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EXHIBIT 10.2
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of May 14, 1999,
between Cafe Odyssey, Inc., a Minnesota corporation with principal executive
offices located at 4801 West 81st Street, Suite 112, Bloomington, Minnesota
55437 (the "COMPANY"), and The Shaar Fund Ltd. ("BUYER").
WHEREAS, Buyer desires to purchase from the Company, and the
Company desires to issue and sell to the Buyer, upon the terms and subject to
the conditions of this Agreement, (i) 2,000 shares of the Company's Series A 8%
Convertible Preferred Stock, par value $0.01 per share (collectively, the
"PREFERRED SHARES"), and (ii) Common Stock Purchase Warrants in the form
attached hereto as Exhibit A (collectively, the "WARRANTS");
WHEREAS, upon the terms and subject to the designations,
preferences and rights set forth in the Company's Certificate of Designation of
Series A 8% Convertible Preferred Stock in the form attached hereto as Exhibit B
(the "CERTIFICATE OF DESIGNATION"), the Preferred Shares are convertible into
shares of the Company's common stock, par value $0.01 per share (the "COMMON
STOCK");
WHEREAS, the Warrants, upon the terms and subject to the
conditions in the Warrants, will for a period of five years be exercisable to
purchase 300,000 shares of Common Stock;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:
I. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS
A. TRANSACTION. Buyer hereby agrees to purchase from the
Company, and the Company has offered and hereby agrees to issue and sell to the
Buyer in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT"),
the Preferred Shares and the Warrants to purchase 300,000 shares of Common
Stock.
B. PURCHASE PRICE; FORM OF PAYMENT. The purchase price for
the Preferred Shares and the Warrants to be purchased by Buyer hereunder shall
be $2,000,000 (the "PURCHASE PRICE"). Buyer shall pay the Purchase Price by wire
transfer of immediately available funds to the escrow agent (the "ESCROW AGENT")
identified in those certain Escrow Instructions of even date herewith, a copy of
which is attached hereto as Exhibit C (the "ESCROW INSTRUCTIONS").
Simultaneously with the execution of this Agreement and against receipt by the
Escrow Agent of the Purchase Price, the Company shall deliver one or more duly
authorized, issued and executed certificates (I/N/O Buyer or, if the Company
otherwise has been notified, I/N/O Buyer's nominee) evidencing the Preferred
Shares and the Warrants which the Buyer is purchasing, to the Escrow Agent or
its designated depository. By executing and delivering this Agreement,
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Buyer and the Company each hereby agrees to observe the terms and conditions of
the Escrow Instructions, all of which are incorporated herein by reference as if
fully set forth herein.
C. METHOD OF PAYMENT. Payment into escrow of the Purchase
Price shall be made by wire transfer of immediately available funds to:
The Bank of New York
48 Wall Street
New York, NY 10038
ABA No.: 021000018
For the Account of: Cadwalader, Wickersham & Taft
Trust Account IOLA Fund
Account No.: 0902061070
Simultaneously with the execution of this Agreement, the Buyer shall deposit
with the Escrow Agent the Purchase Price and the Company shall deposit with the
Escrow Agent the Preferred Shares and the Warrants.
II. BUYER'S REPRESENTATIONS, WARRANTIES; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION
Buyer represents and warrants to and covenants and agrees with
the Company as follows:
A. Buyer is purchasing the Preferred Shares, the Warrants,
the Common Stock issuable upon exercise of the Warrants (the "WARRANT SHARES")
and the shares of Common Stock issuable upon conversion of the Preferred Shares
(the "CONVERSION SHARES" and, collectively with the Preferred Shares, the
Warrants and the Warrant Shares, the "SECURITIES") for its own account, for
investment purposes only and not with a view towards or in connection with the
public sale or distribution thereof in violation of the Securities Act.
B. Buyer is (i) an "ACCREDITED INVESTOR" within the meaning
of Rule 501 of Regulation D under the Securities Act, (ii) experienced in making
investments of the kind contemplated by this Agreement, (iii) capable, by reason
of its business and financial experience, of evaluating the relative merits and
risks of an investment in the Securities, and (iv) able to afford the loss of
its investment in the Securities.
C. Buyer understands that the Securities are being offered
and sold by the Company in reliance on an exemption from the registration
requirements of the Securities Act and equivalent state securities and "blue
sky" laws, and that the Company is relying upon the accuracy of, and Buyer's
compliance with, Buyer's representations, warranties and covenants set forth in
this Agreement to determine the availability of such exemption and the
eligibility of Buyer to purchase the Securities;
E. Buyer acknowledges that in making its decision to
purchase the Securities it has been given an opportunity to review the
Commission Filings (as defined in Section III.H. hereof) and to ask questions of
and to receive answers from the Company's executive officers,
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directors and management personnel concerning the terms and conditions of the
private placement of the Securities by the Company.
F. Buyer understands that the Securities have not been
approved or disapproved by the Securities and Exchange Commission (the
"COMMISSION") or any state securities commission and that the foregoing
authorities have not reviewed any documents or instruments in connection with
the offer and sale to it of the Securities and have not confirmed or determined
the adequacy or accuracy of any such documents or instruments.
G. This Agreement has been duly and validly authorized,
executed and delivered by Buyer and is a valid and binding agreement of Buyer
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and except as
rights to indemnity and contribution may be limited by federal or state
securities laws or the public policy underlying such laws.
H. Neither Buyer nor its affiliates nor any person acting
on its or their behalf has the intention of entering, or will enter into, prior
to the closing, any put option, short position or other similar instrument or
position with respect to the Common Stock and neither Buyer nor any of its
affiliates nor any person acting on its or their behalf will use at any time
shares of Common Stock acquired pursuant to this Agreement to settle any put
option, short position or other similar instrument or position that may have
been entered into prior to the execution of this Agreement.
III. THE COMPANY'S REPRESENTATIONS
The Company represents and warrants to Buyer that:
A. CAPITALIZATION.
1. The authorized capital stock of the Company
consists of 100,000,000 shares of which 8,313,435 shares of Common
Stock are issued and outstanding on the date hereof and no shares of
preferred stock are issued and outstanding on the date hereof. All of
the issued and outstanding shares of Common Stock and preferred stock,
if any, have been duly authorized and validly issued and are fully paid
and nonassessable. As of the date hereof, the Company has outstanding
stock options and warrants to purchase 4,339,750 shares of Common
Stock. The Conversion Shares and Warrant Shares have been duly and
validly authorized and reserved for issuance by the Company, and when
issued by the Company upon conversion of, or in lieu of accrued
dividends on, the Preferred Shares and on exercise of the Warrants will
be duly and validly issued, fully paid and nonassessable and will not
subject the holder thereof to personal liability by reason of being
such holder. There are no preemptive, subscription, "call" or other
similar rights to acquire the Common Stock (including the Conversion
Shares and Warrant Shares) that have been issued or granted to any
person.
2. Except as disclosed on Schedule III.A.2. hereto,
the Company does not own or control, directly or indirectly, any
interest in any other corporation,
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partnership, limited liability company, unincorporated business
organization, association, trust or other business entity.
B. ORGANIZATION; REPORTING COMPANY STATUS.
1. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Minnesota and is duly qualified as a foreign corporation in all
jurisdictions in which the failure to so qualify would have a material
adverse effect on the business, properties, prospects, condition
(financial or otherwise) or results of operations of the Company or on
the consummation of any of the transactions contemplated by this
Agreement (a "MATERIAL ADVERSE EFFECT").
2. The Company has registered the Common Stock
pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), and has timely filed with the Commission
all reports and information required to be filed by it pursuant to all
reporting obligations under Section 13(a) or 15(d), as applicable, of
the Exchange Act for the 12-month period immediately preceding the date
hereof. The Common Stock is listed and traded on the Nasdaq SmallCap
Market ("Nasdaq") and the Company has not received any notice
regarding, and to its knowledge there is no threat of, the termination
or discontinuance of the eligibility of the Common Stock for such
listing, except for the receipt of notice from Nasdaq regarding the
Company's failure to maintain a minimum bid price for its Common Stock,
which notice is no longer effective.
C. AUTHORIZED SHARES. The Company has duly and validly
authorized and reserved for issuance shares of Common Stock sufficient in number
for the conversion of the Preferred Shares and the exercise of the Warrants,
such number of authorized and reserved shares to be at least 19.9% of the total
outstanding shares of Common Stock on the Closing Date. The Company understands
and acknowledges the potentially dilutive effect to the Common Stock of the
issuance of the Preferred Shares and Warrant Shares upon conversion of the
Preferred Shares and exercise of the Warrants, respectively. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Shares and Warrant Shares upon exercise of the Warrants in
accordance with this Agreement, the Preferred Shares and the Warrants is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company and
notwithstanding the commencement of any case under 11 U.S.C. ss. 101 et seq.
(the "BANKRUPTCY CODE"). In the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives to the fullest extent permitted any
rights to relief it may have under 11 U.S.C. ss. 362 in respect of the
conversion of the Preferred Shares and the exercise of the Warrants. The Company
agrees, without cost or expense to Buyer, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. ss. 362. Schedule III.C.
hereto sets forth (i) all issuances and sales by the Company since the closing
of its initial public offering of its capital stock, and other securities
convertible, exercisable or exchangeable for capital stock of the Company, (ii)
the amount of such securities sold, including any underlying shares of capital
stock, (iii) the purchaser thereof, and (iv) the amount paid therefor.
D. AUTHORITY; VALIDITY AND ENFORCEABILITY. The Company has
the requisite corporate power and authority to file and perform its obligations
under the Certificate of
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Designation and to enter into the Documents (as hereinafter defined), and to
perform all of its obligations hereunder and thereunder (including the issuance,
sale and delivery to Buyer of the Securities). The execution, delivery and
performance by the Company of the Documents, and the consummation by the Company
of the transactions contemplated hereby and thereby (including, without
limitation, the filing of the Certificate of Designation with the Minnesota
Secretary of State's office, the issuance of the Preferred Shares, the Warrants
and the issuance and reservation for issuance of the Conversion Shares and
Warrant Shares), has been duly authorized by all necessary corporate action on
the part of the Company. Each of the Documents has been duly and validly
executed and delivered by the Company and the Certificate of Designation has
been duly filed with the Minnesota Secretary of State's office by the Company
and each instrument constitutes a valid and binding obligation of the Company
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and except as
rights to indemnity and contribution may be limited by federal or state
securities laws or the public policy underlying such laws. The Securities have
been duly and validly authorized for issuance by the Company and, when executed
and delivered by the Company, will be valid and binding obligations of the
Company enforceable against it in accordance with their terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally.
For purposes of this Agreement, the term "DOCUMENTS" means (i) this Agreement;
(ii) the Registration Rights Agreement of even date herewith between the Company
and Buyer, a copy of which is annexed hereto as Exhibit D (the "REGISTRATION
RIGHTS AGREEMENT"); (iii) the Certificate of Designation; (iv) the Warrants; and
(v) the Escrow Instructions.
E. AUTHORIZATION OF THE SECURITIES. The authorization,
issuance, sale and delivery of the Preferred Shares and Warrants has been duly
authorized by all requisite corporate action on the part of the Company. As of
the Closing Date, the Preferred Shares and the Warrants, and the Conversion
Shares and the Warrant Shares upon their issuance in accordance with the
Certificate of Designation and the Warrants, respectively, will be validly
issued and outstanding, fully paid and nonassessable, and not subject to any
preemptive rights, rights of first refusal or other similar rights.
F. NON-CONTRAVENTION. The execution and delivery by the
Company of the Documents, the issuance of the Securities, and the consummation
by the Company of the other transactions contemplated hereby and thereby,
including, without limitation, the filing of the Certificate of Designation with
the Minnesota Secretary of State's office, do not and will not conflict with or
result in a breach by the Company of any of the terms or provisions of, or
constitute a default (or an event which, with notice, lapse of time or both,
would constitute a default) under (i) the articles of incorporation or by-laws
of the Company or (ii) any indenture, mortgage, deed of trust or other material
agreement or instrument to which the Company is a party or by which its
properties or assets are bound, or any law, rule, regulation, decree, judgment
or order of any court or public or governmental authority having jurisdiction
over the Company or any of the Company's properties or assets, except as to
clause (ii) above such conflict, breach or default which would not have a
Material Adverse Effect.
G. APPROVALS. No authorization, approval or consent of any
court or public or governmental authority is required to be obtained by the
Company for the issuance and sale of
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the Preferred Shares or the Warrants (and the Conversion Shares and Warrant
Shares) to Buyer as contemplated by this Agreement, except such authorizations,
approvals and consents that have been obtained by the Company prior to the date
hereof.
H. COMMISSION FILINGS. None of the Company's reports and
documents heretofore filed with the Commission pursuant to the Securities Act or
the Exchange Act (collectively, the "COMMISSION FILINGS") contained at the time
they were filed any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
I. ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date
(as defined in Section III.M.), there has not occurred any change, event or
development in the business, financial condition, prospects or results of
operations of the Company, and there has not existed any condition having or
reasonably likely to have, a Material Adverse Effect.
J. FULL DISCLOSURE. There is no fact known to the Company
(other than general economic or industry conditions known to the public
generally) that has not been fully disclosed in writing to the Buyer that (i)
reasonably could be expected to have a Material Adverse Effect or (ii)
reasonably could be expected to materially and adversely affect the ability of
the Company to perform its obligations pursuant to the Documents.
K. ABSENCE OF LITIGATION. There is no action, suit, claim,
proceeding, inquiry or investigation pending or, to the Company's knowledge,
threatened, by or before any court or public or governmental authority which, if
determined adversely to the Company, would have a Material Adverse Effect.
L. ABSENCE OF EVENTS OF DEFAULT. No "EVENT OF DEFAULT" (as
defined in any agreement or instrument to which the Company is a party) and no
event which, with notice, lapse of time or both, would constitute an Event of
Default (as so defined), has occurred and is continuing, which could have a
Material Adverse Effect.
M. FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES. The
Company has made available to Buyer true and complete copies of its audited
balance sheet as at January 3, 1999 and the related audited statements of
operations and cash flows for the fiscal years ended December 28, 1997 and
January 3, 1999 including the related notes and schedules thereto (collectively,
the "FINANCIAL STATEMENTS"). Each of the Financial Statements is complete and
correct in all material respects, has been prepared in accordance with United
States General Accepted Accounting Principles ("GAAP") (subject, in the case of
the interim Financial Statements, to normal year end adjustments and the absence
of footnotes) and in conformity with the practices consistently applied by the
Company without modification of the accounting principles used in the
preparation thereof, and fairly presents the financial position, results of
operations and cash flows of the Company as at the dates and for the periods
indicated. For purposes hereof, the audited balance sheet of the Company as at
January 3, 1999 is hereinafter referred to as the "BALANCE SHEET" and January 3,
1999 is hereinafter referred to as the "BALANCE SHEET DATE". The Company has no
indebtedness, obligations or liabilities of any kind (whether accrued, absolute,
contingent or otherwise, and whether due or to become due) that would have
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been required to be reflected in, reserved against or otherwise described in the
Balance Sheet or in the notes thereto in accordance with GAAP, which was not
fully reflected in, reserved against or otherwise described in the Balance Sheet
or the notes thereto or was not incurred in the ordinary course of business
consistent with the Company's past practices since the Balance Sheet Date.
N. COMPLIANCE WITH LAWS; PERMITS. The Company is in
compliance with all laws, rules, regulations, codes, ordinances and statutes
(collectively, "LAWS") applicable to it or to the conduct of its business,
except for such noncompliance which would not have a Material Adverse Effect.
The Company possesses all permits, approvals, authorizations, licenses,
certificates and consents from all public and governmental authorities which are
necessary to conduct its business, except for those the absence of which would
not have a Material Adverse Effect.
O. RELATED PARTY TRANSACTIONS. Except as set forth on
Schedule III.O. hereto, neither the Company nor any of its officers, directors
or "AFFILIATES" (as such term is defined in Rule 12b-2 under the Exchange Act)
has borrowed any moneys from or has outstanding any indebtedness or other
similar obligations to the Company. Except as set forth on Schedule III.O.
hereto, neither the Company nor any of its officers, directors or Affiliates (i)
owns any direct or indirect interest constituting more than a 1% equity (or
similar profit participation) interest in, or controls or is a director,
officer, partner, member or employee of, or consultant to or lender to or
borrower from, or has the right to participate in the profits of, any person or
entity which is (x) a competitor, supplier, customer, landlord, tenant, creditor
or debtor of the Company, (y) engaged in a business related to the business of
the Company, or (z) a participant in any transaction to which the Company is a
party (other than in the ordinary course of the Company's business) or (ii) is a
party to any contract, agreement, commitment or other arrangement with the
Company.
P. INSURANCE. The Company maintains property and casualty,
general liability, workers' compensation, environmental hazard, personal injury
and other similar types of insurance with financially sound and reputable
insurers that is adequate, consistent with industry standards and the Company's
historical claims experience. The Company has not received notice from, and has
no knowledge of any threat by, any insurer (that has issued any insurance policy
to the Company) that such insurer intends to deny coverage under or cancel,
discontinue or not renew any insurance policy presently in force.
Q. SECURITIES LAW MATTERS. Based, in part, upon the
representations and warranties of Buyer set forth in Section II hereof, the
offer and sale by the Company of the Securities is exempt from (i) the
registration and prospectus delivery requirements of the Securities Act and the
rules and regulations of the Commission thereunder and (ii) the registration
and/or qualification provisions of all applicable state securities and "blue
sky" laws. Other than pursuant to an effective registration statement under the
Securities Act, the Company has not issued, offered or sold the Preferred Shares
or any shares of Common Stock (including for this purpose any securities of the
same or a similar class as the Preferred Shares or Common Stock, or any
securities convertible into or exchangeable or exercisable for the Preferred
Shares or Common Stock or any such other securities), and the Company shall not
directly or indirectly take, and shall not permit any of its directors, officers
or Affiliates directly or indirectly to take,
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any action (including, without limitation, any offering or sale to any person or
entity of the Preferred Shares or shares of Common Stock), so as to make
unavailable the exemption from Securities Act registration being relied upon by
the Company for the offer and sale to Buyer of the Preferred Shares (and the
Conversion Shares) as contemplated by this Agreement. No form of general
solicitation or advertising has been used or authorized by the Company or any of
its officers, directors or Affiliates in connection with the offer or sale of
the Preferred Shares (and the Conversion Shares) as contemplated by this
Agreement or any other agreement to which the Company is a party.
R. ENVIRONMENTAL MATTERS.
1. The operations of the Company are in compliance
with all applicable Environmental Laws and all permits issued pursuant
to Environmental Laws or otherwise;
2. The Company has obtained or applied for all
permits required under all applicable Environmental Laws necessary to
operate its business;
3. The Company is not the subject of any outstanding
written order of or agreement with any governmental authority or person
respecting (i) Environmental Laws, (ii) Remedial Action or (iii) any
Release or threatened Release of Hazardous Materials;
4. The Company has not received, since January 3,
1999, any written communication alleging that it may be in violation of
any Environmental Law or any permit issued pursuant to any
Environmental Law, or may have any liability under any Environmental
Law;
5. The Company does not have any current contingent
liability in connection with any Release of any Hazardous Materials
into the indoor or outdoor environment (whether on-site or off-site);
6. Except as set forth on Schedule III.R.6 hereto, to
the Company's knowledge, there are no investigations of the business,
operations, or currently or previously owned, operated or leased
property of the Company pending or threatened which could lead to the
imposition of any liability pursuant to any Environmental Law;
7. There is not located at any of the properties of
the Company any (A) underground storage tanks, (B) asbestos-containing
material or (C) equipment containing polychlorinated biphenyls; and,
8. The Company has provided to Buyer all
environmentally related audits, studies, reports, analyses, and results
of investigations that have been performed with respect to the
currently or previously owned, leased or operated properties of the
Company.
For purposes of this Section III.R.:
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"ENVIRONMENTAL LAW" means any foreign, federal, state or local
statute, regulation, ordinance, or rule of common law as now or hereafter in
effect in any way relating to the protection of human health and safety or the
environment including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, the Hazardous Materials Transportation
Act, the Resource Conservation and Recovery Act, the Clean Water Act, the Clean
Air Act, the Toxic Substances Control Act, the Federal Insecticide, Fungicide,
and Rodenticide Act, and the Occupational Safety and Health Act, and the
regulations promulgated pursuant thereto.
"HAZARDOUS MATERIAL" means any substance, material or waste
which is regulated by the United States, Canada or any of its provinces, or any
state or local governmental authority including, without limitation, petroleum
and its by-products, asbestos, and any material or substance which is defined as
a "HAZARDOUS WASTE," "HAZARDOUS SUBSTANCE," "HAZARDOUS MATERIAL," "RESTRICTED
HAZARDOUS WASTE," "INDUSTRIAL WASTE," "SOLID WASTE," "CONTAMINANT," "POLLUTANT,"
"TOXIC WASTE" or "TOXIC SUBSTANCE" under any provision of any Environmental Law;
"RELEASE" means any release, spill, filtration, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, or
leaching into the indoor or outdoor environment, or into or out of any property;
"REMEDIAL ACTION" means all actions to (x) clean up, remove,
treat or in any other way address any Hazardous Material; (y) prevent the
Release of any Hazardous Material so it does not endanger or threaten to
endanger public health or welfare or the indoor or outdoor environment; or (z)
perform pre-remedial studies and investigations or post-remedial monitoring and
care.
S. LABOR MATTERS. The Company is not party to any labor or
collective bargaining agreement and there are no labor or collective bargaining
agreements which pertain to employees of the Company. No employees of the
Company are represented by any labor organization and none of such employees has
made a pending demand for recognition, and there are no representation
proceedings or petitions seeking a representation proceeding presently pending
or, to the Company's knowledge, threatened to be brought or filed, with the
National Labor Relations Board or other labor relations tribunal. There is no
organizing activity involving the Company pending or to the Company's knowledge,
threatened by any labor organization or group of employees of the Company. There
are no (i) strikes, work stoppages, slowdowns, lockouts or arbitrations or (ii)
material grievances or other labor disputes pending or, to the knowledge of the
Company, threatened against or involving the Company. There are no unfair labor
practice charges, grievances or complaints pending or, to the knowledge of the
Company, threatened by or on behalf of any employee or group of employees of the
Company.
T. ERISA MATTERS. The Company and its ERISA Affiliates are
in compliance in all material respects with all provisions of ERISA applicable
to it. No Reportable Event has occurred, been waived or exists as to which the
Company or any ERISA Affiliate was required to file a report with the Pension
Benefits Guaranty Corporation, and the present value of all liabilities under
all Plans (based on those assumptions used to fund such Plans) did not, as of
the most recent annual valuation date applicable thereto, exceed the value of
the assets of all
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such Plans in the aggregate. None of the Company or ERISA Affiliates has
incurred any Withdrawal Liability that could result in a Material Adverse
Effect. None of the Company or ERISA Affiliates has received any notification
that any Multiemployer Plan is in reorganization or has been terminated within
the meaning of Title IV of ERISA, and no Multiemployer Plan is reasonably
expected to be in reorganization or termination where such reorganization or
termination has resulted or could reasonably be expected to result in increases
to the contributions required to be made to such Plan or otherwise.
For purposes of this Section III.T.:
"ERISA" means the Employee Retirement Income Security Act of
1974, or any successor statute, together with the regulations thereunder, as the
same may be amended from time to time.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that was, is or hereafter may become, a member of a group of which
the Company is a member and which is treated as a single employer under Section
414 of the Internal Revenue Code of 1986, as amended (the "INTERNAL REVENUE
CODE").
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA to which the Company or any ERISA Affiliate (other
than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Internal Revenue Code) is making or accruing an obligation to
make contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA or any successor thereto.
"PLAN" means any pension plan (other than a Multiemployer
Plan) subject to the provision of Title IV of ERISA or Section 412 of the
Internal Revenue Code that is maintained for employees of the Company or any
ERISA Affiliate.
"REPORTABLE EVENT" means any reportable event as defined in
Section 4043(b) of ERISA or the regulations issued thereunder with respect to a
Plan (other than a Plan maintained by an ERISA Affiliate that is considered an
ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the
Internal Revenue Code).
"WITHDRAWAL LIABILITY" means liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
U. TAX MATTERS.
1. The Company has filed all Tax Returns which it is
required to file under applicable Laws, except for such Tax Returns in
respect of which the failure to so file does not and could not have a
Material Adverse Effect; all such Tax Returns are true and accurate in
all material respects and have been prepared in compliance with all
applicable Laws; the Company has paid all Taxes due and owing by it
(whether or not
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such Taxes are required to be shown on a Tax Return) and have withheld
and paid over to the appropriate taxing authorities all Taxes which it
is required to withhold from amounts paid or owing to any employee,
stockholder, creditor or other third parties; and since the Balance
Sheet Date, the charges, accruals and reserves for Taxes with respect
to the Company (including any provisions for deferred income taxes)
reflected on the books of the Company are adequate to cover any Tax
liabilities of the Company if its current tax year were treated as
ending on the date hereof.
2. No claim has been made by a taxing authority in a
jurisdiction where the Company does not file tax returns that such
corporation is or may be subject to taxation by that jurisdiction.
There are no foreign, federal, state or local tax audits or
administrative or judicial proceedings pending or being conducted with
respect to the Company; no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority;
and, except as disclosed above, no written notice indicating an intent
to open an audit or other review has been received by the Company from
any foreign, federal, state or local taxing authority. There are no
material unresolved questions or claims concerning the Company's Tax
liability. The Company (A) has not executed or entered into a closing
agreement pursuant to Section 7121 of the Internal Revenue Code or any
predecessor provision thereof or any similar provision of state, local
or foreign law; or (B) has not agreed to or is required to make any
adjustments pursuant to Section 481(a) of the Internal Revenue Code or
any similar provision of state, local or foreign law by reason of a
change in accounting method initiated by the Company or any of its
subsidiaries or has any knowledge that the IRS has proposed any such
adjustment or change in accounting method, or has any application
pending with any taxing authority requesting permission for any changes
in accounting methods that relate to the business or operations of the
Company. The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Internal
Revenue Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Internal Revenue Code.
3. The Company has not made an election under Section
341(f) of the Internal Revenue Code. The Company is not liable for the
Taxes of another person that is not a subsidiary of the Company under
(A) Treas. Reg. Section 1.1502-6 (or comparable provisions of state,
local or foreign law), (B) as a transferee or successor, (C) by
contract or indemnity or (D) otherwise. The Company is not a party to
any tax sharing agreement. The Company has not made any payments, is
obligated to make payments or is a party to an agreement that could
obligate it to make any payments that would not be deductible under
Section 280G of the Internal Revenue Code.
For purposes of this Section III.U.:
"IRS" means the United States Internal Revenue Service.
"TAX" or "TAXES" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or
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add-on minimum, estimated and other taxes of any kind whatsoever (including,
without limitation, deficiencies, penalties, additions to tax, and interest
attributable thereto) whether disputed or not.
"TAX RETURN" means any return, information report or filing
with respect to Taxes, including any schedules attached thereto and including
any amendment thereof.
V. PROPERTY. The Company has good and marketable title to
all real and personal property owned by it, free and clear of all liens,
encumbrances and defects except such as are described on Schedule III.V. hereto
or such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company; and any real property and buildings held under lease by the Company are
held by it under valid, subsisting and enforceable leases with such exceptions
as are not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company.
W. INTELLECTUAL PROPERTY. The Company owns or possesses
adequate and enforceable rights to use all patents, patent applications,
trademarks, trademark applications, trade names, service marks, copyrights,
copyright applications, licenses, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures) and other similar rights and proprietary knowledge (collectively,
"INTANGIBLES") necessary for the conduct of its business as now being conducted
including, but not limited to, those described on Schedule III.W. hereto. The
Company is not infringing upon or in conflict with any right of any other person
with respect to any Intangibles. Except as disclosed on Schedule III.W. hereto,
no claims have been asserted by any person to the ownership or use of any
Intangibles and the Company has no knowledge of any basis for such claim.
X. INTERNAL CONTROLS AND PROCEDURES. The Company maintains
accurate books and records and internal accounting controls which provide
reasonable assurance that (i) all transactions to which the Company is a party
or by which its properties are bound are executed with management's
authorization; (ii) the reported accountability of the Company's assets is
compared with existing assets at regular intervals; (iii) access to the
Company's assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company is a party or by
which its properties are bound are recorded as necessary to permit preparation
of the financial statements of the Company in accordance with GAAP.
Y. PAYMENTS AND CONTRIBUTIONS. Neither the Company nor any
of its directors, officers or, to its knowledge, other employees has (i) used
any Company funds for any unlawful contribution, endorsement, gift,
entertainment or other unlawful expense relating to political activity; (ii)
made any direct or indirect unlawful payment of Company funds to any foreign or
domestic government official or employee, (iii) violated or is in violation of
any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any bribe, rebate, payoff, influence payment, kickback or other similar
payment to any person with respect to Company matters.
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Z. NO MISREPRESENTATION. No representation or warranty of
the Company contained in this Agreement, any schedule, annex or exhibit hereto
or any agreement, instrument or certificate furnished by the Company to Buyer
pursuant to this Agreement, contains any 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.
IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS
A. RESTRICTIVE LEGEND. Buyer acknowledges and agrees that,
upon issuance pursuant to this Agreement, the Securities (and any shares of
Common Stock issued in conversion of the Preferred Shares or exercise of the
Warrants) shall have endorsed thereon a legend in substantially the following
form (and a stop-transfer order may be placed against transfer of the Preferred
Shares, the Warrant Shares and the Conversion Shares until such legend has been
removed):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OR SUCH OTHER LAWS."
B. FILINGS. The Company shall make all necessary Commission
Filings and "blue sky" filings required to be made by the Company in connection
with the sale of the Securities to the Buyer as required by all applicable Laws,
and shall provide a copy thereof to the Buyer promptly after such filing.
C. REPORTING STATUS. So long as the Buyer beneficially owns
any of the Securities, the Company shall timely file all reports required to be
filed by it with the Commission pursuant to Section 13 or 15(d) of the Exchange
Act.
D. USE OF PROCEEDS. The Company shall use the net proceeds
from the sale of the Securities (excluding amounts paid by the Company for
Buyer's out-of-pocket costs and expenses incurred in connection with the
transactions contemplated by this Agreement and finder's fees in connection with
such sale) solely for general corporate and working capital purposes.
E. LISTING. Except to the extent the Company lists its
Common Stock on The New York Stock Exchange or the Nasdaq National Market, the
Company shall use its best efforts to maintain its listing of the Common Stock
on Nasdaq.
F. RESERVED CONVERSION SHARES. The Company at all times
from and after the date hereof shall have a sufficient number of shares of
Common Stock duly and validly authorized and reserved for issuance to satisfy
the conversion, in full, of the 2,000 Preferred
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Shares and upon the exercise of the Warrants, such number of authorized and
reserved shares to be at least 19.9% of the total outstanding shares of Common
Stock on the Closing Date.
G. FINDER'S FEES. The Company shall pay all finder's fees,
brokerage commissions or like payments in connection with the issuance, purchase
and sale of the Securities, including, without limitation, fees payable by the
Company to Progressive Group, consisting of a 10% placement fee, 3% of
unallocated expenses and warrants to purchase 87,500 shares of Common Stock, and
the Company agrees that Buyer shall have no liability therefor.
V. TRANSFER AGENT INSTRUCTIONS
A. The Company undertakes and agrees that no instruction
other than the instructions referred to in this Section V and customary stop
transfer instructions prior to the registration and sale of the Common Stock
pursuant to an effective Securities Act registration statement will be given to
its transfer agent for the Common Stock and that the Common Stock issuable upon
conversion of the Preferred Shares and exercise of the Warrants otherwise shall
be freely transferable on the books and records of the Company as and to the
extent provided in this Agreement, the Registration Rights Agreement and
applicable law. Nothing contained in this Section V.A. shall affect in any way
Buyer's obligations and agreement to comply with all applicable securities laws
upon resale of such Common Stock. If, at any time, Buyer provides the Company
with an opinion of counsel reasonably satisfactory to the Company that
registration of the resale by Buyer of such Common Stock is not required under
the Securities Act and that the removal of restrictive legends is permitted
under applicable law, the Company shall permit the transfer of such Common Stock
and, promptly instruct the Company's transfer agent to issue one or more
certificates for Common Stock without any restrictive legends endorsed thereon.
B. The Company shall permit Buyer to exercise its right to
convert the Preferred Shares by telecopying an executed and completed Notice of
Conversion (as defined in the Certificate of Designation) to the Company. Each
date on which a Notice of Conversion is telecopied to and received by the
Company in accordance with the provisions hereof shall be deemed a Conversion
Date (as defined in the Certificate of Designation). The Company shall transmit
the certificates evidencing the shares of Common Stock issuable upon conversion
of any Preferred Shares (together with certificates evidencing any Preferred
Shares not being so converted) to Buyer via express courier, by electronic
transfer or otherwise, within five business days after receipt by the Company of
the Notice of Conversion (the "DELIVERY DATE"). Within 15 days after Buyer
delivers the Notice of Conversion to the Company, Buyer shall deliver to the
Company the Preferred Shares being converted.
C. The Company shall permit Buyer to exercise its right to
purchase shares of Common Stock pursuant to exercise of the Warrants in
accordance with its applicable terms of the Warrants. The last date that the
Company may deliver shares of Common Stock issuable upon any exercise of
Warrants is referred to herein as the "WARRANT DELIVERY DATE."
D. The Company understands that a delay in the issuance of
the shares of Common Stock issuable in lieu of cash dividends on the Preferred
Shares, upon the conversion of the Preferred Shares or exercise of the Warrants
beyond the applicable Dividend Payment Due Date (as defined in the Certificate
of Designation), Delivery Date or Warrant Delivery Date
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could result in economic loss to Buyer. As compensation to Buyer for such loss
(and not as a penalty), the Company agrees to pay to Buyer for late issuance of
Common Stock issuable in lieu of cash dividends on the Preferred Shares, upon
conversion of the Preferred Shares or exercise of the Warrants in accordance
with the following schedule (where "NO. BUSINESS DAYS" is defined as the number
of business days beyond five business days from the Dividend Payment Due Date,
the Delivery Date or the Warrant Delivery Date, as applicable):
COMPENSATION FOR EACH 10 SHARES
OF PREFERRED SHARES NOT CONVERTED
TIMELY OR 500 SHARES OF COMMON
STOCK ISSUABLE IN PAYMENT OF
DIVIDENDS OR UPON EXERCISE OF
NO. BUSINESS DAYS WARRANTS NOT ISSUED TIMELY
- ---------------------------- -----------------------------------
1 $ 25
2 50
3 75
4 100
5 125
6 150
7 175
8 200
9 225
10 250
more than 10 $250 + $100 for each Business
Day Late beyond 10 days
The Company shall pay to Buyer the compensation described above by the transfer
of immediately available funds upon Buyer's demand. Nothing herein shall limit
Buyer's right to pursue actual damages for the Company's failure to issue and
deliver Common Stock to Buyer, and in addition to any other remedies which may
be available to Buyer, in the event the Company fails for any reason to effect
delivery of such shares of Common Stock within five business days after the
relevant Dividend Payment Due Date, the Delivery Date or the Warrant Delivery
Date, as applicable, Buyer shall be entitled to rescind the relevant Notice of
Conversion or exercise of Warrants by delivering a notice to such effect to the
Company whereupon the Company and Buyer shall each be restored to their
respective original positions immediately prior to delivery of such Notice of
Conversion on delivery.
VI. DELIVERY INSTRUCTIONS
The Securities shall be delivered by the Company to the Escrow
Agent pursuant to Section I.B. hereof on a "delivery-against-payment basis" at
the Closing.
VII. CLOSING DATE
The date and time of the issuance and sale of the Preferred
Shares (the "CLOSING DATE") shall be the date hereof or such other as shall be
mutually agreed upon in writing. The issuance and sale of the Securities shall
occur on the Closing Date at the offices of the Escrow
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Agent. Notwithstanding anything to the contrary contained herein, the Escrow
Agent shall not be authorized to release to the Company the Purchase Price and
to Buyer the certificate(s) (I/N/O Buyer or I/N/O Buyer's nominee) evidencing
the Securities being purchased by Buyer unless the conditions set forth in
Section VIII.C. and IX.G. hereof have been satisfied.
VIII. CONDITIONS TO THE COMPANY'S OBLIGATIONS
The Buyer understands that the Company's obligation to sell
the Securities on the Closing Date to Buyer pursuant to this Agreement is
conditioned upon:
A. Delivery by Buyer to the Escrow Agent of the Purchase
Price;
B. The accuracy in all material respects on the Closing
Date of the representations and warranties of Buyer contained in this Agreement
as if made on the Closing Date (except for representations and warranties which,
by their express terms, speak as of and relate to a specified date, in which
case such accuracy shall be measured as of such specified date) and the
performance by Buyer in all material respects on or before the Closing Date of
all covenants and agreements of Buyer required to be performed by it pursuant to
this Agreement on or before the Closing Date;
C. There shall not be in effect any Law or order, ruling,
judgment or writ of any court or public or governmental authority restraining,
enjoining or otherwise prohibiting any of the transactions contemplated by this
Agreement.
IX. CONDITIONS TO BUYER'S OBLIGATIONS
The Company understands that Buyer's obligation to purchase
the Securities on the Closing Date pursuant to this Agreement is conditioned
upon:
A. Delivery by the Company to Buyer of evidence that the
Certificate of Designation has been filed and is effective.
B. Delivery by the Company to the Escrow Agent of one or
more certificates (I/N/O Buyer or I/N/O Buyer's nominee) evidencing the
Securities to be purchased by Buyer pursuant to this Agreement;
C. The accuracy in all respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement as if
made on the Closing Date (except for representations and warranties which, by
their express terms, speak as of and relate to a specified date, in which case
such accuracy shall be measured as of such specified date) and the performance
by the Company in all respects on or before the Closing Date of all covenants
and agreements of the Company required to be performed by it pursuant to this
Agreement on or before the Closing Date;
D. Buyer having received an opinion of counsel for the
Company, dated the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer as to the matters set forth in Annex A;
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E. There not having occurred (i) any general suspension of
trading in, or limitation on prices listed for, the Common Stock on Nasdaq, (ii)
the declaration of a banking moratorium or any suspension of payments in respect
of banks in the United States, (iii) the commencement of a war, armed
hostilities or other international or national calamity directly or indirectly
involving the United States or any of its territories, protectorates or
possessions, or (iv) in the case of the foregoing existing at the date of this
Agreement, a material acceleration or worsening thereof;
F. There not having occurred any event or development, and
there being in existence no condition, having or which reasonably and
foreseeably could have a Material Adverse Effect;
G. The Company shall have delivered to Buyer (as provided
in the Escrow Instructions) reimbursement of Buyer's out-of-pocket costs and
expenses whether or not accounted for or incurred in connection with the
transactions contemplated by this Agreement (including the fees and
disbursements of Buyer's legal counsel) of $30,000;
H. There shall not be in effect any Law or order, ruling,
judgment or writ of any court or public or governmental authority restraining,
enjoining or otherwise prohibiting any of the transactions contemplated by this
Agreement; and
I. Delivery of irrevocable instructions to the Company's
transfer agent to reserve such number of shares of Common Stock equal to at
least 19.9% of the total outstanding shares of Common Stock on the Closing Date
for issuance of the Conversion Shares and the Warrant Shares.
X. TERMINATION
A. TERMINATION BY MUTUAL WRITTEN CONSENT. This Agreement
may be terminated and the transactions contemplated hereby may be abandoned, for
any reason and at any time prior to the Closing Date, by the mutual written
consent of the Company and Buyer.
B. TERMINATION BY THE COMPANY OR BUYER. This Agreement may
be terminated and the transactions contemplated hereby may be abandoned by
action of the Company or Buyer if (i) the Closing shall not have occurred at or
prior to 5:00 p.m., New York City time, on May 21, 1999 (the "LATEST CLOSING
DATE"); provided, however, that the right to terminate this Agreement pursuant
to this Section X.B.(i) shall not be available to any party whose failure to
fulfill any of its obligations under this Agreement has been the cause of or
resulted in the failure of the Closing to occur at or before such time and date
or (ii) any court or public or governmental authority shall have issued an
order, ruling, judgment or writ, or there shall be in effect any Law,
restraining, enjoining or otherwise prohibiting the consummation of any of the
transactions contemplated by this Agreement; provided, further, however, that if
the Closing shall not have occurred on or prior to the Latest Closing Date, the
Closing may only occur after the Latest Closing Date with the written acceptance
of Buyer.
C. TERMINATION BY BUYER. This Agreement may be terminated
and the transactions contemplated hereby may be abandoned by Buyer at any time
prior to the Closing Date, if (i) the Company shall have failed to comply with
any of its covenants or agreements
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contained in this Agreement, (ii) there shall have been a breach by the Company
with respect to any representation or warranty made by it in this Agreement,
(iii) there shall have occurred any event or development, or there shall be in
existence any condition, having or reasonably and forseeably likely to have a
Material Adverse Effect or (iv) the Company shall have failed to satisfy the
conditions provided in Section IX hereof.
D. TERMINATION BY THE COMPANY. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by the
Company at any time prior to the Closing Date, if (i) Buyer shall have failed to
comply with any of its covenants or agreements contained in this Agreement or
(ii) there shall have been a breach by Buyer with respect to any representation
or warranty made by it in this Agreement.
E. FEES AND EXPENSES OF TERMINATION. If this Agreement is
terminated for any reason, the Company shall reimburse Buyer for all of Buyer's
out-of-pocket costs and expenses incurred in connection with the transactions
contemplated by this Agreement and the other Documents (including, without
limitation, the fees and disbursements of Buyer's legal counsel).
XI. SURVIVAL; INDEMNIFICATION
A. The representations, warranties and covenants made by
each of the Company and Buyer in this Agreement, the annexes, schedules and
exhibits hereto and in each instrument, agreement and certificate entered into
and delivered by them pursuant to this Agreement, shall survive the Closing and
the consummation of the transactions contemplated hereby. In the event of a
breach or violation of any of such representations, warranties or covenants, the
party to whom such representations, warranties or covenants have been made shall
have all rights and remedies for such breach or violation available to it under
the provisions of this Agreement or otherwise, whether at law or in equity,
irrespective of any investigation made by or on behalf of such party on or prior
to the Closing Date.
B. The Company hereby agrees to indemnify and hold harmless
the Buyer, its Affiliates and their respective officers, directors, partners and
members (collectively, the "BUYER INDEMNITEES"), from and against any and all
losses, claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "LOSSES"), and agrees to reimburse the Buyer Indemnitees for all
reasonable out-of-pocket expenses (including the fees and expenses of legal
counsel), in each case promptly as incurred by the Buyer Indemnitees and to the
extent arising out of or in connection with:
1. any misrepresentation, omission of fact or breach
of any of the Company's representations or warranties contained in this
Agreement or the other Documents, or the annexes, schedules or exhibits
hereto or thereto or any instrument, agreement or certificate entered
into or delivered by the Company pursuant to this Agreement or the
other Documents; or
2. any failure by the Company to perform any of its
covenants, agreements. undertakings or obligations set forth in this
Agreement or the other Documents, or the annexes, schedules or exhibits
hereto or thereto or any instrument,
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agreement or certificate entered into or delivered by the Company pursuant to
this Agreement or the other Documents; or
3. resales of the Common Shares by Buyer in the
manner and as contemplated by this Agreement and the Registration
Rights Agreement.
C. Buyer hereby agrees to indemnify and hold harmless the
Company, its Affiliates and their respective officers, directors, partners and
members (collectively, the "COMPANY INDEMNITEES"), from and against any and all
Losses, and agrees to reimburse the Company Indemnitees for all out-of-pocket
expenses (including the fees and expenses of legal counsel), in each case
promptly as incurred by the Company Indemnitees and to the extent arising out of
or in connection with:
1. any misrepresentation, omission of fact, or breach
of any of Buyer's representations or warranties contained in this
Agreement or the other Documents, or the annexes, schedules or exhibits
hereto or thereto or any instrument, agreement or certificate entered
into or delivered by Buyer pursuant to this Agreement or the other
Documents; or
2. any failure by Buyer to perform in any material
respect any of its covenants, agreements, undertakings or obligations
set forth in this Agreement or the other Documents or any instrument,
certificate or agreement entered into or delivered by Buyer pursuant to
this Agreement or the other Documents.
D. Promptly after receipt by either party hereto seeking
indemnification pursuant to this Section XI (an "INDEMNIFIED PARTY") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "CLAIM"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section XI is being sought (the "INDEMNIFYING PARTY") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party except
to the extent that the Indemnifying Party is materially prejudiced and forfeits
substantive rights and defenses by reason of such failure. In connection with
any Claim as to which both the Indemnifying Party and the Indemnified Party are
parties, the Indemnifying Party shall be entitled to assume the defense thereof.
Notwithstanding the assumption of the defense of any Claim by the Indemnifying
Party, the Indemnified Party shall have the right to employ separate legal
counsel and to participate in the defense of such Claim, and the Indemnifying
Party shall bear the reasonable fees, out-of-pocket costs and expenses of such
separate legal counsel to the Indemnified Party if (and only if): (x) the
Indemnifying Party shall have agreed to pay such fees, out-of-pocket costs and
expenses, (y) the Indemnified Party and the Indemnifying Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such
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Claim. If the Indemnified Party employs separate legal counsel in circumstances
other than as described in clauses (x), (y) or (z) above, the fees, costs and
expenses of such legal counsel shall be borne exclusively by the Indemnified
Party. Except as provided above, the Indemnifying Party shall not, in connection
with any Claim in the same jurisdiction, be liable for the fees and expenses of
more than one firm of legal counsel for the Indemnified Party (together with
appropriate local counsel). The Indemnifying Party shall not, without the prior
written consent of the Indemnified Party (which consent shall not unreasonably
be withheld), settle or compromise any Claim or consent to the entry of any
judgment that does not include an unconditional release of the Indemnified Party
from all liabilities with respect to such Claim or judgment.
E. In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
XII. GOVERNING LAW; MISCELLANEOUS
This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York, without regard to the
conflicts of law principles of such state. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions. A facsimile transmission of this signed
Agreement shall be legal and binding on all parties hereto. This Agreement may
be signed in one or more counterparts, each of which shall be deemed an
original. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement. If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
XIII. NOTICES
Except as may be otherwise provided herein, any notice or
other communication or delivery required or permitted hereunder shall be in
writing and shall be delivered personally or sent by certified mail, postage
prepaid, or by a nationally recognized overnight courier service, and shall be
deemed given when so delivered personally or by overnight courier service, or,
if mailed, three (3) days after the date of deposit in the United States mails,
as follows:
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A. if to the Company, to:
Cafe Odyssey, Inc.
4801 West 81st Street, Suite 112
Bloomington, MN 55437
Attention: Stephen D. King
(612) 837-9917
(612) 837-9916 (Fax)
with a copy to:
Maslon Edelman Borman & Brand, LLP
3300 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Attention: William M. Mower, Esq.
(612) 672-8358
(612) 672-8397 (Fax)
B. if to the Buyer, to:
The Shaar Fund Ltd.,
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
(212) 432-7711
(212) 432-7771 (Fax)
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
C. if to the Escrow Agent, to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
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The Company, the Buyer or the Escrow Agent may change the foregoing address by
notice given pursuant to this Section XIII.
XIV. CONFIDENTIALITY
Each of the Company and Buyer agrees to keep confidential and
not to disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; provided, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation, pursuant to Item 601(b)(10)
of Regulation S-K under the Securities Act and the Exchange Act).
XV. ASSIGNMENT
This Agreement shall not be assignable by either of the
parties hereto prior to the Closing without the prior written consent of the
other party, and any attempted assignment contrary to the provisions hereby
shall be null and void; provided, however, that Buyer may assign its rights and
obligations hereunder, in whole or in part, to any affiliate of Buyer who
furnishes to the Company the representations and warranties set forth in Section
II hereof and otherwise agrees to be bound by the terms of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement on the date first above written.
CAFE ODYSSEY, INC.
By: /s/ Stephen D. King
------------------------------------
Name:
Title:
THE SHAAR FUND LTD.
By: /s/ Signature illegible
------------------------------------
Name:
Title:
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EXHIBIT A
COMMON STOCK PURCHASE WARRANTS
25
EXHIBIT B
CERTIFICATE OF DESIGNATION
26
EXHIBIT C
ESCROW INSTRUCTIONS
27
EXHIBIT D
REGISTRATION RIGHTS AGREEMENT
28
SCHEDULE III.A.2.
SUBSIDIARIES
HD Spirits, Inc., a Minnesota corporation (wholly-owned subsidiary)
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SCHEDULE III.C.
ISSUANCES AND SALES OF SECURITIES
Pursuant to Item 601 of Regulation S-K, this Schedule has been omitted from this
filing. The Registrant will furnish a copy of any omitted Schedule or Exhibit to
the Commission upon request.
30
SCHEDULE III.O.
RELATED PARTY TRANSACTIONS
Pursuant to Item 601 of Regulation S-K, this Schedule has been omitted from this
filing. The Registrant will furnish a copy of any omitted Schedule or Exhibit to
the Commission upon request.
31
SCHEDULE III.R.6.
ENVIRONMENTAL MATTERS
None.
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SCHEDULE III.V.
LIENS AND ENCUMBRANCES ON PROPERTY
1. The Company has a $3,000,000 revolving line of credit facility dated
September 23, 1998 with The Provident Bank which is secured by an
Open-ended Leasehold Mortgage, Security Agreement and Assignment of
Rents, Income and Proceeds which encumbers the leasehold improvements at
the Kenwood Restaurant.
2. On April 30, 1999, the Company entered into a $300,000 master equipment
lease agreement with Carlton Financial Corporation which is secured by
substantially all of the furniture, accessories, and computer/point of
sale and kitchen equipment located at the Denver Pavilions Restaurant.
3. The Company is a party to Senior Loan and Security Agreement No. 9154
dated June 18, 1998 with Phoenix Leasing Corp. which secured by
furniture, fixtures, equipment, kitchen appliances, video/sound systems
and special lighting at the Mall of America Restaurant.
33
SCHEDULE III.W.
INTELLECTUAL PROPERTY
Tradenames: Cafe' Odyssey, Hotel Discovery
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ANNEX A
FORM OF OPINION
1. The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Minnesota, is duly qualified to do business as a foreign corporation and is in
good standing in all jurisdictions where the Company owns or leases properties
or conducts business, except for jurisdictions in which the failure to so
qualify would not have a Material Adverse Effect, and has all requisite
corporate power and authority to own its properties and conduct its business as
described in the Commission Filings.
2. The authorized capital stock of the Company consists of
100,000,000 shares, having a par value $0.01 per share in the case of Common
Stock (the "COMMON STOCK"), and having a par value as determined by the
Company's Board of Directors in the case of preferred stock.
3. When delivered to you or upon your order against payment
of the agreed consideration therefor in accordance with the provisions of the
Documents, the Securities will be duly authorized and validly issued, fully paid
and nonassessable.
4. The Company has the requisite corporate power and
authority to enter into the Documents and to sell and deliver the Securities as
described in the Documents; each of the Documents has been duly and validly
authorized by all necessary corporate action by the Company; each of the
Documents has been duly and validly executed and delivered by and on behalf of
the Company, and is valid and binding agreement of the Company, enforceable in
accordance with its terms, except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other laws affecting creditors rights generally.
5. The executive, delivery and performance of the Documents
by the Company and the performance of its obligations thereunder do not and will
not constitute a breach or violation of any of the terms and provisions of, or
constitute a default (or with notice, lapse of time or both would constitute a
default) under or conflict with or violate any provision of (i) the Company's
certificate of incorporation or bylaws, (ii) any indenture, mortgage, deed of
trust, agreement or other instrument known to us to which the Company is a party
or by which it or any of its property is bound, (iii) or, to the best of our
knowledge, any judgment, decree or order of any court or governmental body
having jurisdiction over the Company or any of its property. To the best of our
knowledge, no consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental or regulatory agency or body having jurisdiction over the Company
or any of its properties or assets is required for the execution, delivery and
performance by the Company of the Documents or the consummation by the Company
of the transactions contemplated thereby.
6. When issued, the Preferred Shares and the Warrants shall
be duly authorized, validly issued, fully paid and nonassessable, and free and
clear of all encumbrances and restrictions, except for restrictions on transfer
imposed by applicable securities laws. The Conversion Shares and Warrant Shares
issuable upon conversion or exercise, respectively, of the
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Preferred Shares and the Warrants, respectively, will be duly authorized,
validly issued, fully paid and nonassessable, and free and clear of all
encumbrances and restrictions, except for restrictions on transfer imposed by
applicable securities laws.
7. Based on Buyer's representations contained in this
Agreement, the offer and sale of the Preferred Shares and the Warrants are
exempt from the registration requirements of the Securities Act.
8. To the best of our knowledge, other than as described in
the Commission Filings, there are no outstanding options, warrants or other
securities exercisable or convertible into Common Stock of the Company.
9. There is no action, suit, claim, inquiry or
investigation pending or, to the best of our knowledge, threatened by or before
any court or public or governmental authority which, if determined adversely to
the Company, would have a Material Adverse Effect.
10. Neither the Company nor any of its subsidiaries is, or
will be after the consummation of the transactions contemplated by this
Agreement and the other Documents and the use of the proceeds from the sale of
the Securities, an "investment company" or an entity "controlled" by an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended.
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