Document:

co20140416-ex10_2.htm

 

Exhibit 10.2

 

THIS SENIOR SECURED PROMISSORY NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAWS.

SENIOR SECURED PROMISSORY NOTE

 

	$5,000,000.00	 April 14, 2014 

 Effective Date

 

FOR VALUE RECEIVED, Cosi, Inc., a Delaware corporation (the “Company”), promises to pay to the order of Milfam II L.P., a Georgia limited partnership, or its registered assigns (“Lender”), the principal sum of Five Million Dollars ($5,000,000) (the “Principal Amount”) with interest on the outstanding principal amount accruing as set forth in Section 1. Interest shall commence with the date hereof and shall continue on the outstanding principal of this Senior Secured Promissory Note (this “Note”) as set forth in Section 1 until paid in accordance with the provisions hereof.

1.    Interest.

 

(a)   Interest shall accrue on the outstanding Principal Amount at the rate of nine percent (9%) per annum (computed on the basis of actual days elapsed and a fiscal year of 364 days).

 

(b)   Accrued interest shall be payable semi-annually, in arrears, on each successive six (6) month anniversary of the Effective Date. Notwithstanding the foregoing, but provided the Company is not then in default pursuant to this Note or any other Loan Document, the Company may elect to pay the interest due for the first two (2) semi-annual interest payments following the Effective Date by converting such interest amount to principal (the “PIK Right”), which converted interest amount shall then be treated for all purposes as principal under this Note, including that it shall incur interest; provided that, if the Company elects to convert interest to principal pursuant to this Section 1(b), such interest shall be deemed to have accrued at the rate of eleven percent (11%) per annum (computed on the basis of actual days elapsed and a fiscal year of 364 days).  The election of the PIK Right shall be made by written notice to Lender not later than one (1) business day prior to the date such interest payment is due, and the Company’s failure to so exercise the PIK Right shall be deemed a waiver thereof.     

 

(c)   Upon any default pursuant to this Note or any other Loan Document, this Note shall bear interest at the rate of the lesser of (i) thirteen percent (13%) and (ii) such maximum rate of interest allowable under the laws of the State of New York (“Default Rate”).

 

2.    Senior Secured Note Purchase Agreement; Security.

 

(a)   This Note is issued pursuant to, and subject in all respects to, the terms of that certain Senior Secured Note Purchase Agreement (the “Note Agreement”), dated as of the date hereof, by and between the Company and the Lender. Capitalized terms used but not defined 

 

 

  

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herein shall have the meaning set forth in the Note Agreement.

 

(b)   The indebtedness evidenced by this Note is secured by all of the assets of the Company, as further described in Section 6.

 

3.     Maturity.  The entire unpaid principal amount and all unpaid accrued interest (collectively, the “Obligations”) shall become fully due and payable on the third anniversary of the date hereof (the “Maturity Date”).

 

4.     Payments.

 

(a)   All payments of the Obligations shall be made in lawful money of the United States of America to Lender, at the address specified in the Note Agreement, or at such other address as may be specified from time to time by Lender in a written notice delivered to the Company. All payments shall be applied first to accrued interest, expenses or fees due to Lender pursuant to this Note or any other Loan Document, and thereafter to principal.

 

(b)   The Obligations under this Note may be prepaid by the Company at any time without penalty upon first providing ten (10) days written notice to Lender.

 

5.     Use of Proceeds.  The Company shall use the proceeds from this Note for general working capital purposes.

 

6.     Security.

 

(a)   Except as set forth herein with respect to Permitted Liens (as defined below) and Permitted Transactions (as defined below), this Note shall constitute a security agreement for all purposes under applicable law. The Company hereby grants to Lender, subject to any and all Permitted Liens now or hereafter existing with respect to same, a continuing first priority security interest in all assets of the Company whether now owned or hereafter acquired, including all proceeds therefrom (collectively, the “Collateral”) to secure the payment of this Note and all other loans and advances (including all renewals, modifications and extensions thereof) and all obligations of any and every kind and nature of the Company and the Guarantors to Lender, whether arising prior to, under or after this Note or any other Loan Documents, however incurred or evidenced, plus all interest, reasonable costs, reasonable expenses and reasonable attorneys’ fees, which may be made or incurred by Lender in the disbursement, administration, and collection of such amounts, and in the protection, maintenance, and liquidation of the Collateral. Except for Permitted Liens, whether or not now or hereafter existing, and Permitted Transactions, whether or not now or hereafter contemplated or occurring, the Company shall not sell, assign, transfer, pledge or otherwise dispose of or encumber any Collateral to any third party while this Note is in effect without the prior written consent of Lender in its sole discretion. Notwithstanding the foregoing, the security interest granted pursuant to this Section 6(a) shall not include any assets or equity of Hearthstone Partners, LLC, a Massachusetts limited liability company, if the same is acquired by the Company after the date hereof, so long as such entity remains a direct, wholly-owned subsidiary of Hearthstone Associates, LLC, a Massachusetts limited liability company.

 

  

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(b)   The Company shall execute and deliver to Lender, concurrently with the Company’s execution of this Note and at any time or times hereafter at the request of Lender, all financing statements, assignments, affidavits, reports, notices, schedules of accounts, letters of authority and all other documents that Lender may reasonably request, in form satisfactory to Lender, to perfect and maintain perfected Lender’s security interests in the Collateral. In addition, the Company irrevocably authorizes Lender, its agents, attorneys, and representatives, to file financing statements and amendments thereto at the Company’s expense, necessary to establish and maintain Lender’s perfected security interest in the Collateral. In order to fully consummate all of the transactions contemplated hereunder, the Company shall make appropriate entries on its books and records disclosing Lender’s security interests in the Collateral. Immediately upon full satisfaction of this Note, including payment of all Obligations and reasonable fees and expenses due to Lender hereunder and pursuant to the Loan Documents (collectively, the “Liabilities”), without further notice from the Company, the Company may terminate any financing statements, assignments, affidavits, reports, notices, schedules of accounts, letters of authority and all other documents used to perfect and maintain perfected Lender’s security interests in the Collateral.

 

(c)   For purposes of this Agreement, “Permitted Liens” means:

 

(i) purchase money security interests to secure purchase money indebtedness of the Company, so long as such security interests arise or are created (A) in the ordinary course of business and consistent with past practices and (B) substantially contemporaneously with the purchase or acquisition by the Company of the respective property or assets to which such security interests relate and the incurrence of the respective purchase money indebtedness which such security interests secure, secure only the respective purchase money indebtedness so incurred by the Company to enable the Company to so purchase or acquire such property or assets, and no other indebtedness, and encumber only the respective property or assets so purchased or acquired, and no other property or assets of the Company;

 

(ii) any liens arising in connection with capital leases or equipment financing arrangements of the Company;

 

(iii) liens acquired with liabilities assumed by the Company in connection with acquisitions of existing businesses, business divisions, or assets, in whole or in part after the date hereof;

 

(iv) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, processor’s, landlord’s liens or other like liens arising in the ordinary course of business that are not overdue for a period of more than thirty (30) days or which are being contested in good faith by appropriate proceedings;

 

(v) liens arising in connection with worker’s compensation, unemployment insurance, old age pensions and social security benefits and similar statutory obligations (excluding liens arising under ERISA), provided that no enforcement proceedings in respect of such liens are pending and provisions have been made for the payment of such liens on the books of such person as may be required by generally accepted accounting principles; and

 

 

  

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(vi) (i) liens incurred in the ordinary course of business to secure the performance of statutory obligations arising in connection with progress payments or advance payments due under contracts with the United States government or any agency thereof entered into in the ordinary course of business and (ii) liens incurred or deposits made in the ordinary course of business to secure the performance of statutory obligations, bids, leases, fee and expense arrangements with trustees and fiscal agents, trade contracts, surety and appeal bonds, performance bonds and other similar obligations (exclusive of obligations incurred in connection with the borrowing of money, any lease-purchase arrangements or the payment of the deferred purchase price of property), provided, that in each case full provision for the payment of all such obligations;

 

provided, however, that, notwithstanding the foregoing, a Permitted Lien shall not include any lien, encumbrance or other interest which would cause, or could reasonably be expected to cause, a Material Adverse Change.

 

(d)   For purposes of this Note, “Permitted Transactions” means:  (i) the sale, assignment, transfer, sublease, disposal or other transfer of the Company’s restaurants or operating assets of the Company’s restaurants to franchisees, landlords, subtenants, or other third parties (but not affiliates of the Company or the Guarantors) with respect to restaurants (A) closed due to expiration or termination of leases in the ordinary course of business, and (B) franchised to franchisees in the ordinary course of business; and (ii) the transfer or assignment of the Company’s business or assets to an affiliated entity owned or controlled by the Company provided that any such assignment or transfer expressly includes the transfer and assignment of this Note and the Ancillary Agreements (as defined below) to and assumption thereof by such affiliated entity.   Unless otherwise agreed to by the Company and the Lender, net cash proceeds from the sale of any assets pursuant to clause (d)(i) above in this paragraph shall be applied towards the outstanding Obligations.

 

7.     Default.

 

(a)   Events of Default.  For purposes of this Note, any of the following events shall constitute an “Event of Default”:

 

(i) The Company shall fail to pay when due any Obligations hereunder;

 

(ii) Any representation or warranty of the Company under the Note Agreement, the other Loan Documents or any agreement ancillary thereto (collectively, the “Ancillary Agreements”), as applicable, shall be untrue in any material respect as of the date made;

 

(iii) the Company shall breach any covenant set forth in this Note or the Ancillary Agreements, taking into account applicable periods of notice and cure, if any; provided, however, that, in the event no grace or cure period is so provided, the Company shall have a period of (A) three (3) days after the earlier of the Company’s actual knowledge thereof and written notice of non-compliance to cure such non-compliance to the extent it relates to any monetary default and (B) twenty (20) days after the earlier of the Company’s actual knowledge thereof and written notice of non-compliance to cure any other non-compliance; provided that, in 

 

  

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the event that any default described in clause (B) cannot reasonably be cured within such twenty (20) day period, then the Company shall have an additional ten (10) days in which to cure such non-compliance, so long as the Company continues to diligently pursue curing such non-compliance;

 

(iv) The Company makes an assignment for the benefit of creditors, or admits in writing its inability to pay its debts as they become due, or files a voluntary petition for bankruptcy, or files any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, dissolution or similar relief under any present or future statute, law or regulation, or seeks or consents to or acquiesces in the appointment of any trustee, receiver or liquidator of the Company, or of all or any substantial part of the properties of the Company, or the Company or its respective directors or majority stockholders takes any action looking to the dissolution, liquidation or winding up of the Company;

 

(v) An involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Company or any Guarantor under Title 11 of the United States Code, as now constituted or hereafter amended, or any other federal, state or foreign bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or any Guarantor or for a substantial part of the property or assets of the Company or any Guarantor or (iii) the winding-up or liquidation of the Company or any Guarantor; and such proceeding or petition shall continue undismissed for thirty (30) days or an order or decree approving or ordering any of the foregoing shall be entered; or

 

(vi) One or more judgments shall be rendered against the Company or any Guarantor or any combination thereof and the same shall remain undischarged for a period of thirty (30) consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of the Company or any Guarantor to enforce any such judgment and such judgment either (i) is for the payment of money in an aggregate amount in excess of $250,000 or (ii) is for injunctive relief and could reasonably be expected to result in a Material Adverse Change;

 

(vii) If any material portion of the Collateral or the Guarantor Collateral (as defined in the Guaranty) is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within fifteen (15) days, or if the Company is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien upon any material portion of the Collateral or the Guarantor Collateral, or if a notice of lien, levy, or assessment is filed of record with respect to any material portion of the Collateral or the Guarantor Collateral by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within fifteen (15)  days after the Company receives notice thereof;

 

(viii) There shall occur any material event of loss, theft, damage or destruction of any Collateral or the Guarantor Collateral for which there is less than 80% insurance coverage 

 

  

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(subject to reasonable deductibles as determined by the Company and consistent with the Company’s past practices); or

 

(ix) The occurrence of any event (financial or otherwise) resulting in, or which will likely result in, a Material Adverse Change in the Company or the Guarantors, as determined by Lender in its reasonable discretion, and remains uncured for a period of fifteen (15) days following the earlier of the Company’s knowledge of such event and written notice of such event by Lender to the Company (or, such longer period of time as reasonable given the circumstances if such occurrence is not reasonably curable within such thirty (30) day period and provided that the Company is taking steps to cure such occurrence during such thirty (30) day period and thereafter diligently pursues to completion).

 

(b)   Consequences of Events of Default.  If any Event of Default shall occur for any reason, whether voluntary or involuntary, or continue beyond the expiration of any applicable cure period:

 

(i) upon notice or demand, the Lender may declare the outstanding indebtedness under this Note, together with all other amounts due or owing to Lender pursuant to any Ancillary Agreements, to be due and payable, whereupon each of the foregoing shall be and become immediately due and payable, and the Company shall immediately pay to Lender all such indebtedness, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Company, anything contained herein or in any Ancillary Agreement to the contrary notwithstanding; provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Company under the United States Bankruptcy Code, then all indebtedness under this Note, together with all other amounts due or owing to Lender pursuant to any Ancillary Agreements, shall automatically be due immediately without notice of any kind;

 

(ii) the Company shall, at a minimum, comply with all lease obligations for at least the twenty (20) retail stores (the “Key Stores”) chosen by Lender pursuant to this Section 7(b)(ii), notwithstanding any other agreement, obligation or rights of the Company to the contrary at such time.  For purposes of determining the Key Stores, upon the occurrence of an Event of Default and for so long as the Event of Default is continuing, the Company shall provide Lender, its agents and designees with (i) immediate access to all financial and operational data with respect to all Company retail stores, (ii) immediate access to Company executives, employees and agents with knowledge of the foregoing for purposes of discussion and diligence (A) to the extent the Company has the authority to grant such access and (B) so long as the Company is permitted to attend and participate in any discussions with the foregoing and (iii) any other information reasonably requested by Lender. Lender shall deliver its initial list of Key Stores to the Company not later than thirty (30) days after the occurrence of any Event of Default, so long as the Company has provided all access and information required by the previous sentence, and, if not, such period shall be extended on a day-for-day basis (but the Company’s failure to comply therewith shall be deemed a separate and immediate Event of Default).  Further, upon the occurrence of an Event of Default and for so long as an Event of Default is continuing, the Lender shall have the right, but not the obligation, to (A) receive copies of all financial and operational data reported to the Company by, from or with respect to the Key Stores promptly after the Company’s receipt thereof and (B) modify or substitute other 

 

  

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Company retail stores for Key Stores in its sole discretion (but with written notice to the Company). In addition, notwithstanding any provision of this Note, the Note Agreement or any Ancillary Agreement to the contrary, upon the occurrence of an Event of Default and for so long as an Event of Default is continuing, the Company shall not sell, transfer or dispose of any Key Store, directly or indirectly, without the prior written consent of Lender.

 

(iii) Lender may exercise from time to time any rights and remedies available to it under applicable law, including without limitation the right to: (a) immediate possession of the Collateral by Lender, (b) institute legal proceedings to foreclose upon the lien and security interest granted by this Note or for the sale of all Collateral, to recover judgment for all amounts then due and owing from the Company, and to collect the same out of any Collateral or the proceeds of any sale of the Collateral, and (c) peacefully enter upon any premises (whether it be the Lender, its agents or attorneys, or an appointment of a receiver selected or appointed by Lender to which Debtor shall consent to in all respects) where Collateral may then be located, and take possession of all or any of it and/or render it unusable and without being responsible for loss or damage to such Collateral, hold, operate, sell, lease, or dispose of all or any Collateral at one or more public or private sales, leasings or other dispositions, at places and times and on terms and conditions as Lender may deem fit, without any previous demand or advertisement (unless such demand or advertisement is expressly required by law).

 

The Company agrees to pay Lender all out-of-pocket costs and expenses reasonably incurred by Lender in any effort to collect indebtedness under this Note and to exercise remedies under the Note Agreement or any Ancillary Agreement, including, without limitation, reasonable attorneys’ fees, and to pay interest at the Default Rate on such costs and expenses to the extent not paid when demanded.  Lender may exercise any and all of its remedies under the Note Agreement or any Ancillary Agreement contemporaneously or separately from the exercise of any other remedies hereunder or under applicable law.

 

8.   Lost, Stolen, Destroyed or Mutilated Note.  In case this Note shall be mutilated, lost, stolen or destroyed, the Company shall issue a new Note of like date, tenor and denomination and deliver the same in exchange and substitution for and upon surrender and cancellation of any mutilated Note, or in lieu of any Note lost, stolen or destroyed, upon receipt of evidence satisfactory to the Company of the loss, theft or destruction of such Note and an agreement from Lender to indemnify the Company against any claim that may be made against the Company on account of the mutilation, loss, theft or destruction of this Note.

 

9.   Governing Law.  This Note is to be construed in accordance with and governed by the laws of the State of New York, without regard to principles of conflict of laws.

 

10.  Amendment and Waiver.  Any term of this Note may be amended and the observance of any term of this Note may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consents of each of Lender and the Company.

 

11.  Notices.  Except as may be otherwise provided herein, all notices, requests, waivers and other communications made pursuant to this Note shall be made in accordance with Section 7(d) of the Note Agreement.

 

  

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12.  Severability.  If one or more provisions of this Note are held to be unenforceable under applicable law, such provision shall be excluded from this Note and the balance of the Note shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

 

13.  Successors and Assigns; Assignment.  The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties.  Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. Neither party may assign this Agreement without the prior written consent of the other party.

 

14.  Remedies Cumulative; Failure or Indulgence Not a Waiver.  The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note, the Note Agreement and the Ancillary Agreements.  No failure or delay on the part of Lender in the exercise of any power, right or privilege hereunder or under this Note, the Note Agreement or any Ancillary Agreement shall operate as a waiver thereof, nor shall any 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.

 

15.  Payments.  Whenever any payment of cash is to be made by the Company to Lender pursuant to this Note, such payment shall be made in lawful money of the United States of America by, at the Company’s option, a check drawn on the account of the Company and sent via overnight courier service to Lender at the address previously provided to the Company in writing (which address shall initially be the address for Lender as set forth in the Note Agreement), electronic funds transfer, or wire transfer of immediately available funds, to an account designated in writing by Lender.  Whenever any payment to be made shall otherwise be due on a day which is not a business day, such payment shall be made on the immediately succeeding Business Day and such extension of time shall be included in the computation of accrued interest.

 

16.  Excessive Interest. Notwithstanding any other provision herein to the contrary, this Note is hereby expressly limited so that the interest rate charged hereunder shall at no time exceed the maximum rate permitted by applicable law. If, for any circumstance whatsoever, the interest rate charged exceeds the maximum rate permitted by applicable law, the interest rate shall be reduced to the maximum rate permitted, and if Lender shall have received an amount that would cause the interest rate charged to be in excess of the maximum rate permitted, such amount that would be excessive interest shall be applied to the reduction of the principal amount owing hereunder (without charge for prepayment) and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of principal, such excess shall be refunded to the Company.

 

17.  Waiver of Notice.  To the extent permitted by law, the Company hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note or the Ancillary Agreements.

 

  

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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by its officers, thereunto duly authorized as of the date first above written.

 

 

 

	 	
COSI, INC.

	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 By: 	/s/ William Koziel 	 
	 	 	 	 
	 	Name: 	William Koziel 	 
	 	 	 	 
	 	Title: 	Chief Financial Officer  	 

 

 

 

 

 

 

 

 10co20140416-ex10_3.htm

 

Exhibit 10.3

 

 

WARRANT

NEITHER THIS WARRANT NOR THE SECURITIES REPRESENTED BY AND ISSUABLE UNDER THIS WARRANT (COLLECTIVELY, THE “SECURITIES”) HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR UNDER ANY STATE SECURITIES OR BLUE SKY LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT OR PURSUANT TO AN OPINION OF SECURITIES COUNSEL FOR THE COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE THEREFOR.

NOT EXERCISABLE

AFTER 5:00 P.M. CENTRAL ON APRIL 13, 2017

COSI, INC.

WARRANT TO PURCHASE COMMON STOCK

This is to certify that, FOR VALUE RECEIVED, Milfam II L.P., having an office at 222, Lakeview Avenue, Suite 160-365, West Palm Beach, Florida 33401, or its designee (“holder”), is entitled, subject to the terms of this Warrant, to purchase from Cosi, Inc., a Delaware corporation (the “Company”), at any time or times after 5:00 pm on the date hereof, but prior to April 13, 2017 (the “Warrant Maturity Date”), during business hours on a day on which banking institutions are authorized to conduct business in the City of Deerfield, Illinois, prior to 5:00 pm., Deerfield, Illinois time (each such time, the “Purchase Date”), the Warrant Shares (defined below) at the Per Share Price (defined below).  The number of Warrant Shares to be received upon the exercise of this Warrant and the Per Share Price may be adjusted from time to time as hereinafter set forth. 

This Warrant is issued in accordance with the terms and conditions of the Senior Secured Note Purchase Agreement by and between the Company and the original holder of this Warrant as of the date hereof and the Senior Secured Promissory Note issued by the Company to the original holder of this Warrant as of the date hereof (the “Note”). Capitalized terms used but not defined herein shall have the meanings given such terms in the Note.

1.    Warrant Shares.  The shares covered by this Warrant (the “Warrant Shares”) are shares of Common Stock of the Company. The maximum number of Warrant Shares exercisable pursuant to this Warrant shall initially be One Million One Hundred Thousand (1,100,000) shares, subject to adjustment as provided herein; provided that, in no event shall the Company be obligated to issue any Warrant Shares upon the exercise of this Warrant, whether in part of in full, if the issuance of such Warrant Shares, when aggregated with all shares of Common Stock beneficially owned by the holder as of the date of such exercise, would result in holder beneficially owning greater than nineteen and nine tenths percent (19.9%) of the Common Stock of the Company.

 

2.    Per Share Price. The purchase price for each Warrant Share shall be $0.01 (the “Per Share Price”), subject to adjustment pursuant to Sections 6 and 8. 

3.    Exercise of Warrant.

 

  

  

  

 

3.1 This Warrant shall be immediately exercisable at the option of holder at any time prior to the Warrant Maturity Date. In case the holder of this Warrant shall exercise all or any part of the purchase right evidenced by this Warrant, the holder shall surrender this Warrant on the Purchase Date with the Form of Exercise attached hereto duly executed by the holder, to the Company at the principal office of the Company, accompanied by payment of the Per Share Price for the number of shares specified in such Form of Exercise, together with any applicable federal and state tax relating to such exercise; provided, however, that the holder may make payment of the Per Share Price by irrevocable instructions to the Company to utilize the Right (as defined below), or a portion thereof, in payment of the Per Share Price.  This Warrant may be exercised in whole or in part.  In case of the exercise in part only, the Company will deliver to the holder a new Warrant of like tenor in the name of the holder evidencing the right to purchase the number of Warrant Shares as to which this Warrant has not been exercised.

 

3.2 As used in this Agreement, the term “Right” means the holder’s right to utilize a portion of this Warrant to receive from the Company therefor that number of Warrant Shares having an aggregate fair market value equal to: (i) the excess of the fair market value (determined as set forth below) on the date of exercise of one Warrant Share over the Per Share Price, multiplied by (ii) the portion of this Warrant which is so surrendered, stated in writing by the holder as a specified number of Warrant Shares.  The Board of Directors shall be entitled to elect to settle any part or all of the Company’s obligation arising out of the exercise of the Right by the payment of cash or check equal to the aggregate fair market value on the date on which the Right is exercised of that part or all of the Warrant Shares the Company would otherwise be obligated to deliver (in such case holder shall be entitled to use such cash as the Per Share Price for any unexercised portion of this Warrant).  If required by applicable law, the Company shall issue to holder an Internal Revenue Service Form 1099, showing the value of the right so exercised by holder.

 

3.3 For purposes of this Section 3, the fair market value of one Warrant Share shall equal:

 

3.3.1 if the Common Stock of the Company traded on a securities exchange or the Nasdaq Stock Market, the fair market value shall be deemed to be the average of the closing prices of the Common Stock of the Company on such exchange or market over the five (5) business days ending immediately prior to the applicable date of valuation; or

 

3.3.2 if the Common Stock of the Company is not traded on a securities exchange or the Nasdaq Stock Market and there is no active public market, the fair market value shall be the value thereof, as agreed upon by the Company and the holder hereof; provided, however, that if the Company and the holder cannot agree on such value, such value shall be determined by an independent valuation firm experienced in valuing businesses such as the Company and jointly selected in good faith by the Company and the holder.  Fees and expenses of such valuation firm shall be paid for by the Company.

 

  

  

  

 

 

3.4 Notwithstanding anything herein to the contrary, the Company shall not  effect any issuance to the holder of any Warrant Shares, whether as a result of a partial or total exercise of this Warrant, to the extent that shareholder approval for such issuance would be required pursuant to any law, rule or regulation to which the Company is then subject, including Rule 5635 of the Nasdaq Stock Market Rules (or any similar rule), unless and until such shareholder approval has been obtained for such issuance in accordance with such law, rule or regulation.

 

4.    Delivery of Stock Certificates, etc.  As soon as practicable after any exercise of this Warrant and payment of the sum payable upon such exercise, and in any event within five (5) business days thereafter (subject to procedures required by the Company’s transfer agent), the Company, at its expense, will cause to be issued in the name of and delivered to the holder of this Warrant, or in the name of a permitted transferee as such holder may direct, a certificate or certificates for the number of fully paid and nonassessable Warrant Shares (or other securities or property to which such holder shall be entitled upon such exercise), plus, in lieu of any fractional Warrant Shares to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then current fair market value of one full Warrant Share.

 

5.    Exchange and Transfer of Warrant.  Upon surrender or exchange of this Warrant (in negotiable form, if not surrendered by the holder named on the face hereof) to the Company, and payment of any applicable federal and state income taxes imposed upon or owing from holder, the Company, at its expense, will issue and deliver new Warrants of like tenor, calling in the aggregate for the same number of Warrant Shares, in the denomination or denominations requested to or on the order of such holder and in the name of such holder or as such holder may direct.  Until this Warrant is transferred on the books of the Company, the Company may treat the registered holder of this Warrant as the absolute owner for all purposes without being affected by any notice to the contrary.

 

6.    Antidilution Provisions.

 

6.1 Adjustment of Number of Shares.  The number of Warrant Shares to be received upon the exercise of this Warrant and the Per Share Price to be paid shall be subject to adjustment from time to time as follows:

 

6.1.1 Dividends, Reclassifications, etc.  In case, prior to the expiration of this Warrant by exercise or by its terms, the Company shall at any time issue Warrant Shares as a stock dividend or other distribution, or subdivide the number of outstanding Warrant Shares into a greater number of shares, then, in either of such cases, the Per Share Price of the Warrant Shares purchasable pursuant to this Warrant in effect at the time of such action shall be proportionately reduced and the number of Warrant Shares at that time purchasable pursuant to this Warrant shall be proportionately increased; and conversely, in the event the Company shall contract the number of outstanding Warrant Shares by combining such shares into a smaller number of shares, then, in such case, the Per Share Price of the Warrant Shares purchasable pursuant to this Warrant in effect at the time of such action shall be proportionately increased and the number of Warrant Shares at that time purchasable pursuant to this Warrant shall be proportionately decreased.  If the Company shall, at any time during the life of this Warrant, declare a dividend 

 

  

  

  

 

payable in cash on its Warrant Shares and shall at substantially the same time offer to the holders of its Warrant Shares a right to purchase new Warrant Shares from the proceeds of such dividend or for an amount substantially equal to the dividend, all Warrant Shares so issued shall, for the purpose of this Warrant, be deemed to have been issued as a stock dividend.  Any dividend paid or distributed upon the Warrant Shares in shares of any other class of securities convertible into the same class of stock as the Warrant Shares shall be treated as a dividend paid in Warrant Shares to the extent that Warrant Shares are issuable upon the conversion thereof.

 

6.1.2 No Adjustment for Small Amounts.  The Company shall not be required to give effect to any adjustment in the Per Share Price unless and until the net effect of one or more adjustments, determined as provided above, shall have required a change of the Per Share Price by at least one percent (1%) of such Per Share Price; provided, however, that any adjustments which by reason of this Section 6.1.2 are not required to be made shall be carried forward and taken into account (together with any other adjustments so carried forward) in any subsequent adjustment.  All calculations made under this Section 6.1.2 shall be made to the nearest one cent ($.01) or to the nearest one-hundredth (1/100) of a share, as the case may be, but in no event shall the Company be obligated to issue fractional shares upon the exercise of this Warrant.

 

7.    Reclassification, Reorganization, Merger, etc.  In case, prior to the expiration of this Warrant by exercise or by its terms, of any capital reorganization, recapitalization, reclassification or other change of the outstanding Warrant Shares (other than as provided for in Section 6.1.1 hereof), or in case of any consolidation, merger or share exchange of the Company with or into any other corporation (other than a merger or share exchange with a subsidiary in which the Company is the continuing corporation and which does not result in any reclassification, capital reorganization or other change of outstanding Warrant Shares), or in case of any sale or conveyance to any other corporation of all or substantially all of the properties and assets of the Company, then, and in each such case, the Company shall cause effective provision to be made so that the holder of this Warrant shall have the right to receive, upon the exercise of this Warrant as provided herein, upon the consummation of such reorganization, recapitalization, reclassification, consolidation, merger, share exchange, sale or conveyance, the kind and amount of shares of stock or other securities or property receivable upon such reorganization, recapitalization, reclassification, consolidation, merger, share exchange, sale or conveyance by a holder of the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such reorganization, recapitalization, reclassification, consolidation, merger, share exchange, sale, or conveyance.  Any such provision shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant.  A copy of such provision shall be furnished to the holder(s) of Warrants within ten (10) days after execution of the appropriate agreement pertaining to same and, in any event, prior to the effective date of any consolidation, merger, share exchange, sale or conveyance subject to the provisions of this Section 7.  The foregoing provisions of this Section 7 shall similarly apply to successive capital reorganizations, recapitalizations, reclassifications and changes of Warrant Shares and to successive consolidations, mergers, share exchanges, sales or conveyances.

 

  

  

  

 

8.    Determination of Adjusted Per Share Price.  Upon written request of the holder(s) following any event requiring an adjustment of the Per Share Price and of the number of Warrant Shares purchasable pursuant to this Warrant in accordance with, and as required by, the terms of this Warrant, the Company shall send written notice to the holder(s) of this Warrant stating the Per Share Price resulting from such adjustment, and any increase or decrease in the number of Warrant Shares to be acquired upon exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.  Such notice shall be conclusive and shall be binding upon such holder unless contested by such holder by written notice to the Company within ten (10) days after receipt thereof by such holder.

 

9.    Notice to Warrant Holder.  In case, prior to the expiration of this Warrant by exercise or by its terms:

 

9.1 The Company shall take a record of the holders of Warrant Shares for the purpose of entitling them to receive a dividend payable otherwise than in cash at an established annual or quarterly rate, or any other distribution in respect of Warrant Shares (including cash in an amount other than at an established annual or quarterly rate), pursuant to, without limitation, any spinoff, split-off or distribution of the Company's assets; or

 

9.2 The Company shall take a record of the holders of Warrant Shares for the purpose of entitling them to subscribe for or purchase any shares of any class or to receive any other rights; or

 

9.3 The Company shall engage in any classification, reclassification, or other reorganization of the capital stock of the Company, consolidation, merger, or share exchange of the Company with or into another corporation or conveyance of all or substantially all of the assets of the Company;

 

9.4 The Company shall engage in the voluntary or involuntary dissolution, liquidation or winding up of the Company; or

 

9.5 The Company shall consummate a Change of Control (as defined below) transaction,

 

then, and in any such case, the Company shall mail to the holder of this Warrant, at least ten (10) days prior to such record date, a notice stating the date or expected date on which a record is to be taken for the purpose of such dividend, distribution, or rights, or the date on which such classification, reclassification, reorganization, consolidation, merger, share exchange, conveyance, dissolution, liquidation, winding up, or Change of Control is to take place, as the case may be.

 

For purposes of this Warrant, a “Change in Control” means the Company (a) sells all or substantially all of its assets, (b) merges with or into any other entity (other than with an affiliate and solely for re-domestication purposes within the United States), or (c) transfers more than fifty percent (50%) of its outstanding equity interests to persons or entities who are not stockholders of the Company (or affiliates of stockholders of the Company) as of the date hereof.

 

  

  

  

 

10.    Liquidation and Dissolution. In case the Company, while this Warrant or any part hereof shall remain unexpired or unexercised, shall dissolve, liquidate or wind up its affairs, the holders of this Warrant may thereafter receive upon exercise hereof in lieu of each Warrant Share which such holder would have been entitled to receive, the same kind and amount of any securities or assets as may be issuable, distributable or payable upon any such dissolution, liquidation or winding up with respect to each Warrant Share.

 

11.    Reservation of Shares.  The Company will reserve and have at all times available sufficient Warrant Shares deliverable against the due exercise of this Warrant to satisfy the rights and privileges contained herein, and shall use all reasonable efforts to solicit approval of stockholders as may be required to permit the full issuance of Warrant Shares hereunder (as may be required in connection an adjustment to the number of Warrant Shares hereunder or an amendment to the Company’s charter documents).

 

12.    Expiration.  The right to exercise this Warrant shall expire upon the earlier of (i) 5:00 pm., Eastern Time, April 13, 2017 and (ii) immediately prior to a Change of Control, subject in all respects to the holder’s rights pursuant to Section 7; and, except as otherwise expressly provided herein, no rights herein given to the holder of this Warrant shall exist thereafter.

 

13.    Warrant Holder Not Deemed a Stockholder.  No holder, as such, of this Warrant shall be entitled to vote or receive dividends or be deemed the holder of shares of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any organization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance of record to the holder of this Warrant of the shares which it is then entitled to receive upon the due exercise of this Warrant.

 

14.    Waiver and Amendment.  Any provision of this Warrant may be amended, waived or modified upon the written consent of the Company and holder.

 

15.    No Limitation on Corporate Action.  No provisions of this Warrant and no right or option granted or conferred hereunder shall in any way limit, affect or abridge the exercise by the Company of any of its corporate rights or powers to recapitalize, amend its Articles of Incorporation, reorganize, consolidate or merge with or into another corporation, or to transfer all or any part of its property or assets, or the exercise of any other of its corporate rights and powers.

 

16.    Notices.  All notices and other communications required or permitted hereunder shall be in writing and shall be deemed sufficient (i) upon receipt, when hand delivered, (ii) the same day if sent before 4:00 p.m. Eastern time on a business day, and the next business if sent after 4:00 p.m. Eastern time, when sent via facsimile with confirmation of transmission or email, (iii) the next business day after, when sent by overnight courier service, or (iv) three (3) business days after being deposited in the U.S. mail, when mailed by certified or registered mail, postage prepaid, return receipt requested, in each instance, if sent to Lender, addressed or sent to the 

 

  

  

  

 

address first shown above or, if sent to the Company, at the addresses for notices set forth below, or at such other address(es) as either party shall have furnished to the other party in writing.

 

If to the Company:  

Cosi, Inc.

Attn: CFO 

1765 Lake Cook Rd., Suite 600

Deerfield, Illinois 60015

Facsimile:  

Email:  bkoziel@getcosi.com

With a copy to:

 

Cosi, Inc.

Attn: General Counsel

1765 Lake Cook Rd., Suite 600

Deerfield, Illinois 60015

Facsimile:  (847) 580-4964

Email:  vbaue@getcosi.com

17.    Assignment.  This Warrant may be transferred or assigned by holder in compliance with applicable law, without the prior written consent of the Company.

 

18.    Governing Law.  This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of laws.

 

End of Warrant  – signatures appear on next page

  

  

  

Signature Page to the Warrant to Purchase Stock,

dated as of April 14, 2014, issued by Cosi, Inc.

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed and as of the date and year first written above.

 

	
 

 

 

 

 

Dated:  April 14, 2014

	
Cosi, Inc., 

a Delaware corporation, 

 

 

 

By:  /s/ William Koziel                                    

        Name:  William Koziel

        Its:  Chief Financial Officer

 

 

 

 

 

	  	  

  

  

  

 

FORM OF EXERCISE

TO BE EXECUTED BY THE REGISTERED HOLDER

IF HE DESIRES TO EXERCISE THIS WARRANT

The undersigned hereby exercises the right to purchase [NO. OF WARRANT SHARES] Warrant Shares covered by this Warrant according to the conditions thereof and herewith makes payment of the Per Share Price of such shares by one of the following payment methods (please check one):

___  cash or by certified check; or

___  utilizing the Right as described in paragraph 3 of the Warrant.

                                      EXHIBIT                                         

Signature

                                      EXHIBIT                                         

Address

Dated:                 EXHIBIT

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