REDNECK FOODS, INC.
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this
"Agreement") is entered into as of February 4, 1997 by and among REDNECK
FOODS, INC., a Delaware corporation ("Company"), XXXXX XXXXXX, an individual
("Xxxxxx"), and XXXX XXXXXXXXX, an individual ("Xxxxxxxxx"), with reference
to the following facts:
A. Company is a corporation that has been newly-formed for the purposes
of engaging in the business of developing and managing a national franchise
(the "Franchise") of barbecue and/or grill style restaurants (the
"Restaurants").
B. Currently, the only issued and outstanding capital stock of Company is
Five Million One Hundred Thousand (5,100,000) shares of its common stock
("Common Stock"), which is all held by Company's sole shareholder, Xxxxxx.
C. Company desires to issue and sell to Xxxxxxxxx and Xxxxxxxxx wishes to
purchase from Company Two Million Five Hundred Thousand (2,500,000) shares of
Series A Convertible Preferred Stock ("Preferred Stock").
AGREEMENTS
In consideration of the mutual covenants, agreements, representations and
warranties and conditions contained herein, the parties hereto do hereby
agree as follows:
1. PURCHASE OF PREFERRED STOCK.
1.1 Purchase of Shares. Subject to the terms and conditions of this
Agreement, Xxxxxxxxx hereby agrees to purchase from Company and Company
agrees to sell to Xxxxxxxxx Two Million Five Hundred Thousand (2,500,000)
shares of Preferred Stock.
1.2 Purchase Consideration. In exchange for the shares of Preferred Stock
purchased hereunder, Xxxxxxxxx shall provide the following valuable
consideration to Company:
(a) License Agreement. Xxxxxxxxx and Company shall enter into a License
Agreement (the "License Agreement") in the form of Exhibit A attached hereto
pursuant to which Xxxxxxxxx shall grant to Company a limited license to use
the name and likeness of Xxxxxxxxx in connection with the promotion of the
Restaurants.
(b) Promotion Agreement. Xxxxxxxxx and Company shall enter into a
Promotion Agreement (the "Promotion Agreement") in the form of Exhibit B
attached hereto pursuant to which Xxxxxxxxx shall provide certain promotional
services to Company in connection with the promotion of the Restaurants.
The parties acknowledge that, as of the date of execution of this Agreement,
the aggregate value of the consideration contributed to Company by Xxxxxxxxx
pursuant to Sections 1.2(a) and 1.2(b) is Fifty Thousand Dollars ($50,000).
1.3 Forfeiture of Shares.
(a) Forfeiture Schedule. Xxxxxxxxx agrees that his ownership in the shares
of Preferred Stock purchased hereunder (or in any shares of stock received
upon conversion of such shares) shall be subject to the forfeiture provisions
of this Section 1.3. One Million Six Hundred Sixty-Six Thousand Six Hundred
Sixty-Seven (1,666,667) of the shares of Preferred Stock purchased hereunder
shall not be subject to forfeiture. Eight Hundred Thirty-Three Thousand
Three Hundred Thirty-Three (833,333) of the shares of Preferred Stock
purchased hereunder shall initially be subject to forfeiture pursuant to the
terms of this Agreement but the number of shares subject to forfeiture shall
be reduced Thirteen Thousand Eight Hundred Eighty-Nine (13,889) shares
monthly, on the first day of each month, over the five (5) year term of the
Promotion Agreement.
(b) Vesting Upon Change of Control. All shares subject to forfeiture
hereunder shall no longer be forfeitable and Xxxxxxxxx'x interest therein
shall fully vest upon a Change of Control of Company. As used herein, a
"Change of Control" shall mean the occurrence of any of the following events:
(i) An acquisition (other than directly from Company) of any voting
securities of Company (the "Voting Securities") by a "Person" or "Group" (as
such terms are used for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act") immediately after which
such Person or Group has "Beneficial OwnershiP" (within the meaning of Rule
13d-3 promulgated under the 0000 Xxx) of more than fifty percent (50%) of the
combined voting power of Company's then outstanding Voting Securities.
(ii) Approval by the shareholders of Company of:
(1) A merger, consolidation or reorganization involving Company, unless
the shareholders of Company, immediately before such merger, consolidation or
reorganization, own, directly or indirectly, immediately following such
merger, consolidation or reorganization, at least fifty percent (50%) of the
combined voting power of the outstanding voting securities of the corporation
resulting from such merger, consolidation or reorganization in substantially
the same proportion as their ownership of the outstanding Voting Securities
immediately before such merger, consolidation or reorganization.
(2) A complete liquidation or dissolution of Company
(c) Event of Forfeiture. Forfeiture of shares hereunder shall occur
only upon an early termination of the Promotion Agreement that is caused by a
breach of such agreement by Xxxxxxxxx. In such event, Xxxxxxxxx shall (i)
forfeit any right to any shares of Preferred Stock (or in any shares of stock
received upon conversion of such shares) that remain subject to forfeiture
pursuant to the provisions of Section 1.3(a) and (b), and (ii) promptly
execute and deliver all appropriate share certificates and assignments to
effect the transfer of such forfeited shares to Company.
1.4 Rights of Preferred Stock. The rights, preferences and privileges of
the Preferred Stock and their principal features with respect to voting,
dividends, liquidation, preferences and conversion features (including anti-
dilution adjustments) shall be as set forth in the Certificate of
Incorporation of Company attached hereto as Exhibit C (the "Certificate of
Incorporation").
1.5 Post-Conversion Anti-Dilution Option.
(a) When Available. Under the terms set forth in the Certificate of
Incorporation, the Preferred Stock is subject to automatic conversion. From
and after the date such automatic conversion occurs, Xxxxxxxxx shall be
entitled to the option described in this Section 1.5.
(b) Scope of Right. If Company offers equity securities for sale to Xxxxxx
or to one or more third party investors (or rights to acquire equity
securities including convertible debt, warrants, options and similar rights),
Xxxxxxxxx shall have the option to purchase in such offering all or a portion
of that percentage of the total securities to be sold in such offering as
equals the percentage of the total then-outstanding capital stock of Company
held by Xxxxxxxxx (determined by assuming that, as of the time of the
determination, all of the issued and outstanding equity securities of Company
have been converted into Common Stock). The option of Xxxxxxxxx to purchase
securities pursuant to this Section 1.5 shall be on all the same terms and
conditions as such securities are offered to third party investor(s),
including without limitation terms with respect to timing of payments and
subscriptions.
(c) Exceptions to Option. Company shall have the right to offer for sale
debt securities that have no right to convert into equity securities without
triggering the option rights set forth in this Section 1.5. Further, the
option rights shall not be triggered by issuance of equity shares (i) upon
conversion of Preferred Stock, (ii) to officers, directors, employees or
consultants of Company for services pursuant to a stock option plan or stock
purchase plan approved by the Board of Directors of Company pursuant to
Section 4.2, (iii) to banks, lenders and equipment lessors in connection with
debt financing or equipment leases approved by the Board of Directors of
Company, (iv) as a dividend or distribution on Preferred Stock or Common
Stock of Company, (v) in connection with a merger or consolidation for
acquisition by Company of any other corporation or business entity or assets,
or (vi) by way of a dividend or other distribution on shares issued as
described in clauses (i) through (v) of this sentence.
(d) Means of Exercise. The option provided in this Section 1.5 shall be
exercised within thirty (30) days after receipt of written notice from
Company of the offer for sale to one or more third parties of Company's
equity securities by a written notice from Xxxxxxxxx that states Xxxxxxxxx'x
desire to purchase securities pursuant to this Section 1.5.
(e) Termination on Public Offering. The option described in this Section
1.5 shall terminate and be of no further force or effect upon the
registration of the Common Stock of Company under the Securities Exchange Act
of 1934, or upon Company being required to file reports with the Securities
Exchange Commission under Section 15(d) of such act.
1.6 Stock Certificates; Legends. Concurrently with the execution of this
Agreement and the other Transaction Documents, Company shall deliver to
Xxxxxxxxx stock certificates representing all of the shares of Preferred
Stock purchased hereunder. In order to reflect the restrictions on
disposition of the Preferred Stock, the stock certificates for the Preferred
Stock will be endorsed with restrictive legends, including the following
legends:
(a) Federal Legend. "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF (i) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER SUCH
ACT, (ii) A "NO ACTION" LETTER OF THE SECURITIES AND EXCHANGE COMMISSION WITH
RESPECT TO SUCH SALE OR OFFER, OR (iii) AN OPINION OF COUNSEL OR OTHER
EVIDENCE SATISFACTORY TO THE REDNECK FOODS, INC. THAT REGISTRATION UNDER SUCH
ACT IS NOT REQUIRED WITH RESPECT TO SUCH SALE OR OFFER."
(b) Other Legends. Any other legends required by applicable state blue sky
laws.
Any legend endorsed on a certificate or instrument evidencing any of the
Preferred Stock issued pursuant to this Agreement and any stop transfer
instructions with respect to such Preferred Stock shall be removed and
Company shall issue a certificate or instrument without legend to the holder
of such Preferred Stock if such Preferred Stock is registered under the
Securities Act of 1933 or if such holder provides Company with an opinion of
counsel for such holder, in form and substance reasonably satisfactory to
Company, to the effect that a public sale, transfer or assignment of such
Preferred Stock may be made without registration.
1.7 Transaction Documents. As used herein, the "Transaction Documents"
shall mean collectively, this Agreement and all other documents to be
executed pursuant hereto, including without limitation, the License
Agreement, the Promotion Agreement, the "Registration Rights Agreement," the
"Xxxxxx Employment Agreement," the "Xxxxxxxxx Employment Agreement," the
"Xxxxxxxx Consulting Agreement," the "Proprietary Rights and Confidentiality
Agreements" and the "Arbitration Agreement" as such terms are defined herein.
2. OBLIGATION TO RAISE CAPITAL
2.1 Obligation. As a condition subsequent to the obligations of Xxxxxxxxx
hereunder, Company and Xxxxxx shall be obligated to obtain for Company equity
investments totaling at least Two Million Five Hundred Thousand Dollars
($2,500,000) in gross capital less applicable, reasonable commissions (the
"Investment Capital") from third party investors by November 1, 1997.
Company may accept either cash or property contributions from third party
investors as the Investment Capital; provided, that, with respect to
contributions of property, Xxxxxxxxx shall have the right to approve any such
property prior to its acceptance by Company and provided further that
Xxxxxxxxx shall have the right to approve the valuation given to such
property as of the date of contribution. Company and Xxxxxx may determine
(i) the type(s) and amount(s) of equity shares to be issued by Company in
exchange for the Investment Capital, and (ii) the percentage of the overall
equity of the Company such issued shares shall represent. Notwithstanding
the foregoing, the parties acknowledge and understand that, pursuant to the
conversion rights of the Preferred Stock set forth in the Certificate of
Incorporation, the Preferred Stock shall, once the Investment Capital has
been successfully obtained by Company, automatically convert into equity
shares constituting twenty-five percent (25%) of the overall equity of
Company. Consequently, the shares to be issued in exchange for the
Investment Capital shall, when added to the Common Stock held by Xxxxxx,
constitute seventy-five percent (75%) of the overall equity of Company. To
accomplish this 25/75 percentage split, Xxxxxxxxx and Xxxxxx acknowledge and
accept that the issuance of shares in exchange for the Investment Capital
will have a disparate impact on their respective percentage interests in the
overall equity of Company, with the most likely result being that the
percentage interest of Xxxxxx is diluted to a greater extent than the
percentage interest of Xxxxxxxxx.
2.2 Full Information. Company and Xxxxxx shall keep Xxxxxxxxx fully
informed of all actions taken by Company and Xxxxxx in fulfillment of their
obligations under this Section 2, including by means of providing Xxxxxxxxx
with copies of all correspondence and solicitation materials provided to
potential investors.
2.3 Compliance with Securities Laws; Indemnification. Company and Xxxxxx
shall ensure that all solicitations, offering and sales made in connection
with the Investment Capital are done in full compliance with all applicable
federal and state securities laws. Company and Xxxxxx shall inform all
potential investors in writing that (i) Xxxxxxxxx is not a promoter of
Company or of the offering of securities, (ii) Xxxxxxxxx is receiving the
Preferred Stock issued to him hereunder in exchange for the License Agreement
and the Promotion Agreement, and not in exchange for monies paid, and (iii)
the rights and remedies provided to Xxxxxxxxx under this Agreement and under
the Transaction Documents are for the benefit of Xxxxxxxxx and the protection
of his investment in Company only. Company and Xxxxxx, and each of them,
agree, jointly and severally, to indemnify, defend and hold harmless
Xxxxxxxxx for any and all suits, claims and causes of action arising in
connection with the raising of the Investment Capital, including suits,
claims and causes of action arising under applicable federal and state
securities laws.
2.4 Preservation of Funds. Except as provided in this Section 2.4, any and
all cash funds obtained by Company as part of the Investment Capital shall be
deposited into an escrow account and held until the full amount of the
Investment Capital has been obtained. No funds shall be released from such
escrow account without the prior approval of Xxxxxxxxx. Upon release from
escrow, the Investment Capital funds shall be deposited into the general
corporate bank accounts of Company and shall, subject to the terms of this
Agreement and the Transaction Documents, be used for the business purposes of
Company. Notwithstanding the foregoing, during the time the Investment
Capital is being raised, Company may use some of the funds so raised to pay
for the reasonable and necessary expenses of Company (not to exceed
($200,000), including the reasonable and necessary travel and related
expenses of Xxxxxx, in connection with soliciting and raising the remainder
of the Investment Capital; provided, however, that full disclosure has been
made to all investing parties that (i) all or a portion of their invested
funds may be expended in such manner without any guaranty of recovery or
success , and (ii) Xxxxxxxxx has the right to terminate all involvement with
Company in the event all of the Investment Capital is not obtained by Company
pursuant to the terms of this Agreement; and provided further that Company
provides Xxxxxxxxx with satisfactory evidence that such full disclosure has
been made.
3. ADDITIONAL AGREEMENTS.
3.1 Registration Rights Agreement. The parties shall enter into a
Registration Rights Agreement in the form of Exhibit D attached hereto (the
"Registration Rights Agreement").
3.2 Xxxxxx Employment Agreement. Company shall enter into an employment
agreement with Xxxxxx who shall serve as Chief Operating Officer of Company
pursuant to the terms of the Employment Agreement attached hereto as Exhibit
E (the "Xxxxxx Employment Agreement").
3.3 Xxxxxxxxx Employment Agreement. Company shall enter into an employment
agreement with Xxxxxx X. Xxxxxxxxx who will serve as Chief Financial Officer
of Company pursuant to the terms of the Employment Agreement attached hereto
as Exhibit F (the "Xxxxxxxxx Employment Agreement").
3.4 Xxxxxxxx Consulting Agreement. Company shall enter into a consulting
agreement with X.X. Xxxxxxxx pursuant to the terms of the Consulting
Agreement attached hereto as Exhibit G (the "Xxxxxxxx Consulting Agreement").
3.5 Confidentiality Agreements. Company shall require each person employed
by Company (including independent contractors, if any) with access to
confidential information to execute and deliver to Company a confidentiality
and non-disclosure agreement and assignment of inventions agreement in the
form attached hereto as Exhibit H (the "Proprietary Rights and
Confidentiality Agreement") pursuant to which such person agrees not to use
or disclose confidential and proprietary information of Company and assigns
to Company certain work product of that person.
3.6 Arbitration Agreement. Company, Foxworthy, Womick, Xxxxxx X. Xxxxxxxxx
and X.X. Xxxxxxxx will enter into an Arbitration Agreement in the form
attached hereto as Exhibit I (the "Arbitration Agreement").
3.7 Consents and Approvals. Company shall use its best efforts to obtain
any and all consents from other parties, if any, required in connection with
the consummation of this Agreement and the transactions contemplated herein
and to obtain any and all permits or approval of any governmental body or
agency required by such party for the lawful consummation of this Agreement
and the other Transaction Documents.
3.8 Selection of Professionals. The parties agree that the Company will
retain Blanc Xxxxxxxx Xxxxxxxx & Kronstadt to serve as outside legal counsel
to Company with respect to all legal matters and will retain Xxxxxxxxx &
Xxxxxxxxx to serve as outside accountants to Company with respect to all
financial matters. Any change by Company of its outside legal counsel or
accountants shall require the approval of the Board of Directors under
Section 4.2.
3.9 For so long as he remains a shareholder of Company, Xxxxxxxxx shall
have the right in his sole discretion to select the identity of the persons
or firms who will render professional services to Company, including without
limitation legal and accounting services.
3.10 Option to Acquire Franchises. For the first five (5) years after the
Investment Capital has been obtained by Company, Xxxxxxxxx shall have the
option to purchase from Company the franchise rights for up to ten (10)
Restaurants on terms that (i) provide for franchise fees and royalties that
are equal to fifty percent (50%) of the lowest franchise fees and royalties
payable by any other franchisee, and (ii) in all other respects are at least
as favorable as the most favorable terms offered by Company to any other
franchisee.
4. BOARD REPRESENTATION
4.1 Board Composition. After Company has acquired the Investment Capital
pursuant to Section 2, the composition of the Board of Directors of Company
shall be determined as provided in this Section 4.1.
(a) Number and Selection of Directors. The Board of Directors shall
consist of seven (7) directors. Xxxxxxxxx and Xxxxxx each agree to hold and
to vote all of their respective shares of (i) Preferred Stock, (ii) Common
Stock, and (iii) any voting shares of Company stock issued upon conversion of
the Preferred Stock (hereafter collectively referred to as the "Voting
Shares") to elect to the Board of Directors two (2) director nominees
selected by Xxxxxxxxx and four (4) director nominees selected by Xxxxxx. The
six directors so nominated shall upon their election appoint the seventh (7th)
member of Board of Directors.
(b) Removal of Directors. Xxxxxxxxx and Xxxxxx agree to vote all of the
Voting Shares held by them to remove (with or without cause) (i) any of the
directors selected by Xxxxxxxxx pursuant to this Section 4 upon instructions
in writing to such effect from Xxxxxxxxx, and (ii) any of the directors
selected by Xxxxxx pursuant to this Section 4 upon instructions in writing to
such effect from Xxxxxx.
(c) Initial Selections. The initial directors selected by Xxxxxxxxx shall
be Xxxxxx X. Xxxxxxxxx and X.X. Xxxxxxxx. The initial directors to be chosen
by Xxxxxx shall be Xxxxxx, Xxxx Xxxxxx, Xxx Scheifly and Xxxxxx Xxxxxxx.
(d) Changes in Size of Board. Company may, in its discretion, from time to
time, take the appropriate corporate measures to change the number of
directors comprising the Board of Directors. In the event of such a change,
the number of directors to be nominated by Xxxxxxxxx and Xxxxxx pursuant to
Section 4.1(a) shall be proportionately increased or decreased; provided,
however, that Xxxxxxxxx shall at all times be entitled to nominate and have
elected a number of directors constituting at least twenty-five percent (25%)
of the members of the Board of Directors.
(e) Termination. The provisions of this Section shall terminate and be of
no further force or effect upon the registration of the Common Stock of
Company under the Securities Exchange Act of 1934, or upon Company being
required to file reports with the SEC under Section 15(d) of such act.
4.2 Actions of Company Requiring Special Board Approval. Notwithstanding
anything to the contrary contained herein and notwithstanding the potential
ability of Company to take certain actions without first obtaining the
express authorization of the Board of Directors, Company shall not take any
material business action without first obtaining the approval of a majority
of the Board of Directors which majority must include at least one (1) of the
directors selected pursuant to Section 4.1 by Xxxxxxxxx. Without limiting
the generality of the foregoing, the actions of Company requiring such
approval shall include:
(a) The selection and quality of the types of foods and beverages to be
served in the Restaurants and the determination of menu pricing.
(b) The design, development and method of construction of Restaurant
buildings.
(c) The selection and any change in the name or names under which the
Restaurants will be operated and promoted.
(d) The selection, development and implementation of all advertising and
promotions concerning the Restaurants.
(e) The development and implementation of franchise plans and offerings.
(f) The issuance of any form of security of any class, whether equity or
debt, including stock options and warrants.
(g) The assumption of any loan, indebtedness or other borrowing.
(h) The establishment of any stock option or stock purchase plan.
(I) The determination of the exercise price of the options granted pursuant
to the Xxxxxxxxx Employment Agreement and/or the Xxxxxxxx Consulting
Agreement.
(j) The termination by Company without cause of the Xxxxxxxxx Employment
Agreement or the Xxxxxxxx Consulting Agreement.
(k) The acceptance of all business plans and budgets and any changes
thereto.
(l) The payment of any dividend or other distribution to the shareholders
of Company.
(m) The compensation of all officers and directors of Company.
(n) Any change in the identity of the outside legal counsel or outside
accountants of Company.
(o) Any merger, reorganization, recapitalization, dissolution or sale,
including a sale of substantially all the assets of Company.
(p) The introduction by Company of material new products, services or other
business outside of the scope of the planned business of Company and/or the
expansion of Company's expected geographical territories of operation.
(q) Any act that would make it impossible to carry on the ordinary business
of Company, including any act of insolvency and any assignment of the assets
of Company in trust for creditors or on the assignee's promise to pay the
debts of Company.
The commencement or settlement of any material litigation, tax audits or
other material adversarial proceedings. A proceeding shall be considered
"material" if the amount in issue exceeds Two Hundred Fifty Thousand Dollars
($250,000).
(s) Any transaction which would permit any person to possess or use Company
property for other than a Company purpose.
(t) The acquisition by Company of any asset or property having a fair
market value in excess of Two Hundred Fifty Thousand Dollars ($250,000).
Notwithstanding the foregoing, the Board of Directors may, in its discretion,
delegate an individual or a special committee to provide the approval
required by this Section 4.2; provided, however, that such individual, or the
members of a majority of such special committee must be approved in advance
by Xxxxxxxxx in his sole discretion. Furthermore, prior to the time the
composition of the Board of Directors is determined pursuant to the
provisions of Section 4.1, Company shall not take any action requiring
approval under this Section 4.2 without the prior approval of Xxxxxxxxx.
4.3 Interested Director Transactions. Company shall not enter into a
transaction with any member of the Board of Directors of Company (an
"Interested Director") or with any corporation, firm or association in which
an Interested Director has a material financial interest, without the prior
approval of a majority of the members of Company's Board of Directors,
excluding the vote of the Interested Director. Further, if the Interested
Director is Xxxxxx or if the transaction requires approval under Section 4.2,
such majority must include at least one (1) of the directors selected
pursuant to Section 4.1(a) by Xxxxxxxxx.
4.4 Amendment to Company Bylaws. Within a reasonable period of time
following the execution of this Agreement, the parties agree to take the
necessary corporate actions to amend the bylaws of Company to incorporate
therein the provisions of this Section 4.
5 CONDITIONS SUBSEQUENT TO XXXXXXXXX'X OBLIGATIONS
5.1 Conditions. Xxxxxxxxx'x obligations under this Agreement and the
Transaction Documents, including the License Agreement and the Promotion
Agreement are conditioned upon all of the following, which shall occur no
later than November 1, 1997:
(a) The successful fulfillment by Company and Xxxxxx of their obligation to
obtain the full amount of the Investment Capital pursuant to the provisions
of Section 2. The Investment Capital shall not be considered successfully
obtained until (i) all Investment Capital contributed as cash has been
actually deposited into the general corporate bank accounts of Company, and
(ii) full title to all Investment Capital contributed as property has been
transferred to Company and such title has been perfected.
(b) The reasonable satisfaction of Xxxxxxxxx that the Investment Capital
was solicited and obtained by Company and Xxxxxx in full compliance with all
applicable laws, including federal and state securities laws.
(c) The approval of Xxxxxxxxx, which shall not be unreasonably withheld, of
(i) the conceptual plan for the development of the Restaurants, (ii) the
types and quality of foods and beverages to be served in the Restaurants,
(iii) menu pricing, (iv) the design, development and method of construction
of Restaurant buildings, and (v) each then-planned use of his name and
likeness pursuant to the License Agreement.
5.2 Consequence of Failure to Satisfy Conditions. In the event that any
or all of the conditions specified in Section 5.1 have not been satisfied in
full by November 1, 1997, Xxxxxxxxx shall have the option, in his sole and
absolute discretion, to completely rescind the transactions contemplated by
this Agreement and the Transaction Documents. Xxxxxxxxx shall exercise such
option no later than December 31, 1997 by providing Company with written
notice of such exercise, together with all stock certificates representing
the Preferred Stock (or any stock issued upon conversion thereof) and
appropriate stock assignments. Upon delivery of such notice, certificates
and stock assignments, Xxxxxxxxx will have no further obligations of any kind
under this Agreement or under any of the Transaction Documents, all of which
agreements shall thereafter be of no further force or effect.
6. REPRESENTATIONS AND WARRANTIES OF COMPANY AND XXXXXX.
6.1 Representations and Warranties of Company. Company represents and
warrants to Xxxxxxxxx as set forth in this Section 6.1.
(a) Organization. Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power and authority to carry on its business as it is now being
conducted and as it is contemplated to be conducted and to own all of its
assets. Company is duly qualified or licensed to do business in each
jurisdiction in which the nature of its business or properties makes such
qualification or licensing necessary except to the extent that any failures
to qualify or obtain a license are not in the aggregate materially adverse to
Company.
(b) Capitalization. The authorized capital stock of Company consists of:
(i) Twenty Million (20,000,000) shares of Common Stock, of which Five Million
One Hundred Thousand (5,100,000) shares are issued and outstanding, and Two
Million Five Hundred Thousand (2,500,000) shares of Preferred Stock, all of
which are currently designated as Series A Preferred. All outstanding Common
Stock has been validly issued under applicable federal and state securities
laws (with no violations) and no further registration, qualification or other
compliance under such securities laws is required. All of the outstanding
shares of Common Stock are validly issued, fully paid and nonassessable and
are not subject to preemptive rights created by statute, Company's
Certificate of Incorporation or Bylaws, or any agreement to which Company is
a party or is bound. Except as set forth above, Company does not have any
shares of its capital stock issued or outstanding and does not have any
outstanding subscriptions, options, warrants, rights or other agreements or
commitments obligating Company to issue or reserve shares of its capital
stock or other securities or equity.
(c) Authority Relative to this Agreement. Company has the corporate power
to enter into this Agreement and to carry out its obligations hereunder. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by its Board of
Directors and no other corporate proceedings on the part of Company are
necessary to authorize this Agreement and the transactions contemplated
herein.
(d) No Conflict. The execution and delivery of this Agreement by Company
and the performance of its obligations hereunder: (i) are not in violation
or breach of, and will not conflict with or constitute a default under, any
of the terms of the Certificate of Incorporation or Bylaws of Company or,
under any contract, license, franchise, permit, or order or decree; (ii) will
not result in the creation or imposition of any material lien, encumbrance,
equity or restriction in favor of any third party upon any of the assets or
properties of Company or on any of the capital stock of Company; and (iii)
will not conflict with or violate any applicable law, rule, regulation,
judgment, order or decree of any government, governmental instrumentality or
court having jurisdiction over Company or any of its assets or properties.
(e) Affiliates; Investments. Company has no subsidiaries or affiliated
companies and Company does not otherwise directly or indirectly control any
other entity and Company has no equity interest in any corporation,
partnership, joint venture, trust or other business entity.
(f) Compliance With Law. Company is and has been in material compliance
with all applicable laws, regulations and laws, the violation of which would
have a material adverse effect on the business, assets or property of
Company. All licenses, franchises, permits and other governmental
authorizations held by Company are valid in all material respects and
sufficient for the business presently carried on by Company, except where the
failure to hold such licenses, franchises, permits and authorizations would
not have a material adverse effect upon the business, assets or property of
Company.
6.2 Representations and Warranties of Company and Xxxxxx. Company and
Xxxxxx jointly and severally represent and warrant to Xxxxxxxxx as set forth
in this Section 6.2.
(a) Execution. This Agreement has been executed and delivered by Company
and Xxxxxx and each is the valid and binding obligation of each such party
enforceable in accordance with its respective terms, except as enforcement
may be limited by applicable bankruptcy laws or similar laws affecting
creditors' rights generally, and except in so far as the availability of
equitable remedies may be limited by applicable law from time to time in
effect.
(b) No Liabilities. Except for the legal fees of counsel for Company,
Xxxxxx and Xxxxxxxxx, involved in the formation of Company and the
preparation of this Agreement and the Transaction Documents, Company has no
liabilities, obligations or commitments of any nature (absolute, accrued,
contingent or otherwise, known or unknown, whether matured or unmatured,
including tax liabilities).
(c) Consents. Except as contemplated by this Agreement, no consent of any
person is required to be obtained on the part of Company or Xxxxxx to permit
the transactions contemplated herein. No consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality (a "Governmental Entity"), is required by or with respect to
Company or Xxxxxx in connection with the execution and delivery of this
Agreement by Company or the consummation by Company of the transactions
contemplated hereby.
(d) Litigation. There are no suits, actions or proceedings pending or
threatened against or affecting: (i) Company; (ii) Xxxxxx in any way related
to Company, its assets or business, or ownership of capital stock of Company;
or (iii) Company or Xxxxxx, which questions or challenges the validity or
performance of this Agreement. There is no judgment, decree, injunction,
rule or order of any court, governmental department, commission, agency,
instrumentality or arbitrator outstanding against Company. Company is not in
default under or in breach or violation of, nor, is there any valid basis for
any claim of default by Company under, or breach or violation by Company of,
any contract, commitment or restriction to which Company is a party or to
which it or any of its properties is bound. No other party is in default
under or in breach or violation of, nor is there any valid basis for any
claim of default by any other party under or any breach or violation by any
other party of, any material contract, commitment, or restriction to which
Company is bound or by which any of its properties is bound, where such
defaults, breaches, or violations would, in the aggregate, be materially
adverse to Company.
(e) Brokers or Finders. Company and Xxxxxx have not incurred, directly or
indirectly, any liability for any brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement, the
Transaction Documents, or any transaction contemplated hereby or thereby.
However, the parties acknowledge that it may be commercially prudent to pay a
reasonable brokerage or finders fees or agents' commissions in connection
with obtaining the Investment Capital.
(f) Disclosure. No statement by Company or Xxxxxx contained in this
Agreement and the Exhibits attached hereto, any other Transaction Document or
any written statement or certificate furnished or to be furnished pursuant
hereto or in connection with the transactions contemplated hereby and thereby
(when read together) contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances
under which they were made.
7. REPRESENTATIONS AND WARRANTIES OF XXXXXXXXX
Xxxxxxxxx represents and warrants to Company as set forth in this Section 7.
7.1 Authority Relative to this Agreement. This Agreement and the other
Transaction Documents to which Xxxxxxxxx is a party have been duly executed
and delivered by Xxxxxxxxx, and each is a valid and binding obligations
enforceable in accordance with its respective terms, except as enforcement
may be limited by applicable bankruptcy laws or similar laws affecting
creditors rights generally, and except in so far as the availability of
equitable remedies may be limited by applicable law from time to time in
effect.
7.2 Consents. Except as contemplated by this Agreement, no consent of any
person is required to be obtained on the part of Xxxxxxxxx to permit the
transactions contemplated herein and in the Transaction Documents. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity, is required by or with respect to
Xxxxxxxxx in connection with the execution and delivery of this Agreement and
the Transaction Documents by Xxxxxxxxx or the consummation by Xxxxxxxxx of
the transactions contemplated hereby and thereby.
7.3 Investment Representations.
(a) The shares of Preferred Stock purchased by Xxxxxxxxx hereunder and the
shares of stock to be issued upon conversion of the Preferred Stock (the
"Securities") will be acquired for Xxxxxxxxx'x own account, not as a nominee
or agent, and not with a view to the distribution of any part thereof.
(b) Xxxxxxxxx understands that the purchase of the Securities represents a
speculative investment, and is aware of and has investigated Company's
business, management and financial condition, and has had access to such
other information about Company as Xxxxxxxxx has deemed necessary or
desirable to reach an informed and knowledgeable decision to acquire the
Securities.
(c) Xxxxxxxxx understands that the Securities have not been registered
under the Securities Act of 1933 (the "Securities Act") by reason of reliance
upon certain exemptions therefrom, and that the reliance of Company on such
exemptions is predicated upon, among other things, the bona fide nature of
Xxxxxxxxx'x investment intent as expressed herein.
(d) Xxxxxxxxx is experienced in evaluating and investing in securities of
companies in the development state and has made investments in securities
other than those of Company. Xxxxxxxxx is knowledgeable in business and
financial matters and is capable of evaluating the merits and risks of an
investment in Company. Xxxxxxxxx acknowledges that he has the ability to
bear the economic risk of his investment pursuant to this Agreement.
Xxxxxxxxx represents and warrants that he is an "accredited investor" as
defined in Rule 501(a) of the Securities Act.
(e) Xxxxxxxxx understands that the Securities being purchased hereunder are
restricted securities within the meaning of Rule 144 under the Securities
Act; that the Securities are not registered and must be held indefinitely
unless they are subsequently registered or an exemption from such
registration is available.
(f) Xxxxxxxxx represents and agrees that the sale of the Preferred Stock
was not accomplished by the publication of any advertisement or by any
general solicitation.
7.4 Disclosure. No statements by Xxxxxxxxx contained in this Agreement or
in any other Transaction Document or any written statement or certificate
furnished or to be furnished pursuant hereto or in connection with the
transactions contemplated hereby and thereby (when read together) contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made.
8. AFFIRMATIVE COVENANTS OF COMPANY.
8.1 Financial Statements and Budgets. Company, through its Chief Financial
Officer, shall deliver to Xxxxxxxxx the following:
(a) Within one hundred twenty (120) after the end of each fiscal year of
Company, a consolidated profit or loss statement for such fiscal year, a
consolidated balance sheet of Company as of the end of such year, and a
consolidated statement of changes in financial condition for such year
including sources and application of funds reviewed by independent public
accountants selected by Company;
(b) Within forty-five (45) days after the end of each of the first three
(3) quarters of the fiscal year, an unaudited consolidated profit or loss
statement for such fiscal quarter and an unaudited balance sheet as of the
end of such fiscal quarter which shall be certified to be true and correct by
the President and Treasurer of Company; and
(c) As soon as available, but in any event within sixty (60) days after
commencement of each new fiscal year, a business plan and projected financial
statements and for such fiscal year.
8.2 GAAP. All financial statements delivered by Company pursuant to
Section 8.1 above shall be prepared in accordance with generally accepted
accounting principles, consistently applied.
8.3 Inspection. Company shall permit Xxxxxxxxx to visit and inspect
Company's properties, to examine Company's books of account and records, and
to discuss Company's affairs, finances, and accounts with its officers, all
at such reasonable times as may be reasonably requested by such party.
8.4 Termination of Covenants. The covenants set forth in Sections 8.1, 8.2
and 8.3 shall terminate and be of no further force or effect upon the
registration of the Common Stock of Company under the Securities Exchange Act
of 1934, or upon Company being required to file reports with the SEC under
Section 15(d) of such act.
9. INDEMNIFICATION
9.1 Indemnity. Company agrees to indemnify, defend and hold harmless
Xxxxxxxxx to the fullest extent possible under applicable law from any and
all claims, suits and causes of action arising in connection with the
formation of Company. Company and Xxxxxx, jointly and severally, agree to
indemnify, defend and hold harmless Xxxxxxxxx to the fullest extent possible
under applicable law from any and all claims, suits and causes of action
arising in connection with the operation of Company and the raising of the
Investment Capital, including without limitation claims, suits and causes of
action arising in connection with Xxxxxxxxx'x activities or obligations under
the License Agreement, the Promotion Agreement or any of the other
Transaction Documents.
9.2 Indemnification Procedure. Promptly after receipt by Xxxxxxxxx of
notice of the commencement of any action involving a claim referred to in
Section 9.1, Xxxxxxxxx will give written notice to the indemnifying party or
parties under Section 9.1 of the commencement of such action. If any such
action is brought against Xxxxxxxxx, the indemnifying party(ies) will be
entitled to participate in and to assume the defense thereof, with counsel
reasonably satisfactory to Xxxxxxxxx, and after notice from the indemnifying
party(ies) to Xxxxxxxxx of its or their election to assume the defense
thereof and to pay any and all costs relating thereto, the indemnifying
party(ies) shall not be responsible for any legal or other expenses
subsequently incurred by Xxxxxxxxx if Xxxxxxxxx engages separate counsel in
connection with the defense thereof; provided, however, that Xxxxxxxxx shall
have the right to retain his own counsel, with the reasonable fees and
expenses to be paid by the indemnifying party(ies), if Xxxxxxxxx shall have
reasonably concluded that representation of Xxxxxxxxx by the counsel retained
by the indemnifying party(ies) would be inappropriate due to actual or
potential differing interests between the indemnifying party(ies) and
Xxxxxxxxx in such proceeding.
9.3 D & O Insurance. For so long as Xxxxxxxxx continues to be the owner of
at least five percent (5%) of the overall equity of Company or continues to
be a shareholder, officer, director, employee or consultant of Company,
Company shall obtain and maintain in full force and effect a directors and
officers liability insurance policy (the "D & O Insurance") from established
and reputable insurers in an amount of at least Two Million Five Hundred
Thousand Dollars ($2,500,000) per occurrence; provided that such D & O
Insurance can be obtained by Company at commercially reasonable rates. Any
deductibles payable under the D & O Insurance shall be reasonable and subject
to the prior approval of Xxxxxxxxx, which approval shall not be unreasonably
withheld. Xxxxxxxxx shall be named as an insured under the D & O Insurance
in such as manner as to provide Xxxxxxxxx the same rights and benefits as are
accorded the most favorably insured of Company's officers and directors. The
existence of the D & O Insurance coverage will not in any way diminish or
limit Company's indemnification obligation to Xxxxxxxxx pursuant to Section
9.1; however, amounts paid to Xxxxxxxxx by the D & O Insurance carriers for
claims that are subject to indemnity under Section 9.1 shall be credited to
amounts payable by Company to Xxxxxxxxx thereunder.
10. MISCELLANEOUS PROVISIONS.
10.1 Amendment and Modification; Waiver. Except as otherwise provided
herein, this Agreement may be amended, modified and supplemented and the
application of any provision of this Agreement or any rights or obligations
of any party hereunder may be waived (either retroactively or prospectively)
only by written agreement of the parties hereto affected by such amendment,
modification, supplement or waiver. Further, any waiver shall be effective
only in the specific instance and for the specific purpose stated in such
writing.
10.2 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
10.3 Governing Law. This Agreement and the rights and obligations of the
parties hereunder shall be governed by and construed in accordance with the
internal laws of the State of California applicable to the construction and
enforcement of contracts wholly executed and performed in California.
10.4 Arbitration. Any and all disputes arising hereunder shall be subject
to resolution by arbitration as provided in the Arbitration Agreement.
10.5 Attorney's Fees. If any party to this Agreement brings an action
against another party to enforce its rights under this Agreement, the
prevailing party shall be entitled to recover its reasonable costs and
expenses, including without limitation, reasonable attorney's fees and costs,
incurred in connection with such action, including any appeal of such action.
In the event that a party brings such an action against more than one of the
other parties to this Agreement, any attorneys' fees awarded against such
other parties shall be equitably apportioned among such other parties in
light of all of the facts and circumstances surrounding their involvement in
such action.
10.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.7 Headings. The headings of the Sections of this Agreement are inserted
for convenience only and shall not constitute a part hereof.
10.8 Entire Agreement. This Agreement, together with the other documents
referred to herein, embody the entire agreement and understanding of the
parties hereto in respect of the subject matter contained herein and
supersedes all prior written or oral communications or agreements (including
that certain non-binding letter of intent, dated January __, 1997) all of
which are merged herein. There are no restrictions, promises, warranties,
covenants, or undertakings relating to the subject matter hereof, other than
those expressly set forth or referred to herein.
10.9 Cumulative Remedies. No remedy provided herein is intended to be
exclusive of any other remedy, and each and every remedy shall be cumulative
and shall be in addition to every other remedy given hereunder or now or
hereafter existing at law or in equity.
10.10 Third Party Beneficiaries. It is not the intention of this Agreement
or of the parties hereto to confer a third party beneficiary status or right
of action upon any person or entity other than the parties hereto in any
manner whatsoever.
10.11 Severability of Provisions. In the event that any provision of this
agreement, or any portion thereof, is found invalid or unenforceable pursuant
to judicial decree or decision, the remainder of such provision and this
Agreement shall remain valid and enforceable according to its terms.
10.12 Section References. Any reference herein to a Section shall
constitute a reference to all subsections thereof.
10.13 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered, telecopied, sent by overnight courier or by certified
mailed postage prepaid to the appropriate addresses set forth in Exhibit J
hereto. The addresses to which notice is to be given hereunder may be
changed from time to time by the parties entitled to notice by notice given
as provided herein.
10.14 Compliance With Securities Laws. No transfer of any securities or
any interest therein shall be made, except in strict compliance with
applicable securities laws.
10.15 Gender. Where the context so requires, masculine gender shall
include feminine or neuter gender, and the neuter gender shall include the
masculine or feminine gender. Similarly, the singular shall include the
plural and the plural shall include the singular.
10.16 Approval Rights. Except for any and all rights of approval which
Xxxxxxxxx has under the License Agreement and the Promotion Agreement, the
parties agree that, with respect to any right of approval of any party under
the Transaction Documents, (i) approval shall not be unreasonably withheld,
and (ii) any item or action subject to approval that has not been
affirmatively disapproved within thirty (30) days of receipt of a written
request for approval shall be deemed approved. With respect to all rights of
approval of Xxxxxxxxx under the License Agreement and the Promotion
Agreement, (i) Xxxxxxxxx may xxxxx or withhold such approval in his sole and
absolute discretion for any reason (whether or not reasonable), and (ii) any
item or action subject to approval that has not been affirmatively approved
within thirty (30) days of receipt of a written request for approval shall be
deemed not approved. It is intended that the provisions of this Section
10.15 shall apply to all rights of approval refusal contained in the
Transaction Documents irrespective of how such rights are described or
drafted in such documents, and, accordingly, to the extent that the
provisions of this Section 10.15 are in any way inconsistent with any
description of a right of approval in any Transaction Document, the
provisions of this Section 10.15 shall control.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day first above written.
REDNECK FOODS, INC., a Delaware corporation
By: _________________________
Xxxxx Xxxxxx, _________________
XXXX XXXXXXXXX
Addresses for Notices
Redneck Foods, Inc.
0 Xxxxxxxxxx Xxxx
Xxxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxxx Xxxxxx
Facsimile: (000) 000-0000
Xx. Xxxxx Xxxxxx
0 Xxxxxxxxxx Xxxx
Xxxxxxxx, Xxxxx Xxxxxxxx 00000
Facsimile: (000) 000-0000
Xxxx Xxxxxxxxx
c/o X.X. Xxxxxxxx
Parallel Entertainment
0000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxx, XX 00000
Facsimile: (000) 000-0000
