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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SCHEDULE 13D
INFORMATION TO BE
INCLUDED IN STATEMENTS
FILED PURSUANT TO RULE 13d-1(a)
AND
AMENDMENTS THERETO FILED PURSUANT TO
RULE 13d-2(a)
Under the Securities Exchange Act of 1934
(Amendment No. 6)*
If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. o
Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See §240.13d-7 for other parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).
Item 1. Security and Issuer.
The class of equity securities to which this Amendment No. 6 to the joint statement on
Schedule 13D (“Amendment No. 6”) relates is the common stock, par value $0.001 per share (the
“Common Stock”) of Good Times Restaurant Inc. (the “Issuer”), a Nevada corporation with its
principal executive offices at 601 Corporate Circle, Golden, Colorado 80401. Items 3, 4, 5, 6 and
7 of a Statement on Schedule 13D previously filed by Erie County Investment Co., an Ohio
corporation (“Erie”), The Bailey Company, LLLP, a Colorado limited liability limited partnership
(“Bailey”), and Mr. Paul T. Bailey, an individual (“Mr. Bailey”), as amended, are further amended
as set forth below. Erie, Bailey and Mr. Bailey are sometimes referred to herein as “The Bailey
Group.”
Item 3. Source and Amount of Funds or Other Consideration.
No change except for the addition of the following:
On February 10, 2005, Erie acquired 180,000 shares of the Issuer’s Series B Convertible
Preferred Stock (the “Series B Stock”) in a private placement transaction for a purchase price of
$2.50 per share. The Series B Stock is convertible into Common Stock as set forth in Item 4. The
acquisition of the Series B Stock was funded from Erie’s working capital.
Item 4. Purpose of Transaction.
No change except for the addition of the following:
The Issuer and Erie entered into a Securities Purchase Agreement dated as of December 30,
2004, as amended (the “Purchase Agreement”), whereby Erie agreed to purchase 180,000 shares of
Series B Stock from the Issuer. The Issuer and Erie closed the
purchase of the Series B Stock pursuant to the Purchase
Agreement as of February 10, 2005. The 180,000 shares of Series B Stock initially will be convertible
into a total of 180,000 shares of Common Stock of the Issuer, subject to certain anti-dilution
adjustments. The Series B Stock will also rank senior to the Common Stock of the Issuer with
respect to dividends and rights upon liquidation, dissolution or winding up. The Series B Stock
will generally vote with the holders of Common Stock on all matters requiring a vote of the
stockholders of the Issuer on an as-converted basis. From and after February 10, 2006, the holders
of the Series B Stock, including Erie if still a holder, will be entitled to receive cumulative
cash dividends of $0.15 per share per annum. Upon liquidation, the holders of the Series B Stock,
including Erie if still a holder, will be entitled to an amount equal to $2.50 per share plus all
accrued and unpaid dividends prior to any distributions being made to the holders of Common Stock.
For a complete description of all terms of the Series B Stock, please review the Certificate of
Designation of the Series B Preferred Stock that is attached as
Exhibit 1
. In addition,
certain provisions of the Purchase Agreement will be discussed below; however, for a complete
understanding of the Purchase Agreement, please review the Purchase Agreement that is attached as
Exhibit 2
.
The Purchase Agreement provides certain participation rights to the purchasers of
Series B Stock. Therefore, before the Issuer may issue any new securities, the Issuer must offer
to Erie, along with the other purchasers of Series B Stock, the right, for a period of 15 days, to
purchase for cash at the price for which such securities are being issued a number of shares of
such securities
so that Erie will continue to hold the same proportional equity interest in the Issuer. These
participation rights apply to Erie only as long as two-thirds of the Series B Stock, the Common Stock
issuable upon conversion of the Series B Stock, and the Common Stock held by Erie or its affiliates
on the date of the Purchase Agreement remain held by Erie or its affiliates. These participation
rights do not apply to certain issuances of securities, including securities issued pursuant to an
acquisition or a public offering of securities.
The Issuer and Erie have entered into a Stock Restriction and Registration Rights Agreement.
The Issuer has agreed to file, at its expense, a registration statement covering resales of the
Common Stock issuable upon the conversion of the Series B Stock.
Erie and Bailey also entered into a
Supplemental Stock Restriction and Registration Rights Agreement, as amended (the “Supplemental
Agreement”) whereby it received the same registration rights and became subject to the same resale
restrictions for 821,521 shares of Common Stock currently held by Bailey as a result of Bailey’s
conversion of the Issuer’s prior Series A Convertible Preferred Stock. The Stock Restriction and
Registration Rights Agreement is attached as
Exhibit 3
. The Supplemental Agreement is
attached as
Exhibit 4
. An amendment to the Supplemental
Agreement that added Bailey as a
party to the Supplemental Agreement is attached as
Exhibit 5
.
The Purchase Agreement provides that notwithstanding any provision to the contrary of the
Certificate of Designation, for so long as at least two-thirds of the Series B Stock, the Common
Stock issuable upon conversion of the Series B Stock, and the Common Stock held by Erie or its
affiliates on the date of this Agreement, in the aggregate, remain held by Erie or its affiliates,
the Issuer shall not institute:
The Purchase Agreement provides that Erie may only transfer all or any portion of or interest
in its Series B Stock for value pursuant to a bona fide offer to purchase. If Erie desires to sell
its Series B Stock pursuant to such an offer, it must give the Issuer notice which must contain a
description of all of the material terms and conditions of the offer and a copy of it, if any. The
Issuer will then have a period of 15 days to determine whether to purchase all of Erie’s Series B
Stock upon the terms and conditions contained in the offer to purchase.
The Purchase Agreement also provides that Erie voting together as a separate class will
have the right to elect three directors of the Issuer’s board of directors, two of whom shall meet
the independence criteria of Nasdaq and of any other rules and regulations applicable to the
Issuer. However, to the extent that the number of outstanding shares of Series B Stock and the
number of shares of Common Stock which are held by Erie are diminished as a result of sale or other
transfer, the number of directors of the Issuer’s board of directors which may be elected by Erie
shall be proportionately reduced or eliminated to the extent that total number of such shares is
nearer to two-thirds, one-third or zero compared to the initial total number thereof. In
consideration of the foregoing rights, Erie will not participate in the election of directors
provisions of the Certificate of Designations.
Except as described in this Item 4, none of the Reporting Persons has any present plans or
proposals which relate to or would result in any transaction, change or event specified in clauses
(a)
through (j) of Item 4 of Schedule 13D, though as a significant stockholder of the Issuer, the
Reporting Persons may, from time to time, consider one or more of such actions.
Item 5. Interest in Securities of the Issuer.
No change except for restatement of (a) and (b) and the addition to (c) as follows:
(a) Bailey is the direct beneficial owner of 821,512 shares of Common Stock, representing
approximately 34.9% of the voting power of the outstanding Common Stock based upon 2,354,710 shares
of Common Stock outstanding as of December 13, 2004 (the “Outstanding Shares”), as set forth in the
Issuer’s Proxy Statement filed on January 13, 2005. Erie and Mr. Bailey are the direct beneficial
owners of 1,034,792 shares and 1,092,792 shares of Common Stock, respectively, which represent
approximately 40.8% and 43.1%, respectively, of the Outstanding Shares plus the 180,000 shares of
Common Stock the Series B Preferred owned by Erie are convertible into.
(b) Bailey, Erie and Mr. Bailey may be deemed to share voting and dispositive power over the
821,512 shares of Common Stock held directly by Bailey. Erie and Mr. Bailey may be deemed to share
voting and dispositive power over the 33,280 shares of Common Stock and 180,000 shares of Series B
Stock held directly by Erie. Mr. Bailey has sole voting and dispositive power over the 58,000
shares of Common Stock held directly by Mr. Bailey.
(c) The following transactions in the Issuer’s securities have occurred within the last sixty
days by Erie, which purchase was a privately-negotiated transaction.
Item 6. Contracts, Arrangements, Understandings or Relationships With Respect to Securities of the Issuer.
No change except for the addition of the following:
The descriptions of the Purchase Agreement, the Series B Stock, the Stock Restriction
and Registration Rights Agreement and the Supplemental Agreement in Item 4 above are incorporated
herein by reference in their entirety.
Item 7. Material to be filed as Exhibits.
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete and correct.
Date: February 14, 2005
THE BAILEY COMPANY, LLLP, a Colorado limited
liability limited partnership
THE ERIE INVESTMENT CO., an Ohio corporation, its
general partner
EXHIBIT 1
Joint Filing Agreement
In accordance with Rule 13d-1(f) under the Securities Exchange Act of 1934, as amended, the
undersigned hereby agree to this Amendment No. 6 to the joint filing with all other Reporting
Persons (as such term is defined in the Schedule 13D referred to below) on behalf of each of them
of a statement on Schedule 13D (including amendments thereto) with respect to the Common Stock, par
value $.001 per share, of Good Times Restaurants Inc. This Agreement may be executed in any number
of counterparts all of which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned hereby execute this Agreement this 14th day of February
2005.
Date: February 14, 2005
THE BAILEY COMPANY, LLLP, a Colorado limited
liability limited partnership
THE ERIE INVESTMENT CO., an Ohio corporation, its
general partner
Index to Exhibits
CUSIP No. 0003821401
Page 2
of 10
1.
Name of Reporting Person:
The Bailey Company,
LLLP
I.R.S. Identification Nos. of above persons (entities
only):
84-0584467
2.
Check the Appropriate Box if a Member of a Group (See
Instructions):
(a)
o
(b)
o
3.
SEC Use Only:
4.
Source of Funds (See Instructions):
AF
5.
Check if Disclosure of Legal Proceedings Is Required
Pursuant to Items 2(d) or 2(e):
o
6.
Citizenship or Place of Organization:
Colorado,
United States
Number
of
Shares
Beneficially
Owned by
Each Reporting
Person
With
7.
Sole Voting Power:
821,512
8.
Shared Voting
Power:
0
9.
Sole Dispositive
Power:
821,512
10.
Shared Dispositive
Power:
0
11.
Aggregate Amount Beneficially
Owned by Each Reporting Person:
821,512
12.
Check if the Aggregate Amount in
Row (11) Excludes Certain Shares (See Instructions):
o
13.
Percent of Class Represented by
Amount in Row (11):
34.9%
14.
Type of Reporting Person (See
Instructions):
PN
CUSIP No. 0003821401
Page 3
of 10
1.
Name of Reporting Person:
The Erie County Investment
Co.
I.R.S. Identification Nos. of above persons (entities
only):
34-4227790
2.
Check the Appropriate Box if a Member of a Group (See
Instructions):
(a)
o
(b)
o
3.
SEC Use Only:
4.
Source of Funds (See Instructions):
WC
5.
Check if Disclosure of Legal Proceedings Is Required
Pursuant to Items 2(d) or 2(e):
o
6.
Citizenship or Place of Organization:
United States
of America
Number
of
Shares
Beneficially
Owned by
Each Reporting
Person
With
7.
Sole Voting Power:
0
8.
Shared Voting
Power:
1,034,792
9.
Sole Dispositive
Power:
0
10.
Shared Dispositive
Power:
1,034,792
11.
Aggregate Amount Beneficially
Owned by Each Reporting Person:
1,034,792
12.
Check if the Aggregate Amount in
Row (11) Excludes Certain Shares (See Instructions):
o
13.
Percent of Class Represented by
Amount in Row (11):
40.8%
14.
Type of Reporting Person (See
Instructions):
CO
CUSIP No. 0003821401
Page 4
of 10
1.
Name of Reporting Person:
Paul T. Bailey
I.R.S. Identification Nos. of above persons (entities
only):
2.
Check the Appropriate Box if a Member of a Group (See
Instructions):
(a)
o
(b)
o
3.
SEC Use Only:
4.
Source of Funds (See Instructions):
AF
5.
Check if Disclosure of Legal Proceedings Is Required
Pursuant to Items 2(d) or 2(e):
o
6.
Citizenship or Place of Organization:
United States
of America
Number
of
Shares
Beneficially
Owned by
Each Reporting
Person
With
7.
Sole Voting Power:
58,000
8.
Shared Voting
Power:
1,034,792
9.
Sole Dispositive
Power:
58,000
10.
Shared Dispositive
Power:
1,034,792
11.
Aggregate Amount Beneficially
Owned by Each Reporting Person:
1,092,792
12.
Check if the Aggregate Amount in
Row (11) Excludes Certain Shares (See Instructions):
o
13.
Percent of Class Represented by
Amount in Row (11):
43.1%
14.
Type of Reporting Person (See
Instructions):
IN
CUSIP No.
0003821401
13D
Page 5 of 10 Pages
CUSIP No.
0003821401
13D
Page 6 of 10 Pages
any increase in the outstanding shares of preferred stock of any class or series without the
prior written consent of Erie; or
any amendment of the Certificate of Designation which materially adversely affects the
rights and preferences of the Series B Stock.
CUSIP No.
0003821401
13D
Page 7 of 10 Pages
Date
Shares of Series B Stock
Approximate Price Per Share ($)
2/10/05
180,000
$2.50
CUSIP No.
0003821401
13D
Page 8 of 10 Pages
Certificate of Designation of the Series B Preferred Stock
Securities Purchase Agreement dated as of December 30, 2004
between Good Times Restaurants Inc. and The Erie County
Investment Co. (previously filed as Exhibit 10.2 to the
Issuer’s Current Report on Form 8-K filed on January 3, 2005
(File No. 000-18590) and incorporated herein by reference,
which Current Report erroneously lists The Bailey Company,
LLLP as a party)
Stock Restriction and Registration Rights Agreement dated as
of December 30, 2004 among Good Times Restaurants Inc. and The
Erie County Investment Co. (previously filed as Exhibit 10.5
to the registrant’s Current Report on Form 8-K filed on
January 3, 2005 (File No. 000-18590) and incorporated herein
by reference, which Current Report erroneously lists The
Bailey Company, LLLP as a party)
Supplemental Registration Rights Agreement dated as of
December 30, 2004 between Good Times Restaurants Inc. and The
Bailey Company, LLLP (previously filed as Exhibit 10.7 to the
registrant’s Current Report on Form 8-K on January 3, 2005
(File No. 000-18590) and incorporated herein by reference)
Amendment to Supplemental Stock Restriction and Registration
Rights Agreement dated as of February 8, 2005 among Good Times
Restaurants Inc., The Erie County Investment Co., and The
Bailey Company, LLLP
CUSIP No.
0003821401
13D
Page 9 of 10 Pages
By:
THE ERIE COUNTY INVESTMENT CO., an Ohio corporation, its general partner
By:
/s/ William D. Whitehurst
William D. Whitehurst, Vice President
By:
/s/ William D. Whitehurst
William D. Whitehurst, Vice President
By:
/s/ William D. Whitehurst
Paul T. Bailey
By: William D. Whitehurst
By Power of Attorney
CUSIP No.
0003821401
13D
Page 10 of 10 Pages
By:
THE ERIE COUNTY INVESTMENT CO., an Ohio corporation, its general partner
By:
/s/ William D. Whitehurst
William D. Whitehurst, Vice President
By:
/s/ William D. Whitehurst
William D. Whitehurst, Vice President
By:
/s/ William D. Whitehurst
Paul T. Bailey
By: William D. Whitehurst
By Power of Attorney
Number
Description
Certificate of Designation of the Series B Preferred Stock
Securities Purchase Agreement dated as of December 30, 2004
between Good Times Restaurants Inc. and The Erie County
Investment Co. (previously filed as Exhibit 10.2 to the
Issuer’s Current Report on Form 8-K filed on January 3, 2005
(File No. 000-18590) and incorporated herein by reference,
which Current Report erroneously lists The Bailey Company,
LLLP as a party)
Stock Restriction and Registration Rights Agreement dated as
of December 30, 2004 among Good Times Restaurants Inc. and The
Erie County Investment Co. (previously filed as Exhibit 10.5
to the registrant’s Current Report on Form 8-K filed on
January 3, 2005 (File No. 000-18590) and incorporated herein
by reference, which Current Report erroneously lists The
Bailey Company, LLLP as a party)
Supplemental Registration Rights Agreement dated as of
December 30, 2004 between Good Times Restaurants Inc. and The
Bailey Company, LLLP (previously filed as Exhibit 10.7 to the
registrant’s Current Report on Form 8-K on January 3, 2005
(File No. 000-18590) and incorporated herein by reference)
Amendment to Supplemental Stock Restriction and Registration
Rights Agreement dated as of February 8, 2005 among Good Times
Restaurants Inc., The Erie County Investment Co., and The
Bailey Company, LLLP
EXHIBIT 99.1
AMENDMENT TO
SUPPLEMENTAL STOCK RESTRICTION AND
This Amendment (the “Amendment“) to the Supplemental Stock Restriction and Registration Rights Agreement (the “Supplemental Agreement”) dated as of December 30, 2004, by and between Good Times Restaurants Inc., a Nevada corporation (the “Company”), and The Erie County Investment Co., an Ohio corporation (“Erie”), is executed by the Company, Erie and The Bailey Company, LLLP, a Colorado limited liability limited partnership which is 99%-owned by Erie (“The Bailey Company”) (with Erie and The Bailey Company hereinafter collectively referred to as the “Investors”), effective as of February , 2005.
RECITALS
WHEREAS, the Company and the Investors desire to specify the correct shares of Additional Common Stock that shall be subject to the Supplemental Agreement; and
WHEREAS, all capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Supplemental Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual agreements contained herein, and other good and valuable consideration, the receipt, adequacy and legal sufficiency of which are hereby expressly acknowledged, and intending to be legally bound hereby, the Company and each of the Investors (severally and not jointly) hereby agree as follows:
AGREEMENT
1. Amendment to Shares of Additional Common Stock Subject to Supplemental Agreement . The Supplemental Agreement is hereby amended to reflect that the shares of Additional Common Stock that shall be subject to the Supplemental Agreement shall be the total of 821,512 shares of Common Stock held by The Bailey Company as a result of The Bailey Company’s conversion of the Company’s prior Series A Convertible Preferred Stock. By executing this Amendment, The Bailey Company shall become a party to the Supplemental Agreement.
2. Incorporation of Amendment and Remainder of Supplemental Agreement . The terms and provisions of Section 1 of this Amendment are hereby incorporated into the Supplemental Agreement and, except for the amendment provisions herein contained, all of the terms and provisions of the Supplemental Agreement shall remain in full force and effect, unaltered and unchanged by this Amendment. To the extent that the terms and provisions of this Amendment conflict with the terms and provisions of the Supplemental Agreement, the terms and provisions of this Amendment shall control.
3. Counterparts; Delivery of Signed Amendment by Facsimile . This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same Amendment and shall become effective when counterparts have been signed by each party and delivered to the other parties. This Amendment, once executed by a party, may be delivered to the other parties hereto by facsimile transmission of a copy of this Amendment bearing the signature of the party so delivering this Amendment.
IN WITNESS WHEREOF, the Company and the undersigned Investors have caused this Amendment to be duly executed as of February , 2005.
THE COMPANY:
GOOD TIMES RESTAURANTS INC.,
a Nevada corporation
| By: |
Boyd E. Hoback, President and Chief Executive Officer |
INVESTORS:
THE ERIE COUNTY INVESTMENT CO.,
an Ohio corporation
| By: |
David E. Bailey, President |
THE BAILEY COMPANY, LLLP
a Colorado limited liability limited partnership
| By: |
|
| Printed name: |
|
| Title: |
|
2
EXHIBIT 99.5
CERTIFICATE OF
Good Times Restaurants Inc., a corporation organized under the laws of the State of Nevada (the “Corporation”), by its President does hereby certify:
RESOLVED , that pursuant to the authority granted and vested in the Board of Directors (the “ Board of Directors ”) of Good Times Restaurants Inc. (the “ Corporation ”) in accordance with the provisions of its Articles of Incorporation, the Board of Directors hereby designates a Series B Convertible Preferred Stock of the Corporation’s previously authorized Preferred Stock, par value $.01 per share and hereby states the number of shares and fixes the rights, preferences, privileges, powers and restrictions thereof as follows:
1. Series B Convertible Preferred Stock . One million two hundred forty thousand shares of Preferred Stock shall be designated as Series B Convertible Preferred Stock and shall have the following privileges, powers, preferences, rights and restrictions as follows:
(a) Number of Shares . The series of Preferred Stock designated and known as Series B Convertible Preferred Stock shall consist of 1,240,000 shares.
(b) Voting .
(i) General . Except as may be otherwise provided in this Certificate or by law, the Series B Convertible Preferred Stock shall vote together with all other classes and series of stock of the Corporation as a single class on all actions to be taken by the stockholders of the Corporation. Each share of Series B Convertible Preferred Stock shall entitle the holder thereof to a number of votes for each share on each action as shall equal the quotient of (x) the $2.50 per share purchase price for such share of Series B Convertible Preferred Stock paid to the Corporation on the date of issuance of such share (the “Initial Issuance Date”), divided by
(y) the greater of (A) the closing per share market price of the Common Stock as reported on the Nasdaq SmallCap Market on the Initial Issuance Date, or (B) the $2.50 per share purchase price for such share of Series B Convertible Preferred Stock paid to the Corporation on the Initial Issuance Date. In case the Corporation shall at any time subdivide (by stock split, stock dividend or otherwise) its outstanding shares of Common Stock into a greater number of shares, the number of votes for each share of Series B Convertible Preferred Stock in effect immediately before such action shall be proportionately increased. In case the Corporation shall at any time combine (by reverse stock split or otherwise) its outstanding shares of Common Stock into a lesser number of shares, the number of votes for each share of Series B Convertible Preferred Stock in effect immediately before such action shall be proportionately decreased.
(ii) Board Size . For so long as at least two-thirds of the shares of Series B Convertible Preferred Stock remains outstanding and for so long as at least two-thirds of the shares of Common Stock into which the Series B Convertible Preferred Stock has been converted remains held by the former holders of such converted Series B Convertible Preferred Stock, or by the affiliates of such former holders, the Corporation shall not, without the written consent or affirmative vote of the holders of at least three-quarters of the then outstanding votes of the shares of the Series B Convertible Preferred Stock and of all outstanding shares of Common Stock, increase the maximum number of Directors constituting the Board of Directors of the Corporation to a number in excess of seven.
(iii) Board Seats . The holders of the Series B Convertible Preferred Stock and of the shares of Common Stock into which the Series B Convertible Preferred Stock has been converted voting together as a separate class shall have the right to elect three Directors of the Board of Directors of the Corporation. Notwithstanding the foregoing, to the extent that the number of outstanding shares of Series B Convertible Preferred Stock and the number of shares of Common Stock into which the Series B Convertible Preferred Stock has been converted which are held by the former holders of such converted Series B Convertible Preferred Stock, or by the affiliates of such former holders, are reduced as a result of sale or other transfer, the number of Directors of the Board of Directors of the Corporation which may be elected by the holders thereof shall be proportionately reduced or eliminated to the extent that total number of such shares is nearer to 66? percent, 33? percent or zero percent of the initial total number thereof. At any meeting (or in a written consent in lieu thereof) held for the purpose of electing Directors, the presence in person or by proxy (or the written consent) of the holders of a majority of the shares
2
of Series B Convertible Preferred Stock then outstanding and of the shares of Common Stock into which the Series B Convertible Preferred Stock has been converted which are held by the former holders of such converted Series B Convertible Preferred Stock, or by the affiliates of such former holders, shall constitute a quorum for the election of the foregoing Directors. A vacancy in any directorship elected pursuant to this paragraph by the holders of the Series B Convertible Preferred Stock and the shares of Common Stock into which the Series B Convertible Preferred Stock has been converted shall be filled only by vote or written consent of such holders.
(c) Dividends . From and after February 10, 2006, the holders of the Series B Convertible Preferred Stock shall be entitled to receive, out of funds legally available therefor cumulative cash dividends on each share of Series B Convertible Preferred Stock equal to $0.15 per annum (the “Accruing Dividend”). The Accruing Dividend shall accrue with respect to each share of Series B Convertible Preferred Stock issued and outstanding from day to day from February 10, 2006 and shall be payable quarterly on May 15, August 15, November 15 and February 15 of each year (each a “Payment Date”) commencing May 15, 2006, and such dividends shall be cumulative if not paid. Notwithstanding anything to the contrary contained in the foregoing, if at any time the aggregate cash flow of the Corporation for its four preceding fiscal quarters is less than 150 percent of the Corporation’s aggregate principal and interest debt payments and capital lease payments during that period, as determined in the good faith discretion of the Board of Directors, the Accruing Dividend shall not be payable until a Payment Date upon which the foregoing condition no longer exists. At such Payment Date the Corporation shall pay the Accruing Dividend due on that Payment Date together with any other previously unpaid Accruing Dividends to the extent that the subtraction of such previously unpaid Accruing Dividends and of the Accruing Dividend due and paid on such Payment Date from aggregate cash flow for such four preceding fiscal quarters does not cause the aggregate cash flow for such four preceding fiscal quarters to become less than 150 percent of the Corporation’s aggregate principal and interest debt payments and capital lease payments during that period. Cash flow of the Corporation shall mean the Corporation’s net income plus interest, depreciation and amortization expenses, plus or minus other non-cash adjustments to net income and less Accruing Dividends paid during the applicable fiscal quarters, as determined in the good faith discretion of the Board of Directors.
(d) Liquidation . Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the shares of Series B Convertible Preferred Stock shall first be entitled, before any distribution or payment is made upon any Common Stock or upon any other stock ranking junior to the Series B Convertible Preferred Stock with respect to rights and preferences upon liquidation, to be paid an amount equal to $2.50 per share plus, in the case of each share, an amount equal
3
to all Accruing Dividends accrued but unpaid thereon computed to the date payment thereof is made (the “Liquidation Preference Payment”). If upon such liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets to be distributed among the holders of Series B Convertible Preferred Stock shall be insufficient to permit payment in full to the holders of Series B Convertible Stock of the Liquidation Preference Payments, then the entire assets of the Corporation to be so distributed shall be distributed ratably among the holders of Series B Convertible Preferred Stock. Upon any such liquidation, dissolution or winding up of the Corporation, immediately after the holders of Series B Convertible Preferred Stock shall have been paid in full the Liquidation Preference Payments, the remaining net assets of the Corporation available for distribution shall be distributed among the holders of stock ranking junior to the Series B Convertible Preferred Stock with respect to rights and preferences upon liquidation. Written notice of such liquidation, dissolution or winding up, stating a payment date, the amount of the Liquidation Preference Payments and the place where such Liquidation Preference Payments shall be payable, shall be delivered in person, mailed by certified or registered mail, return receipt requested, or sent by telecopier, not less than twenty days prior to the payment date stated therein, to the holders of record of Series B Convertible Preferred Stock, such notice to be addressed to each such holder at his address as shown by the records of the Corporation. The consolidation or merger of the Corporation into or with any other entity or entities which results in the exchange of more than fifty percent of the voting power or shares of the Corporation for securities or other consideration issued or paid or caused to be issued or paid by any such entity or affiliate thereof (other than a merger to reincorporate the Corporation in a different jurisdiction), and the sale, lease, transfer or other disposition (but exclusive of a collateral pledge) by the Corporation of all or substantially all its assets, shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of the provisions of this paragraph (d).
(e) Restrictions . For so long as at least two-thirds of the shares of Series B Convertible Preferred Stock remains outstanding and for so long as at least two-thirds of the shares of Common Stock into which the Series B Convertible Preferred Stock has been converted remains held by the former holders of such converted Series B Convertible Preferred Stock, without the written consent or affirmative vote of the holders of three-quarters of the then outstanding votes of the shares of the Series B Convertible Preferred Stock and the shares of the Common Stock, the Corporation shall not:
(i) Liquidate, dissolve or wind up the Corporation; consolidate or merge into or with any other entity or entities which results in the exchange of more than fifty percent of the voting power or shares of the Corporation (other than a merger to reincorporate the Corporation in a different jurisdiction); or sell, lease, abandon, transfer or otherwise dispose of in
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excess of substantially all of the Corporation’s total assets (but exclusive of a collateral pledge);
(ii) Amend, alter or repeal its Articles of Incorporation;
(iii) Institute any increase in the outstanding shares of Preferred Stock of any class or series;
(iv) Institute any amendment of the Bylaws of the Corporation which is directly detrimental to the rights and preferences of the Series B Convertible Preferred Stock; or
(v) Institute any payment of cash dividends or other distributions on any shares of Common Stock.
(f) Conversion . The holders of shares of Series B Convertible Preferred Stock shall have the following conversion rights:
(i) Right to Convert . Subject to the terms and conditions of this paragraph (f), the holders of Series B Convertible Preferred Stock shall have the right at any time to convert the shares of Series B Convertible Preferred Stock into an equal number of fully paid and nonassessable shares of Common Stock. Such right of conversion shall be exercised by the holder thereof by giving written notice to the Corporation stating that the holder elects to convert a stated number of shares of Series B Convertible Preferred Stock into Common Stock and by surrender of a certificate or certificates for the shares so to be converted to the Corporation at its principal office (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holders of the Series B Convertible Preferred Stock) at any time during its usual business hours on the date set forth in such notice, together with a statement of the name or names, with addresses, in which the certificate or certificates for shares of Common Stock shall be issued.
(ii) Issuance of Certificate; Time Conversion Effected . Promptly after the receipt of the written notice referred to in subparagraph (f)(i) and surrender of the certificate or certificates for the share or shares of Series B Convertible Preferred Stock to be converted, the Corporation shall issue and deliver, to the holder, registered in such name or names as such holder may direct, a certificate or certificates for an equal number of whole shares of Common Stock issuable upon the conversion of such shares of Series B Convertible Preferred Stock. Such conversion shall be deemed to have been effected as of the close of business on the date on which such written notice shall have been received by the Corporation and the certificate or
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certificates for such share or shares shall have been surrendered, and at such time the rights of the holder of such share or shares of Series B Convertible Preferred Stock shall cease and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby.
(iii) Fractional Shares; Dividends; Partial Conversion . No fractional shares shall be issued upon conversion of Series B Convertible Preferred Stock into Common Stock. If the number of shares of Series B Convertible Preferred Stock represented by the certificate or certificates surrendered pursuant to subparagraph (f)(i) exceeds the number of shares converted, the Corporation shall, upon such conversion, execute and deliver to the holder, at the expense of the Corporation, a new certificate or certificates for the number of shares of Series B Convertible Preferred Stock represented by the certificate or certificates surrendered which are not converted. If any fractional share of Common Stock would, except for the provisions of the first sentence of this subparagraph (f)(iii), be delivered upon such conversion, the Corporation, in lieu of delivering such fractional share, shall pay to the holder surrendering the Series B Convertible Preferred Stock for conversion an amount in cash equal to the current fair market value of such fractional share as determined in the good faith discretion of the Board of Directors of the Corporation.
(iv) Subdivision or Combination of Common Stock . In case the Corporation shall at any time subdivide (by stock split, stock dividend or otherwise) its outstanding shares of Common Stock into a greater number of shares, the number of shares of Common Stock into which the Series B Convertible Preferred Stock is convertible shall be proportionately increased. In case the Corporation shall at any time combine (by reverse stock split or otherwise) its outstanding shares of Common Stock into a lesser number of shares, the number of shares of Common Stock into which the Series B Convertible Preferred Stock is convertible shall be proportionately decreased.
(v) Reorganization or Reclassification . If any capital reorganization or reclassification of the capital stock of the Corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization or reclassification, lawful and adequate provisions shall be made whereby each holder of Series B Convertible Preferred Stock shall upon conversion of the Series B Convertible Preferred Stock as described in this Certificate
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have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately therefor receivable upon the conversion of such share or shares of Series B Convertible Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of such Common Stock immediately receivable upon such conversion had such reorganization or reclassification not taken place. In any such case, appropriate provisions shall be made with respect to the rights and interests of such holder to the end that the provisions hereof shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights.
(vi) Price Protection . In the event that the Corporation shall at any time issue any shares of Common Stock, or securities entitling the holder thereof to acquire shares of Common Stock, for a consideration of less than $2.50 per share of Common Stock, exclusive of any such issuance pursuant to commitments or rights outstanding on the date of this Certificate or pursuant to options or other equity incentives granted at any time to employees, consultants or Directors of the Corporation (provided that such excluded options or equity incentives are approved by a majority of the disinterested members of the Board of Directors of the Corporation), the number of shares into which the Series B Convertible Preferred Stock shall be convertible shall be increased by one hundred percent less a percentage resulting from a fraction the denominator of which is the number of shares of Common Stock outstanding at the time of such issuance plus the number of shares of Common Stock issued or issuable at such lesser consideration and the numerator of which is the number of shares of Common Stock of the Corporation outstanding at the time of such issuance plus the number of shares of Common Stock which would have been issued or issuable at a consideration of $2.50 per share. In the event of any subdivision or combination of Common Stock as described in paragraph (f)(iv), the foregoing $2.50 per share of Common Stock consideration shall be proportionately decreased or increased to reflect such changed number of outstanding shares of Common Stock.
(vii) Mandatory Conversion . Notwithstanding anything to the contrary contained in this Certificate, at any time on or after February 10, 2006, the Corporation by notice to the holders of the Series B Convertible Preferred Stock may require that all of the Series B Convertible Preferred Stock be converted to shares of Common Stock in accordance with the provisions of this Certificate provided that (i) at the time of such notice the Common Stock of the Corporation is listed for trading on a nationally
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recognized securities exchange or automated quotation system and for a continuous period of at least six months prior to the date of such notice the closing market price of the Common Stock on each day during such period has been greater than $5.00 per share and (ii) during the foregoing six-month period the Corporation has publicly reported its financial results for its most recently completed two fiscal quarters prior to the date of such notice. In the event of any subdivision or combination of the Common Stock of the Corporation as described in subparagraph (f)(iv) above, such $5.00 per share closing market price shall be proportionately decreased or increased to reflect such changed number of outstanding shares of Common Stock. At the time of each conversion, the Corporation shall pay in cash an amount equal to all Accruing Dividends unpaid on the shares of Series B Convertible Preferred Stock surrendered for conversion to the date upon which such conversion is deemed to take place as provided in subparagraph (f)(ii).
(g) Other Notices . In case at any time:
(i) the Corporation shall declare any dividend or other distribution upon its Common Stock payable in cash or stock or make any other distribution to the holders of its Common Stock;
(ii) the Corporation shall offer for subscription to the holders of its Common Stock any additional shares of stock of any class or other rights;
(iii) there shall be any capital reorganization or reclassification of the capital stock of the Corporation, or a consolidation or merger of the Corporation with or into another entity or entities which results in the issuance or exchange of more than fifty percent of the voting power or shares of the Corporation, or a sale, lease, abandonment, transfer or other disposition of all or substantially all its assets(exclusive of a collateral pledge); or
(iv) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation;
then, in any one or more of such cases, the Corporation shall give, by delivery in person, certified or registered mail, return receipt requested or telecopier, addressed to each holder of any shares of Series B Convertible Preferred Stock at the address of such holder as shown on the books of the Corporation, (a) at least ten days’ prior written notice of the date on which the books of the Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights in respect of any such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding up,
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and (b) in the case of any such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding up, at least ten days’ prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding up, as the case may be.
(h) Stock to be Reserved . The Corporation shall at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issuance upon the conversion of Series B Convertible Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding shares of Series B Convertible Preferred Stock. The Corporation covenants that all shares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof. The Corporation shall take all such action as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any requirement of any securities exchange upon which the Common Stock may be listed.
(i) No Reissuance of Series B Convertible Preferred Stock . Shares of Series B Convertible Preferred Stock which are converted into shares of Common Stock as provided herein shall not be reissued.
(j) Closing of Books . The corporation shall at no time close its transfer books against the transfer of any Series B Convertible Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series B Convertible Preferred Stock in any manner which interferes with the timely conversion of such Series B Convertible Preferred Stock, except as may otherwise be required to comply with applicable securities laws.
(k) Definition of Common Stock . As used herein, the term “Common Stock” shall mean and include the Corporation’s authorized Common Stock, par value $0.001 per share, as constituted on the date of this Certificate, and shall also include any capital stock of any class of the Corporation thereafter authorized which shall not be limited to a fixed sum or percentage in respect of the rights of the holders thereof to participate in dividends or in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation; provided that the shares of Common Stock receivable upon conversion of shares of Series B Convertible Preferred Stock shall include only shares designated as Common Stock of the Corporation on the
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date of this Certificate, or in case of any reorganization or reclassification of the outstanding shares thereof, the stock, securities or assets provided for in subparagraph (f)(v).
(l) Definition of Preferred Stock . As used herein, the term “Preferred Stock” shall mean and include the Corporation’s authorized preferred stock, par value $0.001 per share.
(m) Definition Affiliate . As used herein, the term “affiliate” shall mean a spouse, parent or child of the transferor, or a trust for the benefit thereof, or a business entity controlling, controlled by or under common control with the transferor.
2. Amendments . No provision of this Certificate of the terms of the Series B Convertible Preferred Stock may be amended, modified or waived without the written consent or affirmative vote of the holders of at least three-quarters of the then outstanding shares of Series B Convertible Preferred Stock.
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the Corporation by its President and Chief Executive Officer this day of February, 2005.
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GOOD TIMES RESTAURANTS INC.
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| By: | ||||
| Boyd E. Hoback, President and | ||||
| Chief Executive Officer | ||||
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