Investment And Stock Purchase Agreement

EXHIBIT 10.53
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INVESTMENT AND STOCK PURCHASE AGREEMENT


HOMEGROWN HOLDINGS CORP.
A DELAWARE CORPORATION


AND


ANNIE'S HOMEGROWN, INC.
A DELAWARE CORPORATION


RE:


$1,000,000 9% SUBORDINATED NOTE
AND
SERIES A CONVERTIBLE PREFERRED STOCK WITH AGGREGATE PAR VALUE OF
$2,000,000
AND
WARRANT TO PURCHASE SHARES OF COMMON STOCK


DATED AS OF
DECEMBER 2, 1999


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This Investment and Stock Purchase Agreement (the "Agreement") is entered into this 2nd day of December, 1999, by and between, HOMEGROWN HOLDINGS CORP., a Delaware corporation, ("HOLDINGS") and ANNIE'S HOMEGROWN, INC., a Delaware Corporation ("ANNIE'S").


NOW THEREFORE the parties hereto agree as follows:


SECTION 1. CONSIDERATION.


SECTION 1.1. TERMS. In consideration of HOLDINGS making a cash investment (the "Investment") in a total amount of $3,000,000 under the terms and conditions set forth in this Agreement, ANNIE'S shall issue, convey, transfer, assign and deliver to HOLDINGS (i) its unsecured subordinated promissory note in the principal amount of $1,000,000, bearing interest at 9% per annum, providing for interest only payments for five years with principal then being due (the "Note"), (ii) preferred stock having an aggregate par value of $2,000,000 redeemable at par with a liquidation preference of par plus 10% per annum and having the voting rights of 1,000,000 shares of Common Stock of ANNIE'S (the "Series A Convertible Preferred Stock"), and (iii) a Warrant to purchase 1,500,000 shares of the Common Stock of ANNIE'S, par value $.001 (the "Common Stock").


SECTION 1.2. THE NOTE. The Note shall be in an aggregate principal amount of $1,000,000 due on the fifth anniversary of its issuance, and shall be (i) dated the date of issue, (ii) expressed to bear interest prior to maturity at the rate of 9% per annum, payable semi-annually on the last day of June and December in each year commencing on the first of such dates after the date of issuance thereof, and at maturity, and to bear interest on any overdue installment of interest or payment of principal in the amount of 1% per month for each month that payment is so overdue, until paid, (iii) expressed to mature on the fifth anniversary of its issue, (iv) subordinate to any payments due to current or future bank or institutional lenders of ANNIE'S and (v) otherwise substantially in the form attached hereto as Exhibit "A". Interest on the Note shall be computed on the basis of a 360-day year of twelve 30-day months.


ANNIE'S shall have the privilege of prepaying the outstanding Note, in whole or in part without penalty. Prepayment on the Note shall be made by the payment of the aggregate principal amount remaining unpaid on the Note and accrued interest thereon to the date of such prepayment. Any prepayment of less than the balance of principal and accrued interest on the Note shall be applied to the payment in full of the Note.


SECTION 1.3. THE WARRANT. At the time of the issuance of the Note, ANNIE'S shall issue, convey, transfer, assign and deliver to HOLDINGS, a Warrant substantially in the form attached hereto as Exhibit "B" to purchase the Common Stock (the "Warrant").


The Warrant shall have a term of five years and shall have an exercise price equal to $2.00 per share of Common Stock until the third anniversary of the Closing (as


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defined in ss.2); $2.50 during the six months thereafter; $3.00 from then to the fourth anniversary of the Closing; $3.50 for six months thereafter; and $4.00 per share from four and one-half years after the Closing until expiration of the Warrant.


In the event the net sales of ANNIE'S for the fiscal year ended March 31, 2000 do not equal or exceed $9,500,000 or the "adjusted net income" of ANNIE'S for that fiscal year is not positive, the exercise price of the Warrant shall be reduced by $.50 per share from each of the prices set forth above. "Net Sale" means the gross sales price arising from the sales by ANNIE'S of goods during the fiscal year ended March 31, 2000 (recorded in accordance with generally accepted accounting principles) net of returns or disputed transactions. "Adjusted net income" is defined on Exhibit "C" hereto.


The rights, powers and terms of the Common Stock will be provided for in ANNIE'S Certificate of Incorporation and Certificate of Designation in effect on the Closing Date, and as otherwise provided by the Delaware General Corporation Law.


SECTION 1.4. THE SERIES A CONVERTIBLE PREFERRED STOCK. The Series A Convertible Preferred Stock shall have an aggregate par value of $2,000,000 redeemable at and with a liquidation preference of par plus 10% per annum and having the voting rights of 1,000,000 shares of common stock of ANNIE'S. The Series A Convertible Preferred Stock shall be convertible at any time in whole or in part into common stock at $2.00 of par value of preferred stock per common share. Upon such conversion, the converted share of Series A Convertible Preferred Stock shall be deemed cancelled together with any liquidation preference accrued therein. The details of the conversion, redemption and regulation rights of the Series A Convertible Preferred Stock are set forth on the Certificate of Designation, attached as Exhibit "D" hereto.


On or before the Closing Date, ANNIE'S will have adopted and filed with the Secretary of State of Delaware, as necessary, an amended and restated Certificate of Incorporation and a Certificate of Designation to create and authorize issuance of the Series A Convertible Preferred Stock with the rights, privileges and preferences set forth in this Agreement and will have taken all necessary steps for authorizing the issuance of the Series A Convertible Preferred Stock.


SECTION 2. CLOSING.


SECTION 2.1. THE CLOSING DATE. Subject to the terms and conditions hereof and on the basis of the representations and warranties hereinafter set forth, ANNIE'S agrees to issue, convey, transfer, assign and deliver to HOLDINGS upon execution of this Agreement (the "Closing Date"), in return for $2,000,000 of the Investment set forth in ss.1.1, the Series A Convertible Preferred Stock described in ss.1.4. On the Closing DatE, ANNIE'S also agrees to execute and place in escrow with Kirkpatrick & Lockhart LLP, counsel to ANNIE'S, the Note and Warrant to be held according to an Escrow Agreement by and among HOLDINGS, ANNIE'S and Kirkpatrick & Lockhart LLP as Escrow Agent (the "Escrow Agreement"). Pursuant to the terms of the Escrow Agreement, the Note and Warrant shall be released to the escrow agent (the "Pledge


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Escrow Agent") identified in the Pledge and Escrow Agreement (the "Pledge Agreement"), dated the date hereof, between HOLDINGS, Ann E. Withey and Andrew M. Martin, on behalf of HOLDINGS and subject to the Pledge Agreement, upon the receipt by ANNIE'S of the remaining $1,000,000 of the Investment, which HOLDINGS shall be obligated to deliver to ANNIE'S on or before April 30, 2000, unless ANNIE'S is then insolvent or bankrupt. The parties agree that they shall take all actions, including the delivery of documents, necessary in order to facilitate completion of all of the transactions contemplated by this Agreement.


The closing of the transactions under this Agreement (the "Closing") shall take place at the offices of Kirkpatrick & Lockhart LLP, located at 75 State Street, Boston, Massachusetts, on the Closing Date. The Closing shall be deemed to have been effective as of 11:59 p.m. on the Closing Date.


SECTION 2.2. DELIVERY. At the Closing, ANNIES shall deliver to the Pledge Escrow Agent, on behalf of HOLDINGS and subject to the Pledge Agreement, the Series A Convertible Preferred Stock against the payment thereof by HOLDINGS of $2,000,000 of the Investment in Federal Reserve, certified check or other funds current and immediately available and wired to ANNIE'S bank account at Eastern Bank, 445 Main Street, Wakefield, Massachusetts 01880, ABA Number 011301798, Account Number 200268886. ANNIE'S shall also deliver to Kirkpatrick & Lockhart LLP, as Escrow Agent, the Note and Warrant, to be held by the Escrow Agent pursuant to the terms of the Escrow Agreement.


SECTION 3. REPRESENTATIONS AND WARRANTIES BY ANNIE'S.


ANNIE'S hereby represents and warrants to HOLDINGS, as of the Closing Date, as follows:


SECTION 3.1. ORGANIZATION, STANDING AND POWER. ANNIE'S is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. ANNIE'S has all necessary power and authority to own, use and transfer its properties and assets and to transact the business now being conducted. ANNIE'S has furnished to HOLDINGS copies of its Certificate of Incorporation, Certificate of Designation, and Bylaws which copies are true, correct and complete. The copies of the Certificate of Incorporation and Bylaws contain all amendments through the date of this Agreement. The copies of the Minute Books contain a complete record of all meetings of directors and shareholders and all actions by written consent without a meeting of directors and shareholders for the two years ending on the Closing and reflect all material transactions referred to in such minutes accurately in all material respects.


SECTION 3.2. AUTHORITY FOR TRANSACTION. ANNIE'S execution and delivery of this Agreement, its compliance with the provisions hereof and the consummation of all of the transactions contemplated hereby have all been duly and validly authorized by all necessary corporate action on the part of ANNIE'S, and this Agreement is valid and


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binding upon ANNIE'S in accordance with its terms. The Series A Convertible Preferred Stock when issued against payment by Holdings, will be validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances and issued in compliance with all applicable state and federal laws concerning the issuance of securities.


SECTION 3.3. FILINGS. On or before the Closing Date (as defined in ss.2.1) ANNIE'S will, if necessary, have duly adopted and filed with the Secretary of the State of Delaware an amended and restated Certificate of Incorporation and Certificate of Designation to create and authorize the Series A Convertible Preferred Stock with the rights, privileges and preferences set forth herein and will have taken all necessary corporate action authorizing the sale and issuance of the Series A Convertible Preferred Stock.


SECTION 3.4. NO CONFLICT. Other than as identified on the Disclosure Schedule, neither the execution and delivery of this Agreement by ANNIE'S nor compliance by ANNIE'S with any of the provisions hereof, nor the consummation of the transactions contemplated hereby, will:


(a) conflict with or result in a breach of any provision of any
agreement between ANNIE'S and any of its shareholders or, to
ANNIE'S knowledge, between any of its shareholders;


(b) result in a default, or give rise to any right of termination,
cancellation or acceleration, under any term, condition or
provision of any contract, encumbrance or other instrument or
obligation to which ANNIE'S, is a party or by which it or any
of its respective assets may be bound; or


(c) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to ANNIE'S, or any of its respective
properties or assets.


Other than as identified on the Disclosure Schedule, no consent, waiver or approval by, notice to or filing with any person is required in connection with the execution and delivery of this Agreement by ANNIE'S, compliance by ANNIE'S with any of the provisions hereof or the consummation of the transactions contemplated hereby.


SECTION 3.5. SUBSIDIARIES. ANNIES does not own or control, directly or indirectly, any interest or investment in any other entity.


SECTION 3.6. CAPITALIZATION. The authorized capital stock of ANNIE'S (as defined in ss.2), consists of : (a) 10,000,000 shares of Common Stock, par value $.001, of which 4,709,768 are outstanding, and (b) 1,000,000 shares of Preferred Stock, par value $2.00, all of which is designated Series A, and none of which is issued immediately prior to the Closing. All issued and outstanding shares have been duly authorized and validly issued, and are fully paid and nonassessable.


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SECTION 3.7. FINANCIAL STATEMENTS. ANNIE'S has heretofore delivered to HOLDINGS true, correct and complete copies of its balance sheets, income statements, statements of shareholders' equity and statements of cash flows for the fiscal year ending March 31, 1999 (which were audited) and for the quarters ending June 30 and September 30, 1999 (which are unaudited) (together the "Financial Statements.) The Financial Statements are accurate and complete in all material respects, and are in accordance with the books of account and records of ANNIE'S (which in turn are accurate and complete in all material respects.) The Financial Statements present fairly and accurately ANNIE'S financial position at the dates thereof and the results of ANNIE'S operations, changes in ANNIE'S financial position and other information included therein for the periods or as at the dates therein set forth. The Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP"), except that, in the case of the unaudited financials, certain notes and similar presentation items are omitted. The Financial Statements show all assets and liabilities of any kind or nature, direct or indirect, absolute or contingent, existing as of the dates indicated, insofar as such items are required by GAAP to be included on such Financial Statements. Except as set forth in the Financial Statements or on the Disclosure Schedule, ANNIE'S has no liabilities, contingent or otherwise, other than (a) liabilities incurred in the ordinary course of business and (b) obligations under contracts and commitments incurred in the ordinary course of business and not required under GAAP to be reflected in the Financial Statements, which neither individually or in the aggregate are material to ANNIE'S financial condition or operating results. Except as disclosed in the Financial Statements or on the Disclosure Schedule, ANNIE'S is not a guarantor or indemnitor of any indebtedness of any person or entity. ANNIE'S maintains and will continue to maintain a standard system of accounting established and administered in accordance with GAAP.


SECTION 3.8. NO CHANGES. Since March 31, 1999, except as described in the Disclosure Schedule, there has not been:


(a) Any material adverse change in the condition (financial or otherwise), of the assets, liabilities or business operations of ANNIE'S, except changes in the ordinary course of business which have not been, in the aggregate, materially adverse;


(b) Any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting ANNIE'S assets, properties, financial condition, operating results, prospects, or business (as such business is presently conducted and is proposed to be conducted);


(c) Any sale, lease or other transfer of any of ANNIE'S assets, other than in the ordinary course of business for fair and adequate consideration in money or money's worth;


(d) Any sale, assignment or transfer of any patent, trademark, trade name, copyright or other intangible asset owned by ANNIE'S;


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(e) Any waiver or compromise by ANNIE'S of a valuable right or of a material debt owed to it;


(f) Any satisfaction or discharge of any lien, claim, or encumbrance or payment obligation by ANNIE'S, except in the ordinary course of business and which is not material to ANNIE'S assets, properties, financial condition, operating results or business (as such business is presently conducted and is proposed to be conducted);


(g) Any change or amendment to a material contract or arrangement to which ANNIE'S or any of its assets or properties is subject (except in the ordinary course of business);


(h) Any material change in any compensation arrangement or agreement in respect of any of ANNIE'S officers, agents or employees;


(i) Any declaration, setting aside, payment or other distribution in respect of any of ANNIE'S capital stock, or any direct or indirect redemption, purchase or other acquisition of any of such stock by ANNIE'S;


(h) Any labor trouble or other event or condition, known to ANNIE'S after reasonable investigation, materially and adversely affecting ANNIE'S business or plans;


(i) Any amendment, cancellation or termination of any contract, license or other instrument material to ANNIE'S;


(j) Any failure to pay when due any material obligation of ANNIE'S, except in the ordinary course of business or where such failure would not have an effect on ANNIE'S that is materially adverse to its business operations or financial condition, or on the ability of ANNIE'S to consummate the transaction contemplated hereby;


(k) Any damage, destruction or loss not covered by insurance and materially adversely affecting the business operations or assets of ANNIE'S;


(l) Any change in accounting methods or practices by ANNIE'S which would have a material adverse effect on the Financial Statements;


(m) Any material revaluation other than in the ordinary course by ANNIE'S of any of its respective assets, including without limitation, writing off notes or accounts receivable;


(n) Other than as set forth in this Agreement, any issuance or the commitment of ANNIE'S to issue any share of stock or other equities or obligations or securities convertible into or exchangeable for shares of stock or other equity securities;


(o) Any indebtedness incurred by ANNIE'S for borrowed money or any commitment to borrow money entered into by ANNIE'S or any loans made or agreed to be made by ANNIES;


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(p) Any agreement by ANNIE'S to do any of the foregoing;


(q) Any other event or condition of any character which materially adversely affects ANNIE'S assets, properties, financial condition, operating results, or business (as such business is presently conducted and as it is proposed to be conducted).


SECTION 3.9. COMPLIANCE WITH LAWS. ANNIE'S and its business are in compliance in all material respects with applicable laws, rules, ordinances, use permits, orders and regulations, and to ANNIE'S best knowledge, there is no basis for any action, suit or proceeding arising out of or in connection therewith. ANNIE'S has not received any notice of any violation of any such law, rule, ordinance, order or regulation, and ANNIE'S is not subject to any settlement agreement or consent decree with continuing obligations or restrictions on ANNIE'S.


SECTION 3.10. NO UNDISCLOSED LIABILITIES. Except as explicitly disclosed on the Disclosure Schedule or in the Financial Statements, ANNIE'S does not have, nor are any of its assets or properties subject to, any debt, liability, obligation, contract or commitment of any kind or nature, direct or indirect, whether accrued, absolute, contingent or otherwise. To ANNIE'S knowledge, there are no facts that could serve as the basis for any material debt, liability, obligation or commitment of ANNIE'S not so disclosed.


SECTION 3.11. TAX RETURNS, ELECTIONS AND PAYMENTS. ANNIE'S has filed all tax returns and reports as required by law. These returns and reports are true and correct in all material respects. ANNIE'S has paid all taxes and other assessments due, except those contested by it in good faith which are disclosed in this Agreement on the Disclosure Schedule. The provision for ANNIE'S taxes is adequate for taxes due or accrued as of the date of the Financial Statements. ANNIE'S has not elected to be treated as a Subchapter S corporation, nor has it made any other elections under the Internal Revenue Code of 1986, as Amended ("Code") (other than elections which relate solely to methods of accounting, d ...