Exhibit 10
QUALITY FOOD BRANDS, INC.
SECURITIES PURCHASE AGREEMENT
May 18, 2007
TABLE OF CONTENTS
Page
1. Agreement to Sell and Purchase..........................................................................1
2. Fees and Common Stock...................................................................................1
3. Closing, Delivery and Payment...........................................................................2
3.1 Closing.......................................................................................2
3.2 Delivery......................................................................................2
4. Representations and Warranties of the Company...........................................................2
4.1 Organization, Good Standing and Qualification.................................................2
4.2 Subsidiaries..................................................................................3
4.3 Capitalization; Voting Rights.................................................................3
4.4 Authorization; Binding Obligations............................................................4
4.5 Liabilities...................................................................................5
4.6 Agreements; Action............................................................................5
4.7 Obligations to Related Parties................................................................6
4.8 Changes.......................................................................................7
4.9 Title to Properties and Assets; Liens, Etc....................................................8
4.10 Intellectual Property.........................................................................9
4.11 Compliance with Other Instruments............................................................10
4.12 Litigation...................................................................................10
4.13 Tax Returns and Payments.....................................................................10
4.14 Employees....................................................................................11
4.15 Registration Rights and Voting Rights........................................................11
4.16 Compliance with Laws; Permits................................................................11
4.17 Environmental and Safety Laws................................................................12
4.18 Valid Offering...............................................................................12
4.19 Full Disclosure..............................................................................12
4.20 Insurance....................................................................................13
4.21 SEC Reports..................................................................................13
4.22 Stop Transfer................................................................................13
4.23 Dilution. ...................................................................................13
4.24 Patriot Act..................................................................................13
4.25 ERISA. ......................................................................................14
5. Representations and Warranties of the Purchaser........................................................14
5.1 No Shorting..................................................................................14
5.2 Requisite Power and Authority................................................................14
5.3 Investment Representations...................................................................14
5.4 Purchaser Bears Economic Risk................................................................15
5.5 Acquisition for Own Account..................................................................15
5.6 Purchaser Can Protect Its Interest...........................................................15
5.7 Accredited Investor..........................................................................15
5.8 Legends......................................................................................15
6. Covenants of the Company...............................................................................16
6.1 Stop-Orders..................................................................................16
6.2 Listing......................................................................................16
6.3 Market Regulations...........................................................................17
6.4 Reporting Requirements.......................................................................17
6.5 Use of Funds.................................................................................18
6.6 Access to Facilities.........................................................................18
6.7 Taxes........................................................................................19
6.8 Insurance....................................................................................19
6.9 Intellectual Property........................................................................20
6.10 Properties...................................................................................20
6.11 Confidentiality..............................................................................20
6.12 Required Approvals...........................................................................20
6.13 Reissuance of Securities.....................................................................22
6.14 Opinion......................................................................................22
7. Covenants of the Purchaser.............................................................................22
7.1 Confidentiality..............................................................................22
7.2 Non-Public Information.......................................................................23
7.3 Limitation on Acquisition and Issuance of Stock..............................................23
8. Covenants of the Company and Purchaser Regarding Indemnification.......................................23
8.1 Company Indemnification......................................................................23
8.2 Purchaser's Indemnification..................................................................23
9. Additional Restrictions................................................................................23
9.1 Offering Restrictions........................................................................24
10. Miscellaneous..........................................................................................24
10.1 Governing Law................................................................................24
10.2 Survival.....................................................................................24
10.3 Successors...................................................................................24
10.4 Entire Agreement.............................................................................25
10.5 Severability.................................................................................25
10.6 Amendment and Waiver.........................................................................25
10.7 Delays or Omissions..........................................................................25
10.8 Notices......................................................................................25
10.9 Attorneys' Fees..............................................................................26
10.10 Titles and Subtitles.........................................................................27
10.11 Facsimile Signatures; Counterparts...........................................................27
10.12 Broker's Fees................................................................................27
10.13 Construction.................................................................................27
10.14 Right of First Refusal. .....................................................................27
10.15 Third Party Beneficiary. ....................................................................27
Form of Term Note................................................................................... Exhibit A
Form of Opinion..................................................................................... Exhibit B
Form of Warrant... Exhibit C
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of May 18, 2007, by and between Quality Food Brands, Inc., a Nevada
corporation (the "Company"), and Laurus Master Fund, Ltd., a Cayman Islands
company (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a Secured Term
Note in the aggregate principal amount of four million seven hundred fifty
thousand dollars ($4,750,000) (as amended, modified or supplemented from time to
time, the "Note");
WHEREAS, the Company wishes to issue to the Purchaser a warrant in the form of
Exhibit C hereto (as amended, modified and/or supplemented from time to time,
the "Warrant") to purchase up to 30%, on fully diluted basis of the outstanding
shares of the Company's Common Stock (subject to adjustment as set forth
therein) in connection with the Purchaser's purchase of the Note;
WHEREAS, Purchaser desires to purchase the Note and the Warrant on the terms and
conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant to Purchaser
on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Agreement to Sell and Purchase. Pursuant to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company, a Note in the aggregate principal amount of
$4,750,000. The Note purchased on the Closing Date shall be known as the
"Offering." A form of the Note is annexed hereto as Exhibit A. The Note will
mature on the Maturity Date (as defined in the Note). Collectively, the Note,
the Warrant and Common Stock issuable upon exercise of the Warrant are referred
to as the "Securities."
2. Fees and Common Stock. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser the Warrant to purchase
up to that number of shares of Common Stock of the Company equal to 30% of the
shares of capital stock of the Company outstanding at the time of exercise,
calculated on a fully diluted basis (subject to adjustment as set forth therein)
in connection with the Offering, pursuant to Section 1 hereof. All the
representations, covenants, warranties, undertakings, and indemnification, and
other rights made or granted to or for the benefit of the Purchaser by the
Company are hereby also made and granted for the benefit of the holder of the
Warrant and shares of the Company's Common Stock issuable upon exercise of the
Warrant (the "Warrant Shares")
(b) The Company shall reimburse the Purchaser for its reasonable legal fees for
services rendered to the Purchaser in preparation of this Agreement and the
Related Agreements (as hereinafter defined), and expenses incurred in connection
with the Purchaser's due diligence review of the Company and its Subsidiaries
(as defined in Section 4.2) and all related matters. Amounts required to be paid
under this Section 2(b) will be paid on the Closing Date and shall be $[0] for
legal fees and for expenses incurred while performing due diligence inquiries on
the Company and its Subsidiaries.
(c) The legal fees and the due diligence expenses (if any) shall be paid by the
Company at closing as set forth in a disbursement letter (the "Disbursement
Letter").
3. Closing, Delivery and Payment.
3.1 Closing. Subject to the terms and conditions herein, the closing of the
transactions contemplated hereby (the "Closing"), shall take place on the date
hereof, at such time or place as the Company and Purchaser may mutually agree
(such date is hereinafter referred to as the "Closing Date").
3.2 Delivery. At the Closing on the Closing Date, the Company will deliver to
the Purchaser, among other things, the Note and the Warrant and the Purchaser
will apply the amounts set forth in the Disbursement Letter in payment of
amounts due under the Bill of Sale and Trademark Assignment relating to the
Loretta Assets (as defined below). The Company hereby acknowledges and agrees
that Purchaser's obligation to purchase the Note from the Company on the Closing
Date shall be contingent upon the satisfaction (or waiver by the Purchaser in
its sole discretion) of the items and matters set forth in the closing checklist
provided by the Purchaser to the Company on or prior to the Closing Date.
4. Representations and Warranties of the Company. The Company, in reliance where
appropriate upon the representations and warranties given to the Company by the
Purchaser in writing in respect of the assets purchased through foreclosure by
the Company from the Purchaser as secured creditor of Loretta Baking Mix
Products Ltd. as more fully described in that certain Bill of Sale, dated as of
the date hereof by and between the Company and the Purchaser (the "Loretta
Assets"), hereby represents and warrants to the Purchaser as follows:
4.1 Organization, Good Standing and Qualification. Each of the Company and each
of its Subsidiaries is a corporation, partnership or limited liability company,
as the case may be, duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization. Each of the Company and each of
its Subsidiaries has the corporate power and authority to own and operate its
properties and assets, and (1) to execute and deliver, to the extent a party
thereto and to the extent applicable, (i) this Agreement, (ii) the Note and the
Warrant to be issued in connection with this Agreement, (iii) that certain
Master Security Agreement dated as of the date hereof by and among the Company
and the Purchaser (as amended, modified or supplemented from time to time, the
"Master Security Agreement") and (iv) all other agreements related to this
Agreement, the Note and the Warrant and referred to herein, including, without
limitation, that certain Subordination and Intercreditor Agreement, dated as of
the date hereof, by and among the Company, the Purchaser, Milfam I L.P. and
Lloyd I. Miller, III and that certain Right of First Refusal Agreement, dated as
of the date hereof, by and among the Company, the Purchaser and Milfam I L.P.
(the "RofR Agreement")(the preceding clauses (ii) through (iv), collectively,
the "Related Agreements"), (2) to issue and sell the Note, (3) to issue and sell
the Warrant and the Warrant Shares, and (4) to carry out the provisions of this
Agreement and the Related Agreements and to carry on its business as presently
conducted. Each of the Company and each of its Subsidiaries is duly qualified
and is authorized to do business and is in good standing as a foreign
corporation, partnership or limited liability company, as the case may be, in
all jurisdictions in which the nature of its activities and of its properties
(both owned and leased) makes such qualification necessary, except for those
jurisdictions in which failure to do so has not, or could not reasonably be
expected to have, individually or in the aggregate, a material adverse effect on
the business, assets, liabilities, condition (financial or otherwise),
properties, operations or prospects of the Company and its Subsidiaries, taken
individually and as a whole (a "Material Adverse Effect").
4.2 Subsidiaries. Each direct and indirect Subsidiary of the Company, the direct
owner of such Subsidiary and its percentage ownership thereof, is set forth on
Schedule 4.2. For the purpose of this Agreement, a "Subsidiary" of any person or
entity means (i) a corporation or other entity whose shares of stock or other
ownership interests having ordinary voting power (other than stock or other
ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors of such corporation, or other
persons or entities performing similar functions for such person or entity, are
owned, directly or indirectly, by such person or entity or (ii) a corporation or
other entity in which such person or entity owns, directly or indirectly, more
than 50% of the equity interests at such time, provided that, notwithstanding
the foregoing, the entities (x) designated as immaterial subsidiaries on
Schedule 4.2 and (y) and such other entities designated by the Company in
writing to the Purchaser after the date hereof (collectively, the "Immaterial
Subsidiaries") shall be explicitly excluded from the definition of "Subsidiary"
for the purposes of this Agreement and the Related Agreements, solely to the
extent that such Immaterial Subsidiaries do not own any assets (other than
immaterial assets) or have any liabilities (other than immaterial liabilities).
4.3 Capitalization; Voting Rights.
(a) The authorized and issued capital stock of the Company and each Subsidiary
of the Company is as set forth on Schedule 4.3.
(b) Other than: (i) the shares reserved for issuance under the Company's stock
option plans; and (ii) shares which may be granted pursuant to this Agreement
and the Related Agreements, there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal), proxy
or stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. Except as
disclosed on Schedule 4.3, neither the offer, issuance or sale of any of the
Note, the Warrant or the Warrant Shares, nor the consummation of any transaction
contemplated hereby will result in a change in the price or number of any
securities of the Company outstanding, under anti-dilution or other similar
provisions contained in or affecting any such securities.
(c) All issued and outstanding shares of the Company's Common Stock: (i) have
been duly authorized and validly issued and are fully paid and nonassessable;
and (ii) were issued in compliance with all applicable state and federal laws
concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the shares of the
Common Stock are as stated in the Company's Certificate of Incorporation (the
"Charter"). The Warrant Shares have been duly and validly reserved for issuance.
When issued in compliance with the provisions of this Agreement and the
Company's Charter, the Securities will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances; provided, however,
that the Securities may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein or as otherwise required by
such laws at the time a transfer is proposed.
4.4 Authorization; Binding Obligations. All corporate, partnership or limited
liability company, as the case may be, action on the part of the Company and
each of its Subsidiaries (including their respective officers and directors)
necessary for the authorization of this Agreement and the Related Agreements,
the performance of all obligations of the Company and its Subsidiaries hereunder
and under the other Related Agreements at the Closing and, the authorization,
sale, issuance and delivery of the Note, the Warrant and the Warrant Shares has
been taken or will be taken prior to the Closing. This Agreement and the other
Related Agreements, when executed and delivered and to the extent it is a party
thereto, will be valid and binding obligations of each of the Company and each
of its Subsidiaries, enforceable against each such person in accordance with
their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application affecting enforcement of creditors' rights;
and
(b) general principles of equity that restrict the availability of equitable or
legal remedies.
The sale of the Note is not and will not be subject to any preemptive rights or
rights of first refusal that have not been properly waived or complied with. The
issuance of each of the Warrant and the Warrant Shares is not and will not be
subject to any preemptive rights or rights of first refusal that have not been
properly waived or complied with.
4.5 Liabilities. Neither the Company nor any of its Subsidiaries has any
contingent liabilities, except current liabilities incurred in the ordinary
course of business and liabilities disclosed in any Exchange Act Filings.
4.6 Agreements; Action. Except as set forth on Schedule 4.6 or as disclosed in
any Exchange Act Filings:
(a) there are no agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which the Company or any of
its Subsidiaries is a party or by which it is bound which may involve: (i)
obligations (contingent or otherwise) of, or payments to, the Company in excess
of $50,000 (other than obligations of, or payments to, the Company arising from
purchase or sale agreements entered into in the ordinary course of business); or
(ii) the transfer or license of any patent, copyright, trade secret or other
proprietary right to or from the Company (other than licenses arising from the
purchase of "off the shelf" or other standard products); or (iii) provisions
restricting the development, manufacture or distribution of the Company's
products or services; or (iv) indemnification by the Company with respect to
infringements of proprietary rights.
(b) Since June 23, 2006 (the "Balance Sheet Date"), neither the Company nor any
of its Subsidiaries has: (i) declared or paid any dividends, or authorized or
made any distribution upon or with respect to any class or series of its capital
stock; (ii) incurred any indebtedness for money borrowed or any other
liabilities (other than ordinary course obligations) individually in excess of
$50,000 or, in the case of indebtedness and/or liabilities individually less
than $50,000, in excess of $100,000 in the aggregate; (iii) made any loans or
advances to any person not in excess, individually or in the aggregate, of
$100,000, other than ordinary course advances for business expenses; or (iv)
sold, exchanged or otherwise disposed of any of its material assets or rights,
other than the sale of its inventory in the ordinary course of business.
(c) For the purposes of subsections (a) and (b) above, all indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed
transactions involving the same person or entity (including persons or entities
the Company has reason to believe are affiliated therewith) shall be aggregated
for the purpose of meeting the individual minimum dollar amounts of such
subsections.
(d) The Company maintains disclosure controls and procedures ("Disclosure
Controls") designed to ensure that information required to be disclosed by
Synergy Brands Inc. ("Synergy") in the reports that Synergy files or submits
under the Exchange Act is recorded, processed, summarized, and reported, within
the time periods specified in the rules and forms of the Securities and Exchange
Commission ("SEC").
(e) The Company makes and keep books, records, and accounts, that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
Company's assets. The Company maintains internal control over financial
reporting ("Financial Reporting Controls") designed by, or under the supervision
of, the Company's principal executive and principal financial officers, and
effected by the Company's board of directors, management, and other personnel,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles ("GAAP"), including that:
(i) transactions are executed in accordance with management's general or
specific authorization;
(ii) unauthorized acquisition, use, or disposition of the Company's assets that
could have a material effect on the financial statements are prevented or timely
detected;
(iii) transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that the Company's receipts and
expenditures are being made only in accordance with authorizations of the
Company's management and board of directors;
(iv) transactions are recorded as necessary to maintain accountability for
assets; and
(v) the recorded accountability for assets is compared with the existing assets
at reasonable intervals, and appropriate action is taken with respect to any
differences.
(f) There is no weakness in any of the Company's Disclosure Controls or
Financial Reporting Controls that is required to be disclosed in any of the
Exchange Act Filings, except as so disclosed.
4.7 Obligations to Related Parties. Except as set forth on Schedule 4.7, there
are no obligations of the Company or any of its Subsidiaries to officers,
directors, stockholders or employees of the Company or any of its Subsidiaries
other than:
(a) for payment of fees in the ordinary course of business and/or salary for
services rendered and for bonus payments;
(b) reimbursement for reasonable expenses incurred on behalf of the Company and
its Subsidiaries;
(c) for other standard employee benefits made generally available to all
employees (including stock option agreements outstanding under any stock option
plan approved by the Board of Directors of the Company); and
(d) obligations listed in the Company's financial statements.
Except as described above or set forth on Schedule 4.7, none of the officers,
directors or, to the best of the Company's knowledge, key employees or
stockholders of the Company or any members of their immediate families, are
indebted to the Company, individually or in the aggregate, in excess of $50,000
or have any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company, other
than passive investments in publicly traded companies (representing less than
one percent (1%) of such company) which may compete with the Company. Except as
described above, no officer, director or stockholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company and no agreements, understandings or proposed
transactions are contemplated between the Company and any such person. Except as
set forth on Schedule 4.7, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
4.8 Changes. Since the Balance Sheet Date, except as disclosed in any Schedule
to this Agreement or to any of the Related Agreements, there has not been:
(a) any change in the business, assets, liabilities, condition (financial or
otherwise), properties, operations or prospects of the Company or any of its
Subsidiaries, which individually or in the aggregate has had, or could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect;
(b) any resignation or termination of any officer, key employee or group of
employees of the Company or any of its Subsidiaries;
(c) any material change, except in the ordinary course of business, in the
contingent obligations of the Company or any of its Subsidiaries by way of
guaranty, endorsement, indemnity, warranty or otherwise;
(d) any damage, destruction or loss, whether or not covered by insurance, which
has had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(e) any waiver by the Company or any of its Subsidiaries of a valuable right or
of a material debt owed to it;
(f) any direct or indirect loans made by the Company or any of its Subsidiaries
to any stockholder, employee, officer or director of the Company or any of its
Subsidiaries, other than advances made in the ordinary course of business;
(g) any material change in any compensation arrangement or agreement with any
employee, officer, director or stockholder of the Company or any of its
Subsidiaries;
(h) any declaration or payment of any dividend or other distribution of the
assets of the Company or any of its Subsidiaries;
(i) any labor organization activity related to the Company or any of its
Subsidiaries;
(j) any debt, obligation or liability incurred, assumed or guaranteed by the
Company or any of its Subsidiaries, except those for immaterial amounts and for
current liabilities incurred in the ordinary course of business;
(k) any sale, assignment or transfer of any patents, trademarks, copyrights,
trade secrets or other intangible assets owned by the Company or any of its
Subsidiaries;
(l) any change in any material agreement to which the Company is a party or by
which it is bound which either individually or in the aggregate has had, or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;
(m) any other event or condition of any character that, either individually or
in the aggregate, has had, or could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect; or
(n) any arrangement or commitment by the Company or any of its Subsidiaries to
do any of the acts described in subsection (a) through (m) above as limited
therein.
4.9 Title to Properties and Assets; Liens, Etc. Except as set forth on Schedule
4.9, each of the Company and each of its Subsidiaries has good and marketable
title to its properties and assets, and good title to its leasehold estates, in
each case subject to no mortgage, pledge, lien, lease, encumbrance or charge
(collectively, an "Encumbrance"), other than:
(a) those resulting from taxes which have not yet become delinquent;
(b) Encumbrances which it is to the Company's belief do not materially detract
from the value of the property subject thereto or materially impair the
operations of the Company or any of its Subsidiaries, including, without
limitation, Encumbrances securing indebtedness not in excess of $100,000 in the
aggregate provided that such Encumbrances are removed or otherwise released
within ten (10) days of the creation thereof;
(c) those that have otherwise arisen in the ordinary course of business;
(d) Encumbrances securing the Obligations (as defined in the Master Security
Agreement); and
(e) Encumbrances securing obligations of the Company to Milfam I L.P. and Lloyd
I. Miller, III; provided that such Encumbrances and the underlying obligations
are subject to the terms and conditions of the Subordination and Intercreditor
Agreement, dated as of the date hereof, by and among, the Company, Purchaser,
Milfam I L.P. and Lloyd I. Miller, III, as amended, modified and/or supplemented
from time to time in accordance with the terms thereof (the "Intercreditor
Agreement").
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. Except as set forth on Schedule 4.9, the Company and
its Subsidiaries are in compliance with all material terms of each lease to
which it is a party or is otherwise bound.
4.10 Intellectual Property.
(a) Each of the Company and each of its Subsidiaries owns or possesses
sufficient legal rights to all patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary rights
and processes necessary for its business as now conducted and to the Company's
knowledge, as presently proposed to be conducted (the "Intellectual Property"),
without any known infringement of the rights of others. There are no outstanding
options, licenses or agreements of any kind relating to the foregoing
proprietary rights, nor is the Company or any of its Subsidiaries bound by or a
party to any options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes of any other
person or entity other than such licenses or agreements arising from the
purchase of "off the shelf" or standard products.
(b) Neither the Company nor any of its Subsidiaries has received any
communications alleging that the Company or any of its Subsidiaries has violated
any of the patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity, nor is the
Company or any of its Subsidiaries aware of any basis therefor.
(c) The Company does not believe it is or will be necessary to utilize any
inventions, trade secrets or proprietary information of any of its employees
made prior to their employment by the Company or any of its Subsidiaries, except
for inventions, trade secrets or proprietary information that have been
rightfully assigned to the Company or any of its Subsidiaries.
4.11 Compliance with Other Instruments. Neither the Company nor any of its
Subsidiaries is in violation or default of (x) any term of its Charter or
bylaws, or (y) of any provision of any indebtedness, mortgage, indenture,
contract, agreement or instrument to which it is party or by which it is bound
or of any judgment, decree, order or writ, which violation or default, in the
case of this clause (y), has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. The
execution, delivery and performance of and compliance with this Agreement and
the Related Agreements to which it is a party, and the issuance and sale of the
Note by the Company and the other Securities by the Company each pursuant hereto
and thereto, will not, with or without the passage of time or giving of notice,
result in any such material violation, or be in conflict with or constitute a
default under any such term or provision, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company or any of its Subsidiaries or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to the Company, its business or operations or any of its
assets or properties.
4.12 Litigation. Except as set forth on Schedule 4.12 hereto, there is no
action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company or any of its Subsidiaries
that prevents the Company or any of its Subsidiaries from entering into this
Agreement or the other Related Agreements, or from consummating the transactions
contemplated hereby or thereby, or which has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect or any change in the current equity ownership of the Company or any of
its Subsidiaries, nor is the Company aware that there is any basis to assert any
of the foregoing. Neither the Company nor any of its Subsidiaries is a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality which has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. There is no action, suit, proceeding or investigation
by the Company or any of its Subsidiaries currently pending or which the Company
or any of its Subsidiaries intends to initiate.
4.13 Tax Returns and Payments. Each of the Company and each of its Subsidiaries
have timely filed all tax returns (federal, state and local) required to be
filed by it. All taxes shown to be due and payable on such returns, any
assessments imposed, and all other taxes due and payable by the Company or any
of its Subsidiaries on or before the Closing, have been paid or will be paid
prior to the time they become delinquent. Except as set forth on Schedule 4.13,
neither the Company nor any of its Subsidiaries has been advised:
(a) that any of its returns, federal, state or other, have been or are being
audited as of the date hereof; or
(b) of any deficiency in assessment or proposed judgment to its federal, state
or other taxes.
The Company has no knowledge of any liability of any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
4.14 Employees. Neither the Company nor any of its Subsidiaries has any
collective bargaining agreements with any of its employees. There is no labor
union organizing activity pending or, to the Company's knowledge, threatened
with respect to the Company or any of its Subsidiaries. Except as disclosed on
Schedule 4.14, neither the Company nor any of its Subsidiaries is a party to or
bound by any currently effective material employment contract, deferred
compensation arrangement, bonus plan, incentive plan, profit sharing plan,
retirement agreement or other employee compensation plan or agreement. To the
Company's knowledge, no employee of the Company or any of its Subsidiaries, nor
any consultant with whom the Company or any of its Subsidiaries has contracted,
is in violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such individual to
be employed by, or to contract with, the Company or any of its Subsidiaries
because of the nature of the business to be conducted by the Company or any of
its Subsidiaries; and to the Company's knowledge the continued employment by the
Company or any of its Subsidiaries of its present employees, and the performance
of the Company's and its Subsidiaries' contracts with its independent
contractors, will not result in any such violation. Neither the Company nor any
of its Subsidiaries is aware that any of its employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with their duties to the Company or
any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has
received any notice alleging that any such violation has occurred. Except for
employees who have a current effective employment agreement with the Company or
any of its Subsidiaries, no employee of the Company or any of its Subsidiaries
has been granted the right to continued employment by the Company or any of its
Subsidiaries or to any material compensation following termination of employment
with the Company or any of its Subsidiaries. The Company is not aware that any
officer, key employee or group of employees intends to terminate his, her or
their employment with the Company or any of its Subsidiaries, nor does the
Company or any of its Subsidiaries have a present intention to terminate the
employment of any officer, key employee or group of employees.
4.15 Registration Rights and Voting Rights. Neither the Company nor any of its
Subsidiaries is presently under any obligation, and has not granted any rights,
to register any of the Company's or its Subsidiaries' presently outstanding
securities or any of its securities that may hereafter be issued. No stockholder
of the Company or any of its Subsidiaries has entered into any agreement with
respect to the voting of equity securities of the Company or any of its
Subsidiaries.
4.16 Compliance with Laws; Permits. Neither the Company nor any of its
Subsidiaries is in violation of any applicable statute, rule, regulation, order
or restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its
properties which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. No governmental
orders, permissions, consents, approvals or authorizations are required to be
obtained and no registrations or declarations are required to be filed in
connection with the execution and delivery of this Agreement or any other
Related Agreement and the issuance of any of the Securities, except, in the case
of each of the foregoing, (i) such filings as has been duly and validly obtained
or filed, or (ii) such filings that must be made after the Closing, which will
be filed in a timely manner. Each of the Company and its Subsidiaries has all
material franchises, permits, licenses and any similar authority necessary for
the conduct of its business as now being conducted by it, the lack of which
could, either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
4.17 Environmental and Safety Laws. Neither the Company nor any of its
Subsidiaries is in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, which violation
has had, or could reasonably be expected to have, either individually or in the
aggregate with all other such violations, a Material Adverse Effect and to its
knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law or regulation. Except as set forth on
Schedule 4.17, no Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or any of its Subsidiaries or, to
the Company's knowledge, by any other person or entity on any property owned,
leased or used by the Company or any of its Subsidiaries. For the purposes of
the preceding sentence, "Hazardous Materials" shall mean:
(a) materials which are listed or otherwise defined as "hazardous" or "toxic"
under any applicable local, state, federal and/or foreign laws and regulations
that govern the existence and/or remedy of contamination on property, the
protection of the environment from contamination, the control of hazardous
wastes, or other activities involving hazardous substances, including building
materials; or
(b) any petroleum products or nuclear materials.
4.18 Valid Offering. Assuming the accuracy of the representations and warranties
of the Purchaser contained in this Agreement, the offer, sale and issuance of
the Securities will be exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and will have been
registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
4.19 Full Disclosure. Each of the Company and each of its Subsidiaries has
provided the Purchaser with all information requested by the Purchaser in
connection with its decision to purchase the Note and the Warrant including all
information the Company and its Subsidiaries believes is reasonably necessary to
make such investment decision. Neither this Agreement, the Related Agreements,
the exhibits and schedules hereto and thereto nor any other document delivered
by the Company or any of its Subsidiaries to Purchaser or its attorneys or
agents in connection herewith or therewith or with the transactions contemplated
hereby or thereby, contain any untrue statement of a material fact nor omit to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances in which they are made, not
misleading. Any financial projections and other estimates provided to the
Purchaser by the Company or any of its Subsidiaries were based on the Company's
and its Subsidiaries' experience in the industry and on assumptions of fact and
opinion as to future events which the Company or any of its Subsidiaries, at the
date of the issuance of such projections or estimates, believed to be
reasonable.
4.20 Insurance. Each of the Company and each of its Subsidiaries has general
commercial, product liability, fire and casualty insurance policies with
coverages which the Company believes are customary for companies similarly
situated to the Company and its Subsidiaries in the same or similar business.
4.21 SEC Reports. Synergy has filed all proxy statements, reports and other
documents required to be filed by it under the Exchange Act.
4.22 Stop Transfer. The Securities are restricted securities as of the date of
this Agreement. Neither the Company nor any of its Subsidiaries will issue any
stop transfer order or other order impeding the sale and delivery of any of the
Securities at such time as the Securities are registered for public sale or an
exemption from registration is available, except as required by state and
federal securities laws.
4.23 Dilution. The Company specifically acknowledges that the issuance of the
Warrant Shares is binding upon the Company and enforceable regardless of the
dilution such issuance may have on the ownership interests of other shareholders
of the Company.
4.24 Patriot Act. The Company certifies that, to the best of Company's
knowledge, neither the Company nor any of its Subsidiaries has been designated,
and is not owned or controlled, by a "suspected terrorist" as defined in
Executive Order 13224. The Company hereby acknowledges that the Purchaser seeks
to comply with all applicable laws concerning money laundering and related
activities. In furtherance of those efforts, the Company hereby represents,
warrants and agrees that: (i) none of the cash or property that the Company or
any of its Subsidiaries will pay or will contribute to the Purchaser has been or
shall be derived from, or related to, any activity that is deemed criminal under
United States law; and (ii) no contribution or payment by the Company or any of
its Subsidiaries to the Purchaser, to the extent that they are within the
Company's and/or its Subsidiaries' control shall cause the Purchaser to be in
violation of the United States Bank Secrecy Act, the United States International
Money Laundering Control Act of 1986 or the United States International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001. The Company shall
promptly notify the Purchaser if any of these representations ceases to be true
and accurate regarding the Company or any of its Subsidiaries. The Company
agrees to provide in confidence to the Purchaser any additional information
regarding the Company or any of its Subsidiaries that the Purchaser deems
necessary or convenient to ensure compliance with all applicable laws concerning
money laundering and similar activities. The Company understands and agrees that
if at any time it is discovered that any of the foregoing representations are
incorrect, or if otherwise required by applicable law or regulation related to
money laundering similar activities, the Purchaser may undertake appropriate
actions to ensure compliance with applicable law or regulation, including but
not limited to segregation and/or redemption of the Purchaser's investment in
the Company. The Company further understands that the Purchaser may release
confidential information about the Company and its Subsidiaries and, if
applicable, any underlying beneficial owners, to proper authorities if the
Purchaser, in its sole discretion, determines that it is in the best interests
of the Purchaser in light of relevant rules and regulations under the laws set
forth in subsection (ii) above.
4.25 ERISA. Based upon the Employee Retirement Income Security Act of 1974
("ERISA"), and the regulations and published interpretations thereunder: (i)
neither the Company nor any of its Subsidiaries has engaged in any Prohibited
Transactions (as defined in Section 406 of ERISA and Section 4975 of the
Internal Revenue Code of 1986, as amended (the "Code")); (ii) each of the
Company and each of its Subsidiaries has met all applicable minimum funding
requirements under Section 302 of ERISA in respect of its plans; (iii) neither
the Company nor any of its Subsidiaries has any knowledge of any event or
occurrence which would cause the Pension Benefit Guaranty Corporation to
institute proceedings under Title IV of ERISA to terminate any employee benefit
plan(s); (iv) neither the Company nor any of its Subsidiaries has any fiduciary
responsibility for investments with respect to any plan existing for the benefit
of persons other than the Company's or such Subsidiary's employees; and (v)
neither the Company nor any of its Subsidiaries has withdrawn, completely or
partially, from any multi-employer pension plan so as to incur liability under
the Multiemployer Pension Plan Amendments Act of 1980.
5. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
5.1 No Shorting. Neither the Purchaser nor any of its affiliates and investment
partners has, and will not and will not cause any person or entity to, directly
engage in "short sales" of the Company's Common Stock or any other hedging
strategies directly related to the Company's Common Stock as long as the Note
shall be outstanding.
5.2 Requisite Power and Authority. The Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
corporate action on Purchaser's part required for the lawful execution and
delivery of this Agreement and the Related Agreements have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application affecting enforcement of creditors' rights;
and
(b) as limited by general principles of equity that restrict the availability of
equitable and legal remedies.
5.3 Investment Representations. Purchaser understands that the Securities are
being offered and sold pursuant to an exemption from registration contained in
the Securities Act based in part upon Purchaser's representations contained in
the Agreement, including, without limitation, that the Purchaser is an
"accredited investor" within the meaning of Regulation D under the Securities
Act. The Purchaser confirms that it has received or has had full access to all
the information it considers necessary or appropriate to make an informed
investment decision with respect to the Securities to be purchased by it under
this Agreement. The Purchaser further confirms that it has had an opportunity to
ask questions and receive answers from the Company regarding the Company's and
its Subsidiaries' business, management and financial affairs and the terms and
conditions of the Offering, and the Securities and to obtain additional
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify any
information furnished to the Purchaser or to which the Purchaser had access.
5.4 Purchaser Bears Economic Risk. The Purchaser has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the merits
and risks of its investment in the Company and has the capacity to protect its
own interests. The Purchaser must bear the economic risk of this investment
until the Securities are sold pursuant to: (i) an effective registration
statement under the Securities Act; or (ii) an exemption from registration is
available with respect to such sale.
5.5 Acquisition for Own Account. The Purchaser is acquiring the Securities for
the Purchaser's own account for investment only, and not as a nominee or agent
and not with a view towards or for resale in connection with their distribution
in violation of the Securities Act.
5.6 Purchaser Can Protect Its Interest. The Purchaser represents that by reason
of its, or of its management's, business and financial experience, the Purchaser
has the capacity to evaluate the merits and risks of its investment in the
Securities and to protect its own interests in connection with the transactions
contemplated in this Agreement and the other Related Agreements. Further,
Purchaser is aware of no publication of any advertisement in connection with the
transactions contemplated in the Agreement or the Related Agreements.
5.7 Accredited Investor. Purchaser represents that it is an accredited investor
within the meaning of Regulation D under the Securities Act.
5.8 Legends.
(a) The Note shall bear substantially the following legend:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO QUALITY FOOD BRANDS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
(b) The Warrant shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK UNDER
SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO QUALITY FOOD BRANDS, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED."
(c) The Warrant Shares, if not issued by DWAC system (as hereinafter defined),
shall bear a legend which shall be in substantially the following form until
such shares are covered by an effective registration statement filed with the
SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO QUALITY FOOD BRANDS, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED."
6. Covenants of the Company. The Company covenants and agrees with the Purchaser
as follows:
6.1 Stop-Orders. The Company will advise the Purchaser, promptly after it
receives notice of issuance by the Securities and Exchange Commission (the
"SEC"), any state securities commission or any other regulatory authority of any
stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2 Listing. On and after such date as the Company is registered with the SEC,
the Company shall maintain the listing of its Common Stock on the NASDAQ Capital
Market (the "Principal Market") so long as any other shares of Common Stock
shall be so listed. The Company will maintain the listing of its Common Stock on
the Principal Market, and will comply in all material respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the National Association of Securities Dealers ("NASD") and such exchanges, as
applicable.
6.3 Market Regulations. The Company shall notify the SEC, NASD and applicable
state authorities, in accordance with their requirements (if any), of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to the
Purchaser and promptly provide copies thereof to the Purchaser.
6.4 Reporting Requirements The Company will deliver, or cause to be delivered,
to the Purchaser each of the following, which shall be in form and detail
acceptable to the Purchaser:
(a) As soon as available, and in any event within one hundred (100) days after
the end of each fiscal year of the Company, each of the Company's and each of
its Subsidiaries' audited financial statements with a report of independent
certified public accountants of recognized standing selected by the Company and
acceptable to the Purchaser (the "Accountants"), which annual financial
statements shall be without qualification and shall include each of the
Company's and each of its Subsidiaries' balance sheet as at the end of such
fiscal year and the related statements of each of the Company's and each of its
Subsidiaries' income, retained earnings and cash flows for the fiscal year then
ended, prepared on a consolidating and consolidated basis to include the
Company, each Subsidiary of the Company and each of their respective affiliates,
all in reasonable detail and prepared in accordance with GAAP, together with (i)
if and when available, copies of any management letters prepared by the
Accountants; and (ii) a certificate of the Company's President, Chief Executive
Officer or Chief Financial Officer stating that such financial statements have
been prepared in accordance with GAAP and whether or not such officer has
knowledge of the occurrence of any Event of Default (as defined in the Note)
and, if so, stating in reasonable detail the facts with respect thereto;
(b) As soon as available and in any event within fifty five (55) days after the
end of each fiscal quarter of the Company, an unaudited/internal balance sheet
and statements of income, retained earnings and cash flows of the Company and
each of its Subsidiaries as at the end of and for such quarter and for the year
to date period then ended, prepared on a consolidating and consolidated basis to
include all the Company, each Subsidiary of the Company and each of their
respective affiliates, in reasonable detail and stating in comparative form the
figures for the corresponding date and periods in the previous year, all
prepared in accordance with GAAP, subject to year-end adjustments and
accompanied by a certificate of the Company's President, Chief Executive Officer
or Chief Financial Officer, stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit adjustments, and
(ii) whether or not such officer has knowledge of the occurrence of any Event of
Default (as defined in the Note) not theretofore reported and remedied and, if
so, stating in reasonable detail the facts with respect thereto;
(c) As soon as available and in any event within fifteen (15) days after the end
of each calendar month, an unaudited/internal balance sheet and statements of
income, retained earnings and cash flows of each of the Company and its
Subsidiaries as at the end of and for such month and for the year to date period
then ended, prepared on a consolidating and consolidated basis to include the
Company, each Subsidiary of the Company and each of their respective affiliates,
in reasonable detail and stating in comparative form the figures for the
corresponding date and periods in the previous year, all prepared in accordance
with GAAP, subject to year-end adjustments and accompanied by a certificate of
the Company's President, Chief Executive Officer or Chief Financial Officer,
stating (i) that such financial statements have been prepared in accordance with
GAAP, subject to year-end audit adjustments, and (ii) whether or not such
officer has knowledge of the occurrence of any Event of Default (as defined in
the Note) not theretofore reported and remedied and, if so, stating in
reasonable detail the facts with respect thereto;
(d) The Company shall timely file with the SEC all reports required to be filed
by it pursuant to the Exchange Act and refrain from terminating its status as an
issuer required by the Exchange Act to file reports thereunder even if the
Exchange Act or the rules or regulations thereunder would permit such
termination; and
(e) The Company shall deliver, or cause the applicable Subsidiary of the Company
to deliver, such other information as the Purchaser shall reasonably request.
6.5 Use of Funds. The Company agrees that it will use the proceeds of the sale
of the Securities for (x) the acquisition of the Loretta Assets and (y) for
general working capital purposes only.
6.6 Access to Facilities. As long as any principal, interest and fees with
respect to the Note remain outstanding, each of the Company and each of its
Subsidiarie
s will permit any representatives designated by the Purchaser (or any
successor of the Purchaser), upon reasonable advance notice and during normal
business hours reasonably convenient to the Company, its Subsidiaries and/or
representatives of the Company and/or any of its Subsidiaries that are
responsible for the maintenance of such records at such person's expense and
accompanied by a representative of the Company and/or the applicable Subsidiary,
to:
(a) visit and inspect any of the properties of the Company or any of its
Subsidiaries;
(b) examine the corporate and financial records of the Company or any of its
Subsidiaries (unless such examination is not permitted by federal, state or
local law or by contract) and make copies thereof or extracts therefrom; and
(c) discuss the affairs, finances and accounts of the Company or any of its
Subsidiaries with the directors, officers and independent accountants of the
Company or any of its Subsidiaries.
Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries
will provide any material, non-public information to the Purchaser unless the
Purchaser signs a confidentiality agreement and otherwise complies with
Regulation FD, under the federal securities laws.
6.7 Taxes. Each of the Company and each of its Subsidiaries will promptly pay
and discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon the
income, profits, property or business of the Company and its Subsidiaries;
provided, however, that any such tax, assessment, charge or levy need not be
paid if the validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Company and/or such Subsidiary shall have set
aside on its books adequate reserves with respect thereto, and provided,
further, that the Company and its Subsidiaries will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefor.
6.8 Insurance. Each of the Company and its Subsidiaries will keep its assets
which are of an insurable character insured by financially sound and reputable
insurers against loss or damage by fire, explosion and other risks customarily
insured against by companies in similar business similarly situated as the
Company and its Subsidiaries; and the Company and its Subsidiaries will
maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner which the Company reasonably believes is customary for companies in
similar business similarly situated as the Company and its Subsidiaries and to
the extent available on commercially reasonable terms. The Company, and each of
its Subsidiaries will jointly and severally bear the full risk of loss from any
loss of any nature whatsoever with respect to the assets pledged to the
Purchaser as security for its obligations hereunder and under the Related
Agreements. At the Company's and each of its Subsidiaries' joint and several
cost and expense in amounts and with carriers reasonably acceptable to
Purchaser, the Company and each of its Subsidiaries shall to the extent
customary in their respective lines of business, (i) keep all its insurable
properties and properties in which it has an interest insured against the
hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to the Company's or the
respective Subsidiary's including business interruption insurance; (ii) maintain
a bond in such amounts as is customary in the case of companies engaged in
businesses similar to the Company's or the respective Subsidiary's insuring
against larceny, embezzlement or other criminal misappropriation of insured's
officers and employees who may either singly or jointly with others at any time
have access to the assets or funds of the Company or any of its Subsidiaries
either directly or through governmental authority to draw upon such funds or to
direct generally the disposition of such assets; (iii) maintain public and
liability insurance against claims for personal injury, death or property damage
suffered by others; (iv) maintain all such worker's compensation or similar
insurance as may be required under the laws of any state or jurisdiction in
which the Company or the respective Subsidiary is engaged in business; and (x)
excepting the Company's workers' compensation policy, endorsements to such
policies naming Purchaser as "co-insured" or "additional insured" and
appropriate loss payable endorsements in form and substance satisfactory to
Purchaser, naming Purchaser as loss payee, and (y) evidence that as to Purchaser
the insurance coverage shall not be impaired or invalidated by any act or
neglect of the Company or any Subsidiary and the insurer will provide Purchaser
with at least thirty (30) days notice prior to cancellation. The Company and
each Subsidiary shall instruct the insurance carriers as to all insurance
covering and/or reasonably contemplated to affect any of the Collateral that in
the event of any loss thereunder, the carriers shall make payment for such loss
to the Company and/or the Subsidiary and Purchaser jointly (unless pursuant to
the terms and conditions of the Intercreditor Agreement, such alternative
payment is required). In the event that as of the date of receipt of each loss
recovery upon any such insurance, the Purchaser has not declared an event of
default with respect to this Agreement or any of the Related Agreements, then
the Company and/or such Subsidiary shall be permitted to direct the application
of such loss recovery proceeds toward investment in property, plant and
equipment that would comprise "Collateral" secured by Purchaser's security
interest pursuant to its security agreement, with any surplus funds to be
applied toward payment of the obligations of the Company to Purchaser. In the
event that Purchaser has properly declared an event of default with respect to
this Agreement or any of the Related Agreements, then all loss recoveries
received by Purchaser upon any such insurance thereafter may be applied to the
obligations of the Company hereunder and under the Related Agreements, in such
order as the Purchaser may determine. Any surplus (following satisfaction of all
Company obligations to Purchaser) shall be paid by Purchaser to the Company or
applied as may be otherwise required by law. Any deficiency thereon shall be
paid by the Company or the Subsidiary, as applicable, to Purchaser, on demand.
6.9 Intellectual Property. Each of the Company and each of its Subsidiaries
shall maintain in full force and effect its existence, rights and franchises and
all licenses and other rights to use Intellectual Property owned or possessed by
it and reasonably deemed to be necessary to the conduct of its business.
6.10 Properties. Each of the Company and each of its Subsidiaries will keep its
properties in good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto; and each of the Company and
each of its Subsidiaries will at all times comply with each provision of all
leases to which it is a party or under which it occupies property if the breach
of such provision could, either individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
6.11 Confidentiality. The Company agrees that it will not disclose, and will not
include in any public announcement, the name of the Purchaser, unless expressly
agreed to by the Purchaser or unless and until such disclosure is required by
law or applicable regulation, and then only to the extent of such requirement.
Notwithstanding the foregoing, the Company may disclose Purchaser's identity and
the terms of this Agreement to its current and prospective debt and equity
financing sources.
6.12 Required Approvals. (A) For so long as twenty-five percent (25%) of the
principal amount of the Note is outstanding, the Company, without the prior
written consent of the Purchaser, shall not, and shall not permit any of its
Subsidiaries to:
(a) directly or indirectly declare or pay any dividends, other than (i)
dividends paid to the Company or any of its wholly-owned Subsidiaries or (ii)
dividends paid in connection with preferred stock issued by the Company, so long
as any such dividends paid pursuant to this clause (ii) do not exceed, in the
aggregate $400,000 in any fiscal year of the Company;
(b) liquidate, dissolve or effect a material reorganization;
(c) become subject to (including, without limitation, by way of amendment to or
modification of) any agreement or instrument which by its terms would (under any
circumstances) restrict the Company's or any of its Subsidiaries right to
perform the provisions of this Agreement, any other Related Agreement or any of
the agreements contemplated hereby or thereby;
(d) materially alter or change the scope of the business of the Company;
(e) (i) create, incur, assume or suffer to exist any indebtedness, or issue or
suffer to exist any preferred equity interests (exclusive of trade debt and debt
incurred to finance the purchase of equipment and/or inventory (not in excess of
five percent (5%) per annum of the fair market value of the Company's and its
Subsidiaries assets) whether secured or unsecured other than (w) the Company's
and its Subsidiaries' indebtedness to the Purchaser, Lloyd I Miller, III and
Milfam I L.P. (to the extent subject to the terms and conditions of the
Intercreditor Agreement), (x) indebtedness and preferred equity interests set
forth on Schedule 6.12(e) attached hereto and made a part hereof and any
refinancings or replacements thereof on terms no less favorable to the Purchaser
than the indebtedness or preferred equity interests being refinanced or
replaced, (y) subject to Section 10.14, additional indebtedness incurred, and/or
preferred equity issuances issued (with the amount of such preferred equity
interests to equal the greater of the liquidation preference with respect
thereto and the maximum fixed repurchase price with respect thereto), not to
exceed three million dollars ($3,000,000) in the aggregate at any time
outstanding, so long as the obligation of the Company and/or any of its
Subsidiaries to repay such indebtedness and/or the redeem such preferred equity
interests incurred or issued, as the case may be, pursuant to this clause (y),
shall be unsecured and expressly subordinated to the payment in full of the
Company's and its Subsidiaries obligations to the Purchaser under this Agreement
and the Related Agreements, and (z) any debt incurred in connection with the
purchase of assets in the ordinary course of business, or any refinancings or
replacements thereof on terms no less favorable to the Purchaser than the
indebtedness being refinanced or replaced; (ii) cancel any debt owing to it in
excess of $50,000 in the aggregate during any 12 month period; (iii) assume,
guarantee, endorse or otherwise become directly or contingently liable in
connection with any obligations of any other Person, except the endorsement of
negotiable instruments by the Company for deposit or collection or similar
transactions in the ordinary course of business or guarantees of indebtedness
otherwise permitted to be outstanding pursuant to this clause (e); and/or
(f) (i) make investments in, make any loans or advances to, or transfer assets
to, any of the Immaterial Subsidiaries or (ii) permit any Subsidiary to make
investments in, make any loans or advances to, or transfer assets to, any of the
Immaterial Subsidiaries, other than, in the case of each of the foregoing
clauses (i) and (ii), immaterial investments, loans, advances and/or asset
transfers made in the ordinary course of business; and/or
(B) The Company shall not, and shall not permit any of its Subsidiaries to,
create or acquire any Subsidiary after the date hereof unless (i) such
Subsidiary is a wholly-owned Subsidiary of the Company and (ii) such Subsidiary
becomes party to the Master Security Agreement and a Subsidiary Guaranty in form
and substance satisfactory to Purchaser (either by executing a counterpart
thereof or an assumption or joinder agreement in respect thereof) and, to the
extent required by the Purchaser, satisfies each condition of this Agreement and
the Related Agreements as if such Subsidiary were a Subsidiary on the Closing
Date.
6.13 Reissuance of Securities. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Section 5.8 above
at such time as:
(a) the holder thereof is permitted to dispose of such Securities pursuant to
Rule 144(k) under the Securities Act; or
(b) upon resale subject to an effective registration statement after such
Securities are registered under the Securities Act.
The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
deemed reasonably necessary by the Purchaser (at the Company's cost) to allow
such resales provided the Company and its counsel receive reasonably requested
representations from the selling Purchaser and broker, if any, and the Company
and its counsel are reasonably satisfied with the validity of such
representations.
6.14 Opinion. On the Closing Date, the Company will deliver to the Purchaser an
opinion acceptable to the Purchaser from the Company's external legal counsel.
The Company will provide, at the Company's expense, such other legal opinions in
the future as are deemed reasonably necessary by the Purchaser (and acceptable
to the Purchaser) in connection with the Note and exercise of the Warrant.
7. Covenants of the Purchaser. The Purchaser covenants and agrees with the
Company as follows:
7.1 Confidentiality. The Purchaser agrees that it will not disclose, and will
not include in any public announcement, the name of the Company, unless
expressly agreed to by the Company or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
7.2 Non-Public Information. The Purchaser agrees not to effect any sales in the
shares of the Company's Common Stock while in possession of material, non-public
information regarding the Company if such sales would violate applicable
securities law.
7.3 Limitation on Acquisition and Issuance of Stock. Notwithstanding anything to
the contrary contained herein or in any document, instrument or agreement
entered into in connection with the transactions contemplated hereby, Laurus may
not acquire stock in Company (including, without limitation, pursuant to a
contract to purchase, by exercising an option or warrant, by converting any
other security or instrument, by acquiring or exercising any other right to
acquire, shares of stock or other security convertible into shares of stock in
Company, or otherwise, and such options, warrants, conversion or other rights
shall not be exercisable) to the extent such stock acquisition would cause any
interest (including any original issue discount) payable by Company to Laurus
not to qualify as "portfolio interest", within the meaning of Section 881(c)(2)
of the Internal Revenue Code of 1986, as amended (the "Code"), by reason of
Section 881(c)(3) of the Code, taking into account the constructive ownership
rules under Section 871(h)(3)(C) of the Code (the "Stock Acquisition
Limitation").
8. Covenants of the Company and Purchaser Regarding Indemnification. 8.1 Company
Indemnification. The Company agrees to indemnify, hold harmless, reimburse and
defend the Purchaser, each of the Purchaser's officers, directors, agents,
affiliates, control persons, and principal shareholders, against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Purchaser which results,
arises out of or is based upon: (i) any misrepresentation by the Company or any
of its Subsidiaries or breach of any warranty by the Company or any of its
Subsidiaries in this Agreement, any other Related Agreement or in any exhibits
or schedules attached hereto or thereto, in each case, in any material respect;
or (ii) any breach or default in performance by Company or any of its
Subsidiaries of any covenant or undertaking to be performed by Company or any of
its Subsidiaries hereunder, under any other Related Agreement or any other
agreement entered into by the Company and/or any of its Subsidiaries and
Purchaser relating hereto or thereto, in each case, in any material respect.
8.2 Purchaser's Indemnification. Purchaser agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company's officers, directors,
agents, affiliates, control persons and principal shareholders, at all times
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Company which results, arises out of or is based upon: (i) any misrepresentation
by Purchaser or breach of any warranty by Purchaser in this Agreement or in any
exhibits or schedules attached hereto or any Related Agreement, in each case, in
any material respect; or (ii) any breach or default in performance by Purchaser
of any covenant or undertaking to be performed by Purchaser hereunder, or any
other agreement entered into by the Company and Purchaser relating hereto, in
each case, in any material respect.
9. Additional Restrictions
9.1 Offering Restrictions. Except as previously disclosed in the SEC Reports or
in the Exchange Act Filings, or stock or stock options granted to employees or
directors of the Company (these exceptions hereinafter referred to as the
"Excepted Issuances"), neither the Company nor any of its Subsidiaries will,
prior to the full repayment of the Note (together with all accrued and unpaid
interest and fees related thereto), (x) enter into any equity line of credit
agreement or similar agreement providing for the issuance of securities at a
variable/floating price or in connection with a variable/floating pricing
feature or (y) issue, or enter into any agreement to issue, any securities with
a variable/floating conversion and/or pricing feature which are or could be (by
conversion or registration) free-trading securities (i.e. common stock subject
to a registration statement).
10. Miscellaneous.
10.1 Governing Law. THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY EITHER PARTY
AGAINST THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND
EACH RELATED AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR
IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. BOTH PARTIES AND THE
INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS ON BEHALF OF THE
COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY
JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY RELATED AGREEMENT
DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY
APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED
INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED
MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH PROVISION WHICH
MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY,
ENFORCEABILITY OR MEANING OF ANY OTHER PROVISION OF THIS AGREEMENT OR ANY
RELATED AGREEMENT.
10.2 Survival. The representations, warranties, covenants and agreements made
herein shall survive any investigation made by the Purchaser and the closing of
the transactions contemplated hereby to the extent provided therein. All
statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.
10.3 Successors. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
heirs, executors and administrators of the parties hereto and shall inure to the
benefit of and be enforceable by each person who shall be a holder of
obligations owed by the Company or any of its Subsidiaries from time to
timeunder this Agreement or any Related Agreement, other than the holders of
Common Stock which has been sold by the Purchaser pursuant to Rule 144 or an
effective registration statement (provided that any such sale shall be subject
to the RofR Agreement). The Purchaser may not assign its rights hereunder to a
competitor of the Company unless an Event of Default (as defined in the Note)
has occurred and is continuing.
10.4 Entire Agreement. This Agreement, the Related Agreements, the exhibits and
schedules hereto and thereto and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
10.5 Severability. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
10.6 Amendment and Waiver.
(a) This Agreement and the Related Agreements may be amended or modified only
upon the written consent of the Company, the Purchaser and, to the extent and
only to the extent that Milfam I L.P. has, within 105 days from the date hereof,
acquired from Purchaser and/or refinanced the repayment to Purchaser, of no less
than 50% of the Obligations (as defined in the Master Security Agreement) of the
Company to Purchaser on terms and conditions reasonably satisfactory to
Purchaser (such investment, a "Milfam Investment"), Milfam I L.P.
(b) The obligations of the Company and the rights of the Purchaser under this
Agreement may be waived only with the written consent of the Purchaser.
(c) The obligations of the Purchaser and the rights of the Company under this
Agreement may be waived only with the written consent of the Company.
10.7 Delays or Omissions. It is agreed that no delay or omission to exercise any
right, power or remedy accruing to any party, upon any breach, default or
noncompliance by another party under this Agreement or the Related Agreements,
shall impair any such right, power or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of or in any similar breach, default or noncompliance thereafter
occurring. All remedies, either under this Agreement or the Related Agreements,
by law or otherwise afforded to any party, shall be cumulative and not
alternative.
10.8 Notices. All notices required or permitted hereunder shall be in writing
and shall be deemed effectively given:
(a) upon personal delivery to the party to be notified;
(b) when sent by confirmed facsimile if sent during normal business hours of the
recipient, if not, then on the next business day;
(c) three (3) business days after having been sent by registered or certified
mail, return receipt requested, postage prepaid; or
(d) one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt.
All communications shall be sent as follows:
If to the Company, to: Quality Food Brands, Inc.
317 West Front Street
Monroe, MI 48161
Attention: Mair Faibish
Facsimile:
with a copy to:
Randall J. Perry
Law Offices
44 Union Ave.
Rutherford, NJ 07070
Attention: Randall J. Perry, Esq.
Facsimile: 201-939-7348
If to the Purchaser, to: Laurus Master Fund, Ltd.
c/o M&C Corporate Services Limited
P.O. Box 309 GT
Ugland House
George Town
South Church Street
Grand Cayman, Cayman Islands
Facsimile: 345-949-8080
with a copy to:
Laurus Capital Management, LLC
825 Third Avenue 14th Floor
New York, NY 10022
Attn: Portfolio Services
Facsimile: 212-541-4434
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
10.9 Attorneys' Fees. In the event that any suit or action is instituted to
enforce any provision in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
10.10 Titles and Subtitles. The titles of the sections and subsections of this
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement.
10.11 Facsimile Signatures; Counterparts. This Agreement may be executed by
facsimile signatures and in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one instrument.
10.12 Broker's Fees. Except as set forth on Schedule 10.12 hereof, each party
hereto represents and warrants that no agent, broker, investment banker, person
or firm acting on behalf of or under the authority of such party hereto is or
will be entitled to any broker's or finder's fee or any other commission
directly or indirectly in connection with the transactions contemplated herein.
Each party hereto further agrees to indemnify each other party for any claims,
losses or expenses incurred by such other party as a result of the
representation in this Section 10.12 being untrue.
10.13 Construction. Each party acknowledges that its legal counsel participated
in the preparation of this Agreement and the Related Agreements and, therefore,
stipulates that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be applied in the interpretation of this
Agreement to favor any party against the other.
10.14 Right of First Refusal. Prior to the incurrence of additional indebtedness
in excess of an aggregate principal amount of $500,000 or the issuance of any
additional preferred equity interests, in each case, after the date hereof, the
Company and/or any Subsidiary of the Company, as the case may be, shall notify
the Purchaser of its intention to incur any such additional indebtedness or
issue any such preferred equity interests, together with the terms upon which
such proposed indebtedness will be incurred or such preferred equity interests
will be issued. Following such notification, the Purchaser shall have the right,
but not the obligation, to provide any such financing referred to in the
immediately preceding sentence to the Company and/or the applicable Subsidiary
thereof on substantially similar terms, and subject to definitive documentation,
acceptable to the Company and/or such Subsidiary and the Purchaser, in each
case, prior to the acceptance by the Company and/or such Subsidiary of any such
financing from any other person or entity other than the Purchaser.
10.15 Third Party Beneficiary. Milfam I L.P. is an express third party
beneficiary of this Agreement as a party hereto for purposes of subsection 10.6
provided that a Milfam Investment has occurred.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
IN WITNESS WHEREOF, the parties hereto have executed this AGREEMENT as of the
date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
Quality Food Brands, Inc. Laurus Master Fund, Ltd.
By: By:
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Name: Name:
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Title: Title:
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A-1
EXHIBIT A
FORM OF NOTE
B-1
EXHIBIT B
FORM OF OPINION
EXHIBIT C
FORM OF WARRANT