capital, L.P., a Delaware limited partnership ("RRGC"). Certain
other terms used herein are defined in Article 0.
Recitals
The following is a statement of facts underlying
this Agreement:
A. The Company wishes to borrow $2,000,000 and
RRGC has agreed to lend such funds to the Company (the "Loan").
Article 1
Amount and Terms of the Loan
1.1 The Loan. Simultaneously with the execution of
this Agreement, subject to the terms and conditions hereof, and
in reliance upon the representations and warranties contained
herein, RRGC will make the Loan to the Company on the Closing
Date.
1.2 The Note. The Loan shall be evidenced by a senior
subordinated convertible promissory note in the form attached
hereto as Exhibit 0 (the "Note") of the Company in a principal
amount of Two Million Dollars ($2,000,000.00). The Loan, as
evidenced by the Note, shall bear interest, shall be payable and
prepayable, may be converted into the Company's Common Stock, and
shall have other terms and conditions as set forth in the Note.
1.3 Subordination. The Loan, as evidenced by the
Note, shall be subordinate and junior in right of payment to (i)
a new senior revolving facility from a lender acceptable to the
Company's board of directors (the "Senior Lender"), and (ii)
certain existing term loans to the Company identified on Schedule
0 attached hereto (the "Permitted Term Indebtedness"). The
aggregate amount owed to the Senior Lender and pursuant to the
Permitted Term Indebtedness shall in no case exceed $700,000
(collectively, the "Senior Indebtedness"). RRGC will enter into
subordination agreements with any of the holders of the Senior
Indebtedness at the request of the Company, from time to time,
and such subordination agreements will be substantially in the
form attached as Exhibit 0. Notwithstanding the foregoing, RRGC
will be senior to all assets not specifically securing the
Permitted Term Indebtedness, until such time as the Company
enters into a new line of credit with the Senior Lender.
1.4 Use of Proceeds. The Company will use the
proceeds of the Loan for the purposes set out on Exhibit 0
hereto.
1.5 Security for Obligations. The Company's
obligations hereunder and under the Note shall be secured at all
times by:
(a) a perfected security interest in the
form of the security agreement attached hereto as Exhibit 0(a)
(the "Security Agreement") on all of the presently owned and
hereafter acquired tangible and intangible personal property,
fixtures and real estate of the Company, including, without
limitation, all trademarks, tradenames, franchise royalties and
other proprietary rights, subject only to prior liens expressly
permitted under this Agreement and to first priority liens in
favor of the Senior Lender securing the Senior Indebtedness.
(b) a first priority perfected security
interest on 90% of the issued and outstanding stock of the
Company held by the Schadens (the "Schaden Shares") as set forth
in a pledge agreement in the form attached hereto as Exhibit 0(b)
(the "Pledge Agreement"). RRGC will release its lien on the
Schaden Shares at a rate of the greater of (i) the ratio of
outstanding principal under the Note and $2,000,000 or (ii) 25%
annually beginning on the first anniversary of this Agreement,
pursuant to the terms and conditions further set forth in the
Pledge Agreement. The Security Agreement and Pledge Agreement
shall terminate and all collateral shall be released upon payment
in full of the Note.
Article 2
Closing
2.1 Closing. The closing (the "Closing") of the transactions
contemplated hereby is taking place at the offices of Ballard,
Spahr, Xxxxxxx & Xxxxxxxxx, 0000 x0xx Xxxxxx, Xxxxx 0000, Xxxxxx,
Xxxxxxxx, on the date set forth at the beginning of this
Agreement (the "Closing Date"). At the Closing, RRGC will make
its Loan by check payable to the Company, wire transfer of funds,
or a combination thereof.
Article 3
Representations and Warranties
In order to induce RRGC to enter into this
Agreement and to make the Loan as provided herein, the Company
represents and warrants and hereby covenants to RRGC, which shall
survive the execution and delivery of the Agreement and of the
Note, as follows:
3.1 Organization, Standing, etc. of the Company. The
Company and its Subsidiaries are corporations duly organized,
validly existing and in good standing under the laws of the state
of Colorado and have all requisite corporate power and authority
to own and operate their properties, to carry on their businesses
as now conducted and proposed to be conducted, to enter into the
Investment Documents, to issue the Note and to carry out the
terms hereof and thereof. The Company and its Subsidiaries are
duly qualified and in good standing in each state or other
jurisdiction in which the character of the properties owned by
them therein or the conduct of their present businesses would
make such qualification necessary and where failure to so qualify
would have a material adverse impact on the businesses or
financial condition of the Company or its Subsidiaries. Each
state in which the Company or its Subsidiaries are qualified to
do business is set forth in Schedule 0.
3.2 Capitalization; Ownership of Company. The
authorized capital stock of the Company consists of nine million
shares of Common Stock of which, immediately prior to the
Closing, 2,866,438 are issued and outstanding and 1 million
shares of Preferred Stock, 146,000 of which are designated Class
A Cumulative Convertible Preferred and are issued and
outstanding. Schedule 0 attached hereto correctly sets forth the
name of each of the Company's stockholders owning 5% or more of
the issued and outstanding capital stock of the Company on a
fully diluted basis (the "Principal Stockholders") and the number
of shares of each class of such capital stock owned by such
Principal Stockholders, the date of acquisition of such shares
and, if the Company received such consideration or has knowledge
of the amount thereof, the consideration paid. Except as
disclosed on Schedule 0, there are not any outstanding or
authorized subscriptions, options, warrants, calls, rights
commitments or agreements directly or indirectly obligating the
Company to issue (i) any additional shares of its capital stock
or (ii) any securities convertible into, or exercisable or
exchangeable for, or evidencing the right to subscribe for, any
shares of its capital stock. All of said outstanding shares are
validly issued, fully paid and nonassessable and with respect to
the Principal Stockholders are owned of record, and to the
knowledge of the Company beneficially, by such Stockholders as
specified in Schedule 0, and, to the knowledge of the Company,
such ownership is free of any assignment, pledge, lien, security
interest, charge, option or other encumbrance except as set forth
in Schedule 0. Except as otherwise set forth in Schedule 0, the
Company is not obligated in any manner to issue any additional
shares of its capital stock.
3.3 Subsidiaries. Except as set forth on Schedule 0,
the Company has no Subsidiaries and is not a partner in any
partnership, a member of any limited liability company, a
participant in a joint venture, or the owner of an equity
interest in any other legal entity.
3.4 Reservation of Common Stock. The Company has
reserved sufficient shares of Common Stock for conversion of the
Convertible Note.
3.5 Authorization; Compliance with Other Instruments.
The execution, delivery and performance of the Investment
Documents have been duly authorized by all necessary corporate
action on the part of the Company, will not result in any
violation of or be in conflict with or constitute a default under
any term of the Amended and Restated Articles of Incorporation or
Bylaws of the Company, or of any material agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to the Company, or result in the creation of any
material mortgage, lien, charge or encumbrance upon any of the
properties or assets of the Company pursuant to any such term
except as provided in the Investment Documents. No third party
consent is required for the execution or performance of the
Investment Documents except as specified on Schedule 0, which
consents have been received. The Company is not in violation of
any term of its Amended and Restated Articles of Incorporation or
Bylaws, or of any material term of any material agreement or
instrument to which it is a party, or, to the best of the
Company's knowledge, of any judgment, decree, order, statute,
rule or governmental regulation applicable to it.
3.6 Financial Information; Disclosure, etc. The
Company has furnished RRGC with audited financial statements for
its fiscal years 1994 and 1995 and unaudited financial statements
for the ten month period ended October 31, 1996 and other reports
listed in Schedule 0 attached hereto (collectively, the
"Financial Statements"). The Financial Statements have been
prepared in accordance with generally accepted accounting
principles applied on a consistent basis and fairly present the
financial position and results of operations as of the dates and
for the periods indicated subject to normal year-end adjustments
in the case of the 1996 ten month financial statements. Since
the end of the most recent fiscal period shown in such Financial
Statements (the "Balance Sheet Date"), there has not been any
material adverse change in the business, operations, properties
or financial position of the Company, there have been no
dividends declared or paid or any other distributions to
stockholders of any nature, the Company has made no loans to
stockholders, officers, employees, or Affiliates, and the Company
has carried on business only in the ordinary course. The Loan
will not render the Company unable to pay its debts as they
become due; the Company is not contemplating either the filing of
a petition by it under any state or federal bankruptcy or
insolvency laws or the liquidation of all or a major portion of
its property; and the Company has no knowledge of any person
contemplating the filing of any such petition against it.
3.7 Licenses; Franchises, etc. Schedule 0 attached
hereto accurately and completely lists all material
authorizations, licenses, permits and franchises of any public or
governmental regulatory body granted or assigned to the Company
and the same constitute the only material authorizations,
licenses, permits and franchises of any public or governmental
regulatory body which are necessary for the conduct of the
business of the Company as now conducted and proposed to be
conducted (such authorizations, licenses, permits and franchises,
together with any extensions or renewals thereof, being herein
sometimes referred to collectively as the "Licenses"). All of
such Licenses are validly issued and in full force and effect in
all material respects and the Company has fulfilled and performed
all of its material obligations with respect thereto and has full
power and authority to operate thereunder.
3.8 Tax Returns and Payments. Except as set forth in
Schedule 0 hereto, the Company has filed all tax returns required
by law to be filed and has paid all taxes (including, but not
limited to, payroll and withholding taxes), assessments and other
governmental charges due with respect to or otherwise levied upon
the Company or any of its properties, assets or income, other
than those not yet delinquent and those, not material in
aggregate amount, being or about to be contested as provided in
Section 0. The charges, accruals and reserves on the books of
the Company in respect of its taxes are adequate and the Company
knows of no unpaid assessment for additional taxes or of any
basis therefor. The Company is not being audited by any
governmental taxing authority.
3.9 Indebtedness, Liens and Investments, and Leases of
Personal Property. Schedule 0 attached hereto correctly
describes, as of the date or dates indicated therein, (a) all
outstanding Indebtedness of the Company in respect of borrowed
money, Capital Leases and the deferred purchase price of property
and all personal property leases with aggregate annual payment
amounts greater than $25,000; (b) all existing mortgages, liens
and security interests in respect of any property or assets of
the Company; (c) all outstanding investments, loans and advances
of the Company (other than expense advances to employees in the
ordinary course of business not exceeding $5,000) and (d) all
existing guarantees by the Company.
3.10 Title to Properties; Liens. Schedule 0 lists by
street address all real property which is owned by the Company or
in which it may have an ownership interest and the street address
of all real property and the ownership thereof which is used or
leased by the Company in its business. The Company has good and
marketable title to all of its properties and assets, and none of
such properties or assets owned by it is subject to any mortgage,
pledge, lien, security interests, charge or encumbrance except
for liens, security interest, charges and encumbrances set forth
in Schedule 0 hereto, and except for minor liens and encumbrances
which in the aggregate are not material in amount, do not in any
case materially detract from the value of the property subject
thereto or materially impair the operations of the Company and
have not arisen otherwise than in the ordinary course of
business. The Company enjoys quiet possession under all leases
to which it is a party as lessee, and all of such leases are
valid, subsisting and in full force and effect. No lease or
leases material to the current or proposed operations of the
Company contains any provision restricting the incurrence of
indebtedness by the lessee or any provision materially adversely
affecting the current and proposed operations of the Company.
3.11 Litigation, etc. There is no action, proceeding
or investigation pending or, to the Company's knowledge,
threatened (or any basis therefor known to the Company) which
questions the validity of the Investment Documents, or the other
documents executed in connection herewith, or any action taken or
to be taken pursuant hereto, or which might result, either in any
case or in the aggregate, in any material adverse change in the
business operations, affairs or condition of the Company or any
of its properties or in any material liability in excess of
$50,000 on the part of the Company other than as set forth on
Schedule 0(a). Schedule 0(a) sets forth a description of all
litigation and governmental investigations, claims or proceedings
to which the Company was a party, or, to the best of its
knowledge, subject to (including but not limited to claims
arising under workers' compensation laws and relating to OSHA
violations) since January 1, 1994 where such litigation,
investigations, claims or proceedings would result in material
liability to the Company in excess of $50,000. Schedule 0(b)
sets forth an opinion of counsel to the Company as to the
resolution of all resolved litigation and the status and
potential resolution of all outstanding litigation.
3.12 Governmental Consent. Neither the Company nor, to
the Company's knowledge, any of its stockholders, is required to
obtain any order, consent, approval or authorization of, or
required to make any declaration or filing with (collectively,
"Consents"), any governmental authority in connection with the
execution and delivery of this Agreement and the issuance and
delivery of the Note pursuant hereto except, if required, filings
or registrations under the Securities Act of 1933, as amended
(the "Securities Act") or the qualification or registration
requirements of the Colorado Law or other applicable state
securities laws.
3.13 Employee Retirement Income Security Act of 1974.
The terms used in this Section 0 and in Section 0 of this
Agreement shall have the meanings assigned thereto in the
applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and the Internal Revenue Code
of 1986, as amended (the "Code"), and the term "Affiliated
Company" shall mean the Company and all corporations,
partnerships, trades or businesses (whether or not incorporated)
which constitute a controlled group of corporations with the
Company, a group of trades or businesses under common control
with the Company, an affiliated service group or other affiliated
group, within the meaning of Section 414(b), Section 414(c),
Section 414(m) or Section 414(o), respectively, of the Code, or
Section 4001 of ERISA. Each employee benefit plan sponsored by
an Affiliated Company and, to the best of the Company's
knowledge, each multi-employer plan to which any Affiliated
Company makes contributions, is in material compliance with
applicable provisions of ERISA and the Code. No Affiliated
Company has incurred any material liability to the Pension
Benefit Guaranty Corporation ("PBGC") or any employee benefit
plan on account of any failure to meet the contribution
requirements of any such plan, minimum funding requirements or
prohibited transactions under ERISA or the Code, termination of a
single employer plan, partial or complete withdrawal from a multi-
employer plan, or the insolvency, reorganization or termination
of any multi-employer plan, and no event has occurred or
condition exists which presents a material risk that any
Affiliated Company will incur any material liability on account
of any of the foregoing circumstances. The consummation of the
transactions contemplated by this Agreement will not result in
any prohibited transaction under ERISA or the Code for which an
exemption is not available.
3.14 Environmental Matters. Except as disclosed in
Schedule 0, attached hereto, neither the Company nor, to the
Company's knowledge, any prior user or owner of real estate
owned, used or leased by the Company or any predecessor of the
Company, or any business which the Company has acquired or become
a successor to (including but not limited to the property on
which the Company's Denver, Colorado office is located) (the
"Property"), or any third party, has ever caused or permitted any
Hazardous Material to be disposed of on or under the Property,
and the Property has never been used (either by the Company or,
to the Company's knowledge by any prior user or owner of the
Property, or any third party) as (a) a disposal site or permanent
storage site for any Hazardous Material or (b) a temporary
storage site for any Hazardous Material. To the best of the
Company's knowledge, there have been no releases of Hazardous
Materials at, from, or to the Property. The Company has been
issued and is in compliance with all material permits,
certificates, licenses, approvals and other authorizations
relating to environmental matters and necessary for its business,
and has filed all notifications and reports relating to chemical
substances, air emissions, underground storage tanks, effluent
discharges and Hazardous Material waste storage, treatment and
disposal required in connection with the operation of its
business, the failure to have or comply with which would,
individually or in the aggregate, have a material adverse effect
on the Company. All Hazardous Materials used or generated by the
Company have been generated, accumulated, stored, transported,
treated, recycled and disposed of in compliance with all
applicable laws and regulations, the violation of which has any
reasonable likelihood of having a material adverse effect on the
Company. The Company has no liabilities with respect to
Hazardous Materials, and to the knowledge of the Company, no
facts or circumstances exist which could give rise to liabilities
with respect to Hazardous Materials, which could have any
reasonable likelihood of having a material adverse effect on the
Company.
3.15 Intellectual Property. Schedule 0(a) lists all
patents, trademarks, service marks, tradenames, copyrights, trade
secrets, licenses, information and proprietary rights and
processes ("Intellectual Property") that are directly or
indirectly owned, licensed, used, required for use, or controlled
in whole or in part by the Company. Except as disclosed in
Schedule 0(b), to the best of its knowledge, the Company owns
without an obligation to pay royalties, all Intellectual Property
necessary for its business as conducted and proposed to be
conducted without any conflict with, or infringement of the
rights of others. Except as disclosed on Schedule 0(b), the
Company has not received any communications alleging that it has
violated or, by conducting business as proposed, would violate
the Intellectual Property rights of any other person or entity.
Except as disclosed in Schedule 0(b), the Company has not
licensed or granted rights to others in any of its Intellectual
Property. Except as disclosed in Schedule 0(b), the Company has
not granted rights to manufacture, produce, assemble, license,
market or sell any of its products to any other person. Schedule
0(b) sets out the Intellectual Property on which royalties are
being paid by the Company and the amount of any such royalty
payments.
3.16 Insurance. Schedule 0 contains a full and
complete list of all policies of insurance insuring the real and
personal property of the Company and policies insuring the
Company against risks, all insurance policies maintained since
January 1, 1994, and all "key man" insurance policies (except key
man insurance on Schaden), and such policies provide adequate
coverage for all risks normally insured against. All of the
policies of insurance described therein (copies of which are to
be delivered upon RRGC's request) are in full force and effect as
stated therein and the premiums therefore have been paid as they
became due and payable and do not expire prior to December 31,
1996. The Company will obtain key man insurance on Schaden
within 90 days of the date hereof.
3.17 Competitors. Except as described on Schedule 0,
and except for the ownership of less than 1% of the securities of
corporations, the shares of which are publicly traded, no
Principal Stockholder nor, to the knowledge of any officer
elected by the Board of Directors of the Company (an "Officer"),
no Officer or director owns, directly or indirectly, any interest
or has any investment or profit participation in a corporation or
other entity which is a competitor or potential competitor of or
which otherwise, directly or indirectly, does business with the
Company.
3.18 Senior Management Compensation. Schedule 0 sets
forth the names, positions, salaries and benefits of the members
of the Board of Directors and all Officers of the Company,
together with the amount of estimated bonuses and description of
agreements or arrangements for commissions and other compensation
or benefits of any nature to be paid or provided to any such
person pursuant to agreement, custom, or present understanding.
3.19 Clubs, Airplanes and Motor Vehicles. Except as
set forth on Schedule 0, there are no memberships held in social,
country or other clubs or organizations, directly or for the
benefit of another person, the fees or charges for which exceed
$1,000 in any twelve month period and are paid, directly or
indirectly by the Company, and except as set forth on Schedule 0,
the Company neither owns or leases any aircraft, boats or motor
vehicles.
3.20 Customers and Suppliers. Schedule 0(a) lists the
ten largest suppliers to the Company during the eleven (11) month
period ended November 30, 1996 (stating for each the dollar
volume of the purchases).
3.21 Contracts.
(a) Schedule 0(a) lists all existing contracts
and commitments of the Company of any kind or nature whatsoever
whether written or unwritten (including, without limiting the
generality of the foregoing, labor agreements; leases; notes or
other evidences of indebtedness; mortgages; guarantee agreements;
pension stock option, stock purchase, bonus, profit sharing and
other employee or executive welfare or benefit plans or
agreements; sales representation and distribution agreements;
purchase orders and commitments; product warranties; and powers
of attorney) except that Schedule 0(a) need not list the
following:
(i)each contract with a customer
made (A) in the ordinary course of
business of the Company on or after
the date hereof, or (B) prior to
the date hereof whereby the Company
is obligated to deliver less than
$50,000 in invoice value of
finished goods or services in each
transaction or series of related
transactions; and
(ii)each purchase commitment made
(A) in the ordinary course of
business of the Company at
prevailing prices on or after the
date hereof, or (B) prior to the
date hereof which is not in excess
of $50,000 in each transaction or
series of related transactions.
The forms of written purchase and sales orders used by the
Company also are included as part of Schedule 0(a). Copies
of all written instruments evidencing the items listed in
Schedule 0(a) have been delivered to RRGC.
(b) All of the contracts and commitments to be
listed in Schedule 0(a) and all of the agreements and contracts
not required to be listed therein by reason of clauses (i) or
(ii) of Section 0(a), are valid and binding obligations of the
Company in accordance with their respective terms, there are, to
the best of the Company's knowledge, no liabilities of any party
thereto arising from a breach of or default in any provision of
any such contract or commitment, and no condition exists which
would permit the acceleration of an obligation of a party thereto
or the creation of a lien or encumbrance upon an asset of the
Company or which would give rise to any such liabilities upon the
giving of notice or lapse of time. No Officer has any
information which might reasonably indicate that any material
supplier to the Company intends to cease purchasing from, selling
to or dealing with the Company, nor has information been brought
to the attention of any Officer which might reasonably lead him
or her to believe that any material supplier intends to alter in
any material respect the amount of such sales or the extent of
dealings with the Company or would alter in any material respect
such sales or dealings in the event of the consummation of the
transactions contemplated hereby.
(c) Except as set forth on Schedule 0(b), no
franchisee has been notified of a default under any franchise
agreement and no area director has been notified of a default
under any area director agreement. To the best of the Company's
knowledge, there are no other material defaults under any
franchise agreements or area director agreements.
3.22 Management Practices. All of the transactions of
the Company have been conducted on an arms-length basis, except
that in the case of transactions between the Company and a
stockholder or any entity in which any of them has a direct or
indirect interest, such transactions have been fair to the
Company and on terms comparable to those which would have
prevailed in an arms-length transaction. No portion of the sales
or other ongoing business relationships of the Company is
dependent upon the friendship or the personal relationships
(other than those customary within business generally) of any
stockholder or any director or other Officer. Except as set
forth on Schedule 0, the Company has no outstanding loans or
other advances to any stockholder or any director or other
Officer or to any entity in which any of them has a direct or
indirect interest, other than travel advances in the usual and
ordinary course of business. No Officer has knowledge that any
Officer or other key employee of the Company is considering the
termination of employment. Neither the Company nor any person
acting on its behalf has engaged in any business practices of the
nature referred to in the Report of the Securities and Exchange
Commission ("SEC") dated May 12, 1976, on Questionable and
Illegal Corporate Payments & Practices or proscribed by the
Foreign Corrupt Practices Act. Since commencement of the period
covered by the Financial Statements, the Company has not forgiven
or canceled, without receiving full consideration, indebtedness
owing to it by any stockholder or any Officer or director.
3.23 Inventories; Receivables. All inventories
(including restaurant supplies and non-perishable food items) of
the Company which are shown on the most recent Financial
Statement are in good condition, not obsolete, nondefective and
useable and, to the best of the Company's knowledge, 100% is
saleable within one year from the date hereof in the usual and
ordinary course of business of the Company as conducted as of the
date hereof. To the best of the Company's knowledge, all of the
Company's receivables of any nature, including, but not limited
to, note receivables, which are shown on the most recent
Financial Statement are collectable in the usual and ordinary
course of business. Schedule 0 consists of aged accounts
receivable trial balances for the Company at October 31, 1996.
3.24 Good Repair. Except as set forth on Schedule 0,
all buildings and improvements and all of the machinery and
equipment owned or used by the Company are in good order and
repair, reasonable wear and tear excepted.
3.25 Payables. Schedule 0 sets forth an aged list of
all of the outstanding accounts payable of the Company as of
November 30, 1996.
3.26 Corporate Documents; Minute Books. The minute
books of the Company contain a complete and correct summary of
all meetings and consents in lieu of meetings of directors and
stockholders since the time of incorporation of the Company.
3.27 Disclosure. This Agreement (including the
Schedules attached and the Financial Statements), the other
Investment Documents, and the information supplied by the Company
in connection with the Investment Documents do not contain any
untrue statement of material fact or omit to state a material
fact necessary to make the statements made herein or therein, in
the light of the circumstances in which they were made, not
misleading.
3.28 Offering. In reliance on the representations and
warranties of RRGC in Article 9 hereof, the offer, sale and
issuance of the Note, in conformity with the terms and conditions
of this Agreement, is exempt from the registration requirements
of the Securities Act or the qualification or registration
requirements of the Colorado Business Corporation Act, as
amended, or other applicable state securities laws.
3.29 Employees' Violations of Prior Agreements. To the
best of the Company's knowledge, employment by the Company of any
of its employees does not violate the terms of any
confidentiality, employment, or other agreement with any of the
employees' prior employers or other third parties; the Company
has not received any notice claiming that the contrary is or may
be true, except as set forth on Schedule 0.
3.30 Powers of Attorney. The Company has no power of
attorney outstanding with respect to any matter, except for Powers of
Attorney granted with respect to matters pending in the U.S. Patent
and Trademark Office or the franchisor registration or qualification
process, and except as set forth on Schedule 0.
3.31 Information Provided to SEC. The Company has complied
fully and completely with Rule 10b-5 of the Securities Exchange Act
of 1934 in all of its filings with the SEC.
3.32 Compliance With Laws. The Company has complied with
all statutes, laws, ordinances, rules and regulations. The Company
has not been notified of violation of any such statutes, laws,
ordinances, rules or regulations or of any investigation into any
such possible violations. No facts have occurred which constitute a
violation of any statutes, laws, ordinances, rules or regulations.
3.33 Conflicts of Interest. No employee or officer of the
Company shall own any interest in any area directorship eighteen (18)
months subsequent to Closing, however, if, in order for such sale to
take place within this time period, the interest in the Chicago area
directorship would be sold for less than $350,000 and the Detroit
area directorship would be sold for less than $185,000, then this
time period shall be extended for six months. If, after this
additional six month period the area directorships owned by officers
or employees remain unsold, such officer or employee owner must
resign his or her position as an officer or employee.
Notwithstanding the foregoing, an Affiliate of an area director may
retain the office of corporate secretary.
3.34 Transactions with Affiliates. Except as set forth on
Schedule 0, the Company is not a party to any transactions with
Affiliates.
Article 4
Conditions of Lending
The obligation of RRGC to make the Loan hereunder is
subject to the following conditions:
4.1 The Note. RRGC shall have received the Note, duly
completed, executed and delivered, as provided in Article 1.
4.2 Opinions and Certificates. On and as of the Closing
Date, RRGC shall have received:
(i) The favorable opinion of Ballard, Spahr, Xxxxxxx
& Xxxxxxxxx, counsel for the Company, dated as of such date and in
substantially the form attached hereto as Exhibit 0(a).
(ii) A certificate, dated as of the Closing Date,
signed by a principal officer of the Company, certifying that the
conditions specified in Section 0 have been fulfilled.
(iii) All other information and documents which
RRGC or its counsel may reasonably have requested in connection with
the transactions contemplated by this Agreement, such information and
documents where appropriate to be certified by the proper Company
officers or governmental authorities.
4.3 Small Business Administration Documentation. RRGC
shall have received SBA Form 480 (Size Status Declaration) and SBA
Form 652 (Assurance of Compliance) which have been completed and
executed by the Company, and SBA Form 1031 (Portfolio Finance
Report), Parts A and B of which have been completed by the Company
(the "SBA Documents").
4.4 No Default; Representations and Warranties, etc. On
the Closing Date: (i) the representations and warranties of the
Company contained in Article 0 of this Agreement shall be true on and
as of such date as if they had been made on such date; (ii) the
Company shall be in compliance in all material respects with all of
the terms and provisions set forth herein on its part to be observed
or performed on or prior to such date; (iii) after giving effect to
the Loan, no Event of Default specified in Article 0 hereof, nor any
event which with the giving of notice or expiration of any applicable
grace period or both would constitute such an Event of Default, shall
have occurred and be continuing; (iv) all of the conditions to
closing set forth in this Article 4 have been satisfied; and (v)
since December 31, 1995 there shall have been no material adverse
change in the assets or liabilities or in the financial or other
condition of the Company.
4.5 Payment of Financing Fee. The Company shall have paid
RRGC a commitment fee in the amount of $40,000, $10,000 of which was
paid by the Company prior to closing.
4.6 Fees and Expenses. The Company shall have paid to
RRGC reasonable out-of-pocket expenses (including, but not limited
to, reasonable attorneys' fees; advisory and consulting fees, travel
and communications expenses, and reproduction costs) up to $50,000
for due diligence, negotiation and closing of the purchase and sale
of the Note. Additional expenses not presented for payment at
closing may be paid after closing, provided, however, that total
expenses do not exceed $50,000.
4.7 Stockholders Agreement. The Company and each of the
other necessary signatories thereto shall have executed and delivered
to RRGC the Stockholders Agreement in the form of Exhibit 0 hereto
(the "Stockholders Agreement").
4.8 Pledge Agreement. The Company and each of the other
necessary signatories thereto shall have executed and delivered to
RRGC the Pledge Agreement in the form of Exhibit 0(b) hereto.
4.9 Security Agreement; UCC Financing Statements. The
Company and each of the other necessary signatories thereto shall
have executed and delivered to RRGC the Security Agreement in the
form of Exhibit 0(a) hereto, and all related UCC Financing
Statements.
4.10 [Reserved].
4.11 Waiver of First Refusal Rights. Each of the Company's
stockholders shall have waived any and all preemptive rights or
rights of first refusal or similar rights to which they may be
entitled under the law of Colorado, the Amended and Restated Articles
of Incorporation or Bylaws of the Company or any agreement between
such stockholders and the Company in connection with the offer, sale
and issuance of the Note, the issuance of shares of Common Stock of
the Company upon the conversion of the Note, the issuance of warrants
upon payment of the Convertible Note and the sale and issuance of
Common Stock upon exercise of the Warrants, if any.
4.12 Consent of Third Parties. The Company shall have
received the consent (and, if necessary, waiver of defaults) of the
parties on Schedule 0.
4.13 Retirement of Indebtedness. The Company shall retire
the Company's line of credit with Norwest Bank, the Company's note
payable to MyGrands, Inc., and the Company's line of credit with
Xxxxxxx Xxxxx Business Financial Services, Inc. ("Xxxxxxx") as
contemplated on Schedule 0. The Company's WCMA Term Loan and
Security Agreement with Xxxxxxx shall be canceled. The Company will
deliver to RRGC an officer's certificate certifying to the retirement
of such indebtedness within five (5) days of Closing.
4.14 Retirement of Schaden Loans. The Company will retire
all indebtedness owed to the Schadens prior to Closing.
Article 5
Affirmative Covenants
Until all sums which become due and payable with
regard to the Note are paid and all fees due hereunder shall have
been paid in full, and while RRGC owns Acquired Stock representing
7.5% or more of the fully diluted equity ownership of the Company, or
the Warrants, the following covenants shall remain in full force and
effect, (subject if applicable to the restriction in Section 0 with
respect to providing information to a transferee who is a competitor
of the Company), which covenants shall be applicable to the Company
and each of its Subsidiaries, if any.
5.1 Financial Statements, etc. The Company will furnish
or cause to be furnished to the RRGC:
(a) In written and electronic form, within three (3)
business days after the Company 's Form 10-K or Form 10-KSB is due
for filing with the SEC, (i) the consolidated balance sheets of the
Company and its Subsidiaries as at the end of such year, and (ii) the
related consolidated and consolidating statements of income and cash
flows for such year, setting forth in comparative form with respect
to such consolidated financial statements figures for the previous
fiscal year, all in reasonable detail, together with the opinion
thereon of Erhardt, Keefe, Xxxxxxx & Xxxxxxx or another firm of
independent certified public accountants of recognized national
standing or otherwise reasonably acceptable to RRGC, which opinion
shall be in a form generally recognized as unqualified and shall
state that such financial statements have been prepared in accordance
with generally accepted accounting principles applied on a basis
consistent with that of the preceding fiscal year (except for
changes, if any, which shall be specified and approved in such
opinion) and that the audit by such accountants in connection with
such financial statements has been made in accordance with generally
accepted auditing standards related to reporting; provided that such
accountants' certification may be limited to the consolidated
financial statements in which case the consolidating financial
statements shall be signed by a principal officer of the Company and,
accompanying the financial information provided pursuant to this
subsection, a discussion in narrative form prepared by management of
the Company analyzing the Company's financial and operational
performance and projected performance and discussing current and
future trends of the Company and its industry, which discussion shall
be delivered in written and electronic forms and which discussion may
consist of the Company's MD&A in its Form 10-K or l0-KSD and
additional information regarding projected performance;
(b) Within 20 business days after the end of each
month, monthly financial statements (including a balance sheet and a
statement of operations for the month and year to date, each in
comparative form with the Company's budget for such period) for the
previous month and an analysis and report on the financial and
operating results of that month;
(c) Within 20 business days after the end of each
month, a table indicating franchises sold by class, franchises opened
by class, number of area directorships sold, average unit volumes,
and comparable system store sales;
(d) Within 20 business days after the end of each
month, a note receivable status report, and a customer receivable
aging and status report;
(e) In written and electronic form, within three
business days after the Company's Form 10-Q or Form 10-QSB is due for
filing with the SEC, (i) the unaudited consolidated balance sheets of
the Company and its Subsidiaries as at the end of such period, and
(ii) the related unaudited consolidated and consolidating statements
of income and cash flows for such period and for the period from the
beginning of the current fiscal year to the end of such period, all
in reasonable detail and signed by a principal officer of the
Company;
(f) at least 30 days prior to the beginning of each
fiscal year, a budget for the coming year and a forecast for an
additional four years which has been approved by the Company's Board
of Directors;
(g) Together with the financial statements delivered
pursuant to subparagraphs (a), (b) and (c) above, a compliance
certificate substantially in the form of Exhibit 0(e) attached hereto
signed by a principal officer of the Company;
(h) Concurrently with its delivery to the
stockholders and directors of the Company, any information generally
furnished by the Company to its stockholders and directors, including
without limitation all information pertaining to financial,
marketing, business development or regulatory issues generally
furnished by the Company to its stockholders or to any class of its
stockholders;
(i) Concurrently with its delivery to the Securities
and Exchange Commission, copies of any communications sent to the
Securities and Exchange Commission;
(j) Forthwith upon any Officer obtaining knowledge of
any condition or event which he or she knows constitutes or after
notice or lapse or time or both would constitute an Event of Default,
a certificate signed by such Officer specifying in reasonable detail
the nature and period of existence thereof and what action the
Company has taken or proposes to take with respect thereto;
(k) Prompt notice of any material threatened or
potential adverse claim, dispute, litigation and governmental
investigation or citation and any material correspondence related to
intellectual property or conflicts of interest regarding Officers.
5.2 Inspection. The Company shall permit RRGC or its
representative, at RRGC's expense, to visit and inspect the Company's
properties, to examine its books of account and records, and to
discuss the Company's affairs, finances and accounts with the
Company's officers, all at such reasonable times as may be requested
by RRGC; provided, however, that the Company shall not be obligated
pursuant to this Section 0 to provide access to any information which
it reasonably considers to be a trade secret or similar confidential
information unless RRGC has signed a confidentiality agreement
reasonably acceptable to the Company.
5.3 Accounting System. The Company will maintain a
standard system of accounting established and administered in
accordance with generally accepted accounting principles.
5.4 Legal Existence; Compliance with Laws, etc. The
Company will, and will cause each Subsidiary to: maintain its
corporate existence and business; maintain all properties which are
reasonably necessary for the conduct of such business, now or
hereafter owned, in good repair, working order and condition; take
all actions necessary to maintain and keep in full force and effect
its rights and franchises; and, comply in all material respects with
all applicable statutes, rules, regulations and orders of, and all
applicable restrictions imposed by, all governmental authorities in
respect of the conduct of its business and the ownership of its
properties; provided that neither the Company nor any Subsidiary
shall be required by reason of this subsection to comply therewith at
any time while the Company or such Subsidiary shall be contesting its
obligations to do so in good faith by appropriate proceedings
promptly initiated and diligently conducted, and if it shall have set
aside on its books such reserves, if any, with respect thereto as are
required by generally accepted accounting principles and deemed
adequate by the Company and its independent public accountants.
5.5 Insurance. The Company will maintain or cause to be
maintained on all insurable properties now or hereafter owned by the
Company or any Subsidiary insurance against loss or damage by fire or
other casualty to the extent customary with respect to like
properties of companies conducting similar businesses, will, at
closing, maintain business interruption insurance in an amount not
less than $2.5 million per occurrence. The Company will maintain or
cause to be maintained public liability and worker's compensation
insurance insuring the Company to the extent customary with respect
to companies conducting similar businesses and will maintain
insurance on Schaden in the amount of $1 million and, upon request,
will furnish to RRGC satisfactory evidence of the same. Copies of
all such policies (or certificates) shall be delivered to RRGC upon
request. The Company will require each of its insurance carriers to
notify RRGC thirty (30) days prior to the cancellation, expiration,
or non-renewal of any insurance policy. In the event of a casualty
loss, the Company may apply the proceeds of any insurance to the
restoration or replacement of the property or asset which was the
subject of such loss, provided that the Company shall have
demonstrated to the reasonable satisfaction of RRGC that such
property or asset will be restored to substantially its previous
condition or will be replaced by a substantially identical property
or asset. Notwithstanding the foregoing, the Company will have 90
days from the date hereof to obtain insurance on Schaden.
5.6 Payment of Taxes. The Company will, and will cause
each Subsidiary to, pay and discharge promptly as they become due and
payable all taxes (including but not limited to payroll and
withholding taxes), assessments and other governmental charges or
levies imposed upon it or its income or upon any of its properties or
assets, or upon any part thereof, as well as all lawful claims of any
kind (including claims for labor, materials and supplies) which, if
unpaid, might by law become a lien or a charge upon its property;
provided that neither the Company nor any Subsidiary shall be
required to pay any such tax, assessment, charge, levy or claim if
the amount, applicability or validity thereof shall currently be
contested in good faith by appropriate proceedings promptly initiated
and diligently conducted and if the Company shall have set aside on
its books such reserves, if any, with respect thereto as are required
by generally accepted accounting principles and deemed appropriate by
the Company and its independent public accountants.
Upon the request of RRGC, the Company will furnish to
RRGC satisfactory proof of the payment or deposit of payroll and
withholding taxes required by applicable federal, state and local
law. Such proof shall be furnished within ten days after written
request by RRGC.
5.7 Payment of Other Indebtedness, etc. Except as to
matters being contested in good faith and by appropriate proceedings,
the Company will, and will cause each Subsidiary to, pay promptly
when due all other Indebtedness and obligations incident to the
conduct of its business.
5.8 Further Assurances. From time to time hereafter, the
Company will execute and deliver, or will cause to be executed and
delivered, such additional instruments, certificates or documents,
and will take all such actions, as RRGC may reasonably request, for
the purposes of implementing or effectuating the provisions of the
Investment Documents. Upon the exercise by RRGC of any power, right,
privilege or remedy pursuant to this Agreement which requires any
consent, approval, registration, qualification or authorization of
any governmental authority or instrumentality, the Company will
execute and deliver, or will cause the execution and delivery of, all
applications, certifications, instruments and other documents and
papers that RRGC may be required to obtain for such governmental
consent, approval, registration, qualification or authorization.
5.9 Additional Information. The Company will promptly
deliver to RRGC such additional information as RRGC may reasonably
request, including in order to complete accurately and fully any and
all reports which a government or governmental regulatory agency may
require.
5.10 Compliance with ERISA. The Company will make, and
will cause all Affiliated Companies to make, all payments or
contributions to employee benefit plans required under the terms
thereof and in accordance with applicable minimum funding
requirements of ERISA and the Code and applicable collective
bargaining agreements. The Company will cause all employee benefit
plans sponsored by any Affiliated Company to be maintained in
material compliance with ERISA and the Code. The Company will not
engage, and will not permit or suffer any Affiliated Company or any
Person entitled to indemnification or reimbursement from the Company
or any Affiliated Company to engage, in any prohibited transaction
for which an exemption is not available. No Affiliated Company will
terminate, or permit the PBGC to terminate, any employee benefit plan
or withdraw from any multi-employer plan, in any manner which could
result in material liability of any Affiliated Company.
5.11 Securities Filings After Closing. The Company shall
file with relevant federal and state securities commissions and
agencies all documents with respect to the sale of the Note that was
not required to be filed prior to closing within the applicable time
periods for such filings. Copies of all such documents filed after
closing shall be provided to RRGC.
5.12 Reimbursement of Expenses. The Company shall
reimburse RRGC for the reasonable costs and expenses incurred by it
(including reasonable attorneys' fees, advisory and consulting fees,
travel and communication expenses, and reproduction costs) in
connection with any amendments to or waivers of Investment Documents
or the enforcement of any of its rights arising pursuant to the
Investment Documents.
5.13 Reservation of Common Stock. The Company will reserve
sufficient shares of Common Stock for conversion of the Note and, if
Warrants are issued, for exercise of the Warrants.
Article 6
Negative Covenants
6.1 Prepayment of Indebtedness. Neither the Company nor
any Subsidiary will prepay any Indebtedness except for the Note and
Senior Indebtedness.
6.2 Mortgages, Liens, etc. Neither the Company nor any
Subsidiary will, directly or indirectly, create, incur, assume or
suffer to exist, any mortgage, lien, charge or encumbrance on, or
security interest in, or pledge of, or conditional sale or other
title retention agreement (including any Capital Lease)
(collectively, a "lien") with respect to, any property or asset now
owned or hereafter acquired by the Company, except:
(a)Any lien securing Senior
Indebtedness;
(b)Any lien securing the Note;
(c)Liens for taxes not yet delinquent
or being contested in good faith as
provided in Section 0; liens in
connection with worker's compensation,
unemployment insurance or other social
security obligations; liens securing
the performance of bids, tenders,
contracts, surety and appeal bonds,
liens to secure progress or partial
payments and other liens of like nature
arising in the ordinary course of
business; mechanics', workmen's,
materialmen's or other like liens
arising in the ordinary course of
business in respect of obligations
which are not yet due or which are
being contested in good faith; and
other liens or encumbrances incidental
to the conduct of the business of the
Company or to the ownership of its
properties or assets, which were not
incurred in connection with the
borrowing of money or the obtaining of
credit and which do not materially
detract from the value of the
properties or assets of the Company or
materially affect the use thereof in
the operation of their business; and
(d)Purchase money liens and Capital
Leases permitted by Section 0.
6.3 Loan, Guarantees and Investments. Neither the Company
nor any Subsidiary will make or permit to remain outstanding any loan
or advance to, or guarantee or endorse (except as a result of
endorsing negotiable instruments for deposit or collection in the
ordinary course of business) or otherwise assume or remain liable
with respect to any obligation of, or make or own any investment in,
or acquire (except in the ordinary course of business) the properties
or assets of, any Person, except:
(a)Extensions of trade credit by the
Company in the ordinary course of
business in accordance with customary
trade practices, including loans to
franchisees or area directors made
pursuant to the Company's Uniform
Franchise Offering Circular and certain
accounts receivable from distressed or
imperiled franchisees and area
directors that are converted to notes
receivable, provided, however, that
individual notes receivable for amounts
greater than $50,000, and all notes
receivable issued after the aggregate
amount of such notes receivable issued
in any fiscal year equals or exceeds
$250,000, shall be issued only with the
approval of the Company's Board of
Directors;
(b)The presently outstanding
investments, loans and advances, if
any, and the presently existing
guarantees, if any, referred to in
Schedule 0 attached hereto;
(c)Cash or short-term liquid
investments generally regarding as
cash;
(d)Marketable direct obligations of the
United States of America or any
department or agency thereof maturing
not more than one year from the date of
issuance thereof;
(e)Certificates of deposit, repurchase
agreements, money market deposits or
other similar types of investments
maturing not more than one year from
the date of acquisition thereof and
evidencing direct obligations of any
bank within the United States of
America having capital surplus and
undivided profits in excess of
$50,000,000; and
(f)Capital Expenditures to the extent
permitted by Section 0;
(g)Guarantees on store leases for franchised stores
incurred in the ordinary course of business, provided
such guarantees do not exceed ten (10) stores at any
given time, with annual lease charges including
minimum rent and extra charges defined under the
lease, as defined under each respective lease, not to
exceed $50,000 per lease, and provided that RRGC
receives ten (10) days prior notice of all leases on
which the Company intends to act as a guarantor.
6.4 Sale of Assets. Neither the Company nor any
Subsidiary will sell, lease or otherwise dispose of all or any
material properties or assets, including intellectual property,
except in the ordinary course of business.
6.5 Dividends, Distributions, etc. The Company will not
pay any dividends or make any distributions to stockholders, or
redeem or exchange any equity securities except the Company may pay
dividends on the Company's Class A Preferred Stock in accordance with
the Company's Amended and Restated Articles of Incorporation.
6.6 Creation and Acquisition of Subsidiaries. The Company
will not create or acquire any additional subsidiaries or become a
partner in any partnership, a member in any limited liability
company, a partner in any joint venture, or otherwise acquire an
ownership interest in any entity, except for wholly owned
subsidiaries created or acquired in connection with one or more
acquisitions of no more than two hundred (200) retail food outlets
that are acquired, in the aggregate, for purposes of operation as or
conversion to the Quizno's store concept, and so long as each
acquisition does not violate any term of any Investment Document (the
"Permitted Subsidiaries").
6.7 Mergers and Consolidations. Neither the Company or
any Subsidiary will enter into acquisition, consolidation or merger,
except the Company may enter into one or more mergers, consolidations
or acquisitions in which the Company or a wholly owned subsidiary of
the Company is the survivor in which no more than 200 retail food
outlets are acquired, in the aggregate, for the purposes of operation
of or conversion to the Quizno's store concept, and so long as such
merger, consolidation or acquisition does not violate any of the
terms of the Investment Documents including approval rights on the
issuance of additional shares in the Company.
6.8 Issuance of Stock to Officers, Directors and
Employees. Any issuances of any of the Company's Common Stock, or
other capital stock of the Company, or any warrants, options, or any
right to subscribe for or purchase any capital stock of the Company,
which are issued or granted to any officer, director, or employee of
the Company, shall be approved by the Board of Directors and the
Compensation Committee of the Board of Directors. Notwithstanding
the foregoing, the Company may issue (i) Capital Stock in the Company
which may be issued under the Company's existing stock option plans
and 401(k) plans, so long as such shares outstanding in these plans
do not represent greater than 15% of the fully diluted shares of the
Company at any given time, (ii) Capital Stock issued as part of the
Company's Qualified Offering, and (iii) Capital Stock issued pursuant
to the Class A Cumulative Preferred Stock.
6.9 Capital Expenditures. The Company, together with its
Subsidiaries, if any, will not make any Capital Expenditure
(including any payments under Capital Leases) during any fiscal year
in excess of 5% of total assets of the Company, excluding such
Capital Expenditures which are contemplated on Exhibit 0, the
development of stores under the "Turnkey Program", and the
acquisition of stores for conversion to the Quizno's store concept,
so long as such acquisition does not violate any terms of the
Investment Documents.
6.10 Transactions with Affiliates. Neither the Company nor
any Subsidiary will, directly or indirectly, enter into any lease or
other transaction or contract with any stockholder of the Company who
owns 5% or more of the Company's stock or with any Affiliate of the
Company or such stockholder, or pay fees to any such Stockholder or
Affiliate except for currently existing contracts listed on Schedule
0.
6.11 Environmental Liabilities. Neither the Company nor
any Subsidiary will violate any requirement of law, rule or
regulation regarding Hazardous Materials, the failure to comply with
which would individually, or in the aggregate, have a material
adverse effect on the Company or such Subsidiary; and, without
limiting the foregoing, neither the Company nor any Subsidiary will
dispose of any Hazardous Material into or onto, or (except in
accordance with applicable law) from, any real property owned, leased
or operated by the Company or such Subsidiary or in which the Company
or such Subsidiary holds, directly or indirectly, any legal or
beneficial interest or estate, nor allow any lien imposed pursuant to
any law, regulation or order relating to Hazardous Materials or the
disposal thereof to be imposed or to remain on such real property,
except for liens being contested in good faith by appropriate
proceedings and for which adequate reserves have been established and
are being maintained on the books of the Company.
6.12 Compensation of Officers. The Company will not
increase the compensation of any officer elected by the Board of
Directors without the approval of the Compensation Committee of the
Board of Directors.
6.13 Prepayment of Obligations to Affiliates. The Company
will not prepay obligations to Affiliates of the Company.
6.14 Current Business. The Company will not engage in any
business other than that described on Schedule 0 and related
businesses.
Article 7
Financial Covenants
While the Note is unpaid the following covenants shall
remain in full force and effect, which covenants shall be applicable
to the Company and each of its subsidiaries, if any.
7.1 Indebtedness. Neither the Company nor any Subsidiary
will create, incur, assume or become or remain liable in respect of
any Indebtedness, except:
(i)Indebtedness pursuant to the Note;
(ii)Senior Indebtedness in an amount
not to exceed $700,000;
(iii)Current liabilities of the Company
(other than for borrowed money)
incurred in the ordinary course of its
business and in accordance with
customary trade practices; and
(iv)Indebtedness in respect of purchase
money liens and Capital Leases
permitted by Section 0.
(v)Deferred compensation to employees so long as, if
with respect to an officer, such compensation is
approved as provided in Section 0.
(vi)Indebtedness in respect of guarantees of store
leases permitted by Section 0(g).
7.2 Minimum Operating Cash Flow Levels. The Company will
maintain the following minimum Operating Cash Flow levels (as defined
below):
(i) Fiscal Year 1997
Annual $ 325,000
(ii) Fiscal Year 1998
First Six Months $ 350,000
Annual $ 900,000
(iii)Fiscal Year 1999 and thereafter
First Six Months $ 750,000
Annual $1,500,000
For purposes of this Article 0, "Operating Cash Flow" shall be
defined as the sum of earnings before interest, taxes, depreciation
and amortization and the following additions (subtractions) from the
balance sheet:
(Increase) Decrease in note receivable balances
(Increase) Decrease in customer receivable
balances
(Increase) Decrease in deferred franchise costs
Increase (Decrease) in deferred franchise revenue
If the Company uses the provisions of Section 11.1(b)(ii) to cure a
default under this Article 7, then, for purposes of determining
Operating Cash Flow in the fiscal year in which such default
occurred, Operating Cash Flow shall also include the following
addition (subtraction) from the balance sheet:
(Increase) Decrease in cash from capital stock
and paid in capital
7.3 Financial Ratios. The Company will maintain the
following financial ratios:
(i)Annual minimum fixed charge and debt service
coverage ratio ("Charge and Debt Ratio") equal to 1.0 in Fiscal Year
1997 and 1.25 in Fiscal Year 1998 and thereafter.
The Charge and Debt Ratio shall be determined as
follows: the numerator shall equal the Operating Cash Flow less
income taxes paid and the denominator shall equal the sum of (a) all
interest and principal payments made on any Indebtedness (including
capital leases, but excluding borrowings/repayments under future
borrowing lines of credit), (b) all usual and customary capital
expenditures, excluding such expenditures contemplated under the
Company's "Turnkey" program, or for the development of additional
Company owned stores, as approved by the Board of Directors, and (c)
all payments of permitted stock dividends (i.e. preferred stock
dividends).
(ii)Current assets (as determined in accordance with
GAAP) to current liabilities (as determined in accordance with GAAP)
of 1:1.
7.4 Net Worth. The Company will maintain a net worth (as
determined in accordance with GAAP) of not less than $1,000,000.
Article 8
RRGC's Put Option
8.1 Put Option. At any time after the sixth anniversary
of the Closing Date, RRGC shall have the right to cause the Company
to purchase any Warrants or Acquired Stock held by RRGC if either of
the following is true:
(a)A qualified Public Offering has not
occurred, or
(b)an Event of Default occurred while
the Note was outstanding.
8.2 Price. The price paid to RRGC for its Warrants and
Acquired Stock under Section 0 (the "Put Price") shall be the fair
market value such Warrants and Acquired Stock, determined in
accordance with the Valuation Procedure.
8.3 Payment. The Put Price shall be payable by the
Company to RRGC in cash.
Article 9
SBIC Provisions
The Company acknowledges that RRGC is a small business
investment company licensed by the United States Small Business
Administration, and makes the following representations, warranties
and covenants to RRGC:
9.1 Small Business Concern. The Company, taken together
with its "affiliates" (as that term is defined in 13 C.F.R.
121.401), is a "Small Business Concern" within the meaning of 15
U.S.C. 662(5), that is Section 103(5) of the Small Business
Investment Act of 1958, as amended (the "SBIC Act"), and the
regulation thereunder, including 13 C.F.R. 107, and meets the
applicable size eligibility criteria set forth in 13 C.F.R.
121.301(c)(1) or the industry standard covering the industry in
which the Company is primarily engaged as set forth in 13 C.F.R.
121.301(c)(2). Neither the Company nor any of its subsidiaries
presently engages in any activities for which a small business
investment company is prohibited from providing funds by the SBIC Act
and the regulations thereunder, including 13 C.F.R. 107.
9.2 Informational Covenant. The Company will furnish or
cause to be furnished to RRGC information required by the U.S. Small
Business Administration concerning the economic impact of RRGC's
investment, including but not limited to, information concerning
taxes paid and number of employees. The Company will furnish
annually all information required on the appropriate SBA Forms.
The Company will also furnish or cause to be furnished
to RRGC such other information regarding the business, affairs and
condition of the Company as RRGC may from time to time reasonably
request. The Company will permit RRGC and examiners of the U.S.
Small Business Administration to inspect the books and any of the
properties or assets of the Company and its Subsidiaries and to
discuss the Company's business with senior management employees at
such reasonable times as RRGC may from time to time request. RRGC
agrees not to disclose any confidential information received from the
Company (except to its partners and to its professional advisors whom
RRGC shall cause to keep such information confidential) and to
execute a confidentiality agreement as required in Section 0.
9.3 Use of Proceeds. The Company will use the proceeds
from the Note for the purposes and in the amounts set forth on
Exhibit 0 attached to this Agreement. The Company will deliver
within ninety (90) days of the initial closing to RRGC a written
report, certified as correct by the Company's chief financial officer
verifying the purposes and amounts for which proceeds from the Note
have been disbursed, and, if the proceeds have not been fully
disbursed within that ninety (90) day period, an additional report
also so certified, delivered not later than the end of each
succeeding ninety (90) day period, verifying the purposes and amounts
for which proceeds have been disbursed. The Company will supply to
RRGC such additional information and documents as RRGC reasonably
requests with respect to use of proceeds and will permit RRGC to have
access to any and all Company records and information and personnel
as RRGC deems necessary to verify how proceeds have been or are being
used, and to assure that the proceeds have been used for the purposes
specified.
9.4 Activities and Proceeds.
(i) Neither the Company nor any of its
Subsidiaries will engage in any activities or use directly or
indirectly the proceeds from the Note for any purpose for which a
small business investment company is prohibited from providing funds
by the SBIC Act and the regulations promulgated thereunder, including
13 C.F.R. 107.
(ii) The Company will not change the Company's
business activity from that described on Schedule 0, to a business
activity which a small business investment company is prohibited from
providing funds by the SBIC Act and the regulations promulgated
thereunder. The Company agrees that any such changes in its business
activity without such prior written consent of RRGC will constitute
an event of default under the Note and a breach of the covenants of
the Company under this Agreement (an "Activity Event of Default").
If an Activity Event of Default occurs, RRGC has the right to demand
immediate repayment by the Company of the Note with interest to the
date of repayment and repurchase by the Company of Acquired Stock at
its purchase price. Upon receipt of such demand, the Company will
immediately make such payment within three (3) days of receipt of a
demand. The payment remedy is in addition to any and all other
rights and remedies against the Company and others to which RRGC may
be entitled.
Article 10
Representations and Warranties of RRGC and Restrictions on
Transfer Imposed by the Securities Act of 1933.
10.1 Representations and Warranties by RRGC. RRGC
represents and warrants to the Company as follows:
(a) Investment Intent. This Agreement is made with
RRGC in reliance upon RRGC's representation to the Company, which by
RRGC's execution of this Agreement RRGC hereby confirms that the Note
to be received by RRGC is being acquired for investment for RRGC's
own account, not as nominee or agent, for investment and not with a
view to, or for resale in connection with, any distribution or public
offering thereof within the meaning of the Securities Act.
(b) Shares Not Registered. RRGC understands and
acknowledges that the offering of the Note and the Acquired Stock
(collectively, the "Securities") pursuant to this Agreement will not
be registered under the Securities Act or qualified under any state
securities law based upon the offering and sale of such securities
being exempt from registration under the Securities Act and exempt
from qualification under such state securities laws, and that the
Company's reliance upon such exemptions is predicated upon RRGC's
representations set forth in this Agreement. RRGC acknowledges and
understands that the Securities must be held indefinitely unless the
Securities are subsequently registered under the Securities Act and
qualified under applicable state securities laws or exemptions from
such registrations are available.
(c) No Transfer. RRGC covenants that in no event
will RRGC dispose of any of the Securities (other than in conjunction
with an effective registration statement for the Securities under the
Securities Act or in compliance with Rule 144 promulgated under the
Securities Act) unless and until (i) RRGC shall have notified the
Company of the proposed disposition and shall have furnished the
Company with a statement of the circumstances surrounding the
proposed disposition, and (ii) if reasonably requested by the
Company, RRGC shall have furnished the Company with an opinion of
counsel satisfactory in form and substance to the Company to the
effect that (x) such disposition will not require registration under
the Securities Act and (y) appropriate action necessary for
compliance with the Securities Act has been taken.
(d) Permitted Transfers. Notwithstanding the
provisions of subsection (c) above, no registration statement or
opinion of counsel shall be necessary for a transfer by RRGC which is
a partnership to a partner of such partnership or an affiliate,
advisor or employee of or a retired partner of such partnership who
retires after the date hereof, or to the estate of any such partner
or retired partner or the transfer by gift, will or intestate
succession of any partner to his spouse or lineal descendants or
ancestors, if the transferee agrees in writing to be bound by the
terms hereof to the same extent as if he were an original investor
hereunder and such transfer complies with applicable laws.
(e) Accredited Investor. RRGC is an "accredited
investor" as that term is defined in Regulation D promulgated under
the Securities Act.
(f) Knowledge and Experience. RRGC (i) has such
knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of RRGC's prospective
investment in the Securities; (ii) has the ability to bear the
economic risks of RRGC's prospective investment; (iii) has been
furnished with and has had access to such information as RRGC has
considered necessary to make a determination as to the purchase of
the Securities together with such additional information as is
necessary to verify the accuracy of the information supplied;
(iv) has had all questions which have been asked by RRGC
satisfactorily answered by the Company; and (v) has not been offered
the Securities by any form of advertisement, article, notice or other
communication published in any newspaper, magazine, or similar media
or broadcast over television or radio, or any seminar or meeting
whose attendees have been invited by any such media.
(g) Organization, Power and Authority. RRGC
represents that it is duly organized, validly existing and in good
standing, under the laws of the jurisdiction of its formation and was
not organized for the sole purpose of purchasing the Note. RRGC has
all requisite power to execute and deliver this Agreement and the
other Investment Documents and to perform its obligations under this
Agreement and the other Investment Documents. This Agreement and the
other Investment Documents have been duly and validly authorized by
RRGC, duly executed and delivered by RRGC or an authorized
representative of RRGC and constitute valid, legal and binding
obligations of RRGC, enforceable in accordance with their terms,
except as such enforceability is limited by applicable insolvency and
other laws affecting creditors' rights generally and by the
availability of equitable remedies.
10.2 Legends. Each certificate representing the Securities
shall be endorsed with the following legend:
"THE SECURITIES EVIDENCED BY THIS
CERTIFICATE AND THE COMMON SHARES INTO
WHICH SUCH SECURITIES ARE CONVERTIBLE
ARE SUBJECT TO AN INVESTMENT AGREEMENT
DATED DECEMBER 31, 1996, AND A
STOCKHOLDERS AGREEMENT DATED AS OF
DECEMBER 31, 1996, COPIES OF WHICH ARE
ON FILE AT THE PRINCIPAL OFFICE OF THE
COMPANY AND WILL BE FURNISHED TO THE
HOLDER ON REQUEST TO THE SECRETARY OF
THE COMPANY. SUCH INVESTMENT AGREEMENT
AND STOCKHOLDERS AGREEMENT PROVIDE,
AMONG OTHER THINGS, FOR CERTAIN
RESTRICTIONS ON VOTING, SALE, TRANSFER,
PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION OF THE SECURITIES EVIDENCED
BY THIS CERTIFICATE AND THE HOLDER HAS
RIGHTS TO REQUIRE REPURCHASE BY THE
COMPANY UPON THE OCCURRENCE OF CERTAIN
EVENTS. THE SECURITIES EVIDENCED BY
THIS CERTIFICATE HAVE NOT BEEN
REGISTERED PURSUANT TO THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY STATE SECURITIES LAW, AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS THE
SAME ARE REGISTERED AND QUALIFIED IN
ACCORDANCE WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR IN
THE OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY, SUCH
REGISTRATION AND QUALIFICATION ARE NOT
REQUIRED."
The Company need not register a transfer of legended Securities, and
may also instruct its transfer agent not to register the transfer of
the Securities, unless the conditions specified in the foregoing
legend are satisfied.
10.3 Removal of Legend and Transfer Restrictions. Any
legend endorsed on a certificate pursuant to Section 0 and the stop
transfer instructions with respect to such legended Securities shall
be removed, and the Company shall issue a certificate without such
legend to the holder of such Securities if such Securities are
registered under the Securities Act and a prospectus meeting the
requirements of Section 10 of the Securities Act is available or if
such holder satisfies the requirements of Rule 144(k) and, where
reasonably deemed necessary by the Company, provides the Company with
an opinion of counsel for such holder of the Securities, reasonably
satisfactory to the Company, to the effect that (i) such holder,
meets the requirements of Rule 144 or (ii) a public sale, transfer or
assignment of such Securities may be made without registration.
10.4 Rule 144. RRGC is aware of the adoption of Rule 144
by the SEC promulgated under the Securities Act, which permits
limited public resales of securities acquired in a non-public
offering, subject to the satisfaction of certain conditions. RRGC
understands that under Rule 144, the conditions include, among other
things: the availability of certain current public information about
the issuer and the resale occurring not less than two years after the
party has purchased and fully paid for the securities to be sold.
The Company covenants that (i) at all times after the Company first
becomes subject to the reporting requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the Company will use its best
efforts to comply with the current public information requirements of
Rule 144(c)(1) under the Securities Act; and (ii) at all such times
as Rule 144 is available for use by RRGC, the Company will furnish
RRGC upon reasonable request with all information within the
possession of the Company required for the preparation and filing of
Form 144.
10.5 Transfer of Rights. Subject to Section 0(d), the Note
and any Acquired Stock may be transferred by RRGC to its Affiliates
and its partners, members, stockholders, employees or advisers and
all of RRGC's rights under the Investment Documents may be assigned
to the transferee of such securities. RRGC is also permitted to
transfer its Note and Acquired Stock to any other third party,
including competitors of the Company subject to the provisions of
Article 0; provided, however, that any competitor acquiring the
Acquired Stock will only be entitled to receive financial statements
and information concerning the Company which are available to all
stockholders of the Company.
Article 11
Defaults; Remedies
11.1 Events of Default; Acceleration. The occurrence of
one or more of the following events without a permitted cure within
the time period provided herein (each an "Event of Default") shall
constitute an Event of Default:
(a) The Company shall default in the payment of
principal of or interest on the Note or any other fee due hereunder
when the same becomes due and payable, whether on demand, at maturity
or at a date fixed for the payment of any installment or prepayment
thereof or otherwise and, with respect to payment of interest, such
default is not cured within five (5) days after notice of such
default is given to the Company. Notwithstanding the foregoing, the
Company shall twice each year be allowed ten (10) days to cure any
such default in lieu of the five (5) day cure period after notice of
such default is given to the Company.
(b) The Company shall default in the performance of
or compliance with any covenant or agreement contained in the
Investment Documents, and such default shall continue for more than
fifteen (15) days after notice of such default is given to the
Company reduced, however, for any period of grace allowed under any
such Investment Document or, in the case of a default under Sections
0, 0 and 0 thirty (30) days after notice of such default is given to
the Company. Notwithstanding the foregoing, the Company shall have
the right to cure a default under any or all of Section 7.2, 7.3, and
7.4 a total of two (2) times while the Note is unpaid (i) by causing
the Principal Stockholders to invest in the Common Stock of the
Company at the then market value of the Common Stock, or (ii) by
invoking a grace period until the status of the Company under such
Section is determined at the end of the subsequent quarter, and if
there is no default under such Section at the end of the subsequent
quarter, the default shall be deemed to have not occurred. Any ratio
determined after a period of grace shall be determined based on the
previous six-month or twelve-month period, as applicable.
(c) A default occurs under any document evidencing
the Senior Indebtedness;
(d) Any material representation or warranty made by
the Company herein or pursuant hereto shall prove to have been false
or incorrect in any material respect when made;
(e) The Company shall discontinue its business or
shall make an assignment for the benefit of creditors, or shall fail
generally to pay its debts as such debts become due, or shall apply
for or consent to the appointment of or taking possession by a
trustee, receiver or liquidator (or other similar official) of the
Company or any substantial part of the property of the Company, or
shall commence a case or have an order for relief entered against it
under the federal bankruptcy laws, as now or hereafter constituted,
or any other applicable federal or state bankruptcy, insolvency or
other similar law, or if the Company shall take any action to
dissolve or liquidate the Company;
(f) If, within sixty (60) days after the commencement
against the Company of a case under the federal bankruptcy laws, as
now or hereafter constituted, or any other applicable federal or
state bankruptcy, insolvency or other similar law, such case shall
have been consented to or shall not have been dismissed or all orders
or proceedings thereunder affecting the operations or the business of
the Company stayed, or if the stay of any such order or proceeding
shall thereafter be set aside, or if within sixty (60) days after the
entry of a decree appointing a trustee, receiver or liquidator (or
other similar official) of the Company or any substantial part of the
property of the Company, such appointment shall not have been
vacated;
(g) An uninsured final judgment which, with other
outstanding uninsured final judgments against the Company, exceeds
the greater of (i) five percent (5%) of the Company's annual revenue
for the preceding twelve month period or (ii) $250,000 shall be
rendered against the Company unless such judgment has been appealed
and an execution thereof stayed pending appeal or unless, within
sixty (60) days after the expiration of any such stay, such judgment
has been discharged, or if any such judgment shall not be discharged
forthwith upon the commencement of proceedings to foreclose any lien,
attachment or charge which may attach as security therefor and before
any of the property or assets of the Company shall have been seized
in satisfaction thereof;
(h) A change in ownership of more than sixty percent
(60%) of the outstanding voting stock of the Company on a fully
diluted basis in a single transaction or a series of unrelated
transactions, excluding public transactions within a twelve (12)
month period;
(i) Schaden shall cease to be employed by the Company
as Chief Executive Officer. Notwithstanding the foregoing, an Event
of Default shall not occur upon Schaden's death so long as the
Company maintains a Key Man Life Insurance Policy on Schaden payable
to the Company in the amount of $1 million.
(j) After 90 days of the date hereof, the Company
fails to maintain insurance payable to the Company on Schaden in the
amount of $1,000,000;
(k) A material adverse change shall occur with
respect to the assets, liabilities, operations or prospects of the
Company;
(l) The Company shall use the proceeds of the Note
for a purpose not permitted pursuant to Exhibit 0.
(m) Litigation is commenced against the Company
which, materially restricts the ability of the Company to carry on
its business;
(n) a merger or consolidation involving the Company
(in a single transaction or a series of related or unrelated
transactions) excluding one or more mergers or consolidations in
which the Company or a wholly owned subsidiary of the Company is the
survivor and following such merger or consolidation, the shareholders
of the Company immediately prior to such event shall own a majority
of the stock of the surviving corporation in which no more than 200
retail food outlets are acquired in the aggregate, for the purposes
of operation of or conversion to the Quizno's store concept, as so
long as such merger or consolidation does not violate any of the
terms of the Transaction Documents;
(o) a sale of all or a material part of the Company's
assets unless the Note is retired upon such sale;
(p) the completion of a Qualified Public Offering
unless the Note is retired upon such Qualified Public Offering;
(q) an Event of Default occurs under the Security
Agreement or the Pledge Agreement.
11.2 Remedies on Default, etc. In case any one or more
Events of Default shall occur and be continuing: (a) RRGC may by
notice to the Company, declare the principal of and accrued interest
in respect of the Note to be forthwith due and payable, whereupon the
principal of and accrued interest in respect of the Note shall become
forthwith due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived by
the Company; (b) RRGC may proceed to protect and enforce its rights
by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained
herein or in the Note or for an injunction against a violation of any
of the terms hereof or thereof, or in aid of the exercise of any
power granted hereby or thereby or by law.
11.3 Fees. If the Company fails to pay any amount to RRGC
on account of the Loan or Note, the Company will pay to RRGC an
amount sufficient to reimburse RRGC for its costs and expenses of
enforcing its rights under the Investment Documents including, but
not limited to, its reasonable attorneys fees, expenses and
disbursements, if RRGC is the prevailing party in such enforcement
action. If the Company is successful in defending such enforcement
action, RRGC will pay to the Company its costs of such defense
including, but not limited to, its reasonable attorneys' fees,
expenses and disbursements.
11.4 Course of Dealings. No course of dealing and no delay
on the part of RRGC in exercising any right shall operate as a waiver
thereof or otherwise prejudice the RRGC's rights. No right conferred
hereby or by the Note, the Warrants or the Registration Rights
Agreement upon RRGC shall be exclusive of any other right referred to
herein or therein or now or hereafter available at law, in equity, by
statute or otherwise.
Article 12
Registration
The following provisions govern the registration of
Common Stock:
12.1 Definitions. As used herein, the following terms have
the following meanings:
Forms X-0, X-0 and S-3: The forms so designated,
promulgated by the Commission for registration of
securities under the Securities Act, and any forms
succeeding to the functions of such forms, whether or
not bearing the same designation.
Holder: A holder of Registrable Stock (subject to
Section 0 hereof), provided that anyone who acquires
any Registrable Stock in a distribution pursuant to a
registration statement filed by the Company under the
Securities Act shall not thereby be deemed to be a
"Holder".
"Register", "registered" and "registration" refer to a
registration effected by filing a registration
statement in compliance with the Securities Act and
the declaration or ordering by the Commission of
effectiveness of such registration statement.
Registrable Stock: All shares of Common Stock issued
or issuable upon conversion of the Note or exercise of
a Warrant or held by a person to whom registration
rights have been transferred pursuant to the
provisions of this Section 0, all shares of Common
Stock issued by the Company in respect of such shares
and all shares of Common Stock that RRGC hereafter
acquires pursuant to its rights of first refusal or
otherwise.
Required Demand Amount: 51% of the Registrable Stock
then outstanding.
12.2 Demand Registration. (a) If (i) the holder or holders
of an aggregate of at least the Required Demand Amount propose to
dispose of at least 20% of the then outstanding Registrable Stock
(such holder or holders being herein called the "Initiating
Holders"), and (ii) such disposition may not, in the opinion of such
Initiating Holders, be effected in the public marketplace (as opposed
to a private transaction under the Securities Act) on equally
favorable net terms to the Initiating Holders without such
registration of such shares under the Securities Act, the Initiating
Holders may request the Company in writing to effect such
registration, stating the number of shares of Registrable Stock to be
disposed of by such Initiating Holders (which, in the aggregate,
shall be not less than 20% of the then outstanding Registrable Stock)
and the intended method of disposition. Upon receipt of such
request, the Company will give prompt written notice thereof to all
other Holders whereupon such other Holders shall give written notice
to the Company within 20 days after the date of the Company's notice
(the "Notice Period") if they propose to dispose of any shares of
Registrable Stock pursuant to such registration, stating the number
of shares of Registrable Stock to be disposed of by such Holder or
Holders and the intended method of disposition.
12.3 The Company will use its best efforts to
effect promptly after the Notice Period the registration under the
Securities Act of all shares of Registrable Stock specified in the
requests of the Initiating Holders and the requests of the other
Holders subject, however, to the limitations set forth in Section 0.
12.4 Registration Procedures. Whenever the Company is
required by the provisions of this Section 0 to use its best efforts
to effect promptly the registration of shares of Registrable Stock,
the Company will:
12.5 prepare and file with the Commission a
registration statement with respect to such shares and use its best
efforts to cause such registration statement to become and remain
effective as provided herein;
12.6 prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep
such registration statement effective and current and to comply with
the provisions of the Securities Act with respect to the disposition
of all shares covered by such registration statement, including such
amendments and supplements as may be necessary to reflect the
intended method of disposition from time to time of the prospective
seller or sellers of such shares, but for no longer than one hundred
twenty (120) days subsequent to the effective date of such
registration in the case of a registration statement on Form S-1 or S-
2 and for no longer than ninety (90) days in the case of a
registration statement on Form S-3;
12.7 furnish to each prospective seller such
number of copies of a prospectus, including a preliminary prospectus,
in conformity with the requirements of the Securities Act, and such
other documents, as such seller may reasonably request in order to
facilitate the public sale or other disposition of the shares owned
by such seller;
12.8 use its best efforts to register or qualify
the shares covered by such registration statement under such other
securities or blue sky or other applicable laws of such jurisdiction
within the United States as each prospective seller shall reasonably
request, to enable such seller to consummate the public sale or other
disposition in such jurisdictions of the shares owned by such seller;
provided, however, that in no event shall the Company be obligated to
qualify to do business in any jurisdiction where it is not at the
time so qualified or to take any action which would subject it to
service of process in suits other than those arising out of the offer
or sale of the Registrable Stock covered by such registration
statement in any jurisdiction where it is not at the time so subject;
12.9 furnish to each prospective seller (i) a
signed counterpart, addressed to the prospective sellers, of an
opinion of counsel for the Company, dated the effective date of the
registration statement, covering substantially the same matters with
respect to the registration statement (and the prospectus included
therein) as are customarily covered (at the time of such
registration) in opinions of issuer's counsel delivered to the
underwriters in underwritten public offerings of securities, and (ii)
a letter dated such date, from the independent certified public
accountants of the Company, in form and substance as is customarily
given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters, if
any, and to the Holders requesting registration of Registrable Stock;
12.10 in the event of any underwritten public
offering, enter into and perform its obligations under an
underwriting agreement, in usual and customary form, with the
managing underwriter of such offering; each Holder participating in
such underwriting shall also enter into and perform its obligations
under such an agreement;
12.11 notify each Holder of Registrable Stock
covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act
of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances
then existing; and
12.12 apply for listing and use its best
efforts to list the Registrable Stock being registered on any
national securities exchange on which a class of the Company's equity
securities are listed or, if the Company does not have a class of
equity securities listed on a national securities exchange, apply for
qualification and use its best efforts to qualify the Registrable
Stock being registered for inclusion on the automated quotation
system of the National Association of Securities Dealers, Inc. or on
a national securities exchange.
12.13 Limitations on Demand Registrations.
12.14 The Company shall not be required to
effect more than one registration on behalf of RRGC pursuant to
Section 0.
12.15 The Company shall not register
securities for sale for its own account or give rights to any other
person other than those persons holding registration rights on the
date hereof, or as provided in Section 0 ("Other Shareholders") to
have securities owned by such Other Shareholders included in any
registration requested pursuant to Section 0 unless permitted to do
so by the written consent of Holders who hold at least 51% of the
Registrable Stock as to which registration has been requested. The
Company may not cause any other registration of securities for sale
for its own account or the account of any Other Shareholders (other
than a registration effected solely to implement an employee benefit
plan) to be initiated after a registration requested pursuant to
Section 0 and to become effective less than 120 days after the
effective date of any registration requested pursuant to Section 0.
12.16 Whenever a requested registration under
Section 12.2 is for an underwritten offering, only shares which are
to be included in the underwriting may be included in the
registration. Notwithstanding the provisions of Section 0(c), if the
underwriter determines that (i) marketing factors require a
limitation of the total number of shares to be underwritten, or (ii)
the offering price per share would be reduced by the inclusion of the
shares of the Company, then the number of shares to be included in
the registration and underwriting shall first be allocated among all
Holders who indicated to the Company their decision to distribute any
of their Registrable Stock through such underwriting, in proportion,
as nearly as practicable, to the respective numbers of shares of
Registrable Stock owned by such Holders at the time of filing the
registration statement, and the remainder, if any, to the Company and
the Other Shareholders in such proportion as they shall agree. No
stock excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration unless
there is a withdrawal from the underwriting. If any Holder or the
Company disapproves of any such underwriting, such person may elect
to withdraw therefrom by written notice to the Initiating Holders and
the underwriter. The securities so withdrawn from such underwriting
shall also be withdrawn from such registration.
12.17 The Company shall not be required to
effect a registration pursuant to Section 0 unless the proposed
disposition of shares of Registrable Stock has an aggregate expected
offering price (before deduction of underwriting discounts and
expenses of sale) of not less than $2,000,000.
12.18 If at the time of any request to
register Registrable Stock pursuant to Section 0 hereof, the Company
is engaged, or has fixed plans to engage within 90 days of the time
of the request, in a registered public offering as to which the
Holders may include such Stock pursuant to Section 0 hereof or is
engaged in any other activity which, in the good faith determination
of the Company's Board of Directors, would be adversely affected by
the requested registration to the material detriment of the Company,
then the Company may at its option direct that such request be
delayed for a period not in excess of six (6) months from the
effective date of such offering, or the date of commencement of such
other material activity, as the case may be, such right to delay a
request to be exercised by the Company not more than once while the
rights set forth in Section 0 are in effect.
12.19 The registration rights granted under
Section 0 shall terminate as to any Holder or permissible transferees
or assignee of such rights if such person (i) holds one percent (1%)
or less of the outstanding shares of Common Stock of the Company on a
fully diluted, as if converted basis, and (ii) would be permitted to
sell all of the Registrable Stock held by it pursuant to Rule 144(k)
of the Securities Act of 1933, 17 C.F.R. 230.144(k) ("Rule 144(k)").
12.20 Piggyback Registration. If the Company at any time
proposes to register any of its securities under the Securities Act
(other than a registration effected solely to implement an employee
benefit plan or a transaction to which Rule 145 of the Commission is
applicable), it will each such time give prompt written notice to all
Holders and Other Shareholders of its intention so to do. Upon the
written request of a Holder or Holders or an Other Shareholder or
Other Shareholders given within twenty (20) days after receipt of any
such notice (stating the number of shares of Registrable Stock to be
disposed of by such Holder or Holders or such Other Shareholder or
Other Shareholders and the intended method of disposition), the
Company will use its best efforts to cause all such shares of
Registrable Stock intended to be disposed of, the Holders or such
Other Shareholder or Other Shareholders of which shall have requested
registration thereof, to be registered under the Securities Act so as
to permit the disposition (in accordance with the methods in said
request) by such Holder or Holders or such Other Shareholder or Other
Shareholders of the shares so registered, subject, however, to the
limitations set forth in Section 0.
12.21 Limitations on Piggyback Registration. If the
registration of which the Company gives notice pursuant to Section 0
is for an underwritten offering, only securities that are to be
included in the underwriting may be included in the registration.
Notwithstanding any provision of Section 0, if the underwriter
determines that marketing factors require a limitation of the number
of shares to be underwritten, then the number of shares to be
included in the registration and underwriting shall first be
allocated to the Company, and the underwriter may eliminate or reduce
the number of shares of Registrable Stock to be included in the
registration and underwriting. The Company shall so advise all
Holders and the Other Shareholders (except those Holders and Other
Shareholders who have not indicated to the Company their decision to
distribute any of their Registrable Stock through such underwriting),
and the number of shares of Registrable Stock that may be included in
the registration and underwriting shall be allocated among such
Holders and Other Shareholders in proportion, as nearly as
practicable, to the respective amounts of Registrable Stock owned by
such Holders and Other Shareholders at the time of filing the
registration statement. No Registrable Stock excluded from the
underwriting by reason of the underwriter's marketing limitation
shall be included in such registration, unless there is a withdrawal
from the underwriting. If any Holder or Other Shareholder
disapproves of any such underwriting, such person may elect to
withdraw therefrom by written notice to the Company and the
underwriter. The Registrable Stock and/or other securities so
withdrawn from such underwriting shall also be withdrawn from such
registration. The registration rights granted under Section 0 shall
terminate as to any Other Shareholder or Holder or permissible
transferees or assignee of such rights if such person (a) holds one
percent (1%) or less of the outstanding shares of Common Stock of the
Company on a fully diluted, as if converted basis and (b) would be
permitted to sell all of the Registrable Stock held by him pursuant
to Rule 144(k).
12.22 Designation of Underwriter.
12.23 In the case of any registration
effected pursuant to Section 0 or 0, a majority in interest of the
requesting Holders shall have the right to designate the managing
underwriters in any underwritten offering.
12.24 In the case of any registration
initiated by the Company, the Company shall have the right to
designate the managing underwriter in any underwritten offering.
12.25 Form S-3 Registration.
12.26 The Holders shall have the right to
request up to three (3) registrations on Form S-3 (such requests
shall be in writing and shall state the number of shares of
Registrable Stock to be disposed of and the intended method of
disposition) subject only to the following:
12.27 The Company shall not be required
to effect a registration pursuant to this Section 0 unless the Holder
or Holders requesting registration propose to dispose of shares of
Registrable Stock having an aggregate expected public offering price
(before deduction of underwriting discounts and expenses of sale) of
at least $500,000.
12.28 The Company shall not be required
to effect a registration pursuant to this Section 0 more frequently
than once during any twelve-month period.
The Company shall give prompt written notice to all Holders of the
receipt of a request for registration pursuant to this Section 0 and
shall provide a reasonable opportunity for other Holders to
participate in the registration, provided that if the registration is
for an underwritten offering, the terms of paragraph (d) of Section 0
shall apply to all participants in such offering. Subject to the
foregoing, the Company will use its best efforts to effect promptly
the registration of all shares of Registrable Stock on Form S-3 to
the extent requested by the Holder or Holders thereof.
12.29 The registration rights granted under
this Section 0 shall terminate as to any Holder or permissible
transferees or assignee of such rights if such person (a) holds one
percent (1%) or less of the outstanding shares of Common Stock of the
Company on a fully diluted, as if converted basis, and (b) would be
permitted to sell all of the Registrable Stock held by it pursuant to
Rule 144(k).
12.30 Cooperation by Prospective Sellers.
12.31 Each prospective seller of Registrable
Stock, and each underwriter designated by a majority in interest of
the requesting Holders, will furnish to the Company such information
as the Company may reasonably require from such seller or underwriter
in connection with the registration statement (and the prospectus
included therein).
12.32 Failure of a prospective seller of
Registrable Stock to furnish the information and agreements described
in this Section 0 shall not affect the obligations of the Company
under this Section 0 to remaining sellers who furnish such
information and agreements unless, in the reasonable opinion of
counsel to the Company or the underwriters, such failure impairs or
may impair the viability of the offering or the legality of the
registration statement or the underlying offering.
12.33 The Holders holding shares included in
the registration statement will not (until further notice) effect
sales thereof after receipt of telegraphic or written notice from the
Company to suspend sales to permit the Company to correct or update a
registration statement or prospectus; but the obligations of the
Company with respect to maintaining any registration statement
current and effective shall be extended by a period of days equal to
the period such suspension is in effect unless (i) such extension
would result in the Company's inability to use the financial
statements in the registration statement initially filed pursuant to
the Holder or Holders' request, and (ii) such correction or update
did not result from the Company's acts or failures to act.
At the end of the period during which the Company
is obligated to keep the registration statement current and effective
as described in paragraph (b) of Section 0 (and any extensions
thereof required by the preceding sentence), the Holders holding
shares included in the registration statement shall discontinue sales
of shares pursuant to such registration statement upon receipt of
notice from the Company of its intention to remove from registration
the shares covered by such registration statement which remain
unsold, and such Holders shall notify the Company of the number of
shares registered which remain unsold immediately upon receipt of
such notice from the Company.
12.34 Expenses of Registration.
All expenses incurred in effecting any
registration pursuant to Sections 0, 0 and 0 including, without
limitation, all registration and filing fees, printing expenses,
expenses of compliance with blue sky laws, fees and disbursements of
counsel for the Company, expenses, fees and disbursements of one
special counsel retained by the Holders which shall be Pepper,
Xxxxxxxx & Xxxxxxx, Xxxxxxx & Xxxxx, or other special counsel
reasonably acceptable to the Company and expenses of any audits
incidental to or required by any such registration, shall be borne by
the Company, except (a) that all expenses, fees and disbursements of
any additional counsel retained by the Holders and all underwriting
discounts and commissions shall be borne by the Holders of the
securities registered pursuant to such registration, pro rata
according to the quantity of their securities so registered; and (b)
the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to Section 0 if the
registration request is subsequently withdrawn at the unilateral
written request, not concurred in by the Company, of the Holders of a
majority of the Registrable Securities to be registered (in which
case all participating Holders shall bear such expenses), unless the
Holders of a majority of the Registrable Securities agree to forfeit
their right to demand registration pursuant to Section 0; provided,
however, that if immediately prior to the time of such withdrawal,
the Holders have learned of a materially adverse change in the
condition, business or prospects of the Company from that known to
the Holders at the time of their request, then the Holders shall not
be required to pay any of such expenses and shall retain their rights
pursuant to Section 0.
12.35 Indemnification.
12.36 To the extent permitted by law, the
Company will indemnify and hold harmless each Holder requesting or
joining in a registration, each agent, officer and director of such
Holders, each person controlling (within the meaning of Section 15 of
the Securities Act) such Holder and each underwriter and selling
broker of the securities so registered (collectively, "Indemnitees")
against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any
prospectus, offering circular or other document incident to any
registration, qualification or compliance (or in any related
registration statement, notification or the like) or any omission (or
alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or any violation (or alleged violation) by the Company of
the Securities Act, the Exchange Act or state securities laws or any
rule or regulation promulgated under the Securities Act, the Exchange
Act or a state securities law, in each case applicable to the
Company, and will reimburse each such Indemnitee for any legal and
any other fees and expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, provided, however, that the Company will not be liable to any
Indemnitee in any such case to the extent that any such claim, loss,
damage, liability or action is caused by any untrue statement or
omission so made in strict conformity with written information
furnished to the Company by an instrument duly executed by such
Indemnitee and stated to be specifically for use therein, or if such
claim, loss, damage, liability or action resulted from such
Indemnitee's intentional fraud, willful misconduct or gross
negligence and except that the foregoing indemnity agreement is
subject to the condition that, insofar as it relates to any such
untrue statement (or alleged untrue statement) or omission (or
alleged omission) made in the preliminary prospectus but eliminated
or remedied in the amended prospectus on file with the Commission at
the time the registration statement becomes effective or in the
amended prospectus filed with the Commission pursuant to Rule 424(b)
(the "Final Prospectus"), such indemnity agreement shall not inure to
the benefit of any underwriter, or any Indemnitee if there is no
underwriter, if a copy of the Final Prospectus was not furnished to
the person or entity asserting the loss, liability, claim or damage
at or prior to the time such furnishing is required by the Securities
Act; provided, further, that this indemnity shall not be deemed to
relieve any underwriter of any of its due diligence obligations;
provided, further, that the indemnity agreement contained in this
subsection 0(a) shall not apply to amounts paid in settlement of any
such claim, loss, damage, liability or action if such settlement is
effected without the consent of the Company, which consent shall not
be unreasonably withheld.
12.37 To the extent permitted by law, each
Holder requesting or joining in a registration and each underwriter
and selling broker of the securities so registered will indemnify and
hold harmless the Company and its officers and directors and each
person, if any, who controls any thereof within the meaning of
Section 15 of the Securities Act and their respective successors
against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any
prospectus, offering circular or other document incident to any
registration, qualification or compliance (or in any related
registration statement, notification or the like) or any omission (or
alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading and will reimburse the Company and each other person
indemnified pursuant to this paragraph (b) for any legal and any
other fees and expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, provided, however, that this paragraph (b) shall apply only
if (and only to the extent that) such statement or omission was made
in reliance upon and in strict conformity with written information
(including, without limitation, written negative responses to
inquiries) furnished to the Company by an instrument duly executed by
such Holder, underwriter or selling broker and stated to be
specifically for use in such prospectus, offering circular or other
document (or related registration statement, notification or the
like) or any amendment or supplement thereto; and except that the
foregoing indemnity agreement is subject to the condition that,
insofar as it relates to any such untrue statement (or alleged untrue
statement) or omission (or alleged omission) made in the preliminary
prospectus but eliminated or remedied in the amended prospectus on
file with the Commission at the time the registration statement
becomes effective or in the Final Prospectus, such indemnity
agreement shall not inure to the benefit of (i) the Company and (ii)
any underwriter or Holder, if there is no underwriter, if a copy of
the Final Prospectus was not furnished to the person or entity
asserting the loss, liability, claim or damage at or prior to the
time such furnishing is required by the Securities Act; provided,
further, that this indemnity shall not be deemed to relieve any
underwriter of any of its due diligence obligations; provided,
further, that the indemnity agreement contained in this subsection
0(b) shall not apply to amounts paid in settlement of any such claim,
loss, damage, liability or action if such settlement is effected
without the consent of the Holder or underwriter, as the case may be,
which consent shall not be unreasonably withheld; and provided,
further, that the obligations of such Holders shall be limited to an
amount equal to the net proceeds received by such Holder from the
sale of Registrable Stock in such offering as contemplated herein,
unless such claim, loss, damage, liability or action resulted from
such Holder's intentional fraudulent misconduct.
12.38 Each party entitled to indemnification
hereunder (the "indemnified party") shall give notice to the party
required to provide indemnification (the "indemnifying party")
promptly after such indemnified party has actual knowledge of any
claim as to which indemnity may be sought, and shall permit the
indemnifying party (at its expense) to assume the defense of any
claim or any litigation resulting therefrom, provided that counsel
for the indemnifying party, who shall conduct the defense of such
claim or litigation, shall be reasonably satisfactory to the
indemnified party, and the indemnified party may participate in such
defense at such party's expense, and provided further that the
omission by any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under
this Section 0 except to the extent that the omission results in a
failure of actual notice to the indemnifying party and such
indemnifying party is damaged solely as a result of the failure to
give notice. No indemnifying party, in the defense of any such claim
or litigation, shall consent, except with the consent of each
indemnified party, to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such indemnified party of
a release from all liability in respect to such claim or litigation.
12.39 The reimbursement required by this
Section 0 shall be made by periodic payments during the course of the
investigation or defense, as and when bills are received or expenses
incurred.
12.40 The obligation of the Company under
this Section 0 shall survive the completion of any offering of
Registrable Stock in a registration statement under this Section 0,
or otherwise.
12.41 Rights that may be Granted to Subsequent RRGC.
12.42 Within the limitations prescribed by
this paragraph (a), but not otherwise, the Company may grant to
subsequent investors in the Company the right of registration. Such
rights may be granted with respect to (i) registrations actually
requested by Initiating Holders pursuant to Section 0, but only in
respect of that portion of any such registration as remains after
inclusion of all Registrable Stock requested by Holders, (ii)
registrations initiated by the Company, and (iii) registrations
initiated by such subsequent investors. With respect to
registrations which are for underwritten public offerings, "available
portion" shall mean the portion of the underwritten shares that is
available as specified in clauses (i) and (ii) of the third sentence
of this paragraph (a). Shares not included in such underwriting
shall not be registered.
12.43 The Company may not grant to subsequent
investors in the Company rights of registration upon request (such as
those provided in Sections 0 and 0) unless (i) all Holders are given
enforceable contractual rights to participate in registrations
requested by such subsequent investors to the same extent as such
subsequent investors could participate under Sections 0 and 0, such
participation to be on a pro-rata basis, and subject to the
limitations, described in the final three sentences of paragraph (a)
of this Section 0, (ii) such rights shall not become effective prior
to 90 days after the effective date of the registration pursuant to
Section 0, and (iii) such rights shall not be more favorable than
those granted to RRGC, including rights regarding cutback provisions.
12.44 Transfer of Registration Rights. The registration
rights granted to RRGC under this Section 0 may be transferred but
only to (i) a transferee who shall acquire not less than 200,000
shares of Registrable Stock, as adjusted for stock splits, stock
dividends, and other recapitalization events, (ii) affiliates of
RRGC, and (iii) partners of RRGC's general partner (including spouses
and ancestors, lineal descendants and siblings of such partners or
spouses who acquire Registrable Stock by gift, will or intestate
succession) if all such transferees or assignees agree in writing to
appoint a single representative as their attorney in fact for the
purpose of receiving any notices and exercising their rights under
this Section 0.
12.45 "Stand-Off" Agreement. In consideration for the
Company performing its obligations under this Section 0, RRGC, on
behalf of itself and any of its successors or assigns, agrees for a
period of time (not to exceed 120 days) from the effective date of
any registration (other than a registration effected solely to
implement an employee benefit plan) of securities of the Company
(upon request of the Company or of the underwriters managing an
underwritten offering of the Company's securities) not to sell, make
any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Registrable Stock or any other stock of the
Company held by RRGC, other than shares of Registrable Stock included
in the registration, without the prior written consent of the Company
or such underwriters, as the case may be, provided that all officers
and directors of the Company and each holder of more than 5% of the
outstanding Common Stock shall enter into similar agreements.
12.46 Delay of Registration. RRGC shall have no right to
take any action to restrain, enjoin, or otherwise delay any
registration as the result of any controversy that might arise with
respect to the interpretation or implementation of this Section 0.
Article 13
Definitions
As used herein, the following terms have the following
respective meanings:
Acquired Stock: means any outstanding warrant
received by RRGC upon prepayment of the Note (a "Warrant"), and any
Common Stock held by RRGC or its transferee obtained upon conversion
of the Note or exercise of a Warrant.
Affiliate: as applied to any Person, any other Person
directly or indirectly controlling, controlled by or under direct or
indirect common control with such Person; in any event, however,
always excluding RRGC.
Affiliated Company: the meaning specified in Section
3.13.
Banking Day: any day, excluding Saturday and Sunday
and excluding any other day which shall be in Denver, Colorado, a
legal holiday or a day on which banking institutions are authorized
by law to close.
Capital Expenditure: any payment made directly or
indirectly for the purpose of acquiring or constructing fixed assets,
real property or equipment which in accordance with GAAP would be
added as a debit to the fixed asset account of the Person making such
expenditure, including, without limitation, amounts paid or payable
under any conditional sale or other title retention agreement or
under any lease or other periodic payment arrangement which is of
such a nature that payment obligations of the lessee or obligor
thereunder would be required by generally accepted accounting
principles to be capitalized and shown as liabilities on the balance
sheet of such lessee or obligor.
Capital Lease: any lease of property (real, personal
or mixed) which, in accordance with GAAP, should be capitalized on
the lessee's balance sheet or for which the amount of the asset and
liability thereunder as if so capitalized should be disclosed in a
note to such balance sheet.
Charge and Debt Ratio: the meaning specified in
Section 7.4.
Closing: the meaning specified in Section 2.1.
Closing Date: the meaning specified in Section 2.1.
Code: the meaning specified in Section 3.13.
Common Stock: the common stock, par value $0.001, of
the Company.
Company: the meaning specified at the beginning of
this Agreement.
Consents: the meaning specified in Section 3.12.
Convertible Note: the meaning specified in Section 1.2
ERISA: the meaning specified in Section 3.13.
Event of Default: the meaning specified in Section 11.1.
Financial Statements: the meaning specified in
Section 3.6.
Forms X-0, X-0 and S-3: the meaning specified in
Section 12.1.
GAAP: generally accepted accounting principles
consistently applied.
Hazardous Material: means any substance presently or
hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive or which is otherwise regulated under any
Environmental Law. It includes, without limitation, any toxic waste,
pollutant, contaminate, hazardous substance, toxic substance,
hazardous waste, and radioactive material. "Environmental" Law means
any federal, state, local or other statute, law, ordinance, code,
rule, regulation, order or decree regulating, relating to, or
imposing liability or standards of conduct concerning the (1)
protection, preservation or restoration of the environment or to
human health and safety or (2) the exposure to, or the use, storage,
recycling, treatment, generation, transportation, handling, release
or disposal of hazardous material. It includes, without limitation
the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, the Federal Water Pollution Control Act of 1972, the
Federal Clean Air Act, the Federal Resource Conservation and Recovery
Act of 1976, each as amended, or any state counterpart thereof.
Holder: the meaning specified in Section 0.1.
Indebtedness: as applied to any Person, (i) all items
(except items of capital or surplus or of retained earnings) which in
accordance with GAAP would be included in determining total
liabilities as shown on the liability side of the balance sheet of
such Person as of the date of which Indebtedness is to be determined,
including any Capital Lease, (ii) all indebtedness secured by any
mortgage, pledge, lien or conditional sale or other title retention
agreement to which any property or asset owned or held by such Person
is subject, whether or not the indebtedness secured thereby shall
have been assumed, and (iii) all indebtedness of others which such
Person has directly or indirectly guaranteed, endorsed (otherwise
than for collection or deposit in the ordinary course of business),
discounted or sold with recourse or agreed (contingently or
otherwise) to purchase or repurchase or otherwise acquire, or in
respect of which such Person has agreed to supply or advance funds
(whether by way of loan, stock purchase, capital contributions or
otherwise) or otherwise to become directly or indirectly liable.
Indebtedness shall not include payment of Preferred Stock dividends.
Indemnitees: the meaning specified in Section 12.11.
Initiating Holders: the meaning specified in Section
12.2.
Intellectual Property: the meaning specified in
Section 3.15.
Investment Documents: collectively, the Investment
Agreement, the Note, the Security Agreement, the Pledge Agreement,
the Stockholders' Agreement, the SBA Documents and all certificates
and agreements delivered by the Company in connection herewith and
with such other agreements.
RRGC: the meaning specified at the beginning of this
Agreement, including their permitted successors and assigns.
Licenses: the meaning specified in Section 0.
Loan: the meaning specified in the Recitals.
Non-Convertible Note: the meaning specified in
Section 1.2.
Notes: the meaning specified in Section 1.2.
Notice Period: the meaning specified in Section 12.2.
Officers: the meaning specified in Section 3.17.
Operating Cash Flow: the meaning specified in Section
7.2.
Operating Lease: any lease, including a lease with an
option to purchase, other than a Capital Lease.
Other Shareholders: the meaning specified in Section
12.4.
PBGC: the meaning specified in Section 6.6.
Permitted Subsidiary: the meaning specified in
Section 6.6.
Person: a corporation, an association, a partnership,
a limited liability company, a joint venture, a trust, an
organization, a business, an individual, a government or political
subdivision thereof, a governmental agency or any other legal entity.
Principal Stockholder: the meaning specified in
Section 3.2.
Property: the meaning specified in Section 3.14.
Qualified Public Offering: a secondary public
offering of the Company's Common stock which results in net proceeds
to the Company of at least $15,000,000.
Register, Registered and Registration: the meaning
specified in Section 12.1.
Registration Rights Agreement: the meaning specified
in Section 4.7.
Required Demand Amount: the meaning specified in
Section 12.1.
Rule 144(k): the meaning specified in Section 12.4(f).
SBIC Act: the meaning specified in Section 9.1.
SBA Documents: the meaning specified in Section 4.3.
Schaden: Xxxxxxx X. Xxxxxxx.
Schadens: Xxxxxxx X. Xxxxxxx and Xxxxxxx X. Xxxxxxx.
Schaden Shares: the meaning specified in
Section 1.5(b).
SEC: the meaning specified in Section 10.1(g)
Securities Act: Securities Act of 1933, as amended.
Senior Indebtedness: the meaning specified in Section
1.3.
Senior Lender: the meaning specified in Section 1.3.
Small Business Concern: the meaning specified in
Section 9.2.
Stockholders Agreement: the meaning specified in
Section 4.7.
Subsidiary: any corporation, association,
partnership, limited liability company, joint venture or other
business entity of which more than 50% of the outstanding voting
stock (or equivalent interest) is at the time owned by the Company or
by one or more Subsidiaries or by the Company and one or more
Subsidiaries.
Valuator: a member of an accounting, appraisal or
investment banking firm of nationally recognized standing or other
person with demonstrable skills which qualifies them to value the
business of the Corporation.
Valuation Procedure: the following procedure for
determining the fair value of Common Stock or Warrants to be acquired
by the Company (the "Redeemed Securities"): (a) upon the event
triggering the need to determine the fair value of the Redeemed
Securities ("Valuation Notice"), the Company and Holder whose
Redeemed Securities are being valued (the "Selling Person") shall
attempt to agree on a mutually acceptable Valuator to value the
Redeemed Securities, and if such parties agree on a Valuator within
ten days following the receipt of the Valuation Notice, such Valuator
shall, on or before twenty days following the date it is appointed,
determine the fair value of the Redeemed Securities, and such
determination shall be binding upon the Company and the Selling
Person; (b) in the event the Company and Selling Person are unable to
agree upon a mutually acceptable Valuator within ten days following
the date of the receipt of the Valuation Notice, on the expiration of
such ten-day period the Company and the Selling Person shall each
appoint a Valuator to value the Redeemed Securities. Within twenty
days following the date they are appointed, the Valuators appointed
by the Company and the Selling Person shall determine the fair value
of the Redeemed Securities. In the event the value determined by the
Company's Valuator is within 5% of the value determined by the
Selling Person's Valuator, the fair value for purposes of this
Agreement shall be the average of the values determined by such
Valuators and such determination shall be binding upon the Company
and the Selling Person. In the event the value determined by the
Company's Valuator is not within 5% of the value determined by the
Selling Person's Valuator, such Valuators shall in turn appoint a
third Valuator who shall, within twenty days following the date it is
appointed, determine the fair value of the Redeemed Securities. The
value which is neither the lowest nor the highest of the values
determined by the three Valuators shall be the fair value of the
Redeemed Securities for purposes of this Agreement and shall be
binding on the Company and the Selling Person. In the event either
the Company or the Selling Person fails to timely appoint a Valuator,
such failing party shall be deemed to have waived its rights to
appoint a Valuator, and the Valuator appointed by the other party
shall determine the fair value for purposes of this Agreement, which
determination shall be binding upon the Selling Person and the
Company. The costs of any mutually agreeable Valuator referred to in
(a) above and of the third Valuator referred to in (b) above shall be
paid equally by the Company and the Selling Person. The Selling
Person shall pay all costs of the Valuator appointed by the Selling
Person pursuant to (b) above and the Company shall pay all cost of
the Valuator so appointed by it.
The Valuators shall use the following valuation guidelines:
(1) The Corporation shall be valued based upon the higher
of its value as a going concern or upon its
liquidation.
(2) The Redeemed Securities shall be valued without
discount for illiquidity, lack of marketability, or
minority holding.
Notwithstanding the foregoing, if the Company's Common Stock has had
an average trading volume of 30,000 shares per day over the last
twenty (20) days, excluding trading initiated by the Principal
Stockholders, then the fair value of the Company shall be determined
based on the average closing prices over those same twenty (20) days.
Warrants: the meaning specified in the definition of
Acquired Stock.
Article 14
Taxes and Fees; Indemnification
14.1 Taxes, Placement Fee. Whether or not the transactions
contemplated hereby shall be consummated, the Company agrees to pay
all taxes and fees (including interest and penalties), including,
without limitation, all recording and filing fees, transfer and
documentary stamp and similar taxes, which may be payable in respect
of the execution and delivery of the Investment Documents (including
any amendment, consent or waiver hereafter requested by the Company
hereunder or thereunder) and to indemnify RRGC and hold RRGC harmless
against any loss or liability resulting from non-payment or delay in
payment of any such tax. The Company shall also pay any private
placement fees assessed by the State of Texas or any subdivisions
thereof. Notwithstanding the foregoing, this section does not apply
to income taxes or other taxes measured by income of RRGC.
14.2 Indemnification. The Company will indemnify RRGC, its
general and limited partners, and their its directors, officers and
employees and each other Person, if any, who controls RRGC and will
hold RRGC and such other Persons harmless from and against any and
all claims, damages, losses, liabilities, judgments and expenses
(including without limitation all reasonable fees and expenses of
counsel and all expenses of litigation or preparation therefor) which
RRGC or such other Persons may incur or which may be asserted against
RRGC or such other Persons in connection with or arising out of any
investigation, litigation or proceeding involving the Company or any
stockholder or any Affiliate of the Company or any such stockholder
(including compliance with or contesting of any subpoenas or other
process issued against RRGC, or any director, officer or employee of
RRGC or any Person, if any, who controls RRGC in any proceeding
involving the Company or any stockholder or any Affiliate of the
Company or any such stockholder), whether or not RRGC is party
thereto, other than claims, damages, losses, liabilities, expenses or
judgments with respect to any matter as to which RRGC or such other
Person seeking indemnity shall have been finally adjudicated to have
acted with willful misconduct or gross negligence. Promptly upon
receipt by any indemnified party hereunder of notice of the
commencement of any action, such indemnified party shall, if a claim
in respect thereof is to be made against the Company hereunder,
notify the Company in writing of the commencement thereof.
Article 15
Waivers
15.1 Waivers. RRGC's failure to insist upon the strict performance
of any term, condition or other provision of any Investment Document,
or to exercise any right or remedy hereunder or thereunder shall not
constitute a waiver by RRGC of any such term, condition or other
provision or default or Event of Default in connection therewith; and
any waiver of any such term, condition or other provision or of any
such default or Event of Default shall not affect or alter any
Investment Document and each and every term, condition and other
provision of the Investment Documents shall, in such event, continue
in full force and effect and shall be operative with respect to any
other then existing or subsequent default or Event of Default in
connection therewith.
Article 16
Miscellaneous
16.1 Waivers and Amendments. This Agreement may be amended
only by the written consent of RRGC and the Company. The terms of
this Agreement may be waived only by a statement in writing signed by
the party against whom enforcement of the waiver is sought.
16.2 Lost Notes, Warrants or Stock Certificates. Upon
receipt of an affidavit of loss of a Note, a Warrant or any stock
certificate and, in the case of any such loss, theft or destruction,
upon receipt of an indemnity agreement from RRGC reasonably
satisfactory to the Company, or in the case of any such mutilation
upon surrender and cancellation of such Note, Warrant or stock
certificate, the Company will make and deliver a new Note, Warrant or
stock certificate, or like tenor, in lieu of the lost, stolen,
destroyed or mutilated Note, Warrant or stock certificate.
16.3 Notices. All notices and other communications
hereunder shall be in writing and shall be delivered by facsimile
where confirmation or receipt by the receiving party's receiver can
be documented, or personally delivered by hand or by reputable
overnight courier or mailed by first class certified or registered
mail, postage prepaid, as follows:
(a) If to RRGC:
Retail & Restaurant Growth Capital, L.P.
00000 X. Xxxxxxx Xxxxxxxxxx
Xxxxx 0000
Xxxxxx, Xxxxx 00000
ATTN: Xxxx Xxxxxxxx
Facsimile Number: 214/750-0060
with a copy to:
Xxxxxxx X. Xxxxxxxx, Esq.
Pepper, Xxxxxxxx & Xxxxxxx
000 Xxxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, XX 00000
Facsimile Number: 313/259-7926
(b) If to the Company:
The Quizno's Corporation
0000 Xxxx Xxxxxxx Xxxxxx
Xxxxx 000
Xxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxxx
Facsimile Number: 303/368-9454
with a copy to:
Xxxx X. Xxxxxxx, Esq.
Ballard, Spahr, Xxxxxxx & Ingersoll
0000 x0xx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Facsimile Number 303/296-3956
or to such other address or addresses as the party to whom such
notice is directed may have designated in writing to the other party
hereto. A notice shall be deemed to have been given upon receipt by
the party to whom such notice is directed, or, if receipt is refused,
on the day on which delivery was attempted.
16.4 Fees and Expenses. Subject to Section 0, the Company
shall reimburse RRGC for up to $50,000 of fees and expenses
(including but not limited to legal fees, advisory and consulting
fees, travel and communication expenses, and reproduction costs)
incurred in connection with the transactions contemplated by this
Agreement. Subject to Section 0, the Company shall also reimburse
RRGC for all reasonable costs incurred in amending, modifying, or
enforcing this Agreement.
16.5 Calculations. Calculations hereunder shall be made
and financial data required hereby shall be prepared, both as to
classification of items and as to amounts, in accordance with
generally accepted accounting principles and practices which
principles and practices shall be consistently applied and in
conformity with those used in the preparation of the financial
statements referred to herein.
16.6 Survival of Agreements. This Agreement shall inure to
the benefit of RRGC and its successors and assigns including any
subsequent holder or holders of the Note or other Acquired Stock, as
the case may be, and the terms RRGC, shall include any such holder or
holders whenever the context permits. All agreements,
representations and warranties made herein shall survive the
execution and delivery of this Agreement and the making of the Loan
hereunder.
16.7 Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto on
separate counterparts, each of which when so executed and delivered
shall be an original, but all the counterparts shall together
constitute one and the same instrument. The parties may deliver
execution copies of this Agreement by delivery of signature pages by
fax transmission, provided that such delivery is thereafter followed,
within a reasonable time, with delivery of originally executed
signature pages.
16.8 Entire Agreement. This Agreement, together with the
Investment Documents, constitutes the entire contract between the
parties hereto and shall supersede and take the place of any other
instrument purporting to be an agreement of the parties hereto
relating to the transactions contemplated hereby.
16.9 Governing Law; Jurisdiction; Waiver of Jury Trial.
This Agreement and each of the other Investment Documents, including
the validity hereof and thereof and the rights and obligations of the
parties hereunder and thereunder, shall be construed in accordance
with and governed by the laws of the State of Texas (without regard
to its choice of law provisions). The Company, to the extent that it
may lawfully do so, hereby consents to service of process, and to be
sued, in the State of Texas and consents to the jurisdiction of the
courts of Dallas County, Texas, as well as to the jurisdiction of all
courts to which an appeal may be taken from such courts, for the
purpose of any suit, action or other proceeding arising out of any of
its obligations hereunder or under the Note or with respect to the
transactions contemplated hereby or thereby, and expressly waives any
and all objections it may have as to venue in any such courts. The
Company further agrees that a summons and complaint commencing an
action or proceeding in any of such courts shall be properly served
and shall confer personal jurisdiction if served personally or by
certified mail to it at its address provided in Section 0 or as
otherwise provided under the laws of the State of Texas. The Company
and RRGC irrevocably waive all right to a trial by jury in any
proceeding hereafter instituted by or against the Company or RRGC, as
applicable, in respect of the Investment Documents or any other
documents executed in connection herewith or therewith.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date set forth.
THE QUIZNO'S
CORPORATION, a Colorado corporation
By: /s/ Xxxxxxx X. Xxxxxxx
Its: President
RETAIL AND RESTAURANT
GROWTH CAPITAL, L.P., a Delaware limited
partnership
By: Retail &
Restaurant Growth Capital, L.P., a
Texas limited partnership, its general
partner
By: Retail &
Restaurant Growth Management, Inc., a
Texas corporation, its general partner
By: /s/ Xxxxxxx X. Xxxxxxx
Its: COB/CEO
