-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J2ZEmrSL4TUKwo9LIdwYcf42xpDkDNU3o8ykPdYOcN6w1u659sUAPxEHdGWvlI9C o4FvVUuT8CpgLR3pXMM/aA== 0001026018-07-000021.txt : 20070523 0001026018-07-000021.hdr.sgml : 20070523 20070523125914 ACCESSION NUMBER: 0001026018-07-000021 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20070523 ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070523 DATE AS OF CHANGE: 20070523 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNERGY BRANDS INC CENTRAL INDEX KEY: 0000870228 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & GENERAL LINE [5141] IRS NUMBER: 222993066 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19409 FILM NUMBER: 07873239 BUSINESS ADDRESS: STREET 1: 223 UNDERHILL BLVD CITY: SYOSSET STATE: NY ZIP: 11791 BUSINESS PHONE: 5167148200 MAIL ADDRESS: STREET 1: 223 UNDERHILL BLVD CITY: SYOSSET STATE: NY ZIP: 11791 FORMER COMPANY: FORMER CONFORMED NAME: KRANTOR CORP DATE OF NAME CHANGE: 19930328 FORMER COMPANY: FORMER CONFORMED NAME: DELTA VENTURES INC DATE OF NAME CHANGE: 19600201 8-K 1 file001.txt SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 Date of Report: May 23, 2007 Synergy Brands, Inc. (Exact name of registrant as specified in its charter) Delaware 0-19409 22-2993066 (State of incorporation) (Commission File No.) (IRS Employer Identification No.) 223 UNDERHILL BLVD., SYOSSET, NY 11791 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: 1-516-714-8200 Not Applicable (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K Filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions. [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Item 2.01 Completion of Acquisition of Assets Effective May 18, 2007, Quality Food Brands ("QFB"), a subsidiary of Synergy Brands Inc. (the "Company")(through ownership by PHS Group Inc.) leased a baking mix facility from MB Monroe Properties, Inc., a Michigan corporation and acquired associated assets of Loretta Baking Mix Products Ltd. ("LBMP") a Michigan corporation through purchase of such assets through foreclosure sale conducted by Laurus Master Funds, Ltd. (Laurus), a secured creditor of LBMP, as well as certain intellectual property owned by certain Canadian affiliates of LBMP currently in bankruptcy in Canada via sale by appointed receiver of such intellectual property. The aggregate purchase price paid by QFB was $4.75 million. Laurus financed the purchase through issuance by QFB of a 9% secured term note in the principal amount of $4,750,000. In addition QFB provided Laurus the right to acquire 30% of the common stock of QFB. The assets acquired provide QFB with a facility from which to produce baking mix products that could and are expected to supply existing customers of PHS. The Company has ordered from this facility in the past through PHS to supply its customers. PHS had been filling its orders from its customers for baking mix products by acquiring related products from LBMP. QFB accepted the opportunity to acquire these assets realizing that at this time the baking mix business product sales by PHS has grown to a level where it would be advantageous to have a direct manufacturing capability which would allow PHS to gain better product control, special purpose packaging and margin enhancement. QFB is now expected to replace LBMP, through use of the assets previously of LBMP acquired through foreclosure thereon by Laurus, as the supplier of baking mix products to PHS. PHS expects to continue to arrange for sale of the finished products to its customers. Neither PHS nor QFB is acquiring prior customers of LBMP in this asset sale not already supplied goods through PHS and do not expect to utilize any trademarks and/or tradenames previously owned and utilized by LBMP. The material assets acquired consist of baking mix equipment and physical facilities. The manufacturing facility in Monroe, Michigan previously utilized by LBMP wherein production occurred has been recently leased by QFB. Operations at such facility are expected to be commenced and continued utilizing personnel and other assets provided by PHS. Item 9.01 Exhibits. Exhibit 10 (without schedules and exhibits) Securities Purchase Agreement between Quality Food Brands Inc., as Company, Laurus Master Fund Ltd., as Purchaser dated May 18, 2007. Exhibit 10.1 Term Note dated May 18, 2007 between Quality Food Brands Inc, and Laurus Master Fund Ltd.in the amount of $4,750,000. Exhibit 10.2 Common Stock Warrant dated May 18, 2007 between Quality Food Brands Inc, and Laurus Master Fund Ltd. Exhibit 10.3 Common Stock Purchase Warrant dated May 18, 2007 between Quality Food Brands Inc, and Laurus Master Fund Ltd. Exhibit 10.4 Bill of Sale between Laurus Master Fund Ltd., as Grantor, Loretta Baking Mix Products Ltd., as Debtor and Quality Food Brands Inc., as Grantee SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Synergy Brands, Inc. By: /s/ Mair Faibish ---------------- Mair Faibish Chairman of the Board By: /s/ Mitchell Gerstein --------------------- Mitchell Gerstein Chief Financial Officer Dated: May 23, 2007 EX-10 2 file002.txt 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: ------------------------- ----------------------- ------------------------- ----------------------- Name: Name: ------------------------- ----------------------- ------------------------- ----------------------- Title: Title: ------------------------- ----------------------- A-1 EXHIBIT A FORM OF NOTE B-1 EXHIBIT B FORM OF OPINION EXHIBIT C FORM OF WARRANT EX-10.1 3 file003.txt 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. [Balance of page intentionally left blank; signature page follows.] 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: _______________________________ EX-10.2 4 file004.txt Exhibit 10.2 THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON STOCK 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 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. THE RIGHT TO SELL, TRANSFER OR OTHERWISE DISPOSE OF OR PLEDGE THE EQUITY REPRESENTED HEREBY MAY BE SUBJECT TO A RIGHT OF FIRST REFUSAL SET FORTH IN A RIGHT OF FIRST REFUSAL AGREEMENT. A COPY OF SUCH AGREEMENT IS ON FILE AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS. Right to Purchase up to 15%, on a fully diluted basis as determined below, of outstanding Shares of Common Stock of Quality Food Brands, Inc. (subject to adjustment as provided herein) COMMON STOCK PURCHASE WARRANT No. _________________ Issue Date: May 18, 2007 QUALITY FOOD BRANDS, INC., a corporation organized under the laws of the State of Nevada, hereby certifies that, for value received, LAURUS MASTER FUND, LTD., or assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company (as defined herein) from and after the Issue Date of this Warrant and at any time or from time to time before, up to that number of fully paid and nonassessable shares of Common Stock (as hereinafter defined), $0.001 par value per share, equal to 15% 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) at the applicable Exercise Price per share (as defined below). The number and character of such shares of Common Stock and the applicable Exercise Price per share are subject to adjustment as provided herein. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include Quality Food Brands, Inc. and any corporation which shall succeed, or assume the obligations of, Quality Food Brands, Inc. hereunder. (b) The term "Common Stock" includes (i) the Company's Common Stock, par value $0.001 per share; and (ii) any other securities into which or for which any of the securities described in (i) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holder of the Warrant at any time shall be entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise. (d) The "Exercise Price" applicable under this Warrant shall be $0.01 per share. 1. Exercise of Warrant. 1.1 Number of Shares Issuable upon Exercise. From and after the date hereof through and including the Expiration Date, the Holder shall be entitled to receive, upon exercise of this Warrant in whole or in part, by delivery of an original or fax copy of an exercise notice in the form attached hereto as Exhibit A (the "Exercise Notice"), shares of Common Stock of the Company, subject to adjustment pursuant to Section 4. 1.2 Fair Market Value. For purposes hereof, the "Fair Market Value" of a share of Common Stock as of a particular date (the "Determination Date") shall mean: (a) If the Company's Common Stock is traded on the American Stock Exchange or another national exchange or is quoted on the National or SmallCap Market of The Nasdaq Stock Market, Inc. ("Nasdaq"), then the closing or last sale price, respectively, reported for the last business day immediately preceding the Determination Date. (b) If the Company's Common Stock is not traded on the American Stock Exchange or another national exchange or on the Nasdaq but is traded on the NASD OTC Bulletin Board, then the mean of the average of the closing bid and asked prices reported for the last business day immediately preceding the Determination Date. (c) Except as provided in clause (d) below, if the Company's Common Stock is not publicly traded, then as the Holder and the Company agree or in the absence of agreement by arbitration in accordance with the rules then in effect of the American Arbitration Association, before a single arbitrator to be chosen from a panel of persons qualified by education and training to pass on the matter to be decided. (d) If the Determination Date is the date of a liquidation, dissolution or winding up, or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company's charter, then all amounts to be payable per share to holders of the Common Stock pursuant to the charter in the event of such liquidation, dissolution or winding up, plus all other amounts to be payable per share in respect of the Common Stock in liquidation under the charter, assuming for the purposes of this clause (d) that all of the shares of Common Stock then issuable upon exercise of the Warrant are outstanding at the Determination Date. 1.3 Company Acknowledgment. The Company will, at the time of the exercise of the Warrant, upon the request of the holder hereof acknowledge in writing its continuing obligation to afford to such holder any rights to which such holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. If the holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder any such rights. 1.4 Trustee for Warrant Holders. In the event that a bank or trust company shall have been appointed as trustee for the holders of the Warrant pursuant to Subsection 3.2, such bank or trust company shall have all the powers and duties of a warrant agent (as hereinafter described) and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1. 2. Procedure for Exercise. 2.1 Delivery of Stock Certificates, Etc., on Exercise. The Company agrees that the shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares in accordance herewith. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within three (3) business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct in compliance with applicable securities laws, a certificate or certificates for the number of duly and validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market Value of one full share, together with any other stock or other securities and property (including cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1 or otherwise. 2.2 Exercise. Payment may be made either (i) in cash or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Exercise Price, (ii) by delivery of the Warrant, or shares of Common Stock and/or Common Stock receivable upon exercise of the Warrant in accordance with Section (b) below, or (iii) by a combination of any of the foregoing methods, for the number of Common Shares specified in such Exercise Notice (as such exercise number shall be adjusted to reflect any adjustment in the total number of shares of Common Stock issuable to the Holder per the terms of this Warrant) and the Holder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully-paid and non-assessable shares of Common Stock (or Other Securities) determined as provided herein. Notwithstanding any provisions herein to the contrary, if the Fair Market Value of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Exercise Notice in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X=Y (A-B) --------- --------- A Where X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation) A = the Fair Market Value of one share of the Company's Common Stock (at the date of such calculation) B = Exercise Price (as adjusted to the date of such calculation) 3. Effect of Reorganization, Etc.; Adjustment of Exercise Price. 3.1 Reorganization, Consolidation, Merger, Etc. In case at any time or from time to time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person, or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, as a condition to the consummation of such a transaction, proper and adequate provision shall be made by the Company whereby the Holder of this Warrant, on the exercise hereof as provided in Section 1 at any time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such Holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such Holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in Section 4. 3.2 Dissolution. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, concurrently with any distributions made to holders of its Common Stock, shall at its expense deliver or cause to be delivered to the Holder the stock and other securities and property (including cash, where applicable) receivable by the Holder of the Warrant pursuant to Section 3.1, or, if the Holder shall so instruct the Company, to a bank or trust company specified by the Holder and having its principal office in New York, NY as trustee for the Holder of the Warrant (the "Trustee"). 3.3 Continuation of Terms. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 3, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 4. In the event this Warrant does not continue in full force and effect after the consummation of the transactions described in this Section 3, then the Company's securities and property (including cash, where applicable) receivable by the Holders of the Warrant will be delivered to Holder or the Trustee as contemplated by Section 3.2. 4. Extraordinary Events Regarding Common Stock. In the event that the Company shall (a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock or any preferred stock issued by the Company, (b) subdivide its outstanding shares of Common Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock (each of the preceding clauses (a) through (c), inclusive, an "Event"), then, in each such event, the number of shares of Common Stock that the Holder shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive shall be increased or decreased to a number determined by multiplying the number of shares of Common Stock that would, immediately prior to such Event, be issuable upon the exercise of this Warrant by a fraction of which (a) the numerator is the number of issued and outstanding shares of Common Stock immediately after such Event, and (b) the denominator is the number of issued and outstanding shares of Common Stock immediately prior to such Event. 5. Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrant, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the holder of the Warrant and any Warrant agent of the Company (appointed pursuant to Section 11 hereof). 6. Reservation of Stock, Etc., Issuable on Exercise of Warrant. The Company will at all times reserve from its authorized but unissued shares and keep available, solely for issuance and delivery on the exercise of the Warrant, shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrant. 7. Assignment; Exchange of Warrant. Subject to compliance with applicable securities laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a "Transferor") in whole or in part. On the surrender for exchange of this Warrant, with the Transferor's endorsement in the form of Exhibit B attached hereto (the "Transferor Endorsement Form") and together with evidence reasonably satisfactory to the Company demonstrating compliance with applicable securities laws, which shall include, without limitation, the provision of a legal opinion from the Transferor's counsel (at the Company's expense) that such transfer is exempt from the registration requirements of applicable securities laws, and payment by the Transferor of any applicable transfer taxes) will issue and deliver to or on the order of the Transferor thereof a new Warrant of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor Endorsement Form (each a "Transferee"), calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant so surrendered by the Transferor. 8. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 9. [Intentionally Omitted]. 10. Maximum Exercise. The Holder shall not be entitled to exercise any portion of this Warrant on any exercise date in excess of that portion of this Warrant upon exercise of which the sum of (i) the number of shares of Common Stock beneficially owned by the Holder and its affiliates on an exercise date, and (ii) the number of shares of Common Stock issuable upon the exercise of this Warrant with respect to which the determination of this proviso is being made on an exercise date, would result in beneficial ownership by the Holder and its affiliates of more than 9.99% of the outstanding shares of Common Stock of the Company on such date. For the purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Notwithstanding the foregoing, the restriction described in this paragraph may be revoked upon 75 days prior notice from the Holder to the Company and is automatically null and void upon an Event of Default under the Note (as defined below). 11. Warrant Agent. The Company may, by written notice to the each Holder of the Warrant, appoint an agent for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent. 12. Transfer on the Company's Books. Until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 13. Notices, Etc. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such Holder or, until any such Holder furnishes to the Company an address, then to, and at the address of, the last Holder of this Warrant who has so furnished an address to the Company. 14. Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be governed by and construed in accordance with the laws of State of New York without regard to principles of conflicts of laws. Any action brought concerning the transactions contemplated by this Warrant shall be brought only in the state courts of New York or in the federal courts located in the state of New York; provided, however, that the Holder may choose to waive this provision and bring an action outside the state of New York. The individuals executing this Warrant on behalf of the Company agree to submit to the jurisdiction of such courts and waive trial by jury. 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 Warrant 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 or enforceability of any other provision of this Warrant. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity, enforceability or meaning of any other provision. The Company acknowledges that legal counsel participated in the preparation of this Warrant 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 Warrant to favor any party against the other party. 15. Right of First Refusal. Notwithstanding anything to the contrary herein, to the extent and only to the extent that a Milfam Investment (as defined in the Purchase Agreement) has occurred, the Holder hereof acknowledges and agrees that the transfer of this Warrant, in whole or in part, or of any Shares of Common Stock underlying this Warrant, in whole or in part, shall be subject to the terms and conditions of that certain Right of First Refusal, dated as of the date hereof by and among the Holder, Milfam I L.P. and the Company. The Holder acknowledges that, to the extent and only to the extent that a Milfam Investment (as defined in the Purchase Agreement) has occurred, Milfam I L.P. (or any affiliate of Milfam I L.P.) is a third party beneficiary to the Warrant for purposes of this Section alone. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS.] IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above. QUALITY FOOD BRANDS, INC. WITNESS: By: ----------------------------------------------- ----------------------------------------------- Name: ----------------------------------------------- ----------------------------------------------- Title: - ------------------- ----------------------------------------------- A-1 EXHIBIT A FORM OF SUBSCRIPTION (To Be Signed Only On Exercise Of Warrant) TO: Quality Food Brands, Inc. Attention: Chief Financial Officer The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box): - ------------- shares of the Common Stock covered by such Warrant; or the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth - ------------- in Section 2. The undersigned herewith makes payment of the full Exercise Price for such shares at the price per share provided for in such Warrant, which is $___________. Such payment takes the form of (check applicable box or boxes): $__________ in lawful money of the United States; and/or - ----------- the cancellation of such portion of the attached Warrant as is exercisable for a total of _______ shares of Common Stock (using a Fair Market Value of $_______ per share for purposes of this calculation); and/or the cancellation of such number of shares of Common Stock as is - ----------- necessary, in accordance with the formula set forth in Section 2.2, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Section 2. The undersigned requests that the certificates for such shares be issued in the name of, and delivered to ______________________________________________ whose address is ___________________________________________________________________________. The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Securities Act") or pursuant to an exemption from registration under the Securities Act. Dated: ---------------- ---------------------------------------------- ---------------------------------------------- (Signature must conform to name of holder as specified on the face of the Warrant) Address: --------------------------------------- --------------------------------------- --------------------------------------- B-1 EXHIBIT B FORM OF TRANSFEROR ENDORSEMENT (To Be Signed Only On Transfer Of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading "Transferees" the right represented by the within the Warrant to purchase the percentage and number of shares of Common Stock of Quality Food Brands, Inc., a Nevada corporation (together with any successor or other entity that assumes the obligations thereof, the "Company") into which the within the Warrant relates specified under the headings "Percentage Transferred" and "Number Transferred," respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of the Company with full power of substitution in the premises. Percentage Number Transferees Address Transferred Transferred - ---------------- --------------- ----------------- ---------------- - ---------------- --------------- ----------------- ---------------- - ---------------- --------------- ----------------- ---------------- - ---------------- --------------- ----------------- ---------------- - ---------------- --------------- ----------------- ---------------- - ---------------- --------------- ----------------- ---------------- - ---------------- --------------- ----------------- ---------------- Dated: ----------- ------------------------------------------------ ------------------------------------------------ (Signature must conform to name of holder as specified on the face of the Warrant) Address: ------------------------------------ ------------------------------------ ------------------------------------ SIGNED IN THE PRESENCE OF: --------------------------------------- --------------------------------------- (Name) ACCEPTED AND AGREED: [TRANSFEREE] - ------------------------------------------------------- - ------------------------------------------------------- (Name) EX-10.3 5 file005.txt Exhibit 10.3 THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON STOCK 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 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. Right to Purchase up to 15%, on a fully diluted basis as determined below, of outstanding Shares of Common Stock of Quality Food Brands, Inc. (subject to adjustment as provided herein) COMMON STOCK PURCHASE WARRANT No. _________________ Issue Date: May 18, 2007 QUALITY FOOD BRANDS, INC., a corporation organized under the laws of the State of Nevada, hereby certifies that, for value received, LAURUS MASTER FUND, LTD., or assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company (as defined herein) from and after the Issue Date of this Warrant and at any time or from time to time before, up to that number of fully paid and nonassessable shares of Common Stock (as hereinafter defined), $0.001 par value per share, equal to 15% 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) at the applicable Exercise Price per share (as defined below). The number and character of such shares of Common Stock and the applicable Exercise Price per share are subject to adjustment as provided herein. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include Quality Food Brands, Inc. and any corporation which shall succeed, or assume the obligations of, Quality Food Brands, Inc. hereunder. (b) The term "Common Stock" includes (i) the Company's Common Stock, par value $0.001 per share; and (ii) any other securities into which or for which any of the securities described in (i) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holder of the Warrant at any time shall be entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise. (d) The "Exercise Price" applicable under this Warrant shall be $0.01 per share. 1. Exercise of Warrant. 1.1 Number of Shares Issuable upon Exercise. From and after the date hereof through and including the Expiration Date, the Holder shall be entitled to receive, upon exercise of this Warrant in whole or in part, by delivery of an original or fax copy of an exercise notice in the form attached hereto as Exhibit A (the "Exercise Notice"), shares of Common Stock of the Company, subject to adjustment pursuant to Section 4. 1.2 Fair Market Value. For purposes hereof, the "Fair Market Value" of a share of Common Stock as of a particular date (the "Determination Date") shall mean: (a) If the Company's Common Stock is traded on the American Stock Exchange or another national exchange or is quoted on the National or SmallCap Market of The Nasdaq Stock Market, Inc. ("Nasdaq"), then the closing or last sale price, respectively, reported for the last business day immediately preceding the Determination Date. (b) If the Company's Common Stock is not traded on the American Stock Exchange or another national exchange or on the Nasdaq but is traded on the NASD OTC Bulletin Board, then the mean of the average of the closing bid and asked prices reported for the last business day immediately preceding the Determination Date. (c) Except as provided in clause (d) below, if the Company's Common Stock is not publicly traded, then as the Holder and the Company agree or in the absence of agreement by arbitration in accordance with the rules then in effect of the American Arbitration Association, before a single arbitrator to be chosen from a panel of persons qualified by education and training to pass on the matter to be decided. (d) If the Determination Date is the date of a liquidation, dissolution or winding up, or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company's charter, then all amounts to be payable per share to holders of the Common Stock pursuant to the charter in the event of such liquidation, dissolution or winding up, plus all other amounts to be payable per share in respect of the Common Stock in liquidation under the charter, assuming for the purposes of this clause (d) that all of the shares of Common Stock then issuable upon exercise of the Warrant are outstanding at the Determination Date. 1.3 Company Acknowledgment. The Company will, at the time of the exercise of the Warrant, upon the request of the holder hereof acknowledge in writing its continuing obligation to afford to such holder any rights to which such holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. If the holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder any such rights. 1.4 Trustee for Warrant Holders. In the event that a bank or trust company shall have been appointed as trustee for the holders of the Warrant pursuant to Subsection 3.2, such bank or trust company shall have all the powers and duties of a warrant agent (as hereinafter described) and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1. 2. Procedure for Exercise. 2.1 Delivery of Stock Certificates, Etc., on Exercise. The Company agrees that the shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares in accordance herewith. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within three (3) business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct in compliance with applicable securities laws, a certificate or certificates for the number of duly and validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market Value of one full share, together with any other stock or other securities and property (including cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1 or otherwise. 2.2 Exercise. Payment may be made either (i) in cash or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Exercise Price, (ii) by delivery of the Warrant, or shares of Common Stock and/or Common Stock receivable upon exercise of the Warrant in accordance with Section (b) below, or (iii) by a combination of any of the foregoing methods, for the number of Common Shares specified in such Exercise Notice (as such exercise number shall be adjusted to reflect any adjustment in the total number of shares of Common Stock issuable to the Holder per the terms of this Warrant) and the Holder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully-paid and non-assessable shares of Common Stock (or Other Securities) determined as provided herein. Notwithstanding any provisions herein to the contrary, if the Fair Market Value of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Exercise Notice in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X=Y (A-B) --------- --------- A Where X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation) A = the Fair Market Value of one share of the Company's Common Stock (at the date of such calculation) B = Exercise Price (as adjusted to the date of such calculation) 3. Effect of Reorganization, Etc.; Adjustment of Exercise Price. 3.1 Reorganization, Consolidation, Merger, Etc. In case at any time or from time to time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person, or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, as a condition to the consummation of such a transaction, proper and adequate provision shall be made by the Company whereby the Holder of this Warrant, on the exercise hereof as provided in Section 1 at any time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such Holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such Holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in Section 4. 3.2 Dissolution. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, concurrently with any distributions made to holders of its Common Stock, shall at its expense deliver or cause to be delivered to the Holder the stock and other securities and property (including cash, where applicable) receivable by the Holder of the Warrant pursuant to Section 3.1, or, if the Holder shall so instruct the Company, to a bank or trust company specified by the Holder and having its principal office in New York, NY as trustee for the Holder of the Warrant (the "Trustee"). 3.3 Continuation of Terms. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 3, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 4. In the event this Warrant does not continue in full force and effect after the consummation of the transactions described in this Section 3, then the Company's securities and property (including cash, where applicable) receivable by the Holders of the Warrant will be delivered to Holder or the Trustee as contemplated by Section 3.2. 4. Extraordinary Events Regarding Common Stock. In the event that the Company shall (a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock or any preferred stock issued by the Company, (b) subdivide its outstanding shares of Common Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock (each of the preceding clauses (a) through (c), inclusive, an "Event"), then, in each such event, the number of shares of Common Stock that the Holder shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive shall be increased or decreased to a number determined by multiplying the number of shares of Common Stock that would, immediately prior to such Event, be issuable upon the exercise of this Warrant by a fraction of which (a) the numerator is the number of issued and outstanding shares of Common Stock immediately after such Event, and (b) the denominator is the number of issued and outstanding shares of Common Stock immediately prior to such Event. 5. Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrant, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the holder of the Warrant and any Warrant agent of the Company (appointed pursuant to Section 11 hereof). 6. Reservation of Stock, Etc., Issuable on Exercise of Warrant. The Company will at all times reserve from its authorized but unissued shares and keep available, solely for issuance and delivery on the exercise of the Warrant, shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrant. 7. Assignment; Exchange of Warrant. Subject to compliance with applicable securities laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a "Transferor") in whole or in part. On the surrender for exchange of this Warrant, with the Transferor's endorsement in the form of Exhibit B attached hereto (the "Transferor Endorsement Form") and together with evidence reasonably satisfactory to the Company demonstrating compliance with applicable securities laws, which shall include, without limitation, the provision of a legal opinion from the Transferor's counsel (at the Company's expense) that such transfer is exempt from the registration requirements of applicable securities laws, and payment by the Transferor of any applicable transfer taxes) will issue and deliver to or on the order of the Transferor thereof a new Warrant of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor Endorsement Form (each a "Transferee"), calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant so surrendered by the Transferor. 8. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 9. [Intentionally Omitted]. 10. Maximum Exercise. The Holder shall not be entitled to exercise any portion of this Warrant on any exercise date in excess of that portion of this Warrant upon exercise of which the sum of (i) the number of shares of Common Stock beneficially owned by the Holder and its affiliates on an exercise date, and (ii) the number of shares of Common Stock issuable upon the exercise of this Warrant with respect to which the determination of this proviso is being made on an exercise date, would result in beneficial ownership by the Holder and its affiliates of more than 9.99% of the outstanding shares of Common Stock of the Company on such date. For the purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Notwithstanding the foregoing, the restriction described in this paragraph may be revoked upon 75 days prior notice from the Holder to the Company and is automatically null and void upon an Event of Default under the Note (as defined below). 11. Warrant Agent. The Company may, by written notice to the each Holder of the Warrant, appoint an agent for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent. 12. Transfer on the Company's Books. Until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 13. Notices, Etc. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such Holder or, until any such Holder furnishes to the Company an address, then to, and at the address of, the last Holder of this Warrant who has so furnished an address to the Company. 14. Further Exercise Limitation; Cancellation. Notwithstanding anything contained herein to the contrary, the Holder shall not be entitled pursuant to the terms of this Warrant to exercise any portion of this Warrant prior to 115 day anniversary of the Issue Date (such period, the "Restricted Period"). Furthermore, in the event that on or prior to the expiration of the Restricted Period, the Milfam Investment (as defined in the Purchase Agreement) shall have occurred, this Warrant shall be cancelled and be of no further force or effect. 15. Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be governed by and construed in accordance with the laws of State of New York without regard to principles of conflicts of laws. Any action brought concerning the transactions contemplated by this Warrant shall be brought only in the state courts of New York or in the federal courts located in the state of New York; provided, however, that the Holder may choose to waive this provision and bring an action outside the state of New York. The individuals executing this Warrant on behalf of the Company agree to submit to the jurisdiction of such courts and waive trial by jury. 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 Warrant 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 or enforceability of any other provision of this Warrant. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity, enforceability or meaning of any other provision. The Company acknowledges that legal counsel participated in the preparation of this Warrant 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 Warrant to favor any party against the other party. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS.] IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above. QUALITY FOOD BRANDS, INC. WITNESS: By: ------------------------------ ------------------------------ Name: ------------------------------ ------------------------------ Title: - ----------------------- ------------------------------ EXHIBIT A FORM OF SUBSCRIPTION (To Be Signed Only On Exercise Of Warrant) TO: Quality Food Brands, Inc. Attention: Chief Financial Officer The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box): ________ shares of the Common Stock covered by such Warrant; or - ------------ - ------------ the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 2. - ------------ - ------------ The undersigned herewith makes payment of the full Exercise Price for such shares at the price per share provided for in such Warrant, which is $___________. Such payment takes the form of (check applicable box or boxes): $__________ in lawful money of the United States; and/or - ------------ - ------------ the cancellation of such portion of the attached Warrant as is exercisable for a total of _______ shares of Common Stock (using a Fair Market Value of $_______ per share for purposes of this calculation); and/or - ------------ - ------------ the cancellation of such number of shares of Common Stock as is necessary, in accordance with the formula set forth in Section 2.2, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Section 2. - ------------ - ------------ The undersigned requests that the certificates for such shares be issued in the name of, and delivered to ______________________________________________ whose address is ___________________________________________________________________________. The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Securities Act") or pursuant to an exemption from registration under the Securities Act. Dated: -------------------------------------------------------------- -------------------------------------------------------------- (Signature must conform to name of holder as specified on the face of the Warrant) Address: ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ B-1 EXHIBIT B FORM OF TRANSFEROR ENDORSEMENT (To Be Signed Only On Transfer Of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading "Transferees" the right represented by the within the Warrant to purchase the percentage and number of shares of Common Stock of Quality Food Brands, Inc., a Nevada corporation (together with any successor or other entity that assumes the obligations thereof, the "Company") into which the within the Warrant relates specified under the headings "Percentage Transferred" and "Number Transferred," respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of the Company with full power of substitution in the premises. Percentage Number Transferees Address Transferred Transferred - ------------------ --------------- ----------------- ---------------- - ------------------ --------------- ----------------- ---------------- - ------------------ --------------- ----------------- ---------------- - ------------------ --------------- ----------------- ---------------- - ------------------ --------------- ----------------- ---------------- - ------------------ --------------- ----------------- ---------------- - ------------------ --------------- ----------------- ---------------- Dated: ----------- --------------------------------------------------- --------------------------------------------------- (Signature must conform to name of holder as specified on the face of the Warrant) Address: -------------------------------------------- -------------------------------------------- -------------------------------------------- SIGNED IN THE PRESENCE OF: --------------------------------------------------- --------------------------------------------------- (Name) ACCEPTED AND AGREED: [TRANSFEREE] - ------------------------------------------------------- - ------------------------------------------------------- (Name) EX-10.6 6 file006.txt Exhibit 10.4 SECURED PARTY GENERAL CONVEYANCE AND BILL OF SALE KNOW ALL MEN BY THESE PRESENTS that LAURUS MASTER FUND, LTD. ("Grantor") pursuant to its rights as a secured party under a Security and Purchase Agreement dated December 28, 2005 by and among Grantor, LORETTA BAKING MIX PRODUCTS LTD. ("Debtor") and certain affiliates of Debtor, as well as under a Master Security Agreement dated December 28, 2005 by and among Grantor, Debtor and certain affiliates of Debtor and pursuant to and in exercise of its rights as a secured party under the Uniform Commercial Code, for and in consideration of the sum of $4,712,983.53, the receipt of which is hereby acknowledged, in accordance with the terms hereof, subject to collection, hereby grants, assigns and sets over to QUALITY FOOD BRANDS, INC. ("Grantee") all of Debtor's and Grantor's right, title and interest in and to the property described in Schedule A annexed hereto and made a part hereof. Debtor's right, title and interest in and to the conveyed property shall not include any receivables owed to Debtor by any of its affiliates, including without limitation, Loretta Food Group Inc., Loretta Foods Limited, Loretta Baking Mix Products Ltd, Sweet Valley Food Corporation and Bayshore Foods Inc. ("Affiliates") (collectively, the "Conveyed Property"). TO HAVE AND TO HOLD the same unto Grantee, its successors and assigns. Grantor represents, warrants and covenants, subject to the provisions herein, that upon delivery of this instrument, Grantee shall be vested with all of the Debtor's rights in the Conveyed Property free and clear of (a) Grantor's security interests or any other interest Grantor has or may have in the Conveyed Property, (b) subordinate security interests and (c) other subordinate liens and other liens created under the laws of Michigan that are not to be discharged. All notices required to be given under Article 9 of the UCC with respect to the conveyance of the Conveyed Property, as provided in this Bill of Sale, have been duly given. Grantor shall conduct the secured party sale of the Conveyed Property in a commercially reasonable manner in accordance with the terms and conditions of Article 9 of the UCC. Grantor has the right to sell and convey the Conveyed Property; provided that if a claim is made against Grantee with respect to the rights and property transferred to Grantee hereby, upon Grantee promptly advising Grantor of any such claim and providing Grantor with the right to defend same at Grantor's sole cost and expense and by counsel of Grantor's choosing, then with respect to such representation and warranty, Grantor shall be liable to Grantee to the extent of damages (and in no event shall Grantor be liable for consequential, special or punitive damages), if any, actually suffered by Grantee, but limited nevertheless to the amount paid by Grantee to Grantor hereunder. Grantee shall cooperate in the defense of any such third party claim. As of the date hereof, Grantor has not received notice of any third party claims either secured or unsecured. Notwithstanding anything to the contrary provided in this Bill of Sale, Grantor makes no representation or warranty of any kind with respect to any Conveyed Property for which a lien cannot be perfected under Article 9 of the UCC (the "Non UCC Assets"). Grantee acknowledges that Grantor is not conveying to Grantee, and the Conveyed Property shall not include, any interest of any kind in any of the Non-UCC Assets. EXCEPT AS HEREIN SPECIFICALLY SET FORTH, GRANTOR MAKES NO WARRANTY, REPRESENTATION OR COVENANT, INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO (A) TITLE, POSSESSION, QUIET ENJOYMENT OR THE LIKE IN THIS DISPOSITION AND (B) MERCHANTABILITY, FITNESS OR ADEQUACY FOR ANY PURPOSE OR USE, QUALITY, PRODUCTIVENESS OR CAPACITY OF ANY OR ALL OF THE CONVEYED PROPERTY; AND GRANTEE ACKNOWLEDGES BY ITS ACCEPTANCE HEREOF THAT IT IS ACCEPTING ALL OF DEBTORS' RIGHTS IN AND TO SUCH PROPERTY, "AS IS," "WHERE IS" AND WITHOUT IMPLIED OR EXPRESSED REPRESENTATION, WARRANTY OR COVENANT. The Grantee, by accepting this Secured Party General Conveyance and Bill of Sale, agrees to comply with all federal, state and local laws and regulations having force of law which apply to the Grantee's removal of and use of the property sold hereunder. The Grantee hereby indemnifies and holds Grantor harmless from and against any and all liability, loss, cost and expense incurred by Grantor arising in any manner whatsoever out of sales and/or other taxes which are required to be paid by Grantee in connection with the transfer of the assets contemplated hereby. This Secured Party General Conveyance and Bill of Sale and any claim or dispute of any kind or nature whatsoever arising out of or in any way relating to this Secured Party General Conveyance and Bill of Sale, directly or indirectly, shall be governed by and construed in accordance with the laws of the STATE of NEW YORK without regard to any choice-of-law principle that would dictate the application of the laws of another jurisdiction. [SIGNATURE LINES ON FOLLOWING PAGE] IN WITNESS WHEREOF, Grantor has caused this instrument to be duly executed this 18th day of May, 2007. LAURUS MASTER FUND, LTD. By: _________________________________ Its: ________________________________ ACCEPTED AND AGREED TO: QUALITY FOOD BRANDS, INC. By:___________________________ Its: ___________________________ STATE OF ) : ss.: COUNTY OF ) On the ____ day of ____________, before me personally came ____________________ to me known, who being by me duly sworn, did depose and say that he is the ___________________ of ________________________________, the corporation described in and which executed the foregoing instrument, and that he was authorized to sign his name thereto by order of the board of directors of said corporation. _______________________________ Notary Public -----END PRIVACY-ENHANCED MESSAGE-----