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
5
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
6
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 stated therein or necessary to make
the statements therein not misleading; and will reimburse the
Purchaser, and each such person for any reasonable legal or other
expenses incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such
case if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by or on behalf of the
Purchaser or any such person in writing specifically for use in any
such document.
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