-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RvqZtYAMFo5RsMfgJYcbICz2x1YxqmO8ULmX9NrCvGlL7yOhnrm9xEL9GA/0uhUy 0cjfjwkkUzWrRAvRegVlgw== 0000950124-99-005179.txt : 19990917 0000950124-99-005179.hdr.sgml : 19990917 ACCESSION NUMBER: 0000950124-99-005179 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19990901 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990916 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POPMAIL COM INC CENTRAL INDEX KEY: 0001044738 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 00023243 STATE OF INCORPORATION: MN FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-23243 FILM NUMBER: 99712643 BUSINESS ADDRESS: STREET 1: 4801 WEST 81 STREET STREET 2: SUITE 112 CITY: BLOOMINGTON STATE: MN ZIP: 55437 BUSINESS PHONE: 6128379917 MAIL ADDRESS: STREET 1: 4801 WEST 81 STREET STREET 2: SUITE 112 CITY: BLOOMINGTON STATE: MN ZIP: 55437 FORMER COMPANY: FORMER CONFORMED NAME: CAFE ODYSSEY INC DATE OF NAME CHANGE: 19980526 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL DISCOVERY INC DATE OF NAME CHANGE: 19970821 8-K 1 FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): September 1, 1999 POPMAIL.COM, INC. (Exact name of registrant as specified in its charter) Minnesota 0-23243 31-1487885 (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 4801 West 81st Street, Suite 112, Bloomington, MN 55437 (Address of principal executive offices) (Zip Code) CAFE ODYSSEY, INC. (Former Name or Former Address, if Changed Since Last Report) Registrant's telephone number, including area code: (612) 837-9917 2 Item 1. CHANGES IN CONTROL OF REGISTRANT. Pursuant to the Agreement (as hereinafter defined), a change of control of the Registrant may be deemed to have occurred as of the Effective Date (as hereinafter defined) as the result of a merger transaction by and between a subsidiary of the Registrant and popmail.com, inc., a Delaware corporation ("Old Popmail"). See Item 2 herein for a more detailed description of such transaction. Item 2. ACQUISITION OR DISPOSITION OF ASSETS. Pursuant to an Agreement and Plan of Merger dated as of June 1, 1999 (the "Agreement") by and between the Registrant, Stephen D. King (the Registrant's principal shareholder, Chairman and Chief Executive Officer), each of the shareholders of Old Popmail and Cafe Odyssey Acquisition Subsidiary, Inc., a Delaware corporation and wholly-owned subsidiary of the Registrant ("Acquisition Sub"), Old Popmail merged with and into Acquisition Sub. The Registrant's shareholders approved the merger on August 19, 1999. The merger became effective on September 1, 1999 (the "Effective Date"). Prior to the date of the Agreement, there was no relationship between Old Popmail or its shareholders and the Registrant or its affiliates, officers, and directors or any of their respective associates. Following the Effective Date, the Registrant's Articles of Incorporation were amended to change its corporate name from Cafe Odyssey, Inc. to PopMail.com, inc. Pursuant to the Agreement, the parties closed the merger transaction into escrow on June 30, 1999, at which time Old Popmail's shareholders delivered their Old Popmail stock certificates into escrow, and the Registrant delivered certificates for its Series B Convertible Preferred Stock ("Series B") to be issued to the Popmail shareholders as consideration for the merger. The shares of Series B Preferred were issued upon consummation of the merger. The Series B is convertible in the aggregate into approximately 8,635,910 shares of the Registrant's common stock, subject to adjustment. The Registrant also issued a warrant to the Old Popmail shareholders (the "Warrant"). The Warrant is exercisable into 4,407,098 shares of the Registrant's Common Stock, subject to adjustment, representing the economic equivalent of all of the Company's options, warrants, and other securities convertible into, or exchangeable for, common stock which were outstanding on May 3, 1999. Also, as a condition of the merger, on the Effective Date a warrant exercisable into 900,000 shares (subject to adjustment) of the Registrant's Common Stock at $3.00 per share (subject to adjustment) was issued to legacy Maker, Inc. As an additional condition of the merger, the Registrant repaid indebtedness of Old Popmail in the amount of approximately $5.1 million to an affiliate of Old Popmail, LegacyMaker, Inc. Required financing for the merger was obtained through the private sale of $2.0 million of convertible debt to Fairview Partners, an Ohio general partnership, $2.2 million of convertible preferred shares to the Shaar Fund, Ltd., exercise of warrants in the amount of $750,000, and a promissory note in the amount of $550,000 to LegacyMaker, Inc. Pursuant to the terms of the Agreement, James L. Anderson, previously affiliated with Old Popmail was elected as Chairman of the Board of the Registrant, effective as of September 1, 1999. The foregoing is qualified in its entirety by reference to the Agreement and the Warrant which are hereby incorporated by reference herein. Item 5. OTHER EVENTS The Registrant completed a private placement of Series D 8% Convertible Preferred Stock in the amount of $2,200,000. The Registrant's Press Release dated September 1, 1999, which is filed as Exhibit 99.1 to this Form 8-K, is incorporated herein by reference. Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements of Businesses Acquired. Pursuant to Item 7(a)(4), financial statements required by this item will be filed before November 15, 1999. (b) Pro Forma Financial Information. Pursuant to Item 7(b)(2), financial statements required by this item will be filed before November 15, 1999. 2 3 (c) Exhibits 2.0 Agreement and Plan of Merger dated as of June 1, 1999 among Cafe Odyssey, Inc, Stephen D. King, popmail,com, inc., all of the Holders of Common Stock of popmail.com, inc. and Cafe Odyssey Acquisition Subsidiary, Inc. (incorporated herein by reference to Exhibit 2.0 of the Registrant's Current Report on Form 8-K dated June 22, 1999 and filed on June 25, 1999). 3.1(a) Articles of Incorporation, as amended (Incorporated herein by reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-QSB for the quarter ended April 4, 1999) 3.1(b) Certificate of Designation of Series B Convertible Preferred Stock (Incorporated herein by reference to Exhibit 3.1(b) to the Registrant's report on Form 8-K dated June 22, 1999 and filed on June 25, 1999) 3.1(c) Certificate of Designation of Series C 8% Convertible Preferred Stock (Incorporated herein by reference to Exhibit 3.1(c) to the Registrant's report on Form 8-K dated July 13, 1999 and filed on July 23, 1999) 3.1(d) Certificate of Designation of Series D 8% Convertible Preferred Stock 3.1(e) Articles of Amendment of Articles of Incorporation filed on September 3, 1999. 10.1 Securities Purchase Agreement, dated July 13, 1999 between the Registrant and The Shaar Fund Ltd. 10.2 Form of Warrant issued in connection with the Series D 8% Convertible Preferred Stock 10.3 Registration Rights Agreement, dated July 13, 1999 between the Registrant and The Shaar Fund Ltd. 10.4 Loan Agreement by and between the Registrant and Fairview Partners dated as of August 24, 1999. 10.5 Form of Senior Convertible Note dated August 24, 1999. 10.6 Form of Warrant to Purchase Common Stock of the Registrant issued to Fairview Partners. 10.7 Support Agreement dated as of August 24, 1999 among Stephen D. King, the Registrant and Fairview Partners. 10.8 First Deed of Trust, Security Agreement and Fixture Financing Statement dated as of August 24, 1999, between the Registrant and the Public Trustee of Denver County, Colorado. 10.9 Agreement Between Landlord and Lender dated as of August 24, 1999 by Denver Pavilions, L.P. and the Registrant. 10.10 Escrow Agreement dated August 25, 1999, by and between Fairview Partners, the Registrant and Johnson Trust Company. 10.11 Form of Warrant (Incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-QSB for the quarter ended April 4, 1999) 99.1 Press Release dated September 1, 1999. 3 4 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. POPMAIL.COM, INC. Date: September 16, 1999 By: /s/ Thomas W. Orr ---------------------------------- Name: Thomas W. Orr Title: Chief Financial Officer 4 EX-3.1.(D) 2 CERTIFICATE OF DESIGNATION 1 EXHIBIT 3.1(d) 9T-637 14819 CERTIFICATE OF DESIGNATION OF SERIES D 8% CONVERTIBLE PREFERRED STOCK OF CAFE ODYSSEY, INC. -------------------------------------------------- Pursuant to Section 302A.401 of the Business Corporation Act of the State of Minnesota -------------------------------------------------- Cafe Odyssey, Inc., a corporation organized and existing under the Business Corporation Act of the State of Minnesota (the "Corporation"), hereby certifies that the following resolutions were adopted by the Board of Directors of the Corporation on August 19, 1999 pursuant to authority of the Board of Directors as required by Section 302A.401, Subdivision 3 of the Business Corporation Act of the State of Minnesota: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (the "Board of Directors" or the "Board") in accordance with the provisions of its Article of Incorporation, the Board of Directors hereby authorizes a series of the Corporation's preferred stock (the "Preferred Stock"), and hereby states the designation and number of shares, and fixes the relative rights, preferences, privileges, powers and restrictions thereof as follows: Series D 8% Convertible Preferred Stock: ARTICLE 1 DEFINITIONS The terms defined in this Article whenever used in this Certificate of Designation have the following respective meanings: (a) "Additional Capital Shares" has the meaning set forth in Section 6.1(c). (b) "Affiliate" has the meaning ascribed to such term in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. (c) "Business Day" means a day other than Saturday, Sunday or any day on which banks located in the State of New York are authorized or obligated to close. (d) "Capital Shares" means the Common Shares and any other shares of any other class or series of common stock, whether now or hereafter authorized and however designated, which have the right to participate in the distribution of earnings and assets (upon dissolution, liquidation or winding-up) of the Corporation. (e) "Closing Date" means August 31, 1999. (f) "Common Shares" or "Common Stock" means shares of common stock, par value $0.01 per share, of the Corporation. 1 2 (g) "Common Stock Issued at Conversion" when used with reference to the securities issuable upon conversion of the Series D Preferred Stock, means all Common Shares now or hereafter Outstanding and securities of any other class or series into which the Series D Preferred Stock hereafter shall have been changed or substituted, whether now or hereafter created and however designated. (h) "Conversion Date" means any day on which all or any portion of shares of the Series D Preferred Stock is converted in accordance with the provisions hereof. (i) "Conversion Notice" has the meaning set forth in Section 6.2. (j) "Conversion Price" means on any date of determination the applicable price for the conversion of shares of Series D Preferred Stock into Common Shares on such day as set forth in Section 6.1. (k) "Conversion Ratio" means on any date of determination the applicable percentage of the Market Price for conversion of shares of Series D Preferred Stock into Common Shares on such day as set forth in Section 6.1. (l) "Corporation" means Cafe Odyssey, Inc., a Minnesota corporation, and any successor or resulting corporation by way of merger, consolidation, sale or exchange of all or substantially all of the Corporation's assets, or otherwise. (m) "Current Market Price" means on any date of determination the closing bid price of a Common Share on such day as reported on the Nasdaq SmallCap Market ("Nasdaq"); provided, if such security bid is not listed or admitted to trading on the Nasdaq, as reported on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the closing bid price of such security on the over-the-counter market on the day in question as reported by Bloomberg LP, or a similar generally accepted reporting service, as the case may be. (n) "Holder" means The Shaar Fund Ltd., any successor thereto, or any Person or Persons to whom the Series D Preferred Stock is subsequently transferred in accordance with the provisions hereof. (o) "Market Disruption Event" means any event that results in a material suspension or limitation of trading of the Common Shares on Nasdaq. (p) "Market Price" per Common Share means the arithmetic mean of the closing bid prices of the Common Shares as reported on Nasdaq for five Trading Days during any Valuation Period; provided, if such security bid is not listed or admitted to trading on the Nasdaq, as reported on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the closing bid price of such security on the over-the-counter market on the day in question as reported by Bloomberg LP, or a 2 3 similar generally accepted reporting service, as the case may be, for five Trading Days during any Valuation Period. (q) "Outstanding" when used with reference to Common Shares or Capital Shares (collectively, "Shares"), means, on any date of determination, all issued and outstanding Shares, and includes all such Shares issuable in respect of outstanding scrip or any certificates representing fractional interests in such Shares; provided, however, that any such Shares directly or indirectly owned or held by or for the account of the Corporation or any Subsidiary of the Corporation shall not be deemed "Outstanding" for purposes hereof. (r) "Person" means an individual, a corporation, a partnership, an association, a limited liability company, an unincorporated business organization, a trust or other entity or organization, and any government or political subdivision or any agency or instrumentality thereof. (s) "Proposed Transactions" means the Corporation's proposed acquisition of Popmail.com, Inc. and transactions directly related thereto, including the proposed Internet Community Concepts and ROI Interactive, LLC acquisitions. (t) "Registration Rights Agreement" means that certain Registration Rights Agreement dated a date even herewith between the Corporation and The Shaar Fund Ltd. (u) "Restaurant Divestiture" means any divestiture, sale, transfer, conveyance or spinoff of all or substantially all of the Corporation's assets constituting its restaurants. (v) "SEC" means the United States Securities and Exchange Commission. (w) "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC thereunder, all as in effect at the time. (x) "Securities Purchase Agreement" means that certain Securities Purchase Agreement dated a date even herewith between the Corporation and The Shaar Fund Ltd. (y) "Series D Preferred Shares" or "Series D Preferred Stock" means the shares of Series D 8% Convertible Preferred Stock of the Corporation or such other convertible Preferred Stock exchanged therefor. (z) "Stated Value" has the meaning set forth in Article 2. (aa) "Subsidiary" means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are owned directly or indirectly by the Corporation. (bb) "Trading Day" means any day on which purchases and sales of securities authorized for quotation on Nasdaq are reported thereon and on which no Market Disruption Event has occurred. (cc) "Valuation Event" has the meaning set forth in Section 6.1. 3 4 (dd) "Valuation Period" means the five Trading Day period immediately preceding the Conversion Date. All references to "cash" or "$" herein means currency of the United States of America. ARTICLE 2 DESIGNATION AND AMOUNT The designation of this series, which consists of 2,500 shares of Preferred Stock, is Series D 8% Convertible Preferred Stock (the "Series D Preferred Stock"), with a par value of $0.01 per share, and the stated value shall be $1,000 per share (the "Stated Value"). ARTICLE 3 RANK The Series D Preferred Stock shall rank (i) prior to the Common Stock; (ii) prior to any class or series of capital stock of the Corporation hereafter created other than "Pari Passu Securities" (collectively, with the Common Stock, "Junior Securities"); and (iii) pari passu with the Corporation's Series A 8% Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C 8% Convertible Preferred Stock, and any class or series of capital stock of the Corporation hereafter created specifically ranking on parity with the Series D Preferred Stock ("Pari Passu Securities"). ARTICLE 4 DIVIDENDS (a)(i) The Holder shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available for the payment of dividends, dividends (subject to Article 4(a)(ii) hereof) at the rate of 8% per annum (computed on the basis of a 360-day year) (the "Dividend Rate") on the Liquidation Value (as defined below) of each share of Series D Preferred Stock on and as of the most recent Dividend Payment Due Date (as defined below) with respect to each Dividend Period (as defined below). Dividends on the Series D Preferred Stock shall be cumulative from the date of issue, whether or not declared for any reason, including if such declaration is prohibited under any outstanding indebtedness or borrowings of the Corporation or any of its Subsidiaries, or any other contractual provision binding on the Corporation or any of its Subsidiaries, and whether or not there shall be funds legally available for the payment thereof. (ii) Each dividend shall be payable in equal quarterly amounts on each March 31, June 30, September 30 and December 31 of each year (each, a "Dividend Payment Due Date"), commencing September 30, 1999, to the holders of record of shares of the Series D Preferred Stock, as they appear on the stock records of the Corporation at the close of business on any record date, not more than 60 days or less than 10 days preceding the payment dates thereof, as shall be fixed by the Board of Directors. For the 4 5 purposes hereof, "Dividend Period" means the quarterly period commencing on and including the Issue Date (as defined below) or, if a dividend has previously been paid, the day after the immediately preceding Dividend Payment Due Date and ending on and including the immediately subsequent Dividend Payment Due Date. Accrued and unpaid dividends for any past Dividend Period may be declared and paid at any time, without reference to any Dividend Payment Due Date, to holders of record on such date, not more than 15 days preceding the payment date thereof, as may be fixed by the Board of Directors. (iii) At the option of the Corporation, the dividend shall be paid in cash or through the issuance of duly and validly authorized and issued, fully paid and nonassessable, freely tradeable shares of the Common Stock valued at the Market Price. The Common Stock to be issued in lieu of cash payments shall be registered for resale in the Registration Statement (as defined in the Registration Rights Agreement) to be filed by the Corporation to register the Common Stock issuable upon conversion of the shares of Series D Preferred Stock and exercise of the Warrants as set forth in the Registration Rights Agreement. Notwithstanding the foregoing, until such Registration Statement (as defined in the Registration Rights Agreement) has been declared effective under the Securities Act by the SEC, payment of dividends on the Series D Preferred Stock shall be in cash. (b) Except as provided in Section 4(e) hereof, the Holder shall not be entitled to any dividends in excess of the cumulative dividends, as herein provided, on the Series D Preferred Stock. Except as provided in this Article 4, no interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series D Preferred Stock that may be in arrears. (c) So long as any shares of the Series D Preferred Stock are outstanding, no dividends, except as described in the next succeeding sentence, shall be declared or paid or set apart for payment on Pari Passu Securities for any period unless full cumulative dividends required to be paid in cash have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series D Preferred Stock for all Dividend Periods terminating on or prior to the date of payment of the dividend on such class or series of Pari Passu Securities. When dividends are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all dividends declared upon shares of the Series D Preferred Stock and all dividends declared upon any other class or series of Pari Passu Securities shall be declared ratably in proportion to the respective amounts of dividends accumulated and unpaid on the Series D Preferred Stock and accumulated and unpaid on such Pari Passu Securities. (d) So long as any shares of the Series D Preferred Stock are outstanding, no dividends shall be declared or paid or set apart for payment or other distribution declared or made upon Junior Securities, nor shall any Junior Securities be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of shares of Common Stock made for purposes of an employee incentive or benefit plan (including a stock option plan) of the Corporation or any subsidiary), (all such dividends, distributions, redemptions or purchases being hereinafter referred to as a "Junior Securities Distribution") for any 5 6 consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation, directly or indirectly, unless in each case (i) the full cumulative dividends required to be paid in cash on all outstanding shares of the Series D Preferred Stock and any other Pari Passu Securities shall have been paid or set apart for payment for all past Dividend Periods with respect to the Series D Preferred Stock and all past dividend periods with respect to such Pari Passu Securities, and (ii) sufficient funds shall have been paid or set apart for the payment of the dividend for the current Dividend Period with respect to the Series D Preferred Stock and the current dividend period with respect to such Pari Passu Securities. (e) If at any time the Corporation shall declare or pay a dividend on, or other distribution on, the Common Shares payable in Common Shares (a "Stock Dividend"), the Board of Directors shall declare a dividend (the "Series D Stock Dividend") on the aggregate Series D Preferred Shares then outstanding of that number of Common Shares equal to the number of Common Shares the Holder would have received had it converted all its then outstanding Series D Preferred Shares, and exercised the Warrant in full for all the Common Shares then underlying the Warrant, immediately prior to the Stock Dividend. The Series D Stock Dividend shall be payable to the Holder concurrently with the payment of the Stock Dividend to the holders of Common Shares, and the Common Shares issued pursuant to the Series D Stock Dividend shall be duly and validly authorized and issued, fully paid and nonassessable. ARTICLE 5 LIQUIDATION PREFERENCE (a) If the Corporation shall commence a voluntary case under the Federal bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency or similar law, or consent to the entry of an order for relief in an involuntary case under any law or to the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or make an assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due, or if a decree or order for relief in respect of the Corporation shall be entered by a court having jurisdiction in the premises in an involuntary case under the Federal bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency or similar law resulting in the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and any such decree or order shall be unstayed and in effect for a period of 30 consecutive days and, on account of any such event, the Corporation shall liquidate, dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve or wind up (each such event being considered a "Liquidation Event"), no distribution shall be made to the holders of any shares of capital stock of the Corporation upon liquidation, dissolution or winding-up unless prior thereto, the holders of shares of Series D Preferred Stock, subject to this Article 5, shall have received the Liquidation Preference (as defined in Article 5(c)) with respect to each share. If upon the occurrence of a Liquidation Event, the assets and funds available for distribution among the holders of the Series D Preferred Stock and holders of Pari Passu Securities shall be insufficient to permit the payment to such holders of the preferential amounts payable thereon, then the entire assets and funds of the Corporation legally available for 6 7 distribution to the Series D Preferred Stock and the Pari Passu Securities shall be distributed ratably among such shares in proportion to the ratio that the Liquidation Preference payable on each such share bears to the aggregate Liquidation Preference payable on all such shares. (b) At the option of each Holder, the sale, conveyance of disposition of all or substantially all of the assets of the Corporation, the effectuation by the Corporation of a transaction or series of related transactions in which more than 50% of the voting power of the Corporation is disposed of, or the consolidation, merger or other business combination of the Corporation with or into any other Person or Persons when the Corporation is not the survivor shall either: (i) be deemed to be a liquidation, dissolution or winding up of the Corporation pursuant to which the Corporation shall be required to distribute, upon consummation of and as a condition to, such transaction an amount equal to 120% (100% if the provisions of this Article 5(b) are triggered by a Restaurant Divestiture) of the Liquidation Preference with respect to each outstanding share of Series D Preferred Stock in accordance with and subject to the terms of this Article 5 or (ii) be treated pursuant to Article 5(c)(iii) hereof; provided, that all holders of Series D Preferred Stock shall be deemed to elect the option set forth in clause (i) hereof if at least a majority in interest of such holders elect such option; provided, further, that the provisions of this Article 5(b) shall not apply to the Proposed Transaction. (c) For purposes hereof, the "Liquidation Preference" with respect to a share of the Series D Preferred Stock shall mean an amount equal to the sum of (i) the Stated Value thereof, plus (ii) an amount equal to 30% of such Stated Value, plus (iii) the aggregate of all accrued and unpaid dividends on such share of Series D Preferred Stock until the most recent Dividend Payment Due Date; provided that, in the event of an actual liquidation, dissolution or winding up of the Corporation, the amount referred to in clause (iii) above shall be calculated by including accrued and unpaid dividends to the actual date of such liquidation, dissolution or winding up, rather than the Dividend Payment Due Date referred to above. ARTICLE 6 CONVERSION OF PREFERRED STOCK Section 6.1 Conversion; Conversion Price At the option of the Holder, the shares of Series D Preferred Stock may be converted, either in whole or in part, into Common Shares (calculated as to each such conversion to the nearest 1/100th of a share), at any time, and from time to time following the date of issuance of the Series D Preferred Stock (the "Issue Date") at a Conversion Price per share of Common Stock equal to 65% of the Market Price. At the Corporation's option, the amount of accrued and unpaid dividends as of the Conversion Date shall not be subject to conversion but instead may be paid in cash as of the Conversion Date; if the Corporation elects to convert the amount of accrued and unpaid dividends at the Conversion Date into Common Stock, the Common Stock issued to the Holder shall be valued at the applicable Conversion Price. The number of shares of Common Stock due upon conversion of Series D Preferred Stock shall be (i) the number of shares of Series D Preferred Stock to be converted, multiplied by (ii) the Stated Value and divided by (iii) the applicable Conversion Price. 7 8 Within two Business Days of the occurrence of a Valuation Event, the Corporation shall send notice (the "Valuation Event Notice") of such occurrence to the Holder. Notwithstanding anything to the contrary contained herein, if a Valuation Event occurs during any Valuation Period, a new Valuation Period shall begin on the Trading Day immediately following the occurrence of such Valuation Event and end on the Conversion Date; provided that, if a Valuation Event occurs on the fifth day of any Valuation Period, then the Conversion Price shall be the Current Market Price of the Common Shares on such day; and provided, further, that the Holder may, in its discretion, postpone such Conversion Date to a Trading Day which is no more than five Trading Days after the occurrence of the latest Valuation Event by delivering a notification to the Corporation within two Business Days of the receipt of the Valuation Event Notice. In the event that the Holder deems the Valuation Period to be other than the five Trading Days immediately prior to the Conversion Date, the Holder shall give written notice of such fact to the Corporation in the related Conversion Notice at the time of conversion. For purposes of this Section 6.1, a "Valuation Event" shall mean an event in which the Corporation at any time during a Valuation Period takes any of the following actions: (a) subdivides or combines its Capital Shares; (b) makes any distribution on its Capital Shares; (c) issues any additional Capital Shares (the "Additional Capital Shares"), otherwise than as provided in the foregoing Sections 6.1(a) and 6.1(b) above, at a price per share less, or for other consideration lower, than the Current Market Price in effect immediately prior to such issuances, or without consideration, except for issuances under employee benefit plans consistent with those presently in effect and issuances under presently outstanding warrants, options or convertible securities; (d) issues any warrants, options or other rights to subscribe for or purchase any Additional Capital Shares and the price per share for which Additional Capital Shares may at any time thereafter be issuable pursuant to such warrants, options or other rights shall be less than the Current Market Price in effect immediately prior to such issuance; (e) issues any securities convertible into or exchangeable or exercisable for Additional Capital Shares and the consideration per share for which Additional Capital Shares may at any time thereafter be issuable pursuant to the terms of such convertible, exchangeable or exercisable securities shall be less than the Current Market Price in effect immediately prior to such issuance; (f) makes a distribution of its assets or evidences of indebtedness to the holders of its Capital Shares as a dividend in liquidation or by way of return of capital or other than as a dividend payable out of earnings or surplus legally available for the payment of dividends under applicable law or any distribution to such holders made in respect of the sale of all or substantially all of the Corporation's assets (other than under the circumstances provided for in the foregoing Sections 6.1(a) through 6.1(e)); or 8 9 (g) takes any action affecting the number of Outstanding Capital Shares, other than an action described in any of the foregoing Sections 6.1(a) through 6.1(f) hereof, inclusive, which in the opinion of the Corporation's Board of Directors, determined in good faith, would have a material adverse effect upon the rights of the Holder at the time of a conversion of the Series D Preferred Stock. Section 6.2 Exercise of Conversion Privilege (a) Conversion of the Series D Preferred Stock may be exercised, in whole or in part, by the Holder by telecopying an executed and completed notice of conversion in the form annexed hereto as Annex I (the "Conversion Notice") to the Corporation. Each date on which a Conversion Notice is telecopied to the Corporation in accordance with the provisions of this Section 6.2 shall constitute a Conversion Date. The Corporation shall convert the Preferred Stock and issue the Common Stock Issued at Conversion, and all voting and other rights associated with the beneficial ownership of the Common Stock Issued at Conversion shall vest with the Holder, effective as of the Conversion Date at the time specified in the Conversion Notice. The Conversion Notice also shall state the name or names (with addresses) of the persons who are to become the holders of the Common Stock Issued at Conversion in connection with such conversion. The Holder shall deliver the shares of Series D Preferred Stock to the Corporation by express courier within 15 days following the date on which the telecopied Conversion Notice has been transmitted to the Corporation. Upon surrender for conversion, the Series D Preferred Stock shall be accompanied by a proper assignment thereof to the Corporation or be endorsed in blank. As promptly as practicable after the receipt of the Conversion Notice as aforesaid, but in any event not more than five Business Days after the Corporation's receipt of such Conversion Notice, the Corporation shall (i) issue the Common Stock issued at Conversion in accordance with the provisions of this Article 6, and (ii) cause to be mailed for delivery by overnight courier to the Holder (x) a certificate or certificate(s) representing the number of Common Shares to which the Holder is entitled by virtue of such conversion, (y) cash, as provided in Section 6.3, in respect of any fraction of a Common Share issuable upon such conversion and (z) cash in the amount of accrued and unpaid dividends as of the Conversion Date. Such conversion shall be deemed to have been effected at the time at which the Conversion Notice indicates so long as the Series D Preferred Stock shall have been surrendered as aforesaid at such time, and at such time the rights of the Holder of the Series D Preferred Stock, as such, shall cease and the Person or Persons in whose name or names the Common Stock Issued at Conversion shall be issuable shall be deemed to have become the holder or holders of record of the Common Shares represented thereby and all voting and other rights associated with the beneficial ownership of such Common Shares shall at such time vest with such Person or Persons. The Conversion Notice shall constitute a contract between the Holder and the Corporation, whereby the Holder shall be deemed to subscribe for the number of Common Shares which it will be entitled to receive upon such conversion and, in payment and satisfaction of such subscription (and for any cash adjustment to which it is entitled pursuant to Section 6.4), to surrender the Series D Preferred Stock and to release the Corporation from all liability thereon. No cash payment aggregating less than $1.00 shall be required to be given unless specifically requested by the Holder. 9 10 (b) If, at any time (i) the Corporation challenges, disputes or denies the right of the Holder hereof to effect the conversion of the Series D Preferred Stock into Common Shares or otherwise dishonors or rejects any Conversion Notice delivered in accordance with this Section 6.2 or (ii) any third party who is not and has never been an Affiliate of the Holder commences any lawsuit or proceeding or otherwise asserts any claim before any court or public or governmental authority which seeks to challenge, deny, enjoin, limit, modify, delay or dispute the right of the Holder hereof to effect the conversion of the Series D Preferred Stock into Common Shares, then the Holder shall have the right, by written notice to the Corporation, to require the Corporation to promptly redeem the Series D Preferred Stock for cash at a redemption price equal to 135% of the Stated Value thereof together with all accrued and unpaid dividends thereon (the "Mandatory Purchase Amount"). Under any of the circumstances set forth above, the Corporation shall be responsible for the payment of all costs and expenses of the Holder, including reasonable legal fees and expenses, as and when incurred in disputing any such action or pursuing its rights hereunder (in addition to any other rights of the Holder). Section 6.3 Fractional Shares No fractional Common Shares or scrip representing fractional Common Shares shall be issued upon conversion of the Series D Preferred Stock. Instead of any fractional Common Shares which otherwise would be issuable upon conversion of the Series D Preferred Stock, the Corporation shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction. No cash payment of less than $1.00 shall be required to be given unless specifically requested by the Holder. Section 6.4 Reclassification, Consolidation, Merger or Mandatory Share Exchange At any time while the Series D Preferred Stock remains outstanding and any shares thereof have not been converted, in case of any reclassification or change of Outstanding Common Shares issuable upon conversion of the Series D Preferred Stock (other than a change in par value, or from par value to no par value per share, or from no par value per share to par value or as a result of a subdivision or combination of outstanding securities issuable upon conversion of the Series D Preferred Stock) or in case of any consolidation, merger or mandatory share exchange of the Corporation with or into another corporation (other than a merger or mandatory share exchange with another corporation in which the Corporation is a continuing corporation and which does not result in any reclassification or change, other than a change in par value, or from par value to no par value per share, or from no par value per share to par value, or as a result of a subdivision or combination of Outstanding Common Shares upon conversion of the Series D Preferred Stock), or in the case of any sale or transfer to another corporation of the property of the Corporation as an entirety or substantially as an entirety, the Corporation, or such successor, resulting or purchasing corporation, as the case may be, shall, without benefit of any additional consideration therefor, execute a new Preferred Stock providing that the Holder shall have the right to convert such new Preferred Stock (upon terms and conditions not less favorable to the Holder than those in effect pursuant to the Series D Preferred Stock) and to receive upon such exercise, in lieu of each Common Share theretofore issuable upon conversion of the Series D Preferred Stock, the kind and amount of shares of stock, other securities, money 10 11 or property receivable upon such reclassification, change, consolidation, merger, mandatory share exchange, sale or transfer by the holder of one Common Share issuable upon conversion of the Series D Preferred Stock had the Series D Preferred Stock been converted immediately prior to such reclassification, change, consolidation, merger, mandatory share exchange or sale or transfer. The provisions of this Section 6.4 shall similarly apply to successive reclassifications, changes, consolidations, mergers, mandatory share exchanges and sales and transfers. Section 6.5 Adjustments to Conversion Ratio For so long as any shares of the Series D Preferred Stock are outstanding, if the Corporation: (i) issues and sells pursuant to an exemption from registration under the Securities Act (A) Common Shares at a purchase price on the date of issuance thereof that is lower than the Conversion Price, (B) warrants or options with an exercise price representing a percentage of the Current Market Price with an exercise price on the date of issuance of the warrants or options that is lower than the agreed upon exercise price for the Holder, except for employee stock option agreements or stock incentive agreements of the Corporation, or (C) convertible, exchangeable or exercisable securities with a right to exchange at lower than the Current Market Price on the date of issuance or conversion, as applicable, of such convertible, exchangeable or exercisable securities, except for stock option agreements or stock incentive agreements; and (ii) grants the right to the purchaser(s) thereof to demand that the Corporation register under the Securities Act such Common Shares issued or the Common Shares for which such warrants or options may be exercised or such convertible, exchangeable or exercisable securities may be converted, exchanged or exercised, then the Conversion Ratio shall be reduced to equal the lowest of any such lower rates. Section 6.6 Optional Redemption Under Certain Circumstances At anytime after the date of issuance of the Series D Preferred Stock until the Mandatory Conversion Date (as defined below), the Corporation, upon notice delivered to the Holder as provided in Section 6.7, may redeem, in cash, the Series D Preferred Stock (but only with respect to such shares as to which the Holder has not theretofore furnished a Conversion Notice in compliance with Section 6.2), at 135% of the Stated Value thereof (the "Optional Redemption Price"), together with all accrued and unpaid dividends thereon to the date of redemption (the "Redemption Date"). Except as set forth in this Section 6.6, the Corporation shall not have the right to prepay or redeem the Series D Preferred Stock. Section 6.7 Notice of Redemption Notice of redemption pursuant to Section 6.6 shall be provided by the Corporation to the Holder in writing (by registered mail or overnight courier at the Holder's last address appearing in the Corporation's security registry) not less than 10 nor more than 15 days prior to the Redemption Date, which notice shall specify the Redemption Date and refer to Section 6.6 (including a statement of the Market Price per Common Share) and this Section 6.7. 11 12 Section 6.8 Surrender of Preferred Stock Upon any redemption of the Series D Preferred Stock pursuant to Sections 6.6 or 6.7, the Holder shall either deliver the Series D Preferred Stock by hand to the Corporation at its principal executive offices or surrender the same to the Corporation at such address by express courier. Payment of the optional Redemption Price specified in Section 6.6 shall be made by the Corporation to the Holder against receipt of the Series D Preferred Stock (as provided in this Section 6.8) by wire transfer of immediately available funds to such account(s) as the Holder shall specify to the Corporation. If payment of such redemption price is not made in full by the Mandatory Redemption Date or the Redemption Date, as the case may be, the Holder shall again have the right to convert the Series D Preferred Stock as provided in Article 6 hereof. Section 6.9 Mandatory Conversion On the fifth anniversary of the date of this Agreement (the "Mandatory Conversion Date"), the Corporation shall convert all Series D Preferred Stock outstanding at the Conversion Price. Section 6.10 Certain Conversion Limitations (a) Notwithstanding anything herein to the contrary, the Holder shall not have the right, and the Corporation shall not have the obligation, to convert all or any portion of the Series D Preferred Stock (and the Corporation shall not have the right to pay dividends on the Series D Preferred Stock in shares of Common Stock) if and to the extent that the issuance to the Holder of shares of Common Stock upon such conversion (or payment of dividends) would result in the Holder being deemed the "beneficial owner" of more than 5% of the then outstanding shares of Common Stock within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder. If any court of competent jurisdiction shall determine that the foregoing limitation is ineffective to prevent a Holder from being deemed the beneficial owner of more than 5% of the then outstanding shares of Common Stock, then the Corporation shall redeem so many of such Holder's shares (the "Redemption Shares") of Series D Preferred Stock as are necessary to cause such Holder to be deemed the beneficial owner of not more than 5% of the then outstanding shares of Common Stock. Upon such determination by a court of competent jurisdiction, the Redemption Shares shall immediately and without further action be deemed returned to the status of authorized but unissued shares of Series D Preferred Stock, and the Holder shall have no interest in or rights under such Redemption Shares. Any and all dividends paid on or prior to the date of such determination shall be deemed dividends paid on the remaining shares of Series D Preferred Stock held by the Holder. Such redemption shall be for cash at a redemption price equal to the sum of (i) the Stated Value of the Redemption Shares and (ii) any accrued and unpaid dividends to the date of such redemption; provided, however, if the redemption is a result of the mandatory conversion pursuant to Section 6.9, the Corporation may either (i) make such redemption in cash at a redemption price equal to the sum of (x) 135% of the Stated Value of such shares and (y) any accrued and unpaid dividends to the date of such redemption or (ii) extend the Mandatory Conversion Date for a period of one year. 12 13 (b) Unless the Corporation shall have obtained the approval of its voting stockholders to such issuance in accordance with the rules of the Nasdaq or such other stock market with which the Corporation shall be required to comply, but only to the extent required thereby, the Corporation shall not issue shares of Common Stock (i) upon conversion of any shares of Series D Preferred Stock or (ii) as a dividend on the Series D Preferred Stock, if such issuance of Common Stock, when added to the number of shares of Common Stock previously issued by the Corporation (i) upon conversion of shares of the Series D Preferred Stock, (ii) upon exercise of the Warrants issued pursuant to the terms of the Securities Purchase Agreement and (iii) in payment of dividends on the Series D Preferred Stock, would equal or exceed 20% of the number of shares of the Corporation's Common Stock which were issued and outstanding on the Closing Date (the "Maximum Issuance Amount"). In the event that a properly executed Conversion Notice is received by the Corporation which would require the Corporation to issue shares of Common Stock equal to or in excess of the Maximum Issuance Amount, the Corporation shall honor such conversion request by (i) converting the number of shares of Series D Preferred Stock stated in the Conversion Notice not in excess of the Maximum Issuance Amount and (ii) redeeming the number of shares of Series D Preferred Stock stated in the Conversion Notice equal to or in excess of the Maximum Issuance Amount in cash at a price equal to 125% of the Stated Value of the shares of Series D Preferred Stock to be so redeemed, together with all accrued and unpaid dividends thereon. In the event that the Corporation shall elect to pay a dividend in shares of Common Stock which would require the Corporation to issue shares of Common Stock equal to or in excess of the Maximum Issuance Amount, the Corporation shall pay (i) a dividend in shares of Common Stock equal to one less than an amount which would result in the Corporation issuing shares equal to the Maximum Issuance Amount and (ii) the balance of the dividend in cash. ARTICLE 7 VOTING RIGHTS The holders of the Series D Preferred Stock have no voting power, except as otherwise provided by the Business Corporation Act of the State of Minnesota ("MBCA"), in this Article 7, and in Article 8 below. Notwithstanding the above, the Corporation shall provide each Holder of Series D Preferred Stock with prior notification of any meeting of the shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by the Corporation of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed liquidation, dissolution or winding up of the Corporation, the Corporation shall mail a notice to each Holder, at least 30 days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such action is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding, the amount and character of such dividend, distribution, right or other event to the extent known at such time. 13 14 To the extent that under the MBCA the vote of the Holders of the Series D Preferred Stock, voting separately as a class or series as applicable, is required to authorize a given action of the Corporation, the affirmative vote or consent of the Holders of at least a majority of the outstanding shares of Series D Preferred Stock represented at a duly held meeting at which a quorum is present or by written consent of a majority of the outstanding shares of Series D Preferred Stock (except as otherwise may be required under the MBCA) shall constitute the approval of such action by the class. To the extent that under the MBCA holders of the Series D Preferred Stock are entitled to vote on a matter with holders of Common Stock, voting together as one class, each share of Series D Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which it is then convertible using the record date for the taking of such vote of shareholders as the date as of which the Conversion Price is calculated. Holders of the Series D Preferred Stock shall be entitled to notice of all shareholder meetings or written consents (and copies of proxy materials and other information sent to shareholders) with respect to which they would be entitled to vote, which notice would be provided pursuant to the Corporation's bylaws and the MBCA. ARTICLE 8 PROTECTIVE PROVISIONS So long as shares of Series D Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by the MBCA) of the Holders of at least a majority of the then outstanding shares of Series D Preferred Stock: (a) alter or change the rights, preferences or privileges of the Series D Preferred Stock; (b) create any new class or series of capital stock having a preference over the Series D Preferred Stock as to distribution of assets upon liquidation, dissolution or winding up of the Corporation ("Senior Securities") or alter or change the rights, preferences or privileges of any Senior Securities so as to affect adversely the Series D Preferred Stock, except in connection with the Proposed Transaction; (c) increase the authorized number of shares of Series D Preferred Stock; or (d) do any act or thing not authorized or contemplated by this Certificate of Designation which would result in taxation of the holders of shares of the Series D Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended (or any comparable provision of the Internal Revenue Code as hereafter from time to time amended). In the event Holders of least a majority of the then outstanding shares of Series D Preferred Stock agree to allow the Corporation to alter or change the rights, preferences or privileges of the shares of Series D Preferred Stock, pursuant to subsection (a) above, so as to affect the Series D Preferred Stock, then the Corporation will deliver notice of such approved change to the Holders of the Series D Preferred Stock that did not agree to such alteration or change (the "Dissenting Holders") and Dissenting Holders shall have the right for a period of 30 14 15 days to convert pursuant to the terms of this Certificate of Designation as they exist prior to such alteration or change or continue to hold their shares of Series D Preferred Stock. If at any time the Corporation shall "spin-off" certain of its assets or businesses by transferring, directly or indirectly, such assets or businesses to a subsidiary of the Corporation ("Spinco") and making a dividend (the "Spin-off Dividend") to the Corporation's stockholders of the shares of capital stock of Spinco, the Corporation shall make a dividend to each Holder of, or cause Spinco to issue to each Holder, that number of shares of capital stock of Spinco as such Holder would have received had it converted, immediately prior to the Spin-off Dividend, each Preferred Share then held by such Holder into Common Stock. ARTICLE 9 MISCELLANEOUS Section 9.1 Loss, Theft, Destruction of Preferred Stock Upon receipt of evidence satisfactory to the Corporation of the loss, theft, destruction or mutilation of shares of Series D Preferred Stock and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security reasonably satisfactory to the Corporation, or, in the case of any such mutilation, upon surrender and cancellation of the Series D Preferred Stock, the Corporation shall make, issue and deliver, in lieu of such lost, stolen, destroyed or mutilated shares of Series D Preferred Stock, new shares of Series D Preferred Stock of like tenor. The Series D Preferred Stock shall be held and owned upon the express condition that the provisions of this Section 9.1 are exclusive with respect to the replacement of mutilated, destroyed, lost or stolen shares of Series D Preferred Stock and shall preclude any and all other rights and remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement of negotiable instruments or other securities without the surrender thereof. Section 9.2 Who Deemed Absolute Owner The Corporation may deem the Person in whose name the Series D Preferred Stock shall be registered upon the registry books of the Corporation to be, and may treat it as, the absolute owner of the Series D Preferred Stock for the purpose of receiving payment of dividends on the Series D Preferred Stock, for the conversion of the Series D Preferred Stock and for all other purposes, and the Corporation shall not be affected by any notice to the contrary. All such payments and such conversion shall be valid and effectual to satisfy and discharge the liability upon the Series D Preferred Stock to the extent of the sum or sums so paid or the conversion so made. Section 9.3 Notice of Certain Events In the case of the occurrence of any event described in Sections 6.1, 6.6 or 6.7 of this Certificate of Designation, the Corporation shall cause to be mailed to the Holder of the Series D Preferred Stock at its last address as it appears in the Corporation's security registry, at least 20 days prior to the applicable record, effective or expiration date hereinafter specified (or, if such 20 days notice is not possible, at the earliest possible date prior to any such record, 15 16 effective or expiration date), a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, issuance or granting of rights, options or warrants, or if a record is not to be taken, the date as of which the Holders of record of Series D Preferred Stock to be entitled to such dividend, distribution, issuance or granting of rights, options or warrants are to be determination or the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is expected to become effective, and (y) the date as of which it is expected that Holders of record of Series D Preferred Stock will be entitled to exchange their shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale transfer, dissolution, liquidation or winding-up. Section 9.4 Register The Corporation shall keep at its principal office a register in which the Corporation shall provide for the registration of the Series D Preferred Stock. Upon any transfer of the Series D Preferred Stock in accordance with the provisions hereof, the Corporation shall register such transfer on the Series D Preferred Stock register. The Corporation may deem the person in whose name the Series D Preferred Stock shall be registered upon the registry books of the Corporation to be, and may treat it as, the absolute owner of the Series D Preferred Stock for the purpose of receiving payment of dividends on the Series D Preferred Stock, for the conversion of the Series D Preferred Stock and for all other purposes, and the Corporation shall not be affected by any notice to the contrary. All such payments and such conversions shall be valid and effective to satisfy and discharge the liability upon the Series D Preferred Stock to the extent of the sum or sums so paid or the conversion or conversions so made. Section 9.5 Withholding To the extent required by applicable law, the Corporation may withhold amounts for or on account of any taxes imposed or levied by or on behalf of any taxing authority in the United States having jurisdiction over the Corporation from any payments made pursuant to the Series D Preferred Stock. Section 9.6 Headings The headings of the Articles and Sections of this Certificate of Designation are inserted for convenience only and do not constitute a part of this Certificate of Designation. 16 17 IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be signed by its duly authorized officer on August 31, 1999. CAFE ODYSSEY, INC. By: /s/ Ronald K. Fuller --------------------------------- Name: Ronald K. Fuller Title: President 17 18 ANNEX I FORM OF CONVERSION NOTICE TO: Cafe Odyssey, Inc. 4801 West 81st Street, Suite 112 Bloomington, MN 55437 The undersigned owner of this Series D 8% Convertible Preferred Stock (the "Series D Preferred Stock") issued by Cafe Odyssey, Inc. (the "Corporation") hereby irrevocably exercises its option to convert __________ shares of the Series D Preferred Stock into shares of the common stock, par value $0.01 per share ("Common Stock"), of the Corporation in accordance with the terms of the Certificate of Designation. The undersigned hereby instructs the Corporation to convert the number of shares of the Series D Preferred Stock specified above into Shares of Common Stock Issued at Conversion in accordance with the provisions of Article 6 of the Certificate of Designation. The undersigned directs that the Common Stock issuable and certificates therefor deliverable upon conversion, the Series D Preferred Stock recertificated, if any, not being surrendered for conversion hereby, together with any check in payment for fractional Common Stock, be issued in the name of and delivered to the undersigned unless a different name has been indicated below. All capitalized terms used and not defined herein have the respective meanings assigned to them in the Certificate of Designation. So long as the Series D Preferred Stock shall have been surrendered for conversion hereby, the conversion pursuant hereto shall be deemed to have been effected at the date and time specified below, and at such time the rights of the undersigned as a Holder of the Series D Preferred Stock shall cease and the Person or Persons in whose name or names the Common Stock Issued at Conversion shall be issuable shall be deemed to have become the holder or holders of record of the Common Shares represented thereby and all voting and other rights associated with the beneficial ownership of such Common Shares shall at such time vest with such Person or Persons. Date and time: ---------------------- --------------------------------- Signature Fill in for registration of Series D Preferred Stock: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Please print name and address (including zip code number) STATE OF MINNESOTA FILED - DUPLICATE COPY AUG 31, 1999 /s/ Mary Kiffmeyer Secretary of State 18 EX-3.1.(E) 3 ARTICLES OF AMENDMENT OF INCORPORATION 1 EXHIBIT 3.1(e) ARTICLES OF AMENDMENT OF ARTICLES OF INCORPORATION OF CAFE ODYSSEY, INC. The undersigned, Chief Financial Officer of Cafe Odyssey, Inc., a Minnesota corporation (the "Corporation"), hereby certifies that the following Articles of Amendment have been duly adopted by the Board of Directors and the Shareholders of the Corporation, pursuant to the provisions of the Minnesota Business Corporation Act. 1. The name of the Corporation is Cafe Odyssey, Inc. 2. Article I of the Corporation's Articles of Incorporation is amended to read in its entirety as follows: "ARTICLE I The name of this Corporation is PopMail.com, inc." 3. This amendment has been adopted pursuant to Chapter 302A of the Minnesota Statutes, also called the Minnesota Business Corporation Act. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 3rd day of September, 1999. /s/ Thomas W. Orr ------------------------------ Thomas W. Orr Chief Financial Officer STATE OF MINNESOTA FILED - DUPLICATE COPY SEP 03, 1999 /s/ Mary Kiffmeyer Secretary of State EX-10.1 4 SECURITIES PURCHASE AGREEMENT 1 EXHIBIT 10.1 SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT, dated as of August 31, 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) 2,200 shares of the Company's Series D 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 D 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 $2,200,000 (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 1 2 Escrow Agent or its designated depository. By executing and delivering this Agreement, 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 2 3 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, 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 _________ shares of Common Stock are issued and outstanding on August __, 1999, 750 shares of Series A 8% Convertible Preferred Stock ("Series A Preferred") are issued and outstanding as of August __, 1999, ____ shares of Series B 8% Convertible Preferred Stock ("Series B Preferred") as of August __, 1999, and ____ shares of Series C 8% Convertible Preferred Stock ("Series C Preferred") as of August __, 1999. 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 _________ 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 3 4 personal liability by reason of being such holder. Except as to be issued in the Proposed Transaction (as defined in the Certificate of Designation), 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, 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, 4 5 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 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 5 6 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 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 6 7 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 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 7 8 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, 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); 8 9 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.: "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 9 10 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 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. 10 11 "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 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 11 12 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 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 12 13 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. 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 13 14 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 funding the proposed acquisition of Popmail.com, Inc. and transactions related thereto, including the proposed Internet Community Concepts and ROI Interactive, LLC acquisitions. 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 2,200 Preferred 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 14 15 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 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):
NO. BUSINESS DAYS 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 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
15 16 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 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; 16 17 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; 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; 17 18 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 September 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 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 18 19 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, 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: 19 20 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 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. 20 21 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: 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) 21 22 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) 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 22 23 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. 23 24 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: Stephen D. King Title: CEO THE SHAAR FUND LTD. By: /s/ Samuel Levinson ----------------------------- Name: Samuel Levinson Title: Managing Director 24 25 EXHIBIT A COMMON STOCK PURCHASE WARRANTS 25 26 EXHIBIT B CERTIFICATE OF DESIGNATION 26 27 EXHIBIT C ESCROW INSTRUCTIONS 27 28 EXHIBIT D REGISTRATION RIGHTS AGREEMENT 28 29 SCHEDULE III.A.2. SUBSIDIARIES 29 30 SCHEDULE III.C. ISSUANCES AND SALES OF SECURITIES 30 31 SCHEDULE III.O. RELATED PARTY TRANSACTIONS 31 32 SCHEDULE III.R.6. ENVIRONMENTAL MATTERS 32 33 SCHEDULE III.V. PROPERTY 33 34 SCHEDULE III.W. INTELLECTUAL PROPERTY 34 35 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 36 Conversion Shares and Warrant Shares issuable upon conversion or exercise, respectively, of the 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. A 36 EX-10.2 5 FORM OF WARRANT 1 THIS COMMON STOCK PURCHASE WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR THE PROVISIONS OF THIS COMMON STOCK PURCHASE WARRANT. Number of Shares of Common Stock: 300,000 Warrant No. D-1 COMMON STOCK PURCHASE WARRANT To Purchase Common Stock of Cafe Odyssey, Inc. This Is To Certify That The Shaar Fund Ltd., or registered assigns, is entitled, at any time from the Closing Date (as hereinafter defined) to the Expiration Date (as hereinafter defined), to purchase from Cafe Odyssey, Inc., a Minnesota corporation (the "COMPANY"), 300,000 shares of Common Stock (as hereinafter defined and subject to adjustment as provided herein), in whole or in part, including fractional parts, at a purchase price equal to $3.00 per share, all on the terms and conditions and pursuant to the provisions hereinafter set forth. 1. DEFINITIONS As used in this Common Stock Purchase Warrant (this "WARRANT"), the following terms have the respective meanings set forth below: "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common Stock issued by the Company after the Closing Date, other than Warrant Stock. "BOOK VALUE" shall mean, in respect of any share of Common Stock on any date herein specified, the consolidated book value of the Company as of the last day of any month immediately preceding such date, divided by the number of Fully Diluted Outstanding shares of Common Stock as determined in accordance with GAAP (assuming the payment of the exercise prices for such shares) by Arthur Andersen LLP or any other firm of independent certified public accountants of recognized national standing selected by the Company and reasonably acceptable to the Holder. "BUSINESS DAY" shall mean any day that is not a Saturday or Sunday or a day on which banks are required or permitted to be closed in the State of New York. 1 2 "CLOSING DATE" shall have the meaning set forth in the Securities Purchase Agreement. "COMMISSION" shall mean the Securities and Exchange Commission or any other federal agency then administering the Securities Act and other federal securities laws. "COMMON STOCK" shall mean (except where the context otherwise indicates) the Common Stock, par value $0.01 per share, of the Company as constituted on the Closing Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of Common Stock upon any reclassification thereof which is also not preferred as to dividends or assets over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 4.4. "CONVERTIBLE SECURITIES" shall mean evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for shares of Common Stock, either immediately or upon the occurrence of a specified date or a specified event. "CURRENT WARRANT PRICE" shall mean, in respect of a share of Common Stock at any date herein specified, the price at which a share of Common Stock may be purchased pursuant to this Warrant on such date. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. "EXERCISE PERIOD" shall mean the period during which this Warrant is exercisable pursuant to Section 2.1. "EXPIRATION DATE" shall mean August 31, 2004. "FULLY DILUTED OUTSTANDING" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock Outstanding at such date and all shares of Common Stock issuable in respect of this Warrant, outstanding on such date, and other options or warrants to purchase, or securities convertible into, shares of Common Stock outstanding on such date which would be deemed outstanding in accordance with GAAP for purposes of determining Book Value or net income per share. "GAAP" shall mean generally accepted accounting principles in the United States of America as from time to time in effect. 2 3 "HOLDER" shall mean the Person in whose name the Warrant or Warrant Stock set forth herein is registered on the books of the Company maintained for such purpose. "MARKET PRICE" per Common Share means the average of the closing bid prices of the Common Shares as reported on the Nasdaq SmallCap Market ("NASDAQ") for the five trading days immediately preceding the Closing Date. "OTHER PROPERTY" shall have the meaning set forth in Section 4.4. "OUTSTANDING" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all issued shares of Common Stock, except shares then owned or held by or for the account of the Company or any subsidiary thereof, and shall include all shares issuable in respect of outstanding scrip or any certificates representing fractional interests in shares of Common Stock. "PERSON" shall mean any individual, sole proprietorship, partnership, joint venture, trust, incorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "REGISTRATION RIGHTS AGREEMENT" shall mean the Registration Rights Agreement dated a date even herewith between the Company and The Shaar Fund Ltd., as it may be amended from time to time. "RESTRICTED COMMON STOCK" shall mean shares of Common Stock which are, or which upon their issuance on their exercise of this Warrant would be, evidenced by a certificate bearing the restrictive legend set forth in Section 9.1(a). "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "SECURITIES PURCHASE AGREEMENT" shall mean the Securities Purchase Agreement dated as of a date even herewith between the Company and The Shaar Fund Ltd. as it may be amended from time to time. "TRANSFER" shall mean any disposition of any Warrant or Warrant Stock or of any interest in either thereof, which would constitute a sale thereof within the meaning of the Securities Act. "TRANSFER NOTICE" shall have the meaning set forth in Section 9.2. "WARRANT PRICE" shall mean an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such exercise. 3 4 "WARRANT STOCK" shall mean the shares of Common Stock purchased by the holders of the Warrants upon the exercise thereof. "WARRANTS" shall mean this Warrant and all warrants issued upon transfer, division or combination of, or in substitution for, any thereof. All Warrants shall at all times be identical as to terms and conditions and date, except as to the number of shares of Common Stock for which they may be exercised. 2. EXERCISE OF WARRANT 2.1 MANNER OF EXERCISE From and after the Closing Date and until 5:00 p.m., New York time, on the Expiration Date, Holder may exercise this Warrant, on any Business Day, for all or any part of the number of shares of Common Stock purchasable hereunder. In order to exercise this Warrant, in whole or in part, Holder shall deliver to the Company at its principal office at 4801 West 81st Street, Suite 112, Bloomington, Minnesota 55437, or at the office or agency designated by the Company pursuant to Section 12, (i) a written notice of Holder's election to exercise this Warrant, which notice shall specify the number of shares of Common Stock to be purchased, (ii) payment of the Warrant Price in cash or wire transfer or cashier's check drawn on a United States bank and (iii) this Warrant. Such notice shall be substantially in the form of the subscription form appearing at the end of this Warrant as Exhibit A, duly executed by Holder or its agent or attorney. Upon receipt of the items referred to in clauses (i), (ii) and (iii) above, the Company shall, as promptly as practicable, and in any event within five Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to Holder a certificate or certificates representing the aggregate number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereinafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as Holder shall request in the notice and shall be registered in the name of Holder or, subject to Section 9, such other name as shall be designated in the notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the notice, together with the cash or check or checks and this Warrant, is received by the Company as described above and all taxes required to be paid by Holder, if any, pursuant to Section 2.2 prior to the issuance of such shares have been paid. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Stock, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of Holder, appropriate notation may be made on this Warrant and the same returned to Holder. Notwithstanding any provision herein to the contrary, the Company shall not be required to register shares in the name of any Person who acquired this Warrant (or part hereof) 4 5 or any Warrant Stock otherwise than in accordance with this Warrant. 2.2 PAYMENT OF TAXES AND CHARGES All shares of Common Stock issuable upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable, freely tradable and without any preemptive rights. The Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issue or delivery thereof, unless such tax or charge is imposed by law upon Holder, in which case such taxes or charges shall be paid by Holder. The Company shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issue of any certificate for shares of Common Stock issuable upon exercise of this Warrant in any name other than that of Holder, and in such case the Company shall not be required to issue or deliver any stock certificate until such tax or other charge has been paid or it has been established to the satisfaction of the Company that no such tax or other charge is due. 2.3 FRACTIONAL SHARES The Company shall not be required to issue a fractional share of Common Stock upon exercise of any Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the same fraction of the Market Price per share of Common Stock as of the Closing Date. 2.4 CONTINUED VALIDITY A holder of shares of Common Stock issued upon the exercise of this Warrant, in whole or in part (other than a holder who acquires such shares after the same have been publicly sold pursuant to a Registration Statement under the Securities Act or sold pursuant to Rule 144 thereunder), shall continue to be entitled with respect to such shares to all rights to which it would have been entitled as Holder under Sections 9, 10 and 14 of this Warrant. The Company will, at the time of exercise of this Warrant, in whole or in part, upon the request of Holder, acknowledge in writing, in form reasonably satisfactory to Holder, its continuing obligation to afford Holder all such rights; provided, however, that if Holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to Holder all such rights. 3. TRANSFER, DIVISION AND COMBINATION 3.1 TRANSFER Subject to compliance with Section 9, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company referred to in Section 2.1 or the office or agency designated by the Company pursuant to Section 12, together with a written assignment of this Warrant substantially in the form of Exhibit B hereto 5 6 duly executed by Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall, subject to Section 9, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be canceled. A Warrant, if properly assigned in compliance with Section 9, may be exercised by a new Holder for the purchase of shares of Common Stock without having a new warrant issued. 3.2 DIVISION AND COMBINATION Subject to Section 9, this Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office or agency of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by Holder or its agent or attorney. Subject to compliance with Section 3.1 and with Section 9, as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 3.3 EXPENSES The Company shall prepare, issue and deliver at its own expense (other than transfer taxes) the new Warrants or Warrants under this Section 3. 3.4 MAINTENANCE OF BOOKS The Company agrees to maintain, at its aforesaid office or agency, books for the registration and the registration of transfer of the Warrants. 4. ADJUSTMENTS The number of shares of Common Stock for which this Warrant is exercisable, or the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to adjustment from time to time as set forth in this Section 4. The Company shall give Holder notice of any event described below which requires an adjustment pursuant to this Section 4 at the time of such event. 4.1 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS If at any time the Company shall: (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, Additional Shares of Common Stock; (b) subdivide its outstanding shares of Stock into a larger number of shares of Common Stock; or 6 7 (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock; then (i) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the happening of such event, and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current Warrant Price multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares for which this Warrant is exercisable immediately after such adjustment. 4.2 CERTAIN OTHER DISTRIBUTIONS If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend or other distribution of: (a) cash; (b) any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than cash, Convertible Securities or Additional Shares of Common Stock); or (c) any warrants or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than cash, Convertible Securities or Additional Shares of Common Stock); then Holder shall be entitled to receive such dividend or distribution as if Holder had exercised the Warrant. A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4.2 and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4.1. 4.3 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price provided for in this Section 4: (a) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by this Section 4 7 8 shall be made whenever and as often as any specified event requiring an adjustment shall occur. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (b) FRACTIONAL INTERESTS. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest 1/10th of a share. (c) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. (d) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any item under this Section 4, such determination may be challenged in good faith by the Holder, and any dispute shall be resolved by an investment banking firm of recognized national standing selected by the Company and acceptable to Holder. 4.4 REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("OTHER PROPERTY"), are to be received by or distributed to the holders of Common Stock of the Company, then Holder shall have the right thereafter to receive, upon exercise of the Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined by resolution of the Board of Directors of the Company) in order to provide for adjustments of 8 9 shares of Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 4. For purposes of this Section 4.4, "COMMON STOCK OF THE SUCCESSOR OR ACQUIRING CORPORATION" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4.4 still similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 4.5 OTHER ACTION AFFECTING COMMON STOCK In case at any time or from time to time the Company shall take any action in respect of its Common Stock, other than any action described in this Section 4, which would have a materially adverse effect upon the rights of Holder, the number of shares of Common Stock and/or the purchase price thereof shall be adjusted in such manner as may be equitable in the circumstances, as determined in good faith by the Board of Directors of the Company. 4.6 CERTAIN LIMITATIONS Notwithstanding anything herein to the contrary, the Company agrees not to enter into any transaction which, by reason of any adjustment hereunder, would cause the Current Warrant Price to be less than the par value per share of Common Stock. 5. NOTICES TO HOLDER 5.1 NOTICE OF ADJUSTMENTS Whenever the number of shares of Common Stock for which this Warrant is exercisable, or whenever the price at which a share of such Common Stock may be purchased upon exercise of the Warrants, shall be adjusted pursuant to Section 4, the Company shall forthwith prepare a certificate to be executed by the chief financial officer of the Company setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated (including a description of the basis on which the Board of Directors of the Company determined the fair value of any evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights referred to in Section 4.2), specifying the number of shares of Common Stock for which this Warrant is exercisable and (if such adjustment was made pursuant to Section 4.4 or 4.5) describing the number and kind of any other shares of stock or Other Property for which this Warrant is exercisable, and any change in the purchase price or prices thereof, after giving effect to such adjustment or change. The Company shall promptly cause a signed copy of such certificate to be delivered to the Holder in accordance with Section 14.2. The Company shall keep at its office or agency designated pursuant to Section 12 copies of all such certificates and cause the same to be available for inspection at said office during normal business hours by the Holder or any 9 10 prospective purchaser of a Warrant designated by Holder. 5.2 NOTICE OF CORPORATE ACTION If at any time: (a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right; or (b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation; or (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of such cases, the Company shall give to Holder (i) at least 30 days' prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 30 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of the Company and delivered in accordance with Section 14.2. 6. NO IMPAIRMENT The Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be 10 11 necessary or appropriate to protect the rights of Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (c) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. Upon the request of Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK From and after the Closing Date, the Company shall at all times reserve and keep available for issue upon the exercise of Warrants such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding Warrants. All shares of Common Stock which shall be so issuable, when issued upon exercise of any Warrant and payment therefor in accordance with the terms of such Warrant, shall be duly and validly issued and fully paid and nonassessable and not subject to preemptive rights. Before taking any action which would cause an adjustment reducing the Current Warrant Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Current Warrant Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Current Warrant Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. 8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of record of such holders, the Company will in each case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time, except upon dissolution, liquidation or winding up of the Company, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 9. RESTRICTIONS ON TRANSFERABILITY 11 12 The Warrants and the Warrant Stock shall not be transferred, hypothecated or assigned before satisfaction of the conditions specified in this Section 9, which conditions are intended to ensure compliance with the provisions of the Securities Act with respect to the Transfer of any Warrant or any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by the provisions of this Section 9. 9.1 RESTRICTIVE LEGEND (a) Holder, by accepting this Warrant and any Warrant Stock agrees that this Warrant and the Warrant Stock issuable upon exercise hereof may not be assigned or otherwise transferred unless and until (i) the Company has received an opinion of counsel for Holder that such securities may be sold pursuant to an exemption from registration under the Securities Act or (ii) a registration statement relating to such securities has been filed by the Company and declared effective by the Commission. Each certificate for Warrant Stock issuable hereunder shall bear a legend as follows until such securities have been sold pursuant to an effective registration statement under the Securities Act: "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) Except as otherwise provided in this Section 9, the Warrant shall be stamped or otherwise imprinted with a legend in substantially the following form: "THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR THE PROVISIONS OF THIS WARRANT." 9.2 NOTICE OF PROPOSED TRANSFERS Prior to any Transfer or attempted Transfer of any Warrants or any shares of 12 13 Restricted Common Stock, the Holder shall give ten days' prior written notice (a "TRANSFER NOTICE") to the Company of Holder's intention to effect such Transfer, describing the manner and circumstances of the proposed Transfer, and obtain from counsel to Holder who shall be reasonably satisfactory to the Company, an opinion that the proposed Transfer of such Warrants or such Restricted Common Stock may be effected without registration under the Securities Act. After receipt of the Transfer Notice and opinion, the Company shall, within five days thereof, notify the Holder as to whether such opinion is reasonably satisfactory and, if so, such holder shall thereupon be entitled to Transfer such Warrants or such Restricted Common Stock, in accordance with the terms of the Transfer Notice. Each certificate, if any, evidencing such shares of Restricted Common Stock issued upon such Transfer shall bear the restrictive legend set forth in Section 9.1(a), and the Warrant issued upon such Transfer shall bear the restrictive legend set forth in Section 9.1(b), unless in the opinion of such counsel such legend is not required in order to ensure compliance with the Securities Act. Holder shall not be entitled to Transfer such Warrants or such Restricted Common Stock until receipt of notice from the Company under this Section 9.2(a) that such opinion is reasonably satisfactory. 9.3 REQUIRED REGISTRATION Pursuant to the terms and conditions set forth in Registration Rights Agreement, the Company shall prepare and file with the Commission not later than the 30th day after the Closing Date, a Registration Statement relating to the offer and sale of the Common Stock issuable upon exercise of the Warrants and shall use its best efforts to cause the Commission to declare such Registration Statement effective under the Securities Act as promptly as practicable but no later than 150 days after the Closing Date. 9.4 TERMINATION OF RESTRICTIONS Notwithstanding the foregoing provisions of Section 9, the restrictions imposed by this Section upon the transferability of the Warrants, the Warrant Stock and the Restricted Common Stock (or Common Stock issuable upon the exercise of the Warrants) and the legend requirements of Section 9.1 shall terminate as to any particular Warrant or share of Warrant Stock or Restricted Common Stock (or Common Stock issuable upon the exercise of the Warrants) (i) when and so long as such security shall have been effectively registered under the Securities Act and disposed of pursuant thereto or (ii) when the Company shall have received an opinion of counsel reasonably satisfactory to it that such shares may be transferred without registration thereof under the Securities Act. Whenever the restrictions imposed by Section 9 shall terminate as to this Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive from the Company upon written request of the Holder, at the expense of the Company, a new Warrant bearing the following legend in place of the restrictive legend set forth hereon: "THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT CONTAINED IN SECTION 9 HEREOF TERMINATED ON __________, _____, AND ARE OF NO FURTHER FORCE AND EFFECT." All Warrants issued upon registration of transfer, division or combination of, or in substitution 13 14 for, any Warrant or Warrants entitled to bear such legend shall have a similar legend endorsed thereon. Whenever the restrictions imposed by this Section shall terminate as to any share of Restricted Common Stock, as hereinabove provided, the holder thereof shall be entitled to receive from the Company, at the Company's expense, a new certificate representing such Common Stock not bearing the restrictive legend set forth in Section 9.1(a). 9.5 LISTING ON SECURITIES EXCHANGE If the Company shall list any shares of Common Stock on any securities exchange or quotation system, it will, at its expense, list thereon, maintain and, when necessary, increase such listing of, all shares of Common Stock issued or, to the extent permissible under the applicable securities exchange rules, issuable upon the exercise of this Warrant so long as any shares of Common Stock shall be so listed during any such Exercise Period. 10. SUPPLYING INFORMATION The Company shall cooperate with Holder in supplying such information as may be reasonably necessary for Holder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the sale of any Warrant or Restricted Common Stock. 11. LOSS OR MUTILATION Upon receipt by the Company from Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and indemnity reasonably satisfactory to it (it being understood that the written agreement of the Holder shall be sufficient indemnity), and in case of mutilation upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant of like tenor to Holder; provided, in the case of mutilation no indemnity shall be required if this Warrant in identifiable form is surrendered to the Company for cancellation. 12. OFFICE OF THE COMPANY As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency (which may be the principal executive offices of the Company) where the Warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant. 13. LIMITATION OF LIABILITY No provision hereof, in the absence of affirmative action by Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of Holder hereof, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 14 15 14. MISCELLANEOUS 14.1 NONWAIVER AND EXPENSES No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights, powers or remedies. If the Company fails to make, when due, any payments provided for hereunder, or fails to comply with any other provision of this Warrant, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, without limitation, reasonable attorneys' fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. 14.2 NOTICE GENERALLY 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: (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 Holder, to: The Shaar Fund Ltd. c/o Levinson Capital Management 2 World Trade Center, Suite 1820 15 16 New York, NY 10048 Attention: Samuel Levinson (212) 432-7771 (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) The Company or the Holder may change the foregoing address by notice given pursuant to this Section 14.2. 14.3 INDEMNIFICATION The Company agrees to indemnify and hold harmless Holder from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against Holder in any manner relating to or arising out of any failure by the Company to perform or observe in any material respect any of its covenants, agreements, undertakings or obligations set forth in this Warrant; provided, however, that the Company will not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a final nonappealable judgment by a court to have resulted from Holder's gross negligence, bad faith or willful misconduct in its capacity as a stockholder or warrantholder of the Company. 14.4 REMEDIES Holder in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under Section 9 of this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of Section 9 of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. 14.5 SUCCESSORS AND ASSIGNS Subject to the provisions of Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and, with respect to Section 9 hereof, holders of Warrant Stock, and shall be enforceable by any such Holder or holder of 16 17 Warrant Stock. 14.6 AMENDMENT This Warrant and all other Warrants may be modified or amended or the provisions hereof waived with the written consent of the Company and Holder. 14.7 SEVERABILITY Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall only be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 14.8 HEADINGS The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 14.9 GOVERNING LAW This Warrant shall be governed by the laws of the State of New York, without regard to the provisions thereof relating to conflicts of law. 17 18 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed and its corporate seal to be impressed hereon and attested by its Secretary or an Assistant Secretary. Dated: August 31, 1999 CAFE ODYSSEY, INC. By: Name: Title: Attest: By: Name: Title: 18 19 EXHIBIT A SUBSCRIPTION FORM [To be executed only upon exercise of Warrant] The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of __________ shares of Common Stock of Cafe Odyssey, Inc. and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to whose address is and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned. (Name of Registered Owner) (Signature of Registered Owner) (Street Address) (City) (State) (Zip Code) NOTICE: The signature on this subscription must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. 20 EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of shares of Common Stock set forth below: No. of Shares of Name and Address of Assignee Common Stock and does hereby irrevocably constitute and appoint attorney-in-fact to register such transfer on the books of Cafe Odyssey, Inc. maintained for the purpose, with full power of substitution in the premises. Dated: (Print Name) (Signature) (Print Name of Witness) (Witness's Signature) NOTICE: The signature on this assignment must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. EX-10.3 6 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.3 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT, dated as of August 31, 1999 (this "AGREEMENT"), 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. (the "INITIAL INVESTOR"). WHEREAS, upon the terms and subject to the conditions of the Securities Purchase Agreement dated as of August 31, 1999, between the Initial Investor and the Company (the "SECURITIES PURCHASE AGREEMENT"), the Company has agreed to issue and sell to the Initial Investor (i) 2,200 shares of Series D 8% Convertible Preferred Stock, par value $0.01 per share (the "PREFERRED SHARES") which, upon the terms of and subject to the conditions of the Company's Certificate of Designation of Series D 8% Convertible Preferred Stock (the "CERTIFICATE OF DESIGNATION"), are convertible into shares of the Company's common stock, par value $0.01 per share (the "COMMON STOCK") and (ii) Common Stock Purchase Warrants (the "WARRANTS") to purchase shares of Common Stock; and WHEREAS, to induce the Initial Investor to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide with respect to the Common Stock issued or issuable in lieu of cash dividend payments on the Preferred Shares, upon conversion of the Preferred Shares and exercise of the Warrants certain registration rights under the Securities Act; 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: 1. DEFINITIONS (a) As used in this Agreement, the following terms shall have the meanings: (i) "AFFILIATE," of any specified Person means any other Person who directly, or indirectly through one or more intermediaries, is in control of, is controlled by, or is under common control with, such specified Person. For purposes of this definition, control of a Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person whether by contract, securities, ownership or otherwise; and the terms "CONTROLLING" and "CONTROLLED" have the respective meanings correlative to the foregoing. (ii) "CLOSING DATE" means the date and time of the issuance and sale of the Preferred Shares. (iii) "COMMISSION" means the Securities and Exchange Commission. (iv) "CURRENT MARKET PRICE" on any date of determination means the 1 2 closing bid price of a share of the Common Stock on such day as reported on the Nasdaq SmallCap Market ("NASDAQ"); provided, if such security bid is not listed or admitted to trading on the Nasdaq, as reported on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the closing bid price of such security on the over-the-counter market on the day in question as reported by Bloomberg LP, or a similar generally accepted reporting service, as the case may be. (v) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder, or any similar successor statute. (vi) "INVESTORS" means the Initial Investor and any transferee or assignee of Registrable Securities who agrees to become bound by all of the terms and provisions of this Agreement in accordance with Section 8 hereof. (vii) "PERSON" means any individual, partnership, corporation, limited liability company, joint stock company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. (viii) "PROSPECTUS" means the prospectus (including, without limitation, any preliminary prospectus and any final prospectus filed pursuant to Rule 424(b) under the Securities Act, including any prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance on Rule 430A under the Securities Act) included in the Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement and by all other amendments and supplements to such prospectus, including all material incorporated by reference in such prospectus and all documents filed after the date of such prospectus by the Company under the Exchange Act and incorporated by reference therein. (ix) "PUBLIC OFFERING" means an offer registered with the Commission and the appropriate state securities commissions by the Company of its Common Stock and made pursuant to the Securities Act. (x) "REGISTRABLE SECURITIES" means the Common Stock issued or issuable (i) in lieu of cash dividend payments on the Preferred Shares, (ii) upon conversion of the Preferred Shares or (iii) upon exercise of the Warrants; provided, however, a share of Common Stock shall cease to be a Registrable Security for purposes of this Agreement when it no longer is a Restricted Security. (xi) "REGISTRATION STATEMENT" means a registration statement of the Company filed on an appropriate form under the Securities Act providing for the registration of, and the sale on a continuous or delayed basis by the holders of, all of the 2 3 Registrable Securities pursuant to Rule 415 under the Securities Act, including the Prospectus contained therein and forming a part thereof, any amendments to such registration statement and supplements to such Prospectus, and all exhibits and other material incorporated by reference in such registration statement and Prospectus. (xii) "RESTRICTED SECURITY" means any share of Common Stock issued or issuable in lieu of cash dividend payments on the Preferred Shares, upon conversion of the Preferred Shares or exercise of the Warrants except any such share that (i) has been registered pursuant to an effective registration statement under the Securities Act and sold in a manner contemplated by the prospectus included in such registration statement, (ii) has been transferred in compliance with the resale provisions of Rule 144 under the Securities Act (or any successor provision thereto) or is transferable pursuant to paragraph (k) of Rule 144 under the Securities Act (or any successor provision thereto), or (iii) otherwise has been transferred and a new share of Common Stock not subject to transfer restrictions under the Securities Act has been delivered by or on behalf of the Company. (xiii) "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, or any similar successor statute. (b) All capitalized terms used and not defined herein have the respective meaning assigned to them in the Securities Purchase Agreement. 2. REGISTRATION (a) FILING AND EFFECTIVENESS OF REGISTRATION STATEMENT. The Company shall prepare and file with the Commission not later than 30 days after the Closing Date, a Registration Statement relating to the offer and resale of the Registrable Securities by the holders thereof and shall use its best efforts to cause the Commission to declare such Registration Statement effective under the Securities Act as promptly as practicable but not later than 150 days after the Closing Date, assuming for purposes hereof a number of shares of Registrable Securities equal to at least 19.9% of the total outstanding shares of Common Stock on the Closing Date. The Company shall notify the Initial Investor by written notice that such Registration Statement has been declared effective by the Commission within 24 hours of such declaration by the Commission. (b) REGISTRATION DEFAULT. If the Registration Statement covering the Registrable Securities or the Additional Registrable Securities (as defined in Section 2(d) hereof) required to be filed by the Company pursuant to Section 2(a) or 2(d) hereof, as the case may be, is not (i) filed with the Commission within 30 days after the Closing Date or (ii) declared effective by the Commission within 150 days after the Closing Date (either of which, without duplication, an "INITIAL DATE"), then the Company shall make the payments to the Initial Investor as provided in the next sentence as liquidated damages and not as a penalty. The amount to be paid by the Company to the Initial Investor shall be determined as of each Computation Date (as defined below), and such amount shall be equal to 2% (the "LIQUIDATED DAMAGE RATE") of the 3 4 Purchase Price (as defined in the Securities Purchase Agreement) from the Initial Date to the first Computation Date and for each Computation Date thereafter, calculated on a pro rata basis to the date on which the Registration Statement is filed with (in the event of an Initial Date pursuant to clause (i) above) or declared effective by (in the event of an Initial Date pursuant to clause (ii) above) the Commission (the "PERIODIC AMOUNT") provided, however, that in no event shall the liquidated damages be less than $25,000. The full Periodic Amount shall be paid by the Company to the Initial Investor by wire transfer of immediately available funds within three days after each Computation Date. As used in this Section 2(b), "COMPUTATION DATE" means the date which is 30 days after the Initial Date and, if the Registration Statement required to be filed by the Company pursuant to Section 2(a) has not theretofore been declared effective by the Commission, each date which is 30 days after the previous Computation Date until such Registration Statement is so declared effective. Notwithstanding the above, if the Registration Statement covering the Registrable Securities or the Additional Registrable Securities required to be filed by the Company pursuant to Section 2(a) or 2(d) hereof, as the case may be, is not filed with the Commission by the 30th day after the Closing Date, the Company shall be in default of this Registration Rights Agreement. (c) ELIGIBILITY FOR USE OF FORM S-3. The Company agrees that at such time as it meets all the requirements for the use of Securities Act Registration Statement on Form S-3 it shall file all reports and information required to be filed by it with the Commission in a timely manner and take all such other action so as to maintain such eligibility for the use of such form. (d) [Reserved] (e) (i) If the Company proposes to register any of its warrants, Common Stock or any other shares of common stock of the Company under the Securities Act (other than a registration (A) on Form S-8 or S-4 or any successor or similar forms, (B) relating to Common Stock or any other shares of common stock of the Company issuable upon exercise of employee share options or in connection with any employee benefit or similar plan of the Company or (C) in connection with a direct or indirect acquisition by the Company of another Person or any transaction with respect to which Rule 145 (or any successor provision) under the Securities Act applies), whether or not for sale for its own account, it will each such time, give prompt written notice at least 20 days prior to the anticipated filing date of the registration statement relating to such registration to the Initial Investor, which notice shall set forth such Initial Investor's rights under this Section 3(e) and shall offer the Initial Investor the opportunity to include in such registration statement such number of Registrable Securities as the Initial Investor may request. Upon the written request of an Initial Investor made within 10 days after the receipt of notice from the Company (which request shall specify the number of Registrable Securities intended to be disposed of by such Initial Investor), the Company will use its best efforts to effect the registration under the Securities Act of all Registrable 4 5 Securities that the Company has been so requested to register by the Initial Investor, to the extent requisite to permit the disposition of the Registrable Securities so to be registered; provided, however, that (A) if such registration involves a Public Offering, the Initial Investor must sell their Registrable Securities to the underwriters selected as provided in Section 3(b) hereof on the same terms and conditions as apply to the Company and (B) if, at any time after giving written notice of its intention to register any Registrable Securities pursuant to this Section 3 and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register such Registrable Securities, the Company shall give written notice to the Initial Investor and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration. The Company's obligations under this Section 2(e) shall terminate on the date that the registration statement to be filed in accordance with Section 2(a) is declared effective by the Commission. (ii) If a registration pursuant to this Section 2(e) involves a Public Offering and the managing underwriter thereof advises the Company that, in its view, the number of shares of Common Stock, Warrants or other shares of Common Stock that the Company and the Initial Investor intend to include in such registration exceeds the largest number of shares of Common Stock or Warrants (including any other shares of Common Stock or Warrants of the Company) that can be sold without having an adverse effect on such Public Offering (the "MAXIMUM OFFERING SIZE"), the Company will include in such registration, only that number of shares of Common Stock or Warrants, as applicable, such that the number of shares of Registrable Securities registered does not exceed the Maximum Offering Size, with the difference between the number of shares in the Maximum Offering Size and the number of shares to be issued by the Company to be allocated (after including all shares to be issued and sold by the Company) among the Company and the Initial Investor pro rata on the basis of the relative number of shares of Common Stock or Warrants offered for sale under such registration by each of the Company and the Initial Investor. If as a result of the proration provisions of this Section 2(e)(ii), any Initial Investor is not entitled to include all such Registrable Securities in such registration, such Initial Investor may elect to withdraw its request to include any Registrable Securities in such registration. With respect to registrations pursuant to this Section 2(e), the number of securities required to satisfy any underwriters' over-allotment option shall be allocated pro rata among the Company and the Initial Investor on the basis of the relative number of shares of Common Stock or Warrants otherwise to be included by each of them in the registration with respect to which such over-allotment option relates. 3. OBLIGATIONS OF THE COMPANY In connection with the registration of the Registrable Securities, the Company shall: 5 6 (a) Promptly (i) prepare and file with the Commission such amendments (including post-effective amendments) to the Registration Statement and supplements to the Prospectus as may be necessary to keep the Registration Statement continuously effective and in compliance with the provisions of the Securities Act applicable thereto so as to permit the Prospectus forming part thereof to be current and useable by Investors for resales of the Registrable Securities for a period of two years from the date on which the Registration Statement is first declared effective by the Commission (the "EFFECTIVE TIME") or such shorter period that will terminate when all the Registrable Securities covered by the Registration Statement have been sold pursuant thereto in accordance with the plan of distribution provided in the Prospectus, transferred pursuant to Rule 144 under the Securities Act or otherwise transferred in a manner that results in the delivery of new securities not subject to transfer restrictions under the Securities Act (the "REGISTRATION PERIOD") and (ii) take all lawful action such that each of (A) the Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, not misleading and (B) the Prospectus forming part of the Registration Statement, and any amendment or supplement thereto, does not at any time during the Registration Period include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing provisions of this Section 3(a), the Company may, during the Registration Period, suspend the use of the Prospectus for a period not to exceed 60 days (whether or not consecutive) in any 12-month period if the Board of Directors of the Company determines in good faith that because of valid business reasons, including pending mergers or other business combination transactions, the planned acquisition or divestiture of assets, pending material corporate developments and similar events, it is in the best interests of the Company to suspend such use, and prior to or contemporaneously with suspending such use the Company provides the Investors with written notice of such suspension, which notice need not specify the nature of the event giving rise to such suspension. At the end of any such suspension period, the Company shall provide the Investors with written notice of the termination of such suspension; (b) During the Registration Period, comply with the provisions of the Securities Act with respect to the Registrable Securities of the Company covered by the Registration Statement until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the Investors as set forth in the Prospectus forming part of the Registration Statement; (c) (i) Prior to the filing with the Commission of any Registration Statement (including any amendments thereto) and the distribution or delivery of any Prospectus (including any supplements thereto), provide (A) draft copies thereof to the Investors and reflect in such documents all such comments as the Investors (and their counsel) reasonably may propose and (B) to the Investors a copy of the accountant's consent letter to be included in the filing and (ii) furnish to each Investor whose Registrable Securities are included in the Registration Statement and its legal counsel identified to the Company, (A) promptly after the same is prepared and publicly distributed, filed with the Commission, or received by the Company, one copy of the 6 7 Registration Statement, each Prospectus, and each amendment or supplement thereto, and (B) such number of copies of the Prospectus and all amendments and supplements thereto and such other documents, as such Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor; (d) (i) Register or qualify the Registrable Securities covered by the Registration Statement under such securities or "blue sky" laws of such jurisdictions as the Investors who hold a majority-in-interest of the Registrable Securities being offered reasonably request, (ii) prepare and file in such jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof at all times during the Registration Period, (iii) take all such other lawful actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all such other lawful actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (A) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (B) subject itself to general taxation in any such jurisdiction or (C) file a general consent to service of process in any such jurisdiction; (e) As promptly as practicable after becoming aware of such event, notify each Investor of the occurrence of any event, as a result of which the Prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and promptly prepare an amendment to the Registration Statement and supplement to the Prospectus to correct such untrue statement or omission, and deliver a number of copies of such supplement and amendment to each Investor as such Investor may reasonably request; (f) As promptly as practicable after becoming aware of such event, notify each Investor who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance by the Commission of any stop order or other suspension of the effectiveness of the Registration Statement at the earliest possible time and take all lawful action to effect the withdrawal, recession or removal of such stop order or other suspension; (g) Cause all the Registrable Securities covered by the Registration Statement to be listed on the principal national securities exchange, and included in an inter-dealer quotation system of a registered national securities association, on or in which securities of the same class or series issued by the Company are then listed or included; (h) Maintain a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the Registration Statement; (i) Cooperate with the Investors who hold Registrable Securities being offered to facilitate the timely preparation and delivery of certificates for the 7 8 Registrable Securities to be offered pursuant to the registration statement and enable such certificates for the Registrable Securities to be in such denominations or amounts, as the case may be, as the Investors reasonably may request and registered in such names as the Investor may request; and, within three business days after a registration statement which includes Registrable Securities is declared effective by the Commission, deliver and cause legal counsel selected by the Company to deliver to the transfer agent for the Registrable Securities (with copies to the Investors whose Registrable Securities are included in such registration statement) an appropriate instruction and, to the extent necessary, an opinion of such counsel; (j) Take all such other lawful actions reasonably necessary to expedite and facilitate the disposition by the Investors of their Registrable Securities in accordance with the intended methods therefor provided in the Prospectus which are customary under the circumstances; (k) Make generally available to its security holders as soon as practicable, but in any event not later than three (3) months after (i) the effective date (as defined in Rule 158(c) under the Securities Act) of the Registration Statement, and (ii) the effective date of each post-effective amendment to the Registration Statement, as the case may be, an earnings statement of the Company and its subsidiaries complying with Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder (including, at the option of the Company, Rule 158); (1) In the event of an underwritten offering, promptly include or incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement such information as the managers reasonably agree should be included therein and to which the Company does not reasonably object and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after it is notified of the matters to be included or incorporated in such Prospectus supplement or post-effective amendment; (m) (i) Make reasonably available for inspection by Investors, any underwriter participating in any disposition pursuant to the Registration Statement, and any attorney, accountant or other agent retained by such Investors or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and (ii) cause the Company's officers, directors and employees to supply all information reasonably requested by such Investors or any such underwriter, attorney, accountant or agent in connection with the Registration Statement, in each case, as is customary for similar due diligence examinations; provided, however, that all records, information and documents that are designated in writing by the Company, in good faith, as confidential, proprietary or containing any material nonpublic information shall be kept confidential by such Investors and any such underwriter, attorney, accountant or agent (pursuant to an appropriate confidentiality agreement in the case of any such holder or agent), unless such disclosure is made pursuant to judicial process in a court proceeding (after first giving the Company an opportunity promptly to seek a protective order or otherwise limit the scope of the information sought to be disclosed) or is required by law, or such records, information or documents become available to the public generally or through a third party not in violation of an accompanying obligation of confidentiality; and provided, further, that, if the foregoing inspection and information gathering 8 9 would otherwise disrupt the Company's conduct of its business, such inspection and information gathering shall, to the maximum extent possible, be coordinated on behalf of the Investors and the other parties entitled thereto by one firm of counsel designed by and on behalf of the majority in interest of Investors and other parties; (n) In connection with any underwritten offering, make such representations and warranties to the Investors participating in such underwritten offering and to the managers, in form, substance and scope as are customarily made by the Company to underwriters in secondary underwritten offerings; (o) In connection with any underwritten offering, obtain opinions of counsel to the Company (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managers) addressed to the underwriters, covering such matters as are customarily covered in opinions requested in secondary underwritten offerings (it being agreed that the matters to be covered by such opinions shall include, without limitation, as of the date of the opinion and as of the Effective Time of the Registration Statement or most recent post-effective amendment thereto, as the case may be, the absence from the Registration Statement and the Prospectus, including any documents incorporated by reference therein, of an untrue statement of a material fact or the omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading, subject to customary limitations); (p) In connection with any underwritten offering, obtain "cold comfort" letters and updates thereof from the independent public accountants of the Company (and, if necessary, from the independent public accountants of any subsidiary of the Company or of any business acquired by the Company, in each case for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each underwriter participating in such underwritten offering (if such underwriter has provided such letter, representations or documentation, if any, required for such cold comfort letter to be so addressed), in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with secondary underwritten offerings; (q) In connection with any underwritten offering, deliver such documents and certificates as may be reasonably required by the managers, if any; and (r) In the event that any broker-dealer registered under the Exchange Act shall be an "AFFILIATE" (as defined in Rule 2729(b)(1) of the rules and regulations of the National Association of Securities Dealers, Inc. (the "NASD RULES") (or any successor provision thereto)) of the Company or has a "CONFLICT OF INTEREST" (as defined in Rule 2720(b)(7) of the NASD Rules (or any successor provision thereto)) and such broker-dealer shall underwrite, participate as a member of an underwriting syndicate or selling group or assist in the distribution of any Registrable Securities covered by the Registration Statement, whether as a holder of such Registrable Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company shall assist such broker-dealer in complying with the requirements of the NASD Rules, including, without limitation, by (A) engaging a "QUALIFIED 9 10 INDEPENDENT UNDERWRITER" (as defined in Rule 2720(b)(15) of the NASD Rules (or any successor provision thereto)) to participate in the preparation of the Registration Statement relating to such Registrable Securities, to exercise usual standards of due diligence in respect thereof and to recommend the public offering price of such Registrable Securities, (B) indemnifying such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 5 hereof, and (C) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the NASD Rules. 4. OBLIGATIONS OF THE INVESTORS In connection with the registration of the Registrable Securities, the Investors shall have the following obligations: (a) It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. As least seven days prior to the first anticipated filing date of the Registration Statement, the Company shall notify each Investor of the information the Company requires from each such Investor (the "REQUESTED INFORMATION") if such Investor elects to have any of its Registrable Securities included in the Registration Statement. If at least two business days prior to the anticipated filing date the Company has not received the Requested Information from in Investor (a "NON-RESPONSIVE INVESTOR"), then the Company may file the Registration Statement without including Registrable Securities of such Non-Responsive Investor and have no further obligations to the Non-Responsive Investor; (b) Each Investor by its acceptance of the Registrable Securities agrees to cooperate with the Company in connection with the preparation and filing of the Registration Statement hereunder, unless such Investor has notified the Company in writing of its election to exclude all of its Registrable Securities from the Registration Statement; and (c) Each Investor agrees that, upon receipt of any notice from the Company of the occurrence of any event of the kind described in Section 3(e) or 3(f), it shall immediately discontinue its disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Investor's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(e) and, if so directed by the Company, such Investor shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in such Investor's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. 5. EXPENSES OF REGISTRATION 10 11 All expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Section 3, but including, without limitation, all registration, listing, and qualifications fees, printing and engraving fees, accounting fees, and the fees and disbursements of counsel for the Company. 6. INDEMNIFICATION AND CONTRIBUTION (a) The Company shall indemnify and hold harmless each Investor and each underwriter, if any, which facilitates the disposition of Registrable Securities, and each of their respective officers and directors and each person who controls such Investor or underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each such person being sometimes hereinafter referred to as an "INDEMNIFIED PERSON") from and against any losses, claims, damages or liabilities, joint or several, to which such Indemnified Person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or an omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, not misleading, or arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Prospectus or an omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and the Company hereby agrees to reimburse such Indemnified Person for all reasonable legal and other expenses incurred by them in connection with investigating or defending any such action or claim as and when such expenses are incurred; provided, however, that the Company shall not be liable to any such Indemnified Person in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon (i) an untrue statement or alleged untrue statement made in, or an omission or alleged omission from, such Registration Statement or Prospectus in reliance upon and in conformity with written information furnished to the Company by such Indemnified Person expressly for use therein or (ii) in the case of the occurrence of an event of the type specified in Section 3(e), the use by the Indemnified Person of an outdated or defective Prospectus after the Company has provided to such Indemnified Person an updated Prospectus correcting the untrue statement or alleged untrue statement or omission or alleged omission giving rise to such loss, claim, damage or liability. (b) INDEMNIFICATION BY THE INVESTORS AND UNDERWRITERS. Each Investor agrees, as a consequence of the inclusion of any of its Registrable Securities in a Registration Statement, and each underwriter, if any, which facilitates the disposition of Registrable Securities shall agree, as a consequence of facilitating such disposition of Registrable Securities, severally and not jointly, to (i) indemnify and hold harmless the Company, its directors (including any person who, with his or her consent, is named in the Registration Statement as a director nominee of the Company), its officers who sign any Registration Statement and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, against any losses, claims, damages or liabilities to which the Company or such other persons may become subject, under the Securities Act or otherwise, 11 12 insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in such Registration Statement or Prospectus or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in light of the circumstances under which they were made, in the case of the Prospectus), not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such holder or underwriter expressly for use therein; provided, however, that no Investor or underwriter shall be liable under this Section 6(b) for any amount in excess of the net proceeds paid to such Investor or underwriter in respect of shares sold by it, and (ii) reimburse the Company for any legal or other expenses incurred by the Company in connection with investigating or defending any such action or claim as such expenses are incurred. (c) NOTICE OF CLAIMS, ETC. Promptly after receipt by a party seeking indemnification pursuant to this Section 6 (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 6 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, costs and expenses, (y) the Indemnified Party and the Indemnifying Party shall reasonably have concluded that representation of the Indemnified Party by 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 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 counsel for the Indemnified Party (together with appropriate local counsel). The Indemnified Party shall not, without the prior written consent of the Indemnifying 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 12 13 unconditional release of the Indemnifying Party from all liabilities with respect to such Claim or judgment. (d) CONTRIBUTION. If the indemnification provided for in this Section 6 is unavailable to or insufficient to hold harmless an Indemnified Person under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and the Indemnified Party in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such Indemnifying Party or by such Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rata allocation (even if the Investors or any underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 6(d). The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The obligations of the Investors and any underwriters in this Section 6(d) to contribute shall be several in proportion to the percentage of Registrable Securities registered or underwritten, as the case may be, by them and not joint. (e) Notwithstanding any other provision of this Section 6, in no event shall any (i) Investor be required to undertake liability to any person under this Section 6 for any amounts in excess of the dollar amount of the proceeds to be received by such Investor from the sale of such Investor's Registrable Securities (after deducting any fees, discounts and commissions applicable thereto) pursuant to any Registration Statement under which such Registrable Securities are to be registered under the Securities Act and (ii) underwriter be required to undertake liability to any Person hereunder for any amounts in excess of the aggregate discount, commission or other compensation payable to such underwriter with respect to the Registrable Securities underwritten by it and distributed pursuant to the Registration Statement. (f) The obligations of the Company under this Section 6 shall be in addition to any liability which the Company may otherwise have to any Indemnified Person and the obligations of any Indemnified Person under this Section 6 shall be in addition to any liability which such Indemnified Person may otherwise have to the Company. The remedies provided in 13 14 this Section 6 are not exclusive and shall not limit any rights or remedies which may otherwise be available to an indemnified party at law or in equity. 7. RULE 144 With a view to making available to the Investors the benefits of Rule 144 under the Securities Act or any other similar rule or regulation of the Commission that may at any time permit the Investors to sell securities of the Company to the public without registration ("RULE 144"), the Company agrees to use its best efforts to: (a) comply with the provisions of paragraph (c) (1) of Rule 144; and (b) file with the Commission in a timely manner all reports and other documents required to be filed by the Company pursuant to Section 13 or 15(d) under the Exchange Act; and, if at any time it is not required to file such reports but in the past had been required to or did file such reports, it will, upon the request of any Investor, make available other information as required by, and so long as necessary to permit sales of, its Registrable Securities pursuant to Rule 144. 8. ASSIGNMENT The rights to have the Company register Registrable Securities pursuant to this Agreement shall be automatically assigned by the Investors to any permitted transferee of all or any portion of such securities (or all or any portion of any Preferred Shares or Warrant of the Company which is convertible into such securities) of Registrable Securities only if: (a) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (b) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (i) the name and address of such transferee or assignee and (ii) the securities with respect to which such registration rights are being transferred or assigned, (c) immediately following such transfer or assignment, the securities so transferred or assigned to the transferee or assignee constitute Restricted Securities, and (d) at or before the time the Company received the written notice contemplated by clause (b) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein. 9. AMENDMENT AND WAIVER Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Investors who hold a majority-in-interest of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 9 shall be binding upon each Investor and the Company. 10. MISCELLANEOUS (a) A person or entity shall be deemed to be a holder of Registrable Securities 14 15 whenever such person or entity owns of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. (b) If, after the date hereof and prior to the Commission declaring the Registration Statement to be filed pursuant to Section 2(a) effective under the Securities Act, the Company grants to any Person any registration rights with respect to any Company securities which are more favorable to such other Person than those provided in this Agreement, then the Company forthwith shall grant (by means of an amendment to this Agreement or otherwise) identical registration rights to all Investors hereunder. (c) 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 days after the date of deposit in the United States mails, as follows: (i) 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) (ii) if to the Initial Investor, 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 15 16 (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) (iii) if to any other Investor, at such address as such Investor shall have provided in writing to the Company. The Company, the Initial Investor or any Investor may change the foregoing address by notice given pursuant to this Section 10(c). (d) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. (e) This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York. 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. (f) The remedies provided in this Agreement are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (g) The Company shall not enter into any agreement with respect to its securities that is inconsistent with the rights granted to the holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The Company is not currently a party to any agreement granting any registration rights with respect to any of its securities to any person which conflicts with the Company's obligations hereunder or gives any other party the right to include any securities in any Registration Statement filed pursuant hereto, except for 16 17 such rights and conflicts as have been irrevocably waived. Without limiting the generality of the foregoing, without the written consent of the holders of a majority in interest of the Registrable Securities, the Company shall not grant to any person the right to request it to register any of its securities under the Securities Act unless the rights so granted are subject in all respect to the prior rights of the holders of Registrable Securities set forth herein, and are not otherwise in conflict or inconsistent with the provisions of this Agreement. The restrictions on the Company's rights to grant registration rights under this paragraph shall terminate on the date the Registration Statement to be filed pursuant to Section 2(a) is declared effective by the Commission. (h) This Agreement, the Securities Purchase Agreement, the Escrow Instructions, dated as of a date even herewith (the "ESCROW INSTRUCTIONS"), between the Company, the Initial Investor and Cadwalader, Wickersham & Taft, the Preferred Shares and the Warrants constitute the entire agreement among the parties hereto with respect to the subject matter hereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein. This Agreement, the Securities Purchase Agreement, the Escrow Instructions, the Certificate of Designation and the Warrants supersede all prior agreements and undertakings among the parties hereto with respect to the subject matter hereof. (i) Subject to the requirements of Section 8 hereof, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto. (j) All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. (k) The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning thereof. (1) The Company acknowledges that any failure by the Company to perform its obligations under Section 3, or any delay in such performance could result in direct damages to the Investors and the Company agrees that, in addition to any other liability the Company may have by reason of any such failure or delay, the Company shall be liable for all direct damages caused by such failure or delay. (m) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. A facsimile transmission of this signed Agreement shall be legal and binding on all parties hereto. 17 18 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first above written. CAFE ODYSSEY, INC. By: /s/ Stephen D. King ---------------------------- Name: Stephen D. King Title: CEO THE SHAAR FUND LTD. By: /s/ Samuel Levinson --------------------------- Name: Samuel Levinson Title: Managing Director 18 EX-10.4 7 LOAN AGREEMENT 1 EXHIBIT 10.4 LOAN AGREEMENT This Loan Agreement (the "AGREEMENT") is made and entered into by and between the undersigned borrower (the "BORROWER") and the undersigned Lender (the "LENDER") as of the date set forth on the last page of this Agreement. ARTICLE I. LOANS 1.1 SINGLE ADVANCE TERM LOAN. As of the date hereof, the Borrower has obtained a term loan from the Lender in the original principal amount of Two Million and no/100 Dollars ($2,000,000.00) (the "LOAN AMOUNT"). The term loan is evidenced by a single Senior Convertible Note of the Borrower payable to the order of the Lender in the Loan Amount and dated as of the date hereof (the "NOTE"), and is being extended to finance the Borrower's acquisition of popmail.com, inc., a Delaware corporation. 1.2 ADVANCE PROCEDURE. Subject to Section 1.4 hereof, the Lender shall advance the proceeds of the Note to the Borrower pursuant to written wire instructions provided by the Borrower to the Lender. 1.3 EXPENSES AND ATTORNEYS' FEES. The Borrower will reimburse the Lender for all reasonable attorneys' fees and all other costs, fees and out-of-pocket disbursements incurred by the Lender in connection with the preparation, execution, delivery, administration, defense and enforcement of this Agreement or any of the other Loan Documents (defined below), including fees and costs related to any waivers or amendments with respect thereto. The Borrower will also reimburse the Lender for all reasonable costs of collection before and after judgment, and the costs of preservation and/or liquidation of any collateral (including fees and disbursements of both inside and outside counsel). 1.4 CONDITIONS TO BORROWING. The Lender shall not be obligated to make an advance hereunder unless (i) the Lender has received executed copies of the Note and all other documents or agreements applicable to the loan described herein, including, but not limited to, the documents specified in Article III (collectively with this Agreement the "LOAN DOCUMENTS"), in form and content satisfactory to the Lender; (ii) the Lender has received copies of the Borrower's Articles of Incorporation and By-Laws; and (iii) the Lender has received a certified copy of a resolution or authorization in form and content satisfactory to the Lender authorizing the loan and all acts contemplated by this Agreement and all related documents. 2 ARTICLE II. WARRANTIES AND COVENANTS During the term of this Agreement, and while any part of the credit granted the Borrower under this Agreement or the other Loan Documents is available or any obligations under any of the Loan Documents are unpaid or outstanding, the Borrower warrants and continuously agrees as follows: 2.1 ACCURACY OF INFORMATION. All information, certificates or statements given to the Lender pursuant to this Agreement and the other Loan Documents will be true and complete in all material respects when given. 2.2 ORGANIZATION AND AUTHORITY; LITIGATION. If the Borrower is a corporation or partnership, the Borrower is a validly existing corporation or partnership (as applicable) in good standing under the laws of its state of organization, and has all requisite power and authority, corporate or otherwise, and possesses all licenses necessary, to conduct its business and own its properties. The execution, delivery and performance of this Agreement and the other Loan Documents (i) are within the Borrower's power; (ii) have been duly authorized by proper corporate or partnership action (as applicable); (iii) do not require the approval of any governmental agency; and (iv) will not violate any law, agreement or restriction by which the Borrower is bound. This Agreement and the other Loan Documents are the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their terms. As of the date hereof, there is no litigation or administrative proceeding threatened or pending against the Borrower which would, if adversely determined, have a material adverse effect on the Borrower's financial condition or its property. 2.3 EXISTENCE; BUSINESS ACTIVITIES; ASSETS. The Borrower will (i) preserve its corporate or partnership (as applicable) existence, rights and franchises; (ii) not liquidate, dissolve, merge or consolidate with or into another entity; and (iii) not sell, lease, transfer or otherwise dispose of all or substantially all of its assets. 2.4 USE OF PROCEEDS. Advances by the Lender hereunder shall be used exclusively by the Borrower for the purposes represented to the Lender in Section 1.1 hereof. 2.5 COMPLIANCE WITH LAWS. The Borrower has materially complied with all laws applicable to its business and its properties, and has all permits, licenses and approvals required by such laws, copies of which have been provided to the Lender. 2.6 FINANCIAL STATEMENTS AND REPORTING. Upon request of the Lender, the Borrower shall provide to the Lender copies of any reports and financial information reasonably requested by Lender and Lender agrees to keep all such information confidential to the extent the Borrower has not publicly disclosed such information by its reporting with the Securities and Exchange Commission or otherwise. 2 3 2.7 LIABILITIES. All taxes and other liabilities which are due from Borrower have been paid in full and in a timely manner. 2.8 YEAR 2000. (a) Borrower represents and warrants that all date-sensitive hardware, software, processes, procedures, interfaces and operating systems and core business functions (jointly referred to as the "Systems") used within the Borrower's business operations contain or will contain acceptable design and performance specifications so that such systems will not abruptly end or provide invalid or incorrect results during the operation of Borrower's business on or after January 1, 2000. All such Systems have been or will be designed to ensure year 2000 compatibility on or before January 1, 2000, including, but not limited to: date data century recognition, calculations that accommodate same century and multi-century formulas and date values, date data interface values that reflect the century, and which include year 2000 leap year calculations. (b) Borrower represents and warrants that it will contact its material suppliers to confirm that all date time and sensitive hardware, software, processes, procedures, interfaces and operating systems used within the suppliers' operations contain or that they intend that the same will contain acceptable design and performance specification so that such Systems will not abruptly and/or provide invalid or incorrect results during the operation of their respective businesses on or after January 1, 2000 and that all such Systems have been designed or that they intend them to be designed to ensure Year 2000 compatibility including, but not limited to: date data century recognition, calculations that accommodate same century and multi-century formulas and date values, date data interface values that reflect the century and which include Year 2000 leap year calculations. 2.9 WARRANTS. In consideration for the extension of the loan evidenced by the Note, the Borrower agrees to issue a Warrant to Lender for the issuance of 500,000 shares of common stock of the Borrower in the form of the Warrant attached hereto as Exhibit A (the "WARRANTS"). 2.10 ADDITIONAL INDEBTEDNESS. Borrower acknowledges and agrees that if it shall incur any indebtedness for borrowed money on or after the date of this Agreement, such indebtedness shall not mature on or before ninety (90) days after the Maturity Date as such term is defined in the Note. ARTICLE III. COLLATERAL AND SUPPORT AGREEMENT 3.1 COLLATERAL. This Agreement and the Note are secured by that certain Deed of Trust, Security Agreement and Fixture Financing Statement of even date herewith executed by the Borrower, as grantor, in favor of the Lender, as beneficiary (the "DEED OF TRUST"), in the form attached hereto as Exhibit B. At such time that all obligations of the Borrower under the Note, this Loan Agreement and any related Loan Documents have been irrevocably paid in full, the Lender 3 4 agrees to terminate the Deed of Trust and release the liens and security interests granted to the Lender thereunder. 3.2 SUPPORT AGREEMENT. Borrower agrees to cause the execution and delivery of the Support Agreement, in the form attached hereto as Exhibit C, by the Borrower and Stephen D. King in favor of the Lender. ARTICLE IV. DEFAULTS 4.1 DEFAULTS. The occurrence of any of the following events and the expiration of any applicable cure or grace periods, if any, shall constitute an "EVENT OF DEFAULT": (a) NONPAYMENT. The Borrower shall fail to pay when due any payment of principal or interest on the Note within five (5) days after the date on which such payment is due. (b) NONPERFORMANCE. The Borrower shall fail to perform or observe any other agreement, term, provision, condition, or covenant required to be performed or observed by the Borrower hereunder, the Deed of Trust or under any other Loan Document or other agreement with or in favor of the Lender and such failure continues for thirty (30) days after the Lender notifies the Borrower thereof in writing, or if such default isn't reasonably susceptible to being cured within such time period, then for such longer period of time as is reasonably necessary so long as the Borrower is diligently proceeding to cure the same, provided that such additional curing period does not, in Lender's sole opinion, jeopardize Lender's position. (c) CHANGE OF MANAGEMENT. Stephen D. King shall at any time fail to be the Chief Executive Officer or President of the Borrower or fail to hold a management position of similar or greater responsibility with the Borrower. (d) OTHER INDEBTEDNESS. Borrower fails to repay when due, and after expiration of any applicable cure or grace periods, any other borrowed money obligation in excess of $50,000, or the holder of any such obligation declares, or may declare, such obligation due prior to its stated maturity of such Borrower's default hereunder; (e) REPRESENTATIONS. Any representation or warranty made by Borrower herein or in any of the other Loan Documents, any writings furnished to Lender in connection with this Loan Agreement or in any other agreement or instrument is untrue in any material respect; (f) ADVERSE CHANGE. There shall have been an adverse change in the financial affairs of Borrower, in the operating condition of Borrower, or in the value of the Collateral which, 4 5 in the reasonable judgment of Lender, materially imperils Borrower's ability to repay its obligations to Lender or Lender's ability to realize adequately on the security therefor; (g) LEASE DEFAULTS. The Borrower shall fail to perform or observe any term, provision, condition or covenant required to be performed or observed by the Borrower under the Lease (as such term is defined in the Deed of Trust) as and when required therein and such failure remains uncured beyond any applicable cure or grace period as set forth in the Lease; (h) NOTE EVENT OF DEFAULT. The occurrence of any "Event of Default" as such term is defined in the Note. 4.2 ACCELERATION OF OBLIGATIONS. Upon the occurrence of any Event of Default identified in Section 4.1 and the passage of any applicable cure or grace period, the Lender may at any time thereafter declare the unpaid principal balance of any obligations, together with the interest accrued thereon and other amounts accrued hereunder and under the other Loan Documents (collectively, the "OBLIGATIONS"), to be immediately due and payable; and the unpaid balance shall thereupon be due and payable, all without presentation, demand, protest or further notice of any kind, all of which are hereby waived, and notwithstanding anything to the contrary contained herein or in any of the other Loan Documents. 4.3 OTHER REMEDIES. Nothing in this Article IV is intended to restrict the Lender's rights under any of the Loan Documents or at law, and the Lender may exercise all such rights and remedies as and when they are available. ARTICLE V. MISCELLANEOUS 5.1 DELAY; CUMULATIVE REMEDIES. No delay on the part of the Lender in exercising any right, power or privilege hereunder or under any of the other Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein specified are cumulative and are not exclusive of any rights or remedies which the Lender would otherwise have. 5.2 RELATIONSHIP TO OTHER DOCUMENTS. The warranties, covenants and other obligations of the Borrower (and the rights and remedies of the Lender) that are outlined in this Agreement and the other Loan Documents are intended to supplement each other. In the event of any inconsistencies in any of the terms in the Loan Documents, all terms shall be cumulative so as to give the Lender the most favorable rights set forth in the conflicting documents, except that if there is a direct conflict between any preprinted terms and specifically negotiated terms (whether included in an addendum or otherwise), the specifically negotiated terms will control. 5 6 5.3 SUCCESSORS. The rights, options, powers and remedies granted in this Agreement and the other Loan Documents shall extend to the Lender and to its successors and assigns, shall be binding upon the Borrower and its successors and assigns and shall be applicable hereto and to all renewals and/or extensions hereof; provided, however, that notwithstanding the foregoing, the Borrower shall not be entitled to assign any of its rights or obligations under this Agreement or any other document or instrument related hereto without the prior written consent of the Lender. 5.4 NOTICES. Although any notice required to be given hereunder or under any of the other Loan Documents might be accomplished by other means, notice will always be deemed given when placed in the United States Mail, with postage prepaid, or sent by overnight delivery service, or sent by telex or facsimile, in each case to the address and/or facsimile number set forth below or as amended. 5.5 APPLICABLE LAW AND JURISDICTION; INTERPRETATION. This Agreement and all other Loan Documents shall be governed by and interpreted in accordance with the laws of the State of Ohio except to the extent superseded by Federal law. Invalidity of any provision of this Agreement shall not affect the validity of any other provision. THE BORROWER HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT SITUATED IN HAMILTON COUNTY, OHIO AND WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, WITH REGARD TO ANY ACTIONS, CLAIMS, DISPUTES OR PROCEEDINGS RELATING TO THIS AGREEMENT, THE NOTE, THE COLLATERAL, ANY OTHER LOAN DOCUMENT, OR ANY TRANSACTIONS ARISING THEREFROM, OR ENFORCEMENT AND/OR INTERPRETATION OF ANY OF THE FOREGOING. Nothing herein shall affect the Lender's rights to serve process in any manner permitted by law, or limit the Lender's right to bring proceedings against the Borrower in the competent courts of any other jurisdiction or jurisdictions. 5.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall constitute an original but together shall constitute one and the same instrument. (The remainder of this page has been intentionally left blank.) 6 7 IN WITNESS WHEREOF, the undersigned have executed this LOAN AGREEMENT as of August 24, 1999. BORROWER: CAFE ODYSSEY, INC., a Minnesota corporation By: s/ Stephen D. King ---------------------------------------- Name and Title: C.E.O. ---------------------------- LENDER: FAIRVIEW PARTNERS, an Ohio General Partnership By: s/ Timothy E. Johnson ---------------------------------------- Name and Title: Timothy E. Johnson, Agent ---------------------------- Borrower Address: 4801 West 81st Street Suite 112 Bloomington, MN 55437 Borrower Telephone No.: (612) 837-9917 Borrower Facsimile No.: (612) 837-9916 Lender Address: 5807 McCray Court Cincinnati, OH 45224 Lender Telephone No.: 513 661 3100 ------------ Lender Facsimile No.: 513 661 3160 ------------ 8 EXHIBIT A (FORM OF WARRANT) 8 9 EXHIBIT B (ATTACH FORM OF DEED OF TRUST) 9 10 EXHIBIT C (FORM OF SUPPORT AGREEMENT) 10 EX-10.5 8 SENIOR CONVERTIBLE NOTE 1 EXHIBIT 10.5 NEITHER THIS SENIOR CONVERTIBLE NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION (TOGETHER, THE "SECURITIES LAWS") AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED OR ENCUMBERED IN THE ABSENCE OF COMPLIANCE WITH SUCH SECURITIES LAWS AND UNTIL THE ISSUER THEREOF SHALL HAVE RECEIVED AN OPINION FROM COUNSEL ACCEPTABLE TO IT THAT THE PROPOSED DISPOSITION WILL NOT VIOLATE ANY APPLICABLE SECURITIES LAWS. SENIOR CONVERTIBLE NOTE $2,000,000 August 24, 1999 FOR VALUE RECEIVED, Cafe Odyssey, Inc., a Minnesota corporation (the "Company"), promises to pay to the order of Fairview Partners, an Ohio general partnership ("Holder"), in lawful money of the United States of America, the principal sum of TWO MILLION DOLLARS ($2,000,000), together with interest in arrears on the unpaid principal balance at a per annum floating rate equal to the Floating Rate of Interest (as hereinafter defined), as the same may be adjusted from time to time. This Note has been executed and delivered pursuant to and in accordance with the terms and conditions of the Loan Agreement of even date herewith by and between the Company and the Holder (the "Agreement"), and is subject to the terms and conditions of the Agreement, which is, by this reference, incorporated herein and made a part hereof. Capitalized terms used in this Note without definition shall have the respective meanings set forth in the Agreement. 1. INTEREST. The principal balance of this Note shall initially accrue interest at the "Prime Rate" (as such term is hereinafter defined), plus two percent (2%) (the "Floating Rate of Interest") and shall be adjusted on the same day that the Prime Rate of Interest shall change. As used herein, the term "Prime Rate" shall mean at any time any determination thereof is to be made, the fluctuating per annum rate of interest then most recently reported in the Wall Street Journal as the Prime Rate (the base rate on corporate loans at the thirty (30) largest U.S. money center commercial banks) and if reported as a range, the interest rate shall be the mid-point of the range. In the event that the Wall Street Journal ceases to report the Prime Rate, then "Prime Rate" shall mean the fluctuating interest rate per annum announced from time to time by U.S. Bank National Association, Minneapolis, Minnesota, as its prime or base rate (or, if otherwise denominated, such Bank's reference rate for interest rate calculations on general commercial loans for short-term borrowings). Notwithstanding the foregoing, the Company, at its option, may reduce the Floating Rate of Interest by issuing additional Warrants for the issuance of common stock of the Company in a form similar to the Warrants issued pursuant to Section 2.9 of the Agreement. For every twenty thousand (20,000) additional Warrants issued by the Company to the Holder, the Company shall be entitled to a one percent (1.0%) reduction in the Floating Rate of Interest, provided, further, however, that in no event 2 will the Floating Rate of Interest be reduced below the lowest Applicable Federal Rate published by the United States Internal Revenue Service. If at any time the Company issues warrants in less than twenty thousand (20,000) increments, it shall be entitled to a pro rata reduction in the Floating Rate of Interest for such partial increment. Upon the occurrence and during the continuance of an Event of Default, the Floating Rate of Interest shall be increased to be equal to eighteen percent (18%) per annum and upon curing any existing Event of Default, the Floating Rate of Interest shall automatically be reduced to the rate otherwise required under this Note. 2. PAYMENTS. 2.1 PRINCIPAL AND INTEREST. The principal amount of this Note shall be due and payable on August 24, 2000 (the "Maturity Date"). Interest on the unpaid principal balance of this Note shall be due and payable quarterly on the fifteenth (15th) day of November, February, May and August of each year, commencing November 15, 1999 until said principal amount of the Note is paid in full or upon conversion of the Note in accordance with Section 5 hereof. 2.2 MANNER OF PAYMENT. All payments of principal and interest on this Note shall be made by check at 5807 McCrary Court, Cincinnati, Ohio, or at such other place in the United States of America as Holder shall designate to the Company in writing. If any payment of principal or interest on this Note is due on a day which is not a Business Day, such payment shall be due on the next succeeding Business Day, and such extension of time shall not be taken into account in calculating the amount of interest payable under this Note. "Business Day" means any day other than a Saturday, Sunday or legal holiday in the State of Ohio. 2.3 PREPAYMENT. The Company may, without premium or penalty, at any time and from time to time, prepay all or any portion of the outstanding principal balance due under this Note, provided that each such prepayment is accompanied by the accrued interest on the amount of principal prepaid calculated to the date of such prepayment. 3. DEFAULT. 3.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following events with respect to Company shall constitute an event of default hereunder ("Event of Default"): (a) If Company shall fail to pay when due any payment of principal or interest on this Note within five (5) days after the date on which such payment is due. (b) If, pursuant to or within the meaning of the United States Bankruptcy Code or any other federal or state law relating to insolvency or relief of debtors (a "Bankruptcy Law"), the Company shall (i) commence a voluntary case or proceeding; (ii) consent to the entry of an order for relief against it in an involuntary case; (iii) consent to the appointment of a trustee, receiver, assignee, liquidator or similar official; (iv) make an assignment for the 2 3 benefit of its creditors; or (v) admit in writing its inability to pay its debts as they become due. (c) If a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (i) is for relief against the Company in an involuntary case, (ii) appoints a trustee, receiver, assignee, liquidator or similar official for the Company or substantially all of the Company's properties, or (iii) orders the liquidation of the Company, and in each case the order or decree is not dismissed within 90 days. (d) The occurrence of an "Event of Default" as such term is defined in the Agreement. 3.2 NOTICE BY THE COMPANY. The Company shall notify Holder in writing immediately after the occurrence of any Event of Default of which the Company acquires knowledge. 3.3 REMEDIES. Upon the occurrence of an Event of Default hereunder (unless all Events of Defaults have been cured or waived by Holder), Holder may (i) by written notice to the Company, declare the entire unpaid principal balance of this Note, together with all accrued interest thereon, immediately due and payable regardless of any prior forbearance, and (ii) exercise any and all rights and remedies available to it under applicable law or by agreement, including, without limitation, the right to collect from the Company all sums due under this Note and to exercise any rights or remedies available under the Agreement and/or the Deed of Trust. The Company shall pay all reasonable costs and expenses incurred by or on behalf of Holder in connection with Holder's exercise of any or all of its rights and remedies under this Note, including, without limitation, reasonable attorneys' fees. 4. CONVERSION. 4.1 VOLUNTARY CONVERSION. At any time on or after the Maturity Date, but not later than sixty (60) days thereafter, the Holder shall have the right, at the Holder's option, at any time prior to payment in full of the principal balance of this Note, to convert this Note, in accordance with the provisions of Section 4.2 hereof, in whole or in part, into fully paid and nonassessable shares of Common Stock of the Company (the "Common Stock"). The number of shares of Common Stock into which this Note may be converted ("Conversion Shares") shall be determined by dividing the outstanding principal amount of the Note to be converted together with all accrued interest thereon to the date of conversion by $2.50 (the "Conversion Price"). 4.2 CONVERSION PROCEDURE. (a) NOTICE OF CONVERSION PURSUANT TO SECTION 4.1. Before the Holder shall be entitled to convert this Note into shares of Common Stock, it shall surrender this Note at the office of the Company and shall give written notice by mail, postage prepaid, to the Company at its principal corporate office, of the election to convert all or a portion of this 3 4 Note pursuant to Section 4.1, and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. If this Note is converted in part only, the Company shall execute and deliver a new note to the Holder thereof in the principal amount equal to the portion of this Note not so converted. (b) MECHANICS AND EFFECT OF CONVERSION. No fractional shares of Common Stock shall be issued upon conversion of this Note. Upon the conversion of this Note pursuant to Section 4.1 above, the Holder shall surrender this Note, duly endorsed, at the principal office of the Company. At its expense, the Company shall, as soon as practicable thereafter, issue and deliver to such Holder at such principal office a certificate or certificates for the number of shares of Common Stock to which the Holder shall be entitled upon such conversion (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company), together with a new note for the principal amount of the Note that was not converted. In the event of any conversion of this Note pursuant to Section 4.1 above, such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of this Note, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. Upon conversion of all or a portion of this Note, the Company shall be forever released from all its obligations and liabilities under this Note, to the extent of the principal amount so converted. 4.3 ADDITIONAL CONDITIONS TO CONVERSION. As a condition of the issuance of shares of Common Stock to the Holder of this Note upon conversion, the Company may require that the Holder make standard and customary investment representations with respect to the Common Stock in form and substance reasonably acceptable to the Company and further may require that any certificate for shares of Common Stock bear a legend similar in form and content to the legend specified in the Warrants. 5. CONVERSION PRICE ADJUSTMENTS. 5.1 ADJUSTMENTS FOR STOCK SPLITS AND SUBDIVISIONS. In the event the Company should at any time or from time to time after the date of issuance hereof fix a record date for the effectuation of: (i) any dividends on any class of stock of the Company payable in Common Stock or securities convertible into or exercisable for Common Stock ("Common Stock Equivalents") shall be paid by the Company, (ii) the Company shall subdivide its then outstanding shares of Common Stock into a greater number of shares, (iii) the Company shall combine its outstanding shares of Common Stock, by reclassification or otherwise, (iv) any capital reorganization of the Common Stock of the Company (other than the issuance of any shares of Common Stock in subdivision of outstanding shares of Common Stock by reclassification or otherwise and other than a combination of shares provided for in subparagraph (i) above; (v) any consolidation or mergers of the Company with another corporation, or any sale, conveyance, lease or other transfer by the Company of all or substantially all of its property to any other corporation, which is effected in such a manner that the 4 5 holders of Common Stock shall be entitled to receive cash, stock, securities or assets with respect to or in exchange for Common Stock, or (vi) any dividend or other distribution upon any class of stock of the Company payable in stock of the Company of a different class, other securities of the Company or other property of the Company (other than cash), then, as of such record date (or the date of such distribution, split or subdivision if no record date is fixed), the Conversion Price in effect immediately prior to such event shall (until adjusted again pursuant hereto) be adjusted immediately after such event to a price (calculated to the nearest full cent) determined by dividing (a) the number of shares of Common Stock outstanding immediately prior to such event, multiplied by the then existing Conversion Price, by (b) the total number of shares of Common Stock outstanding immediately after such event, and the resulting quotient shall be the adjusted Conversion Price per share. No adjustment of the Conversion Price shall be made if the amount of such adjustment shall be less than $.05 per share, but in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to not less than $.05 per share. 5.2 ADJUSTMENTS FOR REVERSE STOCK SPLITS. If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price in effect immediately prior to such event shall (until adjusted again pursuant hereto) be adjusted immediately after such event to a price (calculated to the nearest full cent) determined by dividing (a) the number of shares of Common Stock outstanding immediately prior to such event, multiplied by the then existing Conversion Price, by (b) the total number of shares of Common Stock outstanding immediately after such event, and the resulting quotient shall be the adjusted Conversion Price per share. No adjustment of the Conversion Price shall be made if the amount of such adjustment shall be less than $.05 per share, but in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to not less than $.05 per share. 5.3 NOTICES OF RECORD DATE. ETC. In the event of: (a) Any taking by the Company of a record of the holders of any class of securities of the Company for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend payable out of earned surplus at the same rate as that or of the last such cash dividend theretofore paid) or other distribution or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right; or (b) Any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all of the assets of the Company to any other person or any consolidation or merger involving the Company; or 5 6 (c) Any voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company will mail to the Holder at least twenty (20) days prior to the earliest date specified therein, a notice specifying: (i) The date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right, and the amount and character of such dividend, distribution or right; and (ii) The date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective and the record date for determining stockholders entitled to vote thereon and a description thereof. 5.4 RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common solely for the purpose of effecting the conversion of this Note such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of this Note; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the entire outstanding principal amount of this Note, in addition to such other remedies as shall be available to the holder of this Note, the Company will use its best efforts to take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares to such number of shares as shall be sufficient for such purposes. 6. MISCELLANEOUS. 6.1 WAIVER. Company hereby waives presentment, demand, protest and notice of dishonor and protest. 6.2 NOTICES. Any notice required or permitted to be given hereunder shall be given by the Company to the Holder or the Holder to the Company in accordance with the Agreement. 6.3 SEVERABILITY. If any provision in this Note is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Note will remain in full force and effect. Any provision of this Note held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 6.4 GOVERNING LAW. This Note will be governed by the laws of the State of Ohio without regard to conflicts of laws principles. 6 7 6.5 PARTIES IN INTEREST. This Note shall bind the Company and its successors and assigns. 6.6 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this Note are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Note unless otherwise specified. All words used in this Note will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the words "hereof" and "hereunder" and similar references refer to this Note in its entirety and not to any specific section or subsection hereof. [The remainder of this page has been intentionally left blank] 7 8 IN WITNESS WHEREOF, the Company has executed and delivered this Note as of the date first stated above. CAFE ODYSSEY, INC. By: --------------------------------------- Name and Title: ----------------------------- 8 9 NOTICE OF CONVERSION (To Be Signed Only Upon Conversion of Note) TO CAFE ODYSSEY, INC. The undersigned, the holder of the $2,000,000 Senior Convertible Note of Cafe Odyssey, Inc. dated August 24, 1999, hereby surrenders such Note for conversion into shares of Common Stock of CAFE ODYSSEY, INC., to the extent of $ of the unpaid principal amount of such Note, and requests that the certificates for such shares be issued in the name of, and delivered to, whose address is . Dated: ---------------------------------- FAIRVIEW PARTNERS, an Ohio General Partnership By: -------------------------------------- Name and Title: ------------------------- --------------------------------------- (Address) 9 EX-10.6 9 WARRANT 1 EXHIBIT 10.6 The Warrant and the securities issuable upon exercise of this Warrant (the "Securities") have not been registered under the Securities Act of 1933 (the "Securities Act") or under any state securities or Blue Sky laws ("Blue Sky Laws"). No transfer, sale, assignment, pledge, hypothecation or other disposition of this Warrant or the Securities or any interest therein may be made except (a) pursuant to an effective registration statement under the Securities Act and any applicable Blue Sky Laws or (b) if the Company has been furnished with both an opinion of counsel for the holder, which opinion and counsel shall be reasonably satisfactory to the Company, to the effect that no registration is required because of the availability of an exemption from registration under the Securities Act and applicable Blue Sky Laws, and assurances that the transfer, sale, assignment, pledge, hypothecation or other disposition will be made only in compliance with the conditions of any such registration or exemption. WARRANT TO PURCHASE SHARES OF COMMON STOCK OF CAFE ODYSSEY, INC. WARRANT NO. FP-1 Bloomington, Minnesota August 24, 1999 This certifies that, for value received, FAIRVIEW PARTNERS, or its successors or assigns (the "Holder") is entitled to purchase from Cafe Odyssey, Inc. (the "Company") Five Hundred Thousand (500,000) fully paid and nonassessable shares (the "Shares") of the Company's Common Stock, $.01 par value (the "Common Stock") at an exercise price of $2.50 per share (the "Exercise Price"), subject to adjustment as herein provided. This Warrant may be exercised by Holder at any time after the date hereof; provided that, Holder shall in no event have the right to exercise this Warrant or any portion thereof later than August 24, 2004. This Warrant is subject to the following provisions, terms and conditions: 1. Exercise of Warrant. The rights represented by this Warrant may be exercised by the Holder, in whole or in part (but not as to a fractional share of Common Stock), by the surrender of this Warrant (properly endorsed, if required, at the Company's principal office in Bloomington, Minnesota, or such other office or agency of the Company as the Company may designate by notice in writing to the Holder at the address of such Holder appearing on the books of the Company at any time within the period above named), and upon payment to it by certified check, bank draft or cash of the purchase price for such Shares. The Company agrees that the Shares so purchased shall have and are deemed to bez issued to the Holder as the record owner of such Shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such Shares as aforesaid. Certificates for the Shares of Common Stock so purchased shall be delivered to the Holder within a reasonable time, not exceeding ten (10) days, after the rights represented by this Warrant shall have been so exercised, and, unless this Warrant has expired, a new Warrant representing the number of Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be delivered to the Holder within such time. The Company may require that any such new Warrant or any certificate for Shares purchased upon the exercise hereof bear a legend substantially similar to that which is contained on the face of this Warrant. 2. Transferability of this Warrant. This Warrant is issued upon the following terms, to which Holder consents and agrees: 2 a. Until this Warrant is transferred on the books of the Company, the Company will treat the Holder of this Warrant registered as such on the books of the Company as the absolute owner hereof for all purposes without being affected by any notice to the contrary. b. This Warrant may not be exercised, and this Warrant and the Shares underlying this Warrant shall not be transferable, except in compliance with all applicable state and federal securities laws, regulations and orders, and with all other applicable laws, regulations and orders. c. The Warrant may not be transferred, and the Shares underlying this Warrant may not be transferred, without the Holder obtaining an opinion of counsel satisfactory in form and substance to the Company's counsel stating that the proposed transaction will not result in a prohibited transaction under the Securities Act of 1933, as amended ("Securities Act"), and applicable Blue Sky laws. By accepting this Warrant, the Holder agrees to act in accordance with any conditions reasonably imposed on such transfer by such opinion of counsel. d. Neither this issuance of this Warrant nor the issuance of the Shares underlying this Warrant have been registered under the Securities Act. 3. Certain Covenants of the Company. The Company covenants and agrees that all Shares which may be issued upon the exercise of the rights represented by this Warrant, upon issuance and full payment for the Shares so purchased, will be duly authorized and issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue hereof, except those that may be created by or imposed upon the Holder or its property, and without limiting the generality of the foregoing, the Company covenants and agrees that it will from time to time take all such actions as may be requisite to assure that the par value per share of the Common Stock is at all times equal to or less than the effective purchase price per share of the Common Stock issuable pursuant to this Warrant. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved free of preemptive or other rights for the exclusive purpose of issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. 4. Adjustment of Exercise Price and Number of Shares. The Exercise Price and number of Shares are subject to the following adjustments: a. Adjustment of Exercise Price for Stock Dividend, Stock Split or Stock Combination. In the event that (i) any dividends on any class of stock of the Company payable in Common Stock or securities convertible into or exercisable for Common Stock ("Common Stock Equivalents") shall be paid by the Company, (ii) the Company shall subdivide its then outstanding shares of Common Stock into a greater number of shares, or (iii) the Company shall combine its outstanding shares of Common Stock, by reclassification or otherwise, then, in any such event, the Exercise Price in effect immediately prior to such event shall (until adjusted again pursuant hereto) be adjusted immediately after such event to a price (calculated to the nearest full cent) determined by dividing (a) the number of shares of Common Stock outstanding immediately prior to such event, multiplied by the then existing Exercise Price, by (b) the total number of shares of Common Stock outstanding immediately after such event, and the resulting quotient shall be the adjusted Exercise Price per share. No adjustment of the Exercise Price 2 3 shall be made if the amount of such adjustment shall be less than $.05 per share, but in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to not less than $.05 per share. b. Adjustment of Number of Shares Purchasable on Exercise of Warrants. Upon each adjustment of the Exercise Price pursuant to this Section, the Holder shall thereafter (until another such adjustment) be entitled to purchase at the adjusted Exercise Price the number of shares, calculated to the nearest full share, obtained by multiplying the number of shares specified in such Warrant (as adjusted as a result of all adjustments in the Exercise Price in effect prior to such adjustment) by the Exercise Price in effect prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. c. Notice as to Adjustment. Upon any adjustment of the Exercise Price and any increase or decrease in the number of shares of Common Stock purchasable upon the exercise of the Warrant, then, and in each such case, the Company within thirty (30) days thereafter shall give written notice thereof, by first class mail, postage prepaid, addressed to each Holder as shown on the books of the Company, which notice shall state the adjusted Exercise Price and the increased or decreased number of shares purchasable upon the exercise of the Warrants, and shall set forth in reasonable detail the method of calculation and the facts upon which such calculation is based. d. Effect of Reorganization, Reclassification, Merger, etc. If at any time while this Warrant is outstanding there should be (i) any capital reorganization of the capital stock of the Company (other than the issuance of any shares of Common Stock in subdivision of outstanding shares of Common Stock by reclassification or otherwise and other than a combination of shares provided for in Section 4(a) hereof), (ii) any consolidation or merger of the Company with another corporation, or any sale, conveyance, lease or other transfer by the Company of all or substantially all of its property to any other corporation, which is effected in such a manner that the holders of Common Stock shall be entitled to receive cash, stock, securities, or assets with respect to or in exchange for Common Stock, or (iii) any dividend or any other distribution upon any class of stock of the Company payable in stock of the Company of a different class, other securities of the Company, or other property of the Company (other than cash), then, as a part of such transaction, lawful provision shall be made so that Holder shall have the right thereafter to receive, upon the exercise hereof, the number of shares of stock or other securities or property of the Company, or of the successor corporation resulting from such consolidation or merger, or of the corporation to which the property of the Company has been sold, conveyed, leased or otherwise transferred, as the case may be, which the Holder would have been entitled to receive upon such capital reorganization, reclassification of capital stock, consolidation, merger, sale, conveyance, lease or other transfer, if this Warrant had been exercised immediately prior to such capital reorganization, reclassification of capital stock, consolidation, merger, sale, conveyance, lease or other transfer. In any such case, appropriate adjustments (as determined by the Board of Directors of the Company) shall be made in the application of the provisions set forth in this Warrant (including the adjustment of the Exercise Price and the number of Shares issuable upon the exercise of the Warrant) to the end that the provisions set forth herein shall thereafter be applicable, as near as reasonably may be, in relation to any shares or other property thereafter deliverable upon the exercise of the Warrant as if the Warrant had been exercised immediately 3 4 prior to such capital reorganization, reclassification of capital stock, such consolidation, merger, sale, conveyance, lease or other transfer and the Holder had carried out the terms of the exchange as provided for by such capital reorganization, consolidation or merger. The Company shall not effect any such capital reorganization, consolidation, merger or transfer unless, upon or prior to the consummation thereof, the successor corporation or the corporation to which the property of the Company has been sold, conveyed, leased or otherwise transferred shall assume by written instrument the obligation to deliver to the Holder such shares of stock, securities, cash or property as in accordance with the foregoing provisions such Holder shall be entitled to purchase. 5. No Rights as Stockholders. This Warrant shall not entitle the Holder as such to any voting rights or other rights as a stockholder of the Company. 6. Registration Rights. a. Piggyback Registration Rights. Provided that the Shares are not then included in a current registration statement of the Company, if the Company, at any time before the fifth anniversary of the issuance of this Warrant, shall file a registration statement with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as amended, for the purpose of registering shares of Common Stock for sale to the public, the Company shall give to the Holder at least twenty (20) days advance written notice of its intention to file such registration statement and Holder shall have the right to have included in such registration statement such number of the Shares as it shall designate to the Company within ten (10) days after the date of such notice, provided that the number of Shares to be included in such registration statement, when added to all the other shares to be included therein, does not exceed the number of shares which the Company and its underwriters, if any, reasonably fix for inclusion. If the number of Shares to be included in such registration statement is less than the total number of Shares which the Holder has requested to be included, then the Holder and other holders of shares of Common Stock or other securities of the Company entitled to include shares of Common Stock in such registration shall participate in the underwriting pro rata based upon the total number of shares of Common Stock requested to be registered by all of such holders. The Holder shall furnish the Company with such information as may be required in connection with such registration statement and will cooperate to cause such registration to become effective at the earliest practicable time. If the shares to which such registration relates are to be sold in an underwritten offering, the Holder, as a condition to the inclusion of the shares in the registration statement, shall agree that its Shares will be sold only as a part of such underwritten offering and at the price and upon the terms fixed by the Company and its underwriters, subject to the right of the Holder to withdraw the Shares therefrom. b. Demand Registration Rights. On a one-time basis only, during the three year period commencing two years after the date of this Warrant, upon request by the Holder or Holders of a majority in interest of this Warrant, and of any Shares, the Company will promptly take all necessary steps to register or qualify, under the 1933 Act and the securities laws of such states as the holders may reasonably request, such number of Shares issued and to be issued upon conversion of the Warrants and shares of common stock of the Company 4 5 owned at such time by such holders pursuant to the conversion of that certain $2,000,000 Senior Convertible Note issued as of the date of this Warrant requested by such holders in their request to the Company. The Company shall keep effective and maintain any registration, qualification, notification, or approval specified in this section for such period as may be reasonably necessary for such Holder or Holders of this Warrant and/or such Shares to dispose thereof and from time to time shall amend or supplement the prospectus used in connection therewith to the extent necessary in order to comply with applicable law. 7. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of Minnesota. 8. Amendments and Waivers. The provisions of this Warrant may not be amended, modified or supplemented, and waiver or consents to departures from the provisions hereof may not be given, unless the Company agrees in writing and has obtained the written consent of the Holder. 9. Notices. All notices or communications hereunder, except as herein otherwise specifically provided, shall be in writing and if sent to the Holder shall be mailed, delivered, or telefaxed and confirmed to the Holder at his or her address set forth on the records of the Company; or if sent to the Company shall be mailed, delivered, or telefaxed and confirmed to Cafe Odyssey, Inc., 4801 West 81st Street, Suite 112, Bloomington, MN 55437 or to such other address as the Company or the Holder shall notify the other as provided in this Section. [The remainder of this page has been intentionally left blank.] 5 6 IN WITNESS WHEREOF, Cafe Odyssey, Inc. has caused this Warrant to be signed by its duly authorized officer in the date set forth above. CAFE ODYSSEY, INC. By ---------------------------------- Its --------------------------------- 6 7 SUBSCRIPTION FORM To be signed only upon exercise of Warrant. The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, of the shares of Common Stock of Cafe Odyssey, Inc. (the "Shares") to which such Warrant relates and herewith makes payment of $ therefor in cash, certified check or bank draft and requests that a certificate evidencing the Shares be delivered to, , the address for whom is set forth below the signature of the undersigned: Dated: ---------------------- --------------------------------------- (Signature) --------------------------------------- --------------------------------------- (Address) X X X ASSIGNMENT FORM To be signed only upon authorized transfer of Warrant. FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto the right to purchase shares of Common Stock of Cafe Odyssey, Inc. to which the within Warrant relates and appoints attorney, to transfer said right on the books of with full power of substitution in the premises. Dated: ---------------------- --------------------------------------- (Signature) --------------------------------------- --------------------------------------- (Address) 7 EX-10.7 10 SUPPORT AGREEMENT 1 EXHIBIT 10.7 SUPPORT AGREEMENT This SUPPORT AGREEMENT ("Agreement") is made as of the 24th day of August, 1999, among Stephen D. King (hereinafter referred to as the "undersigned"), Cafe Odyssey, Inc., a Minnesota corporation, ("Borrower"), and Fairview Partners, an Ohio general partnership ("Fairview"). WITNESSETH: WHEREAS, Fairview and Borrower have entered into that certain Loan Agreement ("Loan Agreement") of even date herewith, pursuant to which Fairview has extended a $2,000,000 loan (the "Loan") to or for the benefit of Borrower; capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Loan Agreement; and WHEREAS, the undersigned is a material shareholder of the Borrower and is the duly elected, qualified and acting Chief Executive Officer of Borrower and is fully familiar with all of the Borrower's business and financial affairs; NOW, THEREFORE, to induce Fairview to make the Loan to or for the account of Borrower under the Loan Agreement or any other Loan Document and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned, the Borrower and Fairview agree as follows: 1. The undersigned agrees that in the event (i) of the occurrence of an Event of Default under the Loan Agreement or any other Loan Document, and (ii) Fairview has given notice of an acceleration of all of the Obligations under and as defined in the Loan Agreement, the undersigned will, at Fairview's option and upon Fairview's written request, and until this Agreement shall have terminated as provided herein, for a period not to exceed twelve (12) months after receiving such written request, use the undersigned's best efforts (excluding the payment of money) to assist Fairview in obtaining possession, ownership, management and control of the FF&E and the Leased Premises (as such terms are defined in the Deed of Trust). Notwithstanding the foregoing, the undersigned shall not be required to take any action or engage in any activity that would breach or violate the undersigned's fiduciary obligations to the Borrower or that would otherwise be in violation of any applicable laws. 2. Fairview shall have the right to terminate the undersigned's engagement or other assistance described in Paragraph 1 above at any time on three (3) business days' notice, for any cause or without cause. The undersigned's obligations under Paragraph 1 of this Agreement shall further terminate upon (i) the Borrower's payment of all then outstanding Obligations; (ii) the death of the undersigned; or (iii) the mental or physical incapacity of the undersigned as reasonably substantiated by a doctor acceptable to Fairview. 3. Fairview agrees to reimburse all reasonable costs and expenses incurred by the undersigned in the performance of his obligations under this Agreement. 4. In connection with such engagement, the undersigned shall not have any authority to bind Fairview, except such specific authority as Fairview may grant in writing. 5. In the event of the death, mental or physical incapacity of the undersigned, Borrower shall be responsible for immediately obtaining a replacement for such person and Borrower shall use its best efforts to cause such replacement to execute a support agreement substantially in the form of this Agreement. 6. This agreement shall be governed by and construed in accordance with Minnesota substantive and procedural law and shall remain in full force and effect so long as the obligations under the Loan Agreement are outstanding or until otherwise agreed by an amendment hereto signed by Fairview and the undersigned. -1- 2 7. The provisions of this Agreement are declared to be severable. If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement. [The remainder of this page has been intentionally left blank.] -2- 3 STEPHEN D. KING --------------------------- Print Name of Undersigned s/ Stephen D. King --------------------------- Signature Borrower: CAFE ODYSSEY, INC. BY: s/ Stephen D. King ------------------------ Its: C.E.O. -------------------- Accepted: FAIRVIEW PARTNERS By s/ T.E. Johnson --------------------------- Its Agent ------------------------ -3- EX-10.8 11 FIRST DEED OF TRUST 1 EXHIBIT 10.8 FIRST DEED OF TRUST, SECURITY AGREEMENT AND FIXTURE FINANCING STATEMENT THIS INDENTURE is made and entered into this 24th day of August, 1999, between CAFE ODYSSEY, INC., a Minnesota corporation ("Grantor"), whose address is 4801 West 81st Street, Suite 112, Bloomington, Minnesota 55437, and the PUBLIC TRUSTEE OF DENVER COUNTY, COLORADO ("Trustee"). WITNESSETH: WHEREAS, FAIRVIEW PARTNERS, an Ohio general partnership ("Beneficiary") whose address is 5807 McCray Court, Cincinnati, OH 45224, has agreed to make a loan to the Grantor in the amount of $2,000,000.00 pursuant to the terms and subject to the conditions set forth in that certain loan agreement of even date herewith by and between the Beneficiary and the Grantor (the "Loan Agreement"); and WHEREAS, Grantor has executed that certain Senior Convertible Note ("Note") of even date herewith for the principal sum of Two Million Dollars ($2,000,000.00), payable to the order of the Beneficiary with interest thereon from the date hereof as provided in the Note and with the balance of principal and interest due and payable in full on August 24, 2000; and WHEREAS, Grantor is desirous of securing to Beneficiary, their successors and assigns, the payment of the principal and interest becoming due under the Note, together with any and all advances made, expenditures authorized, costs and attorneys' fees incurred, or any other additional sums as provided for herein or in the Note secured hereby or the Loan Agreement which are expended or incurred by Beneficiary (all of which shall collectively hereinafter sometimes be referred to as the "Secured Indebtedness"); and WHEREAS, Grantor owns and operates a Cafe Odyssey theme restaurant business at its leased premises (the "Leased Premises") situated in the retail center commonly known as Denver Entertainment & Fashion Pavilions located at 500 16th Street, Denver, Colorado, as more particularly described in that certain Shopping Center Lease executed by Denver Pavilions, L.P., as Landlord, and Grantor (f/k/a Hotel Discovery, Inc.) dated May 12, 1998 (the "Lease"), which Leased Premises constitutes a portion of the real property legally described on Exhibit A attached hereto (the "Shopping Center Property"); NOW, THEREFORE, Grantor, in consideration of the premises and for the purpose of securing payment of the Note and the other Secured Indebtedness, does hereby grant, bargain, sell, and convey unto Trustee, in trust forever, that property (collectively, the "Mortgaged Property"), whether now owned or hereafter acquired by Grantor, situated in the County of Denver, State of Colorado and more particularly described as follows: All furniture, fixtures, equipment, inventory and other articles of tangible personal property and intangible personal property (including, but not limited to all permits and the non-exclusive right to use the name "Cafe Odyssey," trademarks and service marks of Grantor, but expressly excluding any rights with respect to the Lease) of every kind and nature whatsoever, now or hereafter located in or upon or arising from the Leased Premises (or the Grantor's business operated thereon) or any part thereof and used or usable in 1 2 connection with any present or future operation of the Leased Premises and now owned or hereafter acquired by Grantor (collectively, the "FF&E"); and TOGETHER with all accounts receivable, income, profits and cash flow (collectively, the "Cash Flow"), of each and every kind, now or hereafter relating to or arising from the ownership and operation of the FF&E and the improvement situated thereon; and TOGETHER with all products and proceeds of the foregoing (including, without limitation, insurance proceeds) and all other or greater rights and interests of every nature in the foregoing property and Grantor's rights to the possession or use thereof and income therefrom, whether now owned or subsequently acquired by Grantor. ALL OF THE FOREGOING property is sometimes hereinafter collectively referred to as the "Mortgaged Property." Notwithstanding the foregoing, if the granting of the foregoing liens or any other interests to the Beneficiary under this Deed of Trust in and to any Cash Flow of the Grantor shall be prohibited by or otherwise constitute a violation of the Lease, then to the extent thereof, such Cash Flow which creates a violation of the Lease by inclusion in this Deed of Trust shall be deemed excluded therefrom and from the definition of "Mortgaged Property;" provided, however, that no third party other than the landlord under the Lease shall have the right to assert, enforce or benefit from this provision. The filing of this Indenture shall constitute a fixture filing in the office where it is filed and a carbon, photographic or other reproduction of this document may also be filed as a financing statement: Name and Address of Cafe Odyssey, Inc Debtor and Record 4801 West 81st Street Owner of Real Estate Suite 112 Bloomington, Minnesota 55437 Name and Address of Fairview Partners Secured Party: 5807 McCray Court Cincinnati, OH 45224 Description of the Types See above (or items) of property covered by this financing statement: Description of real estate See Exhibit A attached hereto to which all or a part of the collateral is attached or upon which it is located: 2 3 Name and Address of record owner Denver Pavilions L.P. of the above-referenced real estate: 511-16th Street Suite 210 Denver, CO 80202 Some of the above described collateral is or is to become fixtures upon or minerals and mineral rights located upon the real estate described above, and this financing statement is to be filed for record in the public real estate records. IN TRUST NEVERTHELESS, and time being of the essence hereof, that upon the occurrence of an Event of Default by Grantor as defined in the Loan Agreement, Beneficiary or the legal holder of the Note may file notice with Trustee declaring such default and their election and demand that the Mortgaged Property be advertised for sale and sold in accordance with the statutes of the State of Colorado; and thereupon, Trustee shall sell and dispose of the Mortgaged Property (en masse or in separate parcels, as Trustee deems best), and all the right, title, and interest of Grantor, its successors and assigns, in and to the Mortgaged Property, at public auction at the front door of the courthouse in the county of Colorado wherein the Mortgaged Property is situated, or on said premises as may be specified in the notice of such sale, for the highest and best price the same will bring in cash, after public notice having been previously given of the time and place of such sale in accordance with the statutes of the State of Colorado by advertisement weekly in some newspaper of general circulation at that time published in said county in Colorado wherein the Mortgaged Property is situated; copies of said notice shall be mailed in accordance with the statutes of the State of Colorado governing sales of real estate by Trustee, and Trustee shall make and give to the purchaser of the Mortgaged Property at said sale a Certificate of Purchase, describing such Mortgaged Property sold, the sum paid therefor, and the time when the purchaser or other persons entitled thereto) shall be entitled to a deed therefor, unless the same shall be redeemed as provided by law; and Trustee shall, upon demand by the party holding the said Certificate of Purchase, the time for redemption having expired, make, execute, and deliver to such party a deed to the Mortgaged Property purchased in accordance with the statutes of the State of Colorado; and Trustee shall, out of the proceeds of said sale, after first paying and retaining all fees, charges, and costs incident to such foreclosure sale, including, without limiting the generality of the foregoing, all attorneys' fees and court costs and charges of every character, pay to Beneficiary or the legal holder of the Note the principal, interest, and additional sums due on the Note, including, without limiting the generality of the foregoing, late charges, default interest charges, and fees due under the Note, according to the tenor and effect thereof, and all monies advanced by Beneficiary or the legal holder of the Note for insurance, taxes, assessments, repairs, maintenance, utilities, maintenance fees, mechanics' liens or any other liens on the Mortgaged Property of whatever nature, or for the payment of Grantor's debts, and any other Secured Indebtedness with interest thereof from the date of the default at an interest rate per annum equal to the default interest rate set forth in the Note, rendering the overplus, if any, first unto any subsequent lienors in accordance with the statutes of the State of Colorado, and then unto Grantor, which sale and deed so made shall be a perpetual bar, both in law and equity, against Grantor and all other persons claiming the Mortgaged Property, or any part thereof, by, from, through, or under Grantor, or any of them. It shall be specifically authorized herein that Beneficiary or the legal holder of the Note or their representatives may bid at the foreclosure sale held by Trustee or by Order of Court and any bid by Beneficiary or the legal holder of the Note may take into consideration anticipated taxes, assessments, insurance premiums, utilities, maintenance expense, management costs, repairs title expense, and the then going real estate agent's commission, all or any of which may be incurred during the period of redemption or in order to subsequently sell or otherwise dispose of the Mortgaged Property after the issuance of the 3 4 Public Trustee's deed, and such amounts shall not be deemed an overplus distributable to junior lienors or Grantor. This Deed of Trust shall secure, as a part of the Secured Indebtedness, without limiting the generality of the foregoing, any additional advances and any expenditures made by Beneficiary or the legal holder of the Note (as determined in their sole discretion) for all sums due under any lien prior to this Deed of Trust, which sums Beneficiary and/or the legal holder of the Note elect to pay in order to protect their security interest in the Mortgaged Property, together with any taxes, special assessments, insurance premiums, costs of completing the construction of any unfinished improvements, cost of storage of materials for incorporation into the improvements and purchased with funds disbursed under the Note, utility charges, delinquent payments fees, attorneys' fees, and any other expenditures made or charges incurred by Beneficiary and/or the legal holder of the Note, with interest thereon from the date of such expenditure at an interest rate per annum equal to the default interest rate set forth in the Note, all of which sums may be added to Beneficiary's or the legal holder of the Note's bid at any foreclosure sale held pursuant hereto. Grantor hereby assigns to Beneficiary and the legal holder of the note any right Grantor may have by reason of any prior encumbrance on the mortgaged property or by law or otherwise to cure any default under said prior encumbrance, provided, however, neither Beneficiary nor the legal holder shall have any obligation to do so, and further assigns to Beneficiary and the legal holder of the Note any right Grantor may have by reason of contract or by law or otherwise to make any or all of the payments described in this paragraph or which Beneficiary or the legal holder of the Note is permitted to make on behalf of Grantor by the terms of this Deed of Trust, provided, however, neither Beneficiary nor the legal holder shall have any obligation to do so. Further, it shall be lawful for the holder of the Certificate of Purchase covering the Mortgaged Property to make any of the foregoing expenditures, and upon filing receipts evidencing payment of the same with Trustee or the Sheriff or other person lawfully conducting said sale and issuing said Certificate of Purchase, such payments or expenditures shall thereupon become an additional claim or indebtedness in favor of the holder of such Certificate of Purchase and against the Mortgaged Property so sold. Before redemption can be made from such foreclosure sale, the party redeeming shall be required to pay, in addition to the amounts specified in said Certificate of Purchase, with interest thereon as provided herein, the further and additional amounts represented by the foregoing expenditures, together with interest thereon from the date of such expenditure at an interest rate per annum equal to the default interest rate set forth in the Note. In the event of default or foreclosure and if, in the opinion of Beneficiary or the legal holder of the Note, it is necessary to complete construction of any incomplete improvements or make repairs, alterations, or renovations to the Mortgaged Property in order to preserve, protect, or prevent waste, or change the manner of utilization or nature of occupancy, Beneficiary shall have the right, but not the obligation, to proceed as it deems advisable and Grantor does hereby appoint Beneficiary as its attorney-in-fact to do such things as are hereby provided, and this power of attorney is coupled with an interest in the Mortgaged Property and is irrevocable. AND, Grantor represents, warrants, and covenants to Beneficiary, their successors and assigns, that Grantor is now in a solvent condition; and no bankruptcy or insolvency proceedings are pending or contemplated by Grantor, or to Grantor's knowledge, threatened against Grantor. Grantor, for itself and for its heirs, successors, and assigns, covenants and agrees to and with the Trustee and Beneficiary that at the time of the ensealing and delivery of these presents, it is well seized in fee simple title to the Mortgaged Property and has good right, full power and lawful authority to grant, bargain, sell, convey, transfer, assign and mortgage the Mortgaged Property. Grantor further warrants that the Mortgaged Property is free and clear of all liens, security interest, encumbrances and other title matters, including, without limitation, mechanic' liens, materialmen's liens and liens for special assessments for work completed or under construction on the date hereof except for those matters set forth in Exhibit "B" attached hereto and incorporated herein by this 4 5 reference ("Permitted Exceptions"); and that Grantor will warrant and forever defend the title to the Mortgaged Property against the claims of all persons whomsoever claiming or to claim the same or any part thereof, subject to the Permitted Exceptions, and the Mortgaged Property in the quiet and peaceable possession of said Trustee, its successors and assigns, against all and every person or persons lawfully claiming or to claim the whole or any part thereof, the Grantor shall and will warrant and forever will defend. The foregoing warranty of title shall survive the foreclosure of this Deed of Trust and shall inure to the benefit of and be enforceable by any person who may acquire title to the Mortgaged Property pursuant to foreclosure. GRANTOR further represents, warrants and covenants to Trustee and Beneficiary, their successors and assigns, that Grantor is duly organized and validly existing and in good standing under the laws of the State of Minnesota with the power to own the Mortgaged Property and carry on its business as is now being conducted; that the Note, this Deed of Trust and all other documents or instruments securing payment of the Note constitute the legal, valid, and binding obligations of Grantor, and any other party thereto and are enforceable in accordance with their terms; that Grantor's execution and delivery of and performance under, the Note, this Deed of Trust, and all other documents or instruments securing payment of the Note have been duly authorized by all requisite action under Grantor's governing documents and are not in contravention of such documents, the law or any indenture agreement, or undertaking to which Grantor or any general partner of Grantor is a party or by which Grantor or any general partner of Grantor is bound. AND upon payment in full of the Secured Indebtedness, the Beneficiary shall cause the release of this Deed of Trust and all liens and security interests created hereunder. GENERAL COVENANTS THE GRANTOR FURTHER COVENANTS AND AGREES AS FOLLOWS: 1. Existence. Grantor will continuously maintain its existence as a Minnesota corporation as currently constituted. 2. Payment. Grantor will make prompt payment, as the same become due, of all installments of principal, interest, and other charges becoming due under the Note or this Deed of Trust. 3. Maintenance; Repairs. The Grantor shall keep and maintain the Mortgaged Property in materially good condition, repair and operating condition free from any waste or misuse, and will comply with all requirements of law, municipal ordinances and regulations, restrictions and covenants affecting the Mortgaged Property and its use, and will promptly repair or restore any building, improvements or structures now or hereafter located on the Premises which may become damaged or destroyed to their condition prior to any such damage or destruction. 4. Payment of Taxes and Prior Encumbrances. During the continuance of the Secured Indebtedness or any part thereof, the Grantor will pay or cause to be paid all taxes and assessments levied on the Mortgaged Property when due (including water and or water company stock assessments and periodic condominium or owner association dues or assessments, if any) and all amounts due or to become due on account of principal and interest on prior encumbrances, if any, and upon demand will furnish Beneficiary receipted bills evidencing such payment. 5 6 Nothing in this Section 4 shall require the payment or discharge of any obligations imposed upon the Grantor by this Section so long as the Grantor shall diligently and in good faith and at its own expense contest the same or the validity thereof by appropriate legal proceedings which shall operate to prevent the collection thereof or other realization thereon and the sale or forfeiture of the Mortgaged Property or any part thereof to satisfy the same; provided, however, that during such contest the Grantor shall, at the reasonable request of the Beneficiary, provide security satisfactory to the Beneficiary, assuring the discharge of the Grantor's obligation under this Section and of any additional charge, penalty or expense arising from or incurred as a result of such contest; and provided further, however, that if at any time payment of any obligation imposed upon the Grantor by this Section shall become necessary to prevent the delivery of a tax deed conveying the Land or any portion thereof because of nonpayment, then the Grantor shall pay the same in sufficient time to prevent the delivery of such tax deed. 5. Insurance. Grantor shall keep the Mortgaged Property insured, in such amounts and with such companies as Beneficiary shall approve in writing, against loss by fire, lightning, windstorm, tornado, flood, boiler explosion or malfunction, any other casualty, and public liability with loss of rents and such other causes as may be required by Beneficiary with loss payable to the Beneficiary hereunder as its interest may appear. Grantor will deliver to the Beneficiary the policy or policies of insurance, with a standard mortgage clause in favor of Beneficiary, as further security for the Secured Indebtedness. In the event of loss or damage, the proceeds of all such insurance may be applied to the payment of the Secured Indebtedness if an Event of Default has then occurred and is continuing or otherwise shall be applied to the repair, rebuilding, or replacement of the improvements damaged or destroyed. The said proceeds of such insurance, if to be applied to repair, rebuilding or replacement of improvements, shall be retained in the possession of the Beneficiary until the said repair, rebuilding or replacement, in the sole judgment of the Beneficiary, is complete. 6. Advances by Beneficiary for Taxes, Insurance or Prior Encumbrances. In the case of the refusal or neglect of the Grantor to thus insure and deliver the policies of insurance or to pay such taxes or assessments or amounts due or to become due on prior encumbrances, if any, the Beneficiary may procure said insurance or pay such taxes, assessments or amount due upon prior encumbrances, if any, and all monies thus paid, with interest thereon at 18% per annum, shall become so much additional indebtedness secured by this Deed of Trust, and shall be paid out of the proceeds of sale of the Property aforesaid if not otherwise paid by the Grantor. Such failure to so insure or to pay such amounts shall be a violation or breach of the covenants of this Deed of Trust. 7. Possession of the Property-Appointment of Receiver. In the case of any default or breach under the terms and covenants of the Secured Indebtedness or this Deed of Trust, the Beneficiary shall at once become entitled to the possession, use and enjoyment of the Mortgaged Property and to the issues and profits therefrom, from the date of the accruing of such right and continuing during the pendency of foreclosure proceedings including any period of redemption. Such possession shall at once be delivered to the Beneficiary or the holder of the Certificate of Purchase upon demand. Upon refusal, the delivery of such possession may be enforced by the Beneficiary or the holder of the Certificate of Purchase by an appropriate civil suit or proceeding. The Beneficiary or the holder of the Certificate of Purchase shall be entitled to appointment of a receiver for the Mortgaged Property to receive the rents, issues and profits therefrom from and after any such default, including the time covered by foreclosure proceedings and the period of redemption, as a matter of right without regard to the solvency or insolvency of the Grantor or of the then owner of said Property and without regard to the value of the Mortgaged Property. Such receiver may be appointed by any court of competent jurisdiction upon ex-parte application and without notice, notice being 6 7 hereby expressly waived. All profits, income and revenue from said Mortgaged Property shall be applied by such receiver to the payment first of the fees and costs of such receivership proceeding and then to the Secured Indebtedness. The balance remaining, if any, shall be disposed of in accordance with the orders and directions of the court. The fees of any such receiver, attorneys' fees incurred in appointment of the receiver and administration of the receivership estate and all costs, including court costs, shall be the liability of the Grantor, its successors and assigns, shall be due and payable upon demand and shall become so much additional indebtedness secured hereby. Failure to pay said fees and costs upon demand shall be in breach of the terms of this Deed of Trust. 8. Alienation or Encumbrance of the Mortgaged Property. In the event the Grantor shall sell, convey, alienate, encumber or dispose of the Mortgaged Property described in this Deed of Trust, any part thereof or any interest therein (including, but not limited to, outright conveyance; conveyance or alienation of any interest in the Mortgaged Property or any part thereof; and alienation of any interest in the Mortgaged Property by lease or rental agreement with option to purchase) the entire Secured Indebtedness, irrespective of the maturity dates expressed therein, shall, at the option of the Beneficiary and without delay or notice, immediately become due and payable; provided, however, that notwithstanding the foregoing, the Grantor may purchase additional FF&E for use with respect to the Leased Premises and grant purchase money liens thereon and may also sell and replace worn out and obsolete equipment in the ordinary course of business. If the Beneficiary does not accelerate the obligation, the Beneficiary, as a condition precedent to its waiver of its right to accelerate the obligation, (a) may require the party to whom the Mortgaged Property or any part thereof is alienated to assume this Deed of Trust and the Secured Indebtedness; (b) may charge a transfer fee (which shall be in addition to title insurance, abstracting, credit reports, surveys, attorneys' fees and other charges pertaining to the transfer or sale); and/or (c) may increase the interest rate on the Secured Indebtedness to a rate in excess of the rate set forth in the Note secured by this Deed of Trust. In the event the Grantor shall further encumber the Mortgaged Property described in this Deed of Trust by creation of a lien or encumbrance junior to the lien of this Deed of Trust without the prior written consent of the Beneficiary hereunder or otherwise then as permitted herein, the entire Secured Indebtedness secured by this Deed of Trust, irrespective of the maturity dates expressed therein, shall at the option of the Beneficiary and without delay or notice become immediately due and payable. Nothing in this paragraph shall, however, limit the ability of the Beneficiary hereunder to withhold consent to alienation of the Mortgaged Property as set forth in the paragraph immediately above. 9. Security Agreement; Financing Statement; Personalty. Grantor and Beneficiary agree that this deed of trust shall constitute a Security Agreement within the meaning of the Colorado Uniform Commercial Code (hereinafter in this paragraph referred to as the "Code") with respect to any Mortgaged Property constituting personal property affixed to, located upon, arising from or used in conjunction with the Leased Premises, which property may or may not be deemed to form a part of the above-described real property or may or may not constitute a "fixture" together with all replacements of such property, substitutions for such property, additions to such property, and the proceeds thereof, any claims resulting from damage to or destruction of any or all of such property, including without limitation, claims under policies of insurance relating thereto, and the proceeds of such claims (said property and the replacements, substitutions and additions thereto and the proceeds thereof being hereinafter collectively referred to as the "Collateral"). A security interest in and to the Collateral is hereby granted to the Beneficiary and all of Grantor's right, title and interest therein are hereby assigned to the Beneficiary, all to secure payment of the Secured Indebtedness and to secure performance of the terms, covenants and provisions hereof. In the event of a default under this deed of trust, Beneficiary, pursuant to Section 4-9-501(4), C.R.S., shall have the option 7 8 of proceeding with respect to the Mortgaged Property as to both real and personal property in accordance with its rights and remedies with respect to the Mortgaged Property, in which event the default provisions of the Code shall not apply. In such event, Beneficiary's bid at public trustee's or sheriff's sale shall be deemed to be a bid for both the real and personal property. The certificate of purchase, deed or certificate of redemption (whichever is or are appropriate) issued in such sale shall also constitute a bill of sale for the said personal property. Grantor shall not be entitled to redeem either the real or personal property separate one from the other. The parties agree that, in the event the Beneficiary shall elect to proceed with respect to the Collateral separately from the real property described herein, five (5) days' notice of the sale of the Collateral shall be reasonable notice. The reasonable expenses of retaking, holding, preparing for sale, selling and the like incurred by the Beneficiary shall include, but not be limited to, reasonable attorneys, fees and legal expenses incurred by Beneficiary. 10. Time of the Essence. Time is of the essence of this Deed of Trust and in the event the Grantor or the Grantor's successors or assigns fail to pay Beneficiary any and all sums due according to the terms of the Note and this Deed of Trust and fail to observe and perform any of the covenants and agreements contained in said Note or this Deed of Trust, Beneficiary may, at its option, declare said Note and the remaining indebtedness owing thereunder due and payable, and any tax assessments, insurance premiums, or other advances made or paid by said Beneficiary and not repaid by the Grantor shall become an additional indebtedness hereunder and secured by this Deed of Trust. 11. Condemnation. If the Mortgaged Property or any part thereof shall be condemned and taken under the power of eminent domain, all damages and awards for the portion of the Mortgaged Property so taken shall be applied to the repayment of the Secured Indebtedness if an Event of Default has occurred and is continuing or otherwise shall be applied to the rebuilding, repair and restoration of the lands and/or improvements damaged by said taking. Any balance of such damages or awards remaining after application as above set forth shall be paid over to the Grantor. 12. Inspection. Beneficiary shall have the right, at all reasonable times, to inspect the Mortgaged Property. 13. Hazardous Substances. The Grantor warrants, covenants and represents that to the best of its knowledge, after reasonable inquiry and investigation, there does not exist in or under the Leased Premises any pollutant, toxic or hazardous waste or substance, or any other material the release or disposal of which is regulated by any law, regulation, ordinance or code related to pollution or environmental contamination, other than those used in the normal course of Grantor's business and disposed of properly and except as disclosed on Schedule 1 attached hereto, and, that no part of the Leased Premises was ever used for any industrial or manufacturing purpose or as a dump, sanitary landfill, or gasoline service station, and that there exists on the Leased Premises no storage tanks, electrical transformers or other equipment containing PCBs or material amounts of asbestos. The Grantor represents that it has received no summons, citations, directives, letters or other communications, written or oral, from any federal, state or local agency or department concerning the storing, releasing, pumping, pouring, emitting, emptying or dumping or the presence of any pollutant, toxic or hazardous waste or substance on the Leased Premises. The Grantor covenants and agrees that it shall not, nor shall it permit others to, use the Leased Premises for the business of generating, transporting, storing, treating or disposing of any pollutant, toxic or hazardous waste or substance, other than those used in the normal course of Grantor's business and disposed of properly, nor shall it either take or fail to take any action which may result in a release of any hazardous 8 9 substance from or onto the Leased Premises. The Grantor further covenants and agrees that it shall comply, and maintain the Leased Premises in compliance, with any and all federal, state and local hazardous waste and other environmental laws, rules, regulations and orders. In addition to all rights of access granted the Beneficiary pursuant to this Indenture, during the term of the loan contemplated hereby, the Beneficiary, or any authorized agent, contractor or representative of the Beneficiary, is hereby irrevocably authorized to enter upon the Leased Premises at any time and from time to time for the purpose of performing inspections, taking soil borings or other borings, or conducting any other tests or procedures on, in or about the Leased Premises as the Beneficiary deems necessary or appropriate to determine whether any hazardous or toxic substances, including without limitation asbestos or PBS, are present on, under or about the Leased Premises. The Grantor agrees to indemnify and to hold the Beneficiary harmless from any and all claims, causes of action, damages, penalties, and costs (including, but not limited to, attorneys' fees, consultants' fees and related expenses) which may be asserted against, or incurred by, the Beneficiary resulting from or due to release of any hazardous substance or waste on the Leased Premises or arising out of any injury to human health or the environment by reason of the condition of or past activity upon the Leased Premises. The Grantor's duty to indemnify and hold harmless includes, but is not limited to, proceedings or actions commenced by any person (including, but not limited to, any federal, state, or local governmental agency or entity) before any court or administrative agency. The Grantor further agrees that pursuant to its duty to indemnify under this section, the Grantor shall indemnify the Beneficiary against all expenses incurred by the Beneficiary as they become due and not waiting for the ultimate outcome of the litigation or administrative proceeding. The Grantor's obligations to indemnify and hold the Beneficiary harmless hereunder shall survive repayment of the Secured Indebtedness and satisfaction or foreclosure of this Deed of Trust. 14. Forbearance; Substitution of Collateral; Partial Releases. It is understood and agreed that the Beneficiary may, at any time, without notice to any person, grant to the Grantor any indulgences of forbearance, grant any extension of time for payment of any indebtedness secured hereby, or allow any change or changes, substitution or substitutions, of or for any of the Property described in this Deed of Trust or any other collateral which may be held by Beneficiary. Beneficiary's action in so doing shall in no way affect the liability of the Grantor, any endorsers of the indebtedness secured hereby, or any other person liable for the payment of said indebtedness, nor shall it in any way affect or impair the lien of this Deed of Trust upon the remainder of the Leased Premises and upon other collateral which is not changed or substituted. It is also understood and agreed that the Beneficiary and the Trustee may, at any time, without notice to any person, release any portion of the Leased Premises described in this Deed of Trust or any other collateral which may be held as security for the payment of the Secured Indebtedness either with or without consideration for such release or releases. Such releases shall not in any manner affect the liability of the Grantor, all endorsers and all other persons who are or shall be liable for the payment of said indebtedness, nor shall said releases in any manner affect, disturb or impair the validity and priority of this Deed of Trust, for the full amount of the indebtedness remaining unpaid together with all interest and advances which shall become payable, upon the remainder of the Leased Premises and other collateral which is unreleased. It is distinctly understood and agreed by the Grantor and the Beneficiary that any release or releases may be made by the Beneficiary and the Trustee without the consent or approval of any person or persons whomsoever. 15. Prosecution or Defense of Actions Affecting Obligation or Lien. If Grantor fails to perform the covenants and agreements contained in this Deed of Trust or if any action or proceeding is commenced which affects Beneficiary's interest in the Mortgaged Property or the validity of the Note secured hereby including, but not limited to, actions in eminent domain, code enforcement, insolvency or arrangements or 9 10 proceedings involving a bankrupt or a decedent's estate, or actions by parties claiming an interest senior and paramount to the lien of this Deed of Trust, or if it becomes necessary for Beneficiary to file an action to uphold or defend the lien of this Deed of Trust, then Beneficiary shall have the right to employ its own legal counsel to defend, pursue, compromise, negotiate, or prevent any such litigation and all sums expended by Beneficiary including reasonable attorneys' fees and other costs in connection with any such legal action shall become so much additional indebtedness secured by this Deed of Trust. The failure of the Grantor to pay to Beneficiary all such sums expended immediately upon demand shall entitle the Beneficiary, at its option, to declare the entire indebtedness to be at once due and payable. 16. Foreclosure and Attorneys' Fees. In the case of default in any of the payments of principal or interest, according to the tenor and effect of the Note secured hereby, or of a breach or violation of any of the covenants or agreements contained herein, or incorporated herein, then the whole of said principal sum secured hereby, all interest thereon, and the equity participation amount, if any, set forth in the Note secured hereby, may at once or at any time thereafter, at the option of the Beneficiary, become due and payable. If foreclosure is performed by the Public Trustee, attorneys' fees of a reasonable amount for services in the supervision of said foreclosure proceedings together with all other costs of said foreclosure proceedings and as provided herein shall be added by the Public Trustee to the indebtedness secured hereby to be satisfied from the proceeds of the sale of said Mortgaged Property. If foreclosure is made through the courts, reasonable attorneys' fees shall be taxed by the court as a part of the costs of such foreclosure proceedings and such fees and costs shall be treated as a part of the indebtedness secured hereby to be satisfied from the proceeds of the sale of said Mortgaged Property. 17. Severability. In the event that any provision or clause of this Deed of Trust conflicts with applicable law, such conflicts shall not affect or invalidate other provisions of this Deed of Trust which can be given effect without the conflicting provision. To this end, the provisions of this Deed of Trust are declared to be severable. 18. Successors Bound; Terms; Captions. The covenants herein contained shall bind, and the benefits and advantages hereof shall inure to the respective heirs, executors, administrators, successors and assigns of the parties hereto. Whenever used herein, the singular number shall include the plural and conversely, and the use of any gender shall be applicable to all genders. Whenever the term "Beneficiary" is used herein, it shall include the legal holder or holders of the Note or of the indebtedness secured hereby or, where applicable, the holder of a Certificate of Purchase. Assignment or negotiation of the Note secured hereby shall also be an assignment of the Beneficiary's interest under this Deed of Trust. In particular, without limitations, the word "Note" or the words "Promissory Note" shall be singular or plural as the case may be. The captions and headings of this Deed of Trust are for convenience only and are not to be used to interpret or define the terms of this document. 19. Governing Law. Except for matters relating to the validity and/or enforcement of the lien and security interest of the Beneficiary in the Mortgaged Property, which shall be determined in accordance with the applicable laws of the State in which the affected portion of the Mortgaged Property is situated, with the laws of each such State applying to the Mortgaged Property in such State, the internal laws (other than conflict laws) of the State of Ohio shall govern the validity, interpretation, construction and performance of this Deed of Trust and all other documents relating to the transactions contemplated hereby. [The remainder of this page has been intentionally left blank.] 10 11 IN WITNESS WHEREOF, this Deed of Trust has been executed by the Grantor as of the day and year first above written. GRANTOR: CAFE ODYSSEY, INC. By: s/Stephen D. King ----------------------------------------- Name and Title: C.E.O. ----------------------------- STATE OF ) ) ss. COUNTY OF ) The foregoing instrument was acknowledged before me this 24th day of August, 1999, by Stephen D. King the Chief Executive Officer of Cafe Odyssey, Inc., a Minnesota corporation, for and on behalf of said corporation. s/ Gail T. King -------------------------------- Notary Public 12 EXHIBIT A (LEGAL DESCRIPTION OF SHOPPING CENTER PROPERTY) 13 EXHIBIT B TO FIRST DEED OF TRUST, SECURITY AGREEMENT AND FIXTURE FINANCING STATEMENT PERMITTED EXCEPTIONS 1. Financing Statement filed with the Colorado Secretary of Sate on February 2, 1999 as document number 19992006190 from Cafe Odyssey as Debtor to Ecolab, Inc. as Secured Party. 2. Financing Statement filed with the Colorado Secretary of State on March 19, 1999 as document number 19992015504 from Hotel Discovery Inc. and D.B.A. Cafe Odyssey to Icelease Partners, Ltd. as Secured Party and Bank One Kentucky, North America as Assigned Party. EX-10.9 12 AGREEMENT LANDLORD & LENDER 1 EXHIBIT 10.9 AGREEMENT BETWEEN LANDLORD AND LENDER THIS AGREEMENT BETWEEN LANDLORD AND LENDER (this "Agreement") is executed as of this 24th day of August, 1999, by Denver Pavilions, L.P., having its principal place of business at 500 16th Street, Denver, CO 80202, being the fee owner and landlord (the "Landlord") of certain premises described on Exhibit A (the "Premises"), which are now occupied, in whole or in part by Cafe Odyssey, Inc., a Minnesota corporation, having its principal place of business at 4801 West 81st Street, Suite 112, Bloomington, Minnesota 55437 (the "Lessee"), with regard to the following: RECITALS: First, the Lessee has requested FAIRVIEW PARTNERS, an Ohio general partnership ("Lender") having an address at 5807 McCray Court, Cincinnati, Ohio 45224, to make a loan or loans to the Lessee (the "Loan") pursuant to the terms of the Loan Agreement dated August 24, 1999, (the "Loan Agreement") in the maximum aggregate principal amount not to exceed Two Million Dollars ($2,000,000) and other security or supporting documentation executed in conjunction therewith (all such documents, as the same may be hereafter amended, modified, supplemented or restated, are collectively referred to herein as the "Loan Documents"); Second, the Lender is willing to extend the Loan only upon the security of the various Loan Documents and as further security, this Agreement for the purpose of specifying the Lender's rights with regard to the Premises; and Third, the Lessee has entered into that certain Lease of the Premises with the Landlord dated May 12, 1998, for a fifteen (15) year term which will terminate on March 15, 2014 (the "Lease"); NOW THEREFORE, in consideration of the foregoing, the reliance of the Lender in extending the Loan, the mutual covenants and agreements hereinafter contained and for other valuable consideration as evidenced by the Loan Agreement and other Loan Documents, the sufficiency of which is hereby acknowledged, the undersigned parties, intending to be legally bound, first incorporate the foregoing Recitals and the definitions contained within them and the heading of this Agreement into the body hereof and otherwise agree as follows: 1. The Lease is in full force and effect and constitutes the entire agreement between the Landlord and Lessee regarding the Premises. 2. All rents reserved in the Lease have been paid to the extent they are payable on or before the date hereof. 3. To the best of Landlord's knowledge, there is no existing default under the provisions of the Lease or in the performance of any of the terms, covenants, conditions or warranties thereof on the part of the Landlord or the Lessee thereunder to be observed or performed. 2 4. Landlord waives each and every right which Landlord now has, or may hereafter have, under the laws of the State of Minnesota, or by virtue of the Lease, any substitute lease or rental agreement with Lessee now or hereafter in effect, to levy or distrain upon for payment in arrears, in advance or both, or to claim or assert title to or a lien upon, all equipment, trade fixtures, furniture and moveable personal property owned by the Lessee including, without limitation, counters, restaurant kitchen equipment, shelving, showcases, mirrors and other movable personal property (excluding however, mechanical, plumbing and electrical systems, light fixtures, floor and wall coverings and immovable partitions) and all additions, attachments and replacements thereof (the "Equipment") which Equipment is now on the Premises, or may hereafter be delivered or installed thereon, and is or may hereafter become subject to any lien, mortgage, or security interest in favor of Lender pursuant to the Loan Documents. 5. Landlord agrees that the Equipment shall remain personal property notwithstanding the manner or mode of its attachment to the Premises, if any, and shall not become fixtures. 6. Landlord recognizes and acknowledges that any claim or claims that Lender has or may hereafter have against the Equipment by virtue of any Loan Document is superior to any lien or claim of any nature which Landlord now has or may hereafter have to the Equipment pursuant to the Lease, by statute, agreement or otherwise. 7. In the event of default by Lessee in the payment of any indebtedness to the Lender, or in the performance of any of the terms and conditions of any Loan Document or any extension or renewals thereof, Lender may remove the Equipment, or any part thereof, from the Premises in accordance with the terms and conditions of the Loan Documents. Landlord consents to the entry upon the Premises for the purpose of taking possession or removal of the Equipment upon three (3) business days prior written notice. Landlord waives opportunity for hearing in conjunction with any taking of possession or removal of the Equipment by Lender. Any damage caused by removal shall be repaired by Lender at its sole cost and expense. Landlord will make no claim whatsoever to the Equipment. In the event of any such default by Lessee, Landlord agrees that, at Lender's option, the Equipment may remain upon the Premises for a period of one (1) month after the receipt by Lender of written notice from Landlord directing removal, without incurring storage charges therefor. 8. Landlord will give to Lender simultaneously with service on Lessee a duplicate of any and all notices or demands which are required by the L&we to be given by Landlord to Lessee All such notices and demands shall be in writing, either delivered in hand or sent by first class mail, postage prepaid or sent by facsimile transmission addressed as follows: Fairview Partners 5807 McCray Court Cincinnati, Ohio 45224 2 3 With a required copy to: Keating, Muething & Klekamp, P.L.L. 1400 Provident Tower One East Fourth Street Cincinnati, Ohio 45202 Attention: Paul V. Muething 9. Upon a default under the Lease, Lender shall have the right and privilege of performing on behalf of Lessee any of Lessee's covenants or of curing any defaults by Lessee or of exercising any election, option or privilege conferred upon Lessee by the terms of the Lease and Lessee shall be bound thereby. 10. Landlord shall not terminate the Lease or Lessee's right of possession for any default of Lessee if, (i) with respect to a monetary default, within a period of ten (10) days after the expiration of the period of time (if any) within which Lessee is expressly allowed in the Lease to cure such default, and (ii) with respect to a nonmentary default within a period of thirty (30) days after the expiration of the period of time (if any) within which Lessee is expressly allowed in the Lease to cure such default, Landlord has provided notice of such default to Lender and such default is cured or caused to be cured by Lender or, (iii) if such nonrnonetary default is not reasonably susceptible to being cured within such thirty (30) day period within a period of sixty (60) days after the expiration of the period of time (if any) within which Lessee is expressly allowed in the Lease to commence to eliminate the cause of such default, Landlord has provided notice of such default to Lender and Lender diligently commences to cure such default within the initial thirty (30) day period, and continues to eliminate the cause of such default within the sixty (60) day period on behalf of Lessee; provided, however, that there shall be no obligation on the part of Lender to cure any default. Notwithstanding the foregoing, nothing contained in this Agreement shall prevent or otherwise delay the exercise of any rights of the Landlord under the Lease to ameliorate or otherwise cure the existence of any safety, health, hazardous or other emergency related situation or condition on the Premises in accordance with the terms currently set forth in the Lease. 11. The Lender may, at any time, and from time to time, without the consent of Landlord, without giving notice thereof to Landlord and without affecting or impairing the validity or effectiveness of this instrument, (i) extend additional credit or lend additional funds to the Lessee or any of them, (ii) modify or amend the terms of payment of any indebtedness of Tenant (or any of them) to the Lender, or (iii) amend or modify any of the terms, conditions, covenants and agreements set forth in the Loan Agreement or in any security agreement, mortgage or other loan document executed in connection therewith; provided, however, that nothing contained in the Loan Documents or in this Agreement shall be construed to create a security interest in favor of the Lender in and to the Lease and the leasehold rights of the Lessee thereunder or be deemed to constitute a consent of the Landlord to any such security interest. 3 4 12. Landlord shall have no obligation or duty to determine whether or not the Lessee has defaulted in its obligations to the Lender, and Landlord shall be entitled to rely, fully and without recourse by Lessee, on receipt of written notice from Lender that the Lessee has defaulted. 13. This Agreement shall be binding upon the Landlord, the heirs, executors, personal representatives, successors and assigns of the Landlord, and all transferees of the Premises and shall inure to the benefit of Agent and the Lenders, and their respective successors and assigns. 14. This Agreement may be executed in any number of counterparts and by different parties thereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 4 5 IN WITNESS WHEREOF, the undersigned parties have executed this Agreement as of the date first set forth above. Landlord: DENVER PAVILIONS, L.P. By: s/ William E. Denton ---------------------------------------- Print Name: William E. Denton, Man. -------------------------------- Title: for Denhill Denaw, General Partner ------------------------------------- Signed and acknowledged in the presence of: Print name: Rebecca A. Struckhoff ------------------------- Print name: Robert J. Murray ------------------------- Lessee: Cafe Odyssey, Inc., a Minnesota corporation By: s/ Stephen D. King ---------------------------------------- Print Name: Stephen D. King -------------------------------- Title: C.E.O. ------------------------------------- Signed and acknowledged in the presence of: Print name: Gail T. King ------------------------- Print name: Roberta J. Hines ------------------------- 5 6 AGREED AND ACCEPTED: Lender: FAIRVIEW PARTNERS, an Ohio general partnership By: s/ T.E. Johnson ------------------------------------- Print Name: Timothy E. Johnson ----------------------------- Title: Agent ---------------------------------- Signed and acknowledged in the presence of: Print name: Noel A. Thesing -------------------------- Print name: Carol J. Stemler -------------------------- 6 7 State of Ohio ) )ss. County of Hamilton ) On this 25th day of August, 1999, before me, a Notary Public in and for said State, personally appeared Timothy E. Johnson, to me personally known, who, being by me duly sworn, did say that he is an agent of Fairview Partners, an Ohio general partnership, and that said instrument was signed on behalf of said partnership by authority of its partners, and he acknowledged said partnership by authority of its partners, and he acknowledged said instrument to be the free act and deed of said partnership. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal on the day and year first above written, in the County and State aforesaid. s/ Noel Ann Thesing ----------------------------------- My Commission Expires: NOTARIAL SEAL NOEL ANN THESING STATE OF OHIO Notary Public, State of Ohio My Commission Expires April 15, 2001 7 8 State of Ohio ) )ss. County of Hamilton ) BEFORE ME, the Subscriber, a Notary Public in and for said County and State, personally appeared Stephen D. King, Chief Executive Officer of Cafe Odyssey, Inc., a Minnesota corporation, the corporation which executed the foregoing instrument, who acknowledged he did sign said instrument as such officer on behalf of said corporation, and by authority of its Board of Directors, and that the execution of said instrument is his free and voluntary act and deed individually and as such officer, and the free and voluntary act and deed of said corporation. IN TESTIMONY WHEREOF, I have hereunto set my name and affixed my Notarial Seal this 24th day of August, 1999. s/ Gail King ------------------------------------------- Notary Public NOTARIAL SEAL GAIL TONYA KING, Attorney at Law STATE OF OHIO Notary Public, State of Ohio My Commission Has No Expiration Date Section 147.03 8 9 State of California ) )ss. County of Ventura ) On this 24th day of August, 1999, before me, a Notary Public in and for said State, personally appeared William E. Denton, proved by satisfactory evidence, who, being by me duly sworn, did say that he is the General Partner of Denver Pavilions, a Colorado limited partnership, and that said instrument was signed on behalf of said partnership, and he acknowledged said instrument to be the free act and deed of said partnership. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal on the day and year first above written, in the County and State aforesaid. s/ Rex J. Masterson -------------------------------------- My Commission Expires: 6-16-01 NOTARIAL SEAL REX J. MASTERSON COMM. #1140352 Notary Public - California VENTURA COUNTY My Comm. Exp. June 16, 2001 Prepared by and Upon recordation return to: Gail T. King, Esq. Keating, Muething & Klekamp, P.L.L. 1400 Provident Tower One East Fourth Street Cincinnati, Ohio 45202 (513) 579-6584 9 EX-10.10 13 ESCROW AGREEMENT 1 EXHIBIT 10.10 ESCROW AGREEMENT This Escrow Agreement is made this 25th day of August, 1999, by and between Fairview Partners, an Ohio general partnership, whose address is 5807 McCray Court, Cincinnati, Ohio 45224 ("Lender"), Cafe Odyssey, Inc., whose address is 4801 West 81st Street, Suite 112, Bloomington, Minnesota 55437, ("Borrower") and Johnson Trust Company, an Ohio banking corporation, 3777 West Fork Road, Cincinnati, Ohio 45247 ("Escrow Agent"), under the following circumstances: A. Borrower has entered into a Merger Agreement to acquire all of th stock of popmail.com (the "Merger Agreement"). B. Lender has agreed to loan to Borrower Two Million and 00/100 Dollars ($2,000,000.00) (the "Loan") to acquire the stock of popmail.com pursuant to the terms of the Loan Agreement (the "Loan Agreement"). C. Lender and Borrower desire to place in escrow the Loan proceeds on the following terms and conditions. NOW, THEREFORE, the parties agree as follows: 1. On the date hereof, Lender shall deposit with the Escrow Agent the proceeds of the Loan ("Escrow Funds"). 2. Escrow Agent hereby accepts the Escrow Funds and its obligations set forth herein. Escrow Agent shall subsequently disburse the Escrow Funds and any interest earned thereon to or for the benefit of Borrower upon receipt of a joint instruction letter from Lender and Borrower that the following conditions have been satisfied: a) Borrower has notified Lender in writing that the transaction contemplated by the Merger Agreement, shall be consummated as set forth in such Agreement (the "Closing"); b) Contemporaneously with the disbursement of the Escrow Funds, Borrower shall deliver an executed copy of the Merger Agreement and evidence of the ownership of such stock; c) Borrower has paid to Lender a One Percent (1%) fee on the principal amount of the Loan and Lender's reasonable legal expenses in connection with the Loan; d) All of the liens (excluding true leases) encumbering the collateral described in the Deed of Trust have been terminated or delivery of a payoff letter from the applicable creditor in form and substance acceptable to Lender providing for the satisfaction and termination of the conflicting lien in question and the Loan proceeds are used to satisfy such conflicting lien and upon the filing of financing statements and the Deed of Trust, Lender shall obtain a first and best lien on the collateral described in the Deed of Trust; 2 e) Lender has received an executed original of an Agreement between Denver Pavilions, L.P. and Lender in form and substance, reasonably satisfactory to Lender; and f) Borrower has delivered a borrowing resolution, goodstanding certificate and certified articles of incorporation as required by the Loan Agreement. 3. If there is a failure to close under the Merger Agreement by Purchaser on or before November 30, 1999 or the conditions set forth in Section 2 have not been satisfied at the time of the Closing, Lender shall give notice to Escrow Agent that the Closing shall not occur at which time Escrow Agent shall disburse the Escrow Funds to Lender to repay the Loan. In the event the Escrow Funds are not sufficient to repay the Loan, Borrower shall forward any additional amount to Lender to repay the Loan in full. 4. Except as otherwise set forth herein, Escrow Agent shall only follow a written instruction concerning the Escrow Funds from Lender or any instruction from a court of competent jurisdiction. 5. The Escrow Agent shall invest the Escrow Funds in an interest bearing escrow account or in one (1) or more investments of the type and quality agreed to in writing by Lender and Borrower. The Escrow Agent shall cause all interest earned on or with respect to the Escrow Funds to be deposited with the Escrow Funds. Such deposited interest shall be distributed to Borrower. 6. All notices and communications herein required to be given or made to Lender or Borrower shall be deemed to be served three (3) days after deposit in the United States mail, registered or certified mail, postage prepaid, return receipt requested, addressed or by overnight courier, telegram or facsimile (to the facsimile numbers set forth below their signature hereon) to Lender and Borrower at their respective addresses as stated above or at such address or facsimile number as each shall notify the other in writing. All notices and communications to Escrow Agent shall be in writing and shall be deemed served when received by Escrow Agent by mail, courier, telegram or facsimile (to the facsimile number set below its signature hereon) at its address as stated above. 7. The duties and obligations of Escrow Agent shall be determined solely by the express provisions of this Escrow Agreement, and Escrow Agent shall not be liable except for the performance of the duties and obligations specifically set forth herein. Escrow Agent's sole responsibility shall be to the safekeeping, investment and disbursement of the Escrow Funds. 8. Notwithstanding the foregoing, the Escrow Agent shall not be liable except for willful misconduct or gross negligence in the performance of its duties and obligations as set forth herein. The Lender and Borrower each agree to indemnify and hold the Escrow Agent harmless against any and all loss, damage, liability or expense incurred arising out of or in connection with the acceptance of its position as Escrow Agent and the administration of this Escrow Agreement, including without limitation its reasonable out-of-pocket expenses incurred in the performance of its duties hereunder 2 3 and the costs and expenses of defending against any claim in connection with the performance of its duties hereunder; provided, however, that the Escrow Agent shall not be indemnified for any loss, damage, liability or expense caused by or arising out of such Escrow Agent's gross negligence or willful misconduct. 9. Except as otherwise specified herein, the Escrow Agent agrees to serve without compensation. 10. If any disagreement should arise among Lender and Borrower with respect to this Escrow Agreement, or the Escrow Funds or if the Escrow Agent is not in agreement as to the amount of any disbursement Lender or Borrower are entitled to or any other matter that may arise hereunder, or if the Escrow Agent cannot determine the proper action to be taken, the Escrow Agent shall have the absolute right at its election to do either or both of the following: (i) withhold or stop all performance under this Escrow Agreement until the Escrow Agent is satisfied that such disagree ment has been resolved; or (ii) file a suit in interpleader and obtain an order from a court of appropriate jurisdiction requiring all persons involved to litigate in such court their respective claims arising out of or in connection with the Escrow Agreement. 11. If Escrow Agent shall in good faith determine that it requires the services of legal counsel to properly perform its duties hereunder, Lender and Borrower shall be responsible for such fees. 12. This Escrow Agreement shall terminate upon the disbursement by Escrow Agent of the Escrow Funds. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 3 4 IN WITNESS WHEREOF, the parties have hereto executed this Agreement as of the day and year first above written. WITNESS: FAIRVIEW PARTNERS s/ Noel A. Thesing By: s/ T.E. Johnson - ---------------------------- ---------------------- s/ Carol J. Stemler Its: Agent - ---------------------------- ---------------------- Facsimile No.:513-661-3100 ------------ Phone No.: 513-661-3160 --------------- CAFE ODYSSEY, INC. s/ Gail T. King By: s/ Stephen D. King - ---------------------------- ----------------------- s/ Roberta J. Hines Its: CEO - ---------------------------- ----------------------- Facsimile No.:612-837-9916 ------------ Phone No.: 612-837-9917 --------------- ESCROW AGENT JOHNSON TRUST COMPANY s/ Noel A. Thesing By: s/ Michael Barnes --------------------------- ----------------------- Name:Michael Barnes --------------------- s/ Carol J. Stemler Its: Vice President - ---------------------------- ---------------------- Facsimile No.:513-661-3100 ------------ Phone No.: 513-661-3160 ---------------- 4 EX-99.1 14 PRESS RELEASE DATED 09-01-99 1 EXHIBIT 99.1 Contact: Cafe Odyssey, Inc. Stephen D. King, CEO (612) 837-9917 For Immediate Release CAFE ODYSSEY SECURES ADDITIONAL FINANCING AND COMPLETES MERGER WITH POPMAIL.COM Minneapolis, September 1, 1999. Cafe Odyssey, Inc. (Nasdaq: CODY) today announced it has satisfied all the financing and other conditions contained in the merger agreement and has completed the merger with PopMail.com, inc. The shareholders of Cafe Odyssey previously approved the merger, along with a name change to PopMail.com, inc., at a meeting held August 19, 1999. Required financing for the merger was obtained through the private sale of $2.0 million of long-term convertible debt, $2.2 million of convertible preferred shares, exercise of warrants in the amount of $750,000, and a promissory note in the amount of $550,000. Stephen D. King, Chief Executive Officer, stated, "We now have a presence as an Internet-based business. We plan to diligently build the Company's Internet division with the objective of becoming a leading provider of email services, permission-based marketing email, and branded web-based email in the fields of radio, television, newspaper, and sports/entertainment. Our immediate attention will now be focused on completing the acquisition of ROI Interactive and furthering our negotiations with Internet Community Concepts and other acquisition targets." PopMail.com inc. is a leading provider of email service to radio stations and their listeners. PopMail combines the power of the Internet with the most successful affinity-building, mass-medium ever created: radio. By providing radio stations with an attractive email service offered to listeners free of charge, PopMail leverages radio's proven ability to engage audiences and attract advertisers. PopMail holds exclusive relationships with more than 500 radio stations reaching 100 million listeners each week. The consumer web site can be found at http://www.PopMail.com. Dallas-based ROI Interactive offers a suite of permission marketing email and ecommerce services to companies in the broadcast, media, sports, and entertainment industries. The company was founded in June 1998 and has been profitable since inception. With long-term agreements with over 75 television stations and 25 professional sports teams, including TV stations in all of the top 10 markets in the U.S., ENN is a leading permission marketing service in television and professional sports. The contracts provide for fee-based income and permission-based marketing through the exclusive use of ROI's "ENEWSNOTIFIER(TM)" program. Stations and sports teams use this service to notify their viewers and customers in advance of special events, shows, and ticket availability. Many other services and functions are available through this marketing technology. The Cafe Odyssey restaurant division develops, owns, and operates upscale, casual-themed restaurants. The concept is food-driven with a menu that offers a broad selection of cuisine from around the world, including popular "cultural fusion" items. The Company's web site can be found at http://www.cafeodyssey.com. The Private Securities Litigation Reform Act of 1995 provides a "safe-harbor" for forward-looking statements. Certain information included in this press release (as well as information included in oral statements or other written statements made by or to be made by the Company) contains statements that are forward-looking, such as statements relating to plans for future expansion. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future; and accordingly, such results may differ from those expressed in any forward-looking statement made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, completion of definitive purchase agreements, shareholder approval, those relating to development and construction activities, dependence on existing management, leverage and debt service, domestic or global economic conditions, and changes in customer preferences and attitudes. For more information, review the Company's filings with the Securities and Exchange Commission. -----END PRIVACY-ENHANCED MESSAGE-----