EXHIBIT 10.6
NOTE PURCHASE AND
USE OF PROCEEDS AGREEMENT
THIS NOTE PURCHASE AND USE OF PROCEEDS AGREEMENT ("Agreement") is
entered into this ____ day of April, 2005 by and between ▇▇▇▇▇▇▇ '▇▇▇▇▇▇▇▇,
having an address of ▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (the "Buyer"), JOEY
CANYON, having an address of ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
("Seller"), and COMPOUND NATURAL FOODS, INC., a Nevada corporation (the
"Company"), for those purposes in connection with which the Company is
specifically included herein (Buyer, Seller and the Company are referred to
herein individually as a "Party" and, collectively, as the "Parties.")
RECITALS:
WHEREAS, Seller is the purchaser party referred to in that certain Stock
Purchase and Sale Agreement of even date herewith ("Stock Purchase
Agreement") in which simultaneously with his execution and delivery of this
Agreement to Buyer, he will have purchased 60 million shares of the issued
and outstanding $.001 par value common stock of the Company, constituting
approximately 91% of all the issued and outstanding shares of common stock of
the Company (the "Control Securities");
WHEREAS, Buyer desires to provide funding to Seller to enable him to,
among other things, purchase the Control Securities as well as inject an
amount of capital into the Company for the specific purposes of both (i)
providing downstream funding to its subsidiary, Pure Nature, LLC, a Colorado
limited liability company ("Pure Nature"), to enable and compel it, in turn,
to extinguish certain indebtedness owed by Pure Nature to certain individuals
and (ii) providing working capital to, and/or otherwise on behalf of, the
Company;
WHEREAS, Seller desires to sell and issue to Buyer, in consideration of
Buyer's prospective provision of the aforementioned funding, a convertible
promissory note of Seller evidencing the said indebtedness, and to secure
Seller's obligations under the said note to Buyer with the grant of a pledge
and security interest in certain of his assets, including the Control
Securities, as set forth in this Agreement; and
WHEREAS, the key conversion feature of the said convertible promissory
note is that it shall be convertible into a certain number of the Control
Securities to held of record by Seller as part of the integrated transactions
being consummated simultaneously with the execution and delivery of this
Agreement.
NOW THEREFORE, in consideration of the premises, and the respective
agreements, covenants, representations and warranties of the Parties herein,
and for other good and valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the Parties hereby agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article 1:
"Best Efforts" - the efforts that a prudent Person desirous of achieving
a result would use in similar circumstances to ensure that such result is
achieved as expeditiously as possible, provided, however, that an obligation
to use Best Efforts under this Agreement does not require the Person subject
to that obligation to take actions that would result in a materially adverse
change in the benefits to such Person of this Agreement and the Contemplated
Transactions.
"Breach" - a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (a) any inaccuracy in or breach of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation, or other
provision, or (b) any claim (by any Person) or other occurrence or
circumstance that is or was inconsistent with such representation, warranty,
covenant, obligation, or other provision, and the term "Breach" means any
such inaccuracy, breach, failure, claim, occurrence, or circumstance.
"Proceeding" - any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative,
or informal) commenced, brought, conducted, or heard by or before, or
otherwise involving, any Governmental Body or arbitrator.
"Threatened" - a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in
writing), or if any other event has occurred or any other circumstances
exist, that would lead a prudent Person to conclude That such a claim,
Proceeding, dispute, action, or other matter is likely to be asserted,
commenced, taken, or otherwise pursued in the future.
ARTICLE II
AGREEMENT TO PURCHASE NOTE/SECURITY AGREEMENT
Section 2.1 AGREEMENT TO PURCHASE NOTE. Subject to the terms and
conditions set forth in this Agreement, Buyer hereby agrees to purchase from
Seller, and Seller hereby agrees to sell, convey and transfer unto Buyer,
that certain $400,000.00 face value, two (2) year, 5.5% convertible
promissory note of even date hereof, the form ,end features of which are
evidenced in the attached Exhibit "A" (the "Note").
Section 2.2 CONSIDERATION. As payment for the sale, conveyance and
transfer of the Note by Seller to Buyer, Buyer shall deliver the sum of FOUR
HUNDRED THOUSAND AND 001100 DOLLARS ($400,000.00) ("Purchase Price") into
Escrow (defined below).
Section 2.3 ESCROW: The Note purchased by Buyer herein, and the Purchase
Price paid by Buyer therefore, shall be delivered into the escrow account
("Escrow") of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq. ("▇▇▇▇▇▇▇"), to be safeguarded,
administered and disbursed consistent with this Agreement and in accordance
with that certain escrow agreement of even date hereof by and among ▇▇▇▇▇▇▇
on the one hand as escrow agent, and the other parties thereto on the other,
the form of which is attached hereto as Exhibit "B" ("Escrow Agreement").
Section 2.4. UTILIZATION OF PURCHASE PRICE. Consistent with the Escrow
Agreement and simultaneously with the execution and delivery hereof, Seller
shall cause the Purchase Price to be delivered over and allocated or/and
disbursed in respect of the contemporaneous and mutually dependent
transactions (the "Contemporaneous Transactions") allied with those evidenced
in this Agreement (the "Transaction") as follows:
(a) Payment for the Control Securities. Seller shall deliver the
amount of TWO HUNDRED SIXTY THOUSAND NINE HUNDRED THIRTEEN AND 00/100 DOLLARS
($260,913.00) to fund the purchase price for his purchase of the Control
Securities in his capacity as "Buyer' 'under the Stock Purchase Agreement;
(b) Funding Obligations Pure Nature. LLC. Seller shall deliver or
cause to be delivered either directly to or via the Company to Pure Nature,
the amount of EIGHTY NINE THOUSAND EIGHTY SEVEN AND 00/100 DOLLARS ($89,087)
and shall cause Pure Nature to pay off the indebtedness owed by it to ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇ in respect of amounts previously loaned by said
individuals to Pure Nature, in the amounts of FIFTY FOUR THOUSAND SIX HUNDRED
FORTY EIGHT AND 00/100 DOLLARS ($54,648.00) and THIRTY FOUR THOUSAND FOUR
HUNDRED THIRTY NINE AND 00/100 DOLLARS ($34,439.00), respectively; and
(c) Funding Working Capital Requirements of the Company. Seller
shall deliver or cause to be delivered to or otherwise on behalf of the
Company out of Escrow, the amount of FIFTY THOUSAND AND 00/100 DOLLARS
($50,000.00) to be utilized to meet the working capital requirements of the
Company as they arise from time to time, including, without limitation,
payment of the fees of ▇▇▇▇▇▇▇ for the preparation of the transaction
documents documenting the Contemporaneous Transactions and for the
administration of the Escrow.
2.4 SECURITY AGREEMENT. As a material inducement for Buyer to purchase
the Note and to pay the Purchase Price to or on behalf of Seller hereunder,
and to secure the obligations of Seller under the Note, Buyer has required
Seller to execute and deliver into Escrow simultaneously herewith, and Seller
has agreed so to do, that certain Pledge and Security Agreement of Seller in
favor of Buyer of even date hereof; the form of which is attached hereto as
Exhibit "C" ("Security Agreement").
ARTICLE III
CONDITIONS OF CLOSING/DUE DILIGENCE
Section 3.1 CONDITIONS TO CONSUMMATION OF THE TRANSACTION. The
respective obligations of the Parties pursuant to this Transaction are
subject to: (i) the successful consummation of those certain other
transactions of even date hereof that are integrally related to this
Transaction, including (a) the transactions referred to in that certain Stock
Purchase and Sale Agreement among Seller (in his capacity as the "Buyer"
therein), ▇▇▇▇▇▇ ▇▇▇▇▇▇ ("▇▇▇▇▇▇"), ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ("Duxbury") and the
Company for the purchase by Seller of the Control Securities held by ▇▇▇▇▇▇
and Duxbury, (b) that certain stock purchase transaction referred to in that
certain Stock Purchase and Sale Agreement between ▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇
("▇▇▇▇▇▇▇"), whereby ▇▇▇▇▇▇▇ shall have sold one million free trading shares
of common stock of the Company to ▇▇▇▇▇▇▇▇ for $100, and (c) the entry into
the Escrow Agreement by ▇▇▇▇▇▇▇ and the Parties thereto; and (ii) the
satisfaction of conditions customary to transactions of this type, including
without limitation, (u) execution of this Agreement by all Parties; (v) the
absence of any pledges, liens, security interests in or to, or any other
encumbrance of any nature whatsoever arising in connection with the Control
Securities (w) the absence of a material adverse change in the condition
(financial or otherwise), business, properties, assets or prospects of the
Company prior to closing, (x) the absence of pending or Threatened
litigation, investigations or other matters affecting the Company, the Buyer
or the Transaction, (y) satisfactory completion by the Buyer and the Seller
of a due diligence investigation of the other Party; and (z) confirmation
that the representations and warranties of each Party are true and accurate
in all respects.
Section 3.2 DUE DILIGENCE OBLIGATIONS OF SELLER TO BUYER. Seller shall
use his Best Efforts to provide, or cause to be provided, such necessary
information to Buyer in respect of Seller and the Company to enable Buyer to
complete due diligence. Immediately upon execution of this Agreement, Seller
shall deliver or cause to be delivered to Buyer, the following:
(a) The executed Note; and
(b) The executed Pledge and Security Agreement;
Section 3.3 CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE:,
Buyer's obligation to purchase the Note and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by Buyers, in whole or in part):
(a) All representations and warranties of Seller contained herein
being true at the time of Closing;
(b) From the date of this Agreement, there must not have been
commenced or Threatened against the Company, or against any person affiliated
with the Company, including Sellers, any Proceeding (i) involving any
challenge to, or seeking damages or other relief in connection with the
contemplated Transaction, (ii) involving the ability of the Company to
continue trading its securities, including the Control Securities in
compliance with the federal securities laws of the United States, or (iii)
that may have the effect of preventing, delaying, making illegal, or
otherwise interfering with the contemplated transactions.
Section 3.5 CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE:
Sellers' obligations to sell the Note and deliver the Pledge and Security
Agreement and to take the other actions required to be taken by Seller at the
Closing is subject to the satisfaction, at or prior to the Closing, of each
of the following conditions (any of which may be waived by Sellers, in whole
or in part):
(a) All representations and warranties of Buyer contained herein
being true at the time of Closing;
(b) Buyer shall have tendered the consideration as specified in
Section 2.2 of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller, and where applicable the Company, represents and warrants to
Buyer that at the time of the execution of this Agreement and at the Closing
thereof:
(a) MARKETABLE TITLE. The Seller shall convey to Buyer good and
marketable title in and to the Note, free and clear of any and all liens,
claims, encumbrances, including, but not limited to, any and all pledges and
security interests, and all other defects of title of any type whatsoever;
(b) AUTHORITY. The Seller has the right, power, legal capacity and
authority to enter into and perform his obligations under this Agreement and
no approvals or consents of any persons or entities are necessary in
connection with it;
(c) OUTSTANDING CLAIMS. SUITS OR ACTIONS:. Seller is not aware of
any outstanding claims, suits or actions or potential claims, suits or
actions in connection with him or the Transaction, and/or the Company. Seller
has not been put on notice of default of any obligation. Seller is not aware
of any individual suffering an injury on the premises owned and operated by
Company.
(d) CREDITORS AND LIABILITIES. There is no lien on the Note, and,
to Seller's knowledge, there or no liens or obligations on the assets of the
Company, and that the Company has no liabilities of any sort whatsoever which
have not been disclosed or provided to the Seller in connection with his
purchase of the Control Securities from ▇▇▇▇▇▇ and Duxbury, and thereafter,
to Buyer.
(e) CONTRACTS. Seller is not a party to any agreement, contract, or
understanding, oral or written, express or implied, which would prevent him
from lawfully entering into this Agreement or which would create an
obligation upon him as a result of this Transaction. Seller has no contract
with a business broker and is not obligated to pay a business broker a
commission as a result of this Transaction.
(f) FINANCIAL INFORMATION., Seller has, or will have prior to
Closing, delivered all requested financial information regarding the Company
and Pure Nature, including annual income tax returns, bank statements, and
financial statements, and such financial information when taken together as a
whole, to Seller's knowledge, are true, complete, correct, and accurate, and
there has been no material change in the financial condition of the Company
since the most recent financial information provided. Notwithstanding
anything in the forgoing sentence to the contrary, to the extent the
financial statements have erroneously included in their disclosure asset and
income items attributable to Pure Nature under the assumption that Pure
Nature had heretofore been combined into the Company, representations as to
the correctness and accuracy thereof are hereby retracted.
(g) BOOKS AND RECORDS. The books of account, minute books, stock
record books, and other records of the Company, have been made available to
Buyer for his inspection. Seller makes no representations as to the
completeness of such records. Buyer agrees that he is buying the Note "as
is".
(h) TAXES Except as disclosed in due diligence in connection with
'Seller's acquisition of the Control Securities from ▇▇▇▇▇▇ and Duxbury, to
Seller's knowledge, the Company has filed, or caused to be filed (on a timely
basis since) all tax returns that are or were required to be filed pursuant
to applicable legal requirements. To Seller's knowledge, the Company has
paid, or made provision for the payment of, all taxes that have or may have
become due pursuant to those tax returns or otherwise, or pursuant to any
assessment received by Seller or the Company. To Seller's knowledge, all tax
returns filed by the Company are true, correct, accurate, and complete. There
is no tax sharing agreement that will require any payment by the Company
after the date of this Agreement.
(i) NO MATERIAL ADVERSE CHANGE. To Seller's knowledge, since the
date of the initiation of negotiations regarding this Transaction, there has
not been any material adverse change in the business, operations, properties,
prospects, assets, or condition of the Company (financial or otherwise), and
no event has occurred or circumstance exists that may result in such a
material adverse change.
(j) DISCLOSURE: The representations and warranties of Seller in
this Agreement, taken together as a whole, do not omit to state a material
fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading. There is no fact known
to Seller that has specific application to Seller or the Company (other than
general economic or industry conditions) and that materially adversely
affects the assets, business, prospects, financial condition, or results of
operations of the Company that has not been set forth in this Agreement.
(k) NO PREFERRED SHARES ISSUED OR OUTSTANDING. The Company has
not issued any preferred shares of stock and no such preferred shares are
outstanding.
(1) LOANS TO PURE NATURE, LLC. From the period between May 25, 2004
and August 27, 2004, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ made a total loan to. Pure Nature in the
amount of Fifty Four Thousand, Six Hundred and Forty Eight Thousand Dollars
($54,648.00) and from a period between June 18, 2004 and July 27, 2004 ▇▇▇▇
▇▇▇▇▇▇▇ made a loan in the amount of Thirty Four Thousand Four Hundred and
Thirty Nine Dollars ($34,439.00). Such funds were actually received in cash
by Pure Nature, LLC a company controlled by Joey Canyon. Such funds were used
for general operations and working capital. Other than these loans, no
investments, either in the form of loans or stock sales, have been made into
Pure Nature, LLC. Pure Nature, LLC is a development stage Company and has not
had operating revenues as of the date of this Agreement.
ARTICLE V
REPRESENTATION AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to Sellers that:
(a) Buyer is a sophisticated investor. The Buyer has the financial
ability to pay the consideration required at Closing and to bear the economic
risk of this investment in the Note, has adequate means for providing for the
current needs and contingencies of the Buyer and has no need for immediate
liquidity with respect to the investment in the Note or the securities into
which the Note is convertible.
(b) He has
(i) evaluated the risks of a purchase of the Note and has
relied solely upon his own investigation of the Seller and the Company and
the information and representations made by the Seller and the Company
contained herein and any written information and documents provided to Buyer
by the Seller and/or the Company;
(ii) been given the opportunity to ask questions of, and
receive answers from the Company and Seller concerning the terms and
conditions of the Note and the securities into which it is convertible and
other matters pertaining to this investment, and has been given the
opportunity to obtain such additional information necessary to verify the
accuracy of the information contained in any documents provided in order for
the Buyer to evaluate the merits and risks of the purchase of the Note to the
extent the Company or Seller possess such information or could acquire it
without unreasonable efforts or expense, and has not been furnished with any
other offering literature upon which the Buyer has relied;
(iii) investigated the acquisition of the Note to the extent
the Buyer has deemed necessary or desirable and the Company or Seller have
provided the Buyer with any assistance the Buyer has requested in connection
herewith;
(iv) determined that the Note is a suitable investment for the
Buyer and that at this time the Buyer could bear a complete loss of an
investment in the Note purchased hereby; and
(v) is experienced in transactions involving obtaining control
of companies such as the Company.
(c) The Buyer is not relying on the Seller, or the Company, or any
of its ;affiliates, or this Agreement, with respect to the Buyer's tax
consequences with respect to the Buyer's purchase of the Note.
(d) No federal or state agency has passed upon the Note or made any
finding or determination as to the fairness of this investment.
(e) The Buyer is an individual over the age of 18 years and is
empowered, authorized and qualified to purchase the Note, in the manner
contemplated in this Agreement.
(f) The Buyer has the right, power, legal capacity and authority to
enter into and perform his obligations under this Agreement and no approvals
or consents of any persons or entities are necessary in connection with such
actions.
ARTICLE VI
INDEMNIFICATION
Section 7.1 INDEMNIFICATION BY SELLER: Seller shall indemnify, save,
defend and hold harmless Buyer from and against any and all damages, costs,
liabilities, and expenses, of any kind whatsoever (including reasonable
attorneys' fees) arising out of, or in connection with, (a) any and all
operations, activities, and events, of and/or impacting the Pure Nature, LLC,
(b) any and all Breaches of this Agreement by Seller; and (c) any and all
claims by a third party relating to Sellers' actions (or inactions, as the
case may be) or gross negligence; (d) any untrue statement or material fact
represented and warranted by Seller hereunder or any omission of material
information necessary to make any representation made herein not misleading;
or (e) any claim by any person or entity for any and all brokerage or
finder's fees, or commissions, or similar payments, based upon any agreement
or understanding (whether actual, or alleged to have been made by any such
person or entity with either Sellers or the Company (or any person acting on
their behalf) in connection with the contemplated Transaction or this
Agreement.
Section 7.2 INDEMNIFICATION BY BUYER: Buyer shall indemnify, save,
defend and hold harmless Sellers from and against any and all ,damages,
costs, liabilities, and expenses, of any kind whatsoever (including
reasonable attorneys' fees) arising directly out of (a) any and all Breaches
of this Agreement by Buyer; (b) any untrue statement or material fact
represented and warranted by Buyer hereunder or any omission of material
information necessary to make any representation made herein not misleading
or (c) any and all claims by a third party relating to Buyer's actions or
gross negligence, not also involving the actions or gross negligence of
Sellers, occurring after the Closing.
ARTICLE VII
THE CLOSING
Section 8.1 SELLER OBLIGATIONS: At the time of the consummation of this
transaction (the "Closing"), Sellers shall deliver or cause to be delivered
to Buyer:
(a) The executed Note;
(b) The executed Pledge and Security Agreement; and
(c) All other instruments or documents as may be reasonably
required to consummate the Transaction contemplated by this Agreement; and
Section 8.2 BUYER'S OBLIGATIONS: At the Closing, Buyer shall deliver to
Seller the Purchase Price, to be allocated as set forth in Section 2.2. of
this Agreement.
Section 8.3 THE CLOSING. The Closing shall occur on or before close of
business on April 14, 2005 or as soon thereafter as possible using reasonable
diligence and efforts. Closing may occur in counterparts as necessary.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 ASSIGNMENT. Buyer may not assign or transfer his interests
and/or rights under this Agreement without the prior written consent of the
Seller. The Seller may not assign this Agreement without the consent of the
Buyer.
Section 9.2 BINDING EFFECT, This Agreement shall be binding upon the
Parties hereto and their personal representatives, executors, heirs,
beneficiaries, distributees, successors, and permitted assigns, if any.
Section 9.3 NOTICES. Unless otherwise changed by written notice, any
notice or other communications required or permitted hereunder shall be
deemed given if sent facsimile, hand delivery or courier addressed to the
respective party at the address set forth in the initial paragraph of this
Agreement or by other means upon reasonable evidence that receipt of such
notice has been acknowledged.
Section 9.4: GOVERNING LAW. This Agreement shall be governed and
interpreted solely in accordance with the laws of the State of Colorado, and
applicable U.S. federal law, if any, and in each case without regard to their
choice of laws principles.
Section 9.5: SURVIVAL OF REPRESENTATIONS. All agreements,
representations, covenants, and warranties, on the part of the Parties
contained herein, shall survive the Closing of this Agreement, and any
investigation made at any time with respect thereto, shall not merge into any
of the documents and instruments executed and delivered pursuant hereto, and
shall remain enforceable to the
fullest extent permitted by law and/or equity.
Section 9.6: ENTIRE AGREEMENT: This Agreement embodies the entire
agreement between the Parties hereto with respect to the subject matter
hereof, and supersedes all prior, and contemporaneous, negotiations,
agreements, and understandings, whether written or oral. This Agreement, nor
any provision herein, may not be changed, waived, discharged, or terminated,
except by an express written instrument signed by the party against 'whom
enforcement of the change, waiver, discharge or termination is sought.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of the date first written above.
BUYER:
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
SELLER:
__________________________________
Joey Canyon
COMPANY:
COMPOUND NATURAL FOODS, a Nevada
corporation
By:________________________________
Joey Canyon, President
Joinder of Pure Nature, LLC
The undersigned hereby acknowledges its obligation of performance in
connection with the provisions of Section 2.4(b) of this Agreement and hereby
covenants and agrees to undertake and deliver said obligations of performance
consistent with the duties as set forth in this Agreement.
PURE NATURE:
PURE NATURE, LLC, a Colorado limited
liability company
By: Compound Natural Foods, Inc.,
its Managing Member
By:_____________________________________
Joey Canyon, President