WARRANT AGREEMENT dated as of ________, 1998 between
Sherwood Brands, Inc., a North Carolina corporation with executive offices
located at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(the "Company"), and Paragon Capital Corporation, with executive offices
located at ▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (hereinafter referred to
as the "Underwriter").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Underwriter
warrants (the "Warrants") to purchase up to 155,000 shares (the "Shares") of
Class A common stock, par value $.01 per share (the "Class A Common Stock"),
of the Company and up to 77,500 Class A Common Stock purchase warrants (the
"Underlying Warrants"); and
WHEREAS, the Underwriter has agreed, pursuant to the
underwriting agreement (the "Underwriting Agreement") dated ____________, 1998
between the Underwriter and the Company, to act as the underwriter in
connection with the Company's proposed public offering (the "Public Offering")
of 1,550,000 shares of Class A Common Stock (the "Public Shares") at an
initial public offering price of $5.95 per Public Share and redeemable
warrants to purchase 775,000 shares of Class A Common Stock (the "Public
Warrants") at an initial public offering price of $.10 per Public Warrant; and
WHEREAS, the Warrants issued pursuant to this Agreement are
being issued by the Company to the Underwriter or to its designees who are
directors, officers and partners of the Underwriter or to members of the
selling group participating in the distribution of the Public Shares and
Public Warrants to the public
in the Public Offering and/or their respective directors, officers or partners
(collectively, the "Designees"), in consideration for, and as part of the
Underwriter's compensation in connection with, the Underwriter acting as the
Underwriter pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the
payment by the Underwriter to the Company of ONE HUNDRED DOLLARS ($100.00),
the agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Grant.
The Underwriter, and/or the Designees are hereby
granted the right to purchase, at any time from __________, 1998 until 5:00
P.M., New York time, on _______, 2003 (the "Warrant Exercise Term"), up to
155,000 fully-paid and non-assessable Shares at an initial exercise price
(subject to adjustment as provided in Articles 6 and 8 hereof) of $9.22 per
Share and up to 77,500 Underlying Warrants at an initial exercise price
(subject to adjustment as provided in Articles 6 and 8 hereof) of $.155 per
Underlying Warrant. The Underlying Warrants are each exercisable to purchase
one fully-paid and non-assessable share of Class A Common Stock at a price of
$7.50 per share (the "Underlying Warrant Shares"). The Underlying Warrants are
exercisable until 5:00 P.M., New York City time on ____________, 2003. The
Holder may purchase, upon exercise of this Warrant, either the Shares of the
Underlying Warrants or both. Except as provided in this Section 1 hereof with
respect to the exercise price, the Shares and the Underlying
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Warrants are in all respects identical to the Public Shares and Public
Warrants being sold to the public pursuant to the terms and provisions of the
Underwriting Agreement.
2. Warrant Certificates.
The warrant certificates delivered and to be delivered
pursuant to this Agreement (the "Warrant Certificates") shall be in the forms
set forth in Exhibits A and B attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions and other variations as
required or permitted by this Agreement.
3. Exercise of Warrant.
3.1. Cash Exercise. The Warrants initially are
exercisable at a price of $9.22 per Share and $.155 per Underlying Warrant,
payable in cash or by check to the order of the Company, or any combination
thereof, subject to adjustment as provided in Article 8 hereof. Upon surrender
of the Warrant Certificate with the annexed Form of Election to Purchase duly
executed, together with payment of the Exercise Price (as hereinafter defined)
for the Shares and/or Underlying Warrants purchased, at the Company's
principal offices located at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, the registered holder of a Warrant Certificate ("Holder" or
"Holders") shall be entitled to receive a certificate or certificates for the
Shares and/or Underlying Warrants so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holder thereof, in whole or in part (but not as to fractional Shares or
Underlying Warrants). In the case of the purchase of less than all
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the Shares and/or Underlying Warrants purchasable under any Warrant
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the Shares and/or Underlying Warrants
purchasable thereunder.
3.2. Cashless Exercise. At any time during the Warrant
Exercise Term, the Holder may, at the Holder's option, exchange, in whole or
in part, the Warrants represented by such Holder's Warrant Certificate (a
"Warrant Exchange"), into the number of Shares and Underlying Warrants
determined in accordance with this Section 3.2, by surrendering such Warrant
Certificate at the principal office of the Company or at the office of its
transfer agent, accompanied by a notice stating such Holder's intent to effect
such exchange, the number of Shares and Underlying Warrants to be so exchanged
and the date on which the Holder requests that such Warrant Exchange occur
(the "Notice of Exchange"). The Warrant Exchange shall take place on the date
specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for
the Shares and Underlying Warrants issuable upon such Warrant Exchange and, if
applicable, a new Warrant Certificate of like tenor representing the Shares
and Underlying Warrants which were subject to the surrendered Warrant
Certificate and not included in the Warrant Exchange, shall be issued as of
the Exchange Date and delivered to the Holder within three (3) days following
the Exchange Date. In connection with any Warrant Exchange, the Holder shall
be entitled to subscribe for and
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acquire (i) the number of Shares (rounded to the next highest integer) which
would, but for the Warrant Exchange, then be issuable pursuant to the
provision of Section 3.1 above upon the exercise of the Warrants specified by
the Holder in its Notice of Exchange (the "Total Number") less (ii) the number
of Shares equal to the quotient obtained by dividing (a) the product of the
Total Number and the existing Exercise Price (as hereinafter defined) by (b)
the Market Price (as hereinafter defined) of a Public Share on the day
preceding the Warrant Exchange, and (iii) the number of Underlying Warrants
(rounded to the next highest integer) equal to (A) the number of Underlying
Warrants specified by the Holder in its Notice of Exchange (the "Total
Underlying Warrant Number") less (B) the number of Underlying Warrants equal
to the quotient obtained by dividing (i) the product of the Total Underlying
Warrant Number and the existing Exercise Price per Underlying Warrant by (ii)
the current Market Price of a Public Warrant. "Market Price" at any date shall
be deemed to be the last reported sale price, or, in case no such reported
sales takes place on such day, the average of the last reported sale prices
for the last three (3) trading days, in either case as officially reported by
the principal securities exchange on which the Class A Common Stock and/or
Public Warrants are listed or admitted to trading or as reported in the NASDAQ
National market System, or, if the Class A Common Stock and/or Public Warrants
are not listed or admitted to trading on any national securities exchange or
quoted on the NASDAQ National Market System, the closing bid price as
furnished by (i) the National Association of Securities Dealers, Inc. through
NASDAQ
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or (ii) a similar organization if NASDAQ is no longer reporting
such information.
4. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of
certificates for the Shares purchased and certificates for the Underlying
Warrants purchased, and upon the exercise of the Underlying Warrants, the
issuance of certificates for the Underlying Warrant Shares purchased shall be
made forthwith (and in any event within three (3) business days thereafter)
without charge to the Holder thereof including, without limitation, any tax
which may be payable in respect of the issuance thereof, and such certificates
shall (subject to the provisions of Article 5 hereof) be issued in the name
of, or in such names as may be directed by, the Holder thereof; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of
any such certificates in a name other than that of the Holder and the Company
shall not be required to issue or deliver such certificates unless or until
the person or persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing
the Shares and Underlying Warrants shall be executed on behalf of the Company
by the manual or facsimile signature of the present or any future Chairman or
Vice Chairman of the Board of Directors, Chief Executive Officer or President
or Vice President
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of the Company under its corporate seal reproduced thereon, attested to by the
manual or facsimile signature of the present or any future Secretary or
Assistant Secretary of the Company. Warrant Certificates shall be dated the
date of execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
Upon exercise, in part or in whole, of the Warrants,
certificates representing the Shares and Underlying Warrants purchased, and
upon exercise, in whole or in part, of the Underlying Warrants, certificates
representing the Underlying Warrant Shares purchased (collectively, the
"Warrant Certificates"), shall bear a legend substantially similar to the
following:
"The securities represented by this certificate have not been
registered for purposes of public distribution under the Securities
Act of 1933, as amended (the "Act"), and may not be offered or sold
except (i) pursuant to an effective registration statement under the
Act, (ii) to the extent applicable, pursuant to Rule 144 under the
Act (or any similar rule under such Act relating to the disposition
of securities), or (iii) upon the delivery by the holder to the
Company of an opinion of counsel, reasonably satisfactory to counsel
to the Company, stating that an exemption from registration under
such Act is available."
5. Restriction on Transfer of Warrants.
The Holder of a Warrant Certificate, by the Holder's
acceptance thereof, covenants and agrees that the Warrants are being acquired
as an investment and not with a view to the distribution thereof, and that the
Warrants may not be sold, transferred, assigned, hypothecated or otherwise
disposed of, in whole or in part, for a period of one (1) year from the date
hereof, except to the Designees.
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6. Price.
6.1. Initial and Adjusted Exercise Price. The initial
exercise price of each Warrant shall be $9.22 per Share and $.155 per
Underlying Warrant. The adjusted exercise prices per Share and per Underlying
Warrant shall be the price which shall result from time to time from any and
all adjustments of the initial exercise price per Share and per Underlying
Warrant in accordance with the provisions of Article 8 hereof.
6.2. Exercise Price. The term "Exercise Price" herein
shall mean the initial exercise price or the adjusted exercise price,
depending upon the context.
7. Registration Rights.
7.1. Registration Under the Securities Act of 1933. None
of the Warrants, Shares or Underlying Warrants have been registered for
purposes of public distribution under the Securities Act of 1933, as amended
(the "Act"). 7.2. Registrable Securities. As used herein the term "Registrable
Security" means each of the Warrants, the Shares, the Underlying Warrants, the
Underlying Warrant Shares and any shares of Class A Common Stock issuable upon
any stock split or stock dividend in respect of such Shares or Underlying
Warrant Shares; provided, however, that with respect to any particular
Registrable Security, such security shall cease to be a Registrable Security
when, as of the date of determination, (i) it has been effectively registered
under the Act and disposed of pursuant thereto, (ii) registration under the
Act is no longer required for the subsequent public distribution of such
security or (iii) it has
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ceased to be outstanding. The term "Registrable Securities" means any and/or
all of the securities falling within the foregoing definition of a
"Registrable Security." In the event of any merger, reorganization,
consolidation, recapitalization or other change in corporate structure
affecting the Class A Common Stock, such adjustment shall be made in the
definition of "Registrable Security" as is appropriate in order to prevent any
dilution or enlargement of the rights granted pursuant to this Article 7.
7.3. Piggyback Registration. If, at any time during the
seven years following the effective date of the Public Offering, the Company
proposes to prepare and file one or more post-effective amendments to the
registration statement filed in connection with the Public Offering or any new
registration statement or post-effective amendments thereto covering equity or
debt securities of the Company, or any such securities of the Company held by
its shareholders (in any such case, other than in connection with a merger,
acquisition or pursuant to Form S-8 or successor form), (for purposes of this
Article 7, collectively, the "Registration Statement"), it will give written
notice of its intention to do so by registered mail ("Notice"), at least
thirty (30) business days prior to the filing of each such Registration
Statement, to all holders of the Registrable Securities. Upon the written
request of such a holder (a "Requesting Holder"), made within twenty (20)
business days after receipt of the Notice, that the Company include any of the
Requesting Holder's Registrable Securities in the proposed Registration
Statement, the Company shall, as to each such Requesting Holder, use its best
efforts to
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effect the registration under the Act of the Registrable Securities which it
has been so requested to register ("Piggyback Registration"), at the Company's
sole cost and expense and at no cost or expense to the Requesting Holders.
7.4. Demand Registration.
(a) At any time during the Warrant Exercise Term, any
"Majority Holder" (as such term is defined in Section 7.4(d) below) of the
Registrable Securities shall have the right (which right is in addition to the
piggyback registration rights provided for under Section 7.3 hereof),
exercisable by written notice to the Company (the "Demand Registration
Request"), to have the Company prepare and file with the Securities and
Exchange Commission (the "Commission"), on one occasion, at the sole expense
of the Company (except as provided in Section 7.5(b) hereof), a Registration
Statement and such other documents, including a prospectus, as may be
necessary (in the opinion of both counsel for the Company and counsel for such
Majority Holder), in order to comply with the provisions of the Act, so as to
permit a public offering and sale of the Registrable Securities by the holders
thereof. The Company shall use its best efforts to cause the Registration
Statement to become effective under the Act, so as to permit a public offering
and sale of the Registrable Securities by the holders thereof. Once effective,
the Company will use its best efforts to maintain the effectiveness of the
Registration Statement until the earlier of (i) the date that all of the
Registrable Securities have been sold or (ii) the date that the holders of the
Registrable Securities receive an opinion of counsel to the Company
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that all of the Registrable Securities may be freely traded (without
limitation or restriction as to quantity or timing and without registration
under the Act) under Rule 144(k) promulgated under the Act or otherwise.
(b) The Company covenants and agrees to give written
notice of any Demand Registration Request to all holders of the Registrable
Securities within ten (10) business days from the date of the Company's
receipt of any such Demand Registration Request. After receiving notice from
the Company as provided in this Section 7.4(b), holders of Registrable
Securities may request the Company to include their Registrable Securities in
the Registration Statement to be filed pursuant to Section 7.4(a) hereof by
notifying the Company of their decision to have such securities included
within ten (10) days of their receipt of the Company's notice.
(c) The term "Majority Holder" as used in Section 7.4
hereof shall mean any holder or any combination of holders of Registrable
Securities, if included in such holders' Registrable Securities are that
aggregate number of shares of Class A Common Stock (including Shares already
issued and Shares issuable pursuant to the exercise of outstanding Warrants,
Underlying Warrant Shares already issued and Underlying Warrant Shares
issuable pursuant to the exercise of outstanding Underlying Warrants) as would
constitute a majority of the aggregate number of shares of Class A Common
Stock (including Shares already issued, Shares issuable pursuant to the
exercise of outstanding Warrants, Underlying Warrant Shares already issued and
Underlying Warrant
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Shares issuable pursuant to the exercise of outstanding Underlying Warrants)
included in all the Registrable Securities.
7.5. Covenants of the Company With Respect to
Registration. The Company covenants and agrees as follows:
(a) In connection with any registration under Section 7.4
hereof, the Company shall file the Registration Statement as expeditiously as
possible, but in any event no later than twenty (20) days following receipt of
any demand therefor, shall use its best efforts to have any such Registration
Statement declared effective at the earliest possible time, and shall furnish
each holder of Registrable Securities such number of prospectuses as shall
reasonably be requested.
(b) The Company shall pay all costs, fees and expenses
(other than underwriting fees, discounts and nonaccountable expense allowance
applicable to the Registrable Securities and the fees and expenses of counsel
retained by the holders of Registrable Securities) in connection with all
Registration Statements filed pursuant to Sections 7.3 and 7.4(a) hereof
including, without limitation, the Company's legal and accounting fees,
printing expenses, and blue sky fees and expenses.
(c) The Company will take all necessary action which may
be required in qualifying or registering the Registrable Securities included
in the Registration Statement for offering and sale under the securities or
blue sky laws of such states as are reasonably requested by the holders of
such securities.
(d) The Company shall indemnify any holder of the
Registrable Securities to be sold pursuant to any Registration
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Statement and any underwriter or person deemed to be an underwriter under the
Act and each person, if any, who controls such holder or underwriter or person
deemed to be an underwriter within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act,
the Exchange Act or otherwise, arising from such registration statement to the
same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify the Underwriter as set forth in Section 7 of
the Underwriting Agreement and to provide for just and equitable contribution
as set forth in Section 8 of the Underwriting Agreement.
(e) Any holder of Registrable Securities to be sold
pursuant to a registration statement, and such Holder's successors and
assigns, shall severally, and not jointly, indemnify, the Company, its
officers and directors and each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, against all loss, claim, damage or expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which they may become subject under the Act, the
Exchange Act or otherwise, arising from information furnished by or on behalf
of such holder, or such Holder's successors or assigns, for specific inclusion
in such
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Registration Statement to the same extent and with the
same effect as the provisions pursuant to which the Underwriter has agreed to
indemnify the Company as set forth in Section 7 of the Underwriting Agreement
and to provide for just and equitable contribution as set forth in Section 8
of the Underwriting Agreement.
(f) Nothing contained in this Agreement shall be
construed as requiring any Holder to exercise his Warrants or the Underlying
Warrants held by such Holder prior to the initial filing of any registration
statement or the effectiveness thereof.
(g) If the Company shall fail to comply with the
provisions of this Article 7, the Company shall, in addition to any other
equitable or other relief available to the holders of Registrable Securities,
be liable for any or all incidental, special and consequential damages
sustained by the holders of Registrable Securities, requesting registration of
their Registrable Securities.
(h) The Company shall promptly deliver copies of all
correspondence between the Commission and the Company, its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff
with respect to the Registration Statement to each holder of Registrable
Securities included for such registration in such Registration Statement
pursuant to Section 7.3 hereof or Section 7.4 hereof requesting such
correspondence and memoranda and to the managing underwriter, if any, of the
offering in connection with which such Holder's Registrable Securities are
being registered and shall permit each holder of Registrable Securities and
such underwriter to do such
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reasonable investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the Registration Statement as it
deems reasonably necessary to comply with applicable securities laws or rules
of the National Association of Securities Dealers, Inc. Such investigation
shall include access to books, records and properties and opportunities to
discuss the business of the Company with its officers and independent
auditors, all to such reasonable extent and at such reasonable times and as
often as any such holder of Registrable Securities or underwriter shall
reasonably request.
8. Adjustments of Exercise Price and Number of Securities.
The following adjustments apply to the Exercise Price of the Warrants with
respect to the Shares and the number of Shares purchasable upon exercise of
the Warrants. In the event the Exercise Price per Share and/or the number of
Shares so purchasable is adjusted, then the Exercise Price of the Warrants
relating to the Underlying Warrants and the number of Underlying Warrants
purchasable hereunder shall be adjusted in the same proportion.
8.1. Computation of Adjusted Price. In case the Company
shall at any time after the date hereof pay a dividend in shares of Class A
Common Stock or make a distribution in shares of Class A Common Stock, then
upon such dividend or distribution the Exercise Price in effect immediately
prior to such dividend or distribution shall forthwith be reduced to a price
determined by dividing:
(a) an amount equal to the total number of shares of
Class A Common Stock outstanding immediately prior to
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such dividend or distribution multiplied by the Exercise Price for the shares
of Class A Common Stock outstanding immediately prior to such dividend or
distribution, by
(b) the total number of shares of Class A Common Stock
outstanding immediately after such issuance or sale.
For the purposes of any computation to be made in
accordance with the provisions of this Section 8.1, the shares of Class A
Common Stock issuable by way of dividend or other distribution on any stock of
the Company shall be deemed to have been issued immediately after the opening
of business on the date following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution.
8.2. Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding shares of Class A
Common Stock, the Exercise Price shall forthwith be proportionately decreased
in the case of subdivision or increased in the case of combination.
8.3. Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Article 8,
the number of Shares issuable upon the exercise of each Warrant shall be
adjusted to the nearest full number by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the number of
Shares issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise
Price, provided, however, that if an event occurs that results in an
adjustment of the number and/or price of the shares of Class A Common Stock
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issuable upon exercise of the Public Warrants pursuant to Section 9 of the
Warrant Agreement by and among the Company, the Underwriter and Continental
Stock Transfer & Trust Company dated as of ___________, 1998 (the "Public
Warrant Agreement"), resulting in automatic adjustment in the number and/or
price of the Underlying Warrant Shares issuable upon exercise of the
Underlying Warrants pursuant to Section 8.5 hereof, then the adjustment
provided for in this Section 8.3 shall not, in such instance, result in any
further adjustment in the aggregate number of shares of Class A Common Stock
ultimately issuable upon exercise of the Underlying Warrants.
8.4. Reclassification, Consolidation, Merger, etc. In
case of any reclassification or change of the outstanding shares of Class A
Common Stock (other than a change in par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), or in the
case of any consolidation of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger in which the Company
is the surviving corporation and which does not result in any reclassification
or change of the outstanding shares of Class A Common Stock, except a change
as a result of a subdivision or combination of such shares or a change in par
value, as aforesaid), or in the case of a sale or conveyance to another
corporation of the property of the Company as an entirety, the Holders shall
thereafter have the right to purchase the kind and number of shares of stock
and other securities and property receivable upon such reclassification,
change, consolidation, merger, sale or conveyance as if the Holders were the
owners of both the Shares and the
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Underlying Warrant Shares immediately prior to any such events at a price
equal to the product of (x) the number of shares of Class A Common Stock
issuable upon exercise of the Holders' Warrants and the Underlying Warrants
and (y) the Exercise Price in effect immediately prior to the record date for
such reclassification, change, consolidation, merger, sale or conveyance as if
such Holders had exercised the Warrants and the Underlying Warrants.
8.5 Adjustment of Underlying Warrants' Exercise Price and
Securities Issuable Upon Exercise of Underlying Warrants. With respect to any
of the Underlying Warrants, whether or not the Warrants have been exercised
and whether or not the Warrants are issued and outstanding, the exercise price
for, and the number of, Underlying Warrant Shares issuable upon exercise of
the Underlying Warrants shall be automatically adjusted in accordance with
Section 9 of the Public Warrant Agreement, upon the occurrence of any of the
events described therein. Thereafter, until the next such adjustment or until
otherwise adjusted in accordance with this Section 8, the Underlying Warrants
shall be exercisable at such adjusted exercise price and for such adjusted
number of Underlying Warrant Shares.
8.6. Determination of Outstanding Shares of Class A
Common Stock. The number of shares of Class A Common Stock at any one time
outstanding shall include the aggregate number of shares of Class A Common
Stock issued and the aggregate number of shares of Class A Common Stock
issuable upon the exercise of options, rights, warrants and upon the
conversion or exchange of convertible or exchangeable securities.
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8.7. Dividends and Other Distributions with Respect to
Outstanding Securities. In the event that the Company shall at any time prior
to the exercise of all Warrants make any distribution of its assets to holders
of its Class A Common Stock as a liquidating or a partial liquidating
dividend, then the holder of Warrants who exercises his Warrants after the
record date for the determination of those holders of Class A Common Stock
entitled to such distribution of assets as a liquidating or partial
liquidating dividend shall be entitled to receive for the Warrant Price per
Warrant, in addition to each share of Class A Common Stock, the amount of such
distribution (or, at the option of the Company, a sum equal to the value of
any such assets at the time of such distribution as determined by the Board of
Directors of the Company in good faith) which would have been payable to such
holder had he been the holder of record of the Class A Common Stock receivable
upon exercise of his Warrant on the record date for the determination of those
entitled to such distribution. At the time of any such dividend or
distribution, the Company shall make appropriate reserves to ensure the timely
performance of the provisions of this Subsection 8.7.
8.8. Subscription Rights for Shares of Class A Common
Stock or Other Securities. In the case that the Company or an affiliate of the
Company shall at any time after the date hereof and prior to the exercise of
all the Warrants issue any rights, warrants or options to subscribe for shares
of Class A Common Stock or any other securities of the Company or of such
affiliate to all the shareholders of the Company, the Holders of unexercised
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Warrants on the record date set by the Company or such affiliate in connection
with such issuance of rights, warrants or options shall be entitled, in
addition to the shares of Class A Common Stock or other securities receivable
upon the exercise of the Warrants, to receive such rights, warrants or options
that such Holders would have been entitled to receive had they been, on such
record date, the holders of record of the number of whole shares of Class A
Common Stock then issuable upon exercise of their outstanding Warrants
(assuming for purposes of this Section 8.7), that the exercise of the Warrants
is permissible immediately upon issuance).
9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense,
upon the surrender thereof by the registered Holder at the principal executive
office of the Company, for a new Warrant Certificate of like tenor and date
representing in the aggregate the right to purchase the same number of
securities in such denominations as shall be designated by the Holder thereof
at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any
Warrant Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to it, and reimbursement to the Company of
all reasonable expenses incidental thereto, and upon surrender and
cancellation of the Warrant Certificate, if mutilated, the Company will make
and deliver a new Warrant Certificate of like tenor, in lieu thereof.
-20-
10. Elimination of Fractional Interests.
The Company shall not be required to issue certificates
representing fractions of Shares or fractions of Underlying Warrants upon the
exercise of the Warrants or fractions of shares of Class A Common Stock upon
exercise of the Underlying Warrants, nor shall it be required to issue scrip
or pay cash in lieu of fractional interests, it being the intent of the
parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of Shares, Underlying Warrants or
shares of Class A Common Stock issuable upon the exercise of the Underlying
Warrants.
11. Reservation and Listing of Securities.
The Company shall at all times reserve and keep available
out of its authorized shares of Class A Common Stock, solely for the purpose
of issuance upon the exercise of the Warrants and Underlying Warrants, such
number of shares of Class A Common Stock as shall be issuable upon the
exercise thereof. The Company covenants and agrees that, upon exercise of the
Warrants and payment of the Exercise Price therefor, all Shares issuable upon
such exercise, as the case may be, shall be duly and validly issued, fully
paid, non-assessable and not subject to the preemptive rights of any
shareholder. The Company further covenants and agrees that upon exercise of
the Underlying Warrants and payment of the respective Underlying Warrant
exercise price therefor, all Underlying Warrant Shares issuable upon such
exercise shall be duly and validly issued, fully paid, non-assessable and not
subject to the preemptive rights of any shareholder. As long as the Warrants
shall be outstanding, the Company shall use its
-21-
best efforts to cause all shares of Class A Common Stock issuable upon the
exercise of the Warrants and the Underlying Warrants to be listed on or quoted
by NASDAQ or listed on such national securities exchanges as requested by the
Underwriter.
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as
conferring upon the Holder or Holders the right to vote or to consent or to
receive notice as a shareholder in respect of any meetings of shareholders for
the election of directors or any other matter, or as having any rights
whatsoever as a shareholder of the Company. If, however, at any time prior to
the expiration of the Warrants and Underlying Warrants and their exercise, any
of the following events shall occur:
(a) the Company shall take a record of the
holders of its shares of Class A Common Stock for the
purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of
current or retained earnings, as indicated by the accounting
treatment of such dividend or distribution on the books of
the Company; or
(b) the Company shall offer to all the
holders of its Class A Common Stock any additional shares of
capital stock of the Company or securities convertible into
or exchangeable for shares of capital stock of the Company,
or any option, right or warrant to subscribe therefor; or
-22-
(c) a dissolution, liquidation or winding
up of the Company (other than in connection with a
consolidation or merger) or a sale of all or substantially
all of its property, assets and business as an entirety
shall be proposed; or
(d) reclassification or change of the
outstanding shares of Class A Common Stock (other than a
change in par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination),
consolidation of the Company with, or merger of the Company
into, another corporation (other than a consolidation or
merger in which the Company is the surviving corporation and
which does not result in any reclassification or change of
the outstanding shares of Class A Common Stock, except a
change as a result of a subdivision or combination of such
shares or a change in par value, as aforesaid), or a sale or
conveyance to another corporation of the property of the
Company as an entirety is proposed; or
(e) The Company or an affiliate of the
Company shall propose to issue any rights to subscribe for
shares of Class A Common Stock or any other securities of
the Company or of such affiliate to all the shareholders of
the Company;
then, in any one or more of said events, the Company shall give written notice
to the Holder or Holders of such event at least fifteen (15) days prior to the
date fixed as a record date or the
-23-
date of closing the transfer books for the determination of the shareholders
entitled to such dividend, distribution, convertible or exchangeable
securities or subscription rights, options or warrants, or entitled to vote on
such proposed dissolution, liquidation, winding up or sale. Such notice shall
specify such record date or the date of closing the transfer books, as the
case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or the issuance of any
convertible or exchangeable securities or subscription rights, options or
warrants, or any proposed dissolution, liquidation, winding up or sale.
13. Underlying Warrants.
The underlying warrants shall be governed by the Public
Warrant Agreement, including Section 13 of the Public Warrant Agreement, and
the form of the certificates representing the Underlying Warrants (and the
form of election to purchase shares of Class A Common Stock upon the exercise
of the Underlying Warrants and the form of assignment printed on the reverse
thereof) shall be substantially as set forth in Exhibit "A" to the Public
Warrant Agreement, provided, however, (i) each Underlying Warrant issuable
upon exercise of the Warrants shall evidence the right to initially purchase
one fully paid and non-assessable share of Class A Common Stock in respect of
the Underlying Warrant at an initial purchase price of $7.50 per share until
_______, 2003 and (ii) the Target Redemption Price (as defined in the Public
Warrant Agreement) of the Underlying Warrants is 134% of the then effective
exercise
-24-
price of the Underlying Warrants. As set forth in Section 8.5 of this
Agreement, the exercise price of the Underlying Warrants and the number of
shares of Class A Common Stock issuable upon the exercise of the Underlying
Warrants are subject to adjustment, whether or not the Warrants have been
exercised and the Underlying Warrants have been issued, in the manner and upon
the occurrence of the events set forth in Section 9 of the Public Warrant
Agreement, which is hereby incorporated by reference and made a part hereof as
if set forth in its entirety herein. Subject to the provisions of this
Agreement and upon issuance of the Underlying Warrants, each registered holder
of such Underlying Warrants shall have the right to purchase from the Company
(and the Company shall issue to such registered holders) up to the number of
fully paid and non-assessable Underlying Warrant Shares (subject to adjustment
as provided herein and in the Public Warrant Agreement), free and clear of all
preemptive rights of shareholders, provided that such registered holder
complies, in connection with the exercise of such holders' Underlying
Warrants, with the terms governing the exercise of the Public Warrants set
forth in the Public Warrant Agreement, and pays the applicable exercise price,
determined in accordance with the terms of the Public Warrant Agreement. Upon
exercise of the Underlying Warrants, the Company shall forthwith issue to the
registered holder of any such Underlying Warrants, in such holder's name or in
such name as may be directed by such holder, certificates for the number of
Underlying Warrant Shares so purchased. The Underlying Warrants shall be
governed in all respects by the terms of the Public Warrant Agreement. The
-25-
Underlying Warrants shall be transferable in the manner provided in the Public
Warrant Agreement, and upon any such transfer and the payment of taxes, if
any, thereon, a new Underlying Warrant shall be issued promptly to the
transferee. The Company covenants to, and agrees with, each Holder that
without the prior written consent of all of the Holders, the Public Warrant
Agreement will not be modified, amended, cancelled, altered or superseded, and
that the Company will send to each Holder, irrespective of whether or not the
Warrants have been exercised, any and all notices required by the Public
Warrant Agreement to be sent to holders of the Public Warrants.
14. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to a registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in
Section 3 of this Agreement or to such other address as the Company may
designate by notice to the Holders.
-26-
15. Supplements and Amendments.
The Company and the Underwriter may from time to time
supplement or amend this Agreement without the approval of any Holders of
Warrant Certificates in order to cure any ambiguity, to correct or supplement
any provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Underwriter may deem
necessary or desirable and which the Company and the Underwriter deem not to
adversely affect the interests of the Holders of Warrant Certificates.
16. Successors.
All the covenants and provisions of this Agreement by or
for the benefit of the Company and the Holders inure to the benefit of their
respective successors and assigns hereunder.
17. Termination.
This Agreement shall terminate at the close of business
on __________, 2006. Notwithstanding the foregoing, this Agreement will
terminate on any earlier date when all Warrants have been exercised and all
the Shares and Underlying Warrants issuable upon exercise of the Warrants have
been resold to the public; provided, however, that the provisions of Section 7
shall survive any termination pursuant to this Section 16 until the close of
business on _________, 2009.
18. Governing Law.
This Agreement and each Warrant Certificate issued
hereunder shall be deemed to be a contract made under the laws of
-27-
the State of New York and for all purposes shall be construed in accordance
with the laws of said State.
19. Benefits of This Agreement.
Nothing in this Agreement shall be construed to give to
any person or corporation other than the Company and the Underwriter and any
other registered holder or holders of the Warrant Certificates, Warrants,
Underlying Warrants or the Shares any legal or equitable right, remedy or
claim under this Agreement; and this Agreement shall be for the sole and
exclusive benefit of the Company and the Underwriter and any other holder or
holders of the Warrant Certificates, Warrants, Underlying Warrants or the
Shares.
20. Counterparts.
This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and
the same instrument.
-28-
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
[SEAL] SHERWOOD BRANDS, INC.
By:__________________________________
Name:
Title:
Attest:
-----------------------
PARAGON CAPITAL CORPORATION
By:__________________________________
Name:
Title:
-29-
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED FOR PURPOSES OF PUBLIC
DISTRIBUTION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY
NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144
UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION
OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY,
STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, _________, 2003
No. W- 155,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that Paragon Capital
Corporation or registered assigns, is the registered holder of 155,000
Warrants to purchase, at any time from _______, 1998 until 5:00 P.M. New York
City time on ________, 2003 ("Expiration Date"), up to 155,000 fully-paid and
non-assessable shares ("Shares") of common stock, par value $.01 per share
(the "Class A Common Stock"), of Sherwood Brands, Inc., a North Carolina
corporation (the "Company"), at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $9.22 per Share upon
surrender of this Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, but subject to the conditions set forth
herein and in the warrant agreement dated as of ____________, 1998 between the
Company and Paragon Capital Corporation (the "Warrant Agreement"). Payment of
the Exercise Price may be made in cash, or by certified or official bank check
in New York Clearing House funds payable to the order of the Company, or any
combination thereof.
No Warrant may be exercised after 5:00 P.M., New York City
time, on the Expiration Date, at which time all Warrants evidenced hereby,
unless exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part
of a duly authorized issue of Warrants issued pursuant to the Warrant
Agreement, which Warrant Agreement is hereby incorporated by reference in and
made a part of this instrument and is hereby referred to in a description of
the rights, limitation of rights,
obligations, duties and immunities thereunder of the Company and the holders
(the words "holders" or "holder" meaning the registered holders or registered
holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events, the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the
rights of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax, or
other governmental charge imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s)
hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding
any notation of ownership or other writing hereon made by anyone), for the
purpose of any exercise hereof, and of any distribution to the holder(s)
hereof, and for all other purposes, and the Company shall not be affected by
any notice to the contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the
Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated: ___________, 1998 SHERWOOD BRANDS, INC.
[SEAL] By:__________________________
Name:
Title:
Attest:
______________________
-2-
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase ____________
shares of Common Stock and herewith tenders in payment for such securities
cash or a certified or official bank check payable in New York Clearing House
Funds to the order of Sherwood Brands, Inc. in the amount of $_______ , all in
accordance with the terms hereof. The undersigned requests that a certificate
for such securities be registered in the name of __________ , whose address is
__________________, and that such Certificate be delivered to
__________________, whose address is _____________.
Dated: Signature:________________
(Signature must conform
in all respects to name
of holder as specified on
the face of the Warrant
Certificate.)
--------------------------------
--------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if
such holder desires to transfer the Warrant
Certificate.)
FOR VALUE RECEIVED__________________________________________
hereby sells, assigns and transfers unto
______________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________, Attorney,
to transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature:___________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate)
-------------------------------
-------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
EXHIBIT B
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED FOR PURPOSES OF PUBLIC
DISTRIBUTION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY
NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144
UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION
OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY,
STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, _________, 2003
No. W- 77,500 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that Paragon Capital
Corporation or registered assigns, is the registered holder of 77,500 Warrants
to purchase, at any time from _______, 1998 until 5:00 P.M. New York City time
on ________, 2003 ("Expiration Date"), up to 77,500 warrants (each exercisable
to purchase one fully-paid and non-assessable share ("Share") of Class A
common stock, par value $.01 per share (the "Class A Common Stock"), of
Sherwood Brands, Inc., a North Carolina corporation (the "Company") at the
initial exercise price of $7.50 per Share), at the initial exercise price,
subject to adjustment in certain events (the "Exercise Price"), of $.155 per
Warrant upon surrender of this Warrant Certificate and payment of the Exercise
Price at an office or agency of the Company, but subject to the conditions set
forth herein and in the warrant agreement dated as of ____________, 1998
between the Company and Paragon Capital Corporation (the "Warrant Agreement").
Payment of the Exercise Price may be made in cash, or by certified or official
bank check in New York Clearing House funds payable to the order of the
Company, or any combination thereof.
No Warrant may be exercised after 5:00 P.M., New York City
time, on the Expiration Date, at which time all Warrants evidenced hereby,
unless exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part
of a duly authorized issue of Warrants issued pursuant to the Warrant
Agreement, which Warrant Agreement is hereby incorporated by reference in and
made a part of this instrument and is hereby referred to in a description of
the rights, limitation of rights,
obligations, duties and immunities thereunder of the Company and the holders
(the words "holders" or "holder" meaning the registered holders or registered
holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events, the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the
rights of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax, or
other governmental charge imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s)
hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding
any notation of ownership or other writing hereon made by anyone), for the
purpose of any exercise hereof, and of any distribution to the holder(s)
hereof, and for all other purposes, and the Company shall not be affected by
any notice to the contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the
Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated: ___________, 1998 SHERWOOD BRANDS, INC.
[SEAL] By:__________________________
Name:
Title:
Attest:
-2-
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase ____________
warrants (each exercisable to purchase one fully paid and non-assessable share
of Common Stock, par value $.01 per share, of Sherwood Brands, Inc., a North
Carolina Corporation, at an initial exercise price of $_____ per share) and
herewith tenders in payment for such securities cash or a certified or
official bank check payable in New York Clearing House Funds to the order of
Sherwood Brands, Inc. in the amount of $________, all in accordance with the
terms hereof. The undersigned requests that a certificate for such securities
be registered in the name of ________________________________________________,
whose address is __________________, and that such Certificate be delivered
to __________________, whose address is
_________________.
Dated: Signature:________________
(Signature must conform
in all respects to name
of holder as specified on
the face of the Warrant
Certificate.)
--------------------------------
--------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED________________________________________
hereby sells, assigns and transfers unto
______________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________, Attorney,
to transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature:_________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate)
-------------------------------
-------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)