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Investment And Loan Agreement

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Sectors: Media
Governing Law: Maryland, View Maryland State Laws
Effective Date: December 12, 1996
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EXHIBIT 10.31


INVESTMENT AND LOAN AGREEMENT
-----------------------------


THIS INVESTMENT AND LOAN AGREEMENT (this "Agreement") is made and entered into as of the 12th day of December, 1996 by and among La-Van Hawkins UrbanCityFoods, LLC (the "Company") and BET Holdings, INC. (BET").


WHEREAS, BET desires to make a $5,000,000 investment in the Company in exchange for a 15% membership interest and is also willing to make a loan to the Company in the maximum principal amount of $10,000,000; and


WHEREAS, the Company desires to sell BET a 15% membership interest and to borrow up to $10,000,000 from BET.


NOW THEREFORE, in consideration of the foregoing, the mutual promises herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and BET hereby agree as follows:


ARTICLE 1


DEFINITIONS
-----------


For the purposes of this Agreement, the following terms shall have the following meanings:


"Advance" shall mean any of the First Advance or the Second Advance.


"Affiliate" shall have the meaning given thereto in Section 6.2(p).


"BET" shall have the meaning given thereto in the first paragraph hereof and shall include any successor or assigns of its rights hereunder.


"Burger King Documents" shall mean any and all agreements by and between the Company and Burger King Corporation, including any and all Franchise Agreements and Burger King Restaurant Number Assignments.


"Business Plan" shall have the meaning given thereto in Section 4.1(h)(iii).


"Closing Date" shall have the meaning given thereto in Section 2.7.


"Company" shall have the meaning given thereto in the first paragraph hereof.


"Financing Statements" shall have the meaning given thereto in Section 3.1(b).


"First Advance" shall have the meaning given thereto in Section 2.3(b).


"FMAC" shall mean Franchise Mortgage Acceptance Company, LLC.


"FMAC Documents" shall mean the documents pursuant to which the Company borrowed Seven Million Eighty Eight Dollars ($7,000,088.00) from FMAC.


"Investor Rights Agreements" shall mean that certain Investor Rights Agreement by and between the Company, Management, UrbanCityFoods Holding, Inc., and BET in substantially the form attached hereto as Exhibit A.
---------


"Loan" shall have the meaning given thereto in Section 2.2(a).


"Loan Advance Criteria" shall have the meaning given thereto on Schedule 4.2(c).


"Loan Documents" shall mean this Investment and Loan Agreement, the Notes, the Investor Rights Agreement, the Mortgages, the Assignments of Leases, the Security Agreement, the Financing Statements, and all other documents, exhibits, and schedules executed and delivered in connection herewith or therewith, including all amendments, modifications and supplements of or to all such documents.


"Management" shall have the meaning given thereto in Section 2.6.


"Note" and "Notes" shall have the meaning given thereto in Section 2.4(a).


"Operation Agreement" shall mean the Amended and Restated Operating Agreement of the Company, dated as of September 13, 1996, between Management and UrbanCityFoods Holdings, Inc.


"Person" shall have the meaning given thereto in Section 6.2(p)(i).


INVESTMENT AND LOAN AGREEMENT PAGE 2


"Projections" shall have the meaning given thereto in Section 4.1(h) (ii).


"Second Advance" shall have the meaning given thereto in Section 2.3(c).

"Security Agreement" shall mean a security agreement substantially in the form attached hereto as Exhibit B executed by the Company in favor of BET.
---------
"Senior Indebtedness" shall have the meaning given thereto in Section 2.5.


ARTICLE 2

AMOUNTS AND TERMS OF THE INVESTMENT AND LOAN
--------------------------------------------


2.1 THE INVESTMENT.
--------------


Simultaneously herewith BET will contribute $5,000,000 to the Company (the "Equity Investment") in exchange for a 15% membership interest in the Company (the "Membership Interest"). The Membership Interest shall be issued to BET free and clear of all liens and encumbrances and any other third party claims whatsoever. Simultaneously, with the execution of this Agreement, the parties hereto will enter into a certain amended and restated operating agreement for the Company in the form of Exhibit J attached hereto.


2.2 THE LOAN.
--------


(a) BET agrees, subject to the terms and conditions hereinafter set forth, to provide financing to the Company in the maximum principal amount of Ten Million Dollars ($10,000,000) (the "Loan").


(b) The Loan shall be convertible, at any time until paid in full, in accordance with the terms of those certain Notes, which Notes shall provide that the First Advance shall be convertible into a membership interest sufficient to increase BET's equity stake in the Company to thirty percent (30%), and the Second Advance shall be convertible into an additional membership interest sufficient to increase BET's equity stake in the Company to forty-five percent (45%). Any accured and unpaid interest at the time of conversion of any Advance shall continue to accrue interest and shall be payable on the maturity date of the Note under which it accrued.


INVESTMENT AND LOAN AGREEMENT PAGE 3


2.3 ADVANCES.
--------


(a) BET will fund the Equity Investment on the Closing Date.


(b) BET may fund an advance of up to Five Million Dollars ($5,000,000) (the "First Advance") either (i) upon the written request of the Company if the conditions set forth in Section 4.2 have been met, or (ii) upon the decision of BET to make the advance in its sole discretion.


(c) BET may fund an additional advance of up to Five Million Dollars ($5,000,000) (the "Second Advance") either (i) upon the written request of the Company if the conditions set forth in Section 4.2 have been met, or (ii) upon the decision of BET to make the advance in its sole discretion.


(d) BET shall be under no obligation whatsoever to make the First Advance or the Second Advance regardless of whether the conditions set forth in Section 4.2 have been met. Such advances shall be made in the sole discretion of BET and may be withheld for any reason whatsoever. The Company agrees, however, prior to seeking any additional "equity" or subordinated financing of the type contemplated under this Loan Agreement that it shall provide BET thirty (30) days advance written notice of its desire to seek such alternative financing. Within such period, BET shall have the right to make the First Advance or the Second Advance, as the case may be, on the terms and conditions set forth in this Loan Agreement. If BET fails to make the First Advance or the Second Advance when so requested and provided that conditions to such Advance have been satisfied, notwithstanding the restrictions set forth in Section 6.2(e) the Company shall be free to seek and obtain alternative equity or subordinated financing, provided, however, that the Company shall not be otherwise relieved of its obligations under this Agreement or the Investor Rights Agreement and that any such additional equity or subordinated financing shall dilute Management's interest solely and shall not in any way dilute or reduce BET's interest in or rights with respect to the Company. Additionally, at any time, all dates inclusive, commencing on the date hereof and continuing to the day which is sixty (60) months from the date hereof, BET in its sole discretion may make the First Advance and/or the Second Advance and the Company shall be required to accept such Advances and issue the Notes as contemplated hereunder.


INVESTMENT AND LOAN AGREEMENT PAGE 4


2.4 THE NOTES.
---------


(a) Each Advance shall be evidenced by and subject to the terms of a convertible subordinated promissory note substantially in the form attached hereto as Exhibit C and by this reference incorporated herein (each a "Note",
--------- collectively, the "Notes"), to be duly executed and delivered by the Company to BET. Each Note shall bear interest at a floating rate equal to the Bank of New York Prime Rate plus 200 basis points utilizing a 360-day year and shall be payable in a single payment of principal and accrued interest five years from the date of the advance which that Note evidences.


(b) The Notes shall be secured in accordance with Article 3 hereof, shall be subject to the Investor Rights Agreement, and the Notes shall contain such additional terms and conditions which are customary in transactions of this kind including, without limitation, provisions for default interest, acceleration of payment upon default, customary waivers (including the rights to notices, demands, presentments, and a jury in resolving disputes), and an agreement to jurisdiction.


2.5 SUBORDINATION.
-------------


BET is aware that in order to carry out the Business Plan which contemplates acquiring and/or developing 225 Burger King Restaurants over the next five (5) years, the Company will require significant additional financing. BET also recognizes that in order for the Company to obtain such financing, BET will be required to subordinate the repayment of the Loan and its interest in the collateral securing the Loan to certain Senior Indebtedness incurred by the Company. BET agrees to cooperate with the Company and the Company's senior lenders and to execute such subordination agreements or other similar agreements as may be reasonably required in order to facilitate the financing required by the Company to accomplish its Business Plan. For the purposes of this Agreement, "Senior Indebtedness" shall mean all indebtedness, not to exceed One Hundred Fifty Million Dollars ($150,000,000.00), incurred by the Company to banks or other similar financial institutions or commercial lenders to finance the acquisition, construction, development and operation of the Company's Burger King Restaurants in accordance with the Business Plan. Senior Indebtedness shall not include any indebtedness of the Company to an Affiliate. BET agrees that in the event the Company is unable, after reasonable efforts, to obtain the Senior Indebtedness required to implement and accomplish the Business Plan, solely as a result of the capital structure resulting from the Loan, BET will reasonably consider a request by the Company to convert its Loan to a preferred membership interest in the


INVESTMENT AND LOAN AGREEMENT PAGE 5


Company, which membership interest will have characteristics substantially identical to the Loan. BET, however, shall be under no obligation whatsoever to restructure the Loan in the manner described in this Section 2.5.


2.6. BOARD OF DIRECTORS.
------------------


(a) So long as BET owns at least 15% of the membership interests of the Company, or holds convertible debt instruments convertible into at least 15% of the membership interests of the Company, each Member of the Company shall, pursuant to the Investor Rights Agreement, vote all of its interests to elect as directors of the Company, two individuals designated by BET, two individuals designated by UrbanCityFoods Management, LLC ("Management") and one person mutually agreeable to both BET and Management.


(b) In the event that (i) there occurs an Event of Default under any of the Loan Documents, (ii) the Company becomes in default under any material provision of any Senior Indebtedness, or (iii) the Company fails to meet EBITDA set forth in the Projections for any fiscal year by more than fifty percent (50%), the board member selected by agreement of BET and the Company shall be removed and a new member selected by BET shall be appointed. BET's right to appoint the fifth director shall continue until the foregoing defaults are cured. For the purposes of this Section the first determination of whether the Company failed to meet the EBITDA requirements of (iii) above, shall be made for the twelve months ending November 30, 1997 and thereafter each determination shall be made on a calendar year basis, with the first calendar year determination being made for calendar year 1997. The EBITDA threshold for the period ending November 30, 1997 shall be $2.35 million (50% of $4.7 million).


2.7 THE CLOSING.
-----------


(a) BET shall disburse the Equity Investment on the date on which the Agreement is executed by all parties (the "Closing Date"), via wire transfer or certified funds, if all of the conditions precedent contained in Article 4 hereof have been fully satisfied, as determined by BET in its sole discretion.


ARTICLE 3


SECURITY/ADDITIONAL CONSIDERATION FOR LOAN
------------------------------------------


INVESTMENT AND LOAN AGREEMENT PAGE 6


3.1 SECURITY INTEREST. As security for the Loan, the Company shall deliver
----------------- to BET, on or before an Advance:


(a) The Security Agreement granting to BET (i) a second lien priority security interest (until such time as BET executes a subordination agreement in accordance with Section 2.5), subordinate only to the existing lien and security interest of Franchise Mortgage Acceptance Company, LLC, in all tangible and intangible assets of the Company now or hereafter acquired and all proceeds and products therefrom, including but not limited to those assets specified in Section 2 of the Security Agreement; and


(b) duly executed UCC-1 financing statements (the "Financing Statements") for filing as shall be required by BET.


3.2 MORTGAGE. As further security for the Loan, the Company shall deliver
-------- to BET from time to time, at the request of BET, (i) mortgages or deeds of trust, as applicable (the "Mortgages") in favor of BET securing any or all real property now owned or hereafter acquired by the Company in substantially the form of Exhibit D, and (ii) assignments of lease (the "Assignments of Lease")
--------- in favor of BET relating to any or all leases entered into by the Company prior to or subsequent to the date of this Agreement in substantially the form of Exhibit E; in each case subordinate only to the existing lien and security - - --------- interest of FMAC and purchase money financing with respect to assets acquired by the Company subsequent to the date hereof. In connection with the execution of the Assignments of Lease, the Company agrees to use its best efforts to obtain consent of the landlord under each lease to the assignment of such lease.


ARTICLE 4


CONDITIONS TO LENDING
---------------------


4.1 CONDITIONS TO THE EQUITY INVESTMENT. The obligation of BET to make the
----------------------------------- Equity Investment is subject to the conditions that BET shall have received (unless expressly modified or waived in writing by BET) prior to or on the Closing Date, all of the following in form and substance satisfactory to BET:


(a) The Loan Documents, duly executed and delivered by the Company thereto;


INVESTMENT AND LOAN AGREEMENT PAGE 7


(b) The favorable written opinion of Jones & Associates substantially in the form attached hereto as Exhibit F and by this reference incorporated
--------- herein;


(c) Certification by counsel to the Company that the Company retains legal title to all its real and personal property free and clear of any liens or encumbrances;


(d) Incumbency certificates with respect to the officers of the Company;


(e) A certificate of the President of the Company that all of the representations and warranties contained in this Agreement shall be true and correct on the Closing Date;


(f) A copy of the Articles of Organization of the Company and all amendments thereto, certified by the Maryland State Department of Assessments and Taxation; a certificate of good standing from the Maryland State Department of Assessments and Taxation and in each other state in which the Company is required to be qualified to do business; and a copy of the Company's Operating Agreement, certified by the Company's Secretary as true and correct;


(g) A copy of the resolutions of the Members and of the Board of Directors of the Company evidencing approval of the execution, delivery and performance of the Loan Documents, and all other instruments to be executed, delivered and performed pursuant thereto, and all other matters contemplated thereby, and a copy of all documents evidencing other necessary Company action, if any, with respect thereto; and a list of the Members, directors and officers of the Company, all of which documents shall be certified by each of the Company's Secretary as true and correct;


(h) The following statements, schedules and projections of the Company certified as true and correct by appropriate officers of the Company:


(i) Schedule of all indebtedness or liabilities of the Company
in excess of $50,000 dated as of the Closing Date; which shall be attached
hereto as schedule 4.1(h) (i).
-------------------


(ii) Projections of balance sheets, statements of income and
retained earnings, and cash flow for the Company the next five (5) years
following the Closing (the "Projections") which shall be attached hereto as
Exhibit G; and
---------


INVESTMENT AND LOAN AGREEMENT PAGE 8


(iii) The Company's business plan for the development,
acquisition, and operation of 225 Burger King restaurants during the next
five years (the "Business Plan") a copy of which is attached hereto as
Exhibit H.
---------


(i) Copies of the Company's federal and state (if required) tax filings;


(j) Copies of all insurance policies pertaining to the Company and the operation of its business operations required to be maintained pursuant to Section 6.1(c) below;


(k) Any required written consents to the Loans, the grant of the security interests, and the other matters contemplated by the Loan Documents by each third party whose consent is required under other agreements executed by the Company;


(l) Copies of such searches for lawsuits, liens, encumbrances, UUC filings, federal and state tax liens, and judgment filings relating to the Company as BET may require;


(m) Copies of all leases, including ground leases, and contracts or agreements where the contract or agreement price exceeds $50,000 to which the company is a party;


(n) Evidence of the current premium payments for a "key-man" life insurance policy in the amount of Five Million Dollars ($5,000,000) insuring La-Van Hawkins and naming BET as the sole beneficiary;


(o) Copies of the Burger King franchise agreement and all other agreements entered into between the Company and Burger King;


(p) Copies of all management or other agreements between Management and the Company (the "Management Agreement");


(q) All legal matters incident to the Loan that shall be satisfactory to counsel to BET.


4.2 CONDITIONS PRECEDENT TO THE FIRST AND SECOND ADVANCES.
----------------------------------------------------- The Company may request that BET make the First Advance or the Second Advance at any time provided that the following conditions are met:


(a) The Company shall submit, with the request a certificate of the President that all of the representations and


INVESTMENT AND LOAN AGREEMENT PAGE 9


warranties contained in this Agreement are true and correct as of the date of the request;


(b) There exists no Event of Default under this Agreement;and


(c) The Company has satisfied the Loan Advance Criteria set forth on Schedule 4.2(c). - - --------------


ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------


The Company and La-Van Hawkins jointly and severally represent and warrant to BET, and shall be deemed to represent and warrant as of the Closing Date, as follows:


5.1 DUE ORGANIZATION, GOOD STANDING, POWER AND AUTHORITY. The Company is
---------------------------------------------------- a limited liability company duly organized, validly existing in good standing under the laws of the State of Maryland, is duly qualified to do business under the laws of all jurisdictions in which the character of the properties owned or proposed to be owned by the Company or in which the transaction of the business of the Company is now conducted or is proposed to be conducted requires or will require it to qualify to do business and is in good standing in such jurisdictions. The Company has all requisite power and authority, corporate or otherwise, to conduct its business, to own its properties, to borrow hereunder, and to execute, deliver and perform all of its respective obligations under the Loan Documents.


5.2 CAPITALIZATION. The capitalization of the Company as of the closing
-------------- date is as set forth on Schedule 5.2. There are no membership interests held by
------------ any person other than as set forth in the Operating Agreement of the Company; the designations, powers, preferences, rights, qualifications, limitations and restrictions in respect of each class of authorized membership interests are as set forth in the Articles of Organization and all such designations, powers, preferences, rights, qualifications, limitations and restrictions are valid, binding and enforceable and in accordance with all applicable laws; all outstanding membership interests have been duly authorized and validly issued and are fully paid and nonassessable; all of the outstanding securities were issued in compliance with all applicable Federal and state securities laws; none of the outstanding securities has been issued in violation of any preemptive rights, rights of first refusal or similar rights; there are no outstanding options, warrants, convertible


INVESTMENT AND LOAN AGREEMENT PAGE 10


securities, calls, rights, commitments, preemptive rights or agreements or instruments or understandings of any character, to which the Company is a party or by which it is bound, obligating it to issue, deliver or sell, or cause to be issued, delivered or sold, contingently or otherwise, additional membership interests or any securities or obligations convertible into or exchangeable for such shares or to grant, extend or enter into any such option, warrant, convertible security, call, right, commitment, preemptive right or agreement; there are no outstanding obligations, contingent or otherwise, to purchase, redeem or otherwise acquire any membership interests of the Company; there are no voting trust agreements or other contracts, agreements, arrangements, commitments, plans or understandings restricting or otherwise relating to voting, dividend or other rights with respect to the Company's membership interests.


5.3 AUTHORIZATIONS, NO DEFAULTS, COMPLIANCE WITH LAWS. The execution,
------------------------------------------------- delivery and performance of the Loan Documents by the Company has been duly authorized by all necessary action, corporate or otherwise, and do not and will not (a) violate, conflict with, or result in a breach of any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect and applicable to the Company, or of the Articles of Organization or the Operating Agreement of the Company; or (b) create (with or without the giving of notice or lapse of time, or both) a breach of or a default under any indenture, loan, credit or borrowing agreement, or any other agreement, lease or instrument to which the Company is a party or by which its properties or assets may be bound or affected or result in the imposition of a lien or encumbrances of any nature whatsoever upon any of the properties or assets of the Company and the Company is not in default under any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or any indenture, loan, creditor borrowing agreement, or any other agreement, lease or instrument to which it is a party or by which it is bound, or by which its properties or assets may be bound or affected; and the Company has complied and is in compliance in all respects with all applicable laws, ordinances and regulations thereof. Notwithstanding the foregoing, the Company has disclosed to BET that execution of the Loan Documents requires the consent of FMAC under the terms of the FMAC Documents and the consent of Burger King Corporation under the terms of the Burger King Documents, which consents have been obtained pursuant to Section 5.4 below.


5.4 NO CONSENT. No consent or approval of any other party and no
---------- authorization, consent, approval, declaration, license or exemption of, or filing or registration with, any court or other governmental department, commission, board, bureau, agency or


INVESTMENT AND LOAN AGREEMENT PAGE 11


instrumentality, domestic or foreign, is or will be necessary in connection with the valid execution, delivery, performance validity, enforcement or priority of the Loan Documents or any lien, security interest, or encumbrance created and granted thereunder; except that the consent of FMAC is required under the FMAC Documents, which consent has been received by the Company; and the consent of Burger King Corporation is required under the Burger King Documents, which consent has been received by the Company.


5.5 BINDING OBLIGATION. The Loan Documents constitute, and any other
------------------ agreements or instruments when delivered by the Company will constitute, legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its terms.


5.6 FINANCIAL INFORMATION. All financial statements, balance sheets and
--------------------- operating statements of the Company provided to BET fairly present the financial condition of the Company as of the date of said statements and are true, accurate and correct in all material respects. The Company has no material obligations, liabilities or commitments, direct or contingent, which are not reflected in the aforementioned financial statements, balance sheets and operating statements. The monthly financial statements provided to BET are true, correct and accurate and have been prepare
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