INVESTOR RIGHTS AGREEMENTInvestors Rights Agreement |
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INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (this “Agreement”) is made and entered into as of November 10, 2005, by and among Sunset Brands, Inc., a Nevada corporation formerly known as Cascade Sled Dog Adventures, Inc. (the “Company”), and certain holders of the Company’s Series B Preferred Stock and warrants exercisable for shares of the Company’s common stock identified on the signature page of this Agreement (each, a “Purchaser” and collectively, the “Purchasers”). The Company and Purchasers are each sometimes referred to herein as a “Party” and collectively as the “Parties.”
A. Pursuant to the terms of that certain Amended and Restated Acquisition Agreement and Plan of Merger (the “Merger Agreement”), dated as of November 10, 2005, the Company acquired all of the outstanding capital stock of U.S. Mills, Inc., a Delaware corporation (“USM”), through a merger of a wholly-owned subsidiary of the Company with and into USM.
B. As part of the consideration payable holders of USM capital stock in connection with the closing of the transactions contemplated by the Merger Agreement (the “Closing”), the Purchasers received shares of Series B Preferred Stock and Warrants (as defined below) of the Company.
C. The Parties wish to enter into this Agreement in order to (i) provide for certain restrictions on transfer and sale of the Series B Preferred Stock and Warrants, (ii) provide for the repurchase by the Company or its designees of the Series B Preferred Stock and (iii) provide certain registration rights to the holders of the Series B Preferred Stock and Warrants with respect to Common Stock issuable upon conversion of the Series B Preferred Stock or exercise of the Warrants.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have the following meanings:
“Commission” means the Securities and Exchange Commission.
“Common Stock” means shares of the Company’s common stock, par value $0.001 per share.
“Effectiveness Period” shall have the meaning set forth in Section 2(b)(i).
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and any successor statute.
“Filing Date” means, with respect to the Registration Statement required to be filed hereunder, a date no later than ninety (90) days following the date hereof.
“Holder” or “Holders” means the Purchasers or any of their respective affiliates or permissible transferees to the extent any of them hold Registrable Securities.
“Indemnified Party” shall have the meaning set forth in Section 2(d).
“Indemnifying Party” shall have the meaning set forth in Section 2(d).
“Original Issue Price” shall mean $5.60 per share (subject to proportional adjustment in the event of stock combinations, splits or similar events effecting the Series B Preferred Stock).
“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.
“Prospectus” means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.
“Registrable Securities” means (i) the Warrant Shares, (ii) the shares of Common Stock issued or issuable upon the conversion of the Series B Preferred Stock and (iii) any shares of Common Stock issued or issuable with respect to the Warrant Shares or the shares of Common Stock referred to in clause (ii) above upon any stock split, stock dividend, recapitalization or similar event.
“Registration Statement” means each registration statement required to be filed hereunder, including the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
“Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
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“Securities Act” means the Securities Act of 1933, as amended, and any successor statute.
“Series B Certificate” means the Certificate of Designation, Preferences and Rights of Series B Preferred Stock in the form attached hereto and incorporated herein as Exhibit A, as it may be amended from time to time subsequent to the date of this Agreement.
“Series B Preferred Stock” shall mean the Series B Preferred Stock of the Company, the rights, preferences and privileges of which are set forth in the Series B Certificate.
“Series B Repurchase Price” shall mean a price per share equal to the Original Issue Price plus the amount of any accrued but unpaid Repurchase Premiums (as defined in Section 4(f) of this Agreement).
“Trading Market” means any of the NASD OTC Bulletin Board, NASDAQ SmallCap Market, the Nasdaq National Market, the American Stock Exchange or the New York Stock Exchange.
“Warrants” means Warrants of the Company in the form attached hereto and incorporated herein as Exhibit B issued to Purchasers in connection with the Closing.
“Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants.
2. Registration.
(a) Participation in Registration. If at any time the Company proposes to file a registration statement under the Securities Act with respect to a public offering or resale of shares of Common Stock underlying Series B Preferred Stock or Warrants for the account of any holder of Series B Preferred Stock or Warrants (or underlying shares of Common Stock), then the Company shall include in each such registration statement all Registrable Securities, and such registration statement shall also cover the issuance and resale of the Warrant Shares.
(b) Filing of Registration Statement.
(i) Promptly following the date of this Agreement, if the Registrable Securities and the issuance of the Warrant Shares have not been included in a registration statement pursuant to Section 2(a), the Company will prepare and file with the Commission a Registration Statement covering the offer and resale of the Registrable Securities by the Purchasers which offering will be made on a continuous basis pursuant to Rule 415 and will cover the issuance and resale of the Warrant Shares. The Company shall use commercially reasonable efforts to cause the Registration Statement to be filed on or prior to the Filing Date. The Registration Statement shall be on Form SB-2 or such other appropriate form promulgated under the Securities Act. The Company shall use its commercially reasonable efforts to cause the Registration Statement to be declared effective under the Securities Act within one hundred twenty (120) days following the Filing Date. The Company shall use its commercially reasonable efforts to keep the Registration Statement effective under the Securities Act until the
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date which is the earlier date of when (i) all Registrable Securities have been sold or (ii) all Registrable Securities (other than those, if any, held by affiliates of the Company as such term is defined in Rule 144(a)(1) of the Securities Act) may be sold immediately without registration under the Securities Act and without volume restrictions pursuant to Rule 144(k) thereof, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company’s transfer agent (the “Effectiveness Period”).
(ii) In the event that (A) a Registration Statement required to be filed pursuant to Section 2(a) or 2(b) is not declared effective under the Securities Act as of the expiration of the Restricted Period (as defined below) or (B) any such Registration Statement is filed and declared effective on or prior to such date but shall thereafter, and after the expiration of the Restricted Period, either be withdrawn by the Company or shall become subject to an effective stop order issued pursuant to Section 8(d) of the Securities Act suspending the effectiveness of such Registration Statement without being succeeded immediately by an additional Registration Statement filed and declared effective (each such event referred to in clauses (A) and (B), a “Registration Default” and each period during which a Registration Default has occurred and is continuing, a “Registration Default Period”), then, as liquidated damages for such Registration Default, the Company shall pay to the Holders of any shares of Series B Preferred Stock that remain outstanding and have not been sold, transferred or assigned by the original Purchaser thereof, a per share amount in cash equal to one percent (1%) of the Original Issue Price for the first thirty (30) days (or part thereof) of the Registration Default Period, and an additional one percent (1%) of the Original Issue Price for any subsequent 30-day period (or part thereof) of the Registration Default Period. Each such payment shall be made by the Company on the business day following the expiration of each such 30-day period or, if applicable, on the business day following the termination of the Registration Default Period. The Registration Default Period shall terminate upon the earlier to occur of (x) the effectiveness of a Registration Statement covering the offer and resale of the Registrable Securities by the Purchasers and the issuance and resale of the Warrant Shares and (y) the second anniversary of the termination of the Restricted Period.
(c) Covenants Relating to Registration. In connection with the registrations required by Sections 2(a) and 2(b), the Company will:
(i) respond as promptly as possible to any comments received from the Commission, and use its commercially reasonable efforts to cause the applicable Registration Statement to become and remain effective for the Effectiveness Period with respect thereto, and promptly provide to the Purchaser, upon request, copies of all filings made with the Commission relating to any such Registration Statement;
(ii) prepare and file with the Commission such amendments and supplements to each Registration Statement and the Prospectus used in connection therewith as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such Registration Statement and use its commercially reasonable efforts to keep any such Registration Statement effective until the expiration of the Effectiveness Period;
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(iii) furnish to the Purchaser such number of copies of each Registration Statement and the Prospectus included therein (including each preliminary Prospectus) as the Purchaser reasonably may request to facilitate the public sale or disposition of the Registrable Securities covered by such Registration Statement;
(iv) list the Registrable Securities covered by such Registration Statement with any securities exchange on which the Common Stock of the Company is then listed;
(v) immediately notify the Purchaser at any time when a Prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event of which the Company has knowledge as a result of which the Prospectus contained in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and in any such event use its commercially reasonable efforts to update the Prospectus and Registration Statement in accordance with the requirements of the Securities Act; and
(vi) make available for inspection by the Purchaser and any attorney, accountant or other designated agent retained by the Purchaser, all publicly available, non-confidential financial and other records, pertinent corporate documents and properties of the Company, and cause the Company’s officers, directors and employees to supply all publicly available, non-confidential information reasonably requested by the attorney, accountant or designated agent of the Purchaser.
(d) Covenants of Purchaser Relating to Registration. Purchaser and, by virtue of such Holder’s acquisition of Registrable Securities, each Holder, covenants and agrees as follows:
(i) Purchaser and such Holder will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with any sales of Registrable Securities pursuant to a Registration Statement;
(ii) Upon receipt of a notice from the Company of the occurrence and continuation of a Discontinuation Event (as defined below), Purchaser or such Holder will forthwith discontinue disposition of such Registrable Securities under the applicable Registration Statement until Purchaser’s or such Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement, which the Company will prepare and file, and use its commercially reasonable efforts to cause to be declared effective, as promptly as practicable after the occurrence of the Discontinuation Event, or until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce the provisions of this Section. For purposes of this Section 2(d), a “Discontinuation Event” shall mean (i) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement; (ii) any request
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by the Commission or any other Federal or applicable state governmental authority for amendments or supplements to such Registration Statement or Prospectus; (iii) the issuance by the Commission of any stop order suspending the effectiveness of such Registration Statement covering any or all of the Registrable Securities and the issuance and resale of the Warrant Shares or the initiation of any Proceedings for that purpose; (iv) the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and/or (v) the occurrence of any event (not arising from the fraud, negligence or willful misconduct of the Company) or passage of time that makes the financial statements included in such Registration Statement ineligible for inclusion therein or any statement made in such Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to such Registration Statement, Prospectus or other documents so that, in the case of such Registration Statement or Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any 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; and
(iii) The Company will advise the Purchaser, promptly after it receives notice of issuance by the Commission, any state securities commission or any other regulatory authority of any stop order or of any order preventing or suspending any offering of any securities of the Company, or of the suspension of the qualification of the Common Stock of the Company for offering or sale in any jurisdiction, or the initiation of any proceeding for any such purpose.
(e) Registration Expenses. All expenses relating to the Company’s compliance with its obligations under Section 2 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses incurred in connection with complying with state securities or “blue sky” laws, fees of the NASD, transfer taxes, fees of transfer agents and registrars and fees of, and disbursements incurred by, one counsel for the Holders (not to exceed $10,000), are called “Registration Expenses”. The Company shall only be responsible for all Registration Expenses.
(f) Indemnification.
(i) In the event of any registration of Registrable Securities under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless the Purchaser, and its officers, directors and each other person, if any, who controls the Purchaser within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which the Purchaser, or such persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) are based on third party or governmental or regulatory claims or proceedings and arise out of or are (i) based upon any violation by the Company of any applicable federal or state securities laws, (ii) based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Registrable Securities were registered under the Securities Act pursuant to this Agreement, any preliminary Prospectus or final
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Prospectus contained therein, or any amendment or supplement thereof, or (iii) arise out of or are based upon the omission or alleged omission to state therein a material fact required to be state






