THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION UNDER THE ACT OR IN A TRANSACTION WHICH, IN THE
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, QUALIFIES AS AN
EXEMPT TRANSACTION UNDER THE ACT AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
CONVERTIBLE SECURED PROMISSORY NOTE
September 23, 1997 $3,000,000
CINEMASTAR LUXURY THEATERS, INC., a California corporation (the "Company"),
hereby promises to pay to the order of REEL PARTNERS, L.L.C., a Delaware limited
liability company (the "Holder"), THREE MILLION DOLLARS ($3,000,000), together
with interest thereon calculated in accordance with the provisions of this Note.
1. PAYMENT OF INTEREST. Interest (computed on the basis of a 360-day
year of twelve 30-day months) shall accrue on a daily basis on the unpaid
principal amount of this Note from time to time outstanding at a per annum rate
of fourteen percent (14%). The Company shall pay to the Holder all accrued
interest hereunder monthly with payments due on the first (1st) day of each
month (each, an "Interest Payment Date"), beginning October 1, 1997. Unless
prohibited under applicable law, any payment due hereunder, including any
accrued interest, which is payable hereunder and which is not paid on the date
on which it is payable, shall bear interest at the same rate at which interest
is then accruing on the principal amount of this Note, plus an additional two
percent (2.0%) for each month such payment remains unpaid. Any accrued interest
which for any reason has not theretofore been paid, shall be paid in full in
immediately available funds on the date on which the final principal payment on
this Note is paid. Interest shall accrue on any principal payment due under
this Note and, to the extent permitted by applicable law, on any interest which
has not been paid on the date on which it is payable, until such time as payment
therefor is actually delivered to the holder of this Note.
2. PAYMENT OF PRINCIPAL ON NOTE.
2.1 SCHEDULED PAYMENT. The Company shall pay the outstanding
principal amount of this Note (PLUS accrued and unpaid interest, if any,
referred to in SECTION 1 above) to the Holder on March 23, 1998 (the "Maturity
Date").
2.2 PAYMENT ON NON-BUSINESS DAYS. If any payment on this Note
shall become due on a Saturday, Sunday or a bank or legal holiday under the laws
of the State of California, such payment shall be made on the next succeeding
business day and such extension of time shall in such case be included in
computing any interest due in connection with such payment.
2.3 OPTIONAL AND MANDATORY PREPAYMENT. The principal amount of
this Note may be prepaid in whole or in part (together with all accrued and
unpaid interest thereon) by the Company at its option at any time subsequent to
the Purchase Determination Date (as hereinafter defined) and prior to the
Maturity Date; PROVIDED that written notice of such prepayment is given to the
Holder at least 5 business days prior to repayment. The principal amount of
this Note shall, at the option of the Holder, be subject to mandatory prepayment
(i) immediately prior to any consolidation or merger of the Company with or into
any other corporation or other entity or person, or any other corporate
reorganization in which the Company shall not be the continuing or surviving
entity of such consolidation, merger or reorganization or any transaction or
series of related transactions by the Company in which in excess of fifty
percent (50%) of the Company's voting power is transferred, or a sale of all or
substantially all of the assets of the Company occurs or (ii) upon or subsequent
to the Purchase Determination Date. As used herein, the term "Purchase
Determination Date" means the earlier to occur of (x) the date upon which the
transactions contemplated by that certain Stock Purchase Agreement of even date
herewith by and among the Company, Holder and an affiliate of Holder (the
"Purchase Agreement") are consummated pursuant to the terms thereof and (y) the
date the Purchase Agreement is terminated as a result of the provisions of
Sections 8(k)(i)(1) or (3) of the Purchase Agreement.
3. SECURITY INTERESTS. This Note is secured by and is entitled to all
the benefits under (i) that certain Security Agreement of even date herewith
between the Company and Holder (the "Security Agreement") and (ii) those certain
Leasehold Deeds of Trust of even date herewith from the Company to Holder (the
"Deeds of Trust"). The collateral granted to Holder pursuant to the Security
Agreement and the Deeds of Trust is collectively, the "Collateral."
4. COVENANTS.
4.1 NEGATIVE COVENANTS. Without the prior written consent of
Holder:
(a) The Company shall not declare or pay any dividends
on, or purchase, redeem or acquire its capital stock, return any capital to
holders of capital stock as such, or distribute assets to capital
stockholders as such.
(b) Neither the Company nor any material subsidiary
may consolidate with, merge with or transfer all, or substantially all, of
its properties or assets to another entity (i) prior to the Purchase
Determination Date and (ii) thereafter, unless all amounts outstanding
hereunder shall, at the option of the Holder, be paid in full immediately
prior thereto or concurrently therewith.
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(c) Except as contemplated by the Purchase Agreement,
neither the Company nor any material subsidiary may incur indebtedness
other than trade payables in the normal course of business.
(d) Neither the Company nor any material subsidiary
may modify or otherwise change or amend its by-laws or Articles of
Incorporation except as contemplated by the Purchase Agreement.
(e) Neither the Company nor any material subsidiary
may modify, amend or alter the terms of any employment agreement with any
management personnel except as contemplated by the Purchase Agreement.
(f) Neither the Company nor any material subsidiary
may enter into any agreement for the settlement of any indebtedness or of
existing or potential litigation except as contemplated by the Purchase
Agreement or except as does not involve the incurrence of any monetary or
material non-monetary obligation for the Company.
(g) Neither the Company nor any material subsidiary
may enter into any contracts, leases or other agreements which have (i) a
term in excess of six (6) months and (ii) a monthly payment obligation in
excess of $5,000.00.
(h) Neither the Company nor any material subsidiary
may take any action which, in the reasonable judgment of Holder,
(i) materially diminishes the value of the Collateral or (ii) impairs the
Company's ability to repay any amounts which may be due and owing
hereunder; provided that no use of the proceeds of this Loan described in
Exhibit 4(b) of the Purchase Agreement and no payment made in accordance
with Schedule 4(s) of the Purchase Agreement shall be deemed a violation of
this covenant.
4.2 AFFIRMATIVE COVENANT. The proceeds of the Loan shall be
used as set forth on Exhibit 4(b) to the Purchase Agreement.
5. EVENTS OF DEFAULT.
5.1 DEFINITION. For purposes of this Note, an Event of Default
shall be deemed to have occurred if, during the period beginning on the date
hereof and ending on the date on which the entire principal balance of and all
accrued and unpaid interest on this Note is paid and/or converted as herein
provided:
(a) the Company fails to pay on any Interest Payment
Date the full amount of interest then accrued and payable with respect to
the Note (and such failure continues for a period of ten days from delivery
of notice thereof);
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(b) the Company fails to pay when due on the Maturity
Date or the date of a mandatory prepayment under SECTION 2.3 hereof, as the
case may be, the full amount of any principal payment (together with any
accrued and unpaid interest thereon) on the Note;
(c) the Company or any subsidiary makes an assignment
for the benefit of creditors or admits in a filing its inability to pay its
debts generally as they become due; or an order, judgment or decree is
entered adjudicating the Company or any subsidiary bankrupt or insolvent,
or any order for relief with respect to the Company or any subsidiary is
entered under the Bankruptcy Code; or the Company or any subsidiary
petitions or applies to any tribunal for the appointment of a custodian,
trustee, receiver or liquidator of the Company or of any substantial part
of the assets of the Company or any subsidiary, or commences any proceeding
(other than a proceeding for the voluntary liquidation and dissolution of
any subsidiary) relating to the Company or any subsidiary under any
bankruptcy reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction; or any such petition or
application is filed, or any such proceeding is commenced, against the
Company or any subsidiary and either (A) the Company or any such subsidiary
by any act indicates its approval thereof, consent thereto or acquiescence
therein or (B) such petition, application or proceeding is not dismissed
within 60 days;
(d) an Event of Default shall have occurred under
either (i) the Security Agreement or (ii) either Deeds of Trust after
giving effect to notice cures therein; or
(e) the Company or any material subsidiary fails to
comply with any provisions of SECTION 4 hereof.
5.2 CONSEQUENCES OF EVENTS OF DEFAULT. If any Event of Default
under SECTION 5.1(c) above has occurred, then all amounts outstanding under this
Note shall immediately become due and payable, or if any other Event of Default
has occurred the Holder may declare (by written notice delivered to the Company)
all or any portion of the outstanding principal amount of this Note due and
payable and demand immediate payment of all or any portion of the outstanding
principal amount of the Note. If the Holder demands immediate payment of all or
any portion of this Note pursuant to the terms of this SECTION 5.2, the Company
shall pay the Holder the principal amount of this Note requested to be paid plus
accrued interest thereon immediately upon the initial declaration of
acceleration.
6. CONDITIONS OF FUNDING OF LOAN. The Company hereby represents and
warrants that simultaneous with the execution and delivery hereof:
(a) the Company is executing and delivering to Holder
the Purchase Agreement;
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(b) the Company is executing and delivering to Holder
the Security Agreement, the Deeds of Trust and UCC-1 Financing Statements
relating to the Collateral as Holder deems necessary;
(c) the representations and warranties set forth on
EXHIBIT A (which representations and warranties are incorporated herein by
reference thereto as though made herein) and in the Purchase Agreement are
true, complete and correct in all material respects as of the date hereof
and no Event of Default exists as of the date hereof;
(d) the Holder has received an opinion of Jeffer,
Mangels, Butler and Marmaro, LLP, in connection with the transactions
contemplated hereunder; and
(e) the Company has delivered to Holder the First
Bridge Warrant and the Second Bridge Warrant (as such terms are defined in
the Purchase Agreement).
7. CONVERSION.
7.1 VOLUNTARY CONVERSION. The Holder of this Note has the
right, at the Holder's option, at any time prior to payment in full of the
principal balance of this Note, to convert this Note, in accordance with the
provisions of this SECTION 7, in whole or in part, into fully paid and
nonassessable shares of the Common Stock of the Company (the "Stock"). The
number of shares of Stock into which this Note may be converted ("Conversion
Shares") shall be determined by dividing the aggregate principal amount then
outstanding, together with all accrued interest to the date of conversion, by
the Conversion Price in effect at the time of such conversion. The Conversion
Price shall initially be equal to $1.00.
7.2 NO ADJUSTMENT OF CONVERSION PRICE. Any provision herein to
the contrary notwithstanding, no adjustment in the Conversion Price shall be
made in respect of the issuance of additional shares of Common Stock unless the
consideration per share for an additional share of Common Stock issued or deemed
to be issued by the Company is less than the Conversion Price in effect on the
date of, and immediately prior to, such issue.
7.3 DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK. In the
event the Company at any time or from time to time after the date hereof shall
issue any rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being herein called
"Options" and such convertible or exchangeable stock or securities being herein
called "Convertible Securities") or shall fix a record date for the
determination of holders of any class of securities then entitled to receive any
such Options or Convertible Securities, then the maximum number of shares (as
set forth in the instrument relating thereto without regard to any provisions
contained therein designed to protect against dilution) of Common Stock issuable
upon
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the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be additional shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been fixed, as of the close
of business on such record date. In addition, if the purchase price provided
for in any Options, the additional consideration, if any, payable upon the
issue, conversion or exchange of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exchangeable for shares
of Common Stock change at any time, the Conversion Price in effect at the time
of such change shall be readjusted to the Conversion Price which would have been
in effect at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold and the number of Conversion Shares acquirable hereunder shall be
correspondingly readjusted. Upon the expiration of any Option or the
termination of any right to convert or exchange any Convertible Securities
without the exercise of such Option or right, the Conversion Price then in
effect and the number of Conversion Shares acquirable hereunder shall be
adjusted to the Conversion Price and the number of Conversion Shares in effect
at the time of such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such expiration or
termination, never been issued.
7.4 ADJUSTMENT OF THE CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. Except as provided for in SECTION 7.5, in
the event the Company shall issue additional shares of Common Stock (including
additional shares of Common Stock deemed to be issued pursuant to SECTION 7.3)
without consideration (PROVIDED that, for purposes hereof, an issuance for no
consideration shall be deemed to be any issuance for a per share consideration
of $.01) or for a consideration per share less than the Conversion Price in
effect on the date of and immediately prior to such issue, then the Conversion
Price shall be reduced, concurrently with such issue to a price equal to:
(i) if such issuance is prior to the Purchase Agreement Date, the
consideration per share at which such additional shares of Common Stock are
issued or deemed issued; and
(ii) if such issuance is after the Purchase Agreement Date, the amount
determined by dividing (1) the sum of (x) the product derived by multiplying the
Conversion Price in effect immediately prior to such issue or sale times the
number of fully-diluted shares of Common Stock deemed outstanding immediately
prior to such issue or sale, plus (y) the consideration, if any, received by the
Company upon such issue or sale, by (2) the number of fully-diluted shares of
Common Stock deemed outstanding immediately after such issue or sale.
For purposes hereof, the "Purchase Agreement Date" shall mean the date of the
closing of the transactions contemplated by the Stock Purchase Agreement by and
among the Company, the original holder of this Warrant and CinemaStar
Acquisition Partners, L.L.C. dated September 23, 1997, or the date of
termination of such Stock Purchase Agreement.
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7.5 ADJUSTMENTS TO CONVERSION PRICES FOR STOCK DIVIDENDS AND FOR
COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the event that the Company at
any time or from time to time after the date hereof shall, subject to the
provisions of this Note, declare or pay, without consideration, any dividend on
the Common Stock payable in Common Stock or in any right to acquire Common Stock
for no consideration, or shall effect a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the Conversion
Price in effect immediately prior to such event shall, concurrently with the
effectiveness of such event, be proportionately decreased or increased, as
appropriate. In the event that the Company shall declare or pay, without
consideration, any dividend on the Common Stock payable in any right to acquire
Common Stock for no consideration, then the Company shall be deemed to have made
a dividend payable in Common Stock in an amount of shares equal to the maximum
number of shares issuable upon exercise of such rights to acquire Common Stock.
7.6 ADJUSTMENTS FOR RECLASSIFICATION AND REORGANIZATION. If the
Common Stock issuable upon conversion of this Note shall, subject to the
provisions of this Note, be changed into the same or a different number of
shares of any other class or classes of stock, whether by capital
reorganization, reclassification or otherwise (other than a subdivision or
combination of shares provided for in SECTION 7.5 above or a merger or other
reorganization of the Company), the Conversion Price then in effect shall,
concurrently with the effectiveness of such reorganization or reclassification,
be proportionately adjusted so that this Note shall be convertible into, in lieu
of the number of shares of Common Stock which the holders would otherwise have
been entitled to receive, a number of shares of such other class or classes of
stock equivalent to the number of shares of Common Stock that would have been
subject to receipt by the holders upon conversion of this Note immediately
before that change.
7.7 NO IMPAIRMENT. The Company will 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 Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
SECTION 7 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the Holder against
impairment.
7.8 CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this SECTION 7.8,
the Company, at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
Holder a certificate executed by the Company's President or Chief Financial
Officer setting forth such adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is based. The Company shall,
upon the written request at any time of Holder, furnish or cause to be furnished
to Holder a like certificate setting
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forth (i) such adjustments and readjustments, (ii) the Conversion Price at the
time in effect, and (iii) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the
conversion of this Note.
8. NOTICE OF CERTAIN EVENTS. Subject in all cases to the provisions of
this Note, in the event that:
(a) the Company shall declare any cash dividend upon its
Common Stock, or
(b) the Company shall declare any dividend upon its Common
Stock payable in stock or make any special dividend or other distribution
to the holders of its Common Stock, or
(c) the Company shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any class
or other rights, or
(d) there shall be any capital reorganization or
reclassification of the capital stock of the Company, including any
subdivision or combination of its outstanding shares of Common Stock, or
consolidation or merger of the Company with, or sale or lease of all or
substantially all of its assets to, another corporation, or
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in connection with such event, the Company shall give to the Holder:
(1) at least 20 days' prior written notice of the date on
which the books of the Company shall close or a record shall be taken
for such dividend, distribution or subscription rights or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up; and
(2) in the case of any such reorganization,
reclassification, consolidation, merger, sale, lease, dissolution,
liquidation or winding up, at least 20 days' prior written notice of
the date when the same shall take place.
Such notice in accordance with the foregoing clause (1) shall also
specify, in the case of any such dividend, distribution or subscription
rights, the date on which the holders of Common Stock shall be entitled
thereto, and such notice in accordance with the forgoing clause (2) shall
also specify the date on which the
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holders of Common Stock shall be entitled to exchange their Common Stock
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. Each such written notice shall be given by
telecopy and promptly followed by first class mail, postage prepaid,
addressed to the Holder at the address of the Holder as shown on the books
of the Company and shall be effective three (3) days after mailing.
9. RESERVATION OF SHARES, FRACTIONAL SHARES.
(a) The Company hereby agrees that at all times it
shall reserve for issuance and delivery upon conversion of this Note such
number of shares of its Common Stock as shall be required for issuance and
delivery upon conversion of this Note. To the extent that such reserved
shares are not sufficient for purposes of this Note, the Company agrees to
use its best efforts to ensure that such reserved shares are available.
The Company hereby agrees that it shall take all such actions as may be
necessary to assure that such Conversion Shares may be so issued without
violation of any applicable law or governmental regulation.
(b) No fractional shares shall be issued upon
conversion of this Note. With respect to any fraction of a share called
for upon conversion of this Note, the Company shall pay to Holder an amount
in cash equal to such fraction multiplied by the then current market value
of a share of Common Stock, determined as follows:
(i) if the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange
the current value shall be the last reported sale price of the Common
Stock on such exchange on the last business day prior to the date of
conversion of this Note or if no such sale is made on such day, the
average closing bid and asked prices for such day on such exchange; or
(ii) if the Common Stock is not listed or admitted to
unlisted trading privileges the current value shall be the mean of the
last reported bid and ask prices reported by the National Quotation
Bureau, Inc., on the last business day prior to the date of the
conversion of this Note; or
(iii) if the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and ask prices are not so
reported, the current value shall be an amount determined in such
reasonable manner as may be prescribed by the Board of Directors of
the Company.
10. REGISTRATION. The Holder acknowledges that upon any conversion of
this Note, the Conversion Shares issued to the Holder will not be registered
under the Securities Act of 1933 (the
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"Act"), and may not be transferred except pursuant to an effective registration
under the Act or in a transaction which, in the opinion of counsel reasonably
satisfactory to the Company, qualifies as an exempt transaction under the Act
and the rules and regulations promulgated thereunder. The Holder further
acknowledges receipt of a copy of Section 260.141.11 of the Rules of the
Commissioner of Corporations of California.
11. AMENDMENT AND WAIVER. Except as otherwise expressly provided herein,
the provisions of this Note may be amended, and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Holder.
12. CANCELLATION. After all principal and accrued interest at any time
owed on this Note has been paid in full, this Note shall be surrendered to the
Company for cancellation and shall not be reissued.
13. MANNER OF PAYMENT. If any payment of principal or interest on this
Note shall become due on a Saturday, Sunday or a bank or legal holiday under the
laws of the State of California, such payment shall be made on the next
succeeding business day and such extension of time shall in such case be
included in computing interest in connection with such payment. Payments of
principal and interest are to be delivered to the Holder at the address
indicated on the Company's records, to such other address or to the attention of
such other person as specified by prior written notice to the Company or by wire
transfer of immediately available federal funds to an account designated, in
writing, by the Holder.
14. NOTE EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Note is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new note containing the same terms and conditions and
representing in the aggregate the principal amount of this Note, and any such
new Note will represent such portion of such principal amount as is designated
by the Holder at the time of such surrender. The date the Company initially
issues this Note will be deemed to be the "DATE OF ISSUANCE" of any such new
note regardless of the number of times any new note or notes shall be issued.
15. WAIVER OF NOTICE. To the extent permitted by law, the Company hereby
waives demand, notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this Note.
16. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the laws
of the State of California, without giving effect to provisions thereof
regarding conflict of laws.
17. EXPENSES. If an Event of Default has occurred, the Company shall pay
the Holder all costs and expenses, including reasonable attorney's fees,
incurred by the holder in enforcing its rights hereunder. In addition, if any
dispute shall arise between the parties hereto, the
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Company shall pay the Holder all costs and expenses, including reasonable
attorney's fees, incurred by the Holder in connection with such dispute;
PROVIDED, HOWEVER, that upon resolution of such dispute by means of a judgment,
mediation or arbitration, the prevailing party shall be the party entitled to
receive reimbursement from the other party all reasonable fees and expenses in
connection with such dispute.
18 REGISTRATION RIGHTS.
18.1 DEMAND REGISTRATION.
(a) REQUESTS FOR REGISTRATION. Subject to the terms of
this Agreement, the Holder may, at any time subsequent to the Closing under
the Purchase Agreement or termination of the Purchase Agreement, whichever
is earlier, request registration under the Act of all or part of its
Registrable Shares (as hereinafter defined) on Form S-1 or Form SB-2 or any
similar long-form registration ("Long-Form Registrations") or, if
available, on Form S-2 or S-3 or any similar short-form registration
("Short-Form Registrations"). All registrations requested pursuant to this
SECTION 18.1 are referred to herein as "Demand Registrations."
(b) PAYMENT OF EXPENSES FOR DEMAND REGISTRATIONS. The
Company will pay all registration expenses for the first two Demand
Registrations (whether a Long-Form Registration or a Short-Form
Registration). A registration will not count as one of the Company paid
Demand Registrations until it has become effective and the holders of
Registrable Shares are able to register and are permitted to sell at least
90% of the Registrable Shares requested to be included in such
registration; PROVIDED, HOWEVER, that in any event the Company will pay all
registration expenses in connection with any registration initiated as a
Demand Registration. In a Demand Registration other than the first two
Demand Registrations, the registration expenses of such registration shall
be borne by the holders of Registrable Shares to be registered thereunder.
(c) SHORT-FORM REGISTRATIONS. In addition to the Long-Form
Registrations provided pursuant to SECTION 18.1(A) above, the holders of
Registrable Shares will be entitled to request an unlimited number of
Short-Form Registrations, PROVIDED, HOWEVER, that the aggregate offering
value of the Registrable Shares requested to be registered in any
Short-Form Registration must be reasonably expected to equal at least
$500,000. Demand Registrations will be Short-Form Registrations whenever
the Company is permitted to use any applicable short form. If a Short-Form
Registration is to be an underwritten public offering, and if the
underwriters for marketing or other reasons request the inclusion in the
registration statements of information which is not required under the Act
to be included in a registration statement on the applicable form for the
Short-Form Registration, the Company will provide such information as may
be reasonably requested for inclusion by the underwriters in the Short-Form
Registration.
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(d) PRIORITY. The Company will not include in any Demand
Registration any securities which are not Registrable Shares without the
written consent of the Holder. If a Demand Registration is an underwritten
public offering and the managing underwriters advise the Company in writing
that in their opinion the inclusion of the number of Registrable Shares and
other securities requested to be included creates a substantial risk that
the price per share of Common Stock will be reduced, the Company will
include in such registration, prior to the inclusion of any securities
which are not Registrable Shares, the number of Registrable Shares
requested to be included which in the opinion of such underwriters can be
sold without creating such a risk.
(e) SELECTION OF UNDERWRITERS. The Holder shall have the
right to select the investment banker(s) and manager(s) to administer any
Demand Registration, subject to the Company's approval which will not be
unreasonably withheld.
(f) COMPANY REGISTRATION. Notwithstanding anything to the contrary
herein, if after September 23, 1997 the Company has filed a registration
statement under the Act with respect to an underwritten offering of shares
of the Common Stock, then any Demand Registration shall be delayed for a
period of 90 days following the effective date of such registration
statement (or, at the option of the parties requesting such Demand
Registration, the Demand Registration may be withdrawn).
For purposes hereof, "Registrable Shares" means at any time (i) any
shares of Common Stock then outstanding which were issued upon conversion of
this Note; (ii) any shares of Common Stock then issuable upon conversion of this
Note; (iii) any shares of Common Stock then outstanding which were issued as, or
were issued directly or indirectly upon the conversion or exercise of other
securities issued as, a dividend or other distribution with respect or in
replacement of any shares referred to in (i) or (ii); and (iv) any shares of
Common Stock then issuable directly or indirectly upon the conversion or
exercise of the securities which were issued as a dividend or other distribution
with respect to or in replacement of any shares referred to in (i) or (ii);
PROVIDED, HOWEVER, that Registrable Shares shall not include any shares which
have been registered pursuant to the Securities Act or which have been sold to
the public pursuant to Rule 144 of the Commission under the Securities Act.
18.2 PARTICIPATION IN REGISTERED OFFERINGS ("PIGGYBACK RIGHTS"). If
the Company at any time or times proposes or is required to register any of its
Common Stock or other equity securities (whether such Common Stock or other
equity securities are owned by the Company or another holder entitled to demand
registration) for public sale for cash under the Act (other than on Forms S-4
and S-8 or similar registration forms), it will at each such time or times give
written notice to the Holder of its intention to do so. Upon the written
request of the Holder given within 20 days after receipt of any such notice, the
Company shall use its best efforts to cause to be included in such registration
any Registrable Shares held by the Holder (or its permitted transferees) and
requested to be registered under the Act and any applicable state securities
laws; PROVIDED, that if such registration is an underwritten public offering and
the managing underwriter advises that less than all of the shares and
Registrable Shares to be registered should be offered
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for sale so as not materially and adversely to affect the price or salability of
the offering, the Holder and any other securities holders entitled to piggyback
rights with respect to such registration shall reduce on a pro rata basis the
number of their shares of Common Stock (as if converted) to be included in the
registration statement as required by the managing underwriter to the extent
requisite to permit the sale or other disposition (in accordance with the
intended method of disposition thereof as aforesaid) by the prospective seller
or sellers of the securities so registered.
18.3 SECTION SURVIVES. The rights granted to Holder pursuant to this
SECTION 18 shall survive any conversion, in whole or in part, of this Note into
Conversion Shares.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the Company has executed and delivered this Note and
the Holder has accepted this Note as of the date first written above.
CINEMASTAR LUXURY THEATERS, INC.
By:
----------------------------------
John Ellison, Jr., President
Acknowledged and Agreed by Holder in its capacity
as such and not as maker, endorser, guarantor,
accommodation party or otherwise:
REEL PARTNERS, L.L.C.
By:
--------------------------------
Neil Austrian, Vice President
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EXHIBIT A
GENERAL WARRANTIES AND REPRESENTATIONS
1. AUTHORIZATION, VALIDITY AND ENFORCEABILITY. The Company and each of
its subsidiaries, as applicable, has the corporate power and authority to
execute, deliver and perform the Note, the Security Agreement and the Deeds of
Trust, together with all transactions related thereto or contemplated thereby,
to which it is a party, to incur the indebtedness related thereto, and to grant
the security interest to the Holder in the Collateral. Each such entity has
taken all necessary corporate action to authorize its execution, delivery and
performance of such agreements to which it is a party. Except for the consent
of Winick Leasing (a/k/a Creative Capital Leasing, Inc.), no consent, approval
or authorization of, or declaration or filing with, any public authority, and no
consent of any other person, is required in connection with the execution,
delivery and performance of each of such documents, except for those which have
already been duly obtained. Each of such documents has been duly executed and
delivered by each such entity and constitutes the legal, valid and binding
obligation of such entity, enforceable against such entity in accordance with
its terms without defense, setoff or counterclaim, except as such enforceability
may be limited by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally, the enforcement of creditors' rights and remedies.
Except as set forth on the Disclosure Schedules to the Purchase Agreement, the
execution, delivery and performance of each of such agreements by such entity,
as applicable, does not and will not conflict with, or constitute a violation or
breach of, or constitute a default under, or result in the creation or
imposition of any lien upon the property of such person by reason of the terms
of (a) any other contract, mortgage, lien, lease, agreement, indenture or
instrument to which such party is a party or which is binding upon it, (b) any
judgment, law, statute, rule or governmental regulation applicable to such
entity, or (c) the articles of incorporation or by-laws of such entity.
2. VALIDITY AND PRIORITY OF SECURITY INTEREST. The provisions of the
Security Agreement and the Deeds of Trust create a legal and valid lien on all
the Collateral in favor of the Holder and such security interest constitutes
perfected and continuing liens on all of the Collateral, enforceable against the
Holder.
3. PRIORITY. Upon filing of the Deeds of Trust and the applicable UCC-1
Financing Statements, Lender will have (i) a perfected leasehold deed of trust
which is senior to all other liens in the leasehold estate on the lease for the
Company's Mission Marketplace facility and (ii) a perfected junior lien on fixed
assets and equipment located at the Company's Mission Marketplace facility,
junior only to (A) the purchase money lien in favor of Winick Leasing and (B)
the blanket lien in favor of First National Bank, (iii) a perfected leasehold
deed of trust which is junior only to an unperfected lien on the leasehold
estate in favor of First National Bank on the lease for the Company's Mission
Grove facility and (iv) a perfected lien on the fixed assets and equipment
located at the Company's Mission Grove facility, junior only to (A) the first
priority lien in favor of the landlord which secures the lease payments (which
the landlord will not enforce so long as
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the Lender cures any defaults under the lease) and (B) the blanket lien in favor
of First National Bank which is referred to in the description of Mission
Marketplace.
4. ORGANIZATION AND QUALIFICATION. The Company: (i) is duly
incorporated and organized and validly existing and in good standing under the
laws of the State of California; (ii) is qualified to do business as a foreign
corporation and is in good standing in the states in which qualification is
necessary in order for it to own or lease its property and conduct its business;
and (iii) has all requisite power and authority to conduct its business and to
own its property.
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