EXHIBIT 10.22
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE
AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO BRIAZZ, INC., THAT SUCH
REGISTRATION IS NOT REQUIRED.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, BRIAZZ, INC., a Washington corporation (hereinafter
called the "Borrower"), hereby promises to pay to LAURUS MASTER FUND, LTD., c/o
Ironshore Corporate Services Ltd., P.O. Box 1234 G.T., Queensgate House, South
Church Street, Grand Cayman, Cayman Islands, Fax: 345-949-9877 (the "Holder") or
its registered assigns or successors in interest, on order, without demand, the
sum of One Million Two Hundred and Fifty Thousand Dollars ($1,250,000), with any
accrued and unpaid interest on December 18, 2003 (the "Maturity Date").
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a seven (7) day grace
period to pay any monetary amounts due under this Note, after which grace period
a default interest rate of five percent (5%) per annum above the then applicable
interest rate hereunder shall apply to the amounts owed hereunder.
1.2 Conversion Privileges. The Conversion Privileges set forth in Article
II shall remain in full force and effect immediately from the date hereof and
until the Note is paid in full.
1.3 Interest Rate. Interest payable on this Note shall accrue at the
annual rate of fourteen percent (14%) and be payable in arrears commencing one
month from the date hereof and on the successive one month anniversary dates of
the date hereof thereafter, and on the Maturity Date, accelerated or otherwise,
due and payable as described below.
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ARTICLE II
PAYMENTS OF PRINCIPAL AND INTEREST
2.1 Monthly Payments. Subject to the terms of this Article II, the
Borrower shall repay one-sixteenth of the original principal amount of this Note
(to the extent such amount has not been converted pursuant to Article III
below), together with interest accrued to date on such portion of the original
principal amount plus any and all default payments owing under the Purchase
Agreement but not previously paid (collectively the "Monthly Amount"), in
accordance with Section 2.2 below, on the first business day of each consecutive
calendar month (each, a "Repayment Date"), beginning on the first such day which
occurs following sixty (60) days from the date hereof. Notwithstanding the
foregoing, the Holder will have the option to delay the start of the
amortization for up to 90 days from the date hereof and the Monthly Amount will
then become one-fifteenth of the original principal amount of the Note.
2.2 Cash or Common Stock. Subject to the terms hereof, the Borrower has
the sole option to determine whether to satisfy payment of the Monthly Amount in
full on each Repayment Date either in cash or in shares of Common Stock, or a
combination of both. The Borrower shall deliver to the Holder a written
irrevocable notice in the form of Exhibit B attached hereto electing to pay such
Monthly Amount in full on such Repayment Date in either cash or Common Stock, or
a combination of both ("Repayment Election Notice"). Such Repayment Election
Notice shall be delivered at least ten (10) days prior to the applicable
Repayment Date (the date of such notice being hereinafter referred to as the
"Notice Date"). The Holder shall have the right to defer for any period of time
the payment of the Monthly Amount in shares of Common Stock in its sole
discretion. If such Repayment Election Notice is not delivered within the
prescribed period set forth in the preceding sentence, then the repayment shall
be made in either cash or shares of Common Stock on the same terms hereunder at
the Holder's sole option. If the Borrower elects or is required to repay all or
a portion of the Monthly Amount in cash on a Repayment Date, then on such
Repayment Date the Borrower shall pay to the Holder such amount in satisfaction
of such obligation. If the Borrower repays any portion of the Monthly Amount in
shares of Common Stock, the number of such shares to be issued for such
Repayment Date, or the date when all or part of the Monthly Amount is paid after
a deferral by the Holder, shall be the number determined by dividing (x) the
portion of the Monthly Amount to be paid in shares of Common Stock, by (y) the
Conversion Price as of such date.
2.3 No Effective Registration. Notwithstanding anything to the contrary
herein, the Borrower shall be prohibited from exercising its right to repay the
Monthly Amount in shares of Common Stock (and must deliver cash in respect
thereof) on the applicable Repayment Date if at any time from the Notice Date
until the time at which the Holder receive such shares there fails to exist an
effective resale registration statement or an Event of Default hereunder exists
or occurs, unless otherwise waived in writing by the Holder in whole or in part
at the Holder's option.
2.4 Share Price/Issuance Limitations. Notwithstanding anything to the
contrary herein, if the average VWAP of the Common Stock as reported by
Bloomberg, L.P. on the Principal Market for the 11 trading days preceding a
Repayment Date was less than 125% of the Fixed Price, and the Borrower has
elected
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to pay all or a portion of the Monthly Amount in shares of Common Stock, then,
instead of the Borrower delivering the required number of shares of Common Stock
on the Repayment Date, the Holder will be permitted to convert up to the Monthly
Amount that is payable in shares of Common Stock at a Conversion Price of 85% of
the average of the five (5) lowest closing prices during the thirty (30) trading
days immediately preceding the Conversion Date. Any part of the Monthly Amount
not converted into shares of Common Stock by the following Repayment Date shall
be paid by the Borrower in cash on such following Repayment Date. At any time
during the relevant month, the Borrower has the option to pay the Monthly
Amount, or the unconverted part thereof, in cash and the Conversion Price set
forth in this Section 2.4 shall no longer be applicable. "VWAP" shall mean the
daily volume weighted average price of the Common Stock on the Principal Market
as reported by Bloomberg, L.P. using the AQR function on the date or dates in
question.
By way of example, for the Repayment Date of September 1, if the Borrower
delivers a Repayment Election Notice on August 15 to pay the Monthly Amount in
shares of Common Stock and if on August 10, the stock price was $1.40, the
Holder will be permitted to convert the portion of the Monthly Amount that the
Borrower has determined is payable in shares of Common Stock at the following
Conversion Price: 85% of the five (5) lowest closing prices during the thirty
(30) trading days immediately preceding the Conversion Date. Any portion of the
Monthly Amount originally due September 1 that the Holder has not converted into
shares of Common Stock by October 1 shall be due in cash on October 1.
2.5 Deemed Conversions. Any repayment of the Monthly Amount in shares of
Common Stock pursuant to the terms hereof shall constitute and be deemed a
conversion of such portion of the applicable principal amount of this Note for
all purposes under this Note and the Purchase Agreement (except as otherwise
provided herein).
ARTICLE III
CONVERSION RIGHTS
3.1. Conversion into the Borrower's Common Stock.
(a) Subject to the provisions set forth above, the Holder shall have the
right, but not the obligation, from and after the date hereof, and then at any
time until this Note is fully paid, to convert the principal portion of this
Note and/or interest or fees due and payable into fully paid and nonassessable
shares of common stock of the Borrower as such stock exists on the date of
issuance of this Note, or any shares of capital stock of the Borrower into which
such stock shall hereafter be changed or reclassified (the "Common Stock") at
the conversion price as defined in Section 3.1(b) hereof (the "Conversion
Price"), determined as provided herein. Upon delivery to the Borrower of a
Notice of Conversion as described in Section 8 of the Securities Purchase
Agreement entered into between the Borrower and certain persons who are
signatories thereto, including the Holder, relating to this Note (the "Purchase
Agreement") of the Holder's written request for conversion (the date of giving
such notice of conversion being a "Conversion Date"), the Borrower shall issue
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and deliver to the Holder within three business days from the Conversion Date
that number of shares of Common Stock for the portion of the Note converted in
accordance with the foregoing. At the election of the Holder, the Borrower will
deliver accrued but unpaid interest on the Note in cash or in shares of Common
Stock through the Conversion Date directly to the Holder on or before the
Delivery Date (as defined in the Purchase Agreement). The number of shares of
Common Stock to be issued upon each conversion of this Note shall be determined
by dividing that portion of the principal of the Note to be converted and
interest (unless the Holder elects to take interest in cash), if any, by the
Conversion Price. In the event of any conversions of outstanding principal
amount under this Note in part pursuant to this Article III, such conversions
shall be deemed to constitute conversions of outstanding principal amount
applying to Monthly Amounts for the Repayment Dates in chronological order. By
way of example, if the original principal amount of this Note is $1,250,000 and
the Holder converted $220,000 of such original principal amount prior to the
first Repayment Date, then (1) the principal amount of the Monthly Amount due on
the first Repayment Date would equal $0, (2) the principal amount of the Monthly
Amount due on the second Repayment Date would equal $0 and (3) the principal
amount of the Monthly Amount due on each of the remaining Repayment Dates would
be $110,000.
(b) Subject to adjustment as provided in Section 3.1(c) hereof, the
Conversion Price per share shall be $1.20 (the "Fixed Price"). If an Event of
Default has occurred and be continuing hereunder then the Conversion Price shall
be equal to the lower of (i) the Fixed Price; or (ii) seventy percent (70%) of
the average of the three lowest closing prices for the Common Stock on NASD OTC
Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market System, American
Stock Exchange, or New York Stock Exchange (whichever of the foregoing is at the
time the principal trading exchange or market for the Common Stock, the
"Principal Market"), or on any securities exchange or other securities market on
which the Common Stock is then being listed or traded, for the thirty (30)
trading days prior to but not including the Conversion Date.
(c) The Fixed Price and number and kind of shares or other securities to
be issued upon conversion determined pursuant to Section 3.1(a) and 3.1(b),
shall be subject to adjustment from time to time upon the happening of certain
events while this conversion right remains outstanding, as follows:
A. Merger, Sale of Assets, etc. If the Borrower at any time shall
consolidate with or merge into or sell or convey all or substantially all its
assets to any other corporation, this Note, as to the unpaid principal portion
thereof and accrued interest thereon, shall thereafter be deemed to evidence the
right to purchase such number and kind of shares or other securities and
property as would have been issuable or distributable on account of such
consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to such
consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or conveyance.
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B. Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase an adjusted number of such
securities and kind of securities as would have been issuable as the result of
such change with respect to the Common Stock immediately prior to such
reclassification or other change.
C. Stock Splits, Combinations and Dividends. If the shares of Common
Stock are subdivided or combined into a greater or smaller number of shares of
Common Stock, or if a dividend is paid on the Common Stock in shares of Common
Stock, the Conversion Price shall be proportionately reduced in case of
subdivision of shares or stock dividend or proportionately increased in the case
of combination of shares, in each such case by the ratio which the total number
of shares of Common Stock outstanding immediately after such event bears to the
total number of shares of Common Stock outstanding immediately prior to such
event.
D. Share Issuance. Subject to the provisions of this Section, if the
Borrower at any time shall issue any shares of Common Stock prior to the
conversion of the entire principal amount of the Note (otherwise than as: (i)
provided in Sections 2.1(c)A, 2.1(c)B or 2.1(c)C or this subparagraph D; (ii)
pursuant to options, warrants, or other obligations to issue shares, outstanding
on the date hereof as set forth in the Schedules to the Purchase Agreement
(which agreement is incorporated herein by this reference); or (iii) options
that may be issued under any employee incentive stock option and/or any
qualified stock option plan adopted by the Borrower and employee stock purchase
plan ((i),(ii) and (iii) above, are hereinafter referred to as the "Existing
Option Obligations") for a consideration less than the Conversion Price that
would be in effect at the time of such issue, then, and thereafter successively
upon each such issue, the Conversion Price shall be reduced as follows: (i) the
number of shares of Common Stock outstanding immediately prior to such issue
shall be multiplied by the Conversion Price in effect at the time of such issue
and the product shall be added to the aggregate consideration, if any, received
by the Borrower upon such issue of additional shares of Common Stock; and (ii)
the sum so obtained shall be divided by the number of shares of Common Stock
outstanding immediately after such issue. The resulting quotient shall be the
adjusted conversion price. Except for the Existing Option Obligations, for
purposes of this adjustment, the issuance of any security of the Borrower
carrying the right to convert such security into shares of Common Stock or of
any warrant, right or option to purchase Common Stock shall result in an
adjustment to the Conversion Price upon the issuance of shares of Common Stock
upon exercise of such conversion or purchase rights.
(d) During the period the conversion right exists, the Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. The Borrower represents that upon issuance, such shares will be duly
and validly issued, fully paid and non-assessable. The Borrower agrees that its
issuance of this Note shall constitute full authority to its officers, agents,
and transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
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3.2 Method of Conversion. This Note may be converted by the Holder in
whole or in part as described in Section 3.1(a) hereof and the Purchase
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of this Note shall, at the request of the Holder, be issued
by the Borrower to the Holder for the principal balance of this Note and
interest which shall not have been converted or paid.
3.3 Overall Limit on Common Stock Issuable. The number of shares of Common
Stock issuable by the Borrower and acquirable by the Holder, shall not exceed
19.9% of the number of shares of Common Stock outstanding on the Closing Date,
subject to appropriate adjustment for stock splits, stock dividends, or other
similar recapitalizations affecting the Common Stock (the "Maximum Common Stock
Issuance"), unless the issuance of shares hereunder in excess of the Maximum
Common Stock Issuance shall first be approved by the Borrower's shareholders. If
at any point in time and from time to time (each, a "Trigger Date") the number
of shares of Common Stock issued pursuant to conversion of the Note, together
with the number of shares of Common Stock that would then be issuable by the
Borrower in the event of the conversion of the entire Note, would exceed the
Maximum Common Stock Issuance but for this Section, then the Borrower shall, at
the Borrower's election, either (a) promptly call a shareholders meeting to
obtain shareholder approval for the issuance of the shares of Common Stock
hereunder in excess of the Maximum Common Stock Issuance, which such shareholder
approval shall be obtained within 60 days of the Trigger Date, or (b) purchase
from the Holder such principal amount of the Note plus accrued interest which
cannot be converted due to such Maximum Common Stock Issuance limitation, which
such payment shall be paid within five (5) business days after a Trigger Date if
this clause (b) is elected, or, if clause (a) is elected, five (5) business days
following the Borrower's failure to so obtain shareholder approval, as the case
may be. The Borrower shall make such election within three (3) business days
following the Trigger Date by giving written notice to the Holder.
ARTICLE IV
EVENT OF DEFAULT
The occurrence of any of the following events is an Event of Default
("Event of Default"):
4.1 Failure to Pay Principal, Interest or other Fees. The Borrower fails
to pay any installment of principal, interest or other fees hereon or on any
other promissory note issued pursuant to the Purchase Agreement, when due and
such failure continues for a period of five (5) days after the due date.
4.2 Breach of Covenant. The Borrower breaches any material covenant or
other term or condition of this Note or the Purchase Agreement in any material
respect and such breach, if subject to cure, continues for a period of seven (7)
days after written notice to the Borrower from the Holder.
4.3 Breach of Representations and Warranties. Any material representation
or warranty of the Borrower made herein, in the Purchase Agreement, shall be
false and shall not be cured for a period of thirty (30) business days after
written notice thereof is received by Borrower from Holder.
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4.4 Receiver or Trustee. The Borrower shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business; or such
a receiver or trustee shall otherwise be appointed.
4.5 Judgments. Any money judgment, writ or similar final process shall be
entered or filed against the Borrower or any of its property or other assets for
more than $250,000, and shall remain unvacated, unbonded or unstayed for a
period of forty-five (45) days.
4.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower.
4.7 Delisting. Delisting of the Common Stock from any Principal Market;
the Borrower's failure to comply with the conditions for listing; or
notification that the Borrower is not in compliance with the conditions for such
continued listing unless the Borrower lists or continues to list on another
Principal Market.
4.8 Stop Trade. An SEC stop trade order or Principal Market trading
suspension.
4.9 Failure to Deliver Common Stock or Replacement Note. The Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Section 8 of the Purchase Agreement, or if required a
replacement Note.
4.10 Registration Default. The occurrence of a Non-Registration Event as
described in Section 9.4 of the Purchase Agreement, except that with respect to
a Non-Registration Event in connection with the required declared effectiveness
of the Registration Statement (as defined in the Purchase Agreement) on or
before the Effective Date (as defined in the Purchase Agreement) such
Non-Registration Event must be continuing on or occur after a date which is one
hundred and twenty (120) days after the Closing Date (as defined in the Purchase
Agreement).
If an Event of Default occurs and is continuing, the Holder may make all
sums of principal, interest and other fees then remaining unpaid hereon and all
other amounts payable hereunder immediately due and payable, all without demand,
presentment or notice, or grace period, all of which hereby are expressly
waived. In the event of an acceleration, the amount due and owing to the Holder
shall be 130% of the outstanding principal amount of the Note (plus accrued and
unpaid interest and fees, if any).
ARTICLE V
MISCELLANEOUS
5.1 Failure or Indulgence Not Waiver. No failure or delay on the part of
the Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any
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single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing hereunder are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
5.2 Notices. Any notice herein required or permitted to be given shall be
in writing and shall be deemed effectively given: (a) upon personal delivery to
the party notified, (b) when sent by confirmed telex or facsimile if sent during
normal business hours of the recipient, if not, then on the next business day,
(c) five days after having been sent by registered or certified mail, return
receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the
Borrower at the address as set forth on the signature page to the Purchase
Agreement executed in connection herewith and to the Holder at the address set
forth on the signature page to the Purchase Agreement for such Holder, with a
copy to Daniel M. Laifer, Esq., 152 West 57th Street, 4th Floor, New York, New
York 10019, facsimile number (212) 541-4434, or at such other address as the
Borrower or the Holder may designate by ten days advance written notice to the
other parties hereto. A Notice of Conversion shall be deemed given when made to
the Borrower pursuant to the Purchase Agreement.
5.3 Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
5.4 Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder. 5.5 Governing Law.
This Note shall be governed by and construed in accordance with the laws of the
State of New York, without regard to principles of conflicts of laws. Any action
brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state courts of New
York or in the federal courts located in the state of New York. Both parties and
the individual signing this Note on behalf of the Borrower agree to submit to
the jurisdiction of such courts. The prevailing party shall be entitled to
recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Note is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or unenforceability of any other provision of this Note.
5.6 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
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5.7 Security Interest. The holder of this Note has been granted a security
interest in certain assets of the Borrower more fully described in a Security
Agreement.
5.8 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.
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IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in its
name effective as of this 18th day of June, 2002.
BRIAZZ, INC.
By: /s/ Victor D. Alhadeff
---------------------------------------
WITNESS:
- -------------------------------
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NOTICE OF CONVERSION
(To be executed by the Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal and
$_________ of the interest due on the Note issued by BRIAZZ, INC. on June 18,
2002 into Shares of Common Stock of BRIAZZ, INC. (the "Company") according to
the conditions set forth in such Note, as of the date written below.
Date of Conversion: -----------------------------------------------------------
Conversion Price: ------------------------------------------------------------
Shares To Be Delivered: ------------------------------------------------------
Signature: -------------------------------------------------------------------
Print Name: ------------------------------------------------------------------
Address: ---------------------------------------------------------------------
---------------------------------------------------------------------
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EXHIBIT B
FORM OF REPAYMENT ELECTION NOTICE
To: [HOLDER AT HOLDER'S ADDRESS]
Pursuant to Section 2.2 the Note of Briazz, Inc. issued on June __, 2002,
we hereby notify you that we are irrevocably electing to repay the outstanding
Monthly Amount (as defined in the Note) due on the Repayment Date (as defined in
the Note) which occurs on ______, 20__ (CHECK ONE):
_____ In full in cash on such Repayment Date.
_____ In full in shares of the Company's Common Stock within three
(3) trading days following such Repayment Date.
Briazz, Inc.
By:
------------------------------------
Name:
Title:
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