Document:

Exhibit 4.2

 

 

 

Registration Rights Agreement

 

 

 

Dated as of March 18, 2005

 

 

among

 

 

AEP Industries Inc.

 

and

 

Merrill Lynch, Pierce, Fenner & Smith

Incorporated

 

and

 

Deutsche Bank Securities Inc.

 

 

 

 

Execution Version

 

REGISTRATION RIGHTS AGREEMENT

 

This
Registration Rights Agreement (the “Agreement”) is made and entered into this
18th day of March, 2005, among AEP Industries Inc., a Delaware corporation (the
“Company”), and Merrill Lynch & Co. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated (“Merrill Lynch”) and Deutsche Bank Securities Inc. (“Deutsche
Bank Securities”, and collectively with Merrill Lynch, the “Initial Purchasers”).

 

This
Agreement is made pursuant to the Purchase Agreement, dated March 10,
2005, among the Company and the Initial Purchasers (the “Purchase Agreement”),
which provides for the sale by the Company to the Initial Purchasers of an
aggregate principal amount of $175,000,000 of the Company’s 7.875% Senior Notes
due 2013 (the “Securities”).  In order to
induce the Initial Purchasers to enter into the Purchase Agreement, the Company
has agreed to provide to the Initial Purchasers and their direct and indirect
transferees the registration rights set forth in this Agreement.  The execution and delivery of this Agreement
is a condition to the closing under the Purchase Agreement.

 

In
consideration of the foregoing, the parties hereto agree as follows:

 

1.                                       Definitions.

 

As
used in this Agreement, the following capitalized defined terms shall have the
following meanings:

 

“1933 Act” shall mean the Securities Act
of 1933, as amended from time to time, and the rules and regulations of
the SEC promulgated thereunder.

 

“1934 Act” shall mean the Securities
Exchange Act of l934, as amended from time to time, and the rules and
regulations of the SEC promulgated thereunder.

 

“Business Day” shall mean any day except (i) a
Saturday, Sunday or other day in the City of New York on which banks are
required or authorized to close or (ii) any other day on which the SEC is
closed.

 

“Closing Date” shall mean the Closing Time
as defined in the Purchase Agreement.

 

“Company” shall have the meaning set forth in
the preamble of this Agreement and shall also include the Company’s successors.

 

“Depositary” shall mean The Depository Trust
Company, or any other depositary appointed by the Company; provided, however, that
such depositary must have an address in the Borough of Manhattan, in the City
of New York.

 

 

“Exchange Offer” shall mean the exchange
offer by the Company of Exchange Securities for Registrable Securities pursuant
to Section 2.1 hereof.

 

“Exchange Offer Registration” shall
mean a registration under the 1933 Act effected pursuant to Section 2.1
hereof.

 

“Exchange Offer Registration Statement”
shall mean an exchange offer registration statement of the Company pursuant to
the provisions of Section 2.1 hereof on Form S-4 (or, if applicable,
on another appropriate form), and all amendments and supplements to such
registration statement, in each case including the Prospectus contained
therein, all exhibits thereto and all documents incorporated by reference
therein.

 

“Exchange Period” shall have the meaning set
forth in Section 2.1 hereof.

 

“Exchange Securities” shall mean the
7.875% Senior Notes due 2013, issued by the Company under the Indenture
containing terms identical to the Securities in all material respects (except
for references to certain interest rate provisions, restrictions on transfers
and restrictive legends), to be offered to Holders of Securities in exchange
for Registrable Securities pursuant to the Exchange Offer.

 

“Holder” shall mean an Initial Purchaser, for
so long as it owns any Registrable Securities, and each of its successors,
assigns and direct and indirect transferees who become registered owners of
Registrable Securities under the Indenture and each Participating Broker-Dealer
that holds Exchange Securities for so long as such Participating Broker-Dealer
is required to deliver a prospectus meeting the requirements of the 1933 Act in
connection with any resale of such Exchange Securities.

 

“Indenture” shall mean the Indenture relating
to the Securities, dated as of March 18, 2005, between the Company and The
Bank of New York, as trustee, as the same may be amended, supplemented, waived
or otherwise modified from time to time in accordance with the terms thereof.

 

“Initial Purchaser” or “Initial
Purchasers” shall have the meaning set forth in the preamble of this
Agreement.

 

“Majority Holders” shall mean the Holders
of a majority of the aggregate principal amount of Outstanding (as defined in
the Indenture) Registrable Securities; provided
that whenever the consent or approval of Holders of a specified percentage of
Registrable Securities is required hereunder, Registrable Securities held by
the Company and other obligors on the Securities or any Affiliate (as defined
in the Indenture) of the Company (other than the Initial Purchasers or
subsequent holders of Registrable Securities if such subsequent holders are
deemed to be affiliates solely by reason of their

 

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holding
of such Registrable Securities) shall be disregarded in determining whether
such consent or approval was given by the Holders of such required percentage
amount.

 

“Participating Broker-Dealer” shall mean any
of the Initial Purchasers and any other broker-dealer which makes a market in
the Securities and exchanges Registrable Securities in the Exchange Offer for
Exchange Securities.

 

“Person” shall mean an individual, partnership
(general or limited), corporation, limited liability company, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.

 

“Private Exchange” shall have the meaning set
forth in Section 2.1 hereof.

 

“Private Exchange Securities” shall have the meaning
set forth in Section 2.1 hereof.

 

“Prospectus” shall mean the prospectus included
in a Registration Statement, including any preliminary prospectus, and any such
prospectus as amended or supplemented by any prospectus supplement, including
any such prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Securities covered by a Shelf Registration
Statement, and by all other amendments and supplements to a prospectus,
including post-effective amendments, and in each case including all material
incorporated by reference therein.

 

“Purchase Agreement” shall have the
meaning set forth in the preamble.

 

“Registrable Securities” shall mean the
Securities and, if issued, the Private Exchange Securities; provided, however, that Securities and, if issued, the
Private Exchange Securities, shall cease to be Registrable Securities when (i) a
Registration Statement with respect to such Securities shall have been declared
effective under the 1933 Act and such Securities shall have been disposed of
pursuant to such Registration Statement, (ii) such Securities have been
sold under Rule 144 or shall have become eligible to be sold to the public
pursuant to Rule 144(k) (or any similar provision then in force, but not Rule 144A)
under the 1933 Act, (iii) such Securities shall have ceased to be
outstanding or (iv) the Exchange Offer is consummated (except in the case
of Securities purchased from the Company and continued to be held by the
Initial Purchasers).

 

“Registration Expenses” shall mean any and
all expenses incident to performance of or compliance by the Company with this
Agreement, including without limitation:    
(i) all SEC, stock exchange or National Association of Securities
Dealers, Inc. (the “NASD”) registration and filing fees, including, if
applicable, the fees and expenses of any “qualified independent underwriter”
(and its counsel) that is required to be retained by any Holder of Registrable
Securities in accordance with the rules and regulations of the NASD, (ii) all
fees and expenses incurred in connection with compliance with state

 

3

 

securities
or blue sky laws and compliance with the rules of the NASD (including
reasonable fees and disbursements of counsel for any underwriters or Holders in
connection with blue sky qualification of any of the Exchange Securities or
Registrable Securities and any filings with the NASD), (iii) all expenses
of any Persons in preparing or assisting in preparing, word processing, printing
and distributing any Registration Statement, any Prospectus, any amendments or
supplements thereto, any underwriting agreements, securities sales agreements,
certificates representing the Exchange Securities and other documents relating
to the performance of and compliance with this Agreement, (iv) all fees
and expenses incurred in connection with the listing, if any, of any of the
Registrable Securities on any securities exchange or exchanges, (v) all
rating agency fees, (vi) the fees and disbursements of counsel for the
Company and the fees and expenses of the independent public accountants of the
Company, including the expenses of any special audits or “cold comfort” letters
required by or incident to such performance and compliance, (vii) the fees
and expenses of the Trustee, and any escrow agent or custodian, (viii) all
fees and disbursements relating to the qualification of the Indenture under
applicable securities laws, (ix) the fees and expenses of a “qualified
independent underwriter” as defined by Conduct Rule 2720 of the NASD, if
required by the NASD rules, in connection with the offering of the Registrable
Securities, and (x) any fees and disbursements of the underwriters customarily
required to be paid by issuers or sellers of securities and the fees and
expenses of any special experts retained by the Company in connection with any
Registration Statement, but excluding underwriting discounts and commissions
and transfer taxes, if any, relating to the sale or disposition of Registrable
Securities by a Holder.

 

“Registration Statement” shall mean any
registration statement of the Company which covers any of the Exchange
Securities or Registrable Securities pursuant to the provisions of this
Agreement, and all amendments and supplements to any such Registration
Statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.

 

“SEC” shall mean the Securities and Exchange
Commission or any successor agency or government body performing the functions
currently performed by the United States Securities and Exchange Commission.

 

“Securities” shall have the meaning set forth
in the preamble to this Agreement.

 

“Shelf Registration” shall mean a registration
effected pursuant to Section 2.2 hereof.

 

“Shelf Registration Statement” shall
mean a “shelf” registration statement of the Company pursuant to the provisions
of Section 2.2 of this Agreement which covers all of the Registrable
Securities or all of the Private Exchange Securities on an appropriate form
under Rule 415 under the 1933 Act, or any similar rule that may be
adopted by the SEC,

 

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and
all amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.

 

“Trustee” shall mean the trustee with respect
to the Securities and the Exchange Securities under the Indenture.

 

2.                                       Registration Under the 1933 Act.

 

2.1                                 Exchange Offer.  The Company shall, for the benefit of the
Holders, at the Company’s cost, (A) prepare and, as soon as practicable
but not later than 90 days following the Closing Date, file with the SEC an
Exchange Offer Registration Statement on an appropriate form under the 1933 Act
with respect to a proposed Exchange Offer and the issuance and delivery to the
Holders in exchange for the Registrable Securities (other than Private Exchange
Securities), of a like principal amount of Exchange Securities, (B) use
its best efforts to cause the Exchange Offer Registration Statement to be
declared effective under the 1933 Act within 180 days of the Closing Date,
(C) use its best efforts to keep the Exchange Offer Registration Statement
effective until the closing of the Exchange Offer and (D) use its best
efforts to cause the Exchange Offer to be consummated not later than 210 days
following the Closing Date.  The Exchange
Securities will be issued under the Indenture. 
Upon the effectiveness of the Exchange Offer Registration Statement, the
Company shall promptly commence the Exchange Offer, it being the objective of
such Exchange Offer to enable each Holder eligible and electing to exchange
Registrable Securities for Exchange Securities (assuming that such Holder (a) is
not an affiliate of the Company within the meaning of Rule 405 under the
1933 Act, (b) is not a broker-dealer tendering Registrable Securities
acquired directly from the Company for its own account, (c) acquires the
Exchange Securities in the ordinary course of such Holder’s business and (d) has
no arrangements or understandings with any Person to participate in the
Exchange Offer for the purpose of distributing the Exchange Securities) to
transfer such Exchange Securities from and after their receipt without any
limitations or restrictions under the 1933 Act and under state securities or
blue sky laws.

 

In
connection with the Exchange Offer, the Company shall:

 

(a)                                  mail
as promptly as practicable to each Holder a copy of the Prospectus forming part
of the Exchange Offer Registration Statement, together with an appropriate
letter of transmittal and related documents;

 

(b)                                 keep
the Exchange Offer open for acceptance for a period of not less than 20
Business Days after the date notice thereof is mailed to the Holders (or longer
if required by applicable law) (such period referred to herein as the “Exchange
Period”);

 

(c)                                  utilize
the services of the Depositary for the Exchange Offer;

 

5

 

(d)                                 permit
Holders to withdraw tendered Registrable Securities at any time prior to 5:00 p.m.
(New York City Time), on the last Business Day of on which Exchange Offer shall
remain open, by sending to the institution specified in the notice a telegram,
telex, facsimile transmission or letter setting forth the name of such Holder,
the principal amount of Registrable Securities delivered for exchange, and a
statement that such Holder is withdrawing such Holder’s election to have such
Securities exchanged;

 

(e)                                  notify
each Holder that any Registrable Security not tendered will remain outstanding
and continue to accrue interest at the initial rate borne by the Securities,
but will not retain any rights under this Agreement (except in the case of the
Initial Purchasers and Participating Broker-Dealers as provided herein); and

 

(f)                                    otherwise
comply in all respects with all applicable laws relating to the Exchange Offer.

 

If,
prior to consummation of the Exchange Offer, the Initial Purchasers hold any
Securities acquired by them and having the status of an unsold allotment in the
initial distribution, the Company upon the request of any Initial Purchaser
shall, simultaneously with the delivery of the Exchange Securities in the
Exchange Offer, issue and deliver to such Initial Purchaser in exchange (the “Private
Exchange”) for the Securities held by such Initial Purchaser, a like principal
amount of debt securities of the Company on a senior basis, that are identical
(except that such securities shall bear appropriate transfer restrictions) to
the Exchange Securities (the “Private Exchange Securities”).

 

The
Exchange Securities and the Private Exchange Securities shall be issued under (i) the
Indenture or (ii) an indenture identical in all material respects to the
Indenture and which, in either case, has been qualified under the Trust
Indenture Act of 1939, as amended (the “TIA”), or is exempt from such
qualification and shall provide that the Exchange Securities shall not be
subject to the transfer restrictions set forth in the Indenture but that the
Private Exchange Securities shall be subject to such transfer
restrictions.  The Indenture or such
indenture shall provide that the Exchange Securities, the Private Exchange
Securities and the Securities shall vote and consent together on all matters as
one class and that none of the Exchange Securities, the Private Exchange
Securities or the Securities will have the right to vote or consent as a
separate class on any matter.  The
Private Exchange Securities shall be of the same series as and the Company
shall use all commercially reasonable efforts to have the Private Exchange
Securities bear the same CUSIP number as the Exchange Securities.  The Company shall not have any liability
under this Agreement solely as a result of such Private Exchange Securities not
bearing the same CUSIP number as the Exchange Securities.

 

As
soon as practicable after the close of the Exchange Offer and/or the Private
Exchange, as the case may be, the Company shall:

 

(i)  accept for exchange all Registrable
Securities duly tendered and not validly withdrawn pursuant to the Exchange
Offer in accordance with the terms of

 

6

 

the
Exchange Offer Registration Statement and the letter of transmittal which shall
be an exhibit thereto;

 

(ii)  accept for exchange all Securities properly
tendered pursuant to the Private Exchange;

 

(iii)  deliver to the Trustee for cancellation
all Registrable Securities so accepted for exchange by the Company; and

 

(iv)  cause the Trustee promptly to authenticate
and deliver Exchange Securities or Private Exchange Securities, as the case may
be, to each Holder of Registrable Securities so accepted for exchange in a
principal amount equal to the principal amount of the Registrable Securities of
such Holder so accepted for exchange.

 

Interest
on each Exchange Security and Private Exchange Security will accrue from the
last date on which interest was paid on the Registrable Securities surrendered
in exchange therefor or, if no interest has been paid on the Registrable
Securities, from the date of original issuance. 
The Exchange Offer and the Private Exchange shall not be subject to any
conditions, other than (i) that the Exchange Offer or the Private
Exchange, or the making of any exchange by a Holder, does not violate
applicable law or any applicable interpretation of the staff of the SEC, (ii) the
due tendering of Registrable Securities in accordance with the Exchange Offer
and the Private Exchange, (iii) that each Holder of Registrable Securities
exchanged in the Exchange Offer shall have represented that (A) it is not
an affiliate (as defined in Rule 405 under the 1933 Act) of the Company
or, if it is such an affiliate, it will comply with the registration and
prospectus delivery requirements of the 1933 Act to the extent applicable, (B) any
Exchange Securities to be received by it shall be acquired in the ordinary
course of business, (C) at the time of the consummation of the Exchange
Offer it has no arrangement or understanding with any Person to participate in
the distribution (within the meaning of the 1933 Act) of the Exchange
Securities and shall have made such other representations as may be reasonably
necessary under applicable SEC rules, regulations or interpretations to render
the use of Form S-4 or another appropriate form under the 1933 Act
available, and (D) that no action or proceeding shall have been instituted
or threatened in any court or by or before any governmental agency with respect
to the Exchange Offer or the Private Exchange which, in the Company’s judgment,
would reasonably be expected to impair the ability of the Company to proceed
with the Exchange Offer or the Private Exchange.  The Company shall inform the Initial
Purchasers of the names and addresses of the Holders to whom the Exchange Offer
is made, and the Initial Purchasers shall have the right to contact such
Holders and otherwise facilitate the tender of Registrable Securities in the
Exchange Offer.

 

2.2                                 Shelf Registration.  (i) If, because of any changes in law,
SEC rules or regulations or applicable interpretations thereof by the
staff of the SEC, the Company is not permitted to effect the Exchange Offer as
contemplated by Section 2.1 hereof, (ii) if for any other reason the
Exchange Offer Registration Statement is not declared effective within

 

7

 

180 days following
the Closing Date or the Exchange Offer is not consummated within 210 days after
the Closing Date, (iii) upon the request of any of the Initial Purchasers
with respect to Securities (or Private Exchange Securities) not eligible to
participate in the Exchange Offer or (iv) if a Holder is not permitted to
participate in the Exchange Offer or does not receive fully tradeable Exchange
Securities pursuant to the Exchange Offer, then in case of each of clauses (i) through
(iv) the Company shall, at its cost:

 

(a)                                  as
promptly as practicable, file with the SEC, and thereafter use its best efforts
to cause to be declared effective by the SEC as promptly as practicable but no
later than 210 days after the original issue of the Registrable Securities, a
Shelf Registration Statement relating to the offer and sale of the Registrable
Securities by the Holders from time to time in accordance with the methods of
distribution elected by the Majority Holders participating in the Shelf
Registration and set forth in such Shelf Registration Statement.   In the event that the Company is required to
file a Shelf Registration Statement upon the request of the Initial Purchaser
pursuant to clause (iii) above or upon the request of any Holder (other
than the Initial Purchaser) not eligible to participate in the Exchange Offer
pursuant to clause (iv) above, the Company shall file and use its best
efforts to have declared effective by the SEC both an Exchange Offer
Registration Statement pursuant to Section 2.1 with respect to all
Registrable Securities and a Shelf Registration Statement (which may be a
Registration Statement combined with the Exchange Offer Registration Statement)
with respect to offers and sales of Registrable Securities held by such Holder
or the Initial Purchaser after completion of the Exchange Offer;

 

(b)                                 use
its best efforts to keep the Shelf Registration Statement continuously
effective in order to permit the Prospectus forming part thereof to be usable
by Holders for a period of two years from the date the Shelf Registration
Statement is declared effective by the SEC, or for such shorter period that
will terminate when all of the Registrable Securities covered by the Shelf
Registration Statement have been sold pursuant to the Shelf Registration
Statement or cease to be outstanding or otherwise to be Registrable Securities
(the “Effectiveness Period”);  provided, however, that the Effectiveness Period in respect
of the Shelf Registration Statement shall be extended to the extent required to
permit dealers to comply with the applicable prospectus delivery requirements
of Rule 174 under the 1933 Act and as otherwise provided herein.

 

(c)                                  notwithstanding
any other provisions hereof, use its best efforts to ensure that (i) any
Shelf Registration Statement and any amendment thereto and any Prospectus
forming part thereof and any supplement thereto comply in all material respects
with the 1933 Act and the rules and regulations thereunder, (ii) any
Shelf Registration Statement and any amendment thereto does not, when it
becomes effective, contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements

 

8

 

therein
not misleading and (iii) any Prospectus forming part of any Shelf
Registration Statement, and any supplement to such Prospectus (as amended or
supplemented from time to time), does not include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements, in light of the circumstances under which they were made, not misleading.

 

The
Company shall not permit any securities other than Registrable Securities to be
included in the Shelf Registration Statement. 
The Company further agrees, if necessary, to supplement or amend the
Shelf Registration Statement, as required by Section 3(b) below, and
to furnish to the Holders of Registrable Securities copies of any such
supplement or amendment promptly after its being used or filed with the SEC.

 

2.3                                           Expenses.  The Company shall pay all Registration
Expenses in connection with the registration pursuant to Section 2.1 or
2.2.  Each Holder shall pay all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Holder’s Registrable Securities pursuant to the
Shelf Registration Statement.

 

2.4.                                        Effective
Registration Statement.  (a) 
The Company will be deemed not have used its best efforts to cause a
Registration Statement to become, or to remain, effective during the requisite
periods set forth herein if the Company voluntarily takes any action that
would, or omits to take any action which omission would, result in any such
Registration Statement not being declared effective or in the Holders of
Registrable Securities covered thereby not being able to exchange or offer and
sell such Registrable Securities during that period as and to the extent
contemplated hereby, unless such action is required by applicable law.

 

(b)                                                                                           An
Exchange Offer Registration Statement pursuant to Section 2.1 hereof or a
Shelf Registration Statement pursuant to Section 2.2 hereof will not be
deemed to have become effective unless it has been declared effective by the
SEC; provided, however, that if, after it has
been declared effective, the offering of Registrable Securities pursuant to an
Exchange Offer Registration Statement or a Shelf Registration Statement is
interfered with by any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court, such Registration Statement
will be deemed not to have become effective during the period of such
interference, until the offering of Registrable Securities pursuant to such
Registration Statement may legally resume.

 

2.5                                                                                           Additional
Interest.  In the event that (a) the
Exchange Offer Registration Statement is not filed with the SEC on or prior to
the 90th calendar day following the Closing Date, (b) the Exchange Offer
Registration Statement has not been declared effective on or prior to the 180th
calendar day following the Closing Date, (c) the Exchange Offer is not
consummated on or prior to the 210th calendar day following the Closing Date, (d) a
Shelf Registration Statement with respect to the Registrable Securities is not
declared effective on or

 

9

 

prior to the later of the
210th calendar day following the Closing Date or the 45th calendar day after
any event specified in Section 2.2 hereof, or (e) if the Shelf
Registration Statement is declared effective but thereafter ceases to be
effective or is unusable by the Holders for any reason, and the aggregate
number of days in any consecutive twelve-month period for which the Shelf
Registration Statement shall not be usable exceeds 30 days in the aggregate
(each such event referred to in clauses (a) through (e) above, a “Registration
Default”), the interest rate borne by the Securities shall be increased (“Additional
Interest”) by one-quarter of one percent (0.25%) per annum upon the occurrence
of each Registration Default, which rate will increase by one quarter of one
percent (0.25%) per annum for each subsequent 90-day period that such
Additional Interest continues to accrue under any such circumstance, provided that the maximum aggregate
increase in the interest rate will in no event exceed one percent (1%) per
annum.  In the case of an event described
in clause (e) above, Additional Interest shall be computed based on the
actual number of days elapsed in each 90-day period in which the Shelf
Registration Statement is unusable.  Upon
(v) the filing of the Exchange Offer Registration Statement after the 90-day
period described in clause (a) above, (w) the effectiveness of the
Exchange Offer Registration Statement after the 180-day period described in
clause (b) above, (x) the consummation of the Exchange Offer or the
effectiveness of a Shelf Registration Statement after the 210-day period
described in clause (c) above, (y) the effectiveness of the Shelf
Registration Statement after the 210-day period or the 45-day period, as the
case may be, described in clause (d) above, or (z) the cure of any
Registration Default described in clause (e) above, such Additional
Interest shall cease to accrue on the Notes from the date of such filing,
effectiveness, consummation or cure, as the case may be, if the Company is
otherwise in compliance with this paragraph and the interest rate of the
Securities will revert to the original rate; provided, however, that if, after any such
Additional Interest ceases to accrue, a different event specified in clause
(a), (b), (c), (d) or (e) above occurs, such Additional Interest
shall begin to accrue again pursuant to the foregoing provisions.

 

A
Registration Default referred to above shall be deemed not to have occurred and
be continuing in relation to a Shelf Registration Statement if (i) such
Registration Default has occurred solely as a result of (x) the filing of a
post-effective amendment to such Shelf Registration Statement to incorporate
annual audited financial information with respect to the Company where such
post-effective amendment is not yet effective and needs to be declared
effective to permit Holders to use the related prospectus or (y) other material
events, with respect to the Company that would need to be described in such
Shelf Registration Statement and (ii) in the case of clause (y), the Company is
proceeding promptly and in good faith to amend or supplement such Shelf
Registration Statement to describe such events; provided, however, that in any
case if such Registration Default occurs for a continuous period in excess of
30 days, Additional Interest shall be payable in accordance with the above
paragraph from the day such Registration Default occurs until such Registration
Default is cured.

 

The Company shall notify the
Trustee within three Business Days after each and every date on which an event
occurs in respect of which Additional Interest is required to be paid (an “Event
Date”).  Additional Interest shall be
paid by depositing with the Trustee, in trust, for the benefit of the Holders
of Registrable Securities, on or before the applicable semiannual interest
payment date, immediately available funds in sums sufficient to pay the
Additional

 

10

 

Interest then due.  The Additional Interest due shall be payable
on each interest payment date to the record Holder of Securities entitled to
receive the interest payment to be paid on such date as set forth in the
Indenture.  Each obligation to pay
Additional Interest shall be deemed to accrue from and including the day
following the applicable Event Date.

 

                                                3.                                       Registration Procedures.

 

In
connection with the obligations of the Company with respect to the Registration
Statements pursuant to Sections 2.1 and 2.2 hereof, the Company shall:

 

(a)                                            prepare
and file with the SEC a Registration Statement, within the relevant time period
specified in Section 2, on the appropriate form under the 1933 Act, which
form (i) shall be selected by the Company, (ii) shall, in the case of
a Shelf Registration, be available for the sale of the Registrable Securities
by the selling Holders thereof, (iii) shall comply as to form in all
material respects with the requirements of the applicable form required by the
SEC and include or incorporate by reference all financial statements required
by the SEC to be filed therewith or incorporated by reference therein, and (iv) shall
comply in all respects with the requirements of Regulation S-T under the 1933
Act, and use its best efforts to cause such Registration Statement to become
effective and remain effective in accordance with Section 2 hereof;

 

(b)                                           prepare
and file with the SEC such amendments and post-effective amendments to each
Registration Statement as may be necessary under applicable law to keep such
Registration Statement effective for the applicable period; and cause each
Prospectus to be supplemented by any required prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 (or any similar provision
then in force) under the 1933 Act and comply with the provisions of the 1933
Act, the 1934 Act and the rules and regulations thereunder applicable to
them with respect to the disposition of all securities covered by each
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the selling Holders thereof
(including sales by any Participating Broker-Dealer);

 

(c)                                            in
the case of a Shelf Registration, (i) notify each Holder of Registrable
Securities, at least five Business Days prior to filing, that a Shelf
Registration Statement with respect to the Registrable Securities is being
filed and advising such Holders that the distribution of Registrable Securities
will be made in accordance with the method selected by the Majority Holders
participating in the Shelf Registration; (ii) furnish to each Holder of
Registrable Securities, to counsel for the Initial Purchasers, to counsel for
the Holders and to each underwriter of an underwritten offering of Registrable
Securities, if any, without charge, as many copies of each Prospectus,
including each preliminary Prospectus, and any amendment or supplement thereto
and such other documents as such Holder or underwriter may reasonably request,
including financial statements and schedules and, if the Holder so requests,
all exhibits (including those incorporated by reference) in order to facilitate
the public sale or other disposition of the Registrable Securities; and (iii) hereby
consent to the use of the Prospectus, including each preliminary Prospectus, or
any amendment or supplement thereto by each of the

 

11

 

selling Holders of
Registrable Securities in connection with the offering and sale of the
Registrable Securities covered by the Prospectus or any amendment or supplement
thereto;

 

(d)                                           use
its best efforts to register or qualify the Registrable Securities under all
applicable state securities or “blue sky” laws of such jurisdictions as any
Holder of Registrable Securities covered by a Registration Statement and each
underwriter of an underwritten offering of Registrable Securities shall
reasonably request by the time the applicable Registration Statement is
declared effective by the SEC, cooperate with the Holders in connection with
any filings required to be made with the NASD, keep each such registration or qualification
effective during the period such Registration Statement is required to be
effective and do any and all other acts and things which may be reasonably
necessary or advisable to enable each such Holder and underwriter to consummate
the disposition in each such jurisdiction of such Registrable Securities owned
by such Holder; provided, however, that the
Company shall not be required to (i) qualify as a foreign corporation or
as a dealer in securities in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), or (ii) take any
action which would subject it to general service of process or taxation in any
such jurisdiction where it is not then so subject;

 

(e)                                            notify
promptly each Holder of Registrable Securities under a Shelf Registration (and
counsel for such Holders) or any Participating Broker-Dealer who has notified
the Company that it is utilizing the Exchange Offer Registration Statement as
provided in paragraph (f) below and, if requested by such Holder or
Participating Broker-Dealer, confirm such advice in writing promptly (i) when
a Registration Statement has become effective and when any post-effective
amendments and supplements thereto become effective, (ii) of any request
by the SEC or any state securities authority for post-effective amendments and
supplements to a Registration Statement and Prospectus or for additional
information after the Registration Statement has become effective, (iii) of
the issuance by the SEC or any state securities authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose, (iv) in the case of a Shelf
Registration, if, between the effective date of a Registration Statement and
the closing of any sale of Registrable Securities covered thereby, the
representations and warranties of the Company contained in any underwriting
agreement, securities sales agreement or other similar agreement, if any,
relating to the offering cease to be true and correct in all material respects,
(v) of the happening of any event or the discovery of any facts during the
period a Shelf Registration Statement is effective which makes any statement
made in such Registration Statement or the related Prospectus untrue in any
material respect or which requires the making of any changes in such
Registration Statement or Prospectus in order to make the statements therein
not misleading, (vi) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Registrable
Securities or the Exchange Securities, as the case may be, for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose and (vii) of any determination by the Company that a
post-effective amendment to such Registration Statement would be appropriate;

 

12

 

(f)                                              in
the case of the Exchange Offer Registration Statement, (i) include in the
Exchange Offer Registration Statement a section entitled “Plan of
Distribution” which shall contain a summary statement of the positions taken or
policies made by the staff of the SEC with respect to the potential “underwriter”
status of any broker-dealer that holds Registrable Securities acquired for its
own account as a result of market-making activities or other trading activities
and that will be the beneficial owner (as defined in Rule 13d-3 under the
1934 Act) of Exchange Securities to be received by such broker-dealer in the
Exchange Offer, whether such positions or policies have been publicly
disseminated by the staff of the SEC or such positions or policies represent
the prevailing views of the staff of the SEC, including a statement that any
such broker-dealer who receives Exchange Securities for Registrable Securities
pursuant to the Exchange Offer may be deemed a statutory underwriter and must
deliver a prospectus meeting the requirements of the 1933 Act in connection
with any resale of such Exchange Securities, (ii) furnish to each
Participating Broker-Dealer who has delivered to the Company the notice
referred to in Section 3(e), without charge, as many copies of each
Prospectus included in the Exchange Offer Registration Statement, including any
preliminary prospectus, and any amendment or supplement thereto, as such
Participating Broker-Dealer may reasonably request, (iii) hereby consent
to the use of the Prospectus, including each preliminary Prospectus, forming
part of the Exchange Offer Registration Statement or any amendment or
supplement thereto, by any Person subject to the prospectus delivery
requirements of the SEC, including all Participating Broker-Dealers, in
connection with the sale or transfer of the Exchange Securities covered by the
Prospectus or any amendment or supplement thereto, and (iv) include in the
transmittal letter or similar documentation to be executed by an exchange
offeree in order to participate in the Exchange Offer (x) the following
provision:

 

“If
the exchange offeree is a broker-dealer holding Registrable Securities acquired
for its own account as a result of market-making activities or other trading
activities, it will deliver a prospectus meeting the requirements of the 1933
Act in connection with any resale of Exchange Securities received in respect of
such Registrable Securities pursuant to the Exchange Offer”; and

 

(y) a statement to the
effect that by a broker-dealer making the acknowledgment described in subclause
(x) and by delivering a Prospectus in connection with the exchange of
Registrable Securities, the broker-dealer will not be deemed to admit that it
is an underwriter within the meaning of the 1933 Act;

 

(g)                                           in
the case of a Shelf Registration, furnish counsel for the Holders of
Registrable Securities copies of any comment letters received from the SEC or
any other request by the SEC or any state securities authority for amendments
or supplements to a Registration Statement and Prospectus or for additional
information;

 

(h)                                           make
every reasonable effort to obtain the withdrawal of any order suspending the
effectiveness of a Registration Statement at the earliest possible moment and
provide immediate notice to each Holder of the withdrawal of such order;

 

13

 

(i)                                               in
the case of a Shelf Registration, furnish to each Holder of Registrable
Securities, and each underwriter, if any, without charge, at least one
conformed copy of each Registration Statement and any post-effective amendment
thereto, including financial statements and schedules (without documents
incorporated therein by reference and all exhibits thereto, unless requested);

 

(j)                                               in
the case of a Shelf Registration, cooperate with the selling Holders of
Registrable Securities to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not bearing any
restrictive legends; and enable such Registrable Securities to be in such
denominations (consistent with the provisions of the Indenture) and registered
in such names as the selling Holders or the underwriters, if any, may
reasonably request at least three Business Days prior to the closing of any
sale of Registrable Securities;

 

(k)                                            in
the case of a Shelf Registration, upon the occurrence of any event or the
discovery of any facts, each as contemplated by Sections 3(e)(v) and 3(e)(vi) hereof,
as promptly as practicable after the occurrence of such an event, use its best
efforts to prepare a supplement or post-effective amendment to the Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Securities or Participating
Broker-Dealers, such Prospectus will not contain at the time of such delivery
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. 
The Company agrees to notify each Holder to suspend use of the
Prospectus as promptly as practicable after the occurrence of such an event,
and such Holder hereby agrees to suspend use of the Prospectus until the
Company has amended or supplemented the Prospectus to correct such misstatement
or omission.  At such time as such public
disclosure is otherwise made or the Company determines that such disclosure is
not necessary, in each case to correct any misstatement of a material fact or
to include any omitted material fact, the Company agrees promptly to notify
each Holder of such determination and to furnish each Holder such number of
copies of the Prospectus as amended or supplemented, as such Holder may
reasonably request;

 

(l)                                               in
the case of a Shelf Registration, a reasonable time prior to the filing of any
Registration Statement, any Prospectus, any amendment to a Registration
Statement or amendment or supplement to a Prospectus or any document which is
to be incorporated by reference into a Registration Statement or a Prospectus
after initial filing of a Registration Statement, provide copies of such
document to the Initial Purchasers on behalf of such Holders; and make
representatives of the Company as shall be reasonably requested by the Holders
of Registrable Securities, or the Initial Purchasers on behalf of such Holders,
available for discussion of such document;

 

(m)                                         obtain
a CUSIP number for all Exchange Securities, Private Exchange Securities or
Registrable Securities, as the case may be, not later than the effective date
of a Registration Statement, and provide the Trustee with printed certificates
for the Exchange

 

14

 

Securities, Private
Exchange Securities or the Registrable Securities, as the case may be, in a
form eligible for deposit with the Depositary;

 

(n)                                           (i) 
cause the Indenture to be qualified under the TIA in connection with the
registration of the Exchange Securities or Registrable Securities, as the case
may be, (ii) cooperate with the Trustee and the Holders to effect such
changes to the Indenture as may be required for the Indenture to be so
qualified in accordance with the terms of the TIA and (iii) execute, and
use its best efforts to cause the Trustee to execute, all documents as may be
required to effect such changes, and all other forms and documents required to
be filed with the SEC to enable the Indenture to be so qualified in a timely
manner;

 

(o)                                           in
the case of a Shelf Registration, if reasonably requested by the Majority
Holders of Registrable Securities, enter into agreements (including
underwriting agreements) and take all other customary and appropriate actions
in order to expedite or facilitate the disposition of such Registrable
Securities and in such connection whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten
registration:

 

(i)  make such representations and warranties to
the Holders of such Registrable Securities and the underwriters, if any, in
form, substance and scope as are customarily made by issuers to underwriters in
similar underwritten offerings as may be reasonably requested by them;

 

(ii)  obtain opinions of counsel to the Company
and updates thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the managing underwriters, if any, and the
holders of a majority in principal amount of the Registrable Securities being
sold) addressed to each selling Holder and the underwriters, if any, covering
the matters customarily covered in opinions requested in sales of securities or
underwritten offerings and such other matters as may be reasonably requested by
such Holders and underwriters;

 

(iii)  obtain “cold comfort” letters and updates
thereof from the Company’s independent certified public accountants (and, if
necessary, any other independent certified public accountants of any subsidiary
of the Company or of any business acquired by the Company for which financial
statements are, or are required to be, included in the Registration Statement)
addressed to the underwriters, if any, and use reasonable efforts to have such
letters addressed to the selling Holders of Registrable Securities (to the
extent consistent with Statement on Auditing Standards No. 72, or any
successor provision, of the American Institute of Certified Public
Accountants), such letters to be in customary form and covering matters of the
type customarily covered in “cold comfort” letters to underwriters in
connection with similar underwritten offerings;

 

15

 

(iv)  enter into a securities sales agreement
with the Holders and an agent of the Holders providing for, among other things,
the appointment of such agent for the selling Holders for the purpose of
soliciting purchases of Registrable Securities, which agreement shall be in
form, substance and scope customary for similar offerings;

 

(v)  if an underwriting agreement is entered
into, cause the same to set forth indemnification provisions and procedures
substantially equivalent to the indemnification provisions and procedures set
forth in Section 4 hereof with respect to the underwriters and all other
parties to be indemnified pursuant to said Section or, at the request of
any underwriters, in the form customarily provided to such underwriters in
similar types of transactions; and

 

(vi)  deliver such documents and certificates as
may be reasonably requested and as are customarily delivered in similar
offerings to the Holders of a majority in principal amount of the Registrable
Securities being sold and the managing underwriters, if any.

 

The above shall be done
at each closing under any underwriting or similar agreement as and to the
extent required thereunder.  In the case
of any underwritten offering, the Company shall provide written notice to the Holders
of all Registrable Securities of such underwritten offering at least 30 days
prior to the filing of a prospectus supplement for such underwritten
offering.  Such notice shall
(x) offer each such Holder the right to participate in such underwritten
offering, (y) specify a date, which shall be no earlier than 10 calendar
days following the date of such notice, by which such Holder must inform the
Company of its intent to participate in such underwritten offering and (z)
include the instructions such Holder must follow in order to participate in
such underwritten offering;

 

(p)                                 in
the case of a Shelf Registration or if a Prospectus is required to be delivered
by any Participating Broker-Dealer in the case of an Exchange Offer, make
available for inspection by representatives of the Holders of the Registrable
Securities, any underwriters participating in any disposition pursuant to a
Shelf Registration Statement, any Participating Broker-Dealer and any counsel
or accountant retained by any of the foregoing, all financial and other
records, pertinent corporate documents and properties of the Company reasonably
requested by any such Persons, and cause the respective officers, directors,
employees, and any other agents of the Company to supply all information
reasonably requested by any such representative, underwriter, special counsel
or accountant in connection with a Registration Statement, and make such
representatives of the Company available for discussion of such documents as
shall be reasonably requested by the Initial Purchasers;

 

(q)                                 (i) 
in the case of an Exchange Offer Registration Statement, a reasonable time
prior to the filing of any Exchange Offer Registration Statement, any
Prospectus forming a part thereof, any amendment to an Exchange Offer
Registration Statement or amendment or supplement to such Prospectus, provide
copies of such document to the Initial Purchasers and

 

16

 

to counsel to the Holders
of Registrable Securities and make such changes in any such document prior to
the filing thereof as any of the Initial Purchasers or counsel to the Holders
of Registrable Securities may reasonably request and, except as otherwise
required by applicable law, not file any such document in a form to which the
Initial Purchasers on behalf of the Holders of Registrable Securities and
counsel to the Holders of Registrable Securities shall not have previously been
advised and furnished a copy of or to which the Initial Purchasers on behalf of
the Holders of Registrable Securities or counsel to the Holders of Registrable
Securities shall reasonably object, and make the representatives of the Company
available for discussion of such documents as shall be reasonably requested by
the Initial Purchasers; and

 

(ii) 
in the case of a Shelf Registration, a reasonable time prior to filing any
Shelf Registration Statement, any Prospectus forming a part thereof, any
amendment to such Shelf Registration Statement or amendment or supplement to
such Prospectus, provide copies of such document to the Holders of Registrable
Securities, to the Initial Purchasers, to counsel for the Holders and to the
underwriter or underwriters of an underwritten offering of Registrable
Securities, if any, make such changes in any such document prior to the filing
thereof as the Initial Purchasers, the counsel to the Holders or any
underwriter or underwriters may reasonably request and not file any such
document in a form to which the Majority Holders, the Initial Purchasers on
behalf of the Holders of Registrable Securities, counsel for the Holders of
Registrable Securities or any underwriter shall not have previously been
advised and furnished a copy of or to which the Majority Holders, the Initial
Purchasers of behalf of the Holders of Registrable Securities, counsel to the
Holders of Registrable Securities or any underwriter shall reasonably object,
and make the representatives of the Company available for discussion of such
document as shall be reasonably requested by the Holders of Registrable
Securities, the Initial Purchasers on behalf of such Holders, counsel for the
Holders of Registrable Securities or any underwriter.

 

(r)                                    in
the case of a Shelf Registration, use its best efforts to cause all Registrable
Securities to be listed on any securities exchange on which similar debt securities
issued by the Company are then listed if requested by the Majority Holders, or
if requested by the underwriter or underwriters of an underwritten offering of
Registrable Securities, if any;

 

(s)                                  in
the case of a Shelf Registration, use its best efforts to cause the Registrable
Securities to be rated by the appropriate rating agencies, if so requested by
the Majority Holders, or if requested by the underwriter or underwriters of an
underwritten offering of Registrable Securities, if any;

 

(t)                                    otherwise
comply with all applicable rules and regulations of the SEC and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering at least 12 months which shall satisfy the
provisions of Section 11(a) of the 1933 Act and Rule 158
thereunder; and

 

(u)                                 cooperate
and assist in any filings required to be made with the NASD and in the
performance of any due diligence investigation by any underwriter and its
counsel

 

17

 

(including any “qualified
independent underwriter” that is required to be retained in accordance with the
rules and regulations of the NASD).

 

In the
case of a Shelf Registration Statement, the Company may (as a condition to such
Holder’s participation in the Shelf Registration) require each Holder of
Registrable Securities to furnish to the Company such information regarding the
Holder and the proposed distribution by such Holder of such Registrable
Securities as the Company may from time to time reasonably request in writing.

 

In the
case of a Shelf Registration Statement, each Holder agrees that, upon receipt
of any notice from the Company of the happening of any event or the discovery
of any facts, each of the kind described in Section 3(e)(v) hereof,
such Holder will forthwith discontinue disposition of Registrable Securities
pursuant to a Registration Statement until such Holder’s receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 3(k)
hereof, and, if so directed by the Company, such Holder will deliver to the
Company (at its expense) all copies in such Holder’s possession, other than
permanent file copies then in such Holder’s possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice.

 

If any
of the Registrable Securities covered by any Shelf Registration Statement are
to be sold in an underwritten offering, the underwriter or underwriters and
manager or managers that will manage such offering will be selected by the
Majority Holders of such Registrable Securities included in such offering and
shall be reasonably acceptable to the Company. 
No Holder of Registrable Securities may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder’s
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.

 

4.                                       Indemnification; Contribution.

 

(a)                                  The
Company agrees to indemnify and hold harmless the Initial Purchasers, each
Holder, each Participating Broker-Dealer, each Person who participates as an
underwriter (any such Person being an “Underwriter”) and each Person, if any,
who controls any Holder or Underwriter within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act as follows:

 

(i)                                     against
any and all loss, liability, claim, damage and expense whatsoever, as incurred,
arising out of any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement (or any amendment or supplement
thereto) pursuant to which Exchange Securities or Registrable Securities were
registered under the 1933 Act, including all documents incorporated therein by
reference, or the omission or alleged omission therefrom of a material fact
required to be stated therein or

 

18

 

necessary
to make the statements therein not misleading, or arising out of any untrue
statement or alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;

 

(ii)  against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission;  provided that (subject to Section 4(d) below)
any such settlement is effected with the written consent of the Company; and

 

(iii)  against any and all expense whatsoever, as
incurred (including the fees and disbursements of counsel chosen by any
indemnified party), reasonably incurred in investigating, preparing or
defending against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever
based upon any such untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not paid under
subparagraph (i) or (ii) above;

 

provided,
however, that this indemnity
agreement shall not apply to any loss, liability, claim, damage or expense to
the extent arising out of any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with written
information furnished to the Company by the Holder or Underwriter expressly for
use in a Registration Statement (or any amendment thereto) or any Prospectus
(or any amendment or supplement thereto).

 

(b)                                 Each
Holder severally, but not jointly, agrees to indemnify and hold harmless the
Company, the Initial Purchasers, each Underwriter and the other selling
Holders, and each of their respective directors and officers, and each Person,
if any, who controls the Company, the Initial Purchasers, any Underwriter or
any other selling Holder within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act, against any and all loss, liability, claim,
damage and expense described in the indemnity contained in Section 4(a) hereof,
as incurred, but only with respect to untrue statements or omissions, or
alleged untrue statements or omissions, made in the Shelf Registration
Statement (or any amendment thereto) or any Prospectus included therein (or any
amendment or supplement thereto) in reliance upon and in conformity with
written information with respect to such Holder furnished to the Company by
such Holder expressly for use in the Shelf Registration Statement (or any
amendment thereto) or such Prospectus (or any amendment or supplement thereto);
provided, however, that no such Holder
shall be liable for any claims hereunder in excess of the amount of net
proceeds received by such Holder from the sale of Registrable Securities
pursuant to such Shelf Registration Statement.

 

19

 

(c)                                  Each
indemnified party shall give notice as promptly as reasonably practicable to
each indemnifying party of any action or proceeding commenced against it in
respect of which indemnity may be sought hereunder, but failure so to notify an
indemnifying party shall not relieve such indemnifying party from any liability
hereunder to the extent it is not materially prejudiced as a result thereof and
in any event shall not relieve it from any liability which it may have
otherwise than on account of this indemnity agreement.  An indemnifying party may participate at its
own expense in the defense of such action; provided,
however, that counsel to the
indemnifying party shall not (except with the consent of the indemnified party)
also be counsel to the indemnified party. 
In no event shall the indemnifying party or parties be liable for the
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances.  No indemnifying party shall, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 4 (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation, investigation,
proceeding or claim and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.

 

(d)                                 If
at any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 4(a)(ii) effected without its written
consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement
at least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.

 

(e)                                  If
the indemnification provided for in this Section 4 is for any reason
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, liabilities, claims, damages or expenses referred to therein,
then each indemnifying party shall contribute to the aggregate amount of such
losses, liabilities, claims, damages and expenses incurred by such indemnified
party, as incurred, in such proportion as is appropriate to reflect the
relative fault of the Company on the one hand and the Holders and the Initial
Purchasers on the other hand in connection with the statements or omissions which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations.

 

The relative fault of the Company on the one hand and
the Holders and the Initial Purchasers on the other hand shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to

 

20

 

state a material fact
relates to information supplied by the Company, the Holders or the Initial
Purchasers and the parties’ relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.

 

The Company, the Holders and the Initial Purchasers
agree that it would not be just and equitable if contribution pursuant to this Section 4
were determined by pro rata allocation (even if the Initial Purchasers were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above
in this Section 4.  The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 4 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged
untrue statement or omission or alleged omission.

 

Notwithstanding the provisions of this Section 4,
no Initial Purchaser shall be required to contribute any amount in excess of
the amount by which the total price at which the Securities sold by it were
offered exceeds the amount of any damages which such Initial Purchaser has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission.

 

No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any Person who was not guilty of such fraudulent
misrepresentation.

 

For
purposes of this Section 4, each Person, if any, who controls an Initial
Purchaser or Holder within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as such Initial
Purchaser or Holder, and each director of the Company, and each Person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act shall have the same rights to contribution
as the Company.  The Initial Purchasers’
respective obligations to contribute pursuant to this Section 7 are
several in proportion to the principal amount of Securities set forth opposite
their respective names in Schedule A to the Purchase Agreement and not
joint.

 

5.                                       Miscellaneous.

 

5.1                                 Rule 144 and Rule 144A.  For so long as the Company is subject to the
reporting requirements of Section 13 or 15 of the 1934 Act, the Company
covenants that it will file the reports required to be filed by it under the
1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules and
regulations adopted by the SEC thereunder. 
If the Company ceases to be so required to file such reports, the
Company covenants that it will upon the request of any Holder of Registrable
Securities (a) make publicly available such information as is necessary to
permit sales pursuant to Rule 144 under the 1933 Act, (b) deliver
such information to a prospective purchaser as is necessary to permit sales
pursuant to Rule 144A under the 1933 Act and it will take such further
action as any Holder of Registrable Securities may reasonably

 

21

 

request, and (c) take
such further action that is reasonable in the circumstances, in each case, to
the extent required from time to time to enable such Holder to sell its
Registrable Securities without registration under the 1933 Act within the limitation
of the exemptions provided by (i) Rule 144 under the 1933 Act, as
such Rule may be amended from time to time, (ii) Rule 144A under
the 1933 Act, as such Rule may be amended from time to time, or (iii) any
similar rules or regulations hereafter adopted by the SEC.  Upon the request of any Holder of Registrable
Securities, the Company will deliver to such Holder a written statement as to
whether it has complied with such requirements.

 

5.2                                 No Inconsistent Agreements.  The Company has not entered into and the
Company will not after the date of this Agreement enter into any agreement
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.  The rights granted to the Holders hereunder
do not and will not for the term of this Agreement in any way conflict with, or
are inconsistent with, the rights granted to the holders of the Company’s other
issued and outstanding securities under any such agreements.

 

5.3                                 Amendments and Waivers.  The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given unless the Company has obtained the written consent of Holders of at
least a majority in aggregate principal amount of the outstanding Registrable
Securities affected by such amendment, modification, supplement, waiver or
departure; provided,  however, that no amendment, modification,
supplement or waiver or consent to any departure from the provisions of Section 4
hereof shall be effective as against any Holder of Registrable Securities
unless consented to in writing by such Holder.

 

5.4                                 Notices.  All notices and other communications provided
for or permitted hereunder shall be made in writing by hand delivery,
registered first-class mail, telex, telecopier, or any courier guaranteeing
overnight delivery (i) if to a Holder (other than an Initial Purchaser),
at the most current address set forth on the records of the Registrar under the
Indenture, (ii) if to an Initial Purchaser, at the most current address
given by such Initial Purchaser to the Company by means of a notice given in
accordance with the provisions of this Section 5.4, which address
initially is the address set forth in the Purchase Agreement; and (iii) if
to the Company, initially at the Company’s address set forth in the Purchase
Agreement, and thereafter at such other address of which notice is given in
accordance with the provisions of this Section 5.4.

 

All
such notices and communications shall be deemed to have been duly given:  at the time delivered by hand, if personally
delivered; two Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt is
acknowledged, if telecopied; and on the next Business Day if timely delivered
to an air courier guaranteeing overnight delivery.

 

22

 

Copies
of all such notices, demands, or other communications shall be concurrently
delivered by the Person giving the same to the Trustee under the Indenture, at
the address specified in such Indenture.

 

5.5                                 Successors and Assigns.  This Agreement shall inure to the benefit of
and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided
that nothing herein shall be deemed to permit any assignment, transfer or other
disposition of Registrable Securities in violation of the terms of the Purchase
Agreement or the Indenture.  If any
transferee of any Holder shall acquire Registrable Securities, in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Securities such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this Agreement,
including the restrictions on resale set forth in this Agreement and, if
applicable, the Purchase Agreement, and such Person shall be entitled to
receive the benefits hereof.

 

5.6                                 Third Party Beneficiaries.  The Initial Purchasers (even if the Initial
Purchasers are not Holders of Registrable Securities) shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Holders, on the other hand, and shall have the right to enforce
such agreements directly to the extent they deem such enforcement necessary or
advisable to protect their rights or the rights of Holders hereunder.  Each Holder of Registrable Securities shall
be a third party beneficiary to the agreements made hereunder between the
Company, on the one hand, and the Initial Purchasers, on the other hand, and
shall have the right to enforce such agreements directly to the extent it deems
such enforcement necessary or advisable to protect its rights hereunder.

 

5.7                                 Specific
Enforcement.  Without limiting the
remedies available to the Initial Purchasers and the Holders, the Company
acknowledges that any failure by the Company to comply with its obligations
under Sections 2.1 through 2.4 hereof may result in material irreparable injury
to the Initial Purchasers or the Holders for which there is no adequate remedy
at law, that it would not be possible to measure damages for such injuries
precisely and that, in the event of any such failure, the Initial Purchasers or
any Holder may obtain such relief as may be required to specifically enforce
the Company’s obligations under Sections 2.1 through 2.4 hereof.

 

5.8                                 Restriction
on Resales.  Until the expiration of
two years after the original issuance of the Securities and the Guarantees, the
Company and the Guarantor will not, and will cause their “affiliates” (as such
term is defined in Rule 144(a)(1) under the 1933 Act) not to, resell
any Securities and Guarantees which are “restricted securities” (as such term
is defined under Rule 144(a)(3) under the 1933 Act) that have been
reacquired by any of them and shall immediately upon any purchase of any such
Securities and Guarantees submit such Securities and Guarantees to the Trustee
for cancellation.

 

23

 

5.9                                 Counterparts.  This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

 

5.10                           Headings.  The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

 

5.11                           GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.

 

5.12                           Severability.  In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.

 

24

 

IN WITNESS
WHEREOF, the parties have executed this Agreement as of the date first written
above.

 

 

	
   

  	
  AEP INDUSTRIES
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James B.
  Rafferty

  	
   

  
	
   

  	
   

  	
  Name:  James B. Rafferty

  
	
   

  	
   

  	
  Title:  Vice President and Treasurer

  
	
   

  	
   

  	
   

  
	
  Confirmed and
  accepted as

  	
   

  	
   

  
	
    of the date first above

  	
   

  	
   

  
	
    written:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  MERRILL LYNCH,
  PIERCE, FENNER & SMITH

  	
   

  	
   

  
	
  INCORPORATED

  	
   

  	
   

  
	
  DEUTSCHE BANK
  SECURITIES INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  BY:  MERRILL LYNCH, PIERCE, FENNER &
  SMITH

  	
   

  	
   

  
	
  INCORPORATED

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Greg
  Margolies

  	
   

  	
   

  	
   

  
	
   

  	
  Name:  Greg Margolies

  	
   

  	
   

  
	
   

  	
  Title:  Authorized SignatoryEXHIBIT
10.42

 

POORE
BROTHERS, INC.

 

NONSTATUTORY
STOCK OPTION AGREEMENT

 

THIS AGREEMENT is
dated as of this      day of                          ,
       (the “Grant Date”), by and between
Poore Brothers, Inc., a Delaware corporation (the “Company”), and                                            
(the “Optionee”).

 

W I T N E
S S E T H:

 

WHEREAS, in
recognition of the Optionee’s service as an officer of the Company and in order
to provide a further incentive to the Optionee to assist the Company in the furtherance
of its strategic objectives, the Board of Directors has deemed it appropriate
to grant the Optionee an option to purchase shares of the Company’s Common
Stock, $.01 par value per share (the “Common Stock”); and

 

WHEREAS, the parties
deem it appropriate to memorialize the grant of such option.

 

NOW, THEREFORE, in
consideration of the premises and of the covenants and agreements hereinafter
set forth, the parties hereto mutually covenant and agree as follows:

 

1.             Grant of Option.  Subject to the terms and conditions of this
Agreement (including any adjustments as contemplated by Paragraph 9 hereof),
the Company hereby grants to the Optionee an option (the “Option”) to purchase
from the Company all or any part of the aggregate amount of                  shares
of Common Stock (the “Optioned Shares”). 
The Option is intended to constitute a nonstatutory stock option and
shall not be treated as an incentive stock option within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the “Code”).

 

2.             Option Price.  The price to be paid for the Optioned Shares
shall be $           per
share, subject to adjustment in the manner contemplated by Paragraph 9 hereof.

 

3.             Exercisability and Termination of Option.  Provided that the Optionee is an employee of
the Company or any successor thereto at the time, the Option shall vest and
become exercisable on:

 

                       as
to                shares,

 

                       as
to                shares, and

 

                       as
to                shares.

 

Nothwithstanding the foregoing, all of the options granted to Optionee
hereunder shall immediately, and without further action by any party vest upon
the earlier of (i) the twenty first consecutive trading day that the
closing best bid price for the Common Stock, as reported on the Nasdaq SmallCap
Market (or on such other market or exchange on which the Common Stock shall
then be listed), shall equal or exceed one hundred and sixty seven (167)
percent of the Option Price per share (subject to adjustment in the manner
contemplated by Paragraph 9 hereof), and (ii) the date on which a Change
in Control of the Company shall have occurred. 
For purposes hereof, a “Change in Control” shall have occurred if and
when:

 

(i)            any
person (other than (A) the Company or any of its subsidiaries, (B) a
trustee or other fiduciaries holding securities under any employee benefit plan
of the Company or any of its subsidiaries, (C) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (D) a
corporation owned, directly or indirectly, by the shareholders of the Company
in substantially the same proportions as their ownership of the stock of the
Company (together, “Excluded Persons”)) is or becomes the “beneficial owner”
(as such term is defined in Rule 13d-3 under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”)), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting power
of the Company’s then outstanding voting securities; or

 

(ii)           the
following individuals cease, for any reason, to constitute a majority of the
number of directors then serving on the Company’s Board of Directors:
individuals who, on the Grant Date, constituted the

 

 

Board of Directors of the Company and any new
directors (other than a director whose initial assumption of office is in
connection with an actual or threatened election contest, including but not
limited to a consent solicitation, relating to the election of directors of the
Company, as such terms are used in Rule 14a-11 under the Exchange Act)
whose appointment or election by the Board of Directors or nomination for
election by the Company’s shareholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors on the Grant Date or whose appointment, election or nomination for
election was previously so approved; or

 

(iii)          the
shareholders of the Company approve a merger, consolidation or share exchange
of the Company with any other corporation or approve the issuance of voting
securities of the Company in connection with a merger, consolidation or share
exchange of the Company (or any direct or indirect subsidiary of the Company),
other than (A) a merger, consolidation or share exchange that would result
in the voting securities of the Company outstanding immediately prior to such
merger, consolidation or share exchange continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity or any parent thereof) at least 50% of the combined voting
power of the voting securities of the Company or of such surviving entity or
any parent thereof outstanding immediately after such merger, consolidation or
share exchange, or (B) a merger, consolidation or share exchange effected
to implement a recapitalization of the Company (or similar transaction) in
which no person (other than an Excluded Person) is or becomes the beneficial
owner, directly or indirectly, of securities of the Company (not including in
the securities beneficially owned by such person any securities acquired
directly from the Company or its affiliates after the Grant Date pursuant to
express authorization by the Board of Directors of the Company that refers to
this exception) representing 25% or more of the Company’s then outstanding
voting securities; or

 

(iv)          the
shareholders of the Company approve a plan of complete liquidation or
dissolution of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company’s assets (in one transaction
or a series of related transactions within any period of 24 consecutive
months), other than a sale or disposition by the Company of all or
substantially all of the Company’s assets to an entity at least 75% of the
combined voting power of which is owned by persons in substantially the same
proportions as their ownership of the Company immediately prior to such sale.

 

Notwithstanding the foregoing, no “Change in
Control” shall be deemed to have occurred if there is consummated any
transaction or series of transactions immediately following which the record
holders of the Common Stock immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity that owns all or substantially all of the assets or voting securities
of the Company immediately following such transaction or series of
transactions.

 

Whether or not theretofore exercisable, the
Option shall terminate on the earlier of (i) the fifth anniversary of the
date hereof, or (ii) the date one hundred and twenty (120) days (unless
extended by action of the Board of Directors) after the Optionee ceases, for
any reason, to be an employee of the Company (or any successor thereto);
provided, however, that, in the event that the Optionee ceases to be an
employee of the Company by virtue of his death or incapacity, the Optionee’s
estate or legal representative may exercise the Option (but only to the extent
exercisable at the time of the Optionee’s cessation of employment), until the
earlier of (a) the fifth anniversary of the date hereof, and (b) the
date six (6) months after such cessation of employment.

 

4.             Manner of Exercise and Payment.  Subject to the provisions of Paragraph 3
hereof, the Option may be exercised in full at any time or in part from time to
time by delivery to the Secretary of the Company, at the Company’s principal
office in Goodyear, Arizona, of a written notice of exercise specifying the
number of shares with respect to which the Option is being exercised.  The notice of exercise must be accompanied by
full payment of the option price for the shares being purchased:  (i) in cash or its equivalent; (ii) by
tendering previously acquired shares of Common Stock (valued at their fair
market value as of the date of exercise as determined in a manner provided by
the Board of Directors of the Company); (iii) if approved by the Board of
Directors, by tendering a promissory note of the Optionee; (iv) in such
other form of consideration as may be acceptable to the Board of Directors and
adequate under applicable law; or (v) by any combination of the means of
payment set forth in subparagraphs (i) through (iv). No Optioned Shares
shall be issued until full payment therefor has been made.

 

5.             Limits on Transferability of the Option.  Subject to the limitations of this Paragraph
5, the Option shall be transferable, in whole or in part, upon the surrender of
the Option by the Optionee to the Company for one or more new options of like
tenor representing, in the aggregate, the right to purchase the Optioned
Shares, each of such new options to

 

 

represent the right to purchase such number of Optioned Shares as shall
be designated by the Optionee at the time of such surrender, subject to the
terms and conditions of this Option. 
This Option may only be transferred by will or by the laws of descent or
distribution, or to any member of the Optionee’s “immediate family,” as such
term is defined in Rule 16a-1(e) under the Exchange Act or to trusts,
partnerships or other entities established solely for the benefit of members of
the Optionee’s immediate family; provided, however, that (i) there may be
no consideration for any such transfer, (ii) subsequent transfers of any
portion of this Option must also be in compliance with this Paragraph 5 and (iii) promptly
after making any such transfer, the Optionee shall provide to the Company a
notice of transfer satisfactory to the Company. 
In the event of such a permitted transfer of this Option, the transferee
shall have all of the rights of the Optionee under this Option, as if the
Optionee had retained this Option.  The
terms of this Option shall be binding upon the permitted transferees,
executors, administrators, heirs and successors of the Optionee.

 

6.             Piggyback Registration Rights.  

 

(a)           If
the Company determines to file a registration statement under the Securities
Act of 1933, as amended (the “Securities Act”), relating to a proposed sale to
the public by the Company of shares of the Common Stock (but excluding any
registration on Form S-4 or Form S-8 or similar forms hereafter in
effect), the Company shall:

 

(i)            give
the Optionee notice thereof (which shall include a list of the jurisdictions in
which the Company intends to attempt to qualify such securities under the
applicable blue sky or other state securities laws, the proposed offering price
and the plan of distribution);

 

(ii)           use
its best efforts to include in such registration (and any related qualification
under blue sky laws), and in any underwriting involved therein, all of the
shares of Common Stock issued or issuable upon the exercise of this Option
specified in notice given to the Company by the Optionee and to cause the
managing underwriter or underwriters of such proposed underwritten offering to
permit the shares of Common Stock requested to be included in the registration
statement for such offering to be included on the same terms and conditions as
any similar securities of the Company included therein.  Notwithstanding the foregoing, if the managing
underwriter or underwriters of such offering deliver a written opinion to the
Optionee that marketing considerations require a limitation in the number of
shares of Common Stock offered pursuant to the registration statement, then,
subject to the advice of said managing underwriter or underwriters as to the
size and composition of the offering, such limitation shall be imposed upon and
reduce the shares of Common Stock to be included in the registration statement
pursuant to this Paragraph 6(a) and shall not reduce the shares of Common
Stock to be sold to the public by the Company.

 

(b)           The
Optionee agrees, if requested in writing by the managing underwriter or
underwriters in an underwritten offering, not to effect any public sale or
distribution of securities of the Company of the same class as the securities
included in any registration statement, including a sale pursuant to Rule 144
under the Securities Act (except as part of such underwritten registration),
during the seven-day period prior to, and during the 120-day period following,
the effective date of the registration statement for each underwritten offering
made pursuant to such registration statement, to the extent timely notified in
writing by the Company or the managing underwriter or underwriters.

 

This Paragraph 6(b) shall not apply to
the Optionee if he is prevented by applicable statute or regulation from
entering into any such agreement; provided that the Optionee shall undertake,
in his request to participate in any such offering, not to effect any public
sale or distribution of Common Stock commencing on the date of sale of such
Common Stock unless he has provided 45 days’ prior written notice of such sale
or distribution to the underwriter or underwriters.

 

(c)           In
connection with the Company’s registration obligations pursuant to this
Paragraph 6, the Company shall use all reasonable efforts to effect such
registration to permit the sale of such shares of Common Stock in accordance
with the intended method or methods of disposition thereof.

 

(d)           The
Optionee shall furnish to the Company such information regarding the Optionee
and the distribution of the shares of Common Stock issued or issuable pursuant
to this Option as the Company may from time to time reasonably request in
writing.

 

(e)           All
expenses incident to the Company’s performance of or compliance with the
registration provisions contained in this Paragraph 6 shall be borne by the
Company (other than expenses of counsel to the Optionee and underwriters’
discounts or commissions), regardless of whether such registration statement
becomes effective.

 

(f)            The
Optionee agrees that he will execute such documents and other papers and take
such further actions as the Company may reasonably request including, without
limitation, agreements providing for cross-indemnification

 

 

by the Optionee and the Company, in such form as is customarily used in
a registration such as that contemplated by this Paragraph 6.

 

7.             Tax Withholding.  The Company may deduct and withhold, from any
cash otherwise payable to the Optionee, such amount as may be required for the
purpose of satisfying any obligation the Company may have to withhold Federal,
state or local taxes.  Further, in the
event the amount so withheld is insufficient for such purpose, the Company may
require that the Optionee pay to the Company, upon its demand, or otherwise
make arrangements satisfactory to the Company for payment of such amount as may
be requested by the Company in order to satisfy its obligation to withhold any
such taxes.

 

8.             Capital Adjustments Affecting the Common Stock;
Merger.  In the event of a
capital adjustment resulting from a stock dividend (other than a stock dividend
in lieu of an ordinary cash dividend), stock split, reorganization, spin-off,
split-up or distribution of assets to shareholders, recapitalization, merger,
consolidation, combination or exchange of shares or the like, the number of
shares of Common Stock subject to the Option and the per share price at which
the Option becomes exercisable as provided in Paragraph 3 hereof shall be
adjusted in a manner consistent with such capital adjustment; provided,
however, that no such adjustment shall require the Company to sell any
fractional shares and the adjustment shall be limited accordingly.  The price of any shares under the Option
shall be adjusted so that there will be no change in the aggregate purchase
price payable upon exercise of the Option.

 

In the event that a share exchange is
effected or the Company is merged or consolidated with another entity and the
shares of Common Stock are exchanged, pursuant to such transaction, into
securities of the acquiring or surviving entity or its parent, then the
Optionee shall elect either to (i) purchase the Option from the Optionee
for cash in an amount equal to the net amount that the Optionee could have
received upon the exercise of the Option and the sale of the Optioned Shares,
or (ii) cause the Option to be assumed by such acquiring or surviving
entity or its parent, with appropriate adjustments, consistent with the
agreement and plan of share exchange, merger or consolidation, as to the
exercise price and the number and kind of securities covered by the Option.

 

9.             Representation by the Optionee.  By execution of this Agreement, the Optionee
represents to the Company that his acquisition of Optioned Shares upon exercise
of the Option will be for investment purposes only, for his own account and not
with a view to resell or otherwise distribute such shares.  The Optionee acknowledges that the issuance
of Optioned Shares upon exercise of the Option will not be registered under the
Securities Act or under any state securities laws, and that such shares cannot
be resold or otherwise transferred unless registered under said Act and laws or
unless an exemption from registration is available.  The Optionee further acknowledges that the
certificate or certificate representing the Optioned Shares acquired upon
exercise of the Option shall bear the following legend:

 

“The shares of common stock of Poore Brothers, Inc.
represented by this certificate have not been registered under the Securities
Act of 1933, as amended, or any state securities laws, and such shares may not
be resold or otherwise transferred unless registered under said Act and laws or
unless an exemption from registration is available.”

 

As a condition to the exercise of this Option, the Optionee will
deliver to the Company such signed representations, warranties and agreements
as may be necessary, in the opinion of counsel satisfactory to the Company, for
compliance with applicable federal and state securities laws.

 

10.           Status of Optionee.  The Optionee shall have no rights as a
shareholder with respect to Optioned Shares covered by the Option until the
date of issuance of stock certificates to the Optionee and only after such
shares are fully paid.  The Option shall
not confer upon the Optionee the right to continue as an employee of the
Company.

 

11.           Powers of the Company Not Affected.  Subject to the terms of this Agreement, the
existence of the Option shall not affect in any way the right or power of the
Company or its shareholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company’s capital
structure or its business, or any merger or consolidation of the Company, or
any issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Stock or the rights thereof, or any dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its assets
or business or any other corporate act or proceeding, whether of a similar
character or otherwise.

 

12.           Interpretation by the Board of Directors.  This Agreement shall be interpreted by the
Board of Directors in good faith.  Any
dispute between the Optionee and the Company regarding any interpretation by
the Board of the terms of this Agreement or any determination made by the Board
pursuant to this Agreement shall be resolved by binding arbitration before a
single arbitrator agreeable to each party.  If the parties cannot agree, then each shall
select an arbitrator and the two arbitrators so selected shall agree on an
arbitrator to resolve the dispute.

 

 

13.           Reserved Shares.  The Company has duly reserved for issuance a
number of authorized but unissued shares adequate to fulfill its obligations
under this Agreement.  During the term of
this Agreement, the Company shall take such actions as may be necessary to
maintain at all times an adequate number of shares reserved for issuance or
treasury shares to fulfill its obligations hereunder.

 

14.           Requirements of Law.  The grant of the Option and the issuance of
Optioned Shares pursuant to this Agreement are subject to all applicable laws,
statutes, rules and regulations.

 

15.           Notice.  All notices or other communications desired
to be given hereunder shall be in writing and shall be deemed to have been duly
given upon receipt, if personally delivered, or on the third business day
following mailing by United States first class mail, postage prepaid, and addressed
as follows:

 

If to the Company:

Poore Brothers, Inc.

3500 S. La Cometa Drive

Goodyear, AZ 
85338

If to the Optionee:

 

 

 

 

Or to such other address as either party shall give to the other in the
manner set forth above.

 

16.           Governing Law.  This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware.

 

17.           Amendment.  This Agreement may not be amended, modified,
terminated or otherwise altered except by the written consent of the parties
hereto.

 

18.           Severability.  The parties agree that, if any provision of
this Agreement shall, under any circumstances, be deemed invalid or
inoperative, this Agreement shall be construed with the invalid or inoperative
provision or provisions deleted and the rights and obligations of the parties
shall be construed and enforced accordingly.

 

19.           Entire Agreement.  This Agreement evidences the entire agreement
between the parties hereto with respect to the matters provided for herein and
there are no agreements, representations or warranties with respect to the
matters provided herein other than those set forth herein.

 

20.           Headings.  The headings for the paragraphs of this
Agreement are inserted for convenience only and shall not constitute a part of
this Agreement.

 

 

IN WITNESS WHEREOF,
the Company has caused this Agreement to be executed by its duly authorized
officers and its corporate seal to be hereunto affixed, and the Optionee has
hereunto affixed his hand and seal as of the day and year first written above.

 

 

	
   

  	
  POORE BROTHERS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  OPTIONEE

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

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