Exhibit 10.1
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY 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 ANY APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO QUALITY FOOD BRANDS, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED.
SECURED TERM NOTE
FOR VALUE RECEIVED, QUALITY FOOD BRANDS, INC., a Nevada corporation (the
"Borrower"), hereby promises to pay to LAURUS MASTER FUND, LTD., c/o M&C
Corporate Services Limited, P.O. Box 309 GT, Ugland House, South Church Street,
George Town, Grand Cayman, Cayman Islands, Fax: 345-949-8080 (the "Holder") or
its registered assigns or successors in interest, on order, the sum of FOUR
MILLION SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($4,750,000), together with any
accrued and unpaid interest hereon, on May 18, 2012 (the "Maturity Date") if not
sooner paid.
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in that certain Securities Purchase Agreement dated as of
the date hereof between the Borrower and the Holder (as amended, modified or
supplemented from time to time, the "Purchase Agreement").
The following terms shall apply to this Note:
ARTICLE I
INTEREST & AMORTIZATION
1.1 Interest Rate. Subject to Sections 2.11 and 3.6 hereof, interest payable on
this Note shall accrue at a rate per annum (the "Interest Rate") equal to nine
percent (9%). Interest shall be (i) calculated on the basis of a 360 day year,
(ii) payable monthly, in arrears, commencing on June 1, 2007 and on the first
business day of each consecutive calendar month thereafter until the Maturity
Date (and on the Maturity Date), whether by acceleration or otherwise (each, a
"Repayment Date").
1.2 Minimum Monthly Principal Payments. Amortizing payments of the aggregate
principal amount outstanding under this Note at any time (the "Principal
Amount") shall begin on December 1, 2007 and shall recur on the first business
day of each succeeding month thereafter until the Maturity Date (each, an
"Amortization Date"). Subject to Article 3 below, beginning on the first
Amortization Date, the Borrower shall make monthly payments to the Holder on
each Amortization Date, in the amount set forth opposite the period set forth in
the table below within which such Amortization Date falls, together with any
accrued and unpaid interest to date on such portion of the Principal Amount plus
any and all other amounts which are then owing under this Note but have not been
paid (each collectively, a "Monthly Amount"):
Period Payment
December 1, 2007 through and including May 31, 2008 $15,000
June 1, 2008 through and including November 30, 2009 $20,000
December 1, 2009 through and including May 31, 2010 $30,000
June 1, 2010 through and including the Maturity Date $35,000
Any Principal Amount that remains outstanding on the Maturity Date shall be due
and payable on the Maturity Date. In addition to any other mandatory repayments
pursuant to this Section 2.1, on each Excess Cash Flow Payment Date (as defined
below), an amount equal to 50% of the Excess Cash Flow (as defined below) for
the related Excess Cash Flow Payment Period (as defined below) that is in excess
of $500,000 shall be applied as a mandatory repayment of the Obligations owing
hereunder. The Company shall provide to Laurus in reasonable detail, the
calculation and support for the determination of the respective Excess Cash Flow
payment, which calculation and support shall be satisfactory to Laurus in its
sole discretion. As used herein, (1) "Excess Cash Flow" shall mean, for any
period of the Company, an amount (if positive) equal to (i) the sum of (A) the
Company and its Subsidiaries' (if any) net income (loss) for such period, plus
(B) the Company and its Subsidiaries' (if any) interest expense for such period,
plus (C) the Company and its Subsidiaries' (if any) provision for income taxes
for such period, plus (D) the Company and its Subsidiaries' (if any) charges for
amortization and depreciation for such period, minus (ii) the sum, without
duplication of (A) voluntary and scheduled repayments of this Note made during
such period, plus (B) the capital expenditures made by the Company and its
Subsidiaries (if any) during such period (other than with the proceeds of loans
made pursuant to the Security Agreement), plus (C) the interest expense of the
Company and its Subsidiaries (if any) paid in cash during such period, plus (D)
the current income taxes of the Company and its Subsidiaries (if any) paid in
cash during such period, all as determined in accordance with GAAP; (2) "Excess
Cash Flow Payment Date" shall mean the date occurring no later than 90 days
after the last day of each fiscal year of the Company (commencing with the
fiscal year of the Company ended December 31, 2007); and (3) "Excess Cash Flow
Payment Period" shall mean, with respect to any Excess Cash Flow Payment Date,
the immediately preceding fiscal year of the Company. Any payments made in
connection with the excess cash flow provisions set forth above shall be applied
to outstanding principal owed in the inverse order of maturity and any such
payments, to the extent and only to the extent that a Milfam Investment (as
defined in the Purchase Agreement) has occurred, shall be split equally between
the Holder hereto and Milfam I L.P. (in connection with that certain Secured
Term Note issued to Milfam I L.P. by the Borrower on substantially similar terms
as this Note on the same date hereof).
1.3 Mandatory Redemption. The total outstanding Principal Amount together with
any accrued and unpaid interest and any and all other unpaid amounts which are
then owing by the Borrower to the Holder under this Note, the Purchase Agreement
and/or any Related Agreement shall be due and payable on the Maturity Date.
1.4 Optional Prepayment. At any time after the first to occur of (i) the closing
of the Milfam Investment and (ii) August 31, 2007, the Company may prepay this
Note, in whole or in part, without penalty or premium..
ARTICLE II
EVENTS OF DEFAULT
Upon the occurrence and continuance of an Event of Default beyond any applicable
grace period, the Holder may upon notice make all sums of principal, interest
and other fees then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable (unless there will have occurred an Event
of Default under subsection 2.6 in which case all such amounts will
automatically become due and payable). In the event of such an acceleration or
an Event of Default pursuant to subsection 2.6, the amount due and owing to the
Holder shall be one hundred twenty percent (120%) of the outstanding principal
amount of the Note (plus accrued and unpaid interest, fees and expenses, if any)
(the "Default Payment"). If, with respect to any Event of Default, the Borrower
cures the Event of Default prior to any such acceleration, the Event of Default
will be deemed to no longer exist and any rights and remedies of Holder
pertaining to such Event of Default will be of no further force or effect. The
Default Payment shall be applied first to any fees and/or expenses due and
payable to Holder pursuant to the Note, the Purchase Agreement and/or the
Related Agreements, then to accrued and unpaid interest due on the Note and then
to outstanding principal balance of the Note.
The occurrence of any of the following events set forth in Sections 2.1 through
2.8, inclusive, is an "Event of Default":
2.1 Failure to Pay Principal, Interest or other Fees. The Borrower fails to pay
when due any installment of principal, interest or other fees hereon in
accordance herewith , and in any such case, such failure shall continue for a
period of five (5) days following the date upon which any such payment was due.
2.2 Breach of Covenant. The Borrower breaches any covenant or any other term or
condition of this Note or the Purchase Agreement in any material respect, or the
Borrowers or any of its Subsidiaries breaches any covenant or any other term or
condition of any Related Agreement in any material respect and, any such case,
such breach, if subject to cure, continues for a period of twenty (20) days
after the occurrence thereof.
2.3 Breach of Representations and Warranties. Any representation or warranty
made by the Borrower in this Note or the Purchase Agreement, or by the Borrower
or any of its Subsidiaries in any Related Agreement, shall, in any such case, be
false or misleading in any material respect on the date that such representation
or warranty was made or deemed made.
2.4 Receiver or Trustee. The Borrower or any of its Subsidiaries shall make an
assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business; or such a receiver or trustee shall otherwise be
appointed.
2.5 Judgments. Any money judgment, writ or similar final process shall be
entered or filed against the Borrower or any of its Subsidiaries or any of their
respective property or other assets for more than $150,000 in the aggregate for
all such money judgments, writs or similar final processes, and shall remain
unvacated, unbonded or unstayed for a period of forty five (45) days.
2.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower or any
of its Subsidiaries.
2.7 Failure to Deliver Replacement Note. The Borrower shall fail to deliver a
replacement Note to Holder within ten (10) business days following the required
date of such issuance pursuant to this Note, the Purchase Agreement or any
Related Agreement (to the extent required under such agreements).
2.8 Default Under Related Agreements or Other Agreements. (I) The occurrence and
continuance of any Event of Default (under, and as defined in (i) the Purchase
Agreement, (ii) any Related Agreement, and/or (II) the occurrence of any other
default in the observance or performance of any other agreement or condition
relating to any indebtedness or contingent obligation of the Borrower
(including, without limitation, obligations and indebtedness of the Company to
Milfam I L.P. and/or Lloyd I Miller, III) beyond the period of grace (if any),
the effect of which default is to cause, or permit the holder or holders of such
indebtedness or beneficiary or beneficiaries of such contingent obligation to
cause, such indebtedness to become due prior to its stated maturity or such
contingent obligation to become payable.
DEFAULT RELATED PROVISIONS
2.9 Payment Grace Period. Following the occurrence and continuance of an Event
of Default beyond any applicable cure period hereunder, the Borrower shall pay
the Holder an additional default interest rate of four percent (4%) per annum on
all amounts due and owing under the Note, which default interest shall be
payable upon demand.
ARTICLE III
MISCELLANEOUS
3.1 Failure or Indulgence Not Waiver; Cumulative Remedies. No failure or delay
on the part of the Holder hereof in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
3.2 Notices. Any notice herein required or permitted to be given shall be in
writing and shall be provided in accordance with the terms of the Purchase
Agreement.
3.3 Amendment Provision. The term "Note" and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or supplemented.
3.4 Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements of the Purchase Agreement. This Note shall not be assigned by the
Borrower without the prior written consent of the Holder, any such purported
assignment by the Borrower without such consent being null and void.
3.5 Governing Law. This Note 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 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 individual signing this Note on behalf of the
Borrower agree to submit to the jurisdiction of such courts. The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this Note 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, unenforceability or meaning of any other
provision of this Note . Nothing contained herein shall be deemed or operate to
preclude the Holder from bringing suit or taking other legal action against the
Borrower in any other jurisdiction to collect on the Borrowe's obligations to
Holder, to realize on any collateral or any other security for such obligations,
or to enforce a judgment or other court in favor of the Holder.
3.6 Maximum Payments. Nothing contained herein shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Borrower to the Holder and thus refunded to the Borrower.
3.7 Security Interest and Guarantee. The Holder has been granted a security
interest in certain assets of the Borrower and its Subsidiaries as more fully
described in the Master Security Agreement dated as of the date hereof.
3.8 Construction. Each party acknowledges that its legal counsel participated in
the preparation of this Note 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 Note to favor any party
against the other.
3.9 Cost of Collection. If default is made in the payment of this Note, the
Borrower shall pay to Holder reasonable costs of collection, including
reasonable attorneys' fees and expenses.
3.10 Subordination and Intercreditor Agreement. This Note is also subject to the
terms and conditions of that certain Subordination and Intercreditor Agreement,
dated as of the date hereof, by and among, the Borrower, the Holder, Milfam I
L.P. and Lloyd I. Miller, III.
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IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in its name
effective as of this 18th day of May 2007.
QUALITY FOOD BRANDS, INC.
By:________________________________
Name:______________________________
Title:_______________________________
WITNESS:
_______________________________