Services Agreement
Exhibit
10.1
CONFIDENTIAL
TREATMENT REQUESTED
INFORMATION
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED IS OMITTED AND IS IDENTIFIED
BY THREE ASTERISKS, AS FOLLOWS “* * *”. AN UNREDACTED VERSION OF THIS
DOCUMENT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
This
Services Agreement (this “Agreement”) is made and entered into as of September
6, 2006, by and between KnowFat Franchise Company, Inc., a Delaware corporation
(“KnowFat”), and Xxxxxx Xxxxxxx Ventures, LLC, a Delaware limited liability
company (“GFVentures”, together with KnowFat, the “Parties”).
WHEREAS,
concurrently herewith, the Parties have entered into a certain Promotion License
Agreement (the “License Agreement”) pursuant to which GFVentures (i) granted
KnowFat a limited license to use the name and likeness of Xxxxxx Xxxxxxx
(“Celebrity”) in connection with the promotion of restaurants operated by
KnowFat and its franchisees and (ii) agreed to perform or cause Celebrity to
perform certain services for KnowFat; and
WHEREAS,
in consideration of the license and services provided for in the License
Agreement, and as further provided herein, KnowFat shall (i) issue shares (the
“Shares”) of its common stock, par value $0.001 per share (“Common Stock”), to
GFVentures and (ii) make certain cash payments to GFVentures.
NOW,
THEREFORE, in consideration of the License Agreement and the foregoing premises
and for other good and valuable consideration, the receipt and sufficiency
of
which is hereby acknowledged, the Parties hereby agree as follows:
Section
1. Consideration.
1.1. Stock
Issuance Upon Closing. At the Closing (as defined below), KnowFat
shall issue nine hundred thousand (900,000) shares of Common Stock to
GFVentures. The Shares granted pursuant to this Section 1.1 shall
vest as follows: four hundred fifty thousand (450,000) Shares shall vest on
the
Closing Date, two hundred thousand (200,000) Shares shall vest on the day
following the first anniversary of the Closing Date, one hundred thousand
(100,000) Shares shall vest on the day following the second anniversary of
the
Closing Date, one hundred thousand (100,000) Shares shall vest on the day
following the third anniversary of the Closing Date and fifty thousand (50,000)
Shares shall vest on the day prior to the fourth anniversary of the Closing
Date; provided, however, all then unvested Shares shall vest upon the
earlier to occur of (x) the Sale (as hereinafter defined) of the ***th Franchise,
and (y)
the initial public offering of Common Stock (the “KnowFat IPO”). The
unvested portion of the Shares shall be referred to herein as the “Unvested
Shares”.
1.2. Subsequent
Stock Issuance. After the Closing, KnowFat shall issue one
hundred thousand (100,000) shares of Common Stock to GFVentures promptly
following the Sale of the ***th franchise
of an
outlet offering the products of KnowFat or any of its affiliates (each, a
“Franchise”); provided that such Sale occurs by December 31, 2009. If
the ***th
Franchise is not Sold by December 31, 2009, or if this Agreement has been
terminated by any Party prior to the Sale of the ***th Franchise,
GFVentures shall not be entitled to receive any Shares pursuant to this Section
1.2. The Shares granted pursuant to this Section 1.2 shall vest
immediately upon issuance. For the purposes hereof, each of “Sale”
and “Sold” means (x) the granting of rights to
(or
the
entering into an agreement with) an individual or entity to operate a Franchise
or (y) the securing of space (by contract of sale, lease, sublease or otherwise)
for the opening of an outlet offering the products of KnowFat or any of its
affiliates that is not a Franchise but is operated by KnowFat or an affiliate
thereof (each, a “Company Store”).
1.3. Cash
Payments.
(a) KnowFat
shall pay to GFVentures an amount equal to ***% (“Royalty Rate”) of the
aggregate Net Sales (as defined below) with respect to each calendar quarter
occurring in whole or in part following the Closing Date (each, a “Royalty
Payment”), which Royalty Payment shall be made within thirty (30) days following
the end of such calendar quarter. KnowFat shall provide GFVentures
with a written royalty statement in a form acceptable to GFVentures with each
Royalty Payment and which shall include, but may not be limited to, a listing
by
Franchise and Company Store of Net Sales for the period relating to such Royalty
Payment and the number of Franchises and Company Stores that have been Sold,
terminated or closed, as the case may be, during such period. For
purposes of this Agreement, “Net Sales” shall mean all gross sales of all food,
beverage, other menu items, merchandise, and goods and other services sold
or
performed by or for KnowFat or a franchisee at each of the Company Stores and
Franchises, as applicable, whether for cash or credit, as determined in
accordance with the remaining provisions of this Section 1.3(a) and United
States generally accepted accounting principles and practices as in effect
from
time to time and consistently applied throughout the periods involved
(“GAAP”). Sales and service taxes collected from customers and paid
to the appropriate taxing authority, and all management or employee meals for
which KnowFat or a franchisee does not receive payment, shall not be included
in
Net Sales. The discounted portion off menu prices whether by way of
coupons, promotions or otherwise shall not be included in Net
Sales. All payments due hereunder shall be made in United States
currency drawn on a United States bank, unless otherwise specified by the
Parties. All accounting terms not specifically defined herein shall
be construed in accordance with GAAP. Notwithstanding any other
provision hereof, in the event of the Change of Control (as hereinafter defined)
of KnowFat as the result of any transaction other than the KnowFat IPO,
GFVentures may thereafter provide written notice to KnowFat whereby it shall
be
deemed to return ***% of its Shares received hereunder in consideration for
the
increase of the Royalty Rate to ***% from ***%, which increase shall be
effective for all purposes hereunder from and upon the delivery of such
notice. For purposes hereof, a “Change of Control” shall be deemed to
occur if, at any time following the date hereof, (i) any individual or entity
(or one or more individuals or entities acting in concert as a group) directly
or indirectly acquires (by merger or otherwise) such percentage of capital
stock
of KnowFat or such other rights as would entitle such individual or entity
(or
such group) to (x) exercise control over the day-to-day management of KnowFat
or
(y) appoint or determine the vote for a majority of the board of directors
of
KnowFat, (ii) a merger, exchange, consolidation, recapitalization or other
business combination (a “Business Combination”) occurs in which the beneficial
holders of capital stock of KnowFat immediately prior to the Business
Combination beneficially own immediately following such Business Combination
less than 51% of the aggregate equity interests of the surviving entity or
less
than 51% of the capital stock of KnowFat having the power to elect a majority
of
the board of directors of KnowFat or (iii) all or substantially all of the
assets of KnowFat are sold or otherwise disposed of, directly, indirectly,
voluntarily, involuntarily, by operation of law or otherwise to any individual
or entity (or one or more individuals or entities acting in concert as a
group).
2
(b) KnowFat
shall keep complete, clear and accurate records of all information related
to
the Net Sales, the operations of the Company Stores and Franchises and the
Sale
of Franchises and the opening of Company Stores. GFVentures shall
have the right from time to time, but not more than once a year and upon at
least five (5) days’ written notice, at its own expense, to cause an independent
certified public accounting firm reasonably acceptable to KnowFat to examine
KnowFat’s books and records during business hours, in order to verify the
accuracy of KnowFat’s calculation of Royalty Payments. The chosen
accounting firm shall not disclose to GFVentures any information other than
the
written verification of, or discrepancies in, the accuracy of the payments
of
the compensation hereunder, which written audit results shall be provided to
each Party. In the event that an audit reflects that an additional
amount should have been paid pursuant to Section 1.3(a), KnowFat promptly upon
its receipt of the written results of such audit shall make payment to
GFVentures of such additional amount, together with (i) interest on such
additional amount at the Interest Rate (as hereinafter defined) for the period
commencing on the date such underpayment occurred and ending on the date such
payment is made under this Section 1.3(b) and (ii) in the event such additional
amount exceeds the greater of (x) five percent of the Royalty Payments subject
to such audit, or (y) $10,000, the out-of-pocket costs and expenses incurred
by
GFVentures in connection with such audit. In the event that an audit
reflects that KnowFat overpaid amounts due under Section 1.3(a), GFVentures
shall promptly reimburse KnowFat for such amounts overpaid upon its receipt
of
such results. For purposes hereof, “Interest Rate” means the
reference commercial lending rate set forth in TheWall Street
Journal as the prime rate for money center banks in New York, New York for
the applicable period.
1.4. Closing. Unless
otherwise mutually agreed upon in writing by the Parties, subject to the earlier
termination of this Agreement in accordance with Section 5.2, the closing of
the
transactions contemplated by this Agreement (the “Closing”) shall be held at
10:00 a.m., local time, at the offices of KnowFat, on the fifth business days
following the date that all of the conditions precedent specified in Section
4
shall have been and continue to be (or can at the Closing be) satisfied or
have
been waived by all the Parties permitted to waive such conditions (such date
of
the Closing hereinafter being referred to as the “Closing Date”).
Section
2. Representations
and Warranties of KnowFat.
KnowFat
hereby represents and warrants to GFVentures on the date hereof
that:
2.1. Organization. KnowFat
is a corporation duly organized, validly existing and in good standing under
the
laws of Delaware and has all requisite corporate power and authority to carry
on
its business as now conducted and as proposed to be
conducted. KnowFat is duly qualified to transact business and is in
good standing in each jurisdiction in which the failure to so qualify would
have
a material adverse effect on its business or properties.
2.2 Authorization. The
execution, delivery and performance by KnowFat of this Agreement, and all
agreements and documents contemplated hereby, have been duly authorized by
all
necessary corporate action of KnowFat. The issuance and delivery of
the Shares by
3
KnowFat
has been duly authorized by all necessary corporate action of KnowFat and,
when
so issued and delivered, the Shares will be validly issued and outstanding,
fully paid and non-assessable and not subject to any encumbrance or any
preemptive or any other similar rights of the stockholders of KnowFat or others,
other than such rights as have been waived, and will be free of restrictions
on
transfer other than as provided under applicable state and federal securities
laws. This Agreement, and all agreements and documents contemplated
hereby to which KnowFat is a party, constitute valid and legally binding
obligations of KnowFat, enforceable in accordance with their respective terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws of general application affecting enforcement of
creditors’ rights generally, and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies.
2.3 Exemptions
from Securities Laws. Subject to the accuracy of the
representations and warranties of GFVentures in Section 3, the provisions of
Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), are
inapplicable to the offering, issuance, and delivery of the Shares, and no
approval, registration or filing under any securities laws of any state is
required in connection therewith, except such exemptive filings, if any, as
are
required to be made and will be made on a timely basis.
2.4 Capitalization. As
of the date of this Agreement, the number of shares of each class of capital
stock of KnowFat (Series A Preferred Stock, Series B Convertible Preferred
Stock
and Common Stock, which are collectively referred to as “Capital Stock”) issued
and outstanding, and the number of options, warrants and securities convertible
into any Capital Stock (collectively, “Options”), are as set forth on Exhibit
A hereto. The Capital Stock and Options set forth on Exhibit
A are all duly and validly authorized. Except for the outstanding
Capital Stock and Options set forth on Exhibit A, there are no
outstanding securities of KnowFat or Options, warrants, rights (including,
but
not limited to, conversion, exchange or preemptive rights), commitments,
agreements, understandings or arrangements of any kind for or relating to the
purchase, issuance or acquisition from KnowFat of any Capital Stock or other
securities thereof (including, but not limited to, any convertible or
exchangeable securities) or any such Options, warrants or rights, to which,
in
any of the foregoing cases, KnowFat is subject or by which it is
bound.
2.5 Litigation. There
is no action, claim, proceeding or investigation, in any court or before any
governmental body or other tribunal, now pending or, to KnowFat’s knowledge,
threatened against or affecting KnowFat, nor, to KnowFat’s knowledge, does there
exist any reasonable basis therefore.
2.6 Compliance
with Agreements. KnowFat is not in material breach of, or
in material default under, any material contract or other instrument to which
it
is a party or by which it or any of its property is bound or affected, nor
is
KnowFat in material violation or material default of any provision of its
Certificate of Incorporation or bylaws (each as amended to date), or of any
instrument, judgment, order, writ, or decree to which it is a party or by which
it or its assets are bound, or in material violation of any provision of any
federal or state statute, rule or regulation applicable to
KnowFat. The execution, delivery and performance of this Agreement by
KnowFat do not and shall not, with or without the passage of time or the giving
of notice, (a) result in the breach of, or (b) constitute a default, cause
the
acceleration of
4
performance
or require any consent under, or (c) result in the creation of any lien, charge
or encumbrance upon any properties or assets of KnowFat pursuant to, any
material instrument or agreement to which KnowFat is a party or by which KnowFat
or its assets or properties may be bound or affected, and, do not or shall
not
violate or conflict with any provision of the Certificate of Incorporation
or
bylaws of KnowFat.
Section
3. Representations
and Warranties of GFVentures.
GFVentures
hereby represents and warrants to KnowFat on the date hereof that:
3.1. Organization. GFVentures
is a limited liability company duly organized, validly existing and in good
standing under the laws of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. GFVentures is duly qualified to transact business and is
in good standing in each jurisdiction in which the failure to so qualify would
have material adverse effect on its business or properties.
3.2. Authorization.
The
execution, delivery and performance by GFVentures of this Agreement, and all
agreements and documents contemplated hereby, have been duly authorized by
all
necessary corporate action of GFVentures. This Agreement, and all
agreements and documents contemplated hereby to which GFVentures is a party,
constitute valid and legally binding obligations of GFVentures, enforceable
in
accordance with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors’ rights generally, and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies.
3.3. No
Violations. The execution, delivery and performance of this
Agreement by GFVentures do not and will not, with or without the passage of
time
or the giving of notice, (a) result in the breach of, or (b) constitute a
default, cause the acceleration of performance or require any consent under,
or
(c) result in the creation of any lien, charge or encumbrance upon any property
or assets of GFVentures pursuant to, any material instrument or agreement to
which GFVentures is a party or by which GFVentures or its properties may be
bound or affected, and, do not or will not violate or conflict with any
provision of the Certificate of Organization or operating agreement of
GFVentures.
3.4. Purchase
Entirely for Own Account. This Agreement is made with
GFVentures in reliance upon GFVentures’ representation to KnowFat (which
GFVentures hereby confirms) that the securities to be received by GFVentures
hereunder will be acquired for investment for GFVentures’ own account and not
with a view to the distribution of any part thereof, and GFVentures has no
present intention of selling, granting any participation in, or otherwise
distributing the same in a manner contrary to the Securities Act or applicable
state securities laws.
3.5. Disclosure
of Information; Due Diligence. GFVentures has had an opportunity
to ask questions of and receive answers from KnowFat regarding KnowFat and
the
terms and
5
conditions
of the issuance of securities issued hereunder and to obtain additional
information necessary to verify the accuracy of the information supplied or
to
which it had access.
3.6. Investment
Experience; Accredited Investor Status. GFVentures is an investor
in securities of companies in the development stage and acknowledges that the
securities to be issued hereunder are speculative and involve a high degree
of
risk. GFVentures can bear the economic risk of its investment
(including possible complete loss of such investment) for an indefinite period
of time and has such knowledge and experience in financial or business matters
that it is capable of evaluating the merits and risks of the investment in
the
securities purchased hereunder. GFVentures represents that it has not
been organized for the purpose of acquiring the securities to be purchased
hereunder. GFVentures understands that, unless otherwise provided
herein, the securities to be issued hereunder have not been registered under
the
Securities Act, or under the securities laws of any jurisdiction, by reason
of
reliance upon certain exemptions, and that the reliance on such exemptions
is
predicated upon the accuracy of GFVentures' representations and warranties
in
this Section 3. GFVentures is familiar with Regulation D
promulgated under the Securities Act and is an "accredited investor" as defined
in Rule 501(a) of such Regulation D.
3.7. Restricted
Securities. GFVentures understands that, unless otherwise
provided herein, the securities to be issued hereunder are characterized as
"restricted securities" under the federal securities laws inasmuch as they
are
being acquired from KnowFat in a transaction not involving a public offering
and
that under such laws and applicable regulations such securities may be resold
without registration under the Securities Act only in certain limited
circumstances and in accordance with the terms and conditions set forth in
the
legend described below. In this connection, GFVentures represents
that it is familiar with Securities and Exchange Commission, Rule 144, as
presently in effect, and understands the resale limitations imposed thereby
and
by the Securities Act.
3.8. Legends. It
is understood that the certificates evidencing the securities to be received
hereunder may bear substantially the following legends:
THE
SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAW, AND NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED,
OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (i) THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING ANY SUCH TRANSACTION INVOLVING SAID SECURITIES, (ii) THE COMPANY
RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER OF THESE SECURITIES
SATISFACTORY TO THE COMPANY STATING THAT SUCH TRANSACTION IS EXEMPT FROM
REGISTRATION, OR (iii) THE COMPANY OTHERWISE SATISFIES ITSELF THAT SUCH
TRANSACTION IS EXEMPT FROM REGISTRATION.
THE
SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER
SET FORTH IN A CERTAIN SERVICES
6
AGREEMENT
BETWEEN THE COMPANY AND THE REGISTERED OWNER OF THE SHARES (OR HIS, HER OR
ITS
PREDECESSOR IN INTEREST). THE COMPANY WILL FURNISH A COPY OF SUCH
AGREEMENT UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.
Section
4.
Conditions
to Closing.
4.1. Condition
to Obligations of all Parties. The obligation of each Party to
consummate the transactions contemplated by Section 1 hereof on and following
(as applicable) the Closing Date is subject to the fulfillment to the reasonable
satisfaction (except with respect to Section 4.1(b)(ii)) of each Party (or
to
waiver thereby) at or prior to the Closing of each of the following additional
conditions:
(a) each
Party having duly executed and delivered to the other Party the License
Agreement and the License Agreement being in full force and effect on the
Closing Date.
(b) KnowFat’s
completion in accordance with applicable law of the earlier to occur of (i)
the
offering and issuance of shares of Series C Convertible Preferred Stock (with
the powers, designations, preferences, rights, qualifications, limitations
and
restrictions consistent with, and substantially similar to, those powers,
designations, preferences, rights qualifications, limitations and restrictions
of KnowFat’s Series A Preferred Stock and Series B Convertible Preferred Stock)
at a price no less than $6.50 per share, resulting in net proceeds to KnowFat
of
not less than $5,000,000, or (ii) to the sole satisfaction of GFVentures, the
completion of an issuance of such Series C Convertible Preferred Stock at a
lower price and/or resulting in a lower amount of net proceeds. In
the event the Closing occurs following the completion of an issuance under
clause (ii) of this Section 4.1(b), GFVentures shall, subject to applicable
securities laws, provide commercially reasonable cooperation to KnowFat to the
extent reasonably requested thereby in connection with the completion of an
offering consistent with clause (i) of this Section 4.1(b).
4.2. Conditions
to Obligations of KnowFat. In addition to the fulfillment (or
waiver) of the condition set forth in Section 4.1 hereof, the obligation of
KnowFat to consummate the transactions contemplated by Section 1 hereof on
and
following (as applicable) the Closing Date is subject to the fulfillment to
the
reasonable satisfaction of KnowFat (or to waiver thereby) at or prior to the
Closing of each of the following additional conditions:
(a) The
representations and warranties of GFVentures contained in this Agreement shall
be true in all material respects on the Closing Date as though such
representations and warranties were made on as of the Closing Date.
(b) No
suit, action or other proceeding shall be pending before any court or
governmental agency to restrain or prohibit the consummation of the transactions
provided for in this Agreement or the License Agreement or to obtain damages
or
other relief in connection herewith or therewith or the consummation of such
transactions.
7
4.3. Conditions
to Obligations of GFVentures. In addition to the fulfillment (or
waiver) of the condition set forth in Section 4.1 hereof, the obligation of
GFVentures to consummate the transactions contemplated by Section 1 hereof
on
and following (as applicable) the Closing Date is subject to the fulfillment
to
the reasonable satisfaction thereof (or to waiver thereby) at or prior to the
Closing of each of the following additional conditions:
(a) The
representations and warranties of KnowFat contained in this Agreement and the
License Agreement shall be true in all material respects on the Closing Date
as
though such representations and warranties were made on as of the Closing
Date.
(b) No
suit, action or other proceeding shall be pending before any court or
governmental agency to restrain or prohibit the consummation of the transactions
provided for in this Agreement or the License Agreement or to obtain damages
or
other relief in connection herewith or therewith or the consummation of such
transactions.
Section
5 Term;
Termination.
5.1. Term. The
“Term” of this Agreement shall commence on the Closing Date and continue through
the fourth anniversary of the Closing Date, unless sooner terminated pursuant
to
this Section 5.
5.2. Termination
Before Closing. This Agreement shall terminate and the
transactions contemplated by this Agreement shall be abandoned upon occurrence
of any of the following events at any time prior to the Closing:
(a) by
KnowFat, upon its written notice to GFVentures in the event that GFVentures
is
in breach of any representation, warranty or covenant contained in this
Agreement, and such breach, individually or in combination with any other such
breach, (i) would cause the conditions set forth in Section 4.2 not to be
satisfied and (ii) is not cured within 15 days following delivery by KnowFat
to
GFVentures of written notice of such breach;
(b) by
GFVentures, upon its written notice to KnowFat in the event that KnowFat is
in
breach of any representation, warranty or covenant contained in this Agreement,
and such breach, individually or in combination with any other such breach,
(i)
would cause the conditions set forth in Section 4.1 or 4.3 not to be satisfied
and (ii) is not cured within 15 days following delivery by GFVentures to KnowFat
of written notice of such breach;
(c) by
mutual written consent of the Parties;
(d) by
GFVentures, upon its written notice to KnowFat, if the Closing shall not have
occurred by October 1, 2006 (the “Expiration Date”), and the reason for the
Closing not occurring by such date is not the breach or default of GFVentures
of
any of its obligations under this Agreement; or
(e) by
either GFVentures or KnowFat, upon its written notice to such other Party,
if
(i) any court of competent jurisdiction shall have issued an order, decree
or ruling or taken any other action (A) restraining or enjoining the
transactions contemplated under this Agreement until a date later than the
Expiration Date or (B) otherwise prohibiting the
8
transactions
contemplated under this Agreement, and (ii) such order, decree, ruling or
other action shall have become final and non-appealable.
If
any
Party terminates this Agreement pursuant to this Section 5.2, all obligations
of
each Party hereunder shall terminate (except those set forth in Section 7
hereof, which shall continue in effect) without any liability of any Party
to
any other Party (except for any liability of any Party for breaches of this
Agreement).
5.3. Termination
After Closing.
(a) KnowFat
may terminate this Agreement after the Closing by giving written notice to
GFVentures in the event that GFVentures is in breach of any of its material
obligations under this Agreement and such breach is not cured within 30 days
following delivery by KnowFat to GFVentures of written notice of such
breach.
(b) GFVentures
may terminate this Agreement after the Closing by giving written notice to
KnowFat in the event that KnowFat is in breach of any of its material
obligations under this Agreement or the License Agreement and such breach is
not
cured (i) within five (5) business days following delivery by GFVentures to
KnowFat of written notice of such a breach pertaining to KnowFat’s payment or
Share issuance obligations hereunder or (ii) within 30 days following delivery
by GFVentures to KnowFat of written notice of such a breach pertaining to any
of
KnowFat’s other obligations hereunder or thereunder.
(c) Notwithstanding
any other provision of this Agreement or the License Agreement, in the event
that (x) GFVentures breaches its material obligations under Section 2 of the
License Agreement due to any reason other than the death or Disability (as
hereinafter defined) of Celebrity and such breach remains uncured upon the
expiration of the applicable cure period set forth therein, and (y) KnowFat
is
not in breach or default of any of its obligations under this Agreement or
the
License Agreement, KnowFat may terminate both this Agreement and the License
Agreement in accordance with and subject to Section 5.3(a) hereof and require
GFVentures to immediately forfeit to KnowFat the number of Unvested Shares
indicated below; provided however, that upon the earlier to occur of (1) the
Sale of the ***th Franchise,
and (2)
the KnowFat IPO, KnowFat will have no further right to require the forfeiture
of
(and GFVentures shall have no obligation to forfeit) Shares under this Section
5.3(c):
(i) if
this Agreement is terminated by KnowFat pursuant to this Section 5.3(c) between
the Closing Date and the first anniversary of the Closing Date, GFVentures
shall
forfeit 450,000 Unvested Shares;
(ii) if
this Agreement is terminated by KnowFat pursuant to this Section 5.3(c) between
the day after the first anniversary of the Closing Date and the second
anniversary of the Closing Date, GFVentures shall forfeit 250,000 Unvested
Shares;
(iii) if
this Agreement is terminated by KnowFat pursuant to this Section 5.3(c) between
the day after the second anniversary of the Closing Date and the third
anniversary of the Closing Date, GFVentures shall forfeit 100,000 Unvested
Shares; and
9
(iv) if
this Agreement is terminated by KnowFat pursuant to this Section 5.3(c) between
the day after the third anniversary of the Closing Date and the day prior to
the
fourth anniversary of the Closing Date, GFVentures shall forfeit 50,000 Unvested
Shares.
Following
the forfeiture of any Unvested Shares in accordance with the terms hereof,
GFVentures shall return the certificates evidencing such Unvested Shares to
KnowFat.
For
purposes hereof, “Disability” means the inability of GFVentures, by reason of
injury or illness of Celebrity, substantially to perform its material
obligations under Section 2 of the License Agreement for (a) a continuous period
of six months or (b) more than two, 90-day periods in one continuous 12-month
period.
(d) This
Agreement shall automatically terminate upon termination of the License
Agreement.
In
the
event of the termination of this Agreement pursuant to this Section 5.3,
this Agreement shall forthwith become void (except for this Section 5.3 and
Sections 1.1, 1.2, 1.3, 6.3 and 7 hereof, which shall continue in effect),
and
there shall be no liability or obligation on the part of any Party with respect
to this Agreement, other than that such termination shall not (i) relieve
any Party of any liability resulting from any breach hereof by such Party on
or
prior to the date of such termination or (ii) affect any right or
obligation arising hereunder on or prior to the date of such termination or
as a
result of such breach or termination. Notwithstanding the foregoing,
it is acknowledged that the respective rights and obligations of the Parties
under Section 1.3 shall survive the expiration of the Term or the earlier
termination of this Agreement and such rights and obligations shall continue
in
perpetuity; provided, however, the respective rights and obligations of the
Parties under Section 1.3 hereof shall terminate upon (A) the termination of
this Agreement by GFVentures pursuant to Section 5.3(b) hereof or (B) the
occurrence of the fourth anniversary of the Closing Date without Celebrity
having made himself available for at least three days of promotional activity
pursuant to the terms of the License Agreement. Such termination
shall not affect any right or obligation arising under Section 1.3 hereof on
or
prior to the date of such termination of the rights and obligations
thereunder.
Section
6. Covenants.
6.1. Restrictions
on Transfer of the Shares. GFVentures shall not sell, assign,
transfer, pledge, hypothecate or otherwise dispose of, by operation of law
or
otherwise, any Shares, or any interest therein, until the end of the Term;
provided, however, notwithstanding any other provision hereof, GFVentures may
from time to time transfer Shares to the Celebrity or its other member, provided
that such transferee (a) of any Shares shall take title subject to the
restrictions of this Section 6.1 and (b) of any Unvested Shares shall take
title
subject to the forfeiture provisions of this Agreement with respect
thereto. GFVentures or other permitted holder of Unvested Shares
shall be entitled to exercise any and all rights and powers inuring to an owner
of Common Stock, including, but not limited to, the right to vote the same
and
to receive dividends or other distributions made or paid with respect thereto,
subject, however, to the forfeiture provisions, restrictions and limitations
imposed thereon hereunder.
10
6.2. Registered
Securities. In the event that any of KnowFat’s Common Stock is
registered under the Securities Act and publicly traded on a date that KnowFat
is obligated to issue shares of Common Stock to GFVentures pursuant to the
terms
of this Agreement, the Common Stock issued by KnowFat on that date shall be
registered under the Securities Act and, subject to the restrictions contained
in this Agreement, eligible to be traded on the securities exchanges on which
the Common Stock is listed. KnowFat hereby grants to GFVentures, with
respect to Shares received by GFVentures hereunder prior to the date that Common
Stock becomes registered under the Securities Act, demand, piggyback and other
registration rights to the same extent and on the same terms, to the extent
applicable, that such rights are granted to holders of its Series C Convertible
Preferred Stock with respect thereto.
6.3. Dilution;
Preemption Rights.
(a) For
the purposes of this Section 6.3, “Additional Shares” shall mean any shares of
capital stock of KnowFat whether or not now authorized, and any Convertible
Securities (as hereinafter defined); provided, however, that the term
“Additional Shares” does not include (i) shares of capital stock or Convertible
Securities issued for the acquisition by the Company of not less than 51% of
the
voting power of, or in connection with a merger with, another corporation,
limited liability company or other entity, (ii) shares, or options to purchase
shares, issued to employees, officers, directors or consultants of KnowFat
pursuant to an option plan, (iii) shares created as a result of a stock split
or
(iv) shares issued in the KnowFat IPO. For the purposes of this
Section 6.3, “Convertible Securities” shall mean any evidences of indebtedness
or other securities convertible into or exchangeable for capital stock of
KnowFat, including rights, options, or warrants to subscribe for, purchase
or
otherwise acquire capital stock of KnowFat or Convertible
Securities.
(b) KnowFat
shall not, without GFVentures’ prior written consent, sell any Additional Shares
for consideration per share of less than $6.50. The consideration per
share received by KnowFat for the issue of (i) any Additional Share shall be
the
amount of cash received by KnowFat per share and (ii) Convertible Securities
shall be the total amount, if any, received by KnowFat as consideration for
the
issue of such Convertible Securities, plus the minimum aggregate amount of
additional consideration payable to KnowFat upon the conversion, exchange,
or
exercise of such Convertible Securities, divided by the maximum number of shares
issuable upon conversion, exchange or exercise of such Convertible
Securities. It is understood that, notwithstanding any other
provision hereof, KnowFat does not intend to issue a total number of its Series
C Convertible Preferred Stock that shall result in aggregate net proceeds to
KnowFat in excess of $10,000,000. KnowFat shall obtain the prior
written consent of GFVentures prior to issuing any shares of its Series C
Convertible Preferred Stock that shall result in aggregate net proceeds to
KnowFat in excess of such amount from the issuance of its Series C Convertible
Preferred Stock.
(c) KnowFat
hereby grants to GFVentures the right to purchase up to its Proportionate
Percentage (as hereinafter defined) of each future issuance of capital stock
of
KnowFat and Convertible Securities in accordance with the terms of this Section
6.3(c), other than (i) shares of capital stock or Convertible Securities issued
for the acquisition by the Company of not less than 51% of the voting power
of,
or in connection with a merger with, another corporation, limited liability
company or other entity, (ii) shares, or options to purchase
11
shares,
issued to employees, officers, directors or consultants of KnowFat pursuant
to
an option plan, (iii) shares created as a result of a stock split or (iv) shares
issued in the KnowFat IPO. KnowFat shall, prior to making any such
issuance, give written notice thereof to GFVentures, which notice shall specify
the security or securities KnowFat proposes to issue and the consideration
that
KnowFat intends to receive therefor (“Issuance Notice”). For a period
of 30 days following the date of such Issuance Notice, GFVentures shall be
entitled, by written notice to KnowFat, to elect to purchase all or any part
of
its Proportionate Percentage of the securities being sold in such
issuance. If an election pursuant to this Section 6.3(c) shall not be
made with respect to such issuance within such 30 day period, then KnowFat
may
issue such securities to investors, but only for a consideration payable in
cash
not less than, and otherwise on terms no more favorable to the investors than,
that set forth in the corresponding Issuance Notice and only within 90 days
following the end of such 30 day period. In the event that any such
election is made by GFVentures, it shall purchase from KnowFat for the
consideration and on the terms set forth in such Issuance Notice, the securities
that it shall have elected to purchase. For purposes hereof,
“Proportionate Percentage” means, as of any date, the result (expressed as a
percentage) obtained by dividing (i) the number of shares of Common Stock held
by GFVentures, by (ii) the number of shares of Common Stock then issued and
outstanding.
6.4
Performance
of
Conditions. Each Party shall take all reasonable steps necessary
or appropriate, and shall use all commercially reasonable efforts, to effect
as
promptly as practicable the satisfaction of the conditions required to be
satisfied in order for it to consummate the transactions contemplated by this
Agreement, including all applicable conditions set forth in Section
4.
Section
7. Miscellaneous.
7.1. No
Assignment. This Agreement and the rights and duties hereunder
shall not be assignable by any Party except upon written consent of the other
Party. KnowFat may not transfer all or substantially all of the
business, assets or right to receive Net Sales of KnowFat or any of its
affiliates without the prior written consent of GFVentures.
7.2. Expenses. Except
as otherwise provided herein, each Party shall bear its own costs and expenses
(including legal and accounting fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby.
7.3. Agreement
binding on Successors. The provisions of this Agreement shall be
binding upon and shall inure to the benefit of the Parties hereto, their heirs,
administrators, successors and permitted assigns.
7.4. Waiver,
Modification. The failure of any Party to exercise in any respect
any right provided for herein shall not be deemed a waiver of any right
hereunder. This Agreement may not be modified or altered except by
written instrument duly executed by all Parties. If any term, clause
or provision hereof is held invalid or unenforceable by a court of competent
jurisdiction, such invalidity shall not affect the validity or operation of
any
other term, clause or provision and such invalid term, clause or provision
shall
be deemed to be severed from the Agreement.
12
7.5. No
joint venture. Nothing contained herein shall constitute this
arrangement to be employment, a joint venture or a partnership.
7.6. Governing
Law; Arbitration; Equitable Remedies. This Agreement and
performance hereunder shall be governed by the laws of the State of New
York. Except as set forth below, each Party hereby agrees to meet and
confer in good faith to resolve any dispute or claim arising out of, or relating
to, this Agreement during the Term (“Dispute”) through informal discussions
between the Parties. If the Parties are unable to resolve such
Dispute through such discussions, either Party may submit such Dispute to final
and binding arbitration in accordance with the Commercial Arbitration Rules
of
the American Arbitration Association, to the extent such rules are not
inconsistent with this Agreement. Such arbitration shall be conducted
in the county of the principal office of the non-submitting
party. Any award rendered pursuant to such arbitrators shall be in
writing and final and binding upon the Parties, and judgment upon any such
award
may be entered in any court having jurisdiction thereof. The fees and
expenses of such arbitration shall be borne equally by the
Parties. Each Party shall pay its own fees and costs relating to any
arbitration proceedings, including, but not limited to, attorneys’
fees. Notwithstanding the foregoing, with respect to any Dispute
requiring equitable remedies (including, but not limited to, specific
performance and injunctive relief), the Parties shall be entitled to seek such
equitable remedies before a court of competent jurisdiction without first
engaging in the dispute resolution set forth above. It is hereby
acknowledged that a Party shall not be required to exercise its right to
terminate this Agreement in order to bring a Dispute under this Section 7.6
or
to seek equitable remedies before a court of competent jurisdiction with respect
to any act or omission by the other Party that might be give rise to such
termination right.
7.7. Notices. All
notices, requests, demands and other communications called for or contemplated
hereunder shall be in writing and shall be deemed to have been duly given when
delivered to the Party to whom addressed or when sent by facsimile (if promptly
confirmed by registered or certified mail, return receipt requested, prepaid
and
addressed) to the Parties, their successors in interest, or their permitted
assignees at the following addresses, or at such other addresses as the Parties
may designate by written notice in the manner aforesaid:
If
to
KnowFat: If
to GFVentures:
KnowFat
Franchise Company,
Inc. Xxxxxx
Xxxxxxx Ventures, LLC
20
Xxxxx
Xxxxxx, Xxxxx
000
100 North Xxxxxx-Xxxxx Boulevard, 4tx Xxxxx
Xxxx
Xxxxxxxx, XX
00000 Xxxxxx-Xxxxx,
XX 00000
Attn:
Xxxx
Xxxxx Attn: Xxxx
Xxxxxxxxx
Telephone:
(000)
000-0000 Telephone:
000.000.0000, ext. 18
Facsimile:
(000)
000-0000 Facsimile:
570.820.7014
13
with
a
copy to:
Xxxxxxxx
&
Xxxx
llp Xxxxx
Danzig Xxxxxxx Xxxxxx & Xxxxxxxx LLP
690
Xxxx
Xxxx
Xxxxxx One
Speedwell Avenue
Stamford,
CT
06904-2305 Moxxxxxxxx,
Xxx Xxxxxx 00000-0000
Attention: Xxxxxxx
X. Xxxxxx,
Esq. Attention:
Xxxxxx X. Xxxxxxxxx, Esq.
Telephone: (000)
000-0000 Telephone:
000.000.0000
Facsimile: (000)
000-0000 Facsimile:
973.538.1984
7.8. Entire
Agreement. Each Party acknowledges that it has read this
Agreement and the License Agreement, understands them, and agrees to be bound
by
their terms and further agrees that they are the complete and exclusive
statements of the agreement between the Parties, and supersedes and merges
all
prior proposals, understandings and all other agreements, oral and written,
between the Parties relating to the subject matter of this Agreement and the
License Agreement. The
remedies herein provided shall be cumulative and non-exclusive and shall be
in
addition to any other rights and remedies the Parties may have at law or in
equity.
7.9. Counterparts;
Headings; Construction. This Agreement may be executed in any
number of counterparts, and each when so executed and delivered shall be an
original, but all the counterparts shall together constitute one and the same
instrument. The Section headings are inserted for convenience only
and are not to be construed as part of this Agreement. This Agreement
shall not be construed as if prepared by one of the Parties, but rather
according to its fair meaning as a whole, as if both Parties hereto had prepared
it.
7.10. Payments. All
payments made hereunder shall be made on the date payment is due in immediately
available (same day) funds by wire transfer or certified check in U.S. dollars
to the account indicated in writing to the payor-party by the payee-party
. Whenever any payment hereunder shall be stated to be due on or by
no later than a day that is not a business day, such payment shall be made
on or
by no later than the next succeeding business day.
7.11. Section
409A. If any provision of this Agreement contravenes any
regulations or United States Treasury guidance promulgated under Sexxxxx 000X
xx
xxx Xxxxxx Xxxxxx Xnternal Revenue Code of 1986, as amended (the “Code”), or if
any tax is imposed under Section 409A of the Code on any payment to be received
by GFVentures hereunder, this Agreement or any provision hereof may be reformed
by GFVentures, subject to the consent of KnowFat (which consent shall not be
unreasonably withheld or delayed), to maintain, to the maximum extent
practicable, the original intent of the applicable provision without violating
the provisions of Section 409A of the Code.
[signature
page to follow]
14
IN
WITNESS WHEREOF, the Parties have duly executed this Services Agreement as
of
the date set forth above.
KNOWFAT
FRANCHISE COMPANY, INC.
By:______________________________________
Name:____________________________________
Title:_____________________________________
XXXXXX
XXXXXXX VENTURES, LLC
By:______________________________________
Name:____________________________________
Title:_____________________________________
15
