Exhibit 10.2
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SECURITIES PURCHASE AGREEMENT
dated April 12, 1999
by and between
DELICIOUS BRANDS, INC.
and
LITTLE MEADOW CORP.
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TABLE OF CONTENTS
Page
ARTICLE I
PURCHASE, SALE AND TERMS OF SHARES.......................................1
1.01 Purchase and Sale.............................................1
1.02 The Conversion Shares.........................................2
1.03 Delivery of Securities........................................2
1.04 Purchase Price................................................2
1.05 Closing.......................................................2
ARTICLE II
CONDITIONS TO PURCHASER OBLIGATIONS......................................2
2.01 Documentation at Closing......................................2
2.02 Consents and Waivers..........................................3
2.03 Directors.....................................................3
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................4
3.01 Organization and Standing of the Company......................4
3.02 Corporate Action..............................................4
3.03 Governmental Approvals........................................5
3.04 Litigation....................................................5
3.05 Certain Agreements of Officers and Employees..................5
3.06 Compliance with Other Instruments.............................5
3.07 Title to Assets, Patents......................................6
3.08 SEC Documents; Financial Statements...........................6
3.09 Absence of Certain Developments...............................7
3.10 Taxes.........................................................8
3.11 Benefit Plans; Labor Relations................................9
3.12 Transactions with Affiliates.................................10
3.13 Assumptions or Guaranties of Indebtedness of Other Persons...10
3.14 Investments in Other Persons.................................10
3.15 Securities Act...............................................10
3.16 Capitalization; Status of Capital Stock......................10
3.17 Registration Rights..........................................11
3.18 Insurance....................................................11
3.19 Books and Records............................................12
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3.20 Material Agreements..........................................12
3.21 Environmental and Safety Laws................................12
3.22 U.S. Real Property Holding Corporation.......................12
3.23 Compliance...................................................12
3.24 Brokers or Finders...........................................13
3.25 Disclosure...................................................13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.........................13
4.01 Organization and Standing of the Company.....................13
4.02 Corporate Action.............................................13
4.03 Investment Representations...................................13
4.04 Access to Information........................................14
4.05 Sophistication and Knowledge.................................14
4.06 Transfer Restrictions Imposed by Securities Laws.............14
4.07 Lack of Liquidity............................................15
4.08 Accredited Investor Status...................................15
4.09 Brokers or Finders...........................................15
ARTICLE V
COVENANTS OF THE COMPANY................................................15
5.01 Inspection...................................................15
5.02 Indemnification..............................................15
5.03 Use of Proceeds..............................................16
5.04 Third Party Registration Rights..............................16
ARTICLE VI
REGISTRATION RIGHTS.....................................................17
6.01 Piggy-Back Registrations.....................................17
6.02 Demand Registration..........................................18
6.03 Registrations on Form S-3....................................19
6.04 Effectiveness................................................19
6.05 Indemnification by the Company...............................19
6.06 Indemnification by Holders of Registrable Shares.............21
6.07 Exchange Act Registration....................................23
6.08 Damages......................................................23
6.09 Further Obligations of the Company...........................23
6.10 Expenses.....................................................25
6.11 Transferability..............................................25
6.12 Mergers, Etc.................................................25
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ARTICLE VII
INDEMNIFICATION.........................................................26
7.01 Indemnification of the Purchaser by the Company..............26
7.02 Indemnification of the Company by the Purchaser..............26
7.03 Right to Defend, Etc.........................................27
7.04 Tax Effect...................................................27
ARTICLE VIII
GLOSSARY ...............................................................28
8.01 Certain Defined Terms........................................28
8.02 Accounting Terms.............................................31
ARTICLE IX
MISCELLANEOUS...........................................................31
9.01 "Lock-Up" Agreement..........................................31
9.02 No Waiver; Cumulative Remedies...............................31
9.03 Amendments, Waivers and Consents.............................32
9.04 Addresses for Notices........................................32
9.05 Costs, Expenses and Taxes....................................33
9.06 Effectiveness; Binding Effect; Assignment....................33
9.07 Survival of Representations and Warranties...................33
9.08 Prior Agreements.............................................33
9.09 Severability.................................................34
9.10 Governing Law................................................34
9.11 Headings; References.........................................34
9.12 Counterparts.................................................34
9.13 Further Assurances...........................................34
9.14 Transfer.....................................................34
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EXHIBITS
1.01(A) Form of Certificate of Designation
1.01(B) Form of Warrant
2.01(b) Form of Opinion of Counsel to Company
5.02(a) Form of Indemnification Agreement
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SCHEDULES
3.04 Litigation
3.05(b) Certain Employee/Consultant Agreements
3.07(a) Title to Assets, Patents
3.07(b) Intellectual Property Rights; Claims
3.08(c) Liabilities
3.08(d) Certain Changes Subsequent to September 30, 1998
3.09 Certain Developments
3.10 Taxes
3.11(a) Benefit Plans
3.12 Certain Transactions with Affiliates
3.16 Capitalization; Status of Capital Stock
3.17 Registration Rights
318(b) Directors and Officers Liability Policy
3.20 Material Agreements
3.24 Broker or Finder Commission
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SECURITIES PURCHASE AGREEMENT
Securities Purchase Agreement, dated April 12, 1999, by and
between Delicious Brands, Inc. a Delaware corporation having its principal
executive offices at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the
"Company"), and Little Meadow Corp., a Delaware corporation having its business
address at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (the
"Purchaser").
WITNESSETH:
WHEREAS, the Company desires to issue and sell to the
Purchaser, and the Purchaser desires to purchase from the Company, shares of
Series B Convertible Preferred Stock, par value $.01 per share (the "Series B
Stock"), of the Company and warrants to purchase shares of Common Stock, par
value $.01 per share (the "Common Stock"), on the terms and subject to the
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual
agreements contained herein, the parties hereby agree as follows:
ARTICLE I
PURCHASE, SALE AND TERMS OF SHARES
1.01 Purchase and Sale. On the terms and subject to the
conditions set forth in this Agreement, the Company agrees to issue and sell to
the Purchaser, and the Purchaser agrees to purchase from the Company, at the
Closing (such capitalized term and all other capitalized terms used herein and
not separately defined herein shall have the respective meanings ascribed to
them in Article VIII hereof): (a) 35,000 shares of Series B Stock; and (b)
warrants to purchase, subject to the Equitable Adjustments contained therein,
700,000 shares of Common Stock at an initial exercise price of $.01 per share
for a period of ten (10) years following the date of issuance of such warrants
(the "Warrants"). The Series B Stock shall have the designation, rights and
other terms and provisions set forth in the Certificate of Designation attached
hereto as Exhibit 1.01(A) (the "Certificate of Designation"), which rights and
terms include, without limitation: (i) the right of the Holders of Series B
Stock to elect two (2) members of the Board of Directors of the Company (the
"Board"); (ii) the right of the holder of each share of Series B Stock to
convert each such share into five (5) shares of Common Stock (subject to
Equitable Adjustments) at any time or from time to time; and (iii) the right of
the holder of each share of Series B Stock to vote on all matters presented to
the holders of Common Stock on the basis of five (5) votes for each share of
Series B Stock (subject to Equitable Adjustment). The Warrants shall be in the
form attached hereto as Exhibit 1.01(B).
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1.02 The Conversion Shares. The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, a sufficient number of its
authorized but unissued shares of Common Stock to satisfy the rights of: (a)
conversion of the holders of the Series B Stock; and (b) the holders of the
Warrants. Any shares of Common Stock issuable upon conversion of the Series B
Stock are herein referred to as the "Conversion Shares". Any shares of Common
Stock issuable upon exercise of the Warrants are herein referred to as the
"Warrant Shares".
1.03 Delivery of Securities. At the Closing, the Company shall
deliver to the Purchaser, or will cause to be delivered to the Purchaser,
certificates representing the number of shares of Series B Stock referred to in
Section 1.01 above and the Warrants, each registered in the name of the
Purchaser.
1.04 Purchase Price. The purchase price to be paid by the
Purchaser to the Company in full consideration for the issuance and sale of the
Series B Stock and the Warrants shall be one million seven hundred and fifty
thousand Dollars ($1,750,000) (the "Purchase Price") payable by wire transfer in
immediately available funds to an account designated by the Company prior to the
Closing.
1.05 Closing. The closing of the transactions to be effected
hereunder (the "Closing") will be held at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇ Butowsky
▇▇▇▇▇▇▇ Shalov & ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or such
other location as the parties may agree to, at 10:00 a.m., New York City time,
on April 12, 1999, or such other date and time as shall be mutually acceptable
to the parties.
ARTICLE II
CONDITIONS TO PURCHASER OBLIGATIONS
The obligation of the Purchaser to purchase and pay for the
Series B Stock and the Warrants to be purchased by it at the Closing is subject
to the satisfaction prior to the Closing of each of the following conditions,
unless waived in writing by the Purchaser:
2.01 Documentation at Closing. The Purchaser shall have
received, prior to or at the Closing, all of the following materials, each in
form and substance satisfactory to the Purchaser and its counsel, and each of
the following events shall have occurred, or each of the following documents
shall have been delivered, prior to or simultaneous with the Closing:
(a) Copies of: (i) the Certificate of Incorporation of the
Company, as amended or restated to date, together with such evidence as may be
available of the filing thereof; (ii) the resolutions of the Board providing for
the approval of the Certificate of Designation, the approval of the Transaction
Documents, the issuance of the Series B Stock and the Warrants, and all other
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agreements or matters contemplated hereby or executed in connection herewith
(including, without limitation, resolutions (1) approving of the Purchaser and
each of its Affiliates and associates (including, without limitation, ▇▇▇▇ ▇.
Icahn and any Person directly or indirectly controlled by Mr. Icahn ) becoming
an interested stockholder (as such term is defined in Section 203 of the DGCL
("Section 203")) pursuant to the transactions contemplated by this Agreement;
and (2) acknowledging that any future transactions between any one or more of
the Company and its subsidiaries, on the one hand, and any one or more of the
Purchaser, its Affiliates and associates (including, without limitation, ▇▇▇▇ ▇.
Icahn and any Person directly or indirectly controlled by Mr. Icahn), on the
other hand, shall not be subject to the provisions of Section 203); and (iii)
the By-laws of the Company, all of which shall have been certified by the
Secretary of the Company, as of the date of the Closing, to be true, complete
and correct; and certified copies of all documents evidencing other necessary
corporate or other action and governmental approvals, if any, required to be
obtained at or prior to the Closing with respect to this Agreement and the
issuance of the shares of Series B Stock and the Warrants.
(b) The favorable opinion of counsel for the Company, dated
the date of the Closing, in the form attached as Exhibit 2.01(b).
(c) (i) A certificate of the Secretary or an Assistant
Secretary of the Company, dated the date of the Closing, which shall certify the
names of the officers of the Company authorized to sign: (i) this Agreement;
(ii) the certificates for the Series B Stock; (iii) the Warrants; and (iv) the
other documents, instruments or certificates to be delivered pursuant to this
Agreement by the Company or any of its officers, together with the incumbency of
such officers, and the true specimen signatures of such officers.
(d) A Certificate of the Secretary of State of the State of
Delaware, dated a recent date, as to the due incorporation and good standing of
the Company.
(e) A copy of the Certificate of Designation certified by the
Secretary of State of the State of Delaware as having been filed with the
Secretary of State of the State of Delaware.
2.02 Consents and Waivers. The Company shall have obtained any
consents or waivers necessary to be obtained at or prior to the Closing to
execute and deliver the Transaction Documents (as defined below) and the other
agreements and instruments executed and delivered by the Company in connection
herewith, to issue the Series B Stock and the Warrants and to carry out the
transactions contemplated hereby and thereby, and such consents and waivers
shall be in full force and effect at the Closing. All corporate and other action
and governmental filings necessary to effectuate the terms of the Transaction
Documents and the other agreements and instruments executed and delivered by the
Company in connection herewith and the issuance of the Series B Stock and the
Warrants shall have been made or taken.
2.03 Directors. The Board immediately following the Closing
shall consist of seven (7) members; each of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇
shall have been elected to the Board as
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designees of the holders of the Series B Stock; and one of the foregoing
directors designated by the Purchaser shall have been appointed to each of the
committees of the Board unless such director would cause such committee to not
be in compliance with such committee's applicable director qualification
requirements.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as
follows:
3.01 Organization and Standing of the Company. The Company is
a duly organized and validly existing corporation in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority: (i) for the ownership and operation of its properties; (ii) for the
carrying on of its business as now conducted and as now proposed to be
conducted; (iii) to execute and deliver this Agreement and other instruments,
warrants, agreements and documents contemplated herein (collectively with this
Agreement, the "Transaction Documents"); (iv) to issue, sell and deliver the
Series B Stock and the Warrants and to issue and deliver the Conversion Shares
upon conversion of the Series B Stock and the Warrant Shares upon exercise of
the Warrants; and (v) to perform its other obligations pursuant hereto and
thereto. The Company is duly licensed or qualified and in good standing as a
foreign corporation authorized to do business in all jurisdictions wherein the
character of the property owned or leased or the nature of the activities
conducted by it makes such licensing or qualification necessary, other than in
those jurisdictions where the failure to be so licensed or qualified or in good
standing does not, individually or in the aggregate, have a Material Adverse
Effect (as defined below).
3.02 Corporate Action. The Transaction Documents have been
duly authorized, executed and delivered by the Company and constitute the legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except to the extent limited by
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors rights and the general principles of equity. The Series B Stock, the
Conversion Shares and the Warrant Shares have been duly authorized. The
issuance, sale and delivery of the Series B Stock and the issuance and delivery
of the Conversion Shares upon conversion of the Series B Stock and the Warrant
Shares upon exercise of the Warrants have been duly authorized by all required
corporate action on the part of the Company. The Series B Stock, the Conversion
Shares and Warrant Shares, when issued and paid for in accordance with the
Transaction Documents, will be validly issued, fully paid and nonassessable,
with no personal liability attaching to the ownership thereof and will be free
and clear of all liens, charges, restrictions, claims and encumbrances imposed
by or through the Company, except as expressly set forth in the Transaction
Documents. The Conversion Shares and the Warrant Shares have been duly reserved
for issuance upon conversion of the Series B Stock and the exercises of the
Warrants, respectively.
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3.03 Governmental Approvals. Except for the filing of any
notice prior to the Closing that may be required under applicable state and/or
federal securities laws (which, if required, shall be filed by the Company on a
timely basis), no authorization, consent, approval, license, exemption of or
filing or registration with any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, is or will be
necessary for, or in connection with, the execution and delivery by the Company
of this Agreement, for the offer, issue, sale, execution or delivery of the
Series B Stock or the Warrants, or for the performance by the Company of its
obligations under the Transaction Documents or under the Shares.
3.04 Litigation. Except as disclosed in Schedule 3.04 or in
the Company SEC Documents, there is no litigation or governmental proceeding or
investigation pending or, to the best knowledge of the Company, threatened
against the Company or affecting any of its properties or assets or against any
Key Employee relating to the Company or its business, nor, to the best knowledge
of the Company, has there occurred any event or does there exist any condition
on the basis of which any litigation, proceeding or investigation might properly
be instituted. Neither the Company nor, to the best knowledge of the Company,
any Key Employee is in default with respect to any order, writ, injunction,
decree, ruling or decision of any court, commission, board or other government
agency, to the extent that such default might have a material adverse effect on
the business, assets, liabilities, operations, Intellectual Property Rights,
management or financial condition of the Company (a "Material Adverse Effect").
There are no actions or proceedings pending or, to the Company's best knowledge,
threatened (or any basis therefor known to the Company) against the Company
which might result, either in any case or in the aggregate, have a Material
Adverse Effect, or which might call into question the validity of any of the
Transaction Documents, any of the Series B Stock, the Warrants or any action
taken or to be taken pursuant hereto or thereto. Without limitation to the
foregoing representations, to the extent not described in the Company SEC
Documents a brief summary of the Company's litigation and the current status
thereof is set forth on Schedule 3.04.
3.05 Certain Agreements of Officers and Employees. To the best
of the Company's knowledge, no Key Employee is, or, is now anticipated to be, in
violation of any material term of any employment contract, patent disclosure
agreement, proprietary information agreement, noncompetition agreement,
nonsolicitation agreement, confidentiality agreement, or any other similar
contract or agreement or any restrictive covenant, relating to the right of any
such Key Employee to be employed or engaged by the Company because of the nature
of the business conducted or to be conducted by the Company or relating to the
use of trade secrets or proprietary information of others, and to the Company's
best knowledge and belief, the continued employment or engagement of the
Company's Key Employees does not subject the Company or the Purchaser to any
liability with respect to any of the foregoing matters.
3.06 Compliance with Other Instruments. The Company is in
compliance in all respects with the terms and provisions of its Certificate of
Incorporation and By-laws, each as amended and/or restated to date, and in all
respects with the material terms and provisions of all mortgages, indentures,
leases, agreements and other instruments by which it is bound or to which it
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or any of its properties or assets are subject, except to the extent that the
failure to so comply with any such provision of any such mortgage, indenture,
lease or agreement would not have a Material Adverse Effect. The Company is in
compliance in all material respects with all judgments, decrees, governmental
orders, laws, statutes, rules or regulations by which it is bound or to which it
or any of its properties or assets are subject. Neither the execution and
delivery of the Transaction Documents nor the issuance of the Series B Stock,
the Conversion Shares, the Warrants or the Warrant Shares, nor the consummation
or performance of any transaction contemplated hereby or thereby, has
constituted or resulted in or will constitute or result in a default or
violation of, create a conflict with, trigger any "change of control" or other
right of any Person under, or require any consent, waiver, release or approval
under or with respect to, any term or provision of any of the foregoing
documents, instruments, judgments, agreements, decrees, orders, statutes, rules
and regulations.
3.07 Title to Assets, Patents. (a) Except as set forth on
Schedule 3.07(a) hereof, the Company has good and marketable title in fee to
such of its fixed assets as are real property, and good and merchantable title
to all of its other assets, now carried on its books, which assets consist of
those reflected in the most recent balance sheet of the Company included as part
of the Company 10-Q, or acquired since the date of such balance sheet (except
personal property disposed of since said date in the ordinary course of
business) free of any mortgages, pledges, charges, liens, security interests or
other encumbrances.
(b) The Company owns or has a valid right to use the
Intellectual Property Rights being used to conduct its business as now operated
and as now proposed by the Company to be operated; and the conduct of its
business as now operated and as now proposed to be operated does not and will
not conflict with or infringe upon the intellectual property rights of others.
Except as set forth on Schedule 3.07(b), no claim is pending or, to the best of
the Company's knowledge, threatened against the Company and/or its officers,
employees and consultants to the effect that any such Intellectual Property
Right owned or licensed by the Company, or which the Company otherwise has the
right to use, is invalid or unenforceable by the Company.
3.08 SEC Documents; Financial Statements. (a) The Company has
filed all forms, reports and documents required to be filed by the Company with
the Commission and has heretofore delivered to the Purchaser, in the form filed
with the Commission, its Registration Statement on Form S-1 filed with the
Commission on April 23, 1998, as amended to date (the "Company S-1"), its
Quarterly Report on Form 10-Q for the period ending September 30, 1998 (the
"Company 10-Q" and, collectively with the Company S-1, the "Company SEC
Documents"). As of their respective dates: (i) the Company SEC Documents
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the Commission thereunder
applicable to such Company SEC Documents; and (ii) none of the Company SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
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(b) The financial statements of the Company included in the
Company SEC Documents (the "Financial Statements") complied as to form in all
material respects with the published rules and regulations of the Commission
with respect thereto, were prepared in accordance with generally accepted
accounting principles as applied in the United States of America ("GAAP")
consistently applied during the period involved (except as may be indicated in
the notes thereto or, in the case of the unaudited statements, as permitted by
Rule 10-01 of Regulation S-X of the Commission) and fairly present in accordance
with applicable requirements of GAAP (subject, in the case of the unaudited
statements, to normal, recurring audit adjustments) the financial position of
the Company as at their respective dates and the results of operations and the
cash flows of the Company for the periods then ended.
(c) Except as set forth on Schedule 3.08(c) hereto, the
Company has no liability or obligation, absolute, accrued, contingent or
otherwise, and whether due or to become due, that is not reflected in the
Financial Statements or incurred in the ordinary course of business since the
date of the Financial Statements, whether or not such liability would be
required to be provided for in accordance with GAAP.
(d) Except as set forth in Schedule 3.08(d), since September
30, 1998, (i) there has been no material adverse change in the business, assets,
operations, affairs, prospects or financial condition of the Company; (ii)
neither the business, financial condition, operations, prospects or affairs of
the Company nor any of its properties or assets, including without limitation,
its Intellectual Property Rights, have been materially adversely affected as the
result of any legislative or regulatory change, any revocation or change in any
franchise, permit, license or right to do business, or any other event or
occurrence, whether or not insured against; and (iii) the Company has not
entered into any material transaction other than in the ordinary course of
business, made any distribution on its capital stock, or redeemed or repurchased
or declared any distribution on, any of its capital stock.
3.09 Absence of Certain Developments. Without limiting
anything contained in Section 3.08(d), except as provided in Schedule 3.09 or
the Company SEC Documents, since September 30, 1998 the Company has not:
(a) issued any stock, bonds or other corporate securities or
any rights, options or warrants with respect thereto, other than options to
purchase 4,500 shares of Common Stock granted to directors of the Company
pursuant to a formula stock option plan;
(b) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in the
ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's business;
(c) discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
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(d) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(e) mortgaged or pledged any of its assets, tangible or
intangible, or subjected them to any lien, charge or other encumbrance, except
liens for current property taxes not yet due and payable;
(f) sold, assigned or transferred any other tangible assets,
or canceled any debts or claims, except in the ordinary course of business
consistent with past practice;
(g) sold, assigned or transferred any Intellectual Property
Rights or disclosed any proprietary confidential information to any persons
except to potential customers, investors or partners or collaborators in the
ordinary course of business consistent with past practice;
(h) suffered any substantial losses (other than losses from
operations for financial reporting purposes) or waived any rights of material
value, whether or not in the ordinary course of business, or suffered the loss
of any material amount of prospective business;
(i) made any changes in employee compensation except in the
ordinary course of business consistent with past practices;
(j) made capital expenditures or commitments therefor that
aggregate in excess of $50,000;
(k) entered into any other transaction other than in the
ordinary course of business, or entered into any other material transaction,
whether or not in the ordinary course of business;
(l) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(m) experienced any problems with labor or management in
connection with the terms and conditions of their employment; or
(n) effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company.
3.10 Taxes. The Company has filed all Returns (as hereinafter
defined) required to be filed with taxing authorities prior to the date hereof
or has duly obtained extensions of time for the filing thereof. The Company has
paid all Taxes (as hereinafter defined) shown as due on such Returns that were
filed and has paid all Taxes imposed on or assessed against the Company. The
provisions for Taxes payable, if any, are shown on the Financial Statements and
are sufficient for all accrued and unpaid Taxes, whether or not disputed, and
for all periods to and including the dates of
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such Financial Statements. None of the federal income tax returns of the Company
have been audited by the Internal Revenue Service. The Company knows of no
additional assessments, adjustments or contingent tax liability (whether federal
or state) pending or threatened for any period, or of any basis for any such
assessment, adjustment or contingency. Except as set forth on Schedule 3.10, (i)
no issues have been raised (and are currently pending) by any taxing authority
in connection with any of the Returns or Taxes asserted as due from the Company,
except for issues that, singly or in the aggregate, would not have a Material
Adverse Effect taken as a whole, and (ii) no waivers of statutes of limitation
with respect to the Returns or collection of Taxes have been given by or
requested from the Company. The term "Taxes" means all federal, state, local,
foreign, and other net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs, duties or other taxes, fees, assessments or
charges of any kind whatever, together with any interest and any penalties,
additions to tax, or additional amounts with respect thereto. The term "Returns"
means all returns, declarations, reports, statements, and other documents
required to be filed in respect to Taxes. Neither the Company nor, to the best
of the Company's knowledge, any of its stockholders, has ever filed a consent
pertaining to the Company pursuant to section 341(f) of the Code relating to
collapsible corporations.
3.11 Benefit Plans; Labor Relations.
(a) Other than as set forth in the Company SEC Documents, the
Company neither maintains, sponsors nor contributes to, nor is it required to
contribute to, any program or arrangement that is an "employee pension benefit
plan," an "employee welfare benefit plan" or "multi-employer plan" as such terms
are defined in Sections 3(2), 3(1) and 3(37), respectfully, of ERISA ("ERISA
Plans"). The Company does not maintain or contribute to, and has at no time
maintained or contributed to, a defined benefit plan, as defined in Section
3(35) of ERISA. If the Company does maintain or contribute to a defined benefit
plan, any termination of the plan on the date hereof would not give rise to
liability under Title IV or ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code, which would subject the
Company to any tax penalty for prohibited transactions and which has not
adequately been corrected. Each ERISA Plan is in compliance with all material
reporting, disclosure and other requirements of the Code and ERISA as they
relate to any such ERISA Plan. Determination letters have been received from the
Internal Revenue Service with respect to each ERISA Plan which is intended to
comply with Code Section 401(a), stating that such ERISA Plan and the attendant
trust are qualified thereunder. The Company has never completely or partially
withdrawn from a "multi-employer plan." The Company has made all payments to the
Local 734 Pension Fund required to be made pursuant to the collective bargaining
agreement with Teamsters Local 734.
(b) Other than as set forth in the Company SEC Documents, none
of the Company's employees is covered by any labor or collective bargaining
agreement and, to the Company's knowledge, there is no activity involving any
employees of the Company seeking to certify a collective bargaining unit or
engaging in any other organizational activity. There are no pending,
9
or to the knowledge of the Company, threatened strikes, work stoppages,
slowdowns, lockouts, arbitrations or other labor disputes against the Company.
There are no pending or, to the Company's knowledge, threatened, complaints,
charges, claims, lawsuits, administrative proceedings, reviews, or
investigations by any person or Governmental Entity against the Company with
respect to any violation or alleged violation of any applicable Federal, state
or local laws, rules or regulations: (i) prohibiting discrimination on any
basis, including, without limitation, on the basis of race, color, religion,
sex, sexual orientation, disability, national origin or age; or (ii) relating to
employment or labor, including, without limitation, those related to
immigration, mass layoff, wages or hours.
3.12 Transactions with Affiliates. Except as described in the
Company SEC Documents or set forth in Schedule 3.12, there are no loans, leases,
royalty agreements or other continuing transactions between (a) the Company or
any of its customers or suppliers, and (b) any officer, employee, consultant or
director of the Company or any Person owning five percent (5%) or more of the
capital stock of the Company or any member of the immediate family of such
officer, employee, consultant, director or stockholder or any corporation or
other entity controlled by such officer, employee, consultant, director or
stockholder, or a member of the immediate family of such officer, employee,
consultant, director or stockholder.
3.13 Assumptions or Guaranties of Indebtedness of Other
Persons. The Company has not assumed, guaranteed, endorsed, or otherwise become
directly or contingently liable on (including, without limitation, liability by
way of agreement, contingent or otherwise, to purchase, to provide funds for
payment, to supply funds to or otherwise invest in the debtor or otherwise to
assure the creditor against loss), any Indebtedness of any other Person except
as disclosed in the Company SEC Documents.
3.14 Investments in Other Persons. Except as set forth in the
Company SEC Documents, the Company has not made any loans or advances to any
Person which is outstanding on the date of this Agreement in excess of $20,000
in the aggregate, nor is it committed or obligated to make any such loan or
advance, nor has or does the Company own any capital stock, assets comprising
the business of, obligations of, or any interest in, any Person. The Company
does not currently have any Subsidiaries.
3.15 Securities Act. The Company has complied and will comply
with all applicable federal and state securities laws in connection with the
offer, issuance and sale of the Shares and the Warrants hereunder. Neither the
Company nor anyone acting on its behalf has or will sell, offer to sell or
solicit offers to buy any such security or similar securities to, or solicit
offers with respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any Person, so as to bring the issuance and
sale of the Series B Stock under the registration provisions of the Securities
Act and applicable state securities laws.
3.16 Capitalization; Status of Capital Stock. As of the
Closing, the Company will have a total authorized capitalization consisting of
(a) 25,000,000 shares of Common Stock, $.01 par value, and (b) 1,000,000 shares
of Preferred Stock, $.01 par value, of which 245,000 shares have
10
been designated as Series A Preferred Stock and 35,000 shares will be designated
as Series B Stock. As of the Closing, 4,440,835 shares of Common Stock and
189,334 shares of Series A Preferred Stock will be issued and outstanding, and,
without giving effect to the transactions contemplated hereby, no shares of
Series B Stock will be issued or outstanding, other than such as shall be issued
at the Closing. All the outstanding shares of capital stock of the Company have
been duly authorized, and are validly issued, fully paid and non-assessable.
Schedule 3.16 sets forth all of the shares of Common Stock that are reserved for
issuance upon exercise of outstanding stock options and warrants (in each case
subject to being Equitably Adjusted). Except as set forth on Schedule 3.16, no
options, warrants, conversion rights, subscriptions or purchase rights of any
nature to acquire from the Company, or commitments of the Company to issue,
shares of capital stock or other securities are authorized, issued or
outstanding, nor is the Company obligated in any other manner to issue shares or
rights to acquire any of its capital stock or other securities. Except as
described in the Company SEC Documents or set forth in Schedule 3.16, none of
the Company's outstanding securities or authorized capital stock or the Series B
Stock is subject to any rights of redemption, repurchase, rights of first
refusal, preemptive rights or other similar rights, whether contractual,
statutory or otherwise, for the benefit of the Company, any stockholder, or any
other Person. Except as described in the Company SEC Documents or as set forth
in Schedule 3.16, there are no restrictions on the transfer of shares of capital
stock of the Company other than those imposed by relevant federal and state
securities laws and as otherwise contemplated by this Agreement. Except as
described in the Company SEC Documents or as set forth in Schedule 3.16, there
are no agreements, understandings, trusts or other collaborative arrangements or
understandings concerning the voting or transfer of the capital stock of the
Company. The offer and sale of all capital stock and other securities of the
Company issued before the Closing complied with or were exempt from all
applicable federal and state securities laws and no stockholder has a right of
rescission or damages with respect thereto. Except as described in the Company
SEC Documents, the Company does not have any stock option plans. The Company
does not have outstanding, and has no obligation to grant or issue, any "phantom
stock" or other right measured by the profits, revenues or results of operations
of the Company or any portion thereof, or any similar rights. The Company has
not adopted any rights plans or similar "poison pill" arrangements.
3.17 Registration Rights. Except as described in the Company
SEC Documents or as set forth on Schedule 3.17 hereto, no holders of any
securities of the Company or of any options or warrants of the Company
exercisable for or convertible or exchangeable into securities of the Company
have the right to require the Company to register any such securities of the
Company under the Act or to include any such securities in a registration
statement to be filed by the Company.
3.18 Insurance. (a) The Company maintains insurance covering
the Company's properties and business adequate and customary for the type and
scope of the properties, assets and business, and similar to companies of
comparable size and condition similarly situated in the same industry in which
the Company operates.
(b) Schedule 3.18(b) sets forth a true and
correct description of the Company's Directors and Officers liability policy
(the "D&O Policy"). The D&O Policy is in full
11
force and effect and not subject to rejection or recession by the insurance
company issuing such policy. The Company has complied with all of the terms of
the D&O Policy applicable to it. All of the information (including, without
limitation, financial information) provided by the Company to the insurance
company issuing the D&O Policy, including, without limitation, all information
provided to such insurance company as part of the application process for such
policy, was true, correct and complete in all material respects when so
provided.
3.19 Books and Records. The books of account, ledgers, order
books, records and documents of the Company accurately and completely reflect
all material information relating to the business of the Company, the location
and collection of its assets, and the nature of all transactions giving rise to
the obligations or accounts receivable of the Company.
3.20 Material Agreements. The Company SEC Documents include as
exhibits thereto all material contracts and agreements to which the Company was
a party or by which the Company or its assets was otherwise bound as of the date
of the Company SEC Documents to which they are exhibits (the "Filed
Agreements"). Except for the Filed Agreements or as set forth in Schedule 3.20,
the Company is not a party to any written or oral contract or instrument,
agreement, commitment, obligation, plan or arrangement which: (a) is material to
the Company or its business; and/or (b) in accordance with the provisions of the
Securities Act or the Exchange Act, as applicable, were required to be filed as
an exhibit to any Company SEC Document when such Company SEC Document was filed
by the Company with the Commission (any such contract, instrument, agreement,
commitment, obligation, plan or arrangement, together with the Filed Agreements,
are referred to herein as the "Material Agreements"). The Company, and to the
best of the Company's knowledge, each other party thereto, have in all material
respects performed all the obligations required to be performed by them to date,
have received no notice of default and are not in default under any Material
Agreements. Except as set forth in Schedule 3.20, each of the Material
Agreements is in full force and effect with no default, anticipated or
threatened default or failure of performance or observance of any obligations or
conditions contained therein on the part of the Company or, to the Company's
knowledge, any other party to any such Material Agreement, and neither the
Company nor, to the Company's best knowledge, any other party to any such
agreement has provided any notice of default or of its intention to terminate
these agreements.
3.21 Environmental and Safety Laws. The Company is not in
violation of any applicable statute, law or regulation relating to the
environment or occupational safety and health, except where any such violation,
individually or in the aggregate, would not have a Material Adverse Effect, and
to the best of its knowledge after due investigation, no material expenditures
will be required in order to comply with any such statute, law or regulation.
3.22 U.S. Real Property Holding Corporation. The Company is
not now and has never been a "United States Real Property Holding Corporation"
as defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the Internal Revenue Service.
3.23 Compliance. All of the assets, products and services
of the Company
12
(including, without limitation, any computer programs provided or created by the
Company to or for any other Person) are Millennium Compliant, except where the
failure of the assets, products and services of the Company to be Millennium
Compliant, individually or in the aggregate, would not have a Material Adverse
Effect.
3.24 Brokers or Finders. Except for Network 1 Financial
Securities, Inc., which is entitled to the commission set forth on Schedule
3.24, no Person has or will have, as a result of the transactions contemplated
by this Agreement, any right, interest or valid claim against or upon the
Company for any commission, fee or other compensation as a finder or broker
because of any act or omission by the Company or its respective agents.
3.25 Disclosure. Neither the Transaction Documents, nor any
other agreement, document, certificate, statement, whether oral or written,
furnished to the Purchaser or its counsel by or on behalf of the Company in
connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein, in light of the
circumstances in which made, not misleading. There is no fact within the
knowledge of the Company or any of its executive officers executing this
Agreement on behalf of the Company that has not been disclosed herein or in
writing by them to the Purchaser that may have a Material Adverse Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company as follows:
4.01 Organization and Standing of the Company. The Purchaser
is a duly organized and validly existing corporation in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority: (i) for the ownership and operation of its properties; (ii) for the
carrying on of its business as now conducted and as now proposed to be
conducted; (iii) to execute and deliver this Agreement and other Transaction
Documents to which it is a party.
4.02 Corporate Action. The Transaction Documents to which
Purchaser is a party have been duly authorized, executed and delivered by the
Purchaser and constitute the legal, valid and binding obligations of the
Purchaser, enforceable against the Purchaser in accordance with their respective
terms, except to the extent limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors rights and the general
principles of equity..
4.03 Investment Representations. The Purchaser is acquiring
the Shares and Warrants for its own account for the purpose of investment and
not with a view to distribution or resale thereof except pursuant to
registration under the Securities Act or exemption therefrom. The Purchaser
understands and agrees that, until registered under the Securities Act or
transferred
13
pursuant to the provisions of Rule 144 or Rule 144A as promulgated by the
Commission, all certificates evidencing any of the Shares or Warrants, whether
upon initial issuance or upon any transfer thereof, shall bear a legend,
prominently stamped or printed thereon, reading substantially as follows:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE
SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS, SUPPORTED BY AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO
DELICIOUS BRANDS, INC. ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.
Each such certificate shall also bear a legend indicating that such shares are
subject to a lock-up agreement, if issued prior to the expiration of the lock-up
period provided for in Section 9.01 of this Agreement.
4.04 Access to Information. The Purchaser or its
representative during the course of this transaction, and prior to the purchase
of any Series B Stock or the Warrants, has had the opportunity to ask questions
of and receive answers from management of the Company concerning the terms and
conditions of the offering of the Series B Stock, the Warrants and the
additional information, documents, records and books relative to its business,
assets, financial condition, results of operations and liabilities (contingent
or otherwise) of the Company.
4.05 Sophistication and Knowledge. The Purchaser or its
representative has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the purchase of
the Series B Stock and the Warrants; and the Purchaser can bear the economic
risks of investment in the Series B Stock and the Warrants and can afford a
complete loss of its investment.
4.06 Transfer Restrictions Imposed by Securities Laws. The
Purchaser understands that neither the Shares nor the Warrants have been
registered under the Securities Act and applicable state securities laws, and,
therefore, cannot be resold unless they are subsequently registered under the
Securities Act and applicable state securities laws or unless an exemption from
such registration is available. The Purchaser shall not resell or otherwise
dispose of all or any part of the Shares or Warrants purchased by the Purchaser,
except as permitted by law, including, without limitation, any regulations under
the Securities Act and applicable state securities laws; the Purchaser
understands that the Company does not have any present intention and is under no
obligation to register the Shares or the Warrants under the Securities Act and
applicable state securities laws, except as provided in Article VI and the
Purchaser understands that Rule 144 or Rule 144A under the
14
Securities Act may not be available as a basis for exemption from registration
of the Shares thereunder.
4.07 Lack of Liquidity. The Purchaser has no present need for
liquidity in connection with its purchase of the Series B Stock.
4.08 Accredited Investor Status. The Purchaser is an
"Accredited Investor" as that term is defined in Rule 501 of Regulation D
promulgated under the Securities Act.
4.09 Brokers or Finders. No Person has or will have, as a
result of the transactions contemplated by this Agreement, any right, interest
or valid claim against or upon the Company for any commission, fee or other
compensation as a finder or broker because of any act or omission by Purchaser
or its agents.
ARTICLE V
COVENANTS OF THE COMPANY
5.01 Inspection. Until such time as the Purchaser ceases to
beneficially own (as defined in Rule 13d-3 promulgated under the Exchange Act)
at least the Requisite Shares, the Company shall permit authorized
representatives of the Purchaser to visit and inspect any of the properties of
the Company, including its books of account (and to make copies thereof and take
extracts therefrom), and to discuss its affairs, finances and accounts with its
officers, employees, independent accountants, consultants and attorneys, all at
such reasonable times and as often as may be reasonably requested, subject to
the execution of a confidentiality agreement reasonably acceptable in form and
substance to the Company by such representatives of the Purchaser, which the
Purchaser shall make reasonable efforts to obtain.
5.02 Indemnification. (a) Without in any way limiting anything
contained in Article VII, after the Closing, the Company shall, to the fullest
extent permitted under applicable law, indemnify and hold harmless each director
(including those listed in Section 2.08)), of the Company appointed by the
Purchaser against all costs and expenses (including attorneys' fees), judgments,
fines, losses, claims, damages, liabilities and settlement amounts paid in
connection with any claim, action, suit, proceeding or investigation (whether
arising before or after the Closing), whether civil, criminal, administrative or
investigative, arising out of or pertaining to any action or omission in their
capacity as director, until the expiration of the statute of limitations
relating thereto (and shall pay any expenses in advance of the final disposition
of such action or proceeding to each such director to the fullest extent
permitted under the DGCL, upon receipt from such director to whom expenses are
advanced of any undertaking to repay such advances required under the DGCL). In
the event of any such claim, action, suit, proceeding or investigation, the
Company shall pay the reasonable fees and expenses of counsel selected by such
director promptly after statements therefor are received and (ii) the Company
shall cooperate in the defense of any such matter; provided, however, that the
Company
15
shall not be liable for any settlement effected without its written consent
(which consent shall not be unreasonably delayed or withheld) and provided,
further, that the Company shall not be obligated pursuant to this Section 5.02
to pay the fees and expenses of more than one counsel (plus appropriate local
counsel) for all such directors in any single action except to the extent that
two or more of such directors shall have conflicting interests in the outcome of
such action, in which case such additional counsel (including local counsel) as
may be required to avoid any such conflict or likely conflict may be retained by
the directors at the expense of the Company; and provided further that, in the
event that any claim for indemnification is asserted or made within the period
prior to the expiration of the applicable statute of limitations, all rights to
indemnification in respect of such claim shall continue until the disposition of
such claim. Contemporaneously with the Closing, the Company shall enter into an
indemnification agreement substantially in the form of Exhibit 5.02(a) (the
"Indemnification Agreement") with each of those persons identified as the
Purchaser's designees as directors of the Company in Section 2.03. Promptly
following the appointment or election of any person to replace any such person
as a director of the Company, the Company shall enter into an Indemnification
Agreement with such replacement. To the extent that the provisions of this
Section 5.02 and the provisions of the Indemnification Agreement conflict, as
between the Company and the director or potential director which is a party
thereto, the terms of the Indemnification Agreement shall govern.
(b) Until such time as the Purchaser no longer
has the power to elect two directors, voting separately from the holders of
Common Stock, the Company shall maintain the D&O Policy and such other policies
of Directors and Officers liability insurance adequate and customary for
companies of comparable size (taking into account, among other things, the
market capitalization of the Company) and condition similarly situated in the
same industry in which the Company operates.
(c) In the event the Company or its successors
or assigns (i) consolidates with or merges into any other Person and shall not
be the continuing or surviving corporation or entity of such consolidation or
merger; or (ii) transfers all or substantially all of its properties and assets
to any Person, then, and in each such case, proper provisions shall be made so
that the successors and assigns of the Company shall assume the obligations set
forth in this Section 5.02.
(d) This Section 5.02 is intended to be for the
benefit of, and shall be enforceable by, the directors appointed or elected by
the Purchaser and their respective heirs and personal representatives.
5.03 Use of Proceeds. The Company shall use the cash proceeds,
if any, from the sale of the Series B Stock and the Warrants for working
capital, to repay indebtedness and other general corporate purposes.
5.04 Third Party Registration Rights. From and after the date
hereof but only for such period of time as the Purchaser beneficially owns (as
defined in Rule 13d-3 promulgated under the Exchange Act) at least the Requisite
Shares, without the consent of the Purchaser, the Company shall not grant to any
Person demand or other similar types of registration rights, including, without
16
limitation, any registration rights of the type contemplated by Section 6.02,
except in connection with the Company's issuance or sale of its securities as
consideration for its acquisition of assets or securities of a Person, in which
case the Company shall notify the Purchaser of such transactions, which shall be
deemed given when the directors elected by the holders of the Series B Stock,
voting separately as a class, are notified by the Company of any such proposed
transaction.
ARTICLE VI
REGISTRATION RIGHTS
6.01 Piggy-Back Registrations. If at any time the Company
shall determine to register for its own account or the account of others under
the Securities Act (including pursuant a demand for registration of any
stockholder of the Company) any of its equity securities, other than on Form S-4
or Form S-8 or their then equivalents relating to shares of Common Stock to be
issued solely in connection with any acquisition of any entity or business or
shares of Common Stock issuable in connection with stock option or other
employee benefit plans, it shall send to each holder of Registrable Shares who
is entitled to registration rights under this Section 6.01 written notice of
such determination and, if within twenty (20) days after receipt of such notice,
such holder shall so request in writing, the Company shall use its best efforts
to include in such registration statement all or any part of the Registrable
Shares such holder requests to be registered. In the event that any registration
pursuant to this Section 6.01 shall be an underwritten public offering, the
number of Registrable Shares to be included in such offering may be reduced if
and to the extent that the managing underwriter or underwriters, if any, of such
offering shall provide a written opinion that inclusion of the Registerable
Shares would adversely affect the marketing of the securities to be sold by the
Company therein. In such event, the Company shall include in the registration
statement the number of shares of Common Stock that the Company is so advised
can be sold in such offering in the following priority: (i) first, all shares of
Common Stock to be sold by any other stockholder who has exercised his demand or
similar right to require the Company to file a registration statement with
respect to all or a portion of the shares of Common Stock held by such
stockholder, in each case so long as such demand or similar right is effective
as of the date of the Closing (including, without limitation, those granted
under Section 6.02); (ii) second, all shares of Common Stock proposed to be
included in such registration statement by the Company; (iii) third, all shares
of Common Stock proposed to be included in such registration statement by
holders of Common Stock having piggyback registration rights outstanding on the
date hereof ("Existing Piggyback Rights") (including, without limitation, those
granted in this Section 6.01); and (iv) fourth, all other Common Stock proposed
to be included in such registration statement by other holders thereof, pro
rata, based on the number of shares of the Common Stock proposed to be included
by the Company and each such stockholder, as the case may be; provided, however,
that, to the extent that any Existing Piggyback Rights provide to the holders
thereof the right to register shares of Common Stock with or on a priority more
favorable to those provided to the holders of Registerable Shares above, holders
of the Registrable Shares shall have the right to have their Registrable Shares
so registered on the same basis as such holders. No incidental right under this
Section 6.01 shall be construed to limit any
17
registration required under Section 6.02. The obligations of the Company to the
Purchaser under this Section 6.01 may be waived by the Purchaser at any time.
Anything herein to the contrary notwithstanding, no other registration rights
(demand or piggy-back) shall be granted by the Company to any Person if such
registration rights have the effect of, in anyway, limiting or restricting the
rights granted under Section 6.01, 6.02 or 6.03 (including the priority for
registration thereof).
6.02 Demand Registration. (a) If at any time after August 12,
1999, holders of at least 20% of the issued and outstanding Registrable Shares
who are entitled to registration rights under this Section 6.02 shall notify the
Company in writing that it or they intend to offer or cause to be offered for
public sale Registrable Shares held by such holders which shares constitute at
least twenty percent (20%) of the then outstanding Registrable Shares, then the
Company will so notify all holders of Registrable Shares. Upon written request
of any holder given within twenty (20) days after the receipt by such holder
from the Company of such notification, the Company will use its best efforts to
cause such of the Registrable Shares as may be requested by any holder thereof
(including the holder or holders giving the initial notice of intent to offer)
to be registered under the Securities Act as expeditiously as possible;
provided, however, that the Company shall not be obligated to request
acceleration of the effectiveness of such registration statement prior to
November 13, 1999. If the method of distribution of the Registrable Shares by
the holders thereof shall be an underwritten public offering, the majority of
the holders of the Registrable Shares to be so registered may designate the
managing underwriter of such offering subject to the approval of the Company,
which approval shall not be unreasonably withheld. The Company shall not be
required to file a registration statement with the Commission pursuant to this
Section 6.02 at any time while another registration statement (other than on
Form S-3 or S-8) of the Company has been filed with the Commission and is not
yet effective or within 90 days after the effective date of another registration
statement (other than on Form S-3 or S-8) filed by the Company with the
Commission. The Company shall not be required to effect more than one
registration during any 180 day period pursuant to this Section 6.02. In
connection with any request by any holder of Registrable Securities for
registration thereof pursuant to this Section, the Company shall have the right
to defer the filing of a registration statement with the Commission for up to 30
days after such filing would otherwise be required hereunder if the Company
shall furnish to the holders requesting such registration a certificate approved
by the Board of Directors stating that, in the good faith judgment of the
Company, it would be detrimental to the interests of the Company for such
registration statement to be filed at such time.
(b) The Company shall be entitled to include in any
registration statement referred to in this Section 6.02, for sale in accordance
with the method of disposition specified by the holder requesting registration
pursuant to 6.02(a), shares of Common Stock to be sold by other selling
stockholders or by the Company for its own account, except as and to the extent
that, in the opinion of the managing underwriter (if such method of disposition
shall be an underwritten public offering), such inclusion would adversely affect
the marketing of the Registrable Shares to be sold.
(c) The Purchaser, and each subsequent holder of Registrable
Shares, if any, agrees that if the Company determines that there are material
developments which the Company reasonably determines, based on advice of
counsel, require the filing of a post-effective amendment
18
to the Registration Statement, then each holder of Registered Shares agrees to
refrain from selling any Registrable Shares until the post-effective amendment
is declared effective. The Company agrees to file and attempt to have declared
effective such post-effective amendment as soon as possible. Except as set forth
in Section 6.10, the Company shall not be deemed to have effected a registration
pursuant to this Section 6.02 unless and until such registration is declared
effective.
6.03 Registrations on Form S-3. In addition to the rights
provided the holder of Registrable Shares in Sections 6.01 and 6.02, if the
registration of Registrable Shares under the Securities Act can be effected on
Form S-3 (or any similar form promulgated by the Commission), then upon the
written request of one or more holders of Registrable Shares who hold an
aggregate of at least 20% of the issued and outstanding Registrable Shares are
entitled to registration rights under this Section 6.03 for the registration of
Registrable Shares held by such holders, the Company will so notify each holder
of Registrable Shares and then will, as expeditiously as possible, use its best
efforts to effect qualification and registration under the Securities Act on
Form S-3 of all or such portion of the Registrable Shares as the holder or
holders shall specify in the initial request to the Company or upon written
request of a holder to the Company given within fifteen (15) days after the
receipt by the holder from the Company of such notification; provided, however,
that such Registrable Shares so registered pursuant to this Section 6.03 shall
constitute at least 20% of the then outstanding Registrable shares; and
provided, further, that the Company shall not be required to effect more than
one (1) registration during any 180 day period pursuant to this Section 6.03.
Subject to the foregoing, no registration of Registrable Shares pursuant to this
Section 6.03 shall be construed to limit any registration required under Section
6.01 or 6.02.
6.04 Effectiveness. The Company will use its best efforts to
maintain the effectiveness for up to 90 days (or such shorter period of time as
the underwriters need to complete the distribution of the registered offering,
or one year in the case of a "shelf" registration statement on Form S-3) of any
registration statement pursuant to which any of the Registrable Shares are being
offered, and from time to time will amend or supplement such registration
statement and the prospectus contained therein to the extent necessary to comply
with the Securities Act and any applicable state securities statute or
regulation. The Company will also provide each holder of Registrable Shares with
as many copies of the prospectus contained in any such registration statement as
it may reasonably request.
6.05 Indemnification by the Company. (a) In the event that the
Company registers any of the Registrable Shares under the Securities Act, the
Company will indemnify and hold harmless each holder and each underwriter of the
Registrable Shares (including their officers, directors, affiliates and
partners) so registered (including any broker or dealer through whom such shares
may be sold) and each Person, if any, who controls such holder or any such
underwriter within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act from and against any and all losses, claims, damages,
expenses or liabilities, joint or several, to which they or any of them become
subject under the Securities Act, applicable state securities laws or under any
other statute or at common law or otherwise, as incurred, and, except as
hereinafter provided, will reimburse each such holder, each such underwriter and
each such controlling Person, if any, for any legal or other
19
expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions whether or not resulting in any
liability, as incurred, insofar as such losses, claims, damages, expenses,
liabilities or actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the registration
statement, in any preliminary or amended preliminary prospectus or in the final
prospectus (or the registration statement or prospectus as from time to time
amended or supplemented by the Company) 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 in order to make the statements therein not
misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act or any state securities laws applicable to
the Company and relating to action or inaction required of the Company in
connection with such registration, unless (i) such untrue statement or alleged
untrue statement or omission or alleged omission was made in such registration
statement, preliminary or amended preliminary prospectus or final prospectus in
reliance upon and in conformity with information furnished in writing to the
Company in connection therewith by any such holder of Registrable Shares (in the
case of indemnification of such holder), any such underwriter (in the case of
indemnification of such underwriter) or any such controlling Person (in the case
of indemnification of such controlling person) expressly for use therein, or
unless (ii) in the case of a sale directly by such holder of Registrable Shares
(including a sale of such Registrable Shares through any underwriter retained by
such holder of Registrable Shares to engage in a distribution solely on behalf
of such holder of Registrable Shares), such untrue statement or alleged untrue
statement or omission or alleged omission was contained in a preliminary
prospectus and corrected in a final or amended prospectus copies of which were
delivered to such holder of Registrable Shares or such underwriter on a timely
basis, and such holder of Registrable Shares failed to deliver a copy of the
final or amended prospectus at or prior to the confirmation for the sale of the
Registerable Shares to the person asserting any such loss, claim, damage or
liability in any case where such delivery is required by the Securities Act.
(b) Promptly after receipt by any holder of Registrable
Shares, any underwriter or any controlling Person of notice of the commencement
of any action in respect of which indemnity may be sought against the Company,
such holder of Registrable Shares, or such underwriter or such controlling
person, as the case may be, will notify the Company in writing of the
commencement thereof (provided, that failure by any such person to so notify the
Company shall not relieve the Company from any liability it may have hereunder
to any other Person entitled to claim indemnity or contribution hereunder) and,
subject to the provisions hereinafter stated, the Company shall be entitled to
assume the defense of such action (including the employment of counsel, who
shall be counsel reasonably satisfactory to such holder of Registrable Shares,
such underwriter or such controlling Person, as the case may be), and the
payment of expenses insofar as such action shall relate to any alleged liability
in respect of which indemnity may be sought against the Company.
(c) Such holder of Registrable Shares, any such underwriter or
any such controlling Person shall have the right to employ separate counsel in
any such action and to participate in the defense thereof but the fees and
expenses of such counsel subsequent to any assumption of the defense by the
Company shall not be at the expense of the Company unless the employment of such
counsel has been specifically authorized in writing by the Company. The
20
Company shall not be liable to indemnify any Person for any settlement of any
such loss, claim, damage, expense, liability or action effected without the
Company's written consent. The Company shall not, except with the approval of
each party being indemnified under this Section 6.05, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to the parties being so
indemnified of a release from all liability in respect to such claim or
litigation.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which any holder of
Registrable Shares exercising rights under this Article VI , or any controlling
Person of any such holder, makes a claim for indemnification pursuant to this
Section 6.05 but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that this Section 6.05
provides for indemnification in such case, then, the Company and such holder
will contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and of
the holder of Registrable Shares 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. The relative fault of the
Company on the one hand and of the holder of Registrable Shares on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company on the one
hand or by the holder of Registrable Shares on the other, and each party's
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission; provided, however, that, in any such case,
(A) no such holder will be required to contribute any amount in excess of the
public offering price of all such Registrable Shares offered by it pursuant to
such registration statement, net of any underwriting discounts or commissions
paid by such holder; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
6.06 Indemnification by Holders of Registrable Shares. (a) In
the event that the Company registers any of the Registrable Shares under the
Securities Act, each holder of the Registrable Shares so registered will
indemnify and hold harmless the Company, each of its directors, each of its
officers, each underwriter of the Registrable Shares so registered (including
any broker or dealer through whom such of the shares may be sold) and each
Person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages, expenses or liabilities, joint or several, to which
they or any of them may become subject under the Securities Act, applicable
state securities laws or under any other statute or at common law or otherwise,
and, except as hereinafter provided, will reimburse the Company and each such
director, officer, underwriter or controlling Person for any legal or other
expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions whether or not resulting in any
liability, insofar as such losses, claims,
21
damages, expenses, liabilities or actions arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in the
registration statement, in any preliminary or amended preliminary prospectus or
in the final prospectus (or in the registration statement or prospectus as from
time to time amended or supplemented) 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 in order to make the statements therein not
misleading, but only insofar as any such statement or omission was made in
reliance upon and in conformity with information furnished in writing to the
Company in connection therewith by such holder of Registrable Shares expressly
for use therein; provided, however, that such holder's obligations hereunder
shall be limited to an amount equal to the aggregate public offering price of
the Registrable Shares sold by such holder in such registration, net of any
underwriting discounts or commissions paid by such holder.
(b) Promptly after receipt of notice of the commencement of
any action in respect of which indemnity may be sought against such holder of
Registrable Shares hereunder, the Company will notify such holder of Registrable
Shares in writing of the commencement thereof (provided, that failure by the
Company to so notify such holder shall not relieve such holder from any
liability it may have hereunder to any other Person entitled to claim indemnity
or contribution hereunder), and such holder of Registrable Shares shall, subject
to the provisions hereinafter stated, be entitled to assume the defense of such
action (including the employment of counsel, who shall be counsel reasonably
satisfactory to the Company) and the payment of expenses insofar as such action
shall relate to the alleged liability in respect of which indemnity may be
sought against such holder of Registrable Shares. The Company and each such
director, officer, underwriter or controlling Person shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel subsequent to any assumption
of the defense by such holder of Registrable Shares shall not be at the expense
of such holder of Registrable Shares unless employment of such counsel has been
specifically authorized in writing by such holder of Registrable Shares. Such
holder of Registrable Shares shall not be liable to indemnify any Person for any
settlement of any such loss, claim, damage, expense, or liability or action
effected without such holder's written consent.
(c) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which the Company or
another Person entitled to indemnification pursuant to this Section 6.06 makes a
claim for indemnification pursuant to this Section 6.06, but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding that this Section 6.06 provides for indemnification, in such
case, then, the Company and such holder will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion as is appropriate to reflect the relative fault
of the Company on the one hand and of the holder of Registrable Shares 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. The relative fault of the Company on the one hand and of the
holder of Registrable Shares on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue
22
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company on the one hand or by the
holder of Registrable Shares on the other, and each party's relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (i) no such
holder will be required to contribute any amount in excess of the public
offering price of all such Registrable Shares offered by it pursuant to such
registration statement, net of any underwriting discounts or commissions paid by
such holder; and (ii) no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
6.07 Exchange Act Registration. So long as the Company at any
time shall list any class of equity securities of the type which may be issued
upon the conversion of the Series B Stock or the exercise of the Warrants on any
national securities exchange or obtain authorization for shares of such class to
be quoted on an automated quotation system and shall register such class of
equity securities under the Exchange Act, the Company will, at its expense,
simultaneously list on such exchange or qualify for trading on such automated
quotation system and maintain such listing or authorization of, the Shares of
such class. So long as the Company is subject to the reporting requirements of
either Section 13 or Section 15(d) of the Exchange Act, the Company will use its
best efforts to timely file with the Commission such information as the
Commission may require under either of said Sections; and in such event, the
Company shall use its best efforts to take all action as may be required as a
condition to the availability of Rule 144 or Rule 144A under the Securities Act
(or any successor exemptive rule hereafter in effect) with respect to such
Common Stock. The Company shall furnish to any holder of Registrable Shares
forthwith upon request a written statement by the Company as to its compliance
with the reporting requirements of Rule 144. The Company agrees to use its best
efforts to facilitate and expedite transfers of the Shares pursuant to Rule 144
under the Securities Act, which efforts shall include timely notice to its
transfer agent to expedite such transfers of Shares.
6.08 Damages. The Company recognizes and agrees that the
holder of Registrable Shares will not have an adequate remedy if the Company
fails to comply with this Article VI and that damages may not be readily
ascertainable, and the Company expressly agrees that, in the event of such
failure, it shall not oppose an application by the holder of Registrable Shares
or any other Person entitled to the benefits of this Article VI requiring
specific performance of any and all provisions hereof or enjoining the Company
from continuing to commit any such breach of this Article so long as such holder
of Registrable Shares is not in breach of any provision of this Agreement or any
agreement contemplated herein.
6.09 Further Obligations of the Company. Whenever under the
preceding Sections of this Article VI, the Company is required hereunder to
register Registrable Shares, it agrees that it shall also do the following:
23
(a) Furnish to each selling holder such copies of each
preliminary and final prospectus and such other documents as said holder may
reasonably request to facilitate the public offering of its Registrable Shares;
(b) Use its best efforts to register or qualify the
Registrable Shares covered by said registration statement under the applicable
securities or "blue sky" laws of such jurisdictions as any selling holder may
reasonably request; provided, however, that the Company shall not be obligated
to qualify to do business in any jurisdictions where it is not then so
qualified, to subject itself to taxation in connection with any such
registration or qualification of such Registrable Shares or to take any action
which would subject it to the service of process in suits other than those
arising out of the offer or sale of the securities covered by the registration
statement in any jurisdiction where it is not then so subject;
(c) Permit each selling holder of Registrable Shares or such
holder's counsel or other representatives to inspect and copy such corporate
documents and records as may reasonably be requested by them;
(d) Furnish to each selling holder of Registrable Shares a
copy of all documents filed with and all correspondence from or to the
Commission in connection with any such offering of securities;
(e) Use its best efforts to insure the obtaining of all
necessary approvals from the NASD;
(f) To cause all Registrable Shares so registered pursuant
hereto to be listed on any securities exchange or authorized for quotation in
any automated quotation system on or in which outstanding shares of such class
are listed or authorized for quotation at the time such registration is declared
effective by the Commission;
(g) Designate a transfer agent and registrar for the class or
classes of shares which include such Registrable Shares and obtain a CUSIP
number for such class or classes of shares, in each case not later than the date
such registration is declared effective by the Commission; and
(h) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earning statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first month after the effective date of the
registration statement covering the Initial Public Offering, which earning
statement shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder.
Whenever under the preceding Sections of this Article VI the
holders of Registrable Shares are registering such shares pursuant to any
registration statement, each such holder agrees to (a) timely provide to the
Company, at its request, such information and materials as it may reasonably
request in order to effect the registration of such Registrable Shares and (b)
convert all Series B
24
Stock into the shares of Common Stock included in any registration statement,
such conversion to be effective at or before the closing of such offering
pursuant to such registration statement.
6.10 Expenses. In the case of each registration effected under
Section 6.01, 6.02 or 6.03, the Company shall bear all reasonable costs and
expenses of each such registration on behalf of the selling holders of
Registrable Shares, including, but not limited to, the Company's printing, legal
and accounting fees and expenses, Commission and NASD filing fees and "Blue Sky"
fees; provided, however, that the Company shall have no obligation to pay or
otherwise bear any portion of the underwriters' commissions or discounts
attributable to the Registrable Shares being offered and sold by the holders of
the Registrable Shares, or the fees and expenses of counsel for the selling
holders of Registrable Shares in connection with the registration of the
Registrable Shares. The Company shall pay all expenses of the holders of the
Registrable Shares in connection with any registration initiated pursuant to
this Article VI which is withdrawn or abandoned at the request of the Company,
except if such withdrawal or abandonment is caused by the fraud, material
misstatement or omission of a material fact by any holder of Registrable Shares
to be included in such registration, in which case such expenses shall be paid
by the holder or holders who have caused such withdrawal or abandonment. If a
registration requested by holders of Registrable Shares pursuant to Section 6.02
shall be withdrawn prior to becoming effective under the Securities Act at the
request of the holders of all Registrable Shares included therein, at such
holders' written request, the Company shall pay the expenses of two such
withdrawn registrations to the extent provided in the first sentence of this
Section 6.10; provided, however, that if a registration statement is withdrawn
by reason of the fact that, prior to effectiveness of such registration
statement, the registration statement filed or to be filed with the Commission
contains any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, and the Company shall have failed, within a reasonable
time after receipt of written notice thereof from any such holder to take
reasonable measures to correct such deficiency, such holders shall not be
responsible for the costs of such registration (other than expenses described in
the proviso to the first sentence of this Section 6.10).
6.11 Transferability. (a) For all purposes of Article VI of
this Agreement, a Purchaser or assignee thereof who becomes a party to this
Agreement in accordance with Section 6.11(b) hereof shall be deemed at any
particular time to be the holder of all Registrable Securities of which such
Person shall at such time be the "beneficial owner," determined in accordance
with Rule 13d-3 under the Exchange Act.
(b) For all purposes of Article VI of this Agreement, the
holder of Registrable Shares shall include not only the Purchaser but any
assignee or transferee of the Registrable Shares; provided, however, that such
assignee or transferee agrees in writing to be bound by all of the provisions of
this Article VI.
6.12 Mergers, Etc. The Company shall not, directly or
indirectly, enter into any merger, consolidation or reorganization in which the
Company shall not be the surviving corporation unless the proposed surviving
corporation shall, prior to such merger, consolidation or
25
reorganization, agree in writing to assume the obligations of the Company under
Article VI of this Agreement, and for that purpose references hereunder to
Registrable Shares shall be deemed to be references to the securities which the
Purchaser would be entitled to receive in exchange for Registrable Shares under
any such merger, consolidation or reorganization; provided, however, that the
provisions of this Section 6.12 shall not apply in the event of any merger,
consolidation, or reorganization in which the Company is not the surviving
corporation if all stockholders are entitled to receive in exchange for their
Registrable Shares consideration consisting solely of (a) cash or (b) securities
of the acquiring corporation which may be immediately sold to the public without
registration under the Securities Act.
ARTICLE VII
INDEMNIFICATION
7.01 Indemnification of the Purchaser by the Company. The
Company hereby cove nants and agrees with the Purchaser that the Company shall
indemnify the Purchaser, its directors and officers, and their respective
successors and assigns (individually a "Purchaser Indemnified Party") and hold
them harmless from, against and in respect of any and all costs, losses, claims,
liabilities, fines, penalties, damages and expenses (including, without
limitation, court costs and reasonable fees and disbursements of counsel
incurred by a Purchaser Indemnified Party in any action or proceeding between
the Company and a Purchaser Indemnified Party or between a Purchaser Indemnified
Party and any third party or otherwise) (collectively "Losses") resulting from
or arising out of:
(a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or any
other Transaction Document; or
(b) any action, suit, proceeding, compromise,
settlement, assessment or judgment arising out of or incident to any of the
matters indemnified against in this Section 7.01; or
(c) any action, suit, proceeding, compromise,
settlement, assessment or judgment arising out of or in connection with this
Agreement or the transactions contemplated by this Agreement, including, without
limitation, any action, suit, proceeding, compromise, settlement, assessment or
judgement asserted by any stockholder against the Company and/or the Purchaser.
7.02 Indemnification of the Company by the Purchaser. The
Purchaser covenants and agrees with the Company that it shall indemnify the
Company and its directors and officers and each of their successors and assigns
(individually a "Company Indemnified Party") and hold them harmless from,
against and in respect of any and all Losses resulting from or arising out of:
(a) any breach of any of the representations,
warranties, covenants or agreements made by the Purchaser in this Agreement or
any other Transaction Document; or
26
(b) any action, suit, proceeding, compromise,
settlement, assessment or judgment arising out of or incident to any of the
matters indemnified against in this Section 7.02.
7.03 Right to Defend, Etc. If the facts giving rise to any
such indemnification pursuant to this Article VII shall involve any actual claim
or demand by any third party against a Purchaser Indemnified Party or a Company
Indemnified Party, as the case may be (an "Indemnified Party") the party
required to indemnify such Indemnified Party pursuant to Sections 7.01 or 7.02,
as the case may be (the "Indemnifying Party") shall be entitled to notice of and
entitled (without prejudice to the right of any Indemnified Party to participate
at its own expense through counsel of its own choosing) to defend or prosecute
such claim at its expense and through counsel of its own choosing if it gives
written notice of its intention to do so no later than the 15th day following
receipt of such notice; provided, however, that if the defendants in any action
shall include both a Indemnify ing Party and an Indemnified Party and the
Indemnified Party shall have been advised by its counsel that the counsel
selected by the Indemnifying Party has a conflict of interest because of the
availability of different or additional defenses to the Indemnified Party, the
Indemnified Party shall have the right to select separate counsel to participate
in the defense of such action on its behalf, at the expense of the Indemnifying
Party. The failure so to notify an Indemnifying Party shall not relieve it of
any liability which it may have to any Indemnified Party except to the extent to
which such liability may have been mitigated as a result of the timely receipt
of such notice. The Indemnified Party shall cooperate fully in the defense of
such claim and shall make available to the Indemnifying Party pertinent
information under its control relating thereto, but shall be entitled to be
reimbursed, as provided in this Article VII, for all out-of-pocket costs and
expenses payable to third parties incurred by it in connection therewith,
including, without limitation, reasonable fees and disbursements of counsel. If
any Indemnifying Party assumes the defense of any such claims, the Indemnifying
Party will hold the Indemnified Party harmless from and against any and all
damages arising out of any settlement approved by such Indemnifying Party or any
judgment in connection with such claim or litigation. Payment by an Indemnifying
Party to an Indemnified Party shall be made within ten (10) days after demand,
unless there is a claim or demand by a third party in which event payment shall
be made within ten (10) days after final judgment, settlement or comprise, as
the case may be.
7.04 Tax Effect. The amount of any indemnification due to an
Indemnified Party pursuant to Section 7.01 or 7.02, as the case may be, shall be
calculated after taking into account the amount of all insurance, cash or other
direct financial benefits payable to such Indemnified Party (in cluding any such
benefits payable by third parties) and after taking into account the United
States federal, state and local and foreign national, provincial and local tax
benefits or detriments to the Indemnified Party, as the case may be, calculated
assuming the Indemnified Party were a taxpayer subject to tax at the highest
marginal rate in effect when the payment is made, of the payments made in
respect of such loss, claim, demand, cost or expense giving rise to the
indemnification and the payments, including indemnification payments made in
respect thereto.
ARTICLE VIII
27
GLOSSARY
8.01 Certain Defined Terms. As used in this Agreement, the
following terms have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Accredited Investor" has the meaning ascribed to it in Rule
501 under the Securities Act.
"Affiliate" of any person means a Person controlling,
controlled by or under common control with, any such Person.
"Agreement" means this Securities Purchase Agreement as from
time to time amended and in effect between the parties, including all Schedules
and Exhibits hereto.
"Board of Directors" or "Board" means the board of directors
of the Company as constituted from time to time.
"Certificate of Designation" has the meaning ascribed to it in
Section 1.01.
"Closing" has the meaning ascribed to it in Section 1.05.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the United States Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act or the Exchange Act.
"Common Stock" means the Company's Common Stock, $.01 par
value per share.
"Company" means Delicious Brands, Inc., a Delaware
corporation, and its successors and assigns.
"Company Indemnified Party" has the meaning ascribed to it in
Section 7.02.
"Company SEC Documents" has the meaning ascribed to it in
Section 3.08.
"Company S-1" has the meaning ascribed to it in Section 3.08.
"Company 10-Q" has the meaning ascribed to it in Section 3.08.
"Conversion Shares" has the meaning ascribed to it in Section
1.02.
"DGCL" means the General Corporation Law of the State of
Delaware.
28
"D&O Policy" has the meaning ascribed to it in Section 3.18.
"Equitable Adjustments" means the equitable adjustments made
whenever there shall occur a stock dividend, stock split, combination,
reorganization, recapitalization, reclassification, or other similar event
involving a change in the capital structure of the Company.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission (or of any other Federal agency then administering the Exchange Act)
thereunder, all as the same shall be in effect at the time.
"Existing Piggyback Rights" has the meaning ascribed to it in
Section 6.01.
"Fiduciary Indemnified Parties" has the meaning ascribed to it
in Section 5.03.
"Filed Agreements" has the meaning ascribed to it in Section
3.20.
"Financial Statements" has the meaning ascribed to it in
Section 3.08.
"GAAP" has the meaning ascribed to it in Section 3.08.
"Indebtedness" means (a) any liability for borrowed money or
evidenced by a note or similar obligation given in connection with the
acquisition of any property or other assets (other than trade accounts payable
incurred in the ordinary course of business); (b) all guaranties, endorsements
and other contingent obligations, in respect of Indebtedness of others, whether
or not the same are or should be reflected in the Company's balance sheet (or
the notes thereto), except guaranties by endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business, and (c) all obligations under leases required to be capitalized in
accordance with GAAP.
"Indemnified Party" has the meaning ascribed to it in Section
7.03
"Indemnifying Party" has the meaning ascribed to it in Section
7.03.
"Intellectual Property Rights" means any and all, whether
domestic or foreign, patents, patent applications, patent right, trade secrets,
confidential business information, formula, processes, laboratory notebooks,
algorithms, copyrights, mask works, claims of infringement against third
parties, licenses, permits, license rights, contract rights with employees,
consultants and third parties, trademarks, trademark rights, inventions and
discoveries, and all other intellectual property, including, without limitation,
all other such rights generally classified as intangible, intellectual property
assets in accordance with GAAP.
29
"Key Employee" means and includes the following persons, if
any: the Company's chairman of the board, chief executive officer, chief
operating officer, president, chief financial officer, executive vice president,
vice president and director of sales and marketing.
"Losses" has the meaning ascribed to it in Section 7.01.
"Material Adverse Effect" has the meaning ascribed to it in
Section 3.04.
"Material Agreements" has the meaning ascribed to it in
Section 3.20.
"Millennium Compliant" means the ability to provide the
following functions: consistently handle date information before, during and
after January 1, 2000, including, but not limited to, accepting date input,
providing the date output, and performing calculations on dates or portions of
dates; function accurately and without interruption before, during and after
January 1, 2000, without any change in operations associated with the advent of
the new century; respond to two-digit date input in a way that resolves any
ambiguity as to century in a disclosed, defined and predetermined manner; and
store and provide output of date information in ways that are unambiguous as to
century.
"NASD" means the National Association of Securities Dealers,
Inc.
"Person" or "person" means an individual, corporation,
partnership, joint venture, trust, university, or unincorporated organization,
or a government, or any agency or political subdivision thereof.
"Purchase Price" has the meaning ascribed to it in Section
1.04.
"Purchaser" means Little Meadow Corp., a Delaware corporation.
"Purchaser Indemnified Party" has the meaning ascribed to it
in Section 7.01.
"Registrable Shares" means and includes (a) the Conversion
Shares and Warrant Shares. Wherever reference is made in this Agreement to a
request or consent of holders of a certain percentage of Registrable Shares, the
determination of such percentage and the holdings of such person shall include
the Conversion Shares and Warrant Shares even if such conversion has not yet
been effected.
"Requesting Holder" has the meaning ascribed to it in Section
6.01(b).
"Requisite Shares" means the lesser of 5% of the outstanding
shares of the Company's Common Stock or 5% of the Shares.
30
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal statute, and the rules and regulations of the Commission
(or of any other federal agency then administering the Securities Act)
thereunder, all as the same shall be in effect at the time.
"Section 203" has the meaning ascribed to it in Section 2.01.
"Series B Stock" means the Series B Convertible Preferred
Stock, $.01 par value per share, of the Company having the rights, powers,
privileges and preferences set forth in the Certificate of Designation.
"Shares" means, collectively, the Series B Stock, the
Conversion Shares and the Warrant Shares.
"Subsidiary" or "Subsidiaries" means any Person of which the
Company directly or indirectly owns at the time at least fifty percent (50%) of
the outstanding voting or economic interest.
"Transaction Documents" has the meaning ascribed to it in
Section 3.01.
"Warrants" has the meaning ascribed to it in Section 1.01.
"Warrant Shares" means shares of Common Stock issuable upon
the exercise or conversion of a Warrant, as defined in Section 1.01.
8.02 Accounting Terms. All accounting terms not specifically
defined herein or in any of the Transaction Documents shall be construed in
accordance with GAAP, and all financial data submitted pursuant to this
Agreement shall be prepared in accordance with such principles.
ARTICLE IX
MISCELLANEOUS
9.01 "Lock-Up" Agreement. The Purchaser agrees that prior to
November 12, 1999, without the consent of the Company, the Purchaser will not
sell any Series B Stock. The Company may impose stop-transfer instructions with
respect to the Series B Stock subject to the foregoing restrictions until
November 12, 1999.
9.02 No Waiver; Cumulative Remedies. No failure or delay on
the part of any party to this Agreement in exercising any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
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9.03 Amendments, Waivers and Consents. Any provision in the
Agreement to the contrary notwithstanding, and except as hereinafter provided,
changes in, termination or amendments of or additions to this Agreement may be
made, and compliance with any covenant or provision set forth herein may be
omitted or waived, if the Company (a) shall obtain consent thereto in writing
from the holder or holders of at least a majority in interest of the Series B
Shares (on a Common Stock equivalent basis) and Conversion Shares in the
aggregate issued upon conversion thereof and (b) shall deliver copies of such
consent in writing to any holders who did not execute such consent; provided
that no consents shall be effective to reduce the percentage in interest of the
Shares the consent of the holders of which is required under this Section 9.03.
Any waiver or consent may be given subject to satisfaction of conditions stated
therein and any waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
9.04 Addresses for Notices. All notices or other
communications required hereby shall be in writing and shall be sent either by
(a) courier, or (b) by telecopy as well as by registered or certified mail, and
shall be regarded as properly given in the case of a courier upon actual
delivery to the proper place of address; in the case of telecopy, on the day
following the date of transmission if properly addressed and sent without
transmission error to the correct number and receipt is confirmed by telephone
within 48 hours of the transmission; in the case of a letter for which a
telecopy could not be successfully transmitted or receipt of which could not be
confirmed as herein provided, three (3) days after the registered or certified
mailing date if the letter is properly addressed and postage prepaid; and shall
be regarded as properly addressed if sent to the parties and their
representatives at the addresses given below:
To the Company: Delicious Brands, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
and Chief Executive Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Confirmation: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Frome ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Confirmation: (▇▇▇) ▇▇▇-▇▇▇▇
To the Purchaser: Little Meadow Corp.
c/o Icahn Associates Corp.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
32
Confirmation: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇ ▇▇▇▇▇▇ Butowsky ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Confirmation: (▇▇▇) ▇▇▇-▇▇▇▇
or such other address as any of the above may have furnished to the other
parties in writing in compliance with the terms of this Section.
9.05 Costs, Expenses and Taxes. The Company shall pay all fees
and disbursements of counsel to the Purchaser incurred in connection with the
negotiation, drafting and completion of the Transaction Documents and all
related matters and transactions. The Company shall pay any and all stamp, or
other similar taxes payable or determined to be payable except for any income
taxes of the Purchaser in connection with the execution and delivery of this
Agreement, the issuance of any securities and the other instruments and
documents to be delivered hereunder or thereunder, and agrees to save the
Purchaser harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes.
9.06 Effectiveness; Binding Effect; Assignment. This Agreement
shall be binding upon and inure to the benefit of the Company, the Purchaser and
their respective successors and assigns; provided, that, the Company may not
assign any of its rights or obligations under this Agreement without the prior
written consent of the Purchaser. The Purchaser may assign all or any part of
its rights and obligations hereunder to any person who acquires any Shares or
Warrants owned by the Purchaser. Any such assignment shall operate to release
the Purchaser from its liabilities and obligations under this Agreement, other
than its indemnification obligations under Article VII, with respect to the
Shares and Warrants, as applicable, so sold or assigned. A person to whom all or
a part of the Purchaser's rights are so assigned, whether by Purchaser or by a
subsequent person, may, if so agreed to by the Purchaser, become a party to this
Agreement, entitled to those rights and benefits set forth herein applicable to
the Purchaser or such Shares or Warrants. The foregoing is in addition to, and
not in limitation of, all other rights, powers and privileges of the Purchaser.
9.07 Survival of Representations and Warranties. All
representations and warranties made in the Transaction Documents, the Shares, or
any other instrument or document delivered in connection herewith or therewith,
shall survive the execution and delivery hereof or thereof.
9.08 Prior Agreements. The Transaction Documents executed and
delivered in connection herewith constitute the entire agreement between the
parties and supersede any prior understandings or agreements concerning the
subject matter hereof.
33
9.09 Severability. The provisions of the Transaction Documents
are severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of a provision
contained therein shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of such Transaction
Document and the terms of the Shares shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of a provision, had never
been contained herein, and such provisions or part reformed so that it would be
valid, legal and enforceable to the maximum extent possible.
9.10 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of New York, and
without giving effect to its choice of laws provisions.
9.11 Headings; References. Article, section and subsection
headings in this Agreement are included herein for convenience of reference only
and shall not constitute a part of this Agreement for any other purpose. All
references herein to "Articles", "Sections", "Exhibits" or "Schedules" shall be
deemed to references to Articles or Section hereof and to Exhibits or Schedules
hereto unless otherwise indicated.
9.12 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any of the parties hereto may execute this Agreement by
signing any such counterpart.
9.13 Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, the Company and the
Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of the Transaction Documents and
the Shares.
9.14 Transfer. Nothing in the Transaction Documents or the
Shares shall restrict the right and ability of the Purchaser or its Affiliates
to transfer, and the Purchaser is hereby granted the right to transfer, any
rights, powers or privileges of or under the Transaction Documents or the Shares
(subject to all restrictions of any applicable U.S. Federal or state securities
laws) to its Affiliates. The foregoing is in addition to, and not in limitation
of, all other rights, powers and privileges of the Purchaser.
34
IN WITNESS WHEREOF, the parties hereto have caused this
Securities Purchase Agreement to be executed as of the date first above written.
DELICIOUS BRANDS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President and Chief Executive Officer
LITTLE MEADOW CORP.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
35
