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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
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SOULFOOD CONCEPTS, INC.
(Name of small business issuer in its charter)
Delaware 13-3585743
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
630 Ninth Avenue, Suite 310, New York, New York 10036
(Address of principal executive offices, including Zip Code)
(212) 262-8333
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act.
Title of each class Name of exchange on which registered
NONE
Securities registered under Section 12(g) of the Exchange Act.
NONE
(Title of Class)
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This registration statement contains "forward-looking" statements
regarding potential future events and developments and matters that are not
historical facts affecting the business of the company. Because such
forward-looking statements include risks and uncertainties, actual results may
differ materially from those expressed or implied by such forward-looking
statements. All statements which address operating performance, events or
developments that management expects or anticipates to incur in the future,
including statements relating to sales and earnings growth or statements
expressing general optimism about future operating results are forward-looking
statements. The forward-looking statements are based on management's current
views and assumptions regarding future events and operating performance. Many
factors could cause actual results to differ materially from estimates contained
in managements' forward-looking statements. The differences may be caused by a
variety of factors, including but not limited to adverse economic conditions,
competitive pressures, inadequate capital, unexpected costs, lower revenues and
net incomes and forecasts, inability to carry out marketing and sales plans and
loss of key executives, among other things. Such statements relate to, among
other things, (i) future operations of the company, including potential
strategic transactions; (ii) the company's ability to operate existing
restaurants profitably; (iii) changes in economic conditions; (iv) competition
in the restaurant industry; (v) increases in food, labor, and employee benefits
and similar costs; (vi) the effect of potential government regulation upon the
company's operations; and (vii) other statements about the company or the
restaurant industry contained in this form 10-SB. Forward looking statements may
be indicated by the words "expects," "estimates", "anticipates", "intends",
"predicts", "believes" or other similar expressions. Forward-looking statements
appear in a number of places in this form and include statements regarding the
intent, belief or current expectations of the company and its directors and
officers with respect to numerous aspects of the company and its business.
PART I
We are filing this Form 10-SB on a voluntary basis to (1) provide
current, public information to the investment community and (2) to comply with
the OTC Bulletin Board Eligibility Rule (SR- NASD-98-51, as amended) as approved
by the Securities and Exchange Commission in Release No. 34-40878.
ITEM 1. BUSINESS
GENERAL
Soulfood Concepts, Inc., a Delaware corporation (the "Company"), owns
and operates full service, upscale soul food restaurants under the name of The
Shark Bar(R) Restaurant. We also hold a 62% interest in one other full service,
soul food restaurant operating under the name of Mekka(R) restaurant . The
flagship Shark Bar restaurant and Mekka are located in Manhattan, New York; the
others are located in Chicago, Illinois, Atlanta, Georgia and Los Angeles,
California.
The original Shark Bar restaurant, which was opened in New York City in
1990, is a full service 95-seat restaurant. In March 1997, we opened a
three-floor 9,000 square foot Shark Bar(R) restaurant in Chicago. In September
1997, we opened a third Shark Bar(R) restaurant in Los Angeles in a 6,500 square
foot facility. In March 1998, we opened a fourth Shark Bar restaurant in a
10,000 square foot location in Atlanta.
The corporate expansion during 1997 was financed by us through various
financing transactions as well as loans from one of our officers. See
"Business-Financing Transactions".
DEVELOPMENTS
On November 3, 1999, Mr. Brian Hinchcliffe, a majority stockholder and
a director, resigned as our Chief Executive Officer and President. Mr. Mark
Campbell was elected to serve as a director and to serve as our Chief Executive
Officer and President.
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The Los Angeles and Chicago units were closed in June and July 1999
respectively, primarily due to unsatisfactory management performance and
subsequent decline in sales. We intend to sell the Los Angeles unit and to
engage a turnaround plan to reopen the Chicago location in the second or third
quarter of 2000.
We intend to implement a reorganization plan with an aim to bolster our
balance sheet, reduce corporate level G&A expenses, improve overall unit EBITDA
margins, and build shareholder value. The changes encompass corporate as well as
store level revisions. In connection with our reorganization plan, several
completed and ongoing initiatives are as follows:
o The closing of two of our under-performing units (Los Angeles, Shark Bar
and Chicago, Shark Bar), with a plan to sell the Los Angeles lease
(currently in negotiations with prospective buyer), and re-open the Chicago
location under a turnaround plan, (re-opening is anticipated in the second
or third quarter of 2000).
o A change in our executive and senior management personnel and our Board of
Directors in late 1999;
o A plan to restructure our senior long-term notes:
- Pay down up to $200,000 of debt (subject to the successful
completion of an equity financing from a private placement)
- A conversion of up to $600,000 of long term debt to equity
- A cancellation or exchange of up to $300,000 of long-term
debt.
o Aim to reduce G&A expenses by over 30%
o A systematic pay down of payables and accrued expenses (subject to the
successful completion of an equity financing from a private placement).
We are developing a catering/event planning focus, which will plan,
organize and manage, off-site and in-house events and functions. In the spring
of 2000 two high profile political events are scheduled to be organized and
catered by us: a fundraiser in our New York Shark Bar Unit for Congressman
Gregory Meeks, and an "off-site" cocktail reception for 400 people, hosted by
the first lady Mrs. Hillary Rodham Clinton. We anticipate that catering and
event planning services will increase our revenues by at least 2-3% within the
first year of full operation.
We experienced a significant promotional boost during the Super Bowl in
Atlanta, when our Atlanta unit was featured on local radio and television
stations as the "place to be seen" for festivities. Our Atlanta store had
revenues in excess of $120,000 during Super Bowl week, the most any single unit
has done in one week.
CORPORATE STRATEGY
We intend to build the first national "soul food" restaurant company
throughout major urban areas in the United States with the expansion of our two
concepts - The Shark Bar Restaurant and Mekka Restaurant. We are dedicated to
excellence in the quality of our food offerings and to the creation of value for
our customers.
We emphasize the following strategic elements:
o DISTINCTIVE CONCEPT AND BRAND. The restaurants provide guests with a
distinctive dining experience, which helps promote frequent visiting
patterns and strong customer loyalty.
o ENSURE HIGH QUALITY GUEST EXPERIENCE. We strive to provide a
consistent, high quality guest experience in order to generate frequent
visiting patterns and customer loyalty. Through extensive training,
experienced restaurant-level management and rigorous operational and
quality controls, we seek to provide high quality menu items and to
ensure prompt, friendly and efficient service to guests. We believe
that the restaurants are attractive to a wide variety of dining
occasions, including weekday and weekend lunches and dinners for a
broad range of guests, offering upscale Soul Food and New Southern
Cuisine which provides a unique and enduring attraction to a broad and
diverse demographic and socio-economic mix of customers.
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o ACHIEVE ATTRACTIVE RESTAURANT-LEVEL ECONOMICS. Our primary objective is
to be positioned as the first national company to target the soul food
category, which offers a fine dining experience with casual dining
prices. We intend to achieve attractive operating results due to the
broad appeal of the concepts, careful site selection and cost-effective
site development, consistent application of the management and training
programs and favorable product costs. We utilize centralized
information and accounting systems, which allow us to monitor and
control labor, food and other direct operating expenses, and provide us
with timely access to financial and operating data. We believe that the
culture and emphasis on training leads to a lower employee turnover
ratio, and therefore higher productivity, compared to many competitors.
o ATTRACT AND RETAIN HIGH QUALITY RESTAURANT MANAGEMENT. We believe that
we are able to attract and retain quality restaurant management because
we offer a competitive compensation and benefits program. In addition
to salary and bonus, we intend to adopt other incentive programs that
allow general managers to become eligible for additional benefits
including equity incentives through our employee incentive stock option
plan ("ISO").
o UTILIZE MANAGEMENT INFORMATION SYSTEMS EFFECTIVELY. We believe that
current management information systems have the infrastructure capacity
to support a growth plan and to achieve attractive restaurant level
economics. All of the restaurants have personal computer and point-
of-sale systems integrated with centralized management information and
accounting systems. The corporate office is able to monitor and control
labor, food and other direct operating expenses, and maintain efficient
and quality restaurant service with hourly guest traffic and sales
volume forecasts for each restaurant. The systems permit restaurant and
company management to manage sales, cost of sales and product mix on a
daily basis.
o EXECUTE DISCIPLINED EXPANSION STRATEGY OF COMPANY-OWNED RESTAURANTS. We
believe that the restaurant concepts have broad national appeal and
that, as a result, there may be significant opportunities to expand
operations and generate attractive unit level economics. We intend to
re-open Chicago with a stringent and comprehensive management-training
program in place and capitalize on a proven market that has already
shown acceptance of the concept. We intend to continue opening
company-owned restaurants in primary metropolitan markets, i.e.
Baltimore/Washington D.C., Houston, and St. Louis.
RESTAURANT CONCEPT AND MENUS
THE SHARK BAR
The Shark Bar restaurants were developed to appeal to a 35-50 year old,
predominantly African-American customer base, however significant cross over
appeal exists for customers seeking a full service upscale casual dining
experience in the soul food genre. Our menu and service model is also highly
conducive to family style dining. Each has a separate bar area along with
dinning rooms with tablecloth settings. The Shark Bar restaurant serves dinner 7
days a week and lunch and brunch when appropriate. The distribution between food
and beverage sales is 65% food and 35% beverages. During 1999, the average guest
check at the Shark Bar was approximately $23 (including beverages).
During 1998 and 1999, The New York Shark Bar restaurant received a
designation from Forbes Magazine as an "All-Star Eatery", while the Chicago
restaurant was awarded "Two Stars" from the Chicago Sun-Times.
The menu at The Shark Bar Restaurants features both upscale Soul Food
and New Southern Cuisine at affordable prices. The menu is organized so that
diners may choose an entree with two accompanying side orders. The entrees
featured on the menu include Blackened Catfish, Honey Dipped Fried Chicken,
Shrimp Etoufe, and Grilled Salmon in a Herb Citrus Butter Sauce. The Shark Bar
has established a reputation of quality and consistency in its food,
particularly with its side orders, which includes black-eyed peas, collard
greens, macaroni and cheese, candied yams and mashed potatoes.
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MEKKA
We are also the General Partner, holding a 60% general partner interest
and a 2% limited partner interest, of a 55-seat soul food restaurant known as
Mekka. The menu at Mekka is also based on Soul Food and New Southern cooking,
but also offers a selection of Caribbean dishes. Mekka was designed with
slightly lower price points than The Shark Bar and is targeted towards a
predominantly African-American customer in the 20-40 age demographic, and also
has very significant cross over appeal. Mekka serves dinner seven days a week,
does not serve lunch during the week but does offer a brunch on Sunday. The
distribution between food and beverages sales is approximately 65% for food and
35% for beverages. In 1999, the average guest check in Mekka was approximately
$20 (including alcoholic beverages). Mekka also has an outdoor cafe space that
offers an additional 30 seats in the warmer months.
RESTAURANT EXPANSION
The first expansion outside of the New York market was The Shark Bar in
Chicago ("Shark Bar Chicago") which opened in March of 1997. On January 10,
1997, we completed the purchase of the lease, restaurant assets and licenses of
the Affair Restaurant Inc. in Chicago, Ill. from Affair, L.P. and all of the
issued and outstanding shares of capital stock of Affair Restaurant, Inc. for
the aggregate purchase of approximately $335,000 (the "Chicago Acquisition").
The Shark Bar Chicago is a 9,000 square foot unit, of which 7,000 square feet
can be used for sales space on three floors, with a 2,000 square foot outside
adjoining deck. The main dining floor contains 130 seats plus a small bar area,
while the second floor offers the larger bar space and seating for up to an
additional 75 persons, if so required. The second floor is also able to
accommodate larger private parties and catering events. The Chicago unit was
closed in July 1999 primarily due to unsatisfactory management performance and
subsequent decline in sales. We intend to re-open the Chicago unit by the second
or third quarter 2000.
In the summer of 1997, we acquired for $375,000, the lease and
equipment of the 6,500 square foot 826 N. La Cienega Boulevard premises,
formerly the "La Mer Restaurant" (the "Los Angeles Acquisition"). This
acquisition was financed through the proceeds of a convertible debenture and a
small bridge loan from Mr. Hinchcliffe for $105,000. The Shark Bar(R) Restaurant
Los Angeles has a main dining room with 110 seats, a lounge area which can
accommodate 30 persons and a 600 square foot garden and patio area. We closed
this unit in June of 1999 and are currently in negotiations to sell the lease.
In the first quarter of 1998, we acquired a lease, together with
furniture and fixtures thereon, of a 10,000 square foot, two level restaurant
located in mid-town Atlanta for a purchase price of $250,000. We opened these
premises into the fourth Shark Bar(R) Restaurant during the first quarter of
1998.
We still believe that significant opportunities to expand company-owned
restaurants exists, and will implement an accelerated expansion strategy. We
intend to seek to develop new restaurants in geographic areas and primary
metropolitan markets that are readily receptive to our concept and which will
enable us to increase name recognition and realize improved efficiencies in
marketing, management, and purchases. In fiscal 2000 we plan to reopen Shark Bar
restaurant Chicago with an extensive "turnaround" plan that involves a focus on
operations and management training, and in fiscal 2001 we intend to open two
additional restaurants.
We intend to expand our business through the development and "branding"
of our full service restaurants, namely The Shark Bar Restaurant(R) and Mekka
Restaurant(R). We believe that our overall business objectives will be better
met through the expansion of full service units in the larger urban markets
within the United States. These large markets can accommodate 125 seat plus
establishments, which in turn will help build our cash flow and establish the
name brands of our restaurants in the important US markets.
While pursuing our expansion program of developing a chain of
restaurants under the Shark Bar & Mekka brands, we intend to also seek to
develop strategic alliances through joint ventures, acquisitions or mergers,
augmenting our growth plan. The Company will act as principal fundraiser, and
operator for all future restaurants.
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The success of the Company's planned expansion will depend upon a number of
factors, including:
- the cost and availability of suitable locations and the
negotiation of acceptable leases;
- the ability to meet development and constructio schedules;
- the securing or required government permits, licenses, and
other regulatory approvals;
- the hiring and training of management and other personnel;
- the terms and availability of financing; and
- other general economic and business conditions.
We will prepare for duplication of our restaurant concept and
operations by developing operating systems, training and operating manuals,
recipes and cooking procedures, menu format and new menu items, costing and
pricing standards, financing and accounting controls, quantity and quality
controls, and preventive maintenance programs.
Our proposed expansion plans will require additional management,
operational and financial resources. Consultants will be hired if necessary.
We have had continuing discussions with brokers, agents and landlords
regarding new sites for additional Shark Bars in major urban markets, however,
there can be no assurance that additional restaurants will be opened.
FINANCING TRANSACTIONS
During 1997, in order to finance our acquisitions and to facilitate our
expansion strategy, we entered into various financing transactions:
During January 1997, we issued 100,000 unregistered shares of our
common stock for an aggregate purchase price of $20,000.
During January, 1997, we issued 100,000 unregistered shares of our
common stock and a warrant to purchase up to 10,000 shares of common stock to an
institutional investor for an aggregate purchase price of $100,000.
During February, 1997, we borrowed $100,000 pursuant to the terms of a
promissory note bearing interest at the rate of 10%, payable semi-annually until
February 4, 1999. During February of 1999, subject to repayment terms under the
note purchase agreement we repaid $100,000 of the 1997 Notes.
During May, 1997, we entered into a note purchase agreement, pursuant
to which we issued 8% convertible secured notes (the "Notes") to institutional
investors, in the aggregate principal amount of $350,000 together with warrants
to purchase up to 35,000 shares of common stock. The Notes bear interest at 8%.
The Notes provide that the holder is entitled at any time to convert any or all
of the original principal amount of the Note into shares of common stock. The
shares of common stock underlying the Notes and the warrants bear certain demand
and "piggyback" registration rights. The Notes are due $100,000 by December 31,
1999 and $250,000 by September 1, 2000. The $100,000 has not been repaid.
On June 6, 1997, we issued 100,000 unregistered shares of our common
stock and a warrant to purchase up to 10,000 shares of common stock to an
institutional investor for an aggregate purchase price of $100,000.
During 1997, in order to help finance our acquisitions, among other
things, Mr. Brian Hinchcliffe, our Chief Executive Officer at the time, loaned
us approximately $476,038.
During January 26, 1998, we entered into a note purchase agreement,
pursuant to which we issued 8% convertible secured notes ("1998 Notes") to
institutional investors, in the aggregate principal amount of $265,000, together
with warrants to purchase shares of common stock. The 1998 Notes provide that
the holder is entitled at any time to convert any or all of the original
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principal amount of the Note into shares of common stock. The shares of common
stock underlying the 1998 Notes and the warrants bear certain demand and
"piggyback" registration rights. These Notes are apart of a proposed exchange
agreement for conversion to an equity interest in the company. The Notes are due
January 26, 2000. The Notes have not been repaid.
SITE SELECTION AND DESIGN
We are seeking to locate our new restaurants in locations that offer
demographic and economic factors that can support a profitable operation. We
have established parameters with respect to "Sales vs. Investment ratios" and
"rent as a percentage of sales" that we will use in order to evaluate the
feasibility of additional sites. At this time, we intend to use the design,
methods and mode of operations developed at "The Shark Bar" and "Mekka"
restaurants in New York as models for additional sites in other locations.
RESTAURANT MANAGEMENT AND SYSTEMS
Management. A typical unit staff consists of a general manager, an
assistant manager, one or two managers, a Head Chef and approximately 22-25
hourly employees, many of whom are part time personnel. The general manager is
responsible for the day-to-day operations of the restaurant, including service,
staffing and front of the house ("FOH") as well as back of the house ("BOH")
quality control. The head chef is responsible for food quality and kitchen
management. We intend to hire experienced managers and staff and to motivate and
retain them by providing opportunities for increased responsibilities and
advancement, as well as performance-based cash incentives. These performance
incentives are tied to sales, profitability and qualitative measures such as
measures such as mystery shoppers, who anonymously evaluate individual
restaurants.
Each restaurant manager is required to comply with an operations manual
that contains detailed standards and specifications for all elements of
operations. We employ a vice president of operations to monitor system-wide
compliance and field supervision including duties such as regular visits to
stores, detailed inspections of quality, service and sanitation.
Training. We strive to maintain quality and consistency in each of our
units through the careful training and supervision of personnel and the
establishment of, and adherence to, high standards relating to personnel
performance, food and beverage preparation and maintenance of facilities. We
have implemented a training program that is designed to teach new managers the
technical and supervisory skills necessary to direct the operations of its
restaurants in a professional and profitable manner. Each manager must
successfully complete a four-week training course, which includes hands-on
experience in both the kitchen and dining areas. There are prepared operations
manuals relating to food and beverage handling, preparation and service. In
addition, we will maintain a continuing education program to provide unit
managers with ongoing training and support.
Quality Control. We maintain an emphasis on excellent customer service
enhanced by our quality control programs. We welcome comments on the quality of
service and food at units by distributing customer survey. Senior operation
managers are directly responsible for ensuring that these comments are addressed
to achieve a high level of customer satisfaction. We also engage from time to
time a third-party service whereby an anonymous customer or mystery shopper
evaluates and reports to management key elements of the restaurants experience,
including product quality, cleanliness and customer service.
We require all appropriate personnel to participate in an independent
nationally recognized training program to ensure the sanitary and responsible
service of food and alcohol. Financial and management control is maintained
through the use of a standardized POS system.
EMPLOYEES
As of December 31, 1999, we employed 160 persons. Of our employees, 96
are full time and 64 are employed on a part time basis. None of our employees
are covered by a collective bargaining
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agreement. We have not experienced any work stoppages and consider our
relationship with employees to be good.
TRADEMARK
We filed a Trademark application with the United States Patent and
Trademark Office for The Shark Bar(R) on September 25, 1996 and for Mekka(R) on
or about October 16, 1996. We have been granted trademarks for both The Shark
Bar(R) and Mekka(R).
In addition, The United States Patent and Trademark office has issued a
Certificate of Registration on the Supplemental Register for SOUL TO GO(R). A
trademark registered on the Supplemental Register is not considered to be
inherently distinctive but is considered to be "capable" of becoming
distinctive. Once the trademark becomes distinctive (acquired secondary
meaning), it can be transferred to the Principal Register.
TRADE SECRETS
We have developed and currently own trade secrets with respect to its
food products, its preparation and sources. There is no assurance that
confidentiality relating to the protection of our trade secrets can or will be
obtained or that such trade secrets will afford us meaningful competitive
advantages.
COMPETITION
The restaurant business throughout the United States, and particularly in
Manhattan (New York), is intensely competitive and involves a high degree of
risk. We believe that a large number of new restaurants open each year in the
New York city metropolitan area and the other urban markets in which we own
restaurants, a significant number of which do not succeed. Even successful
restaurants can rapidly lose popularity due to changes in customer tastes,
economic conditions, population and traffic patterns. We compete with
locally-owned restaurants and bars as well as with national and regional
restaurant chains, which have substantially greater financial and marketing
resources and longer operating histories than us. There is active competition
for management personnel and attractive commercial real estate sites suitable
for restaurants.
In the past we have not generally incurred significant expenses for
advertising and promotion, relying instead on word-of-mouth to bring our
restaurant establishments to the attention of new customers.
FORMATION AND HISTORY
The company was initially organized on August 23rd, 1984 in the State
of Delaware under the name Empire Ventures, Inc. On December 14, 1992, the
company entered into an ("agreement") and plan of re-organization with Soul To
Go, Inc. for 5,031,250 shares of the common stock of Empire Ventures, Inc. As a
result of the transactions consummated pursuant to the agreement, Soul to Go,
Inc. has become the wholly owned subsidiary of Empire Ventures, Inc. and the
stockholders of Soul To Go, Inc. became the owners of approximately 92% of the
issued and outstanding shares of common stock of Empire Ventures, Inc.
Soul to Go, Inc. was a New York based holding company controlling a
group of operating subsidiaries consisting of the Shark Restaurant Corp., which
operated a 90 seat restaurant called the Shark Bar and Shark Catering Corp.,
which operated a quick service business called Soul To Go. On January 25th 1993,
Empire Ventures Inc. changed its name to STG International Inc. Subsequent to
the re-organization, STG International Inc. opened a second Soul to Go operation
in Jamaica, Queens, and through its wholly owned subsidiary 7 West Rest. Corp.
became the General Partner of "Mekka". See "Business-General". Due to operating
losses, both Soul to Go stores were closed in 1995.
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During 1996, the company changed its name from STG International Inc.
to Soulfood Concepts, Inc., reorganized its Board of Directors, effected a
one-for-three reverse stock split and adopted an expansion campaign for 1997 and
1998.
GOVERNMENT REGULATIONS
We are subject to various federal, state and local laws affecting our
employees and guests, our owned and leased properties and the operation of our
restaurants. The restaurants are subject to licensing and/or regulations by
various fire, health, sanitation and safety agencies in the applicable state
and/or municipality. In particular, we have adopted extensive procedures
designed to meet the requirements of applicable food handling and sanitation
laws and regulations. To date, we have not experienced any material problems
resulting from its sanitation and food handling procedures.
Our restaurants are subject to state and local licensing and
regulations with respect to the sale and service of alcoholic beverages.
Typically, alcoholic beverage licenses must be renewed annually and may be
revoked or suspended for cause. Alcoholic beverage control regulations relate to
numerous aspects of the daily operations of the purchasing, inventory control
and the handling, storage and dispensing of alcoholic beverages. We have not
encountered material problems relating to alcoholic beverage licenses to date,
but the failure of a restaurant to obtain or retain a liquor license would
adversely affect that restaurant's operations.
In certain states, we are subject to "dram shop" statutes, which
generally give a person injured by an intoxicated person the right to recover
damages from the establishment that wrongfully served alcoholic beverages to the
intoxicated person. We carry liquor liability coverage as part of its existing
comprehensive general liability insurance.
We are subject to federal and state fair labor standards, statutes and
regulations that govern such matters as minimum wages, overtime, tip credits,
child labor and other working conditions. A good number of our food service
personnel are paid at rates based on applicable federal and state minimum wages.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
GENERAL
The following discussion and analysis of Soulfood Concepts, Inc. (the
"Company"), should be read in conjunction with the Company's Financial
Statements and Notes thereto included elsewhere in the Form 10-SB.
As of December 31, 1999, we operated three full service restaurants in
locations in New York City, and Atlanta. The Company is engaged in developing
full service "Soul Food" restaurants in the major urban markets of the United
States. We have traditionally funded our growth through sales of equity,
convertible notes and debt financing.
The Los Angeles and Chicago units were closed in June and July 1999
respectively, primarily due to unsatisfactory management performance and
subsequent decline in sales. We will sell the Los Angeles unit and engage a
turnaround plan to reopen the Chicago location, which showed high receptivity to
the concept and produced overwhelming initial trial. Chicago will be reopened in
early spring 2000 under the name The Shark Bar(R) Restaurant, Chicago. The
flagship Shark Bar(R) and Mekka(R) Restaurants are located in Manhattan, New
York. The third operating unit, a Shark Bar Restaurant, is located in Atlanta,
Georgia.
RESULTS OF OPERATIONS
Year Ended December 31, 1999
During the year ended December 31, 1999 the Company recorded net sales
of $7,465,231 which included net sales of $1,452,027 from the fourth quarter.
The Company incurred a net loss of $888,549 for the year ending December 31,
1999 or $.22 per share. During the year ended December 31, 1998, the Company
recorded net sales of $9,689,207, which included net sales of $2,392,307 from
the fourth quarter. The Company incurred a net loss of $80,572 for the year
ending December 31, 1998 or $.02 per share. During the year ended December 31,
1997, the Company recorded net sales of $6,137,315 and had a net loss of
$512,321 or $.15 per share.
Sales revenue for the year ending December 31, 1999 decreased 22% from
1998 and fourth quarter revenue decreased by 39% from fourth quarter sales in
1998 of $2,392,307. Sales revenue for the year ending December 31, 1998
increased 57% from 1997 and fourth quarter revenue increased by 14% from fourth
quarter sales in 1997 of $2,047,129.
Revenue was generated from the sale of food (67% of total revenue) and
beverages (33% of revenue) for the years ended December 31, 1999, 1998 and 1997.
During the year ended December 31, 1999, the Company recorded a Cost of
Sales, primarily food and beverage, of $2,234,650 or 29.9% of sales, increasing
from 29.4% Cost of Sales figure for 1998. During the year ended December 31,
1998, the Company recorded a Cost of Sales, of $2,850,042 or 29.4% of sales,
increasing from 28.2% Cost of Sales figure for 1997.
Our Gross Profit decreased from $6,839,165 for the year ending December
31, 1998 to $5,230,581 for the year ending December 1999. This decrease is
directly related to the closing of two of its units in June and July of 1999.
The Company's restaurant operating expenses for the year ending December 31,
1999 were $ 4,656,363 compared to $5,565,041 for 1998, which represents 62% and
57% respectively. This decrease is directly related to the closing of two of its
units during 1999, and the related costs carried as a result of these closings.
Income from operating restaurants for 1999 was $574,218 or 7.6% of sales as
compared to $1,274,124 for the same period in 1998. The Company's Gross Profit
increased from $4,384,743 for the year ending December 31, 1997 to $6,839,165
for the year ending December 1998. This increase is directly related to the
opening of a new restaurant during 1998. The Company's restaurant operating
expenses for the year ending December 31, 1998 were $ 5,565,041 compared to
$3,413,055 for 1997, which represents 57% and 55% respectively. This increase is
directly related to the opening of a new restaurant during 1998.
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Income from operating restaurants for 1998 was $1,274,124 or 13% of sales. For
the fourth quarter of 1998, the Company had an operating loss of $15,468. For
1997 and the fourth quarter of 1997, the comparable amounts were $971,688 or
15.8% of sales and $219,725 or 11% of sales respectively..
The Company's G&A increased from $605,013 or 6.2% of sales in 1998 to
$926,879 or 12.4% of sales in 1999. In 1999 the Company incurred additional
legal and other expenses in its restructuring strategy, the hiring, training and
retraining of its management personnel, and the closing of its two units. The
Company's G&A decreased from $749,669, or 12% of sales in 1997 to $605,013 or
6.1% of sales in 1998. In 1997 the company incurred additional legal and other
expenses in its national expansion program and in the listing of the stock on a
public exchange.
The Company writes off the pre-opening expense portion of the capital
required to open a restaurant during the calendar year that the restaurant was
opened.. Thus in 1998 total pre-opening expenses of $212,261 were expensed in
addition to $320,685 of depreciation and amortization expense for a total of
$532,946 versus the 1997 total of $560,957 for pre-opening expenses, and
depreciation and amortization.
Profile of Unit Sales
During 1998, the Company opened one additional restaurant, investing
$581,610 in The Shark Bar Atlanta. The Company seeks to build restaurants where,
after a unit is established, it's annual sales will be greater than two- three
times unit investment.
A review of the 1999 sales and a comparison to the previous year is
shown below
<TABLE>
<CAPTION>
1997 1998 1999 Year Opened
------------
<S> <C> <C> <C> <C>
The Shark Bar Restaurant NY $2,723,191 $2,681,064 $2,586,266 Nov. 1990
Mekka Restaurant $1,131,064 $1,181,570 $1,241,174 Nov. 1994
The Shark Bar Restaurant Chicago $1,677,683 $2,110,756 $ 754,985 April 1997
The Shark Bar Restaurant LA $ 605,377 $1,723,305 $ 666,516 Sept. 1997
The Shark Bar Restaurant Atlanta -- $1,992,512 $2,216,290 March 1998
</TABLE>
Financial Condition and Liquidity
The following is a discussion of the Company's recent and future
sources of and demands on liquidity as well as an analysis of liquidity levels.
For the year ending December 31, 1999 the Company incurred a net loss of
$888,549. At this time, during 2000 we plan to re-open the Chicago unit, fully
implement our turnaround strategy, tighten controls and improve service. We will
embark on a prudent national expansion through other alternatives, partnership
programs that do not require the Company to fund the expansion, beginning first
quarter 2001.
Cash and Cash Equivalents as of December 31, 1999 decreased by $23,105
to $9,216 from $32,321 as of December 31, 1998. Overall, Total Current Assets
decreased by $71,955 as of December 31, 1999 to $161,518 from $233,473 as of
December 31, 1998. The decrease in cash and all other assets was caused by the
closing of two units during 1999. Cash and Cash Equivalents as of December 31,
1998 decreased by $17,148 to $32,321 from $49,469 as of December 31, 1997.
Overall, Total Current Assets decreased by $86,922 as of December 31, 1998 to
$233,473 from $320,395 as of December 31, 1997. The decrease in cash and
increase in all other assets was caused by the expansion of one new restaurant
during 1998.
The Company's current liabilities increased $972,731 as of December 31,
1999 to $1,932,996 from $960,265 as of December 31, 1998. This increase was due
primarily to the increase of accrued expenses and the maturity of certain long
term Notes. To finance the expansion and cash flow needs due to the corporate
growth, current liabilities increased by $187,999 as of December 31, 1998 to
$960,265 from $772,266 as of December 31, 1997.
The effect of inflation has not been a factor upon either the
operations or the financial
11
<PAGE>
condition of the company. The Company's business is not seasonal in nature.
Forward-looking Information
Statements contained in this Form 10-SB that are not historical facts,
including, but not limited to, statements found in this Item 2, Management's
Discussion and Analysis of financial Condition and Results of Operations, are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 that involve a number of risks
and uncertainties. The actual result of the future events described in this Form
10-SB could differ materially from those stated in such forward-looking
statements. Among the factors that could cause actual results to differ
materially are: the Company's ability to operate existing restaurants
profitably, changes in economic conditions are concentrated, increasingly
intense competition in the restaurant industry, increases in food, labor, and
employee benefits and similar costs, as well as the risks and uncertainties
discussed in this form 10-SB
ITEM 3. DESCRIPTION OF PROPERTY
The following tables sets forth certain information with respect to our
facilities currently in operation (unless otherwise noted):
<TABLE>
<CAPTION>
Name and Location Date Opened Restaurant Size Seating Capacity Lease Expiration
- ----------------- ----------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
The Shark Bar 11/90 2,500 sq. ft 90 2009
New York, N.Y
Mekka 12/94 1,500 sq. ft. 65 2002
New York, N.Y
The Shark Bar 3/97 9,000 sq. ft 200
2003(1)
Chicago, Illinois
The Shark Bar 9/97 6,500 sq. ft 130
2010(2)
Los Angeles, California
The Shark Bar 3/98 10,000 sq. ft 255 2007
Atlanta, Georgia
</TABLE>
(1) Currently not operating. This lease provides two five year renewal options.
(2) Currently not operating. This restaurant is on the market to be sold
Our headquarters are located in an office building located in New York
City, where we lease approximately 2,500 sq. ft. The lease expires in August
2001. We believe that the space is adequate for our needs through the term of
the lease.
12
<PAGE>
Item 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information, as of April 4,
2000, regarding the beneficial ownership of our common stock, which is our only
class of outstanding voting securities, by each shareholder who owns more than
5% of outstanding shares, by each director and nominee for election as director,
by each of our named executive officers and by all of our directors and
executive officers as a group. The information set forth in the table and
accompanying footnotes has been furnished by the named beneficial owners. Since
the table reflects beneficial ownership determined pursuant to the applicable
rules of the Securities and Exchange Commission, the information is not
necessarily indicative of beneficial ownership for any other purpose.
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership(1)(2) Percent of Class
------------------- -------------------------- ----------------
Brian A. Hinchcliffe 1,922,523 48%
Michael D. Vann 168,209 4.2%
Mark Campbell - -
Keith Clinkscales 100,000 2.5%
Aton Ventures 250,000(3) 5.9%
--------------------------------------------------------
All Executive Officers and
Directors as a group
(4 persons) 2,190,732 55%
(1) Beneficial ownership is determined in accordance with th rules of the
Securities and Exchange Commission and includes voting and investment power
with respect to the shares shown as beneficially owned. Shares of common
stock subject to options currently exercisable or exercisable within 60
days are deemed outstanding for computing the percentage ownership of the
person holding such options, but such shares are not deemed outstanding for
computing the percentage ownership of any other person.
(2) The amount of ownership takes into account the reverse stock split of our
outstanding common stock as of November 6, 1996.
(3) Includes 250,000 shares of common stock issuable upon conversion of a
convertible Note. See "Business-Financing Transactions.".
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The name, age, principal occupation, other business affiliations and other
information (relating to the past five or more years) concerning each
director, and, where applicable, the year each was first elected a director
of the company, are set forth below:
MARK CAMPBELL, 39, was appointed President, CEO and Director on
November 3, 1999. Mr. Campbell worked for eight years on Wall Street as an
investment banker. Mr. Campbell was previously the Managing Partner of Kova
Capital, LLC, a venture capital concern that founded which provided
strategic advisory services to entrepreneurs, and financed properties in
the entertainment industry. Mr. Campbell began his foray in the food
industry as the co-founder and General Partner of Soul Cafe, a full service
restaurant in mid-town Manhattan.
BRIAN HINCHCLIFFE, Director, 43, was our financial founder in 1990
and assumed management responsibility in 1995. Mr. Hinchcliffe was a Vice
President at Goldman Sachs for ten years before launching an
entrepreneurial career. Mr. Hinchcliffe also serves as a member of the
Board of Directors of Jordex Resources, Inc.
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<PAGE>
MICHAEL VANN, 42 , Director , was our co-founder in 1990 and has
served as a director since 1992. He also has served as our Vice President
from 1992 through November 1996. Mr. Vann graduated from Western Michigan
University in April 1979, earning a Bachelor's degree in marketing and
retailing.
KEITH T. CLINKSCALES, 35, has served as one of our directors since
January 1997. Mr. Clinkscales was the former President and CEO of VIBE
Ventures, the urban music magazine and television show, since its inception
in September 1993. Mr. Clinkscales is a magna cum laude graduate of Florida
A&M University. He was the first student speaker for the prestigious School
of Business and Industry Forum series, and the President of Kappa Alpha Psi
fraternity.
Compliance with Section 16(a) of the Exchange Act
Not Applicable.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth all compensation in excess of $100,000
awarded to, earned by or paid to our Chief Executive Officer and the four other
most highly compensated executive officers (the "named executive officers") for
the years ended December 31, 1999, 1998, and 1997.
SUMMARY COMPENSATION TABLE
Fiscal
Name and Principal position Year Annual Salary
- --------------------------- ---- ---------------
Mark Campbell 1999 $ 12,500(1)
President and Chief Executive Officer
Brian Hinchcliffe 1999 $152,000
President and Chief Executive Officer 1998 $135,000
1997 $130,000
(1) Mr. Campbell's employment with the Company commenced in November 1999. His
annualized salary for the year ended December 31, 1999 was $75,000.
Directors' Fee and Other Remuneration
Directors received no compensation for services as a member of
the Board of Directors or of any committee of the Board of Directors in respect
of 1999. However, at this time, we have established a stock option plan which
will allow both directors, employees and consultants to participate.
Stock Options.
No options were granted by us during 1999.
1997 Stock Incentive Plan
Administration and Eligibility. We have adopted the 1997 Stock Incentive Plan
(the "1997 Plan") for officers, directors, employees, and consultants of the
company or any of our subsidiaries. The 1997 Plan, as originally adopted,
authorizes the issuance of up to 500,000 shares of common stock upon the
exercise of stock options or in connection with the issuance of restricted
stock. The 1997 Plan authorizes the granting of stock options and restricted
stock to employees, officers, directors and consultants of the company and our
subsidiaries and non-discretionary automatic awards of stock options to our non-
employee directors. The 1997 Plan provides for its administration by either a
committee of two or more outside directors or the Board of Directors (the
"Administrator"). In general, the Administrator, in its sole
14
<PAGE>
discretion, determines which eligible employees, officers, directors and
consultants of the Company and our subsidiaries may participate in the 1997 Plan
and the type, extent and terms of the equity-based awards to be granted to them.
In the event of a change in control, as defined in the 1997 Plan, all options
will become immediately vested and exercisable and the restrictions with regard
to restricted stock will lapse unless the Administrator provides otherwise.
Options. Options granted to employees may either be ISOs or non-ISOs. Each
option has a maximum term of ten years from the date of the grant, subject to
early termination. The Administrator may determine the exercise price provided
that such price may not be less than the fair market value of the common stock
on the date of grant. At the discretion of the Administrator, the exercise price
of the options may be paid in cash, by tendering of shares of common stock
having a fair market value equal to the exercise price of such option.
Restricted Stock. The Administrator may make grants of restricted stock for cash
or other consideration, as the Administrator determines. The number of shares of
common stock granted to each grantee will be determined by the Administrator.
Grants of restricted stock will be made subject to such restrictions and
conditions as the Administrator may determine in its sole discretion, including
periods of restriction on transferability (the "Restriction Period") during
which time the grant may be required to be deposited with an escrow agent, if
the Administrator so determines. During the Restriction Period, if any, a
grantee may be given the right, at the discretion of the Administrator, to vote
the shares subject to the grant and the right to receive any regular cash
dividends paid thereon. If a grantee's employment or service with us terminates,
or in the event of the occurrence of certain other events determined by the
Administrator, the grant will terminate with respect to all shares as to which
the restrictions have not lapsed and those shares must be returned to us.
Amendment. The Board has the right to amend, suspend or terminate the 1997 Plan
at any time, provided, however, that unless approved by our stockholders in
general, no amendment or change in the 1997 Plan will be effective: (i)
materially increasing the total number of shares of common stock which may be
issued under the 1997 Plan; (ii) changing the minimum option exercise price;
(iii) extending the term of the 1997 Plan or the period during which any option
may be granted or exercised; or (iv) altering in any way the class of persons
eligible to participate in the 1997 Plan.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to an arrangement between the company and Hinchcliffe, during
the period of 1993 through end of 1996, we borrowed in excess of $285,266 from
Hinchcliffe at an interest rate of 10% per annum. On December 30, 1996 it was
determined by our Board of Directors to be in our best interest that we accept
Hinchcliffe's offer to (i) convert $125,000 of said loans into 125,000 shares of
Series A Convertible Preferred Stock, which stock contains the designations,
rights and preferences which were filed in the Certificate of Designations with
the Secretary of State of the State of Delaware and (ii) to convert an
additional $80,000 of loans into 400,000 shares of common stock. See "Part F/S."
In addition, during January 1997, in order to finance our acquisitions,
among other things, Mr. Hinchcliffe loaned us approximately $476,038, which
loans bear interest at the rate of 10% per annum. See "Business - Financing
Transactions."
ITEM 8. DESCRIPTION OF SECURITIES
GENERAL
The company is authorized to issue an aggregate of 15,000,000 shares of
capital stock, consisting of 14,500,000 shares of common stock, $0.003 par
value, and 500,000 shares of preferred stock, $0.003 par value. As of December
31, 1999 there were 3,998,177 shares of common stock outstanding.
PREFERRED STOCK
15
<PAGE>
The board is authorized, without further stockholder action, to issue
up to 500,000 shares of blank check preferred stock having a par value of $.003
per share. We do not currently have any shares of preferred stock issued or
outstanding.
COMMON STOCK
The holders of common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. The holders
of common stock are entitled to receive ratably such dividends, if any, as may
be declared from time to time by the board out of funds legally available
therefor. The company does not anticipate paying dividends on the common stock
in the foreseeable future.
In the event of a liquidation, dissolution or winding up of the holders
of common stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference and other amounts owed to
the holders of the preferred stock. Holders of common stock have no preemptive
rights or rights to convert their common stock into any other securities. There
are no redemption or sinking fund provisions applicable to the common stock. All
shares of common stock are, and the shares of common stock to be outstanding
upon completion of this offering will be, fully paid and non-assessable.
TRANSFER AGENT
The transfer agent and registrar for the common stock is Interwest
Transfer Co., 1981 E. 4800 South, Suite 400, Salt Lake City UT 84117.
DELAWARE ANTI-TAKEOVER STATUTE
The company is subject to Section 203 of the Delaware General
Corporation law, which, subject to certain exceptions, prohibits a publicly held
Delaware corporation from engaging in any "business combination" with any
"interested stockholder" for a period of three years following the date that
such stockholder became an interested stockholder, unless:
o prior to such date, the board of directors of the corporation
approved either the business combination or the transaction
that resulted in the stockholder becoming an interested
stockholder, the interested stockholder;
o upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction was commenced; and
o on or subsequent to such date, the business combination is
approved by the board of directors and authorized at an annual
or special meeting of stockholder, and not by written consent,
by the affirmative vote of at least 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder.
Section 203 defines "business combination" to include:
o any merger or consolidation involving the corporation and the
interested stockholder;
o any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation involving the interested
stockholder;
o subject to certain exceptions, any transaction that results in
the issuance or transfer by the corporation of any stock of
the corporation to the interested stockholder;
16
<PAGE>
o any transaction involving the corporation that has the effect
of increasing the proportionate share of the stock of any
class or series of the corporation beneficially owned by the
interested stockholder; and
o the receipt by the "interested stockholder" of the benefit of
any loans, advances, guarantees, pledged or other financial
benefits provided by or through the corporation.
In general, Section 203 defines an interested stockholder as an entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
On June 12, 1997 our common stock commenced trading on the OTC Bulletin
Board under the symbol "SLFD". Set forth below are the range of reported high
and low bid and ask quotations for our common stock for each of the quarters
indicated as reported on the OTC Bulletin Board. All over-the-counter market
price quotations reflect inter-dealer prices, without retail mark-up, mark- down
or commission, and may not necessarily represent actual transactions.
1999 HIGH LOW
---- ---- ---
4th Quarter $.75 $.12
3rd Quarter $.62 $.12
2nd Quarter $.75 $.37
1st Quarter $1.06 $.56
1998 High Low
4th Quarter $1.18 $1.00
3rd Quarter $1.62 $1.31
2nd Quarter $2.75 $2.37
1st Quarter $3.25 $1.87
Holders. As of December 31, 1999, to our knowledge, we had
approximately 57 shareholders of record of our Common Stock
Dividends. We have not paid dividends on our common stock since its
inception and have no intention to pay any dividends to our shareholders in the
foreseeable future. We currently intend to reinvest earnings, if any, in the
development and expansion of its business. The declaration of dividends in the
future will be at the election of the Board of Directors, and will depend upon
our earnings, capital requirements and financial position, plans for expansion,
general economic conditions and other pertinent factors.
ITEM 2. LEGAL PROCEEDINGS
We are not a party to any pending material legal proceeding. However,
on January 20, 2000 Kevin Starkes commenced an action against the Company in the
United States District Court for the Southern District of New York, Kevin
Starkes v. Soulfood Concepts, Inc., 00 Civ. 0427. In the action, Mr. Starkes
alleges, among other things that the company discriminated against him on the
basis of his race (African-American) in violation of 42 U.S.C. ss.1981, the New
York State Human Rights Law and the New York City Human Rights Law by
terminating his employment in January 1998 and by failing and refusing to
deliver certificates to him for 50,000 shares of stock which he claims were
promised to him. The Company served and filed an answer in this matter on March
1,
17
<PAGE>
2000. The Company intends to vigorously defend against this action. In 1997 a
court granted summary judgment against the Company regarding liability in an
action brought against the Company in the approximate amount of $48,000 with
respect to a stolen automobile that the plaintiff has alleged, among other
things, is due to the negligence of the Company. The Company appealed the
judgment and lost the appeal.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
During the fiscal year 1998, the Company entered into the following
transactions involving the issuance of securities:
1. Pursuant to the terms of a Note Purchase Agreement dated January 26,
1998, the Company received $265,000 in exchange for the Company's 10%
Convertible Secured Note in the aggregate principal amount of $265,000 and
warrants to purchase shares of Common Stock. The Note provides that the holder
is entitled at any time to convert any or all of the original principal amount
of the note into shares of Common Stock. The Shares of Common Stock underlying
the note and the warrants bear certain demand and "piggyback" registration
rights.
2. On June 23, 1998, the holder of the preferred stock converted his
shares into common stock at a rate of 5 shares of common stock for each share of
preferred stock.
During the fiscal year 1997, the Company entered into the following transactions
involving the issuance of securities:
1. On January 17, 1997, the Company issued 100,000 shares of the
Company's common stock ("Common Stock") to a private investor in exchange for
$20,000.
2. Pursuant to the terms of a Stock Purchase Agreement dated February
4, 1997, among other things, the Company issued 100,000 unregistered shares of
Common Stock and a Warrant to purchase an additional 20,000 of common stock at
an exercise price of $1.00 to a private investor, with registration rights
relating thereto.
3. Pursuant to the terms of a Note Purchase Agreement dated May 21,
1997, the Company received $350,000 in exchange for the Company's 10%
Convertible Secured Notes (the "Notes") in the aggregate principal amount of
$350,000 and warrants at an exercise price of $1.00. The Notes are convertible
into the number of fully-paid shares of Common Stock as shall be equal to the
aggregate principal amount of the Notes, and interest accrued thereon, divided
by $1.00. The shares of Common Stock underlying the Notes and the warrants are
subject to registration rights.
4. Pursuant to the terms of a Stock Purchase Agreement dated June 6,
1997, among other things, the Company issued 100,000 unregistered shares of
Common Stock and a warrant to purchase an additional 10,000 shares of Common
Stock at an exercise price of $1.00 to a private investor, with registration
rights relating thereto.
5. Pursuant to the terms of an Engagement Letter dated February 10,
1997 between the Company and Commonwealth Associates ("CA"), whereby CA was
engaged to render corporate finance and other financial service matters, the
Company granted to CA warrants to purchase 188,000 shares of Common Stock at an
exercise price of $.01 per share.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("Section 145")
permits indemnification of directors, officers, employees, agents and
controlling persons of a corporation
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<PAGE>
under certain conditions and subject to certain limitations. Section 145
empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director, officer or agent of the
corporation or another enterprise if serving at the request of the corporation.
Depending on the character of the proceeding, a corporation may indemnify
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with such action,
suit or proceeding if the person indemnified acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In the case of an action
by or in the right of the corporation, no indemnification may be made with
respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
court of chancery or the court in which such action or suit was brought shall
determine that despite the adjudication of liability such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper. Section 145 further provides that to the extent a director or officer of
a corporation has been successful in the defense of any action, suit or
proceeding referred to above or in the defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
The company's certificate of incorporation and bylaws provide for the
indemnification of directors, officers and other authorized representatives of
the company to the maximum extent permitted by the Delaware General Corporation
Law, as may be amended (but in the case of such amendment, only to the extent
that such amendment permits the company to provide broader indemnification
rights than the law permitted the Corporation to provide prior to the Amendment)
against all expense, loss and liability (including, without limitation,
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees),actually and necessarily incurred or suffered by such person in
connection with the defense of or as a result of such proceeding, or in
connection with any appeal therein. The company's certificate of incorporation
and bylaws permit it to purchase insurance for the indemnification of directors,
officers and employees to the full extent permitted by the Delaware General
Corporation Law.
The certificate of incorporation and bylaws provide that the right to
indemnification conferred in the bylaws are contract rights and the certificate
of incorporation includes the right to be paid by the corporation for expenses
incurred in defending any such proceeding in advance of its final disposition;
provided, however, that if the Delaware General Corporation Law requires: the
payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the company of an undertaking by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this bylaw or
otherwise.
PART F/S
The information required under this item is set forth on pages F-1
through F-27 of this Annual Report on Form 10-SB.
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<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
THE FOLLOWING DOCUMENTS HERETOFORE FILED BY US WITH THE SECURITIES AND EXCHANGE
COMMISSION ("SEC") ARE HEREBY INCORPORATED BY REFERENCE:
Exhibit No. Description
2.4 (2) Agreement and plan of Reorganization
3.1 (1) Certificate of Incorporation
3.2 (1) By- Laws of the Company
3.5 (4) Amended Certificate of Incorporation
3.4 (4) Amended and Restated By-Laws of the company
3.5 (4) Amended Certificate of Incorporation
3.6 (4) Certificate of Designation relating to the Series A Convertible
Preferred Stock
10.1 (1) Escrow Agreement between the Company and New Jersey National Bank
10.2 (2) Warrant Agreement between the Company and Interest Transfer Co.,
Inc.
10.3 (3) Lease Agreement relating to the New York Shark Bar Restaurant
10.4 (3) Sublease Agreement for Mekka
10.5 (5) Warrant Agreement between SoulFood Concepts, Inc. and Commonwealth
Associates
10.6 (5) Note Purchase Agreement, dated May 21, 1997, by and among SoulFood
Concepts, Inc., Aton Ventures Fund, Ltd. and Aton Balanced Fund
Ltd.
10.7 (5) Agreement, dated May 20, 1999 by and among SoulFood Concepts, Inc.,
Aton Ventures Fund, Ltd. and Aton Balanced Fund Ltd.
10.8 (5) $250,000.00 10% Convertible Secured Note, dated May 20, 1999, by and
among SoulFood Concepts, Inc. and Roycan & Co.
10.9 (5) $100,000.00 10% Convertible Secured Note, dated May 20, 1999, by and
among SoulFood Concepts, Inc. and Roycan & Co.
10.10 (5) Form of Warrant Agreement, dated May 20, 1999, issued by SoulFood
Concepts, Inc.
10.11 (5) Stock Purchase Agreement, dated June 6, 1997, by and among SoulFood
Concepts, Inc. and Clarion Finanz AG
10.12 (5) Warrant Agreement, dated June 6, 1997, by among SoulFood Concepts,
Inc. and Clarion Finanz AG
20
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10.13 (5) Note Purchase Agreement, dated January 26, 1998, by and among
SoulFood Concepts, Inc. and the purchaser parties thereto
10.14 (5) Form of 8% Convertible Secured Note, dated January 26, 1998
10.15 (5) Form of Warrant Agreement, dated January 26, 1998, issued by
SoulFood Concepts, Inc.
21 (5) Subsidiaries of the Registrant
- ---------------
(1) Incorporated by reference from registrants registration statements on
Form S-18, File No. 22-382321- N.Y
(2) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1992.
(3) Incorporated by reference to the Company's Quarterly Report on Form for
the quarter ended September 30, 1994.
(4) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1996.4)
(5) Filed herewith
ITEM 2. DESCRIPTION OF EXHIBITS
See "Exhibit Index."
21
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SIGNATURES
In accordance with section 12 of the Securities Exchange Act of 1934 (the
"Exchange Act"), the registrant has duly caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized.
Soulfood Concepts Inc.
Date: April 6, 2000 By: /s/ Mark Campbell
------------------------------
Mark Campbell, Chief
Executive Officer and
President
22
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
F-1
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
INDEX
-----
PAGE
----
Independent auditors' report F-1
Consolidated balance sheets F-2 - F-3
Consolidated statements of operations F-4 - F-5
Consolidated statement of stockholders' equity (deficit) F-6
Consolidated statements of cash flows F-7 - F-8
Notes to consolidated financial statements F-9 - F-25
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
SOULFOOD CONCEPTS, INC.
We have audited the accompanying consolidated balance sheets of SOULFOOD
CONCEPTS, INC. AND SUBSIDIARIES as of December 31, 1999 and 1998 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SOULFOOD CONCEPTS,
INC. AND SUBSIDIARIES as of December 31, 1999 and 1998 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 1(s) to the consolidated financial statements, SOULFOOD
CONCEPTS, INC. AND SUBSIDIARIES changed its method of accounting for
organization costs effective January 1, 1998.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring net losses, negative
working capital, stockholders' capital deficiency and its limited capital
resources raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
New York, New York
March 28, 2000
F-3
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,216 $ 32,321
Accounts receivable 56,894 49,804
Inventory 69,120 120,775
Prepaid expenses and other current assets 26,288 30,573
---------- ----------
TOTAL CURRENT ASSETS 161,518 233,473
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $1,406,060 and $1,070,857 respectively 1,448,036 1,727,176
OTHER ASSETS 90,874 90,874
---------- ----------
TOTAL ASSETS $1,700,428 $2,051,523
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
--------------------------
1999 1998
----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Bank overdraft $ 60,849 $ 137,825
Accounts payable and accrued expenses 1,225,452 591,682
Obligation under capital lease 31,695 28,932
Current portion of long-term debt 615,000 201,826
----------- -----------
TOTAL CURRENT LIABILITIES 1,932,996 960,265
DUE TO RELATED PARTY 878,383 747,116
OBLIGATIONS UNDER CAPITAL LEASE - LONG-TERM 32,376 54,492
LONG-TERM DEBT -- 515,000
----------- -----------
TOTAL LIABILITIES 2,843,755 2,276,873
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
MINORITY INTEREST 81,392 45,835
----------- -----------
STOCKHOLDERS' DEFICIT
Common stock, par value $.003; authorized
14,500,000 shares; issued and outstanding
3,998,177 shares 11,995 11,995
Additional paid-in capital 980,949 980,949
Accumulated deficit (2,217,663) (1,264,129)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (1,224,719) (271,185)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 1,700,428 $ 2,051,523
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Year Ended
December 31,
--------------------------
1999 1998
----------- -----------
SALES $ 7,465,231 $ 9,689,207
COST OF SALES 2,234,650 2,850,042
----------- -----------
GROSS PROFIT 5,230,581 6,839,165
RESTAURANT OPERATING EXPENSES 4,656,363 5,565,041
----------- -----------
INCOME FROM OPERATING RESTAURANTS 574,218 1,274,124
OTHER CORPORATE EXPENSES 926,879 605,013
----------- -----------
(LOSS) INCOME FROM OPERATIONS (352,661) 669,111
----------- -----------
OTHER EXPENSES
Interest expense 165,127 161,371
Pre-opening expenses -- 212,261
Depreciation and amortization 288,039 320,685
Loss on abandonment of fixed assets 47,165 --
----------- -----------
Total other expenses 500,331 694,317
----------- -----------
LOSS BEFORE INCOME TAXES, CUMULATIVE
EFFECT OF ACCOUNTING CHANGES AND
MINORITY INTEREST (852,992) (25,206)
PROVISION FOR INCOME TAXES -- --
----------- -----------
LOSS BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES AND MINORITY INTEREST (852,992) (25,206)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
Net of income taxes of $0 -- (28,198)
----------- -----------
LOSS BEFORE MINORITY INTEREST (852,992) (53,404)
LOSS ATTRIBUTED TO MINORITY INTEREST (35,557) (27,168)
----------- -----------
NET LOSS $ (888,549) $ (80,572)
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Year Ended
December 31,
---------------------
1999 1998
-------- --------
LOSS PER COMMON SHARE
BASIC AND DILUTED:
Loss before cumulative effect of accounting change $ (0.22) $ (0.01)
Cumulative effect of accounting change -- (0.01)
-------- --------
Net loss $ (0.22) $ (0.02)
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Total
--------------------- --------------------- Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Deficit
------- ----------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1997 125,000 $ 375 3,373,177 $ 10,120 $ 982,449 $(1,167,163) $ (174,219)
Conversion of preferred stock (125,000) (375) 625,000 1,875 (1,500) -- --
Distributions -- -- -- -- -- (16,394) (16,394)
Net loss -- -- -- -- -- (80,572) (80,572)
------- ----------- --------- ----------- ----------- ----------- -----------
Balance - December 31, 1998 -- -- 3,998,177 11,995 980,949 (1,264,129) (271,185)
Distributions -- -- -- -- -- (64,985) (64,985)
Net loss -- -- -- -- -- (888,549) (888,549)
------- ----------- --------- ----------- ----------- ----------- -----------
Balance - December 31, 1999 -- $ -- 3,998,177 $ 11,995 $ 980,949 $(2,217,663) $(1,224,719)
======= =========== ========= =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Year Ended
December 31,
--------------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(888,549) $ (80,572
Adjustments to reconcile net loss to
Net cash provided (used) by operating activities:
Depreciation and amortization 288,039 320,685
Cumulative effect of accounting change -- 28,198
Loss attributed to minority interest 35,557 27,168
Loss on abandonment of equipment 47,165 --
(Increase) Decrease in:
Accounts receivable (7,090) 19,583
Inventory 51,655 (53,626)
Prepaid expenses and other current assets 4,285 103,817
Other assets -- (15,692)
(Decrease) Increase in:
Bank overdraft (76,976) 49,185
Accounts payable & accrued expenses 633,770 (65,640)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 87,856 333,106
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (117,929) (737,578)
Disposition of fixed assets 61,864 --
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (56,065) (737,573)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Additional borrowing -- 265,000
Repayment of debt (101,826) (10,039)
Additional capital leases -- 42,151
Repayment of capital leases (19,353) (25,148)
Increase in due to related party 131,267 131,749
Partner distributions (64,985) (16,394)
--------- ---------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (54,896) 387,319
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (23,105) (17,148)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 32,321 49,469
--------- ---------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 9,216 $ 32,321
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Year Ended
December 31,
----------------------------
1999 1998
------- -------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest expense $69,060 $98,621
======= =======
Income taxes $ 6,130 $ 5,240
======= =======
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES:
December 31, 1998
On September 30, 1998, a preferred stockholder of the Company converted 125,000
shares of preferred stock into 625,000 shares of common stock.
As of December 31, 1998, the Company incurred a $28,198 expense relating to a
cumulative effect of an accounting change as to the treatment of organization
costs. See Note 1(s).
The accompanying notes are an integral part of the consolidated financial
statements.
F-10
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
a) Nature of Operations
The accompanying consolidated financial statements include the accounts
of Soulfood Concepts, Inc. ("the Company"), organized under the laws of
the state of Delaware on December 14, 1992 and its subsidiaries. The
Company operates restaurants in New York, NY, Los Angeles, CA, Chicago,
IL and Atlanta, GA, specializing in Southern cuisine. (See Note 15):
1) Shark Restaurant Corp. ("SRC"), incorporated under the laws of New
York on June 7, 1990 (owned 100% by the Company);
2) Shark Restaurant California, Inc. ("LA"), incorporated under the
laws of California on June 23, 1997 (owned 100% by the Company);
ceased operations in June 1999.
3) Affair Restaurant, Inc. ("Chicago"), d/b/a Shark Bar Restaurant
Chicago, purchased on January 10, 1997 (owned 100% by the Company);
temporarily ceased operations in July 1999.
4) Shark Bar, Inc. ("Atlanta"), incorporated under the laws of Georgia
on January 29, 1998 (owned 100% by the Company);
5) 7 West Restaurant Corp. ("7 West"), incorporated under the laws of
New York on February 1, 1994 (owned 100% by the Company);
6) Avenue A Restaurants Associates, L.P. ("Avenue A"), organized as a
limited partnership under the laws of New York on September 22,
1994 (owned 62% by 7 West);
7) Shark Catering Corp. ("Catering"), incorporated under the laws of
New York on May 14, 1992 (owned 100% by the Company) currently
inactive; and
8) TWS Restaurant Corp. ("TWS"), incorporated under the laws of New
York on May 1, 1995 (owned 100% by the Company) currently inactive.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
F-11
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)
b) Basis of presentation
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As of December
31, 1999, the Company has a working capital deficit of $1,771,478 and
an accumulated deficit of $2,217,663. Additionally, the Company has
defaulted on certain notes; however, the note holder has agreed to not
seek relief as the Company attempts to restructure the debt. These
matters raise substantial doubt about the Company's ability to continue
as a going concern.
The Company's near and long-term operating strategies focus on an
administrative restructuring, aggressive closing of under-performing
locations, debt-restructuring and seeking additional equity financing.
Several completed and ongoing initiatives are as follows:
o The Company closed its Los Angeles operation in June 1999. LA
experienced an operating loss in 1999 approximating $111,000 before
any corporate overhead burden. Negotiations are in process to sell
the lease and fixed assets for this location.
o The Company temporarily closed its Chicago operation in July 1999.
Chicago experienced an operating loss in 1999 approximating
$222,000 before any corporate overhead burden. It is anticipated
that Chicago will re-open in the second or third quarter of 2000
with more qualified restaurant personnel.
o The Company, in late 1999, effectuated a change in senior
management personnel and its Board of Directors.
o The Company is presently in negotiations with its majority
shareholder whereby certain debt will be converted to equity, as
well as certain debt being forgiven. Additionally, the Company is
presently negotiating its short-term debt with two principal
investors and a majority stock holder.
o The Company is pursuing an equity financing via a private
placement; if successful proceeds which will be used to pay off
certain current obligations.
o The Company has and is pursuing aggressive cost cutting of general
and administrative expenses with a goal of an overall 30%
reduction.
Management believes that the aforementioned plan to revise the
Company's operations will provide the opportunity to continue as a
going concern.
F-12
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
c) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
d) Reclassifications
Certain prior year amounts have been reclassified to conform with
current year presentation.
e) Cash and cash equivalents
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
f) Accounts receivable
Accounts receivable consist of charges due from credit card companies
and others. As of December 31, 1999 and 1998, no allowance for doubtful
accounts is necessary.
g) Inventory
Inventory is valued at the lower of cost or market under the first in
first out method of costing.
h) Property and equipment
Property and equipment is valued at cost and is depreciated over the
assets estimated useful lives, utilizing the straight line method.
Leasehold improvements are amortizable over the life of the lease or
estimated useful lives, whichever is shorter.
i) Concentration of credit risk
The Company places its cash in what it believes to be credit-worthy
financial institutions. However, cash balances exceed FDIC insured
levels at various times during the year.
j) Advertising costs
Advertising costs are expensed as incurred and included in restaurant
operating expenses. For the years ended December 31, 1999 and 1998,
advertising expense amounted to $36,737 and $62,001, respectively.
F-13
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
k) Pre-Opening expenses
Pre-opening expenses consist of various expenses relating to the
opening of Chicago, LA and Atlanta prior to their opening to the
general public and have been expensed.
l) Income taxes
Income taxes are provided for based on the liability method of
accounting pursuant to Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes". The liability method
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the
reported amount of assets and liabilities and their tax basis.
m) Fair value of financial instruments
The Company's financial instruments consist of cash, accounts
receivable, accounts payable and accrued expenses, and long-term debt.
The carrying amounts of cash, accounts receivable and accounts payable
and accrued expenses approximate fair value due to the highly liquid
nature of these short-term instruments. The fair value of long-term
borrowings was determined based upon interest rates currently available
to the Company for borrowings with similar terms. The fair value of
long-term borrowings approximates the carrying amounts as of December
31, 1999 and 1998.
n) Long-lived assets
Long-lived assets and certain identifiable intangibles to be held and
used are reviewed for impairment whenever events or changes in
circumstances indicate that the related carrying amount may not be
recoverable. When required, impairment losses on assets to be held and
used are recognized based on the fair value of the assets and
long-lived assets to be disposed of are reported at the owner carrying
amount or fair value less cost to sell.
o) Stock-based compensation
The Company has adopted the intrinsic value method of accounting for
stock-based compensation in accordance with Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees" and
related interpretations.
F-14
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
p) Loss per share
The computation of basic earnings per share ("EPS") is computed by
dividing income available to common stockholders by the weighted
average number of outstanding common shares during the period. Diluted
EPS gives effect to all dilutive potential common shares outstanding
during the period. The computation of diluted EPS does not assume
conversion, exercise or contingent exercise of securities that would
have an anti-dilutive effect.
The shares used in the computation were as follows:
December 31,
----------------------
1999 1998
--------- ---------
Basic and Diluted 3,998,177 3,350,711
========= =========
q) Comprehensive income
SFAS No. 130, "Reporting Comprehensive Income", establishes standards
for the reporting and display of comprehensive income and its
components in the financial statements. As of December 31, 1999 and
1998, the Company has no items that represent comprehensive income, and
therefore has not included a schedule of comprehensive income in the
financial statements.
r) Impact of year 2000 issue
During the year ended December 31, 1999, the Company conducted an
assessment of issues related to the Year 2000 and determined that it
was necessary to modify or replace portions of its software in order to
ensure that its computer systems will properly utilize dates beyond
December 31, 1999. All computer systems are operating efficiently and
accurately, but the company cannot guarantee there will be no adverse
effects in the future. At this time, the Company cannot determine the
impact the Year 2000 will have on its key customers or suppliers. If
the Company's customers or suppliers don't convert their systems to
become Year 2000 compliant, the Company may be adversely impacted. The
Company is addressing these risks in order to reduce the impact on the
Company.
s) Recent accounting pronouncements
Additionally, during 1998, SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information" was issued, which changes the
way public companies report information about segments. SFAS No. 131,
which is based on the selected segment information, requires quarterly
and entity-wide disclosures about products and services, major
customers, and the material countries in which the entity holds assets
and reports revenues. This statement is effective for the Company's
1999 and 1998 fiscal years.
F-15
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SFAS No. 132, "Employers' Disclosures about Pension and Other Post
Employment Benefits," was issued in February 1998 and specifies amended
disclosure requirements regarding such obligations. SFAS No. 132 does
not effect the Company as of December 31, 1999.
In March 1998, Statement of Position No. 98-1 was issued, which
specifies the appropriate accounting for costs incurred to develop or
obtain computer software for internal use. The new pronouncement
provides guidance on which costs should be capitalized, and over what
period such costs should be amortized and what disclosures should be
made regarding such costs. This pronouncement is effective for fiscal
years beginning after December 15, 1998, but earlier application is
acceptable. Previously capitalized costs will not be adjusted. The
Company believes that it is already in substantial compliance with the
accounting requirements as set forth in this new pronouncement, and
therefore believes that adoption will not have a material effect on
financial condition or operating results.
In April 1998, Statement of Position No. 98-5 was issued which requires
that companies write-off previously defined capitalized start-up costs
including organization costs and expense future start-up costs as
incurred. The Company had capitalized certain organization costs in
prior periods. Effective January 1, 1998, the Company recorded a
non-cash charge of $28,198 to reflect the cumulative effect of the
accounting change.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and for Hedging Activities". This new pronouncement
requires that certain derivative instruments be recognized in balance
sheets at fair value and for changes in fair value to be recognized in
operations. Additional guidance is also provided to determine when
hedge accounting treatment is appropriate whereby hedging gains and
losses are offset by losses and gains related directly to the hedged
item. While the standard, as amended, must be adopted in the fiscal
year beginning after June 15, 2000, its impact on the Company's
consolidated financial statements is not expected to be material as the
Company has not historically used derivative and hedge instruments.
NOTE 2 - INVENTORY
Inventory consisted of the following:
December 31,
----------------------
1999 1998
--------- ---------
Food $ 18,059 $ 31,862
Beverage 51,061 88,913
--------- ---------
$ 69,120 $ 120,775
========= =========
F-16
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
December 31,
-------------------------
1999 1998
----------- ---------
Furniture, Fixtures and Equipment $ 2,108,876 $ 2,052,813
Leasehold Improvement 745,220 745,220
----------- -----------
2,854,096 2,798,033
Less: Accumulated Depreciation (1,406,060) (1,070,857)
----------- -----------
Property and equipment, net $ 1,448,036 $ 1,727,176
=========== ===========
Depreciation expense for the years ending December 31, 1999 and 1998
was $288,039 and $320,685, respectively.
Cost of assets acquired pursuant to capital leases included above are
as follows:
December 31,
-------------------------
1999 1998
----------- -----------
Furniture, Fixtures and Equipment $ 42,151 $ 42,151
=========== ===========
NOTE 4 - RELATED PARTY TRANSACTION
Due to related parties consists of the following:
(See Note 15)
December 31,
--------------------
1999 1998
-------- --------
Advances from an officer of the Company,
payable on demand. It is intended that
these advances will be repaid in more than
one year. Interest has been accrued on
these advances at 10% per annum $543,383 $405,463
Advances from an officer of the Company
These advances are convertible into preferred
stock. (See Note 9). Interest has been
accrued on these advances at 10% per annum 335,000 335,000
Partner loans to Avenue A Restaurant
Associates, L.P. Interest is being accrued
at 10% per annum to the limited partners -- 6,653
-------- --------
$878,383 $747,116
======== ========
F-17
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1999 1998
--------- ---------
<S> <C> <C>
Working capital loan from Citibank, bearing interest at 11.5%
per annum on the outstanding balance, payable in monthly
installments of $913 principal only with interest accrued,
maturing in January 1999 $ -- $ 1,826
The Company received $100,000, pursuant to a note, from an
outside investor on February 4, 1997, with interest payable
at 10% per annum. The note was due, and paid, February 4,
1999. Interest was due semi-annually and any unpaid amounts
were accrued -- 100,000
The Company received $350,000 from the sale of convertible
secured notes to two entities on May 21, 1997 with interest
payable at 8% per annum. The notes are due $100,000 by
December 31, 1999 and $250,000 by September 1, 2000. The
$100,000 note was not repaid. Interest is due semi-annually
and any unpaid amounts have been accrued (See Notes 11 and 15) 350,000 350,000
The Company received $265,000 from the sale of three
convertible secured notes to two entities and an individual
in January 1998 with interest payable at 8% per annum. The
notes are due January 26, 2000. The notes were not repaid.
Interest is due semi-annually and any unpaid amounts have
been accrued (see Notes 11 and 15) 265,000 265,000
--------- ---------
Total 615,000 716,826
Less: Current Portion (615,000) (201,826)
--------- ---------
Long-Term Debt $ -- $ 515,000
========= =========
</TABLE>
F-18
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 6 - INCOME TAXES
The components of the provision (benefit) for income taxes is as
follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
--------- ---------
<S> <C> <C>
Current tax expense
U.S. federal $ -- $ --
State and local -- --
--------- ---------
Total current -- --
Tax benefit of net operating loss carry-forwards -- --
--------- ---------
Provision for income taxes -- --
--------- ---------
Deferred tax expense
U.S. federal -- --
State and local -- --
--------- ---------
Total deferred -- --
--------- ---------
Total provision from continuing operations $ -- $ --
========= ==========
</TABLE>
The reconciliation of the effective income tax rate to the Federal
statutory rate is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Federal income tax rate (34.0)% (34.0)%
Deferred tax charge (credit) -- --
Effect on valuation allowance 34.0 % 34.0 %
State income tax, net of federal benefit -- --
---- ----
Effective income tax rate 0.0 % 0.0 %
==== ====
</TABLE>
At December 31, 1999, the Company had net carryforward losses of
approximately $1,167,000. Because of the current uncertainty of
realizing the benefit of the tax carryforward, a valuation allowance
equal to the tax benefit for deferred taxes has been established. The
full realization of the tax benefit associated with the carryforward
depends predominantly upon the Company's ability to generate taxable
income during the carryforward period.
F-19
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 6 - INCOME TAXES (continued)
Deferred tax assets and liabilities reflect the net tax effect of
temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and amounts used for
income tax purposes. Significant components of the Company's deferred
tax assets and liabilities at December 31, 1999 are as follows:
Deferred tax assets
Loss carryforwards $ 425,000
Less: Valuation allowance (425,000)
-----------
Net deferred tax assets $ --
===========
Net operating loss carryforwards expire starting in 2008 through 2014.
Per year availability is subject to change of ownership limitations
under Internal Revenue Code Section 382.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
a) The Company's future minimum annual aggregate rental payments required
under operating and capital leases that have initial or remaining
non-cancelable lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
---------- ---------
<S> <C> <C>
2000 $ 348,262 $ 40,020
2001 351,566 23,016
2002 357,903 7,029
2003 302,055 --
2004 and thereafter 2,896,604 --
---------- ---------
Total minimum lease payments $4,256,390 70,065
========== ---------
Less: Amounts representing interest (5,994)
---------
Present value of future minimum lease payments 64,071
Less: Current maturities (31,695)
---------
Total $ 32,376
=========
</TABLE>
Rent expense under operating leases for the years ended December 31,
1999 and 1998 was $538,049 and $511,848, respectively.
b) The Company is a party to claims and lawsuits arising in the normal
course of operations. Management is of the opinion that these claims
and lawsuits will not have a material effect on the financial position
of the Company. The Company believes these claims and lawsuits should
not exceed $50,000, and accordingly, has established a reserve included
in accounts payable and accrued expenses.
F-20
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 8 - MINORITY INTEREST
The Company, through its subsidiary 7 West, is the general partner in
Avenue A. 7 West owns a 60% general partnership interest and a 2%
limited partnership interest. Accordingly, the minority interest
represents a 38% limited partnership interest. As of December 31, 1999
and 1998, the minority interest equals $81,392 and $45,835,
respectively.
NOTE 9 - STOCKHOLDERS' EQUITY
Preferred stock
On December 30, 1996, the Board of Directors of the Company approved
the issuance of 125,000 shares of series A cumulative convertible
preferred stock, $.003 par value, non-voting preferred stock in
exchange for a reduction in the amount owed to a stockholder. Beginning
January 1, 1997, the holder of the preferred stock may convert each
share of Preferred Stock into five shares of common stock. On September
30, 1998, that stockholder converted his preferred stock for 625,000
shares of common stock.
NOTE 10 - CONVERTIBLE NOTES PAYABLE
On May 21, 1997, Chicago sold an aggregate of $350,000 of 10%
Convertible Secured Notes (the "10% Notes"). The 10% Notes bear
interest at the rate of 10% per annum on the principal sum outstanding
and mature on May 21, 1999 (maturity of $250,000 of the 10% note was
extended to September 1, 2000). Interest is payable semi-annually on
June 30 and December 31. The holders of the 10% Notes are entitled, at
their option at any time, to convert any or all of the original
principal amount of the 10% Notes into Common Stock of the Company at a
conversion price equal to the lessor of i) $3.00 or ii) 70% of the
offering price per share of the Company's Common Stock as established
in a public offering of the Company's Common Stock.
On January 26, 1998, Atlanta sold an aggregate of $265,000 of 8%
Convertible Secured Notes (the "8% Notes"). The 8% Notes bear interest
at the rate of 8% per annum on the principal sum outstanding and mature
on January 26, 2000. Interest is payable semi-annually on June 30 and
December 31. The holders of the 8% Notes are entitled, at their option
at any time, to convert any or all of the original principal amount of
the 8% Notes into Common Stock of the Company at a conversion price
equal to the lessor of i) $2.20 or ii) 70% of the offering price per
share of the Company's Common Stock as established in a public offering
of the Company's Common Stock. The 8% Note was not repaid (see Note
15).
F-21
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 10 - CONVERTIBLE NOTES PAYABLE (continued)
Following a public offering of the Company's Common Stock, if, at the
end of any rolling thirty (30) consecutive trading day period (the
"Measuring Period") the Common Stock has traded for each trading day
during the Measuring Period at 140% of the Public Offering price per
share or higher, the Company may, in its sole discretion, give notice
to a Note Holder of a mandatory conversion. The Holder shall, upon
receipt of such notice, surrender its Note to the Company and receive
in exchange those that number of shares of Common Stock as determined
by dividing the principal amount converted by the Conversion Price then
in effect at the time of conversion. No fractional shares or scrip
representing fractions of shares will be issued on such a conversion,
but the number of shares issuable shall be rounded to the nearest whole
share, with the fraction paid in cash at the discretion of the Company.
The Notes are secured by all assets held by Chicago and Atlanta, with
the exception of the point of sale computer systems.
NOTE 11 - WARRANTS
The Company has issued outstanding warrants to purchase up to 289,741
shares of common stock.
On February 4, 1997, the Company sold 100,000 shares of Common Stock,
along with a warrant to purchase up to 10,000 shares of Common Stock.
The warrant is exercisable on or before February 4, 2000 exercise price
of $1.00 per share (subject to customary anti-dilution adjustments).
The warrant was not exercised.
On June 6, 1997, the Company sold 100,000 shares of Common Stock, along
with a warrant to purchase up to 10,000 shares of Common Stock. The
warrant is exercisable on or before June 6, 2000 an exercise price of
$1.00 per share (subject to customary anti-dilution adjustments).
On May 21, 1997, in connection with the sale of $350,000 of 10%
Convertible Secured Notes described in Note 5, the Company issued
warrants to purchase up to 35,000 shares of Common Stock. The warrants
are exercisable on or before May 21, 2000 an exercise price of $1.00
per share (subject to customary anti-dilution adjustments).
F-22
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 11 - WARRANTS (continued)
On January 28, 1998, in connection with the sale of $265,000 of 8%
Convertible Secured Notes described in Note 5, the Company issued
warrants to purchase up to 26,500 shares of Common Stock. The warrants
are exercisable on or before January 26, 2000 at an exercise price of
$2.20 per share (subject to customary anti-dilution adjustments). The
warrant was not exercised. Fair value attributable to the warrants was
not material.
Pursuant to the terms of an Engagement Letter dated February 5, 1997,
between the Company and Commonwealth Associates ("CA"), whereby CA was
engaged to render corporate finance and other financial service
matters, the Company granted to CA warrants to purchase 208,241 shares
of Common Stock at an exercise price of $.01 per share.
NOTE 12 - SEGMENT INFORMATION
During 1999 and 1998, the Company had six reportable restaurant
segments and one management company;
a) SRC
b) LA (ceased operations - July 1999)
c) Chicago (ceased operations - July 1999)
d) Atlanta
e) Avenue A
f) 7 West (management company)
F-23
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 12 - SEGMENT INFORMATION (continued)
Soulfood Concepts, Inc. and Subsidiaries:
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------------
1999 1998
---------- ----------
<S> <C> <C>
Sales:
SRC $2,586,266 $2,681,064
LA 666,516 1,723,305
Chicago 754,985 2,110,756
Atlanta 2,216,290 1,992,512
7 West -- --
Avenue A 1,241,174 1,181,570
---------- ----------
Total sales $7,465,231 $9,689,207
========== ==========
Cost of sales:
SRC $ 683,623 $ 714,708
LA 215,631 557,569
Chicago 281,813 659,816
Atlanta 709,322 584,838
7 West -- --
Avenue A 344,261 333,111
---------- ----------
Total cost of sales $2,234,650 $2,850,042
========== ==========
Gross profit:
SRC $1,902,643 $1,966,356
LA 450,885 1,165,736
Chicago 473,172 1,450,940
Atlanta 1,506,968 1,407,674
7 West -- --
Avenue A 896,913 848,459
---------- ----------
Gross profit $5,230,581 $6,839,165
========== ==========
Restaurant operating expenses:
SRC $1,288,075 $1,260,038
LA 562,053 1,076,597
Chicago 696,029 1,316,579
Atlanta 1,354,048 1,140,267
7 West -- 69,864
Avenue A 756,158 719,262
Corporate -- (17,566)
---------- ----------
Total restaurant operating expenses $4,656,363 $5,565,041
========== ==========
</TABLE>
F-24
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 12 - SEGMENT INFORMATION (continued)
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Other corporate expenses:
SRC $ -- $ --
LA -- --
Chicago -- --
Atlanta -- --
7 West -- --
Avenue A -- --
Corporate 914,770 594,682
----------- -----------
Total other corporate expenses $ 914,770 $ 594,682
=========== ===========
Income (loss) from operations:
SRC $ 614,569 $ 706,318
LA (111,168) 89,139
Chicago (222,856) 134,361
Atlanta 152,920 267,407
7 West 24,823 (69,864)
Avenue A 115,930 129,197
Corporate (914,770) (577,116)
----------- -----------
(Loss) income from operations: $ (340,552) $ 679,442
=========== ===========
Identifiable assets:
SRC $ 35,237 $ 162,083
LA 513,966 553,143
Chicago 385,603 510,174
Atlanta 480,796 575,322
7 West 60 60
Avenue A 136,620 136,814
Corporate 148,146 113,927
----------- -----------
Total assets $ 1,700,428 $ 2,051,523
=========== ===========
Depreciation and amortization expense:
SRC $ 19,210 $ 52,752
LA 31,073 53,449
Chicago 75,415 101,769
Atlanta 126,892 76,294
7 West -- --
Avenue A 21,245 27,091
Corporate 14,204 9,330
----------- -----------
Total depreciation and amortization expense $ 288,039 $ 320,685
=========== ===========
</TABLE>
F-25
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 13 - STOCK PLANS
a) Incentive Plan
In 1997 the Company adopted the 1997 Stock Incentive Plan (the "1997
Plan") for officers, directors, employees, and consultants of the
Company or any of its subsidiaries. The 1997 Plan, as originally
adopted, authorizes the issuance of up to 500,000 shares of common
stock upon the exercise of stock options or in connection with the
issuance of restricted stock. The 1997 Plan authorizes the granting of
stock options and restricted options and restricted stock to employees,
officers, directors and consultants of the Company and its subsidiaries
and non-discretionary automatic awards of stock options to its
non-employee directors. Each option has a maximum term of ten years
from the date of the grant, subject to early termination. The Company
may determine the exercise price, provided that such price may not be
less than the fair market value of the common stock on the date of
grant. No options have been granted to date.
b) Restricted Stock
The Company may make grants of restricted stock for cash or other
consideration. The number of shares of common stock granted to each
grantee will be determined by the Company. Grants of restricted stock
will be made subject to such restrictions and conditions as the Company
may determine in its sole discretion, including periods of restriction
on transferability (the "Restriction Period") during which time the
grant may be required to be deposited with an escrow agent, if the
Company so determines. No grants of restricted stock have been issued
to date.
NOTE 14 - EARNINGS PER SHARE
Securities that could potentially dilute basic earnings per share in
the future that were not included in the computation of diluted
earnings per share because their effect would have been antidilutive
are as follows:
December 31,
-------------------------
1999 1998
---------- ----------
Warrants $ 289,741 $ 289,741
========== ==========
NOTE 15 - SUBSEQUENT EVENTS
The Company is in the process of negotiating the sale of the L.A.
store's lease, inventory and fixed assets. As of the date of this
report, there has been no commitment received by the Company for a
purchase.
The Company intends to reopen Chicago in the second or third quarter of
2000, once a restructuring of the Company's debt is finalized and new
personnel have been properly trained.
F-26
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 15 - SUBSEQUENT EVENTS (Continued)
The Company is presently negotiating a restructuring of its short-term
debt with two principle investors and the major stockholder. All
parties connected to this debt (short-term and related party) have
agreed not to move against the Company for non-payment of these loans
in the year 2000.
F-27
<PAGE>
WARRANT
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT HAS BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A PRIOR
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR A PRIOR OPINION OF COUNSEL TO THE COMPANY OR SUCH OTHER
COUNSEL AS SHALL BE REASONABLY SATISFACTORY TO THE COMPANY STATING THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR STATE SECURITIES LAWS.
SOULFOOD CONCEPTS, INC.
A Delaware Corporation
WARRANT TO PURCHASE 188,241 SHARES OF COMMON STOCK,
PAR VALUE $.003 PER SHARE
VOID AFTER 5:00 P.M. EASTERN TIME ON JULY 31, 2003
This certifies that, for value received, Commonwealth Associates (the
"Warrant Holder"), is entitled, subject to the terms and conditions hereof, to
purchase from Soulfood Concepts, Inc. (the "Company"), at any time or from time
to time subject to the vesting provisions of Section 1(b) below, but in any
event, on or before July 31, 2003, up to 188,241 shares of common stock of the
Company, par value $.003 per share ("Common Stock"), at an exercise price of
$.01 per share, subject to adjustment as hereinafter provided (the "Exercise
Price"), and to receive a certificate or certificates for the Common Stock so
purchased pursuant to and subject to the terms and conditions set forth below.
This Warrant is being purchased pursuant to the Agreement
dated February 10, 1997 between the Warrant Holder and the Company.
1. (a) This Warrant may be exercised in whole or in part at
any time, or from time to time, subject to the vesting provisions of Section
1(b) below, by delivery and surrender to the Company, subject to Section 2
below, of this Warrant and a subscription form substantially similar to that
attached to this Warrant as Exhibit A duly executed by the Warrant Holder at the
offices of the Company at 630 Ninth Avenue, Suite 310, New York, New York 10036,
accompanied by payment in full, in lawful money of the United States, or by
certified or bank check, or postal or express money order payable in United
States dollars to the order of the Company, of the Exercise Price for each share
of Common Stock as to which this Warrant is being exercised on or before 5:00
P.M. Eastern time on July 31, 2003, after which time this Warrant shall be void.
1
<PAGE>
(b) This Warrant shall vest at the rate of thirty-three and
one third percent (33 1/3%) on each vesting date indicated below and may be
exercised by the Warrant Holder with respect to the Common Stock as follows:
<TABLE>
<CAPTION>
Percentage
Exercisable of Exercise
Vesting Date: Total Option Grant Price Per Share
------------ ------------------ ---------------
<S> <C> <C>
July 31, 1999 33 1/3% (62,747) Shares $ .01
July 31, 2000 33 1/3% (62,747) Shares $ .01
January 31, 2001 33 1/3% (62,747) Shares $ .01
</TABLE>
2. (a) Upon the exercise of this Warrant, in full, the Company shall,
or shall direct its transfer agent to, issue to the Warrant Holder certificates
for the total number of shares of Common Stock issuable on the date of such
exercise pursuant to the terms of this Warrant in such denominations as are
required by the Warrant Holder, and the Company shall, or shall direct its
transfer agent to, thereupon deliver such certificates to or in accordance with
the instructions of the Warrant Holder.
(b) In the event that the Warrant Holder shall exercise this Warrant
with respect to less than all of the shares of Common Stock that may be
purchased under the terms of this Warrant, the Company shall, or shall direct
its transfer agent to, issue to the Warrant Holder certificates for the shares
of Common Stock for which this Warrant is being exercised in such denominations
as are required for delivery to the Warrant Holder, and the Company shall, or
shall direct its transfer agent to, thereupon deliver such certificates to or in
accordance with the instructions of the Warrant Holder, and the Company shall
issue to the Warrant Holder a new Warrant, duly executed by the Company, in form
and substance identical to this Warrant for the balance of the shares of Common
Stock then issuable pursuant to the terms of this Warrant.
(c) Notwithstanding anything to the contrary contained herein,
neither the Company nor its transfer agent shall be required to issue any
fraction of a share of Common Stock in connection with the exercise of this
Warrant, and the Company shall, upon exercise of this Warrant in whole or in
part, issue the largest number of whole shares of Common Stock to which this
Warrant is entitled upon such full or partial exercise and shall return to the
Warrant Holder the amount of the Exercise Price paid by the Warrant Holder in
respect of any fractional share.
3. The Warrant Holder, as such, shall not be entitled to vote or
receive dividends or be deemed the holder of shares of Common Stock for any
purpose, nor shall anything contained in this Warrant be construed to confer
upon the Warrant Holder, as such, any of the rights of a shareholder of the
Company including, without limitation, any right to vote, give or
2
<PAGE>
withhold consent to any action by the Company (whether upon the
recapitalization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings or other action
affecting shareholders, receive dividends or subscription rights, or otherwise,
until this Warrant shall have been exercised; provided, however, that any
exercise of this Warrant, in whole or in part, on any date when the stock
transfer books of the Company shall be closed shall constitute the person or
persons in whose name or names the certificate or certificates for such shares
of Common Stock are to be issued as the record holder or holders thereof for all
purposes at the opening of business on the next succeeding day on which such
stock transfer books are open (the "Opening Date"), and this Warrant shall not
be deemed to have been exercised, in whole or in part, as the case may be, until
the Opening Date for the purpose of determining entitlement to dividends on the
Common Stock, and that the Exercise Price of this Warrant shall be the Exercise
Price in effect at the Opening Date.
4. The Exercise Price shall be subject to adjustment as follows:
(a) In case the Company shall, after the date hereof, (i) pay a
stock dividend or make a distribution in shares of its capital stock (whether
shares of its Common Stock or of capital stock of any other class), (ii)
subdivide its outstanding shares of Common Stock, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares, or (iv) issue by
reclassification of its shares of Common Stock any shares of capital stock of
the Company, the Exercise Price in effect immediately prior to such action shall
be adjusted so that the holder of this Warrant thereafter surrendered for
exercise shall be entitled to receive an equivalent number of shares of capital
stock of the Company which he would have owned immediately following such action
had this Warrant been exercised immediately prior thereto. Any adjustment made
pursuant to this subsection (a) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
(b) Whenever the Exercise Price is adjusted as provided in Section
4(a) herein, the Company will promptly mail to the Warrant Holder a certificate
of the Company's Treasurer or Chief Financial Officer setting forth the Exercise
Price as so adjusted and a brief statement of facts accounting for such
adjustment.
(c) Irrespective of any adjustment or change in the Exercise Price
and the number of shares actually purchasable under this Warrant, this Warrant
may continue to express the Exercise Price per share as expressed upon this
Warrant when initially issued.
5. (a) In case of any consolidation with or merger of the Company with
or into another corporation (other than a merger or consolidation in which the
Company is the surviving or continuing corporation), or in case of any sale,
lease or conveyance to another corporation of the property and assets of any
nature of the Company as an entirety or substantially
3
<PAGE>
as an entirety, such successor, leasing, or purchasing corporation, as the case
may be, shall (i) execute with the Warrant Holder an agreement providing that
the Warrant Holder shall have the right thereafter to receive upon exercise or
conversion of this Warrant solely the kind and amount of shares of stock and
other securities, property, cash, or any combination thereof receivable upon
such consolidation, merger, sale, lease, or conveyance by a holder of the number
of shares of Common Stock for which this Warrant might have been exercised
immediately prior to such consolidation, merger, sale, lease, or conveyance
(including shares of Common Stock as to which this Warrant may become
exercisable in the future). Such agreement shall provide for adjustments which
shall be as nearly equivalent as practicable to the adjustments in Section 4.
(b) In case of any reclassification or change of the shares of Common
Stock issuable upon exercise of this Warrant (other than a change in par value
or from no par value to a specific par value, or as a result of a subdivision or
combination, but including any change in the shares into two or more classes or
series of shares), or in case of any consolidation or merger of another
corporation into the Company in which the Company is the continuing corporation
and in which there is a reclassification or change (including a change to the
right to receive cash or other property) of the shares of Common Stock (other
than a change in par value, or from no par value to a specified par value, or as
a result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), the Warrant Holder shall have the
right thereafter to receive upon exercise of this Warrant solely the kind and
amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such reclassification, change,
consolidation, or merger by a holder of the number of shares of Common Stock for
which this Warrant might have been exercised immediately prior to such
reclassification, change, consolidation, or merger (including shares of Common
Stock as to which this Warrant may become exercisable in the future).
Thereafter, appropriate provision shall be made for adjustments which shall be
as nearly equivalent as practicable to the adjustments in Section 4.
(c) The above provisions of this Section 5 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
(d) In case at any time the Company shall propose
(i) to pay any dividend or make any distribution on shares of
Common Stock in shares of Common Stock or make any other distribution (other
than regularly scheduled cash dividends which are not in a greater amount per
share than the most recent such cash dividend) to all holders of Common Stock;
or
(ii) to issue any rights, warrants, or other securities to all
holders of Common Stock entitling them to purchase any additional shares of
Common Stock or any other rights, warrants, or other securities; or
4
<PAGE>
(iii) to effect any reclassification or change of outstanding
shares of Common Stock, or any consolidation, merger, sale or lease of
substantially all of the assets, of the Company;
(iv) to effect any liquidation, dissolution, or winding-up of the
Company.
then, and in any one or more of such cases, the Company shall give written
notice thereof, by regular mail, postage prepaid, to the Holder at the Holder's
address as it shall appear in the Warrant Register, mailed at least 10 days
prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up.
6. If this Warrant is lost, stolen or destroyed, the Company
shall, subject to such reasonable terms as to indemnity as are commonly imposed
in respect of warrants which are not registered pursuant to the Act, issue a new
Warrant of like denomination and tenor as, and in substitution for, the Warrant
so lost, stolen or destroyed, and in the event this Warrant shall be mutilated,
the Company shall, upon the surrender hereof, issue a new Warrant of like
denomination and tenor as, and in substitution for, the Warrant so mutilated.
7. Notwithstanding anything to the contrary contained in this
Warrant, this Warrant and the shares of Common Stock underlying this Warrant may
not be sold, assigned or transferred at any time, in any manner or by any person
or entity unless this Warrant and such shares, as the case may be, are
registered pursuant to the Securities Act of 1933, as amended (the "Act"), and
under applicable state securities laws or an exemption from the Act and such
state securities laws is available in respect of the Warrant and such shares for
such sale, assignment or transfer, as the case may be. In addition, except
pursuant to a registration statement under the Act, this Warrant may not be
sold, assigned, or transferred at any time, in any manner or by any person or
entity unless prior to any transfer each transferee of this Warrant shall
execute an agreement reasonably satisfactory to the Company, pursuant to which
each transferee of this Warrant shall agree to receive and hold such securities
of the Company subject to the provisions hereof and the Lock-Up Agreement in
substantially the form of Exhibit B annexed hereto, and there shall be no
further transfer except in accordance with the provisions hereof.
5
<PAGE>
8. (a) Upon the exercise of this Warrant and the issuance of
shares pursuant to the terms hereto unless such Shares theretofore shall have
been registered under the Act, the Company shall instruct the Company's transfer
agent to issue stock certificates bearing the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SHARES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF A PRIOR EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR A PRIOR OPINION
OF COUNSEL TO THE COMPANY OR SUCH OTHER COUNSEL AS SHALL BE
REASONABLY SATISFACTORY TO THE COMPANY STATING THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR STATE
SECURITIES LAWS.
(b) Unless such Shares theretofore shall have been
registered under the Act, the Company shall impose a "stop transfer" instruction
with respect to the certificates representing the Common Stock issued upon the
exercise of this Warrant. Nothing in this Section 8, however, shall affect in
any way the Warrant Holder's obligations and agreements to comply with all
applicable securities laws upon resale of the Common Stock issued upon the
exercise of this Warrant.
9.
9.1 At any time after the date hereof, the Company shall, at
least twenty (20) days prior to the filing of any registration statement under
the Securities Act (other than a registration statement on Form S-8 or Form S-4
or any successor forms) relating to the public offering of its Common Stock by
the Company or any of its security holders, give written notice of such proposed
filing and of the proposed date thereof to the Warrant Holder and if, on or
before the fifteenth (15) day following the date on which such notice is given,
the Company shall receive a written request from the Warrant Holder requesting
that the Company include among the securities covered by such registration
statement some or all of the Registrable Shares held by the
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Warrant Holder, the Company shall, subject to Section 9.2 hereof, include such
Registrable Shares in such Registration Statement, if filed, so as to permit
such Registrable Shares to be sold or disposed of in the manner and on the terms
of the offering thereof set forth in such request. For purposes of this Article
9, the term "Registrable Shares" shall mean the Shares of Common Stock
underlying this Warrant.
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9.2 Except as otherwise provided herein, in connection with
any registration statement filed pursuant to Section 9.1 herein, the following
provisions shall apply:
(i) If such registration statement shall be filed
pursuant to Section 9.1 hereof and if the managing underwriter
advises the Company in writing that the inclusion in such
registration of some or all of the Registrable Shares sought
to be registered by such Warrant Holder creates a substantial
risk that the proceeds or price per share that will be derived
by the Company from such registration will be reduced or that
the number of shares to be registered at the insistence of
such Warrant Holder, plus the number of shares of Common Stock
sought to be registered by the Company and any other
stockholders of the Company is too large a number to be
reasonably sold, then, in such event, the number of shares
sought to be registered for the Company, the other
stockholders of the Company having registration rights, and
such Warrant Holder, as applicable, shall be reduced, pro rata
in proportion to the number of shares sought to be registered
to the number of shares recommended be sold by the managing
underwriter. In no event will any securities to be sold by the
Company be excluded from such registration by reason of any
underwriters' cut-backs unless the Company has agreed thereto
with the underwriter.
(ii) If requested by such Warrant Holder in
connection with a registration statement filed pursuant to
Section 9.1, the Company will enter into an underwriting
agreement with the underwriters for such offering, such
agreement to be reasonably satisfactory in form and substance
to the Company, such Warrant Holder and the underwriters, and
to contain such representations, warranties and covenants by
the Company and such other terms as are customarily contained
in such agreements used by the managing underwriter,
including, without limitation, restrictions of sales of Common
Stock or other securities by the Company as may be reasonably
agreed to between the Company and such underwriters, and
indemnities and rights to contributions to the effect and to
the extent provided in Sections 9.3 and 9.4 hereof. Such
Warrant Holder shall be a party to any underwriting agreement
relating to an underwritten sale of its Registrable Shares and
may, at their option, require that any or all of the
representations, warranties and covenants of the Company to or
for the benefit of such underwriters, shall also be made to
and for the benefit of such Warrant Holder. All
representations and warranties of such Warrant Holder shall be
made to or for the benefit of the Company.
(iii) The Company shall provide a transfer agent and
registrar (which may be the same entity) for the Registrable
Shares, not later than the effective date of such
registration.
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(iv) All expenses in connection with the preparation
and filing of a registration statement filed pursuant to
Section 9.1 shall be borne solely by the Company, except for
any transfer taxes payable with respect to the disposition of
such Registrable Shares, and any underwriting discounts and
selling commissions applicable solely to such sales of
Registrable Shares, which shall be paid by such Warrant
Holder, severally.
(v) The Company shall use its best efforts to cause
all of the shares of Common Stock covered by such registration
statement to be listed on NASDAQ or on such other securities
exchange as such shares may then be listed, on which similar
shares are listed for trading, if the listing of such
registered shares is permitted by such exchange.
(vi) Following the effective date of such
registration statement, the Company shall, upon the request of
such Warrant Holder, forthwith supply such number of
prospectuses (including exhibits thereto and preliminary
prospectuses and amendments and supplements thereto) meeting
the requirements of the Securities Act and such other
documents as are referred to in the prospectus as shall be
reasonably requested by such Warrant Holder to permit such
Warrant Holder to make a public distribution of their
Registrable Shares.
(vii) The Company shall use its best efforts to
register the Registrable Shares covered by any such
registration statements filed pursuant to Section 9.1 under
such securities or Blue Sky laws in addition to those in which
the Company would otherwise sell Registrable Shares, as such
Warrant Holder shall request, except that neither the Company
nor such Warrant Holder shall for any such purpose be required
to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any
jurisdiction where it is not so qualified. The fees and
expenses incurred in connection with such registration shall
be borne by the Company.
(viii) Such Warrant Holder shall cooperate fully with
the Company and provide the Company with all information
reasonably requested by the Company for inclusion in the
registration statement or as necessary to comply with the
Securities Act. The Company shall cooperate fully with any
underwriters selected by such Warrant Holder and counsel to
such underwriters, and shall provide reasonable and customary
access to the Company's books and records (upon receipt from
such underwriters of customary confidentiality agreements) in
order to facilitate such underwriters' review and examination
of the Company in connection with such underwriting.
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(ix) The Company shall notify such Warrant Holder, at
any time after effectiveness when a prospectus relating
thereto is required to be delivered under the Securities Act,
of the happening of any event as a result of which the
prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in
light of circumstances then existing (and upon receipt of such
notice and until a supplemented or amended prospectus as set
forth below is available, such Warrant Holder shall not offer
or sell any securities covered by such registration statement
and shall return all copies of such prospectus to the Company
if requested to do so by it), and at the request of such
Warrant Holder prepare and furnish such Warrant Holder as
promptly as practicable, but in any event within 30 days, a
reasonable number of copies of a supplement to or an amendment
of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus
shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances then existing.
(x) The Company shall furnish to such Warrant Holder
at the time of the registration of the Registrable Shares, a
signed copy of an opinion of the Company's regular in-house or
outside general counsel, or other counsel of the Company's
selection reasonably acceptable to, and which opinion shall be
reasonably satisfactory in form and substance to, such Warrant
Holder to the effect that: (a) a registration statement
covering the Registrable Shares has been filed with the
Commission under the Securities Act and has been declared
effective by order of the Commission, (b) said registration
statement and prospectus contained therein comply as to form
in all material respects with the requirements of the
Securities Act, and nothing has come to such counsel's
attention (after due inquiry) which would cause such counsel
to believe that either said registration statement or such
prospectus (other than the financial statements contained
therein, as to which such counsel need not express any
opinion) contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein
or necessary to make the statements therein (in the case of
such prospectus, in light of the circumstances under which
they were made) not misleading, (c) after due inquiry such
counsel knows of no legal or governmental proceedings required
to be described in such registration statement or prospectus
which are not described as required, or of any contracts or
documents of a character required to be described in such
registration statement or such prospectus to be filed as an
exhibit to such registration statement or to be incorporated
by reference therein which are not described and filed as
required and (d) to such counsel's knowledge, no stop order
has been issued by the Commission suspending the effectiveness
of such registration
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statement; it being understood that such opinion may contain
such qualifications and assumptions as are customary in the
rendering of similar opinions, and that such counsel may rely,
as to all factual matters treated therein, on certificates of
the Company (copies of which shall be delivered to such
Warrant Holder).
(xi) The Company will use its best efforts to comply
with the reporting requirements of Sections 13 and 15(d) of
the Securities Exchange Act of 1934, as amended, to the extent
it shall be required to do so pursuant to such sections, and
at all times while so required shall use its best efforts to
comply with all other public information reporting
requirements of the Commission (including reporting
requirements which serve as a condition to utilization of Rule
144 promulgated by the Commission under the Securities Act)
from time to time in effect and relating to the availability
of an exemption from the Securities Act for the sale of any of
the Company's Common Stock held by such Warrant Holder. The
Company will also cooperate with such Warrant Holder in
supplying such information and documentation as may be
necessary for such Warrant Holder to complete and file any
information reporting forms presently or hereafter required by
the Commission as a condition to the availability of an
exemption from the Securities Act for the sale of any of the
Company's Common Stock held by such Warrant Holder.
9.3
(i) In the event of the registration of any
Registrable Shares of the Company under the Securities Act
pursuant to the provisions of Section 9.1, the Company agrees
to indemnify and hold harmless such Warrant Holder, each
underwriter, broker or dealer, if any, and their respective
directors, officers and employees, of such Registrable Shares,
and each other person, if any, who controls the holders of the
Registrable Shares (or a permitted assignee thereof), such
underwriter, broker or dealer within the meaning of the
Securities Act, from and against any and all losses, claims,
damages or liabilities (or actions in respect thereof), joint
or several, to which such Warrant Holder (and as applicable)
its directors, officers or employees, or such underwriter,
broker or dealer or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any
registration statement under which the Registrable Shares were
registered under the Securities Act, any preliminary
prospectus or final prospectus relating to such Registrable
Shares, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or
any violation by the Company of any rule or
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regulation under the Securities Act applicable to the Company
or relating to any action or inaction required by the Company
in connection with any such registration and will reimburse
such Warrant Holder, each such underwriter, broker or dealer
and controlling person, and their respective directors,
officers or employees, for any legal or other expenses
reasonably incurred by such Warrant Holder or such
underwriter, broker or dealer or controlling person in
connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that
the Company will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such
registration statement, such preliminary prospectus, such
final prospectus or such amendment or supplement thereto in
reliance upon and in conformity with information furnished in
writing to the Company by such Warrant Holder's and as
applicable, such Warrant Holder's directors, officers or
employees, or such underwriter, broker, dealer or controlling
person for use in the preparation thereof. Such indemnity
shall remain in full effect irrespective of any investigation
by any person indemnified above.
(ii) In the event of the registration of any
Registrable Shares of such Warrant Holder under the Securities
Act for sale pursuant to the provisions of this Agreement, the
Warrant Holder agrees, to indemnify and hold harmless the
Company, its directors, officers and employees, from and
against any losses, claims, damages or liabilities, joint or
several, to which the Company, its directors, officers or
employees, may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration
statement under which such Registrable Shares were registered
under the Securities Act, any preliminary pros pectus or final
prospectus relating to such Registrable Shares, or any
amendment or supplement thereto, or arise out of or are based
upon omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, which untrue statement or
alleged untrue statement or omission or alleged omission was
made therein in reliance upon and in conformity with written
information furnished to the Company by such Warrant Holder
for use in the preparation thereof. Such indemnity shall
remain in full effect irrespective of any investigation by any
person indemnified above.
(iii) Promptly after receipt by a person entitled to
indemnification under this Section 9.3 (for purposes of this
Section 9.3, an "Indemnified Party") of notice of the
commencement of any action or claim relating to any
registration statement filed under Section 9.1 or as to which
indemnity may be sought hereunder, such
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Indemnified Party will, if a claim for indemnification
hereunder in respect thereof is to be made against any other
party hereto (for purposes of this Section 9.3, an
"Indemnifying Party"), give written notice to such
Indemnifying Party of the commencement of such action or
claim, but the failure to so notify the Indemnifying Party
will not relieve it from any liability which it may have to
any Indemnifying Party otherwise than pursuant to the
provisions of this Section 9.3 and shall also not relieve the
Indemnifying Party of its obligations under this Section 9.3,
except to the extent that the Indemnifying Party is damaged
solely as a result of the failure to give timely notice. In
case any such action is brought against an Indemnified Party,
and it notifies an Indemnifying Party of the commencement
thereof, the Indemnifying Party will be entitled (at its own
expense) to participate in and, to the extent that it may
wish, jointly with any other Indemnifying Party similarly
notified, to assume the defense with counsel satisfactory to
such Indemnified Party, of such action and/or to settle such
action and, after notice from the Indemnifying Party to such
Indemnified Party of its election so to assume the defense
thereof, the Indemnifying Party will not be liable to such
Indemnified Party for any legal or other expenses subsequently
incurred by such Indemnified Party in connection with the
defense thereof, other than the reasonable cost of
investigation. If in an Indemnified Party's reasonable
judgment (which is based on the written opinion of its
counsel) a conflict of interest between the Indemnified
Parties and Indemnifying Parties exists in respect of a claim
or if the Indemnifying Party refuses to participate in and to
assume the defense of any action brought against an
Indemnified Party, the Indemnified Party may assume the
defense of such claim or action with counsel of its choosing
which shall not relieve the Indemnifying Party of its
obligations under the preceding subdivisions of this Section
9. No Indemnifying Party and no Indemnified Party shall enter
into any settlement agreement which would impose any liability
on such other party or parties without the prior written
consent of such other party or parties.
(iv) Notwithstanding the foregoing provisions of this
Section 9.3, in no event shall the Warrant Holder be liable
for an amount in excess of the net proceeds received by the
Warrant Holder from the sale of the Registrable Shares.
9.4 If the indemnification provided for in Section 9.3 hereof
is unavailable to the Indemnified Party in respect of any losses, claims,
damages or liabilities referred to herein, then each such Indemnifying Party, in
lieu of indemnifying such Indemnified Party, shall contribute to the amount paid
or payable by such Indemnified Party as a result of such losses, claims, damages
or liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and such Warrant Holder from the offering of
the shares of Common Stock, or if such allocation is not permitted by applicable
law, in such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company and such Warrant Holder in
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connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations and (ii) in such proportion as is appropriate to reflect the
relative fault of the Company and of such Warrant Holder in connection with such
statements or omissions, as well as any other relevant equitable considerations.
In no event shall the obligation of any Indemnifying Party to
contribute under this Section 9.4 exceed the amount that such Indemnifying Party
would have been obligated to pay by way of indemnification if the
indemnification provided for under Section 9.3 hereof had been available under
the circumstances.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
9.5 The indemnity and contribution agreements contained in
Sections 9.3 and 9.4 shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement or any underwriting
agreement, (ii) any investigation made by or on behalf of any Indemnified Party
or by or on behalf of the Company and (iii) the consummation of the sale or
successive resales of the Registrable Shares.
10. The validity, interpretation and performance of this
Warrant shall be governed by the laws of the State of New York without giving
effect to its conflict of laws rules.
11. This Warrant cannot be amended, supplemented or changed,
and no provision hereof can be waived, except by a written instrument making
specific reference to this Warrant and signed by the party against whom
enforcement of any such amendment, supplement, modification or waiver is sought.
The Exhibit to this Warrant is incorporated herein by reference to the same
extent as if set forth herein in full. A waiver of any right derived hereunder
by the Warrant Holder shall not be deemed a waiver of any other right derived
hereunder.
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12. This Warrant shall be binding upon the Company and shall
inure to the benefit of the Warrant Holder, and their respective successors and
permitted assigns.
SOULFOOD CONCEPTS, INC.
By: /s/ Brian Hinchcliffe
--------------------------
Name: Brian Hinchcliffe
Title: President
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EXHIBIT A
SUBSCRIPTION FORM
(To be executed by the Warrant Holder to exercise the Warrant in whole or in
part)
TO: SOULFOOD CONCEPTS, INC.
The undersigned, whose Social Security or Tax Identification Number is
__, hereby irrevocably elects the right of purchase represented by the within
Warrant for, and to purchase thereunder, ____________ shares of Common Stock and
tenders payment herewith to the order of Soulfood Concepts, Inc. (the "Company")
in the amount of $__. The undersigned requests that certificates for such shares
of Common Stock be issued in the name of, and delivered to:
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and, if said number of shares of Common Stock shall not be all the shares of the
Common Stock purchasable thereunder, then a new Warrant for the balance of the
remaining shares of Common Stock purchasable thereunder be registered in the
name of, and delivered to, the undersigned at the address stated below.
Address:
Dated:
Warrant Holder: Signature Guaranteed:
By:____________________________ ___________________________
<PAGE>
NOTE PURCHASE AGREEMENT
NOTE PURCHASE AGREEMENT, dated as of January 26, 1998, among
each of the Purchasers parties set forth on Exhibit A attached hereto (each, a
"Purchaser" and collectively, the "Purchasers") and Soulfood Concepts, Inc. (the
"Company").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, each Purchaser desires to purchase, severally and not
jointly, the principal amount of the Company's 8% convertible secured notes,
substantially in the form of Exhibit B attached hereto (the "Notes") set forth
opposite such Purchaser's name on Exhibit A attached hereto, together with a
warrant, substantially in the form of Exhibit C attached hereto (the "Warrant")
to purchase up to that number of shares of the Company's common stock, par value
$.003 per share (the "Common Stock"), as set forth opposite such Purchaser's
name on Exhibit A attached hereto; and
WHEREAS, the Company desires to issue the Notes and Warrants
to the Purchasers in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein set forth, the parties hereto agree as follows:
ARTICLE I
Sale and Exchange
2 Sale of the Notes and Warrants. The Company hereby sells, conveys,
transfers and delivers to each Purchaser, severally and not jointly, and each
Purchaser, severally and not jointly, hereby purchases and accepts, the Notes
and the Warrants, in the amounts set forth on Exhibit A attached hereto, in
accordance with the terms hereof.
2.1 Consideration. In reliance upon the representations,
warranties, covenants and agreements contained herein, subject to the terms and
conditions hereof (including, without limitation, full performance by the
Company of its obligations pursuant to Section 1.4), and in consideration of the
sale, conveyance, transfer and delivery of the Notes and the Warrants pursuant
to Section 1.1, each Purchaser, severally and not jointly, shall deliver to the
Company at the Closing described in Section 1.3 hereof the principal amount of
the Notes purchased by such Purchaser as set forth on Exhibit A attached hereto
in immediately available funds.
<PAGE>
2.2 Closing. The closing of the purchase of the Notes and
Warrants (the "Closing") shall take place simultaneously with the execution
hereof, unless the parties shall otherwise agree, at the offices of Kane
Kessler, P.C., 1350 Avenue of the Americas, New York, New York 10019 on January
26, 1998 at 10:00 A.M. or at such other place or time as the parties may agree
(the "Closing Date").
2.3 Deliveries by the Company. At the Closing, the Company
shall deliver to each Purchaser (a) the Note purchased by such Purchaser, (b)
the Warrant purchased by such Purchaser, (c) a certificate of good standing of
the Company from the Secretary of State of the State of Delaware, and (d) an
officer's certificate of the Company, containing true and accurate copies of the
resolutions adopted by the Company authorizing the transactions contemplated
hereby.
2.4 Deliveries by the Purchaser. At the Closing, each
Purchaser, severally and not jointly, shall deliver to the Company the principal
amount of the Notes purchased by such Purchaser as set forth on Exhibit A
attached hereto in immediately available funds.
2.5 Further Assurances. In addition to the other obligations
required to be performed by the Company and the Purchasers hereunder, each of
the Company and the Purchasers agrees that it shall, at the Closing and at any
time, and from time to time thereafter, without cost to the other, execute,
acknowledge and deliver such instruments and documents, and take such other
actions, as may reasonably be requested of it by the other in order to
effectively vest in the Purchasers good and marketable title to the Note and
Warrant purchased by such Purchaser, free and clear of all liens, pledges, or
encumbrances.
ARTICLE II
Purchaser's Representations and Warranties
Each Purchaser, severally and not jointly, hereby represents
and warrants to the Company that:
3 Binding Agreement. The Purchaser has full power, authority and legal
capacity to (i) execute, deliver and perform this Agreement and (ii) consummate
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Purchaser. This Agreement constitutes the legal, valid and
binding obligation of the Purchaser enforceable against it in accordance with
its terms.
2
<PAGE>
3.1 Acquisition of Note and Warrant for Own Account;
Restrictions on Transfer. The Purchaser is acquiring the Note and the Warrant
for investment and not with a view to the sale or distribution thereof, and is
acquiring such Note and Warrant for its own account and not on behalf of others
and has not granted any other person any right or option or any participation or
beneficial interest in any of the Note or the Warrant. The Purchaser
acknowledges its understanding that the Note and the Warrant constitute
restricted securities within the meaning of Rule 144 of the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), and that none of such Note or the Warrant may be
sold except pursuant to an effective registration statement under the Securities
Act or in a transaction exempt from registration under the Securities Act, and
acknowledges that it understands the meaning and effect of such restriction. The
Purchaser has sufficient knowledge and experience in financial and business
matters so that it is capable of evaluating the risks and merits of the
acquisition of the Note and the Warrant. The Purchaser is aware of and has
investigated the Company's business, management and financial condition, has had
a satisfactory opportunity to ask questions of, and receive answers from, agents
and employees of the Company concerning the business of the Company and the
terms and conditions of this transaction and has had access to such other
information about the Company as the Purchaser deemed necessary or desirable to
reach an informed and knowledgeable decision to purchase the Note and the
Warrant hereunder. The Purchaser further acknowledges that the Company is not
currently subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended.
3.2 Accreditation. The Purchaser is an accredited investor
within the meaning of Rule 501 of the rules and regulations of the Commission
promulgated under the Securities Act, and has the financial ability to bear the
economic risk of its acquisition of the Note and the Warrant.
ARTICLE III
Company's Representations, Warranties and Covenants
The Company hereby represents and warrants to each Purchaser,
and covenants and agrees with each Purchaser, that:
4 Validity and Binding Agreement. The Company has full power, authority and
legal capacity to (i) execute, deliver and perform this Agreement and (ii)
consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Company. This Agreement constitutes the legal,
valid and binding obligation of the Company, enforceable against it in
accordance with its terms.
3
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4.1 Organization and Standing; Corporate Power. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company has the corporate power and authority
to own and operate its properties, to carry on its business as now conducted and
to enter into this Agreement and carry out the transactions contemplated hereby.
4.2 Capitalization.
(i) On the date of this Agreement, the authorized
capital stock of the Company consists of 14,500,000 shares of Common Stock, of
which 3,139,816 shares are issued and outstanding and 500,000 shares of
preferred stock, par value $.003 per share, none of which are issued and
outstanding.
(ii) The shares of Common Stock into which the Notes
are convertible (the "Note Shares") and the shares of Common Stock into which
the Warrants are exercisable (the "Warrant Shares") are duly reserved for
issuance, and upon issuance thereof in accordance with the terms and provisions
of the Note and the Warrant, respectively, the Note Shares and the Warrant
Shares will be duly and validly issued, fully paid and non-assessable.
4.3 Use of Proceeds of Financing. Upon the completion by the
Company of an equity financing which results in net proceeds to the Company of
at least $2,000,000, the Company shall use such net proceeds to fully, finally
and indefeasibly pay all of its obligations to the Purchasers evidenced hereby
and by the Notes, Warrants and all other agreements, documents and instruments
executed in connection herewith and therewith.
ARTICLE IV
Registration Rights
5 Demand Registration Rights. Beginning on January 1, 1999, the Company, upon
written demand of the Purchasers holding in the aggregate a majority of the
principal amount of Notes outstanding, agrees to register on two occasions, all
or any portion of the Note Shares or the Warrant Shares (collectively, the
"Registrable Shares"). Such Purchasers have the right to request in writing that
the Company effect the registration under the Securities Act of the Registrable
Shares, and the Company shall, as expeditiously as possible, use its best
efforts to effect the registration, on a form of general use under the
Securities Act, of all the Registrable Shares which the Company has been
requested to register. Notwithstanding the foregoing, if the Company shall
furnish to the Purchasers requesting a registration under this Section 4.1 a
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certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company it would be
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than 90 days after receipt
by the Purchasers of such certificate; provided, however, that the Company may
not utilize this right more than once in any 12-month period. In addition, the
Company shall not be obligated to effect, or to take any action to effect, any
registration pursuant to this Section 4.1 during the period starting with the
date 30 days prior to the Company's good faith estimate of the date of filing
of, and ending on a date 120 days after the effective date of, a registration
subject to Section 4.2 hereto; provided that the Company is actively employing
in good faith its best efforts to cause such registration statement to be filed
and thereafter to become effective.
5.1 "Piggyback" Registration Rights. At any time after the
Closing Date, the Company shall, at least thirty (30) days prior to the filing
of any registration statement under the Securities Act (other than a
registration statement on Form S-8 or Form S-4 or any successor forms) relating
to the public offering of its Common Stock by the Company or any of its security
holders, give written notice of such proposed filing and of the proposed date
thereof to the Purchasers, and if, on or before the twentieth (20th) day
following the date on which such notice is given, the Company shall receive a
written request from the Purchasers requesting that the Company include among
the securities covered by such registration statement some or all of the
Registrable Shares held by the Purchasers, the Company shall, subject to Section
4.3 hereof, include such the Registrable Shares in such registration statement,
if filed, so as to permit such Registrable Shares to be sold or disposed of in
the manner and on the terms of the offering thereof set forth in such request.
5.2 Terms and Conditions of Registration. Except as otherwise
provided herein, in connection with any registration statement filed pursuant to
Sections 4.1 or 4.2 herein, the following provisions shall apply:
(i) If such registration statement shall be filed
pursuant to Section 4.2 hereof and if the managing underwriter advises the
Company in writing that the inclusion in such
5
<PAGE>
registration of some or all of the Registrable Shares sought to be registered by
such Purchasers creates a substantial risk that the proceeds or price per share
that will be derived from such registration will be reduced or that the number
of shares to be registered at the insistence of such Purchasers, plus the number
of shares of Common Stock sought to be registered by the Company and any other
stockholders of the Company is too large a number to be reasonably sold, then,
in such event, the number of shares sought to be registered for the Company, the
other stockholders of the Company having registration rights, and such
Purchasers, as applicable, shall be reduced, pro rata in proportion to the
number of shares sought to be registered to the number of shares recommended be
sold by the managing underwriter. In no event will any securities to be sold by
the Company be excluded from such registration by reason of any underwriters'
cut-backs unless the Company has agreed thereto with the underwriter.
(ii) If requested by such Purchasers in connection
with a registration statement filed pursuant to Section 4.1, the Company will
enter into an underwriting agreement with the underwriters for such offering,
such agreement to be reasonably satisfactory in form and substance to the
Company, such Purchasers and the underwriters, and to contain such
representations, warranties and covenants by the Company and such other terms as
are customarily contained in such agreements used by the managing underwriter,
including, without limitation, restrictions of sales of Common Stock or other
securities by the Company as may be reasonably agreed to between the Company and
such underwriters, and indemnities and rights to contributions to the effect and
to the extent provided in Sections 4.4 and 4.5 hereof. Such Purchasers shall be
a party to any underwriting agreement relating to an underwritten sale of its
Registrable Shares and may, at their option, require that any or all of the
representations, warranties and covenants of the Company to or for the benefit
of such underwriters, shall also be made to and for the benefit of such
Purchasers. All representations and warranties of such Purchasers shall be made
to or for the benefit of the Company.
(iii) The Company shall provide a transfer agent and
registrar (which may be the same entity) for the Registrable Shares, not later
than the effective date of such registration.
(iv) All expenses in connection with the preparation
and filing of a registration statement filed pursuant to Sections 4.1 or 4.2
shall be borne solely by the Company, except for any transfer taxes payable with
respect to the disposition of such Registrable Shares, and any underwriting
discounts and selling commissions applicable solely to such sales of Registrable
Shares, which shall be paid by such Purchasers, severally.
(v) The Company shall use its best efforts to cause
all of the shares of Common Stock covered by such registration statement to be
listed on NASDAQ or on such other securities exchange as such shares may then be
listed, on which similar shares are listed for trading, if the listing of such
registered shares is permitted by such exchange.
(vi) Following the effective date of such
registration statement, the Company shall, upon the request of such Purchasers,
forthwith supply such number of prospectuses (including exhibits thereto and
preliminary prospectuses and amendments and
6
<PAGE>
supplements thereto) meeting the requirements of the Securities Act and such
other documents as are referred to in the prospectus as shall be reasonably
requested by such Purchasers to permit such Purchasers to make a public
distribution of their Registrable Shares.
(vii) Such Purchasers may select the underwriter or
underwriters, if any, who are to undertake any offering and distribution of the
Registrable Shares to be included in a registration statement filed under the
provisions of Section 4.1 hereof, subject to the Company's prior approval of the
underwriter, which approval shall not be unreasonably withheld.
(viii) The Company shall use its best efforts to
register the Registrable Shares covered by any such registration statements
filed pursuant to Section 4.1 or 4.2 under such securities or Blue Sky laws in
addition to those in which the Company would otherwise sell Registrable Shares,
as such Purchasers shall request, except that neither the Company nor such
Purchasers shall for any such purpose be required to execute a general consent
to service of process or to qualify to do business as a foreign corporation in
any jurisdiction where it is not so qualified. The fees and expenses incurred in
connection with such registration shall be borne by the Company.
(ix) Such Purchasers shall cooperate fully with the
Company and provide the Company with all information reasonably requested by the
Company for inclusion in the registration statement or as necessary to comply
with the Securities Act. The Company shall cooperate fully with any underwriters
selected by such Purchasers and counsel to such underwriters, and shall provide
reasonable and customary access to the Company's books and records (upon receipt
from such underwriters of customary confidentiality agreements) in order to
facilitate such underwriters' review and examination of the Company in
connection with such underwriting.
(x) The Company shall notify such Purchasers, at any
time after effectiveness when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of circumstances then existing (and upon receipt of such
notice and until a supplemented or amended prospectus as set forth below is
available, such Purchasers shall not offer or sell any securities covered by
such registration statement and shall return all copies of such prospectus to
the Company if requested to do so by it), and at the request of such Purchasers
prepare and furnish such Purchasers as promptly as practicable, but in any event
within 30 days, a reasonable number of copies of a supplement to or an amendment
of such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be
7
<PAGE>
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing.
(xi) The Company shall furnish to such Purchasers at
the time of the registration of the Registrable Shares, a signed copy of an
opinion of the Company's regular in- house or outside general counsel, or other
counsel of the Company's selection reasonably acceptable to, and which opinion
shall be reasonably satisfactory in form and substance to, such Purchasers to
the effect that: (a) a registration statement covering the Registrable Shares
has been filed with the Commission under the Securities Act and has been
declared effective by order of the Commission, (b) said registration statement
and prospectus contained therein comply as to form in all material respects with
the requirements of the Securities Act, and nothing has come to such counsel's
attention (after due inquiry) which would cause such counsel to believe that
either said registration statement or such prospectus (other than the financial
statements contained therein, as to which such counsel need not express any
opinion) contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein (in the case of such prospectus, in light of the circumstances under
which they were made) not misleading, (c) after due inquiry such counsel knows
of no legal or governmental proceedings required to be described in such
registration statement or prospectus which are not described as required, or of
any contracts or documents of a character required to be described in such
registration statement or such prospectus to be filed as an exhibit to such
registration statement or to be incorporated by reference therein which are not
described and filed as required and (d) to such counsel's knowledge, no stop
order has been issued by the Commission suspending the effectiveness of such
registration statement; it being understood that such opinion may contain such
qualifications and assumptions as are customary in the rendering of similar
opinions, and that such counsel may rely, as to all factual matters treated
therein, on certificates of the Company (copies of which shall be delivered to
such Purchasers).
(xii) The Company will use its best efforts to comply
with the reporting requirements of Sections 13 and 15(d) of the Securities
Exchange Act of 1934, as amended, to the extent it shall be required to do so
pursuant to such sections, and at all times while so required shall use its best
efforts to comply with all other public information reporting requirements of
the Commission (including reporting requirements which serve as a condition to
utilization of Rule 144 promulgated by the Commission under the Securities Act)
from time to time in effect and relating to the availability of an exemption
from the Securities Act for the sale of any of the Company's Common Stock held
by such Purchasers. The Company will also cooperate with such Purchasers in
supplying such information and documentation as may be necessary for such
Purchasers to complete and file any information reporting forms presently or
hereafter required by the Commission as a condition to the availability of an
exemption from the Securities Act for the sale of any of the Company's Common
Stock held by such Purchasers.
8
<PAGE>
5.3 Indemnification.
(i) In the event of the registration of any
Registrable Shares of the Company under the Securities Act pursuant to the
provisions of Sections 4.1 or 4.2, the Company agrees to indemnify and hold
harmless such Purchasers, each underwriter, broker or dealer, if any, and their
respective directors, officers and employees, of such Registrable Shares, and
each other person, if any, who controls the holders of the Registrable Shares
(or a permitted assignee thereof), such underwriter, broker or dealer within the
meaning of the Securities Act, from and against any and all losses, claims,
damages or liabilities (or actions in respect thereof), joint or several, to
which such Purchasers (and as applicable) its directors, officers or employees,
or such underwriter, broker or dealer or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which the Registrable Shares were registered
under the Securities Act, any preliminary prospectus or final prospectus
relating to such Registrable Shares, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Company of any rule
or regulation under the Securities Act applicable to the Company or relating to
any action or inaction required by the Company in connection with any such
registration and will reimburse such Purchasers, each such underwriter, broker
or dealer and controlling person, and their respective directors, officers or
employees, for any legal or other expenses reasonably incurred by such
Purchasers or such underwriter, broker or dealer or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement, such
preliminary prospectus, such final prospectus or such amendment or supplement
thereto in reliance upon and in conformity with written information furnished to
the Company by such Purchasers and as applicable, such Purchasers' directors,
officers or employees, or such underwriter, broker, dealer or controlling person
for use in the preparation thereof. Such indemnity shall remain in full effect
irrespective of any investigation by any person indemnified above.
(ii) In the event of the registration of any
Registrable Shares of such Purchasers under the Securities Act for sale pursuant
to the provisions of this Agreement, such Purchasers agree, severally and not
jointly, to indemnify and hold harmless the Company, its directors, officers and
employees, from and against any losses, claims, damages or liabilities, joint or
several, to which the Company, its directors, officers or employees, may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable Shares
9
<PAGE>
were registered under the Securities Act, any preliminary prospectus or final
prospectus relating to such Registrable Shares, or any amendment or supplement
thereto, or arise out of or are based upon omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, which untrue statement or alleged untrue
statement or omission or alleged omission was made therein in reliance upon and
in conformity with written information furnished to the Company by such
Purchasers for use in the preparation thereof. Such indemnity shall remain in
full effect irrespective of any investigation by any person indemnified above.
(iii) Promptly after receipt by a person entitled to
indemnification under this Section 4.4 (for purposes of this Section 4.4, an
"Indemnified Party") of notice of the commencement of any action or claim
relating to any registration statement filed under Sections 4.1 or 4.2 or as to
which indemnity may be sought hereunder, such Indemnified Party will, if a claim
for indemnification hereunder in respect thereof is to be made against any other
party hereto (for purposes of this Section 4.4, an "Indemnifying Party"), give
written notice to such Indemnifying Party of the commencement of such action or
claim, but the failure to so notify the Indemnifying Party will not relieve it
from any liability which it may have to any Indemnifying Party otherwise than
pursuant to the provisions of this Section 4.4 and shall also not relieve the
Indemnifying Party of its obligations under this Section 4.4, except to the
extent that the Indemnifying Party is damaged solely as a result of the failure
to give timely notice. In case any such action is brought against an Indemnified
Party, and it notifies an Indemnifying Party of the commencement thereof, the
Indemnifying Party will be entitled (at its own expense) to participate in and,
to the extent that it may wish, jointly with any other Indemnifying Party
similarly notified, to assume the defense with counsel satisfactory to such
Indemnified Party, of such action and/or to settle such action and, after notice
from the Indemnifying Party to such Indemnified Party of its election so to
assume the defense thereof, the Indemnifying Party will not be liable to such
Indemnified Party for any legal or other expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof, other than the
reasonable cost of investigation; provided, however, that no Indemnifying Party
and no Indemnified Party shall enter into any settlement agreement which would
impose any liability on such other party or parties without the prior written
consent of such other party or parties.
(iv) Notwithstanding the foregoing provisions of this
Section 4.4, in no event shall any such Purchaser be liable for an amount in
excess of the net proceeds received by such Purchaser from the sale of the
Registrable Shares.
5.4 Contribution. If the indemnification provided for in
Section 4.4 hereof is unavailable to the Indemnified Party in respect of any
losses, claims, damages or liabilities referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages or liabilities (i) as between the Company and
such Purchasers on the one
10
<PAGE>
hand and the underwriters on the other, in such proportion as is appropriate to
reflect the relative benefits received by the Company and such Purchasers on the
one hand and the underwriters on the other from the offering of the shares of
Common Stock, or if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and such Purchasers on the one hand and of the
underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations and (ii) as between the Company on the one
hand and such Purchasers on the other, in such proportion as is appropriate to
reflect the relative fault of the Company and of such Purchasers in connection
with such statements or omissions, as well as any other relevant equitable
considerations.
In no event shall the obligation of any Indemnifying
Party to contribute under this Section 4.5 exceed the amount that such
Indemnifying Party would have been obligated to pay by way of indemnification
if the indemnification provided for under Section 4.4 hereof had been available
under the circumstances.
The amount paid or payable by an Indemnified Party as a result
of the losses, claims, damages and liabilities shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses incurred
by such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 4.5, no
underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Shares purchased by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
5.5 Survival. The indemnity and contribution agreements
contained in Sections 4.4 and 4.5 shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement or any underwriting
agreement, (ii) any investigation made by or on behalf of any Indemnified Party
or by or on behalf of the Company and (iii) the consummation of the sale or
successive resales of the Registrable Shares.
5.6 Future Registration Rights. Until such time as the
registration statement has been declared effective by the Commission, the
Company shall not grant to any third party any registration rights equal to or
more favorable than those contained in this Article 4; provided, however, that
the foregoing prohibition shall not prevent the Company from granting to a third
party specific registration rights that are equal to those contained in this
Article 4, as long as all of the registration rights granted to such third
party, taken as a whole, are less favorable to the third party that those
granted to such Purchasers herein. In the event that the registration
11
<PAGE>
statement shall fail to remain effective (or a stop order shall be entered with
respect thereto) while any of the Registrable Shares remain unsold, the
provisions of this Section 4.7 shall become applicable once again.
ARTICLE V
Conditions to Closing
6 Conditions to the Purchaser's Obligations to Close. The Purchaser's
obligations to close hereunder shall be subject to the following condition: (a)
all of the documents required to be delivered by the Company to the Purchaser
pursuant to Section 1.4 hereof shall have been delivered to the Purchaser.
6.1 Conditions to the Company's Obligation to Close. The
Company's obligation to close hereunder shall be subject to the following
condition: (a) the purchase price for the Shares and the Warrant required to be
delivered by the Purchaser to the Company pursuant to Section 1.5 hereof shall
have been delivered to the Company.
ARTICLE VI
Amendments
7 Amendments. This Agreement may not be amended or modified orally and no
waiver of compliance with any provision or condition hereof shall be effective
unless evidenced by an instrument in writing duly executed by the party hereto
sought to be charged with such amendment, modification or waiver.
ARTICLE VII
Legend
8 Legend. The following legend shall be noted conspicuously on all
certificates representing the Note Shares and the Warrant Shares to be issued to
the Purchaser pursuant to the terms of this Agreement, the Note and the Warrant:
12
<PAGE>
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. SUCH SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF A PRIOR EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR A PRIOR
OPINION OF COUNSEL TO THE COMPANY OR SUCH OTHER
COUNSEL AS SHALL BE SATISFACTORY TO THE COMPANY
STATING THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR STATE SECURITIES LAWS."
ARTICLE VIII
Notices
9 Notices. Any notice, demand, waiver, or consent required or permitted
hereunder shall be in writing and shall be given personally or by registered or
certified mail, with return receipt requested, or by facsimile transmission,
addressed as follows:
If to the Company:
Soulfood Concepts, Inc.
630 Ninth Avenue
Suite 310
New York, New York 10036
Fax: (212) 262-8333
Attention: Mr. Brian Hinchcliffe
13
<PAGE>
If to the Purchaser:
At the address of such Purchaser as set forth on
Exhibit A attached hereto.
A given notice shall be deemed received upon the date of
delivery if given personally or by facsimile transmission (with delivery of a
copy by registered or certified mail), or, if given by registered or certified
mail, on the fifth day after the day on which it is deposited in the mails
properly addressed with postage prepaid as herein provided. Any party may change
his or her address for the purpose of notice by giving notice in accordance with
the provisions of this Section 8.1.
ARTICLE IX
Miscellaneous
10
Miscellaneous. This Agreement sets forth the entire
understanding of the parties and supersedes any and all prior agreements,
arrangements and understandings relating to the subject matter hereof, and no
representation, promise, inducement or statement of intention has been mae by
any party, which is not embodied herein and no party shall be bound by, or be
liable for, any alleged representation, promise, inducement or statement of
intention not embodied herein. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns. This
Agreement may be executed in any number of counterparts, and all such
counterparts shall constitute one and the same instrument. Facsimile copies
shall be deemed valid and binding. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to its conflict of laws rules.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
SOULFOOD CONCEPTS, INC.
By: /s/ Brian Hinchcliffe
------------------------------
Name: Brian Hinchchliffe
Title: President
14
<PAGE>
PURCHASER:
ATON VENTURES FUND LTD.
By: /s/ Reinhard Siegrist
---------------------------
Name: Reinhard Siegrist
Title: President
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SOULFOOD CONCEPTS, INC.
By: /s/ Brian Hinchcliffe
-----------------------------------
Name: Brian Hinchcliffe
Title: President
PURCHASER:
ATON BALANCED FUND LTD.
By: /s/ Reinhard Siegrist
-----------------------------------
Name: Reinhard Siegrist
Title: Director
14
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Name of Purchaser Principal Amount of No. of Shares of Common Stock into
and Address: Note: which Warrant is Exercisable:
- ----------- ---- ----------------------------
<S> <C> <C>
Aton Ventures Fund Ltd. $250,000 25,000
Seefeldstrasse 214
8034 Zurich, Switzerland
Aton Balanced Fund Ltd. $100,000 10,000
Seefeldstrasse 214 -------- -------
8034 Zurich, Switzerland
Totals: $350,000 35,000
======== ======
</TABLE>
<PAGE>
AGREEMENT
AGREEMENT, dated as of May 20,1999, among Aton Ventures Fund
Ltd., Aton Balanced Fund Ltd. and Soulfood Concepts, Inc.
W I T N E S S E T H
WHEREAS, each of the parties hereto is a party to that certain
Note Purchase Agreement, dated as of May 21, 1997 (the "Note Purchase
Agreement"). Capitalized terms not otherwise defined herein shall have their
respective meanings as set forth in the Note Purchase Agreement;
WHEREAS, pursuant to the Note Purchase Agreement, the
Purchasers, in the aggregate, purchased $350,000 principal amount of the
Company's Notes, together with Warrants for the purchase of up to an aggregate
of 35,000 shares of the Company's Common Stock; and
WHEREAS, the parties hereto desire to amend the Note Purchase
Agreement, the Notes and the Warrants in accordance with the terms hereof.
NOW, THEREFORE, the parties hereto, in consideration of the
mutual promises contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, hereby agree as
follows:
1. The maturity date of the Notes is hereby extended from May
21, 1999 to September 1, 2000; provided, however, that with respect to the Note
issued to Aton Ventures Fund Ltd. ("Aton Ventures") in the original principal
amount of $250,000 (the "Principal Amount"), $100,00 of the Principal Amount
shall be repaid by the Company to Aton Ventures in equal monthly installments
commencing July 1, 1999 and ending on December 31, 1999, with all of the
remaining outstanding Principal Amount due and payable at maturity on September
1, 2000.
2. The Notes are hereby amended to give effect to the
provisions of Section 1 hereof.
3. The Conversion Price (as defined in the Notes) is hereby
amended to mean $1.00.
<PAGE>
4. Section 4(a) of the Notes is hereby amended to read in its
entirety as follows:
"4. Conversion. (a) Conversion Price. The Holder of
this Note is entitled, at its option at any time, to convert
any or all of the original principal amount of this Note into
shares of common stock, par value $.003 per share, of the
Company (the "Common Stock"), by dividing the principal amount
of this Note that the Holder wishes to convert by $1.00 (the
"Converstion Price"). The Conversion Price shall be subject to
adjustment as hereinafter provided."
5. The expiration date of the Warrants is hereby extended from
May 21, 1999 to September 1, 2000, and the Warrants are hereby amended to give
effect to the extension of said expiration date to September 1, 2000.
6. The Company hereby agrees to issue revised Notes and
Warrants to the Purchasers in accordance with the provisions hereof in exchange
for the Notes and Warrants currently held by the Purchasers.
7. Each Purchaser hereby requests that the Company issue the
revised Notes and Warrants to it in the name of its nominee, Roycan & Co., c/o
Royal Bank of Canada, P.O. Box 6007, Montreal, Quebec, H3C 3B5, Canada. Each
Purchaser, severally and not jointly, hereby represents and warrants to the
Company that such Purchaser is the beneficial owner of its Note and Warrant, and
reaffirms and restates each of the representations and warranties contained in
Article II of the Note Purchase Agreement. Exhibit A to the Note Purchase
Agreement shall be deemed amended to reflect the name and address changes herein
set forth.
8. Except as hereby amended, the Note Purchase Agreement is
hereby ratified, approved and confirmed in all respects, and shall remain in
full force and effect.
9. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. This
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original but all of which together shall constitute one and the
same instrument. Facsimile copies shall be deemed valid and binding. This
Agreement shall be governed by, and construed in accordance with, the laws of
the State of New York, without giving effect to its conflicts of laws rules.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
SOULFOOD CONCEPTS, INC.
By: /s/ Brian Hinchcliffe
-----------------------
Name: Brian Hinchcliffe
Title: President
ATON VENTURES FUND LTD.
By: /s/ Reinhard Siegrist
-----------------------
Name: Reinhard Siegrist
Title: Director
ATON BALANCED FUND LTD.
By: /s/ Reinhard Siegrist
-----------------------
Name: Reinhard Siegrist
Title: Director
3
<PAGE>
10% CONVERTIBLE SECURED NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THIS NOTE HAS BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF A PRIOR EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR A PRIOR
OPINION OF COUNSEL TO THE COMPANY OR SUCH OTHER COUNSEL AS SHALL BE
SATISFACTORY TO THE COMPANY STATING THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR STATE SECURITIES LAWS.
May 21, 1997 U.S. $250,000.00
New York, New York
SOULFOOD CONCEPTS, INC.
10% CONVERTIBLE SECURED NOTE DUE SEPTEMBER 1, 2000
THIS NOTE is one of a duly authorized issue of Notes of
Soulfood Concepts, Inc., a corporation duly organized and existing under the
laws of Delaware (the "Company"), designated as its 10% Convertible Secured Note
due September 1, 2000, in an aggregate principal amount not exceeding Three
Hundred Fifty Thousand Dollars (U.S. $350,000).
FOR VALUE RECEIVED, the Company promises to pay to Roycan &
Co. the registered holder hereof and its successors and assigns (the "Holder"),
the principal sum of Two Hundred Fifty Thousand Dollars (U.S. $250,000) on
September 1, 2000 (the "Maturity Date"); provided, however, that One Hundred
Thousand Dollars (U.S.$100,000) of such principal sum shall be repaid by the
Company to the Holder in equal monthly installments commencing July 1, 1999 and
ending on December 31, 1999, with all of the remaining outstanding principal sum
due and payable on the Maturity Date, and to pay interest on the principal sum
outstanding, at the rate of 10% per annum due and payable semi-annually in
arrears on June 30 and December 31, commencing with the period ending June 30,
1997. Accrual of interest shall commence on the date hereof and shall continue
until payment in full of the outstanding principal sum has been made or duly
provided for or the date of conversion of the Notes. The interest so payable
will be paid to the person in whose name this Note (or one or more predecessor
Notes) is registered on the records of the Company regarding registration and
transfers of the Notes (the "Note Register"); provided, however, that the
Company's obligation to a transferee of this Note arises only if such transfer,
sale or other disposition is made in accordance with the terms and conditions
hereof and of the Note Purchase Agreement, dated as of May 21, 1997, between the
Company and the Purchasers parties thereto (the "Note Purchase Agreement"). The
principal of, and interest on, this Note are payable in such coin or currency of
the United States of America as at the time of payment
<PAGE>
is legal tender for payment of public and private debts, at the address last
appearing on the Note Register of the Company as designated in writing by the
Holder hereof from time to time. The Company will pay the outstanding principal
of and all accrued and unpaid interest due upon this Note on the Maturity Date,
less any amounts required by law to be deducted or withheld, to the record
Holder of this Note as of the tenth (10th) day prior to the Maturity Date and
addressed to such record Holder at the last address appearing on the Note
Register. The forwarding of such check shall constitute a payment of outstanding
principal and interest hereunder and shall satisfy and discharge the liability
for principal and interest on this Note to the extent of the sum represented by
such check plus any amounts so deducted.
This Note is being offered through the Note Purchase
Agreement, and is subject to the terms and provisions thereof. Capitalized terms
not defined herein shall have the meanings ascribed to them in the Note Purchase
Agreement.
1. Denominations. The Notes are issuable in denominations of
Fifty Thousand Dollars (U.S.$50,000) and integral multiples thereof. The Notes
are exchangeable for an equal aggregate principal amount of Notes of different
authorized denominations, as requested by the Holders surrendering the same but
not less than U.S. $50,000. No service charge will be made for such registration
or transfer or exchange.
2. Withholding. The Company shall be entitled to withhold from
all payments of principal of, and interest on, this Note any amounts required to
be withheld under the applicable provisions of the United States income tax
laws, rules or regulations or other applicable laws, rules or regulations at the
time of such payments.
3. Transfer and Conversion Restrictions. This Note has been
issued subject to investment representations of the original purchaser hereof
and may be transferred or exchanged in the United States only in compliance with
the Securities Act and applicable state securities laws. Prior to due
presentment for transfer of this Note, the Company and any agent of the Company
may treat the person in whose name this Note is duly registered on the Company's
Note Register as the owner hereof for the purpose of receiving payment as herein
provided and for all other purposes, whether or not this Note be overdue, and
neither the Company nor any such agent shall be affected or bound by notice to
the contrary.
4. Conversion. (a) Conversion Price. The Holder of this Note
is entitled, at its option at any time, to convert any or all of the original
principal amount of this Note into shares of common stock, par value $.003 per
share, of the Company (the "Common Stock"), by dividing the principal amount of
this Note that the Holder wishes to convert by $1.00 (the "Conversion Price").
The Conversion Price shall be subject to adjustment as hereinafter provided.
(b) Procedure. Conversion shall be effectuated by
surrendering the Notes to be converted to the Company with the form of
conversion notice attached hereto as Exhibit A, executed by the Holder of this
Note evidencing such Holder's intention to convert
2
<PAGE>
this Note or a specified portion (as above provided) hereof. No fractional
shares or scrip representing fractions of shares will be issued on conversion,
but the number of shares issuable shall be rounded to the nearest whole share,
with the fraction paid in cash at the discretion of the Company. The date on
which notice of conversion is given shall be deemed to be the date on which the
Holder has delivered this Note, with the conversion notice duly executed, to the
Company.
5. Mandatory Conversion at Company's Option. (a) Mandatory
Conversion. Following a public offering of the Company's Common Stock ("Public
Offering"), if at the end of any rolling thirty (30) consecutive trading day
period (the "Measuring Period") the Common Stock has traded for each trading day
during the Measuring Period at 140% of the Public Offering price per share or
higher, the Company may, in its sole discretion, give notice to the Note Holder
of a mandatory conversion of this Note. The Holder shall, upon receipt of such
notice, surrender its Note to the Company and receive in exchange that number of
shares of Common Stock as determined by Section 4 using the Conversion Price
then in effect at the time in question. No fractional shares or scrip
representing fractions of shares will be issued on such a conversion, but the
number of shares issuable shall be rounded to the nearest whole share, with the
fraction paid in cash at the discretion of the Company.
(b) Notice of Conversion. The right of the Company to cause
the conversion pursuant to this Section 5 shall be conditioned upon its giving
notice of such conversion (the "Notice"), by personal delivery, overnight
courier, certified mail or by facsimile, signed by an authorized officer, to the
holders of Notes (as such names may be set forth in the Note Register), not less
than fifteen (15) business days prior to the date upon which the conversion is
to be made (the "Conversion Date"). The Notice shall specify (i) the aggregate
principal amount of the Note to be converted, and (ii) the date of such
conversion. Within ten (10) business days after receipt of the Notice by the
Holder, such Holder shall surrender to the Company its Note.
(c) Partial Conversion. In the event of a partial
conversion by the Company pursuant to this Section 5, the aggregate principal
amount of Notes so converted by the Company shall be allocated among all of the
Notes at the time outstanding, in proportion, as nearly as practicable, to the
respective unpaid principal amounts of such Notes.
(d) Interest; Surrender of Notes Upon Mandatory Conversion.
Upon the receipt of the Notice, interest shall cease to accrue upon the Note, or
in the case of a partial conversion, that portion of a Note subject to such
Notice. If a Holder fails to deliver the Note subject to the Notice within 30
days after receipt of such Notice, the Company shall cancel said Note and shall
have no further obligation whatsoever to the Holder regarding the rights
evidenced by the Note except for the delivery of the shares as provided in this
Section 5, provided that the Company shall have no obligation to deliver such
shares until the subsequent delivery of the Note.
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<PAGE>
6. Adjustments to Conversion Price. The Conversion Price
shall be subject to adjustment as follows:
(a) In case the Company shall, after the date hereof, (i)
pay a stock dividend or make a distribution in shares of its capital stock
(whether shares of its Common Stock or of capital stock of any other class),
(ii) subdivide its outstanding shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issue by reclassification of its shares of Common Stock any shares of capital
stock of the Company, the Conversion Price in effect immediately prior to such
action shall be adjusted so that the holder of this Note thereafter surrendered
for conversion shall be entitled to receive an equivalent number of shares of
capital stock of the Company which he would have owned immediately following
such action had this Note been exercised immediately prior thereto. Any
adjustment made pursuant to this subsection (a) shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification.
(b) In case the Company shall issue any capital stock, or
any rights, warrants or other securities convertible into shares of capital
stock of the Company entitling such subscriber or purchaser to subscribe for or
purchase shares of capital stock at a price per share less than the Conversion
Price then in effect on the date of such issuance, the Conversion Price shall be
adjusted to such lower price per share at which such capital stock or such
rights, warrants or other securities are issued (such price per share to include
any consideration paid by the holders to acquire such security, if any, plus any
amount paid to the Company to exercise or convert such security). Such
adjustment shall be made whenever such capital stock or such rights, warrants or
other securities are issued, and shall become effective retroactively
immediately after the record date for the determination of stockholders entitled
to receive such capital stock or such rights, warrants or other securities.
(c) Whenever the Conversion Price is adjusted as provided
in Section 5(a) or 5(b) herein, the Company will promptly mail to the Holder a
certificate of the Company's Treasurer or Chief Financial Officer setting forth
the Conversion Price as so adjusted and a brief statement of facts accounting
for such adjustment.
(d) Irrespective of any adjustment or change in the
Conversion Price and the number of shares actually purchasable under this Note,
this Note may continue to express the Conversion Price per share as expressed in
this Note when initially issued.
7. Lockup. Beginning on the date that shares of Common Stock
are delivered to the Holder pursuant to Section 4 or Section 5 (the "Conversion
Date") hereof, such shares of Common Stock shall be deemed to be subject to the
lockup provisions of this Section 7 and not freely tradeable, and shall be
released from the lockup provisions hereof in one third increments on the three
month, six month and nine month anniversary of the effective date of the Public
Offering. Notwithstanding the foregoing the Company shall also impose a "stop
transfer" instruction on any Common Stock obtained through conversion of this
Note.
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<PAGE>
8. Restrictive Legend. Upon conversion of this Note, the
Holder shall receive a certificate for shares of Common Stock bearing the
following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF A PRIOR EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR A PRIOR OPINION OF
COUNSEL TO THE COMPANY OR SUCH OTHER COUNSEL AS SHALL BE
SATISFACTORY TO THE COMPANY STATING THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR STATE SECURITIES LAWS.
9. Absolute Obligation. No provision of this Note shall alter
or impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of, and interest on, this Note at the time, place and rate
herein prescribed.
10. Waiver of Rights. The Company hereby expressly waives
demand and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of acceleration or intent to accelerate,
bringing of suit and diligence in taking any action to collect amounts called
for hereunder except as otherwise set forth herein and shall be directly and
primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder.
11. Collection Costs. The Company agrees to pay all costs and
expenses, including reasonable attorneys' fees, which may be incurred by the
Holder in collecting any amount due under this Note.
12. Default. If one or more of the following described "Events
of Default" shall occur:
(a) The Company shall default in the payment of principal
or interest on this Note; or
(b) Any of the material representations or warranties made
by the Company herein, in the Note Purchase Agreement, or in any certificate or
financial or other written statements heretofore or hereafter furnished directly
by the Company in connection
5
<PAGE>
with the execution and delivery of this Note or the Note Purchase Agreement
shall be false or misleading in any material respect at the time made; or
(c) The Company shall fail to perform or observe, in any
material respect, any other material covenant, term, provision, condition,
agreement or obligation of the Company under this Note;
(d) The Company shall (1) become insolvent; (2) admit in
writing its inability to pay its debts generally as they mature; (3) make an
assignment for the benefit of creditors or commence proceedings for its
dissolution; or (4) apply for or consent to the appointment of a trustee,
liquidator or receiver for all of its or for a substantial part of its property
or business; or
(e) A trustee, liquidator or receiver shall be appointed
for the Company or for a substantial part of its property or business without
its consent and shall not be discharged within sixty (60) days after such
appointment; or
(f) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties or assets of
the Company and shall not be dismissed within sixty (60) days thereafter; or
(g) Any money judgment, writ or warrant of attachment, or
similar process in excess of Two Hundred Fifty Thousand ($250,000) Dollars in
the aggregate shall be entered or filed against the Company or any of its
properties or other assets and shall remain unpaid, unvacated, unbonded or
unstayed for a period of thirty (30) days; or
(h) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed within sixty (60) days
after such institution, or the Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any such proceeding;
or
(i) Subsequent to a Public Offering, the Company shall
have its Common Stock delisted from any exchanges or the over-the-counter
market;
then, or at any time thereafter, and as long as such Event of Default is
continuing for fourteen (14) days after written notice of such Event of Default
has been delivered, (except for the events described in Section 12(d) and (h)
for which no notice shall be given and no grace period shall be provided) or
unless such Event of Default shall have been waived in writing by the Holder
(which waiver shall not be deemed to be a waiver of any subsequent default) at
the option of the Holder and in the Holder's sole discretion, the Holder may
consider this Note immediately due and payable, without presentment, demand,
protest or notice of any kinds, all
6
<PAGE>
of which are hereby expressly waived, anything herein or in any note or other
instruments contained to the contrary notwithstanding, and the Holder may
immediately, and without expiration of any period of grace other than as
contained in this Section, enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law.
13. Security. This Note is secured as set forth in the
Security Agreement between Affair Restaurant, Inc., a wholly-owned subsidiary of
the Company, and the Holder of even date herewith.
14. Investment Intent. The Holder of this Note, by acceptance
hereof, agrees that this Note is being acquired for investment and that such
Holder will not offer, sell or otherwise dispose of this Note or the shares of
Common Stock issuable upon conversion hereof except under circumstances which
will not result in a violation of the Securities Act or any applicable state
Blue Sky law or similar laws relating to the sale of securities.
15. Severability. In case any provision of this Note is held
by a court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than voided,
if possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Note will not in
any way be affected or impaired thereby.
16. Entire Agreement. This Note and the agreements referred to
in this Note constitute the full and entire understanding and agreement between
the Company and the Holder with respect to the subject hereof. Neither this Note
nor any term hereof may be amended, waived, discharged or terminated other than
by a written instrument signed by the Company and the Holder.
17. Governing Law. This Note shall be governed by and
construed in accordance with the laws of New York, without giving effect to its
conflicts of laws rules.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
SOULFOOD CONCEPTS, INC.
By: /s/ Brian Hinchcliffe
--------------------------------
Name: Brian Hinchcliffe
Title: President
7
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to
Convert the 10% Convertible Secured Note)
The undersigned hereby irrevocably elects to convert $_________
principal amount of the above 10% Convertible Secured Note into shares of Common
Stock of Soulfood Concepts, Inc. (the "Company") according to the conditions set
forth in such Note and the Note Purchase Agreement, as of the date written
below.
The undersigned represents that the representations and warranties of
the undersigned contained in the Note Purchase Agreement are true and correct on
the date hereof as though made on and as of the date hereof.
Date of Conversion ________________________________________
Applicable Conversion Price ________________________________
Signature: Holder:
By:____________________________________
Name:
Title:
Address: _________________________________________________
_________________________________________________
<PAGE>
10% CONVERTIBLE SECURED NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THIS NOTE HAS BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF A PRIOR EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR A PRIOR
OPINION OF COUNSEL TO THE COMPANY OR SUCH OTHER COUNSEL AS SHALL BE
SATISFACTORY TO THE COMPANY STATING THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR STATE SECURITIES LAWS.
May 21, 1997 U.S. $100,000.00
New York, New York
SOULFOOD CONCEPTS, INC.
10% CONVERTIBLE SECURED NOTE DUE SEPTEMBER 1, 2000
THIS NOTE is one of a duly authorized issue of Notes of
Soulfood Concepts, Inc., a corporation duly organized and existing under the
laws of Delaware (the "Company"), designated as its 10% Convertible Secured Note
due September 1, 2000, in an aggregate principal amount not exceeding Three
Hundred Fifty Thousand Dollars (U.S. $350,000).
FOR VALUE RECEIVED, the Company promises to pay to Roycan &
Co. the registered holder hereof and its successors and assigns (the "Holder"),
the principal sum of One Hundred Thousand Dollars (U.S. $100,000) on September
1, 2000 (the "Maturity Date"), and to pay interest on the principal sum
outstanding, at the rate of 10% per annum due and payable semi-annually in
arrears on June 30 and December 31, commencing with the period ending June 30,
1997. Accrual of interest shall commence on the date hereof and shall continue
until payment in full of the outstanding principal sum has been made or duly
provided for or the date of conversion of the Notes. The interest so payable
will be paid to the person in whose name this Note (or one or more predecessor
Notes) is registered on the records of the Company regarding registration and
transfers of the Notes (the "Note Register"); provided, however, that the
Company's obligation to a transferee of this Note arises only if such transfer,
sale or other disposition is made in accordance with the terms and conditions
hereof and of the Note Purchase Agreement, dated as of May 21, 1997, between the
Company and the Purchasers parties thereto (the "Note Purchase Agreement"). The
principal of, and interest on, this Note are payable in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts, at the address last appearing on the Note
Register of the Company as designated in writing by the Holder hereof from time
to time. The Company will pay the outstanding principal of and all accrued and
unpaid interest due upon this Note on the Maturity Date, less any amounts
required by law to be deducted or
<PAGE>
withheld, to the record Holder of this Note as of the tenth (10th) day prior to
the Maturity Date and addressed to such record Holder at the last address
appearing on the Note Register. The forwarding of such check shall constitute a
payment of outstanding principal and interest hereunder and shall satisfy and
discharge the liability for principal and interest on this Note to the extent of
the sum represented by such check plus any amounts so deducted.
This Note is being offered through the Note Purchase
Agreement, and is subject to the terms and provisions thereof. Capitalized terms
not defined herein shall have the meanings ascribed to them in the Note Purchase
Agreement.
1. Denominations. The Notes are issuable in denominations of
Fifty Thousand Dollars (U.S.$50,000) and integral multiples thereof. The Notes
are exchangeable for an equal aggregate principal amount of Notes of different
authorized denominations, as requested by the Holders surrendering the same but
not less than U.S. $50,000. No service charge will be made for such registration
or transfer or exchange.
2. Withholding. The Company shall be entitled to withhold from
all payments of principal of, and interest on, this Note any amounts required to
be withheld under the applicable provisions of the United States income tax
laws, rules or regulations or other applicable laws, rules or regulations at the
time of such payments.
3. Transfer and Conversion Restrictions. This Note has been
issued subject to investment representations of the original purchaser hereof
and may be transferred or exchanged in the United States only in compliance with
the Securities Act and applicable state securities laws. Prior to due
presentment for transfer of this Note, the Company and any agent of the Company
may treat the person in whose name this Note is duly registered on the Company's
Note Register as the owner hereof for the purpose of receiving payment as herein
provided and for all other purposes, whether or not this Note be overdue, and
neither the Company nor any such agent shall be affected or bound by notice to
the contrary.
4. Conversion. (a) Conversion Price. The Holder of this Note
is entitled, at its option at any time, to convert any or all of the original
principal amount of this Note into shares of common stock, par value $.003 per
share, of the Company (the "Common Stock"), by dividing the principal amount of
this Note that the Holder wishes to convert by $1.00 (the "Conversion Price").
The Conversion Price shall be subject to adjustment as hereinafter provided.
(b) Procedure. Conversion shall be effectuated by
surrendering the Notes to be converted to the Company with the form of
conversion notice attached hereto as Exhibit A, executed by the Holder of this
Note evidencing such Holder's intention to convert this Note or a specified
portion (as above provided) hereof. No fractional shares or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share, with the fraction paid in
cash at the discretion of the Company. The date on which notice of conversion is
given shall be deemed to be the date
2
<PAGE>
on which the Holder has delivered this Note, with the conversion notice duly
executed, to the Company.
5. Mandatory Conversion at Company's Option. (a) Mandatory
Conversion. Following a public offering of the Company's Common Stock ("Public
Offering"), if at the end of any rolling thirty (30) consecutive trading day
period (the "Measuring Period") the Common Stock has traded for each trading day
during the Measuring Period at 140% of the Public Offering price per share or
higher, the Company may, in its sole discretion, give notice to the Note Holder
of a mandatory conversion of this Note. The Holder shall, upon receipt of such
notice, surrender its Note to the Company and receive in exchange that number of
shares of Common Stock as determined by Section 4 using the Conversion Price
then in effect at the time in question. No fractional shares or scrip
representing fractions of shares will be issued on such a conversion, but the
number of shares issuable shall be rounded to the nearest whole share, with the
fraction paid in cash at the discretion of the Company.
(b) Notice of Conversion. The right of the Company to cause
the conversion pursuant to this Section 5 shall be conditioned upon its giving
notice of such conversion (the "Notice"), by personal delivery, overnight
courier, certified mail or by facsimile, signed by an authorized officer, to the
holders of Notes (as such names may be set forth in the Note Register), not less
than fifteen (15) business days prior to the date upon which the conversion is
to be made (the "Conversion Date"). The Notice shall specify (i) the aggregate
principal amount of the Note to be converted, and (ii) the date of such
conversion. Within ten (10) business days after receipt of the Notice by the
Holder, such Holder shall surrender to the Company its Note.
(c) Partial Conversion. In the event of a partial
conversion by the Company pursuant to this Section 5, the aggregate principal
amount of Notes so converted by the Company shall be allocated among all of the
Notes at the time outstanding, in proportion, as nearly as practicable, to the
respective unpaid principal amounts of such Notes.
(d) Interest; Surrender of Notes Upon Mandatory Conversion.
Upon the receipt of the Notice, interest shall cease to accrue upon the Note, or
in the case of a partial conversion, that portion of a Note subject to such
Notice. If a Holder fails to deliver the Note subject to the Notice within 30
days after receipt of such Notice, the Company shall cancel said Note and shall
have no further obligation whatsoever to the Holder regarding the rights
evidenced by the Note except for the delivery of the shares as provided in this
Section 5, provided that the Company shall have no obligation to deliver such
shares until the subsequent delivery of the Note.
6. Adjustments to Conversion Price. The Conversion Price shall
be subject to adjustment as follows:
3
<PAGE>
(a) In case the Company shall, after the date hereof, (i)
pay a stock dividend or make a distribution in shares of its capital stock
(whether shares of its Common Stock or of capital stock of any other class),
(ii) subdivide its outstanding shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issue by reclassification of its shares of Common Stock any shares of capital
stock of the Company, the Conversion Price in effect immediately prior to such
action shall be adjusted so that the holder of this Note thereafter surrendered
for conversion shall be entitled to receive an equivalent number of shares of
capital stock of the Company which he would have owned immediately following
such action had this Note been exercised immediately prior thereto. Any
adjustment made pursuant to this subsection (a) shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification.
(b) In case the Company shall issue any capital stock, or
any rights, warrants or other securities convertible into shares of capital
stock of the Company entitling such subscriber or purchaser to subscribe for or
purchase shares of capital stock at a price per share less than the Conversion
Price then in effect on the date of such issuance, the Conversion Price shall be
adjusted to such lower price per share at which such capital stock or such
rights, warrants or other securities are issued (such price per share to include
any consideration paid by the holders to acquire such security, if any, plus any
amount paid to the Company to exercise or convert such security). Such
adjustment shall be made whenever such capital stock or such rights, warrants or
other securities are issued, and shall become effective retroactively
immediately after the record date for the determination of stockholders entitled
to receive such capital stock or such rights, warrants or other securities.
(c) Whenever the Conversion Price is adjusted as provided
in Section 5(a) or 5(b) herein, the Company will promptly mail to the Holder a
certificate of the Company's Treasurer or Chief Financial Officer setting forth
the Conversion Price as so adjusted and a brief statement of facts accounting
for such adjustment.
(d) Irrespective of any adjustment or change in the
Conversion Price and the number of shares actually purchasable under this Note,
this Note may continue to express the Conversion Price per share as expressed in
this Note when initially issued.
7. Lockup. Beginning on the date that shares of Common Stock
are delivered to the Holder pursuant to Section 4 or Section 5 (the "Conversion
Date") hereof, such shares of Common Stock shall be deemed to be subject to the
lockup provisions of this Section 7 and not freely tradeable, and shall be
released from the lockup provisions hereof in one third increments on the three
month, six month and nine month anniversary of the effective date of the Public
Offering. Notwithstanding the foregoing the Company shall also impose a "stop
transfer" instruction on any Common Stock obtained through conversion of this
Note.
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<PAGE>
8. Restrictive Legend. Upon conversion of this Note, the
Holder shall receive a certificate for shares of Common Stock bearing the
following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF A PRIOR EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR A PRIOR OPINION OF
COUNSEL TO THE COMPANY OR SUCH OTHER COUNSEL AS SHALL BE
SATISFACTORY TO THE COMPANY STATING THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR STATE SECURITIES LAWS.
9. Absolute Obligation. No provision of this Note shall
alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, and interest on, this Note at the time,
place and rate herein prescribed.
10. Waiver of Rights. The Company hereby expressly waives
demand and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of acceleration or intent to accelerate,
bringing of suit and diligence in taking any action to collect amounts called
for hereunder except as otherwise set forth herein and shall be directly and
primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder.
11. Collection Costs. The Company agrees to pay all costs
and expenses, including reasonable attorneys' fees, which may be incurred by the
Holder in collecting any amount due under this Note.
12. Default. If one or more of the following described
"Events of Default" shall occur:
(a) The Company shall default in the payment of
principal or interest on this Note; or
(b) Any of the material representations or warranties
made by the Company herein, in the Note Purchase Agreement, or in any
certificate or financial or other written statements heretofore or hereafter
furnished directly by the Company in connection
5
<PAGE>
with the execution and delivery of this Note or the Note Purchase Agreement
shall be false or misleading in any material respect at the time made; or
(c) The Company shall fail to perform or observe, in
any material respect, any other material covenant, term, provision, condition,
agreement or obligation of the Company under this Note;
(d) The Company shall (1) become insolvent; (2) admit
in writing its inability to pay its debts generally as they mature; (3) make an
assignment for the benefit of creditors or commence proceedings for its
dissolution; or (4) apply for or consent to the appointment of a trustee,
liquidator or receiver for all of its or for a substantial part of its property
or business; or
(e) A trustee, liquidator or receiver shall be
appointed for the Company or for a substantial part of its property or business
without its consent and shall not be discharged within sixty (60) days after
such appointment; or
(f) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties or assets of
the Company and shall not be dismissed within sixty (60) days thereafter; or
(g) Any money judgment, writ or warrant of attachment,
or similar process in excess of Two Hundred Fifty Thousand ($250,000) Dollars in
the aggregate shall be entered or filed against the Company or any of its
properties or other assets and shall remain unpaid, unvacated, unbonded or
unstayed for a period of thirty (30) days; or
(h) Bankruptcy, reorganization, insolvency or
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Company and, if instituted against the Company, shall not be dismissed within
sixty (60) days after such institution, or the Company shall by any action or
answer approve of, consent to, or acquiesce in any such proceedings or admit the
material allegations of, or default in answering a petition filed in any such
proceeding; or
(i) Subsequent to a Public Offering, the Company shall
have its Common Stock delisted from any exchanges or the over-the-counter
market;
then, or at any time thereafter, and as long as such Event of Default is
continuing for fourteen (14) days after written notice of such Event of Default
has been delivered, (except for the events described in Section 12(d) and (h)
for which no notice shall be given and no grace period shall be provided) or
unless such Event of Default shall have been waived in writing by the Holder
(which waiver shall not be deemed to be a waiver of any subsequent default) at
the option of the Holder and in the Holder's sole discretion, the Holder may
consider this Note immediately due and payable, without presentment, demand,
protest or notice of any kinds, all
6
<PAGE>
of which are hereby expressly waived, anything herein or in any note or other
instruments contained to the contrary notwithstanding, and the Holder may
immediately, and without expiration of any period of grace other than as
contained in this Section, enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law.
13. Security. This Note is secured as set forth in the
Security Agreement between Affair Restaurant, Inc., a wholly-owned subsidiary of
the Company, and the Holder of even date herewith.
14. Investment Intent. The Holder of this Note, by acceptance
hereof, agrees that this Note is being acquired for investment and that such
Holder will not offer, sell or otherwise dispose of this Note or the shares of
Common Stock issuable upon conversion hereof except under circumstances which
will not result in a violation of the Securities Act or any applicable state
Blue Sky law or similar laws relating to the sale of securities.
15. Severability. In case any provision of this Note is held
by a court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than voided,
if possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Note will not in
any way be affected or impaired thereby.
16. Entire Agreement. This Note and the agreements referred to
in this Note constitute the full and entire understanding and agreement between
the Company and the Holder with respect to the subject hereof. Neither this Note
nor any term hereof may be amended, waived, discharged or terminated other than
by a written instrument signed by the Company and the Holder.
17. Governing Law. This Note shall be governed by and
construed in accordance with the laws of New York, without giving effect to its
conflicts of laws rules.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
SOULFOOD CONCEPTS, INC.
By: /s/ Brian Hinchcliffe
--------------------------------
Name: Brian Hinchcliffe
Title: President
7
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to
Convert the 10% Convertible Secured Note)
The undersigned hereby irrevocably elects to convert $_________
principal amount of the above 10% Convertible Secured Note into shares of Common
Stock of Soulfood Concepts, Inc. (the "Company") according to the conditions set
forth in such Note and the Note Purchase Agreement, as of the date written
below.
The undersigned represents that the representations and warranties of
the undersigned contained in the Note Purchase Agreement are true and correct on
the date hereof as though made on and as of the date hereof.
Date of Conversion ________________________________________
Applicable Conversion Price ________________________________
Signature: Holder:
By:____________________________________
Name:
Title:
Address: _________________________________________________
_________________________________________________
<PAGE>
FORM OF
WARRANT
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT HAS BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A PRIOR
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR A PRIOR OPINION OF COUNSEL TO THE COMPANY OR SUCH OTHER
COUNSEL AS SHALL BE SATISFACTORY TO THE COMPANY STATING THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR STATE SECURITIES LAWS.
SOULFOOD CONCEPTS, INC.
A Delaware Corporation
WARRANT TO PURCHASE ______ SHARES OF COMMON STOCK,
PAR VALUE $.003 PER SHARE
VOID AFTER 5:00 P.M. EASTERN TIME ON JANUARY 26, 2000
This certifies that, for value received, ____________ (the "Warrant
Holder"), is entitled, subject to the terms and conditions hereof, to purchase
from Soulfood Concepts, Inc. (the "Company"), at any time or from time to time,
but in any event, on or before January 26, 2000, up to _____ shares of common
stock of the Company, par value $.003 per share ("Common Stock"), at an exercise
price of $2.20 per share, subject to adjustment as hereinafter provided (the
"Exercise Price"), and to receive a certificate or certificates for the Common
Stock so purchased pursuant to and subject to the terms and conditions set forth
below.
This Warrant is being purchased pursuant to the Note Purchase
Agreement of even date herewith between the Warrant Holder and the Company.
1. This Warrant may be exercised in whole or in part at any
time, or from time to time, by delivery and surrender to the Company, subject to
Section 2 below, of this Warrant and a subscription form substantially similar
to that attached to this Warrant as Exhibit A duly executed by the Warrant
Holder at the offices of the Company at 630 Ninth Avenue, Suite 310, New York,
New York 10036, accompanied by payment in full, in lawful money of the United
States, or by certified or bank check, or postal or express money order payable
in United States dollars to the order of the Company, of the Exercise Price for
each share of Common Stock as to which this Warrant is being exercised on or
before 5:00 P.M. Eastern time on January 26, 2000, after which time this Warrant
shall be void.
<PAGE>
2. (a) Upon the exercise of this Warrant, in full, the Company
shall, or shall direct its transfer agent to, issue to the Warrant Holder
certificates for the total number of shares of Common Stock issuable on the date
of such exercise pursuant to the terms of this Warrant in such denominations as
are required by the Warrant Holder, and the Company shall, or shall direct its
transfer agent to, thereupon deliver such certificates to or in accordance with
the instructions of the Warrant Holder.
(b) In the event that the Warrant Holder shall exercise
this Warrant with respect to less than all of the shares of Common Stock that
may be purchased under the terms of this Warrant, the Company shall, or shall
direct its transfer agent to, issue to the Warrant Holder certificates for the
shares of Common Stock for which this Warrant is being exercised in such
denominations as are required for delivery to the Warrant Holder, and the
Company shall, or shall direct its transfer agent to, thereupon deliver such
certificates to or in accordance with the instructions of the Warrant Holder,
and the Company shall issue to the Warrant Holder a new Warrant, duly executed
by the Company, in form and substance identical to this Warrant for the balance
of the shares of Common Stock then issuable pursuant to the terms of this
Warrant.
(c) Notwithstanding anything to the contrary contained
herein, neither the Company nor its transfer agent shall be required to issue
any fraction of a share of Common Stock in connection with the exercise of this
Warrant, and the Company shall, upon exercise of this Warrant in whole or in
part, issue the largest number of whole shares of Common Stock to which this
Warrant is entitled upon such full or partial exercise and shall return to the
Warrant Holder the amount of the Exercise Price paid by the Warrant Holder in
respect of any fractional share.
3. The Warrant Holder, as such, shall not be entitled to vote
or receive dividends or be deemed the holder of shares of Common Stock for any
purpose, nor shall anything contained in this Warrant be construed to confer
upon the Warrant Holder, as such, any of the rights of a shareholder of the
Company including, without limitation, any right to vote, give or withhold
consent to any action by the Company (whether upon the recapitalization, issue
of stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings or other action affecting shareholders,
receive dividends or subscription rights, or otherwise, until this Warrant shall
have been exercised; provided, however, that any exercise of this Warrant, in
whole or in part, on any date when the stock transfer books of the Company shall
be closed shall constitute the person or persons in whose name or names the
certificate or certificates for such shares of Common Stock are to be issued as
the record holder or holders thereof for all purposes at the opening of business
on the next succeeding day on which such stock transfer books are open, and this
Warrant shall not be deemed to have been exercised, in whole or in part, as the
case may be, until that date for the purpose of determining entitlement to
dividends on the Common Stock, and that exercise shall be at the actual Exercise
Price in effect at such date.
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<PAGE>
4. If the Company shall at any time consolidate or merge with
or into another corporation, (a) the Company shall give at least twenty (20)
days prior written notice to the Warrant Holder of such consolidation or merger
and the terms thereof, and (b) the Warrant Holder may at its exclusive option
exercise its Warrant in whole or in part.
5. The Exercise Price shall be subject to adjustment as
follows:
(a) In case the Company shall, after the date hereof, (i)
pay a stock dividend or make a distribution in shares of its capital stock
(whether shares of its Common Stock or of capital stock of any other class),
(ii) subdivide its outstanding shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issue by reclassification of its shares of Common Stock any shares of capital
stock of the Company, the Exercise Price in effect immediately prior to such
action shall be adjusted so that the holder of this Warrant thereafter
surrendered for exercise shall be entitled to receive an equivalent number of
shares of capital stock of the Company which he would have owned immediately
following such action had this Warrant been exercised immediately prior thereto.
Any adjustment made pursuant to this subsection (a) shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification.
(b) In case the Company shall issue any capital stock, or
any rights, warrants or other securities convertible into shares of capital
stock of the Company entitling such subscriber or purchaser to subscribe for or
purchase shares of capital stock at a price per share less than the Exercise
Price then in effect on the date of such issuance, the Exercise Price shall be
adjusted to such lower price per share at which such capital stock or such
rights, warrants or other securities are issued (such price per share to include
any consideration paid by the holders to acquire such security, if any, plus any
amount paid to the Company to exercise or convert such security). Such
adjustment shall be made whenever such capital stock or such rights, warrants or
other securities are issued, and shall become effective retroactively
immediately after the record date for the determination of stockholders entitled
to receive such capital stock or such rights, warrants or other securities.
(c) Whenever the Exercise Price is adjusted as provided in
Section 5(a) or 5(b) herein, the Company will promptly mail to the Warrant
Holder a certificate of the Company's Treasurer or Chief Financial Officer
setting forth the Exercise Price as so adjusted and a brief statement of facts
accounting for such adjustment.
(d) Irrespective of any adjustment or change in the
Exercise Price and the number of shares actually purchasable under this Warrant,
this Warrant may continue to express the Exercise Price per share as expressed
upon this Warrant when initially issued.
6. If this Warrant is lost, stolen or destroyed, the Company
shall, subject to such reasonable terms as to indemnity as are commonly imposed
in respect of warrants which are
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<PAGE>
not registered pursuant to the Act, issue a new Warrant of like denomination and
tenor as, and in substitution for, the Warrant so lost, stolen or destroyed, and
in the event this Warrant shall be mutilated, the Company shall, upon the
surrender hereof, issue a new Warrant of like denomination and tenor as, and in
substitution for, the Warrant so mutilated.
7. Notwithstanding anything to the contrary contained in this
Warrant, this Warrant and the shares of Common Stock underlying this Warrant may
not be sold, assigned or transferred at any time, in any manner or by any person
or entity unless the Warrant and such shares, as the case may be, are registered
pursuant to the Securities Act of 1933, as amended (the "Act"), and under
applicable state securities laws or an exemption from the Act and such state
securities laws is available in respect of the Warrant and such shares for such
sale, assignment or transfer, as the case may be.
8. (a) Upon the exercise of this Warrant and the issuance of
shares pursuant to the terms hereto, the Company shall instruct the Company's
transfer agent to issue stock certificates bearing the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. SUCH SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF A PRIOR EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR A PRIOR
OPINION OF COUNSEL TO THE COMPANY OR SUCH OTHER
COUNSEL AS SHALL BE SATISFACTORY TO THE COMPANY
STATING THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR STATE SECURITIES LAWS.
(b) The Company shall impose a "stop transfer" instruction
with respect to the certificates representing the Common Stock issued upon the
exercise of this Warrant. Nothing in this Section 8, however, shall affect in
any way the Warrant Holder's obligations and agreements to comply with all
applicable securities laws upon resale of the Common Stock issued upon the
exercise of this Warrant.
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<PAGE>
9. The validity, interpretation and performance of this
Warrant shall be governed by the laws of the State of New York without giving
effect to its conflict of laws rules.
10. This Warrant cannot be amended, supplemented or changed,
and no provision hereof can be waived, except by a written instrument making
specific reference to this Warrant and signed by the party against whom
enforcement of any such amendment, supplement, modification or waiver is sought.
The Exhibit to this Warrant is incorporated herein by reference to the same
extent as if set forth herein in full. A waiver of any right derived hereunder
by the Warrant Holder shall not be deemed a waiver of any other right derived
hereunder.
11. This Warrant shall be binding upon the Company and shall
inure to the benefit of the Warrant Holder, and their respective successors and
permitted assigns.
SOULFOOD CONCEPTS, INC.
By:
--------------------
Name:
Title:
5
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
(To be executed by the Warrant Holder to exercise the Warrant in whole or in
part)
TO: SOULFOOD CONCEPTS, INC.
The undersigned, whose Social Security or Tax Identification Number is
____, hereby irrevocably elects the right of purchase represented by the within
Warrant for, and to purchase thereunder, ____________ shares of Common Stock and
tenders payment herewith to the order of Soulfood Concepts, Inc. (the "Company")
in the amount of $__. The undersigned requests that certificates for such shares
of Common Stock be issued in the name of the undersigned Warrant Holder as
follows:
Name:
Address:
Deliver to:
Address:
and, if said number of shares of Common Stock shall not be all the shares of the
Common Stock purchasable thereunder, then a new Warrant for the balance of the
remaining shares of Common Stock purchasable thereunder be registered in the
name of, and delivered to, the undersigned at the address stated below.
Address:
Dated:
Warrant Holder: Signature Guaranteed:
By:
------------------- --------------------------
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of February 4, 1997,
between CLARION FINANZ AG (the "Purchaser") and SOULFOOD CONCEPTS, INC. (the
"Company").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company desires to issue 100,000 unregistered
shares (the "Shares") of its common stock, par value $.003 per share (the
"Common Stock"), and a warrant (the "Warrant") to purchase up to 10,000 shares
of Common Stock (the "Warrant Shares"), to the Purchaser, and the Purchaser
desires to purchase the Shares and Warrant from the Company, for an aggregate
purchase price of $100,000.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein set forth, the parties hereto agree as follows:
ARTICLE I
Sale and Exchange
2 Sale of the Shares. The Company hereby sells, conveys, transfers and delivers
to the Purchaser, and the Purchaser hereby purchases and accepts, the Shares and
Warrant, in accordance with the terms hereof. The Warrant shall entitle the
Purchaser to purchase the Warrant Shares at an exercise price of $1.00 per
share, and shall be substantially in the form of warrant attached hereto as
Exhibit A.
2.1 Consideration. In reliance upon the representations,
warranties, covenants and agreements contained herein, subject to the terms and
conditions hereof (including, without limitation, full performance by the
Company of its obligations pursuant to Section 1.4), and in consideration of the
sale, conveyance, transfer and delivery of the Shares and the Warrant pursuant
to Section 1.1, the Purchaser shall deliver to the Company at the Closing
described in Section 1.3 hereof $100,000 in immediately available funds.
2.2 Closing. The closing of the purchase of the Shares (the
"Closing") shall take place simultaneously with the execution hereof, unless the
parties shall otherwise agree, at the offices of Kane Kessler, P.C., 1350 Avenue
of the Americas, New York, New York 10019 on February 4, 1997 at 10:00 A.M. or
at such other place or time as the parties may agree (the "Closing Date").
<PAGE>
2.3 Deliveries by the Company. At the Closing, the Company
shall deliver to the Purchaser (a) a stock certificate representing the Shares,
(b) the Warrant, (c) a certificate of good standing of the Company from the
Secretary of State of the State of Delaware, and (d) an officer's certificate of
the Company, containing true and accurate copies of the resolutions adopted by
the Company authorizing the transactions contemplated hereby.
2.4 Deliveries by the Purchaser. At the Closing, the Purchaser
shall deliver to the Company $100,000 in immediately available funds.
2.5 Further Assurances. In addition to the other obligations
required to be performed by the Company and the Purchaser hereunder, each of the
Company and the Purchaser agrees that it shall, at the Closing and at any time,
and from time to time thereafter, without cost to the other, execute,
acknowledge and deliver such instruments and documents, and take such other
actions, as may reasonably be requested of it by the other in order to
effectively vest in the Purchaser good and marketable title to the Shares and
Warrant, free and clear of all liens, pledges, or encumbrances.
ARTICLE II
Purchaser's Representations and Warranties
The Purchaser hereby represents and warrants to the Company that:
3 Binding Agreement. The Purchaser has full power, authority and legal capacity
to (i) execute, deliver and perform this Agreement and (ii) consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Purchaser. This Agreement constitutes the legal, valid and
binding obligation of the Purchaser enforceable against it in accordance with
its terms.
3.1 Acquisition of Shares for Own Account; Restrictions on
Transfer. The Purchaser is acquiring the Shares and the Warrant for investment
and not with a view to the sale or distribution thereof, and is acquiring such
Shares and Warrant for its own account and not on behalf of others and has not
granted any other person any right or option or any participation or beneficial
interest in any of the Shares or the Warrant. The Purchaser acknowledges its
understanding that the Shares and the Warrant constitute restricted securities
within the meaning of Rule 144 of the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), and that none of such Shares or the Warrant may be sold except pursuant
to an effective registration statement under the Securities Act or in a
transaction exempt from registration under the Securities Act, and acknowledges
that it understands the meaning and effect of such restriction. The Purchaser
has sufficient knowledge and experience in financial and
2
<PAGE>
business matters so that it is capable of evaluating the risks and merits of the
acquisition of the Shares and the Warrant. The Purchaser is aware of and has
investigated the Company's business, management and financial condition, has had
a satisfactory opportunity to ask questions of, and receive answers from, agents
and employees of the Company concerning the business of the Company and the
terms and conditions of this transaction and has had access to such other
information about the Company as the Purchaser deemed necessary or desirable to
reach an informed and knowledgeable decision to purchase the Shares and the
Warrant hereunder. The Purchaser further acknowledges that the Company is not
currently subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended.
3.2 Accreditation. The Purchaser is an accredited investor
within the meaning of Rule 501 of the rules and regulations of the Commission
promulgated under the Securities Act, and has the financial ability to bear the
economic risk of its acquisition of the Shares and the Warrant.
ARTICLE III
Company's Representations and Warranties
The Company hereby represents and warrants to the Purchaser that:
4 Validity and Binding Agreement. The Company has full power, authority and
legal capacity to (i) execute, deliver and perform this Agreement and (ii)
consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Company. This Agreement constitutes the legal,
valid and binding obligation of the Company, enforceable against it in
accordance with its terms.
4.1 Organization and Standing; Corporate Power. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company has the corporate power and authority
to own and operate its properties, to carry on its business as now conducted and
to enter into this Agreement and carry out the transactions contemplated hereby.
4.2 Capitalization.
(i) On the date of this Agreement, the authorized capital
stock of the Company consists of 14,500,000 shares of Common Stock, of which
3,139,816 shares are issued and outstanding and 500,000 shares of preferred
stock, par value $.003 per share, none of which are issued and outstanding.
3
<PAGE>
(ii) The Shares, when issued, sold and delivered in
accordance with the terms of this Agreement, will be duly and validly issued,
fully paid and non-assessable. The Warrant Shares are duly reserved for
issuance, and upon issuance thereof in accordance with the terms and provisions
of the Warrant, the Warrant Shares will be duly and validly issued, fully paid
and non-assessable.
ARTICLE IV
Registration Rights
5 Demand Registration Rights. Beginning on January 1, 1998, the Company, upon
written demand of the Purchaser, agrees to register on two occasions, all or any
portion of the Shares or the Warrant Shares (collectively, the "Registrable
Shares"). Purchaser has the right to request in writing that the Company effect
the registration under the Securities Act of the Registrable Shares, and the
Company shall, as expeditiously as possible, use its best efforts to effect the
registration, on a form of general use under the Securities Act, of all the
Registrable Shares which the Company has been requested to register.
Notwithstanding the foregoing, if the Company shall furnish to the Purchaser
requesting a registration under this Section 4.1 a certificate signed by the
Chief Executive Officer of the Company stating that in the good faith judgment
of the Board of Directors of the Company it would be detrimental to the Company
and its shareholders for such registration statement to be filed and it is
therefore essential to defer the filing of such registration statement, the
Company shall have the right to defer taking action with respect to such filing
for a period of not more than 90 days after receipt by the Purchaser of such
certificate; provided, however, that the Company may not utilize this right more
than once in any 12-month period. In addition, the Company shall not be
obligated to effect, or to take any action to effect, any registration pursuant
to this Section 4.1 during the period starting with the date 30 days prior to
the Company's good faith estimate of the date of filing of, and ending on a date
120 days after the effective date of, a registration subject to Section 4.2
hereto; provided that the Company is actively employing in good faith its best
efforts to cause such registration statement to be filed and thereafter to
become effective.
5.1 "Piggyback" Registration Rights. At any time after the
Closing Date, the Company shall, at least thirty (30) days prior to the filing
of any registration statement under the Securities Act (other than a
registration statement on Form S-8 or Form S-4 or any successor forms) relating
to the public offering of its Common Stock by the Company or any of its security
holders, give written notice of such proposed filing and of the proposed date
thereof to the Purchaser, and if, on or before the twentieth (20th) day
following the date on which such notice is given, the Company shall receive a
written request from the Purchaser requesting that the Company include among the
securities covered by such registration statement some or all of the
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<PAGE>
Registrable Shares held by the Purchaser, the Company shall, subject to Section
4.3 hereof, include such the Registrable Shares in such registration statement,
if filed, so as to permit such Registrable Shares to be sold or disposed of in
the manner and on the terms of the offering thereof set forth in such request.
5.2 Terms and Conditions of Registration. Except as otherwise
provided herein, in connection with any registration statement filed pursuant to
Sections 4.1 or 4.2 herein, the following provisions shall apply:
(i) If such registration statement shall be filed pursuant
to Section 4.2 hereof and if the managing underwriter advises the Company in
writing that the inclusion in such registration of some or all of the
Registrable Shares sought to be registered by the Purchaser creates a
substantial risk that the proceeds or price per share that will be derived from
such registration will be reduced or that the number of shares to be registered
at the insistence of the Purchaser, plus the number of shares of Common Stock
sought to be registered by the Company and any other stockholders of the Company
is too large a number to be reasonably sold, then, in such event, the number of
shares sought to be registered for the Company, the other stockholders of the
Company having registration rights, and such Purchasers, as applicable, shall be
reduced, pro rata in proportion to the number of shares sought to be registered
to the number of shares recommended be sold by the managing underwriter. In no
event will any securities to be sold by the Company be excluded from such
registration by reason of any underwriters' cut-backs unless the Company has
agreed thereto with the underwriter.
(ii) If requested by the Purchaser in connection with a
registration statement filed pursuant to Section 4.1, the Company will enter
into an underwriting agreement with the underwriters for such offering, such
agreement to be reasonably satisfactory in form and substance to the Company,
the Purchaser and the underwriters, and to contain such representations,
warranties and covenants by the Company and such other terms as are customarily
contained in such agreements used by the managing underwriter, including,
without limitation, restrictions of sales of Common Stock or other securities by
the Company as may be reasonably agreed to between the Company and such
underwriters, and indemnities and rights to contributions to the effect and to
the extent provided in Sections 4.4 and 4.5 hereof. The Purchaser shall be a
party to any underwriting agreement relating to an underwritten sale of its
Registrable Shares and may, at its option, require that any or all of the
representations, warranties and covenants of the Company to or for the benefit
of such underwriters, shall also be made to and for the benefit of the
Purchaser. All representations and warranties of the Purchaser shall be made to
or for the benefit of the Company.
(iii) The Company shall provide a transfer agent and
registrar (which may be the same entity) for the Registrable Shares, not later
than the effective date of such registration.
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<PAGE>
(iv) All expenses in connection with the preparation and
filing of a registration statement filed pursuant to Sections 4.1 or 4.2 shall
be borne solely by the Company, except for any transfer taxes payable with
respect to the disposition of such Registrable Shares, and any underwriting
discounts and selling commissions applicable solely to such sales of Registrable
Shares, which shall be paid by the Purchaser.
(v) The Company shall use its best efforts to cause all of
the shares of Common Stock covered by such registration statement to be listed
on NASDAQ or on such other securities exchange as such shares may then be
listed, on which similar shares are listed for trading, if the listing of such
registered shares is permitted by such exchange.
(vi) Following the effective date of such registration
statement, the Company shall, upon the request of the Purchaser, forthwith
supply such number of prospectuses (including exhibits thereto and preliminary
prospectuses and amendments and supplements thereto) meeting the requirements of
the Securities Act and such other documents as are referred to in the prospectus
as shall be reasonably requested by the Purchaser to permit the Purchaser to
make a public distribution of its Registrable Shares.
(vii) The Purchaser may select the underwriter or
underwriters, if any, who are to undertake any offering and distribution of the
Registrable Shares to be included in a registration statement filed under the
provisions of Section 4.1 hereof, subject to the Company's prior approval of the
underwriter, which approval shall not be unreasonably withheld.
(viii) The Company shall use its best efforts to register
the Registrable Shares covered by any such registration statements filed
pursuant to Section 4.1 or 4.2 under such securities or Blue Sky laws in
addition to those in which the Company would otherwise sell Registrable Shares,
as the Purchaser shall request, except that neither the Company nor the
Purchaser shall for any such purpose be required to execute a general consent to
service of process or to qualify to do business as a foreign corporation in any
jurisdiction where it is not so qualified. The fees and expenses incurred in
connection with such registration shall be borne by the Company.
(ix) The Purchaser shall cooperate fully with the Company
and provide the Company with all information reasonably requested by the Company
for inclusion in the registration statement or as necessary to comply with the
Securities Act. The Company shall cooperate fully with any underwriters selected
by the Purchaser and counsel to such underwriters, and shall provide reasonable
and customary access to the Company's books and records (upon receipt from such
underwriters of customary confidentiality agreements) in order to facilitate
such underwriters' review and examination of the Company in connection with such
underwriting.
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(x) The Company shall notify the Purchaser, at any time
after effectiveness when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of circumstances then existing (and upon receipt of such
notice and until a supplemented or amended prospectus as set forth below is
available, the Purchaser shall not offer or sell any securities covered by such
registration statement and shall return all copies of such prospectus to the
Company if requested to do so by it), and at the request of the Purchaser
prepare and furnish the Purchaser as promptly as practicable, but in any event
within 30 days, a reasonable number of copies of a supplement to or an amendment
of such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing.
(xi) The Company shall furnish to the Purchaser at the time
of the registration of the Registrable Shares, a signed copy of an opinion of
the Company's regular in- house or outside general counsel, or other counsel of
the Company's selection reasonably acceptable to, and which opinion shall be
reasonably satisfactory in form and substance to, the Purchaser to the effect
that: (a) a registration statement covering the Registrable Shares has been
filed with the Commission under the Securities Act and has been declared
effective by order of the Commission, (b) said registration statement and
prospectus contained therein comply as to form in all material respects with the
requirements of the Securities Act, and nothing has come to such counsel's
attention (after due inquiry) which would cause such counsel to believe that
either said registration statement or such prospectus (other than the financial
statements contained therein, as to which such counsel need not express any
opinion) contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein (in the case of such prospectus, in light of the circumstances under
which they were made) not misleading, (c) after due inquiry such counsel knows
of no legal or governmental proceedings required to be described in such
registration statement or prospectus which are not described as required, or of
any contracts or documents of a character required to be described in such
registration statement or such prospectus to be filed as an exhibit to such
registration statement or to be incorporated by reference therein which are not
described and filed as required and (d) to such counsel's knowledge, no stop
order has been issued by the Commission suspending the effectiveness of such
registration statement; it being understood that such opinion may contain such
qualifications and assumptions as are customary in the rendering of similar
opinions, and that such counsel may rely, as to all factual matters treated
therein, on certificates of the Company (copies of which shall be delivered to
the Purchaser).
(xii) The Company will use its best efforts to comply with
the reporting requirements of Sections 13 and 15(d) of the Securities Exchange
Act of 1934, as amended, to the
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extent it shall be required to do so pursuant to such sections, and at all times
while so required shall use its best efforts to comply with all other public
information reporting requirements of the Commission (including reporting
requirements which serve as a condition to utilization of Rule 144 promulgated
by the Commission under the Securities Act) from time to time in effect and
relating to the availability of an exemption from the Securities Act for the
sale of any of the Company's Common Stock held by the Purchaser. The Company
will also cooperate with the Purchaser in supplying such information and
documentation as may be necessary for the Purchaser to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of an exemption from the Securities Act for the
sale of any of the Company's Common Stock held by the Purchaser.
5.3 Indemnification.
(i) In the event of the registration of any
Registrable Shares of the Company under the Securities Act pursuant to the
provisions of Sections 4.1 or 4.2, the Company agrees to indemnify and hold
harmless the Purchaser, each underwriter, broker or dealer, if any, and their
respective directors, officers and employees, of such Registrable Shares, and
each other person, if any, who controls the holders of the Registrable Shares
(or a permitted assignee thereof), such underwriter, broker or dealer within the
meaning of the Securities Act, from and against any and all losses, claims,
damages or liabilities (or actions in respect thereof), joint or several, to
which the Purchaser (and as applicable) its directors, officers or employees, or
such underwriter, broker or dealer or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which the Registrable Shares were registered
under the Securities Act, any preliminary prospectus or final prospectus
relating to such Registrable Shares, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Company of any rule
or regulation under the Securities Act applicable to the Company or relating to
any action or inaction required by the Company in connection with any such
registration and will reimburse the Purchaser, each such underwriter, broker or
dealer and controlling person, and their respective directors, officers or
employees, for any legal or other expenses reasonably incurred by the Purchaser
or such underwriter, broker or dealer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, such preliminary prospectus, such
final prospectus or such amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by the Purchaser
and as applicable, such Purchaser's directors, officers or employees, or such
underwriter, broker, dealer or controlling
8
<PAGE>
person for use in the preparation thereof. Such indemnity shall remain in full
effect irrespective of any investigation by any person indemnified above.
(ii) In the event of the registration of any
Registrable Shares of the Purchaser under the Securities Act for sale pursuant
to the provisions of this Agreement, the Purchaser agrees to indemnify and hold
harmless the Company, its directors, officers and employees, from and against
any losses, claims, damages or liabilities, joint or several, to which the
Company, its directors, officers or employees, may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such Registrable Shares were registered
under the Securities Act, any preliminary prospectus or final prospectus
relating to such Registrable Shares, or any amendment or supplement thereto, or
arise out of or are based upon omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, which untrue statement or alleged untrue statement or
omission or alleged omission was made therein in reliance upon and in conformity
with written information furnished to the Company by the Purchaser for use in
the preparation thereof. Such indemnity shall remain in full effect irrespective
of any investigation by any person indemnified above.
(iii) Promptly after receipt by a person entitled to
indemnification under this Section 4.4 (for purposes of this Section 4.4, an
"Indemnified Party") of notice of the commencement of any action or claim
relating to any registration statement filed under Sections 4.1 or 4.2 or as to
which indemnity may be sought hereunder, such Indemnified Party will, if a claim
for indemnification hereunder in respect thereof is to be made against any other
party hereto (for purposes of this Section 4.4, an "Indemnifying Party"), give
written notice to such Indemnifying Party of the commencement of such action or
claim, but the failure to so notify the Indemnifying Party will not relieve it
from any liability which it may have to any Indemnifying Party otherwise than
pursuant to the provisions of this Section 4.4 and shall also not relieve the
Indemnifying Party of its obligations under this Section 4.4, except to the
extent that the Indemnifying Party is damaged solely as a result of the failure
to give timely notice. In case any such action is brought against an Indemnified
Party, and it notifies an Indemnifying Party of the commencement thereof, the
Indemnifying Party will be entitled (at its own expense) to participate in and,
to the extent that it may wish, jointly with any other Indemnifying Party
similarly notified, to assume the defense with counsel satisfactory to such
Indemnified Party, of such action and/or to settle such action and, after notice
from the Indemnifying Party to such Indemnified Party of its election so to
assume the defense thereof, the Indemnifying Party will not be liable to such
Indemnified Party for any legal or other expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof, other than the
reasonable cost of investigation; provided, however, that no Indemnifying Party
and no Indemnified Party shall enter into any settlement
9
<PAGE>
agreement which would impose any liability on such other party or parties
without the prior written consent of such other party or parties.
(iv) Notwithstanding the foregoing provisions of this
Section 4.4, in no event shall the Purchaser be liable for an amount in excess
of the net proceeds received by the Purchaser from the sale of the Registrable
Shares.
5.4 Contribution. If the indemnification provided for in
Section 4.4 hereof is unavailable to the Indemnified Party in respect of any
losses, claims, damages or liabilities referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages or liabilities (i) as between the Company and
the Purchaser on the one hand and the underwriters on the other, in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Purchaser on the one hand and the underwriters on the other from
the offering of the shares of Common Stock, or if such allocation is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company and the
Purchaser on the one hand and of the underwriters on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations and (ii)
as between the Company on the one hand and the Purchaser on the other, in such
proportion as is appropriate to reflect the relative fault of the Company and of
the Purchaser in connection with such statements or omissions, as well as any
other relevant equitable considerations.
In no event shall the obligation of any Indemnifying Party
to contribute under this Section 4.5 exceed the amount that such Indemnifying
Party would have been obligated to pay by way of indemnification if the
indemnification provided for under Section 4.4 hereof had been available under
the circumstances.
The amount paid or payable by an Indemnified Party as a result
of the losses, claims, damages and liabilities shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses incurred
by such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 4.5, no
underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Shares purchased by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
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5.5 Survival. The indemnity and contribution agreements
contained in Sections 4.4 and 4.5 shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement or any underwriting
agreement, (ii) any investigation made by or on behalf of any Indemnified Party
or by or on behalf of the Company and (iii) the consummation of the sale or
successive resales of the Registrable Shares.
5.6 Future Registration Rights. Until such time as the
registration statement has been declared effective by the Commission, the
Company shall not grant to any third party any registration rights equal to or
more favorable than those contained in this Article 4; provided, however, that
the foregoing prohibition shall not prevent the Company from granting to a third
party specific registration rights that are equal to those contained in this
Article 4, as long as all of the registration rights granted to such third
party, taken as a whole, are less favorable to the third party that those
granted to the Purchaser herein. In the event that the registration statement
shall fail to remain effective (or a stop order shall be entered with respect
thereto) while any of the Registrable Shares remain unsold, the provisions of
this Section 4.7 shall become applicable once again.
ARTICLE V
Conditions to Closing
6 Conditions to the Purchaser's Obligations to Close. The Purchaser's
obligations to close hereunder shall be subject to the following condition: (a)
all of the documents required to be delivered by the Company to the Purchaser
pursuant to Section 1.4 hereof shall have been delivered to the Purchaser.
6.1 Conditions to the Company's Obligation to Close. The
Company's obligation to close hereunder shall be subject to the following
condition: (a) the purchase price for the Shares and the Warrant required to be
delivered by the Purchaser to the Company pursuant to Section 1.5 hereof shall
have been delivered to the Company.
ARTICLE VI
Amendments
7 Amendments. This Agreement may not be amended or modified orally and no waiver
of compliance with any provision or condition hereof shall be effective unless
evidenced
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by an instrument in writing duly executed by the party hereto sought to be
charged with such amendment, modification or waiver.
ARTICLE VII
Legend
8 Legend. The following legend shall be noted conspicuously on all certificates
representing the Shares issued to the Purchaser pursuant to the terms of this
Agreement:
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. SUCH SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF A PRIOR EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR A PRIOR
OPINION OF COUNSEL TO THE COMPANY OR SUCH OTHER
COUNSEL AS SHALL BE SATISFACTORY TO THE COMPANY
STATING THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR STATE SECURITIES LAWS."
ARTICLE VIII
Notices
9 Notices. Any notice, demand, waiver, or consent required or permitted
hereunder shall be in writing and shall be given personally or by registered or
certified mail, with return receipt requested, or by facsimile transmission,
addressed as follows:
If to the Company:
Soulfood Concepts, Inc.
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630 Ninth Avenue
Suite 310
New York, New York 10036
Fax: (212) 262-8333
Attention: Mr. Brian Hinchcliffe
If to the Purchaser:
Clarion Finanz AG
Seefeldstrasse 214
Postfach, 8034
Zurich, Switzerland
Fax: 011-411-388-4020
Attention: Mr. Carlo Civelli
A given notice shall be deemed received upon the date of
delivery if given personally or by facsimile transmission (with delivery of a
copy by registered or certified mail), or, if given by registered or certified
mail, on the fifth day after the day on which it is deposited in the mails
properly addressed with postage prepaid as herein provided. Any party may change
his or her address for the purpose of notice by giving notice in accordance with
the provisions of this Section 8.1.
ARTICLE IX
Miscellaneous
10
Miscellaneous. This Agreement sets forth the entire
understanding of the parties and supersedes any and all prior agreements,
arrangements and understandings relating to the subject matter hereof, and no
representation, promise, inducement or statement of intention has been mae by
any party, which is not embodied herein and no party shall be bound by, or be
liable for, any alleged representation, promise, inducement or statement of
intention not embodied herein. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns. This
Agreement may be executed in any number of counterparts, and all such
counterparts shall constitute one and the same instrument. Facsimile copies
shall be deemed valid and binding. The parties hereto acknowledge that Kane
Kessler, P.C. has in the past and may continue in the future to represent either
or both of the parties hereto, and each party hereby waives any conflict of
interest that may result therefrom, and consents to any such representation by
Kane Kessler, P.C. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to its
conflict of laws rules.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
SOULFOOD CONCEPTS, INC.
By: /s/ Brian Hinchchliffe
------------------------------
Name: Brian Hinchchliffe
Title: President
CLARION FINANZ AG
By: /s/ Carlo Civelli
------------------------------
Name: Carlo Civelli
Title: President
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WARRANT
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT HAS BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A PRIOR
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR A PRIOR OPINION OF COUNSEL TO THE COMPANY OR SUCH OTHER
COUNSEL AS SHALL BE SATISFACTORY TO THE COMPANY STATING THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR STATE SECURITIES LAWS.
SOULFOOD CONCEPTS, INC.
A Delaware Corporation
WARRANT TO PURCHASE 10,000 SHARES OF COMMON STOCK,
PAR VALUE $.003 PER SHARE
VOID AFTER 5:00 P.M. EASTERN TIME ON JUNE 6, 1999
This certifies that, for value received, Clarion Finanz AG (the
"Warrant Holder"), is entitled, subject to the terms and conditions hereof, to
purchase from Soulfood Concepts, Inc. (the "Company"), at any time or from time
to time, but in any event, on or before June 6, 1999, up to 10,000 shares of
common stock of the Company, par value $.003 per share ("Common Stock"), at an
exercise price of $1.00 per share, subject to adjustment as hereinafter provided
(the "Exercise Price"), and to receive a certificate or certificates for the
Common Stock so purchased pursuant to and subject to the terms and conditions
set forth below.
This Warrant is being purchased pursuant to the Stock Purchase
Agreement of even date herewith between the Warrant Holder and the Company.
1. This Warrant may be exercised in whole or in part at any
time, or from time to time, by delivery and surrender to the Company, subject to
Section 2 below, of this Warrant and a subscription form substantially similar
to that attached to this Warrant as Exhibit A duly executed by the Warrant
Holder at the offices of the Company at 630 Ninth Avenue, Suite 310, New York,
New York 10036, accompanied by payment in full, in lawful money of the United
States, or by certified or bank check, or postal or express money order payable
in United States dollars to the order of the Company, of the Exercise Price for
each share of Common Stock as to which this Warrant is being exercised on or
before 5:00 P.M. Eastern time on June 6, 1999, after which time this Warrant
shall be void.
2. (a) Upon the exercise of this Warrant, in full, the Company
shall, or shall direct its transfer agent to, issue to the Warrant Holder
certificates for the total number of shares
<PAGE>
of Common Stock issuable on the date of such exercise pursuant to the terms of
this Warrant in such denominations as are required by the Warrant Holder, and
the Company shall, or shall direct its transfer agent to, thereupon deliver such
certificates to or in accordance with the instructions of the Warrant Holder.
(b) In the event that the Warrant Holder shall
exercise this Warrant with respect to less than all of the shares of Common
Stock that may be purchased under the terms of this Warrant, the Company shall,
or shall direct its transfer agent to, issue to the Warrant Holder certificates
for the shares of Common Stock for which this Warrant is being exercised in such
denominations as are required for delivery to the Warrant Holder, and the
Company shall, or shall direct its transfer agent to, thereupon deliver such
certificates to or in accordance with the instructions of the Warrant Holder,
and the Company shall issue to the Warrant Holder a new Warrant, duly executed
by the Company, in form and substance identical to this Warrant for the balance
of the shares of Common Stock then issuable pursuant to the terms of this
Warrant.
(c) Notwithstanding anything to the contrary
contained herein, neither the Company nor its transfer agent shall be required
to issue any fraction of a share of Common Stock in connection with the exercise
of this Warrant, and the Company shall, upon exercise of this Warrant in whole
or in part, issue the largest number of whole shares of Common Stock to which
this Warrant is entitled upon such full or partial exercise and shall return to
the Warrant Holder the amount of the Exercise Price paid by the Warrant Holder
in respect of any fractional share.
3. The Warrant Holder, as such, shall not be entitled to vote
or receive dividends or be deemed the holder of shares of Common Stock for any
purpose, nor shall anything contained in this Warrant be construed to confer
upon the Warrant Holder, as such, any of the rights of a shareholder of the
Company including, without limitation, any right to vote, give or withhold
consent to any action by the Company (whether upon the recapitalization, issue
of stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings or other action affecting shareholders,
receive dividends or subscription rights, or otherwise, until this Warrant shall
have been exercised; provided, however, that any exercise of this Warrant, in
whole or in part, on any date when the stock transfer books of the Company shall
be closed shall constitute the person or persons in whose name or names the
certificate or certificates for such shares of Common Stock are to be issued as
the record holder or holders thereof for all purposes at the opening of business
on the next succeeding day on which such stock transfer books are open, and this
Warrant shall not be deemed to have been exercised, in whole or in part, as the
case may be, until that date for the purpose of determining entitlement to
dividends on the Common Stock, and that exercise shall be at the actual Exercise
Price in effect at such date.
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<PAGE>
4. If the Company shall at any time consolidate or merge with
or into another corporation, (a) the Company shall give at least twenty (20)
days prior written notice to the Warrant Holder of such consolidation or merger
and the terms thereof, and (b) the Warrant Holder may at its exclusive option
exercise its Warrant in whole or in part.
5. The Exercise Price shall be subject to adjustment as
follows:
(a) In case the Company shall, after the date hereof, (i)
pay a stock dividend or make a distribution in shares of its capital stock
(whether shares of its Common Stock or of capital stock of any other class),
(ii) subdivide its outstanding shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issue by reclassification of its shares of Common Stock any shares of capital
stock of the Company, the Exercise Price in effect immediately prior to such
action shall be adjusted so that the holder of this Warrant thereafter
surrendered for exercise shall be entitled to receive an equivalent number of
shares of capital stock of the Company which he would have owned immediately
following such action had this Warrant been exercised immediately prior thereto.
Any adjustment made pursuant to this subsection (a) shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification.
(b) In case the Company shall issue any capital stock, or
any rights, warrants or other securities convertible into shares of capital
stock of the Company entitling such subscriber or purchaser to subscribe for or
purchase shares of capital stock at a price per share less than the Exercise
Price then in effect on the date of such issuance, the Exercise Price shall be
adjusted to such lower price per share at which such capital stock or such
rights, warrants or other securities are issued (such price per share to include
any consideration paid by the holders to acquire such security, if any, plus any
amount paid to the Company to exercise or convert such security). Such
adjustment shall be made whenever such capital stock or such rights, warrants or
other securities are issued, and shall become effective retroactively
immediately after the record date for the determination of stockholders entitled
to receive such capital stock or such rights, warrants or other securities.
(c) Whenever the Exercise Price is adjusted as provided in
Section 5(a) or 5(b) herein, the Company will promptly mail to the Warrant
Holder a certificate of the Company's Treasurer or Chief Financial Officer
setting forth the Exercise Price as so adjusted and a brief statement of facts
accounting for such adjustment.
(d) Irrespective of any adjustment or change in the
Exercise Price and the number of shares actually purchasable under this Warrant,
this Warrant may continue to express the Exercise Price per share as expressed
upon this Warrant when initially issued.
3
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6. If this Warrant is lost, stolen or destroyed, the Company
shall, subject to such reasonable terms as to indemnity as are commonly imposed
in respect of warrants which are not registered pursuant to the Act, issue a new
Warrant of like denomination and tenor as, and in substitution for, the Warrant
so lost, stolen or destroyed, and in the event this Warrant shall be mutilated,
the Company shall, upon the surrender hereof, issue a new Warrant of like
denomination and tenor as, and in substitution for, the Warrant so mutilated.
7. Notwithstanding anything to the contrary contained in this
Warrant, this Warrant and the shares of Common Stock underlying this Warrant may
not be sold, assigned or transferred at any time, in any manner or by any person
or entity unless the Warrant and such shares, as the case may be, are registered
pursuant to the Securities Act of 1933, as amended (the "Act"), and under
applicable state securities laws or an exemption from the Act and such state
securities laws is available in respect of the Warrant and such shares for such
sale, assignment or transfer, as the case may be.
8. (a) Upon the exercise of this Warrant and the issuance of
shares pursuant to the terms hereto, the Company shall instruct the Company's
transfer agent to issue stock certificates bearing the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. SUCH SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF A PRIOR EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR A PRIOR
OPINION OF COUNSEL TO THE COMPANY OR SUCH OTHER
COUNSEL AS SHALL BE SATISFACTORY TO THE COMPANY
STATING THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR STATE SECURITIES LAWS.
(b) The Company shall impose a "stop transfer" instruction
with respect to the certificates representing the Common Stock issued upon the
exercise of this Warrant. Nothing in this Section 8, however, shall affect in
any way the Warrant Holder's obligations and
4
<PAGE>
agreements to comply with all applicable securities laws upon resale of the
Common Stock issued upon the exercise of this Warrant.
9. The validity, interpretation and performance of this
Warrant shall be governed by the laws of the State of New York without giving
effect to its conflict of laws rules.
10. This Warrant cannot be amended, supplemented or changed,
and no provision hereof can be waived, except by a written instrument making
specific reference to this Warrant and signed by the party against whom
enforcement of any such amendment, supplement, modification or waiver is sought.
The Exhibit to this Warrant is incorporated herein by reference to the same
extent as if set forth herein in full. A waiver of any right derived hereunder
by the Warrant Holder shall not be deemed a waiver of any other right derived
hereunder.
11. This Warrant shall be binding upon the Company and shall
inure to the benefit of the Warrant Holder, and their respective successors and
permitted assigns.
SOULFOOD CONCEPTS, INC.
By: /s/ Brian Hinchcliffe
-----------------------
Name: Brian Hinchcliffe
Title: President
5
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EXHIBIT A
SUBSCRIPTION FORM
(To be executed by the Warrant Holder to exercise the Warrant in whole or
in part)
TO: SOULFOOD CONCEPTS, INC.
The undersigned, whose Social Security or Tax Identification Number is
__, hereby irrevocably elects the right of purchase represented by the within
Warrant for, and to purchase thereunder, ____________ shares of Common Stock and
tenders payment herewith to the order of Soulfood Concepts, Inc. (the "Company")
in the amount of $ . The undersigned requests that certificates for such shares
of Common Stock be issued in the name of the undersigned Warrant Holder as
follows:
Name:
Address:
Deliver to:
Address:
and, if said number of shares of Common Stock shall not be all the shares of the
Common Stock purchasable thereunder, then a new Warrant for the balance of the
remaining shares of Common Stock purchasable thereunder be registered in the
name of, and delivered to, the undersigned at the address stated below.
Address:
Dated:
Warrant Holder: Signature Guaranteed:
By:
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NOTE PURCHASE AGREEMENT
NOTE PURCHASE AGREEMENT, dated as of January 26, 1998, among
each of the Purchasers parties set forth on Exhibit A attached hereto (each, a
"Purchaser" and collectively, the "Purchasers") and Soulfood Concepts, Inc. (the
"Company").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, each Purchaser desires to purchase, severally and not
jointly, the principal amount of the Company's 8% convertible secured notes,
substantially in the form of Exhibit B attached hereto (the "Notes") set forth
opposite such Purchaser's name on Exhibit A attached hereto, together with a
warrant, substantially in the form of Exhibit C attached hereto (the "Warrant")
to purchase up to that number of shares of the Company's common stock, par value
$.003 per share (the "Common Stock"), as set forth opposite such Purchaser's
name on Exhibit A attached hereto; and
WHEREAS, the Company desires to issue the Notes and Warrants
to the Purchasers in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein set forth, the parties hereto agree as follows:
ARTICLE I
Sale and Exchange
2 Sale of the Notes and Warrants. The Company hereby sells, conveys, transfers
and delivers to each Purchaser, severally and not jointly, and each Purchaser,
severally and not jointly, hereby purchases and accepts, the Notes and the
Warrants, in the amounts set forth on Exhibit A attached hereto, in accordance
with the terms hereof.
2.1 Consideration. In reliance upon the representations,
warranties, covenants and agreements contained herein, subject to the terms and
conditions hereof (including, without limitation, full performance by the
Company of its obligations pursuant to Section 1.4), and in consideration of the
sale, conveyance, transfer and delivery of the Notes and the Warrants pursuant
to Section 1.1, each Purchaser, severally and not jointly, shall deliver to the
Company at the Closing described in Section 1.3 hereof the principal amount of
the Notes purchased by such Purchaser as set forth on Exhibit A attached hereto
in immediately available funds.
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2.2 Closing. The closing of the purchase of the Notes and
Warrants (the "Closing") shall take place simultaneously with the execution
hereof, unless the parties shall otherwise agree, at the offices of Kane
Kessler, P.C., 1350 Avenue of the Americas, New York, New York 10019 on January
26, 1998 at 10:00 A.M. or at such other place or time as the parties may agree
(the "Closing Date").
2.3 Deliveries by the Company. At the Closing, the Company
shall deliver to each Purchaser (a) the Note purchased by such Purchaser, (b)
the Warrant purchased by such Purchaser, (c) a certificate of good standing of
the Company from the Secretary of State of the State of Delaware, and (d) an
officer's certificate of the Company, containing true and accurate copies of the
resolutions adopted by the Company authorizing the transactions contemplated
hereby.
2.4 Deliveries by the Purchaser. At the Closing, each
Purchaser, severally and not jointly, shall deliver to the Company the principal
amount of the Notes purchased by such Purchaser as set forth on Exhibit A
attached hereto in immediately available funds.
2.5 Further Assurances. In addition to the other obligations
required to be performed by the Company and the Purchasers hereunder, each of
the Company and the Purchasers agrees that it shall, at the Closing and at any
time, and from time to time thereafter, without cost to the other, execute,
acknowledge and deliver such instruments and documents, and take such other
actions, as may reasonably be requested of it by the other in order to
effectively vest in the Purchasers good and marketable title to the Note and
Warrant purchased by such Purchaser, free and clear of all liens, pledges, or
encumbrances.
ARTICLE II
Purchaser's Representations and Warranties
Each Purchaser, severally and not jointly, hereby represents
and warrants to the Company that:
3 Binding Agreement. The Purchaser has full power, authority and legal capacity
to (i) execute, deliver and perform this Agreement and (ii) consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Purchaser. This Agreement constitutes the legal, valid and
binding obligation of the Purchaser enforceable against it in accordance with
its terms.
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3.1 Acquisition of Note and Warrant for Own Account;
Restrictions on Transfer. The Purchaser is acquiring the Note and the Warrant
for investment and not with a view to the sale or distribution thereof, and is
acquiring such Note and Warrant for its own account and not on behalf of others
and has not granted any other person any right or option or any participation or
beneficial interest in any of the Note or the Warrant. The Purchaser
acknowledges its understanding that the Note and the Warrant constitute
restricted securities within the meaning of Rule 144 of the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), and that none of such Note or the Warrant may be
sold except pursuant to an effective registration statement under the Securities
Act or in a transaction exempt from registration under the Securities Act, and
acknowledges that it understands the meaning and effect of such restriction. The
Purchaser has sufficient knowledge and experience in financial and business
matters so that it is capable of evaluating the risks and merits of the
acquisition of the Note and the Warrant. The Purchaser is aware of and has
investigated the Company's business, management and financial condition, has had
a satisfactory opportunity to ask questions of, and receive answers from, agents
and employees of the Company concerning the business of the Company and the
terms and conditions of this transaction and has had access to such other
information about the Company as the Purchaser deemed necessary or desirable to
reach an informed and knowledgeable decision to purchase the Note and the
Warrant hereunder. The Purchaser further acknowledges that the Company is not
currently subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended.
3.2 Accreditation. The Purchaser is an accredited investor
within the meaning of Rule 501 of the rules and regulations of the Commission
promulgated under the Securities Act, and has the financial ability to bear the
economic risk of its acquisition of the Note and the Warrant.
ARTICLE III
Company's Representations, Warranties and Covenants
The Company hereby represents and warrants to each Purchaser,
and covenants and agrees with each Purchaser, that:
4 Validity and Binding Agreement. The Company has full power, authority and
legal capacity to (i) execute, deliver and perform this Agreement and (ii)
consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Company. This Agreement constitutes the legal,
valid and binding obligation of the Company, enforceable against it in
accordance with its terms.
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4.1 Organization and Standing; Corporate Power. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company has the corporate power and authority
to own and operate its properties, to carry on its business as now conducted and
to enter into this Agreement and carry out the transactions contemplated hereby.
4.2 Capitalization.
(i) On the date of this Agreement, the authorized
capital stock of the Company consists of 14,500,000 shares of Common Stock, of
which 3,139,816 shares are issued and outstanding and 500,000 shares of
preferred stock, par value $.003 per share, none of which are issued and
outstanding.
(ii) The shares of Common Stock into which the Notes
are convertible (the "Note Shares") and the shares of Common Stock into which
the Warrants are exercisable (the "Warrant Shares") are duly reserved for
issuance, and upon issuance thereof in accordance with the terms and provisions
of the Note and the Warrant, respectively, the Note Shares and the Warrant
Shares will be duly and validly issued, fully paid and non-assessable.
4.3 Use of Proceeds of Financing. Upon the completion by the
Company of an equity financing which results in net proceeds to the Company of
at least $2,000,000, the Company shall use such net proceeds to fully, finally
and indefeasibly pay all of its obligations to the Purchasers evidenced hereby
and by the Notes, Warrants and all other agreements, documents and instruments
executed in connection herewith and therewith.
ARTICLE IV
Registration Rights
The rights of the Purchasers herein under this Article IV are
subject in all respects to the rights of the Purchasers parties to that certain
Note Purchase Agreement, dated as of May 21, 1997, between the Company and the
Purchasers parties thereto, and to the rights of the Purchaser party to that
certain Stock Purchase Agreement, dated as of June 6, 1997, between the Company
and the Purchaser party thereto.
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5 Demand Registration Rights. Beginning on January 1, 1999, the Company, upon
written demand of the Purchasers holding in the aggregate a majority of the
principal amount of Notes outstanding, agrees to register on two occasions, all
or any portion of the Note Shares or the Warrant Shares (collectively, the
"Registrable Shares"). Such Purchasers have the right to request in writing that
the Company effect the registration under the Securities Act of the Registrable
Shares, and the Company shall, as expeditiously as possible, use its best
efforts to effect the registration, on a form of general use under the
Securities Act, of all the Registrable Shares which the Company has been
requested to register. Notwithstanding the foregoing, if the Company shall
furnish to the Purchasers requesting a registration under this Section 4.1 a
certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company it would be
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than 90 days after receipt
by the Purchasers of such certificate; provided, however, that the Company may
not utilize this right more than once in any 12-month period. In addition, the
Company shall not be obligated to effect, or to take any action to effect, any
registration pursuant to this Section 4.1 during the period starting with the
date 30 days prior to the Company's good faith estimate of the date of filing
of, and ending on a date 120 days after the effective date of, a registration
subject to Section 4.2 hereto; provided that the Company is actively employing
in good faith its best efforts to cause such registration statement to be filed
and thereafter to become effective.
5.1 "Piggyback" Registration Rights. At any time after the
Closing Date, the Company shall, at least thirty (30) days prior to the filing
of any registration statement under the Securities Act (other than a
registration statement on Form S-8 or Form S-4 or any successor forms) relating
to the public offering of its Common Stock by the Company or any of its security
holders, give written notice of such proposed filing and of the proposed date
thereof to the Purchasers, and if, on or before the twentieth (20th) day
following the date on which such notice is given, the Company shall receive a
written request from the Purchasers requesting that the Company include among
the securities covered by such registration statement some or all of the
Registrable Shares held by the Purchasers, the Company shall, subject to Section
4.3 hereof, include such the Registrable Shares in such registration statement,
if filed, so as to permit such Registrable Shares to be sold or disposed of in
the manner and on the terms of the offering thereof set forth in such request.
5.2 Terms and Conditions of Registration. Except as otherwise
provided herein, in connection with any registration statement filed pursuant to
Sections 4.1 or 4.2 herein, the following provisions shall apply:
(i) If such registration statement shall be filed
pursuant to Section 4.2 hereof and if the managing underwriter advises the
Company in writing that the inclusion in such
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registration of some or all of the Registrable Shares sought to be registered by
such Purchasers creates a substantial risk that the proceeds or price per share
that will be derived from such registration will be reduced or that the number
of shares to be registered at the insistence of such Purchasers, plus the number
of shares of Common Stock sought to be registered by the Company and any other
stockholders of the Company is too large a number to be reasonably sold, then,
in such event, the number of shares sought to be registered for the Company, the
other stockholders of the Company having registration rights, and such
Purchasers, as applicable, shall be reduced, pro rata in proportion to the
number of shares sought to be registered to the number of shares recommended be
sold by the managing underwriter. In no event will any securities to be sold by
the Company be excluded from such registration by reason of any underwriters'
cut-backs unless the Company has agreed thereto with the underwriter.
(ii) If requested by such Purchasers in connection
with a registration statement filed pursuant to Section 4.1, the Company will
enter into an underwriting agreement with the underwriters for such offering,
such agreement to be reasonably satisfactory in form and substance to the
Company, such Purchasers and the underwriters, and to contain such
representations, warranties and covenants by the Company and such other terms as
are customarily contained in such agreements used by the managing underwriter,
including, without limitation, restrictions of sales of Common Stock or other
securities by the Company as may be reasonably agreed to between the Company and
such underwriters, and indemnities and rights to contributions to the effect and
to the extent provided in Sections 4.4 and 4.5 hereof. Such Purchasers shall be
a party to any underwriting agreement relating to an underwritten sale of its
Registrable Shares and may, at their option, require that any or all of the
representations, warranties and covenants of the Company to or for the benefit
of such underwriters, shall also be made to and for the benefit of such
Purchasers. All representations and warranties of such Purchasers shall be made
to or for the benefit of the Company.
(iii) The Company shall provide a transfer agent and
registrar (which may be the same entity) for the Registrable Shares, not later
than the effective date of such registration.
(iv) All expenses in connection with the preparation
and filing of a registration statement filed pursuant to Sections 4.1 or 4.2
shall be borne solely by the Company, except for any transfer taxes payable with
respect to the disposition of such Registrable Shares, and any underwriting
discounts and selling commissions applicable solely to such sales of Registrable
Shares, which shall be paid by such Purchasers, severally.
(v) The Company shall use its best efforts to cause
all of the shares of Common Stock covered by such registration statement to be
listed on NASDAQ or on such other securities exchange as such shares may then be
listed, on which similar shares are listed for trading, if the listing of such
registered shares is permitted by such exchange.
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(vi) Following the effective date of such
registration statement, the Company shall, upon the request of such Purchasers,
forthwith supply such number of prospectuses (including exhibits thereto and
preliminary prospectuses and amendments and supplements thereto) meeting the
requirements of the Securities Act and such other documents as are referred to
in the prospectus as shall be reasonably requested by such Purchasers to permit
such Purchasers to make a public distribution of their Registrable Shares.
(vii) Such Purchasers may select the underwriter or
underwriters, if any, who are to undertake any offering and distribution of the
Registrable Shares to be included in a registration statement filed under the
provisions of Section 4.1 hereof, subject to the Company's prior approval of the
underwriter, which approval shall not be unreasonably withheld.
(viii) The Company shall use its best efforts to
register the Registrable Shares covered by any such registration statements
filed pursuant to Section 4.1 or 4.2 under such securities or Blue Sky laws in
addition to those in which the Company would otherwise sell Registrable Shares,
as such Purchasers shall request, except that neither the Company nor such
Purchasers shall for any such purpose be required to execute a general consent
to service of process or to qualify to do business as a foreign corporation in
any jurisdiction where it is not so qualified. The fees and expenses incurred in
connection with such registration shall be borne by the Company.
(ix) Such Purchasers shall cooperate fully with the
Company and provide the Company with all information reasonably requested by the
Company for inclusion in the registration statement or as necessary to comply
with the Securities Act. The Company shall cooperate fully with any underwriters
selected by such Purchasers and counsel to such underwriters, and shall provide
reasonable and customary access to the Company's books and records (upon receipt
from such underwriters of customary confidentiality agreements) in order to
facilitate such underwriters' review and examination of the Company in
connection with such underwriting.
(x) The Company shall notify such Purchasers, at any
time after effectiveness when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of circumstances then existing (and upon receipt of such
notice and until a supplemented or amended prospectus as set forth below is
available, such Purchasers shall not offer or sell any securities covered by
such registration statement and shall return all copies of such prospectus to
the Company if requested to do so by it), and at the request of such Purchasers
prepare and furnish such Purchasers as promptly as practicable, but in any event
within 30 days, a reasonable number of copies of a supplement to or an amendment
of such prospectus as may be
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necessary so that, as thereafter delivered to the purchasers of such shares,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing.
(xi) The Company shall furnish to such Purchasers at
the time of the registration of the Registrable Shares, a signed copy of an
opinion of the Company's regular in- house or outside general counsel, or other
counsel of the Company's selection reasonably acceptable to, and which opinion
shall be reasonably satisfactory in form and substance to, such Purchasers to
the effect that: (a) a registration statement covering the Registrable Shares
has been filed with the Commission under the Securities Act and has been
declared effective by order of the Commission, (b) said registration statement
and prospectus contained therein comply as to form in all material respects with
the requirements of the Securities Act, and nothing has come to such counsel's
attention (after due inquiry) which would cause such counsel to believe that
either said registration statement or such prospectus (other than the financial
statements contained therein, as to which such counsel need not express any
opinion) contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein (in the case of such prospectus, in light of the circumstances under
which they were made) not misleading, (c) after due inquiry such counsel knows
of no legal or governmental proceedings required to be described in such
registration statement or prospectus which are not described as required, or of
any contracts or documents of a character required to be described in such
registration statement or such prospectus to be filed as an exhibit to such
registration statement or to be incorporated by reference therein which are not
described and filed as required and (d) to such counsel's knowledge, no stop
order has been issued by the Commission suspending the effectiveness of such
registration statement; it being understood that such opinion may contain such
qualifications and assumptions as are customary in the rendering of similar
opinions, and that such counsel may rely, as to all factual matters treated
therein, on certificates of the Company (copies of which shall be delivered to
such Purchasers).
(xii) The Company will use its best efforts to comply
with the reporting requirements of Sections 13 and 15(d) of the Securities
Exchange Act of 1934, as amended, to the extent it shall be required to do so
pursuant to such sections, and at all times while so required shall use its best
efforts to comply with all other public information reporting requirements of
the Commission (including reporting requirements which serve as a condition to
utilization of Rule 144 promulgated by the Commission under the Securities Act)
from time to time in effect and relating to the availability of an exemption
from the Securities Act for the sale of any of the Company's Common Stock held
by such Purchasers. The Company will also cooperate with such Purchasers in
supplying such information and documentation as may be necessary for such
Purchasers to complete and file any information reporting forms presently or
hereafter required by the Commission as a condition to the availability of an
exemption from the Securities Act for the sale of any of the Company's Common
Stock held by such Purchasers.
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5.3 Indemnification.
(i) In the event of the registration of any
Registrable Shares of the Company under the Securities Act pursuant to the
provisions of Sections 4.1 or 4.2, the Company agrees to indemnify and hold
harmless such Purchasers, each underwriter, broker or dealer, if any, and their
respective directors, officers and employees, of such Registrable Shares, and
each other person, if any, who controls the holders of the Registrable Shares
(or a permitted assignee thereof), such underwriter, broker or dealer within the
meaning of the Securities Act, from and against any and all losses, claims,
damages or liabilities (or actions in respect thereof), joint or several, to
which such Purchasers (and as applicable) its directors, officers or employees,
or such underwriter, broker or dealer or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which the Registrable Shares were registered
under the Securities Act, any preliminary prospectus or final prospectus
relating to such Registrable Shares, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Company of any rule
or regulation under the Securities Act applicable to the Company or relating to
any action or inaction required by the Company in connection with any such
registration and will reimburse such Purchasers, each such underwriter, broker
or dealer and controlling person, and their respective directors, officers or
employees, for any legal or other expenses reasonably incurred by such
Purchasers or such underwriter, broker or dealer or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement, such
preliminary prospectus, such final prospectus or such amendment or supplement
thereto in reliance upon and in conformity with written information furnished to
the Company by such Purchasers and as applicable, such Purchasers' directors,
officers or employees, or such underwriter, broker, dealer or controlling person
for use in the preparation thereof. Such indemnity shall remain in full effect
irrespective of any investigation by any person indemnified above.
(ii) In the event of the registration of any
Registrable Shares of such Purchasers under the Securities Act for sale pursuant
to the provisions of this Agreement, such Purchasers agree, severally and not
jointly, to indemnify and hold harmless the Company, its directors, officers and
employees, from and against any losses, claims, damages or liabilities, joint or
several, to which the Company, its directors, officers or employees, may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable Shares
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were registered under the Securities Act, any preliminary prospectus or final
prospectus relating to such Registrable Shares, or any amendment or supplement
thereto, or arise out of or are based upon omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, which untrue statement or alleged untrue
statement or omission or alleged omission was made therein in reliance upon and
in conformity with written information furnished to the Company by such
Purchasers for use in the preparation thereof. Such indemnity shall remain in
full effect irrespective of any investigation by any person indemnified above.
(iii) Promptly after receipt by a person entitled to
indemnification under this Section 4.4 (for purposes of this Section 4.4, an
"Indemnified Party") of notice of the commencement of any action or claim
relating to any registration statement filed under Sections 4.1 or 4.2 or as to
which indemnity may be sought hereunder, such Indemnified Party will, if a claim
for indemnification hereunder in respect thereof is to be made against any other
party hereto (for purposes of this Section 4.4, an "Indemnifying Party"), give
written notice to such Indemnifying Party of the commencement of such action or
claim, but the failure to so notify the Indemnifying Party will not relieve it
from any liability which it may have to any Indemnifying Party otherwise than
pursuant to the provisions of this Section 4.4 and shall also not relieve the
Indemnifying Party of its obligations under this Section 4.4, except to the
extent that the Indemnifying Party is damaged solely as a result of the failure
to give timely notice. In case any such action is brought against an Indemnified
Party, and it notifies an Indemnifying Party of the commencement thereof, the
Indemnifying Party will be entitled (at its own expense) to participate in and,
to the extent that it may wish, jointly with any other Indemnifying Party
similarly notified, to assume the defense with counsel satisfactory to such
Indemnified Party, of such action and/or to settle such action and, after notice
from the Indemnifying Party to such Indemnified Party of its election so to
assume the defense thereof, the Indemnifying Party will not be liable to such
Indemnified Party for any legal or other expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof, other than the
reasonable cost of investigation; provided, however, that no Indemnifying Party
and no Indemnified Party shall enter into any settlement agreement which would
impose any liability on such other party or parties without the prior written
consent of such other party or parties.
(iv) Notwithstanding the foregoing provisions of this
Section 4.4, in no event shall any such Purchaser be liable for an amount in
excess of the net proceeds received by such Purchaser from the sale of the
Registrable Shares.
5.4 Contribution. If the indemnification provided for in
Section 4.4 hereof is unavailable to the Indemnified Party in respect of any
losses, claims, damages or liabilities referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages or liabilities (i) as between the Company and
such Purchasers on the one
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hand and the underwriters on the other, in such proportion as is appropriate to
reflect the relative benefits received by the Company and such Purchasers on the
one hand and the underwriters on the other from the offering of the shares of
Common Stock, or if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and such Purchasers on the one hand and of the
underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations and (ii) as between the Company on the one
hand and such Purchasers on the other, in such proportion as is appropriate to
reflect the relative fault of the Company and of such Purchasers in connection
with such statements or omissions, as well as any other relevant equitable
considerations.
In no event shall the obligation of any Indemnifying
Party to contribute under this Section 4.5 exceed the amount that such
Indemnifying Party would have been obligated to pay by way of indemnification if
the indemnification provided for under Section 4.4 hereof had been available
under the circumstances.
The amount paid or payable by an Indemnified Party as a result
of the losses, claims, damages and liabilities shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses incurred
by such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 4.5, no
underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Shares purchased by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
5.5 Survival. The indemnity and contribution agreements
contained in Sections 4.4 and 4.5 shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement or any underwriting
agreement, (ii) any investigation made by or on behalf of any Indemnified Party
or by or on behalf of the Company and (iii) the consummation of the sale or
successive resales of the Registrable Shares.
5.6 Future Registration Rights. Until such time as the
registration statement has been declared effective by the Commission, the
Company shall not grant to any third party any registration rights equal to or
more favorable than those contained in this Article 4; provided, however, that
the foregoing prohibition shall not prevent the Company from granting to a third
party specific registration rights that are equal to those contained in this
Article 4, as long as all of the registration rights granted to such third
party, taken as a whole, are less favorable to the third party that those
granted to such Purchasers herein. In the event that the registration
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statement shall fail to remain effective (or a stop order shall be entered with
respect thereto) while any of the Registrable Shares remain unsold, the
provisions of this Section 4.7 shall become applicable once again.
ARTICLE V
Conditions to Closing
6 Conditions to the Purchaser's Obligations to Close. The Purchaser's
obligations to close hereunder shall be subject to the following condition: (a)
all of the documents required to be delivered by the Company to the Purchaser
pursuant to Section 1.4 hereof shall have been delivered to the Purchaser.
6.1 Conditions to the Company's Obligation to Close. The
Company's obligation to close hereunder shall be subject to the following
condition: (a) the purchase price for the Shares and the Warrant required to be
delivered by the Purchaser to the Company pursuant to Section 1.5 hereof shall
have been delivered to the Company.
ARTICLE VI
Amendments
7 Amendments. This Agreement may not be amended or modified orally and no waiver
of compliance with any provision or condition hereof shall be effective unless
evidenced by an instrument in writing duly executed by the party hereto sought
to be charged with such amendment, modification or waiver.
ARTICLE VII
Legend
8 Legend. The following legend shall be noted conspicuously on all certificates
representing the Note Shares and the Warrant Shares to be issued to the
Purchaser pursuant to the terms of this Agreement, the Note and the Warrant:
12
<PAGE>
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. SUCH SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF A PRIOR EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR A PRIOR
OPINION OF COUNSEL TO THE COMPANY OR SUCH OTHER
COUNSEL AS SHALL BE SATISFACTORY TO THE COMPANY
STATING THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR STATE SECURITIES LAWS."
ARTICLE VIII
Notices
9 Notices. Any notice, demand, waiver, or consent required or permitted
hereunder shall be in writing and shall be given personally or by registered or
certified mail, with return receipt requested, or by facsimile transmission,
addressed as follows:
If to the Company:
Soulfood Concepts, Inc.
630 Ninth Avenue
Suite 310
New York, New York 10036
Fax: (212) 262-8333
Attention: Mr. Brian Hinchcliffe
13
<PAGE>
If to the Purchaser:
At the address of such Purchaser as set forth on
Exhibit A attached hereto.
A given notice shall be deemed received upon the date of
delivery if given personally or by facsimile transmission (with delivery of a
copy by registered or certified mail), or, if given by registered or certified
mail, on the fifth day after the day on which it is deposited in the mails
properly addressed with postage prepaid as herein provided. Any party may change
his or her address for the purpose of notice by giving notice in accordance with
the provisions of this Section 8.1.
ARTICLE IX
Miscellaneous
10
Miscellaneous. This Agreement sets forth the entire
understanding of the parties and supersedes any and all prior agreements,
arrangements and understandings relating to the subject matter hereof, and no
representation, promise, inducement or statement of intention has been mae by
any party, which is not embodied herein and no party shall be bound by, or be
liable for, any alleged representation, promise, inducement or statement of
intention not embodied herein. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns. This
Agreement may be executed in any number of counterparts, and all such
counterparts shall constitute one and the same instrument. Facsimile copies
shall be deemed valid and binding. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to its conflict of laws rules.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
SOULFOOD CONCEPTS, INC.
By: /s/ Brian Hinchcliffe
Name: Brian Hinchchliffe
Title: President
PURCHASERS:
CLARION FINANZ AG
14
<PAGE>
By: /s/ Carlo Civelli
-----------------------------
Name: Carlo Civelli
Title: President
US GLOBAL INVESTORS (GUERNSEY) LTD.
By: /s/ Frank E. Holmes
-----------------------------
Name: Frank E. Holmes
Title: President
/s/ Keith Clinkscales
-----------------------------
Keith Clinkscales
15
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Name of Purchaser Principal Amount of No. of Shares of Common Stock into
and Address: Note: which Warrant is Exercisable:
- ----------- ---- ----------------------------
<S> <C> <C>
Clarion Finanz AG $150,000 15,000
Seefeldstrasse 214
8034 Zurich, Switzerland
US Global Investors $100,000 10,000
(Guernsey) Ltd.
7900 Callaghan Road
San Antonio, Texas 78229
Keith Clinkscales $ 15,000 1,500
215 Lexington Avenue
Sixth Floor
New York, NY 10016
Totals: $265,000 26,500
======== ======
</TABLE>
<PAGE>
FORM OF
8% CONVERTIBLE SECURED NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THIS NOTE HAS BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF A PRIOR EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR A PRIOR
OPINION OF COUNSEL TO THE COMPANY OR SUCH OTHER COUNSEL AS SHALL BE
SATISFACTORY TO THE COMPANY STATING THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR STATE SECURITIES LAWS.
January 26, 1998 U.S. $150,000.00
New York, New York
SOULFOOD CONCEPTS, INC.
8% CONVERTIBLE SECURED NOTE DUE JANUARY 26, 2000
THIS NOTE is one of a duly authorized issue of Notes of
Soulfood Concepts, Inc., a corporation duly organized and existing under the
laws of Delaware (the "Company"), designated as its 8% Convertible Secured Note
due January 26, 2000, in an aggregate principal amount not exceeding Two Hundred
Sixty-Five Thousand Dollars (U.S. $265,000).
FOR VALUE RECEIVED, the Company promises to pay to_________
the registered holder hereof, and its successors and assigns (the "Holder"), the
principal sum of One Hundred Fifty Thousand Dollars (U.S. $150,000) on January
26, 2000 (the "Maturity Date"), and to pay interest on the principal sum
outstanding, at the rate of 8% per annum due and payable semi-annually in
arrears on June 30 and December 31, commencing with the period ending June 30,
1998. Accrual of interest shall commence on the date hereof and shall continue
until payment in full of the outstanding principal sum has been made or duly
provided for or the date of conversion of the Notes. The interest so payable
will be paid to the person in whose name this Note (or one or more predecessor
Notes) is registered on the records of the Company regarding registration and
transfers of the Notes (the "Note Register"); provided, however, that the
Company's obligation to a transferee of this Note arises only if such transfer,
sale or other disposition is made in accordance with the terms and conditions
hereof and of the Note Purchase Agreement, dated as of January 26, 1998, between
the Company and the Purchasers parties thereto (the "Note Purchase Agreement").
The principal of, and interest on, this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the address last appearing on
the Note Register of the Company as designated in writing by the Holder hereof
from time to time. The Company will pay the outstanding principal of and all
accrued and unpaid interest due upon this Note on the Maturity Date, less any
amounts required by law to be deducted or withheld, to the record Holder of this
Note as of the tenth (10th) day prior to the Maturity Date and addressed to such
record Holder at
<PAGE>
the last address appearing on the Note Register. The forwarding of such check
shall constitute a payment of outstanding principal and interest hereunder and
shall satisfy and discharge the liability for principal and interest on this
Note to the extent of the sum represented by such check plus any amounts so
deducted.
This Note is being offered through the Note Purchase
Agreement, and is subject to the terms and provisions thereof. Capitalized terms
not defined herein shall have the meanings ascribed to them in the Note Purchase
Agreement.
1. Denominations. The Notes are issuable in denominations of
Fifty Thousand Dollars (U.S.$50,000) and integral multiples thereof, or if less,
the principal amount thereof. The Notes are exchangeable for an equal aggregate
principal amount of Notes of different authorized denominations, as requested by
the Holders surrendering the same but not less than U.S. $50,000, or if less,
the principal amount thereof. No service charge will be made for such
registration or transfer or exchange.
2. Withholding. The Company shall be entitled to withhold from
all payments of principal of, and interest on, this Note any amounts required to
be withheld under the applicable provisions of the United States income tax
laws, rules or regulations or other applicable laws, rules or regulations at the
time of such payments.
3. Transfer and Conversion Restrictions. This Note has been
issued subject to investment representations of the original purchaser hereof
and may be transferred or exchanged in the United States only in compliance with
the Securities Act and applicable state securities laws. Prior to due
presentment for transfer of this Note, the Company and any agent of the Company
may treat the person in whose name this Note is duly registered on the Company's
Note Register as the owner hereof for the purpose of receiving payment as herein
provided and for all other purposes, whether or not this Note be overdue, and
neither the Company nor any such agent shall be affected or bound by notice to
the contrary.
4. Conversion. (a) Conversion Price. The Holder of this Note
is entitled, at its option at any time, to convert any or all of the original
principal amount of this Note into shares of common stock, par value $.003 per
share, of the Company (the "Common Stock"), by dividing the principal amount of
this Note that the Holder wishes to convert by $2.20 (the "Conversion Price").
The Conversion Price shall be subject to adjustment as hereinafter provided.
(b) Procedure. Conversion shall be effectuated by
surrendering the Notes to be converted to the Company with the form of
conversion notice attached hereto as Exhibit A, executed by the Holder of this
Note evidencing such Holder's intention to convert this Note or a specified
portion (as above provided) hereof. No fractional shares or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share, with the fraction paid in
cash at the discretion of the Company. The date on which notice of conversion is
given shall be deemed to be the date on
2
<PAGE>
which the Holder has delivered this Note, with the conversion notice duly
executed, to the Company.
5. Mandatory Conversion at Company's Option. (a) Mandatory
Conversion. Following a public offering of the Company's Common Stock ("Public
Offering"), if at the end of any rolling thirty (30) consecutive trading day
period (the "Measuring Period") the Common Stock has traded for each trading day
during the Measuring Period at 140% of the Public Offering price per share or
higher, the Company may, in its sole discretion, give notice to the Note Holder
of a mandatory conversion of this Note. The Holder shall, upon receipt of such
notice, surrender its Note to the Company and receive in exchange that number of
shares of Common Stock as determined by Section 4 using the Conversion Price
then in effect at the time in question. No fractional shares or scrip
representing fractions of shares will be issued on such a conversion, but the
number of shares issuable shall be rounded to the nearest whole share, with the
fraction paid in cash at the discretion of the Company.
(b) Notice of Conversion. The right of the Company to cause
the conversion pursuant to this Section 5 shall be conditioned upon its giving
notice of such conversion (the "Notice"), by personal delivery, overnight
courier, certified mail or by facsimile, signed by an authorized officer, to the
holders of Notes (as such names may be set forth in the Note Register), not less
than fifteen (15) business days prior to the date upon which the conversion is
to be made (the "Conversion Date"). The Notice shall specify (i) the aggregate
principal amount of the Note to be converted, and (ii) the date of such
conversion. Within ten (10) business days after receipt of the Notice by the
Holder, such Holder shall surrender to the Company its Note.
(c) Partial Conversion. In the event of a partial
conversion by the Company pursuant to this Section 5, the aggregate principal
amount of Notes so converted by the Company shall be allocated among all of the
Notes at the time outstanding, in proportion, as nearly as practicable, to the
respective unpaid principal amounts of such Notes.
(d) Interest; Surrender of Notes Upon Mandatory Conversion.
Upon the receipt of the Notice, interest shall cease to accrue upon the Note, or
in the case of a partial conversion, that portion of a Note subject to such
Notice. If a Holder fails to deliver the Note subject to the Notice within 30
days after receipt of such Notice, the Company shall cancel said Note and shall
have no further obligation whatsoever to the Holder regarding the rights
evidenced by the Note except for the delivery of the shares as provided in this
Section 5, provided that the Company shall have no obligation to deliver such
shares until the subsequent delivery of the Note.
6. Adjustments to Conversion Price. The Conversion Price shall
be subject to adjustment as follows:
(a) In case the Company shall, after the date hereof, (i)
pay a stock dividend or make a distribution in shares of its capital stock
(whether shares of its Common Stock
3
<PAGE>
or of capital stock of any other class), (ii) subdivide its outstanding shares
of Common Stock, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares, or (iv) issue by reclassification of its shares of
Common Stock any shares of capital stock of the Company, the Conversion Price in
effect immediately prior to such action shall be adjusted so that the holder of
this Note thereafter surrendered for conversion shall be entitled to receive an
equivalent number of shares of capital stock of the Company which he would have
owned immediately following such action had this Note been exercised immediately
prior thereto. Any adjustment made pursuant to this subsection (a) shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification.
(b) In case the Company shall issue any capital stock, or
any rights, warrants or other securities convertible into shares of capital
stock of the Company entitling such subscriber or purchaser to subscribe for or
purchase shares of capital stock at a price per share less than the Conversion
Price then in effect on the date of such issuance, the Conversion Price shall be
adjusted to such lower price per share at which such capital stock or such
rights, warrants or other securities are issued (such price per share to include
any consideration paid by the holders to acquire such security, if any, plus any
amount paid to the Company to exercise or convert such security). Such
adjustment shall be made whenever such capital stock or such rights, warrants or
other securities are issued, and shall become effective retroactively
immediately after the record date for the determination of stockholders entitled
to receive such capital stock or such rights, warrants or other securities.
(c) Whenever the Conversion Price is adjusted as provided
in Section 5(a) or 5(b) herein, the Company will promptly mail to the Holder a
certificate of the Company's Treasurer or Chief Financial Officer setting forth
the Conversion Price as so adjusted and a brief statement of facts accounting
for such adjustment.
(d) Irrespective of any adjustment or change in the
Conversion Price and the number of shares actually purchasable under this Note,
this Note may continue to express the Conversion Price per share as expressed in
this Note when initially issued.
7. Lockup. Beginning on the date that shares of Common Stock
are delivered to the Holder pursuant to Section 4 or Section 5 (the "Conversion
Date") hereof, such shares of Common Stock shall be deemed to be subject to the
lockup provisions of this Section 7 and not freely tradeable, and shall be
released from the lockup provisions hereof in one third increments on the three
month, six month and nine month anniversary of the effective date of the Public
Offering. Notwithstanding the foregoing the Company shall also impose a "stop
transfer" instruction on any Common Stock obtained through conversion of this
Note.
8. Restrictive Legend. Upon conversion of this Note, the
Holder shall receive a certificate for shares of Common Stock bearing the
following legend:
4
<PAGE>
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF A PRIOR EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR A PRIOR OPINION OF
COUNSEL TO THE COMPANY OR SUCH OTHER COUNSEL AS SHALL BE
SATISFACTORY TO THE COMPANY STATING THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR STATE SECURITIES LAWS.
9. Absolute Obligation. No provision of this Note shall alter
or impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of, and interest on, this Note at the time, place and rate
herein prescribed.
10. Waiver of Rights. The Company hereby expressly waives
demand and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of acceleration or intent to accelerate,
bringing of suit and diligence in taking any action to collect amounts called
for hereunder except as otherwise set forth herein and shall be directly and
primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder.
11. Collection Costs. The Company agrees to pay all costs and
expenses, including reasonable attorneys' fees, which may be incurred by the
Holder in collecting any amount due under this Note.
12. Default. If one or more of the following described "Events
of Default" shall occur:
(a) The Company shall default in the payment of principal
or interest on this Note; or
(b) Any of the material representations or warranties made
by the Company herein, in the Note Purchase Agreement, or in any certificate or
financial or other written statements heretofore or hereafter furnished directly
by the Company in connection with the execution and delivery of this Note or the
Note Purchase Agreement shall be false or misleading in any material respect at
the time made; or
(c) The Company shall fail to perform or observe, in any
material respect, any other material covenant, term, provision, condition,
agreement or obligation of the Company under this Note;
5
<PAGE>
(d) The Company shall (1) become insolvent; (2) admit in
writing its inability to pay its debts generally as they mature; (3) make an
assignment for the benefit of creditors or commence proceedings for its
dissolution; or (4) apply for or consent to the appointment of a trustee,
liquidator or receiver for all of its or for a substantial part of its property
or business; or
(e) A trustee, liquidator or receiver shall be appointed
for the Company or for a substantial part of its property or business without
its consent and shall not be discharged within sixty (60) days after such
appointment; or
(f) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties or assets of
the Company and shall not be dismissed within sixty (60) days thereafter; or
(g) Any money judgment, writ or warrant of attachment, or
similar process in excess of Two Hundred Fifty Thousand ($250,000) Dollars in
the aggregate shall be entered or filed against the Company or any of its
properties or other assets and shall remain unpaid, unvacated, unbonded or
unstayed for a period of thirty (30) days; or
(h) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed within sixty (60) days
after such institution, or the Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any such proceeding;
or
(i) Subsequent to a Public Offering, the Company shall have
its Common Stock delisted from any exchanges or the over-the-counter market;
then, or at any time thereafter, and as long as such Event of Default is
continuing for fourteen (14) days after written notice of such Event of Default
has been delivered, (except for the events described in Section 12(d) and (h)
for which no notice shall be given and no grace period shall be provided) or
unless such Event of Default shall have been waived in writing by the Holder
(which waiver shall not be deemed to be a waiver of any subsequent default) at
the option of the Holder and in the Holder's sole discretion, the Holder may
consider this Note immediately due and payable, without presentment, demand,
protest or notice of any kinds, all of which are hereby expressly waived,
anything herein or in any note or other instruments contained to the contrary
notwithstanding, and the Holder may immediately, and without expiration of any
period of grace other than as contained in this Section, enforce any and all of
the Holder's rights and remedies provided herein or any other rights or remedies
afforded by law.
13. Security. This Note is secured as set forth in the
Security Agreement between Shark Restaurant, Inc., a Georgia corporation and a
wholly-owned subsidiary of the Company, and the Holder of even date herewith.
6
<PAGE>
14. Investment Intent. The Holder of this Note, by acceptance
hereof, agrees that this Note is being acquired for investment and that such
Holder will not offer, sell or otherwise dispose of this Note or the shares of
Common Stock issuable upon conversion hereof except under circumstances which
will not result in a violation of the Securities Act or any applicable state
Blue Sky law or similar laws relating to the sale of securities.
15. Severability. In case any provision of this Note is held
by a court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than voided,
if possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Note will not in
any way be affected or impaired thereby.
16. Entire Agreement. This Note and the agreements referred to
in this Note constitute the full and entire understanding and agreement between
the Company and the Holder with respect to the subject hereof. Neither this Note
nor any term hereof may be amended, waived, discharged or terminated other than
by a written instrument signed by the Company and the Holder.
17. Governing Law. This Note shall be governed by and
construed in accordance with the laws of New York, without giving effect to its
conflicts of laws rules.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
SOULFOOD CONCEPTS, INC.
By:
-----------------------
Name:
Title:
7
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to
Convert the 8% Convertible Secured Note)
The undersigned hereby irrevocably elects to convert $_________
principal amount of the above 8% Convertible Secured Note into shares of Common
Stock of Soulfood Concepts, Inc. (the "Company") according to the conditions set
forth in such Note and the Note Purchase Agreement, as of the date written
below.
The undersigned represents that the representations and warranties of
the undersigned contained in the Note Purchase Agreement are true and correct on
the date hereof as though made on and as of the date hereof.
Date of Conversion ____________________________________________________________
Applicable Conversion Price ___________________________________________________
Signature: Holder:
By:_________________________________________________
Name:
Title:
Address: ______________________________________________________________________
______________________________________________________________________
8
<PAGE>
FORM OF
WARRANT
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT HAS BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A PRIOR
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR A PRIOR OPINION OF COUNSEL TO THE COMPANY OR SUCH OTHER
COUNSEL AS SHALL BE SATISFACTORY TO THE COMPANY STATING THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR STATE SECURITIES LAWS.
SOULFOOD CONCEPTS, INC.
A Delaware Corporation
WARRANT TO PURCHASE ______ SHARES OF COMMON STOCK,
PAR VALUE $.003 PER SHARE
VOID AFTER 5:00 P.M. EASTERN TIME ON JANUARY 26, 2000
This certifies that, for value received, ____________ (the "Warrant
Holder"), is entitled, subject to the terms and conditions hereof, to purchase
from Soulfood Concepts, Inc. (the "Company"), at any time or from time to time,
but in any event, on or before January 26, 2000, up to _____ shares of common
stock of the Company, par value $.003 per share ("Common Stock"), at an exercise
price of $2.20 per share, subject to adjustment as hereinafter provided (the
"Exercise Price"), and to receive a certificate or certificates for the Common
Stock so purchased pursuant to and subject to the terms and conditions set forth
below.
This Warrant is being purchased pursuant to the Note Purchase
Agreement of even date herewith between the Warrant Holder and the Company.
1. This Warrant may be exercised in whole or in part at any
time, or from time to time, by delivery and surrender to the Company, subject to
Section 2 below, of this Warrant and a subscription form substantially similar
to that attached to this Warrant as Exhibit A duly executed by the Warrant
Holder at the offices of the Company at 630 Ninth Avenue, Suite 310, New York,
New York 10036, accompanied by payment in full, in lawful money of the United
States, or by certified or bank check, or postal or express money order payable
in United States dollars to the order of the Company, of the Exercise Price for
each share of Common Stock as to which this Warrant is being exercised on or
before 5:00 P.M. Eastern time on January 26, 2000, after which time this Warrant
shall be void.
2. (a) Upon the exercise of this Warrant, in full, the Company
shall, or shall direct its transfer agent to, issue to the Warrant Holder
certificates for the total number of shares
<PAGE>
of Common Stock issuable on the date of such exercise pursuant to the terms of
this Warrant in such denominations as are required by the Warrant Holder, and
the Company shall, or shall direct its transfer agent to, thereupon deliver such
certificates to or in accordance with the instructions of the Warrant Holder.
(b) In the event that the Warrant Holder shall
exercise this Warrant with respect to less than all of the shares of Common
Stock that may be purchased under the terms of this Warrant, the Company shall,
or shall direct its transfer agent to, issue to the Warrant Holder certificates
for the shares of Common Stock for which this Warrant is being exercised in such
denominations as are required for delivery to the Warrant Holder, and the
Company shall, or shall direct its transfer agent to, thereupon deliver such
certificates to or in accordance with the instructions of the Warrant Holder,
and the Company shall issue to the Warrant Holder a new Warrant, duly executed
by the Company, in form and substance identical to this Warrant for the balance
of the shares of Common Stock then issuable pursuant to the terms of this
Warrant.
(c) Notwithstanding anything to the contrary
contained herein, neither the Company nor its transfer agent shall be required
to issue any fraction of a share of Common Stock in connection with the exercise
of this Warrant, and the Company shall, upon exercise of this Warrant in whole
or in part, issue the largest number of whole shares of Common Stock to which
this Warrant is entitled upon such full or partial exercise and shall return to
the Warrant Holder the amount of the Exercise Price paid by the Warrant Holder
in respect of any fractional share.
3. The Warrant Holder, as such, shall not be entitled to vote
or receive dividends or be deemed the holder of shares of Common Stock for any
purpose, nor shall anything contained in this Warrant be construed to confer
upon the Warrant Holder, as such, any of the rights of a shareholder of the
Company including, without limitation, any right to vote, give or withhold
consent to any action by the Company (whether upon the recapitalization, issue
of stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings or other action affecting shareholders,
receive dividends or subscription rights, or otherwise, until this Warrant shall
have been exercised; provided, however, that any exercise of this Warrant, in
whole or in part, on any date when the stock transfer books of the Company shall
be closed shall constitute the person or persons in whose name or names the
certificate or certificates for such shares of Common Stock are to be issued as
the record holder or holders thereof for all purposes at the opening of business
on the next succeeding day on which such stock transfer books are open, and this
Warrant shall not be deemed to have been exercised, in whole or in part, as the
case may be, until that date for the purpose of determining entitlement to
dividends on the Common Stock, and that exercise shall be at the actual Exercise
Price in effect at such date.
2
<PAGE>
4. If the Company shall at any time consolidate or merge with
or into another corporation, (a) the Company shall give at least twenty (20)
days prior written notice to the Warrant Holder of such consolidation or merger
and the terms thereof, and (b) the Warrant Holder may at its exclusive option
exercise its Warrant in whole or in part.
5. The Exercise Price shall be subject to adjustment as
follows:
(a) In case the Company shall, after the date hereof, (i)
pay a stock dividend or make a distribution in shares of its capital stock
(whether shares of its Common Stock or of capital stock of any other class),
(ii) subdivide its outstanding shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issue by reclassification of its shares of Common Stock any shares of capital
stock of the Company, the Exercise Price in effect immediately prior to such
action shall be adjusted so that the holder of this Warrant thereafter
surrendered for exercise shall be entitled to receive an equivalent number of
shares of capital stock of the Company which he would have owned immediately
following such action had this Warrant been exercised immediately prior thereto.
Any adjustment made pursuant to this subsection (a) shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification.
(b) In case the Company shall issue any capital stock, or
any rights, warrants or other securities convertible into shares of capital
stock of the Company entitling such subscriber or purchaser to subscribe for or
purchase shares of capital stock at a price per share less than the Exercise
Price then in effect on the date of such issuance, the Exercise Price shall be
adjusted to such lower price per share at which such capital stock or such
rights, warrants or other securities are issued (such price per share to include
any consideration paid by the holders to acquire such security, if any, plus any
amount paid to the Company to exercise or convert such security). Such
adjustment shall be made whenever such capital stock or such rights, warrants or
other securities are issued, and shall become effective retroactively
immediately after the record date for the determination of stockholders entitled
to receive such capital stock or such rights, warrants or other securities.
(c) Whenever the Exercise Price is adjusted as provided in
Section 5(a) or 5(b) herein, the Company will promptly mail to the Warrant
Holder a certificate of the Company's Treasurer or Chief Financial Officer
setting forth the Exercise Price as so adjusted and a brief statement of facts
accounting for such adjustment.
(d) Irrespective of any adjustment or change in the
Exercise Price and the number of shares actually purchasable under this Warrant,
this Warrant may continue to express the Exercise Price per share as expressed
upon this Warrant when initially issued.
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6. If this Warrant is lost, stolen or destroyed, the Company
shall, subject to such reasonable terms as to indemnity as are commonly imposed
in respect of warrants which are not registered pursuant to the Act, issue a new
Warrant of like denomination and tenor as, and in substitution for, the Warrant
so lost, stolen or destroyed, and in the event this Warrant shall be mutilated,
the Company shall, upon the surrender hereof, issue a new Warrant of like
denomination and tenor as, and in substitution for, the Warrant so mutilated.
7. Notwithstanding anything to the contrary contained in this
Warrant, this Warrant and the shares of Common Stock underlying this Warrant may
not be sold, assigned or transferred at any time, in any manner or by any person
or entity unless the Warrant and such shares, as the case may be, are registered
pursuant to the Securities Act of 1933, as amended (the "Act"), and under
applicable state securities laws or an exemption from the Act and such state
securities laws is available in respect of the Warrant and such shares for such
sale, assignment or transfer, as the case may be.
8. (a) Upon the exercise of this Warrant and the issuance of
shares pursuant to the terms hereto, the Company shall instruct the Company's
transfer agent to issue stock certificates bearing the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. SUCH SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF A PRIOR EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR A PRIOR
OPINION OF COUNSEL TO THE COMPANY OR SUCH OTHER
COUNSEL AS SHALL BE SATISFACTORY TO THE COMPANY
STATING THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR STATE SECURITIES LAWS.
(b) The Company shall impose a "stop transfer" instruction
with respect to the certificates representing the Common Stock issued upon the
exercise of this Warrant. Nothing in this Section 8, however, shall affect in
any way the Warrant Holder's obligations and
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agreements to comply with all applicable securities laws upon resale of the
Common Stock issued upon the exercise of this Warrant.
9. The validity, interpretation and performance of this
Warrant shall be governed by the laws of the State of New York without giving
effect to its conflict of laws rules.
10. This Warrant cannot be amended, supplemented or changed,
and no provision hereof can be waived, except by a written instrument making
specific reference to this Warrant and signed by the party against whom
enforcement of any such amendment, supplement, modification or waiver is sought.
The Exhibit to this Warrant is incorporated herein by reference to the same
extent as if set forth herein in full. A waiver of any right derived hereunder
by the Warrant Holder shall not be deemed a waiver of any other right derived
hereunder.
11. This Warrant shall be binding upon the Company and shall
inure to the benefit of the Warrant Holder, and their respective successors and
permitted assigns.
SOULFOOD CONCEPTS, INC.
By:
--------------------
Name:
Title:
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EXHIBIT A
SUBSCRIPTION FORM
(To be executed by the Warrant Holder to exercise the Warrant in whole or in
part)
TO: SOULFOOD CONCEPTS, INC.
The undersigned, whose Social Security or Tax Identification Number is
__, hereby irrevocably elects the right of purchase represented by the within
Warrant for, and to purchase thereunder, ____________ shares of Common Stock and
tenders payment herewith to the order of Soulfood Concepts, Inc. (the "Company")
in the amount of $__. The undersigned requests that certificates for such shares
of Common Stock be issued in the name of the undersigned Warrant Holder as
follows:
Name:
Address:
Deliver to:
Address:
and, if said number of shares of Common Stock shall not be all the shares of the
Common Stock purchasable thereunder, then a new Warrant for the balance of the
remaining shares of Common Stock purchasable thereunder be registered in the
name of, and delivered to, the undersigned at the address stated below.
Address:
Dated:
Warrant Holder: Signature Guaranteed:
By:
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SUBSIDIARIES
The following is a list of the subsidiaries of Soulfood Concepts, Inc.(the
"Company"):
1) Shark Restaurant Corp., incorporated under the laws of New York on
June 7, 1990 (owned 100% by the Company);
2) Shark Restaurant California, Inc., incorporated under the laws of
California on June 23, 1997 (owned 100% by the Company); ceased operations in
June 1999.
3) Affair Restaurant, Inc., d/b/a Shark Bar Restaurant Chicago,
purchased on January 10, 1997 (owned 100% by the Company); temporarily ceased
operations in July 1999.
4) Shark Bar, Inc., incorporated under the laws of Georgia on January
29, 1998 (owned 100% by the Company);
5) 7 West Restaurant Corp. ("7 West"), incorporated under the laws of
New York on February 1, 1994 (owned 100% by the Company);
6) Avenue A Restaurants Associates, L.P. ("Avenue A"), organized as a
limited partnership under the laws of New York on September 22, 1994 (owned 62%
by 7 West);
7) Shark Catering Corp., incorporated under the laws of New York on May
14, 1992 (owned 100% by the Company) currently inactive; and
8) TWS Restaurant Corp., incorporated under the laws of New York on May
1, 1995 (owned 100% by the Company) currently inactive.
