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QUALITY FOOD BRANDS, INC.
RIGHT OF FIRST REFUSAL AGREEMENT
MAY 18, 2007
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QUALITY FOOD BRANDS, INC.
RIGHT OF FIRST REFUSAL AGREEMENT
THIS RIGHT OF FIRST REFUSAL AGREEMENT (the "AGREEMENT") is made as of May
18, 2007 by and among Quality Food Brands, Inc., a Nevada corporation (the
"COMPANY"), Laurus Master Fund, Ltd., a Cayman Islands company ("LAURUS"), and
Milfam I L.P. ("MILFAM").
RECITALS
WHEREAS, the Company proposes to enter into a Securities Purchase Agreement
with Laurus, pursuant to which the Company will issue to Laurus (i) a senior
secured promissory note in an aggregate principal amount of $4,750,000 million
and (ii) a warrant (the "WARRANT") to purchase up to 15% of the shares of the
Company (the "SHARES") of the common stock, $0.001 par value per share ("COMMON
STOCK") of the Company on a fully diluted basis (the Warrant, together with any
Shares issued upon any exercise of the Warrant, being called, collectively, the
"EQUITY SECURITIES");
WHEREAS, the Company also proposes to enter into a Securities Purchase
Agreement with Milfam, pursuant to which the Company will issue (i) a senior
secured promissory note to Milfam in an aggregate principal amount of $2,375,000
million and (ii) a Warrant to purchase up to 15% of the shares of the Common
Stock of the Company on a fully diluted basis (the "MILFAM SECURITIES PURCHASE
AGREEMENT");
WHEREAS, it is a condition to the Milfam Securities Purchase Agreement that
the Company and Laurus execute and deliver this Agreement to Milfam.
NOW, THEREFORE, the Parties hereby agree as follows:
1. RESTRICTIONS ON TRANSFER OF EQUITY SECURITIES BY LAURUS. Except as
otherwise provided in this Agreement, Laurus will not sell, assign, transfer,
pledge, hypothecate, or otherwise encumber or dispose (a "TRANSFER") of in any
way, all or any part of or any interest in the Equity Securities. Any Transfer
of Equity Securities not made in conformance with this Agreement shall be null
and void, shall not be recorded on the books of the Company and shall not be
recognized by the Company.
2. RIGHT OF FIRST REFUSAL.
(a) If at any time or from time to time Laurus should desire to Transfer
any of the Equity Securities, Laurus shall, prior to consummating the Transfer,
first offer such Equity Securities (the "PROPOSED SALE SECURITIES") to the
Company. Laurus shall deliver to the Company and Milfam written notice (a "SALE
NOTICE") of its intention to make the Transfer, setting forth in such Sale
Notice: (i) a certificate by Laurus that the Transfer is a bona fide offer to
acquire such Proposed Sale Securities entirely for cash made by a prospective
transferee who is not a competitor of the Company or an affiliate of Laurus and
who is acting at arm's-length with Laurus; (ii) the name and address of the
prospective transferee; (iii) in the case of a proposed
Transfer of a Warrant, the number of Shares in respect of which such Warrant is
exercisable and, in the case of a proposed Transfer of Common Stock, the number
of such Shares; and (iv) the price, payment of which must be made in cash, for
which Laurus intends to Transfer such Proposed Sale Securities. The Company
shall have the right and option (but not the obligation), exercisable for a
period of twenty-five (25) days after the date of the Company's receipt of the
Sale Notice, to elect to repurchase the Proposed Sale Securities to be sold by
Laurus at the price and upon the terms specified in the Sale Notice by giving
written notice of such election to Laurus and to Milfam (a "COMPANY NOTICE")
within said twenty-five (25)-day period, which notice shall state, in the case
of a proposed Transfer of a Warrant, the number of Shares in respect of which
such Warrant is exercisable and in the case of a proposed Transfer of Common
Stock, the number of such Shares, as the case may be, that the Company elects to
repurchase. If the Company elects not to repurchase all of the Proposed Sale
Securities, Milfam shall have the right and option (but not the obligation),
exercisable for a period of ten (10) days after the date of Milfam's receipt of
the Company Notice, to purchase any of the Proposed Sale Securities that the
Company has not elected to repurchase, such purchase by Milfam to be upon the
terms specified in the Sale Notice by giving written notice to Laurus (the
"MILFAM NOTICE"). The Milfam Notice shall be given within the aforesaid ten
(10)-day period and shall state, in the case of a proposed Transfer of a
Warrant, the number of Shares in respect of which such Warrant is exercisable
and in the case of a proposed Transfer of Common Stock, the number of such
Shares, as the case may be, that Milfam has elected to purchase.
(b) Any Transfer of Equity Securities to the Company and/or Milfam, as the
case may be, under the terms of Section 2(a) hereof shall be made at the offices
of the Company on a mutually satisfactory date within ten (10) days after the
expiration of the ten (10) day period described in Section 2(a) hereof. Delivery
of certificates or other instruments evidencing such Equity Securities duly
endorsed for transfer shall be made on such date against payment of the purchase
price therefor.
(c) If a Company Notice or Milfam Notice shall not be delivered pursuant to
Section 2(a) hereof with respect to all of the shares of Proposed Sale
Securities offered for sale pursuant to the Sale Notice, then Laurus may
Transfer all of the remaining Proposed Sale Securities that were the subject of
such Sale Notice, but that were not the subject of such Company Notice or Milfam
Notice, but only upon terms and conditions in all respects, including, without
limitation, price, which are no more favorable to the purchaser thereof than
those set forth in the Sale Notice, at any time within twenty-five (25) days
after the expiration of the ten (10)-day period referred to in Section 2(a)
hereof. In the event that such Proposed Sale Securities are not Transferred by
Laurus during such twenty-five (25) day period, the right of Laurus to Transfer
such Proposed Sale Securities shall expire and the obligations of Laurus under
this Section 2 shall be reinstated.
3. CHANGES IN SECURITIES. If, from time to time during the term of this
Agreement:
(i) there is a dividend of any security, stock split or other change
in the character or quantity of any of the outstanding securities of the
Company; or
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(ii) there is any consolidation or merger immediately following which
stockholders of the Company hold more than fifty percent (50%) of the voting
equity securities of the surviving corporation,
then, in such event, any and all new, substituted or additional securities
or other property to which Laurus is entitled by reason of ownership of its
Equity Securities shall be immediately subject to the provisions of this
Agreement for all purposes of this Agreement with the same force and effect as
the securities of the Company presently subject to this Agreement and with
respect to which such securities or property were distributed.
4. LEGENDS. All certificates or other evidence of the Equity Securities
shall have endorsed thereon a legend to substantially the following effect:
"THE RIGHT TO SELL, TRANSFER OR OTHERWISE DISPOSE OF OR PLEDGE THE
EQUITY REPRESENTED HEREBY IS SUBJECT TO A RIGHT OF FIRST REFUSAL SET FORTH
IN A RIGHT OF FIRST REFUSAL AGREEMENT. A COPY OF SUCH AGREEMENT IS ON FILE
AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS."
5. TRANSFER OF SECURITIES. The Company shall not: (i) permit any Transfer
on its books of any securities of the Company which shall have been transferred
in violation of any of the provisions set forth in this Agreement; or (ii) treat
as the owner of such securities or to accord the right to vote as owner or to
pay dividends to any transferee to whom such securities shall have been sold or
transferred in violation of any of the provisions set forth in this Agreement.
Any transfer not done in conformity with the terms and conditions herein shall
be deemed null and void.
6. NOTICES. Any notice to the Company, Laurus or Milfam (each a "PARTY,"
and collectively the "PARTIES") required or permitted hereunder shall be given
in writing and shall be given by personal delivery, by facsimile or by overnight
courier (by a courier firm of good repute and national reputation) with postage
and fees prepaid, addressed to the applicable Party at its address as shown on
the Company's books, or at such other addresses as it may designate by ten (10)
days' advance written notice to the applicable Party. Any notice shall be deemed
received: (i) if delivered, when physically delivered to the notice address;
(ii) if faxed, upon receipt of the sending fax machine of automatic fax
confirmation; or (iii) if by overnight courier, one (1) business day after
deposit with such overnight service.
7. GOVERNING LAW; SUCCESSORS AND ASSIGNS. This Agreement shall be governed
by and construed under the laws of the State of New York, without reference to
the conflict of laws provisions thereof. The Agreement shall inure to the
benefit of the Parties and their respective successors and permitted assigns
and, subject to the restrictions on transfer herein set forth, be binding upon
each Party and its respective heirs, executors, administrators, guardians,
successors and assigns.
8. AGGREGATION OF STOCK. All Equity Securities held or acquired by
affiliated entities or persons, or entities or persons under common investment
management, shall be
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aggregated together for the purpose of determining the availability of any
rights or obligations under this Agreement.
9. ENTIRE AGREEMENT; AMENDMENT. This Agreement represents the entire
understanding of the Parties with respect to the subject matter hereof and
supersedes all previous understandings, written or oral. This Agreement may be
amended only with the written consent of the Company and the holders of a
majority of the common stock then held by the Parties.
10. ADDITIONAL HOLDERS. Notwithstanding anything to the contrary contained
herein, if the Company shall issue additional shares of Equity Securities, any
purchaser of such securities may become a party to this Agreement by executing
and delivering an additional counterpart signature page to this Agreement and
shall be deemed an a Party hereunder.
11. CONDITION TO EFFECTIVENESS. Notwithstanding anything to the contrary
contained herein, this Agreement shall only take effect upon the occurrence of
the Closing under, and as defined in, that certain Right and Option Agreement,
dated as of the date hereof, among the Company, Laurus and Milfam (the form of
which is annexed hereto as Exhibit A).
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
QUALITY FOOD BRANDS, INC.
/s/ Xxxxxxxx Xxxxxxxx
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Name: Xxxxxxxx Xxxxxxxx
Title: Treasurer
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
LAURUS MASTER FUND, LTD.
/s/ Xxxxx Grin
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Name: Xxxxx Grin
Title: Director
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
MILFAM I L.P.
By: Milfam LLC
Its: General Partner
By: /s/ Xxxxx X. Xxxxxx, III
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Name: Xxxxx X. Xxxxxx, III
Title: Manager
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