THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933
(THE "ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. THE PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER
OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS
NOTE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR UPON DELIVERY OF AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
Creative Host Services, Inc.
12% Secured Convertible Note
$3,000,000.00 December 21, 1998
No. 1
Creative Host Services, Inc., a California corporation (herein called the
"Issuer," which term includes any successor person or entity under the Indenture
(hereinafter defined)), for value received, hereby promises to pay to Xxxxx
Correspondent Services, Inc., or registered assigns, the principal sum of Three
Million Dollars on or before December 20, 2003, as specified herein, and to pay
interest thereon (calculated on the basis of a 365 day year) at a rate of 12.0%
per annum, accruing from the date of issuance of this Note, payable on the
fifteenth day of each calendar month, commencing on the fifteenth day of the
first calendar month subsequent to the date of the Indenture, until the entire
principal amount is paid in full or duly provided for.
Principal shall be payable in equal installments, without presentation of
this Note, payable on the fifteenth day of each calendar month, commencing on
the 15th day of the first calendar month subsequent to the date which is two (2)
years after the date of the Indenture, and ending on the Maturity Date, in an
amount sufficient to amortize the Note over 10 years, with any and all unpaid
principal to be paid on the Maturity Date upon presentation of this Note.
1. Person to Whom Interest and Principal is Paid. The interest and
principal payable, on any Payment Date will be paid to the Person in whose name
this Note is registered at the close of business on the Regular Record Date for
such payment of interest or principal. Any such interest or principal not paid
shall cease to be payable to the Holder on such Regular Record Date, and may be
paid to the Person in whose name this Note is registered at the close of
business on a Special Record Date for the payment of such Defaulted Payment to
be fixed by the Trustee, notice of which
shall be given to Holders of Notes not less than 10 days prior to such Special
Record Date, all as more fully provided in the Indenture.
2. Place of Payment. Payment of principal of and interest on this Note
will be made at the office or agency of the Issuer maintained for that purpose
in the City of San Diego, California or at such other office or agency of the
Issuer as may be maintained for such purpose, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; provided that such payment may be made at the
option of the Issuer by check mailed to the address of the Person entitled
thereto as such address shall appear on the Note Register.
3. Indenture. This Note is one of a duly authorized issue of securities of
the Issuer designated as its 12% Secured Convertible Notes (herein called the
"Notes"), limited in aggregate principal amount to $3,000,000.00 which may be
issued under that certain 12% Secured Convertible Notes Indenture (herein called
the "Indenture") dated December 21, 1998, between the Issuer and U.S. Bank
National Association, as trustee (herein called the "Trustee," which term
includes any successor trustee under the Indenture), to which the Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights of the Issuer, the Trustee and the Holders of the Notes,
and of the terms upon which the Notes are, and are to be, authenticated and
delivered.
All capitalized terms used in this Note without definition shall have the
meanings assigned to them in the Indenture.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the time, place and rate, and in the coin or currency, herein prescribed.
4. Conversion Right. At any time and from time to time during the period
beginning on the date three (3) months from the date of this Note (the
"Conversion Commencement Date") and thereafter while any principal or interest
hereunder remains outstanding, Holder shall have the right, but not the
obligation, to convert this Note into fully paid and nonassessable shares of
Maker's common stock ("Common Stock" or the "Shares") at the price per share of
$2.625 (the "Conversion Price") of the outstanding balance of principal and
interest due hereunder at the date of conversion as follows (such right being
referred to herein as the "Conversion Right"):
4.1 Method of Exercise. The Conversion Right shall be exercised, in
whole or in part, by delivery to the Issuer of the form of subscription
agreement attached hereto duly executed. Upon receipt of such notice, the Issuer
shall cause to be issued certificates for the total number of whole Shares with
respect to which the Conversion Right is being exercised in such denominations
as are required for delivery to the Holder hereof, and the Issuer shall
thereupon deliver such certificates to the Holder hereof or its nominee, and
deliver the surrendered note to the Trustee for
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cancellation. The outstanding balance of principal and interest due hereunder
and the monthly payments thereof shall be reduced to reflect any and all
conversions into Shares.
4.2 Investment Intent. The Holder hereof represents and warrants to
the Issuer that the Conversion Right and, to the extent the Conversion Right is
exercised, the Shares, are being acquired for such Holder's own account for
investment purposes only and such Holder has no present intention or agreement
to effect any distribution of any portion of the Conversion Right, the Shares or
any rights with respect thereto.
4.3 Adjustments Upon Changes in Capitalization.
4.3.1 Stock Splits. If the Issuer at any time or from time to
time after the issuance date of this Note effects a subdivision of the
outstanding Common Stock, the Conversion Price then in effect immediately before
that subdivision shall be proportionately decreased, and conversely, if the
Issuer at any time or from time to time after the date of this Note combines the
outstanding shares of Common Stock, the Conversion Price then in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this subsection 4.3.1 shall become effective at the close of
business on the date the subdivision or combination becomes effective.
4.3.2 Dividends and Distributions. In the event the Issuer, at
any time or from time to time after the date of this Note, makes, or fixes a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Conversion Price then in effect shall be
decreased as of the time of such issuance or, in the event such a record date is
fixed, as of the close of business on such record date, by multiplying the
Conversion Price then in effect by a fraction (i) the numerator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(ii) the denominator of which shall be the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution; provided, however,
that if such record date is fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Conversion Price
shall be recomputed accordingly as of the close of business on such record date
and thereafter the Conversion Price shall be adjusted pursuant to this
subsection 4.3.3 as of the time of actual payment of such dividends or
distributions.
4.3.3 Recapitalization or Reclassification. If the Shares
issuable upon the conversion of this Note are changed into the same or a
different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets, provided for elsewhere in this Section 4.3),
then, and in any such event, the Conversion Right shall thereafter refer to the
right to convert this Note into such number and kind of securities as
3
would have been issuable to the Holder here as a result of such change if,
immediately prior to such change, such Holder had exercised the Conversion Right
as to the entire outstanding balance of principal and interest hereunder,
subject to further adjustment as provided herein.
4.3.4 Sale of the Issuer. If at any time or from time to time
there is a capital reorganization of the Common Stock (other than a
recapitalization, subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section 4.3) or a merger or consolidation
of the Issuer with or into another company, or the sale of all or substantially
all of the Issuer's properties and assets to any other person, the Conversion
Right shall thereafter refer to the right to convert this Note into such number
and kind of securities and property as would have been issuable or distributable
to the Holder hereof on account of such reorganization, merger, consolidation or
sale if, immediately prior thereto, such Holder had exercised the Conversion
Right as to the entire outstanding balance of principal and interest hereunder.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4.3 with respect to the rights of such Holder after
the reorganization, merger, consolidation or sale to the end that the provisions
of this Section 4.3 (including adjustment of the Conversion Price then in effect
and number of shares purchasable upon conversion of this Note) shall be
applicable after that event and be as nearly equivalent to the provisions hereof
as may be practicable.
4.3.5 Observance of Duties. The Issuer shall not, by amendment
of its Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Issuer but shall
at all times in good faith assist in the carrying out of all the provisions of
this Section 4.3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Right of the Holder hereof
against dilution or other impairment.
5. Registration Under the Securities Act of 1933.
5.1 Registration and Legends. This Note and the Shares issuable upon
conversion of this Note have not been registered under the Securities Act of
1933, as amended ("the Act"). Upon conversion, in whole or in part, of this
Note, the certificates representing the Shares shall bear the following legend
until such time as such legend is no longer required by law:
THIS SECURITY HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
ACT OF 1933 ("ACT") OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
OFFERED OR SOLD UNLESS REGISTERED AND QUALIFIED PURSUANT TO THE APPLICABLE
PROVISIONS OF FEDERAL AND STATE SECURITIES LAWS OR UNLESS AN EXEMPTION
FROM SUCH REGISTRATION OR QUALIFICATION APPLIES. THEREFORE, NO SALE OR
TRANSFER OF THIS SECURITY SHALL BE MADE, NO ATTEMPTED SALE OR TRANSFER
SHALL BE VALID, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE ANY EFFECT TO
ANY SUCH TRANSACTION UNLESS (A) SUCH TRANSACTION HAS BEEN DULY
4
REGISTERED UNDER THE ACT AND QUALIFIED OR APPROVED UNDER APPROPRIATE STATE
SECURITIES LAWS, OR (B) THE ISSUER HAS FIRST RECEIVED AN OPINION OF
COUNSEL SATISFACTORY TO IT THAT SUCH REGISTRATION, QUALIFICATION OR
APPROVAL IS NOT REQUIRED.
5.2 Registrable Securities. For purposes of this Agreement,
"Registrable Securities" shall mean the securities issued or issuable upon
conversion of the Notes and the securities issued or issuable upon exercise of
the warrants issued by the Issuer pursuant to that certain Confidential Private
Placement Memorandum dated December 15, 1998.
5.3 Demand Registration Rights. On one occasion at any time after
December 21, 1998, the Issuer shall, upon the demand of the holders of a
majority of the Registrable Securities, register such securities and file all
necessary undertakings with the Securities and Exchange Commission (the "SEC")
so as to permit the Holder hereof the right to sell publicly the Shares issued
on conversion of this Note. The Issuer will bear all expenses attendant to
registering the Registrable Securities (subject to Section 5.5.5).
5.4 Piggyback Registration Rights. In the event that the right to
demand that the Registrable Securities be registered pursuant to Section 5.3 has
not been exercised, the Issuer agrees to include any appropriate Shares issuable
upon conversion of this Note in any registration statement filed by the Issuer
at any time after the Conversion Commencement Date and before the Stated
Maturity.
5.5 Covenants Regarding Registration. In connection with any
registration under Section 5.3 or 5.4 hereof, the Issuer covenants and agrees as
follows:
5.5.1 The Issuer shall, within sixty (60) days after receipt
of written demand from the holders of a majority of the Registrable Securities
pursuant to Section 5.3, take all steps necessary to effectuate preparation and
filing with the SEC of the registration statement as required by and in
compliance with the Act. Such registration statement shall be on Form S-3 or
other appropriate form as determined by the Issuer.
5.5.2 The Issuer shall keep such registration statement
effective for the lesser of (i) twenty-four (24) months, or (ii) the period of
time in which the holders of securities covered by such registration statement
have effected the distribution of their Shares. During such period the Issuer
shall prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
5.5.3 The Issuer shall notify each holder of Shares covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such
5
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 light of the
circumstances then existing.
5.5.4 The Issuer shall furnish to such holders such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of the Shares owned by them.
5.5.5 The Issuer shall pay all costs, fees, and expenses in
connection with new registration statements under Section 5.3 (excluding the
costs attendant to a second demand registration) and Section 5.4 hereof
including, without limitation, the Issuer's legal and accounting fees, printing
expenses, and blue sky fees and expenses, except that the Issuer shall not pay
for any of the following costs and expenses: (i) underwriting discounts and
commissions allocable to the Shares, (ii) state transfer taxes, (iii) brokerage
commissions, (iv) fees and expenses of counsel and accountants for the holders
of this Note or the Shares.
5.5.6 The Issuer will take all necessary action which may be
required in qualifying or registering the Shares covered by such registration
statement or post-effective amendment or new registration statement for offering
and sale under the securities laws of such states as are reasonably requested by
the holders of such Shares, provided that the Issuer shall not be obligated to
execute or file any general consent to service or process or to qualify as a
foreign corporation to do business under the laws of any such jurisdiction.
6. Redemption.
6.1 Optional Redemption. The Notes are subject to redemption
pursuant to the terms of the Indenture, at the option of the Issuer, in whole or
in part, on not less than 90 days' prior notice by mail to each Holder of Notes
to be redeemed, at the percentage (at a given time, the "Optional Redemption
Percentage"), specified below for a given time period in which redemption
occurs, of the outstanding principal amount of each Note or such portion thereof
being redeemed, plus accrued and unpaid interest, if any, to the Redemption Date
(subject to the right of Holders of record on relevant record dates to receive
interest due on a Payment Date):
Time Period Percentage
----------- ----------
December 1, 1998 - November 30, 1999 105%
December 1, 1999 - November 30, 2000 104%
December 1, 2000 - November 30, 2001 103%
December 1, 2001 - November 30, 2002 102%
December 1, 2002 - November 29, 2003 101%
6
6.2 Prior Due Payments. In the case of any redemption of Notes,
principal and interest installments whose Stated Maturity is on or prior to the
Redemption Date will be payable to the Holders of such Notes of record at the
close of business on the relevant Regular Record Date. Notes (or portions
thereof) for whose redemption and payment provision is made in accordance with
the Indenture shall cease to bear interest from and after the Redemption Date.
In the event of redemption of this Note in part only, a new Note or Notes
for the unredeemed portion hereof shall be issued in the name of the Holder
hereof upon the cancellation hereof.
7. Defaults and Remedies. If an Event of Default shall occur and be
continuing, the principal of all the Notes and accrued and unpaid interest, if
any, may be declared to be due and payable in the manner and with the effect
provided in the Indenture.
8. Security Documents. In order to secure the due and punctual payment of
the principal of, and interest on the Notes and all other amounts payable by the
Issuer under the Indenture and the Notes when and as the same shall be due and
payable, whether at maturity, by acceleration or otherwise, according to the
terms of the Notes and the Indenture, the Issuer has granted to the Trustee
security interests in and Liens on its interest in the Trust Estate for the
benefit of the Holders of Notes pursuant to the Indenture and the Security
Documents.
Each Holder, by accepting a Note, agrees to all of the terms and
provisions of the Security Documents, as the same may be amended from
time-to-time pursuant to the respective provisions thereof and the Indenture.
Each Holder acknowledges that a release of any of the Trust Estate or
Liens strictly in accordance with the terms and provisions of any of the
Security Documents and the terms and provisions of the Indenture will not be
deemed for any purpose to be an impairment of the security under the Indenture.
9. Amendments and Waivers. The Indenture permits, with certain exceptions
as therein provided, the amendment thereof and of the Security Documents and the
modification of the rights and obligations of the Issuer and the rights of the
Holders under the Indenture, the Security Documents and this Note at any time by
the Issuer and the Trustee with the consent of the Holders of not less than a
majority of the aggregate principal amount of the Notes at the time Outstanding.
The Indenture also contains provisions permitting a majority in aggregate
principal amount of the Notes at the time Outstanding, on behalf of the Holders
of all the Notes, to waive compliance by the Issuer with certain provisions of
the Indenture, the Security Documents and this Note and certain past defaults
under the Indenture, the Security Documents and this Note and their
consequences. Any such consent or waiver by or on behalf of the Holder of this
Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any
7
Note issued upon the registration of transfer hereof or in exchange herefor or
in lieu hereof whether or not notation of such consent or waiver is made upon
this Note.
10. Denominations, Transfer, Exchange. The Notes are issuable only in
registered form without coupons in denominations of $1000 and any integral
multiple thereof. As provided in the Indenture, the securities are exchangeable
for a like aggregate principal amount of Notes of a different authorized
denomination, as requested by the Holder surrendering the same.
As provided in the Indenture and subject to certain limitations therein
set forth, in the event of a transfer the transfer of this Note is registrable
on the Note Register of the Issuer, upon surrender of this Note for registration
of transfer at the office or agency of the Issuer maintained for such purpose in
the City of San Diego, California, or at such other office or agency of the
Issuer as may be maintained for such purpose, duly endorsed by, or accompanied
by a written instrument of transfer in form satisfactory to the Issuer and the
Note Registrar duly executed by the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Notes, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
There shall be a service charge of Twenty ($20.00) for each registration
of transfer or exchange, other than certain exchanges as set forth in the
Indenture not involving any transfer. In addition, the Issuer may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
11. Persons Deemed Owners. The Issuer, the Trustee and any agent of the
Issuer or the Trustee may treat the Person in whose name this Note is registered
as the owner hereof for all purposes, whether or not this Note shall be overdue,
and neither the Issuer, the Trustee nor any agent shall be affected by notice to
the contrary.
12. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of Colorado.
8
13. Authentication. Unless the certificate of authentication hereon has
been duly executed by the Trustee referred to below by manual signature, this
Note shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed.
Dated: December 21, 1998 CREATIVE HOST SERVICES, INC., a California
corporation
By:
-----------------------------------------
Xxxxx Xxx, President
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned Indenture.
Dated: U.S. BANK NATIONAL ASSOCIATION, a United
----------------- States national banking association, as
Trustee
By:
-----------------------------------------
Title:
---------------------------------
CREATIVE HOST SERVICES, INC.
0000 Xxxxxx Xxxxxx, Xxxxxx X-X
Xxx Xxxxx, Xxxxxxxxxx 00000
Subscription Agreement for the Conversion of Note
The undersigned hereby irrevocably subscribes for the purchase of ________
Shares pursuant to and in accordance with the terms and conditions of this Note,
which Shares should be delivered to the undersigned at the address below. If
said number of Shares do not represent the entire outstanding balance of
principal and interest under this Note, a new Note of like tenor for the
remaining outstanding balance should be delivered to the undersigned at the
address stated below.
The undersigned agrees that: (1) the undersigned will not offer, sell,
transfer or otherwise dispose of any Shares unless either (a) a registration
statement, or post-effective amendment thereto, covering the Shares has been
filed with the Securities and Exchange Commission pursuant to the Securities Act
of 1933, as amended (the "Act"), such sale, transfer or other disposition is
accompanied by a prospectus meeting the requirements of Section 10 of the Act
forming a part of such registration statement, or post-effective amendment
thereto, which is in effect under the Act covering the Shares to be so sold,
transferred or otherwise disposed of, and all applicable state securities laws
have been complied with, or (b) counsel satisfactory to Creative Host Services,
Inc.. has rendered an opinion in writing and addressed to Creative Host
Services, Inc.. that such proposed offer, sale, transfer or other disposition of
the Shares is exempt from the provisions of Section 5 of the Act in view of the
circumstances of such proposed offer, sale, transfer or other disposition; (2)
Creative Host Services, Inc.. may notify the transfer agent for the Shares that
the certificates for the Shares acquired by the undersigned are not to be
transferred unless the transfer agent receives advice from Creative Host
Services, Inc.. that one or both of the conditions referred to in (1)(a) and
(1)(b) above have been satisfied; and (3) Creative Host Services, Inc.. may
affix the legend set forth in Section 5.1 of this Note to the certificates for
the Shares hereby subscribed for, if such legend is applicable.
Dated: Signed:
---------------------------- ---------------------------------
Signature guaranteed: Address:
--------------------------------
--------------------------------------------
(Signature must be guaranteed by a guarantor
institution participating in a Medallion
Signature Program)
FORM OF ASSIGNMENT
For value received, the undersigned hereby sells, assigns and transfers
unto ______________________ the within Note of Creative Host Services, Inc. and
all rights thereunder, and hereby irrevocably constitute and appoints
_____________________ attorney to transfer the said Note on the Note Register,
with full power of substitution in the premises.
Dated:
----------------------------- ----------------------------------------
Social Security or other tax
identification number of transferee
Signature Guaranteed:
--------------------------------------------------
(Signature must be guaranteed by a guarantor
institution participating in a Medallion Signature
Program)
NOTICE: The Assignor's signature to this assignment must correspond with the
name as it appears upon the fact of the within Note in every
particular without alteration or any change whatever.
