<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 30, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
THE O'BOISIE CORPORATION
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
ILLINOIS 2000 36-4058424
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code No.) Identification
incorporation or organization) No.)
</TABLE>
1111 WEST 22ND STREET, SUITE 640, OAK BROOK, ILLINOIS 60521, (630) 575-0290
(Address and telephone number of principal executive offices and principal place
of business)
DONALD F. SCHUMACHER II
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
THE O'BOISIE CORPORATION
1111 WEST 22ND STREET, SUITE 640, OAK BROOK, ILLINOIS 60521, (630) 575-0290
(Name, address, and telephone number of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
ALAN E. MOLOTSKY, ESQ. ALAN I. ANNEX, ESQ.
HOGAN, MARREN & MCCAHILL, LTD. ROBERT S. MATLIN, ESQ.
205 NORTH MICHIGAN AVENUE, SUITE 4300 CAMHY KARLINSKY & STEIN LLP
CHICAGO, ILLINOIS 60601 1740 BROADWAY, SIXTEENTH FLOOR
(312) 946-1800 NEW YORK, NEW YORK 10019
FAX: (312) 946-9818 (212) 977-6600
FAX: (212) 977-8389
</TABLE>
------------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
the effective date of this Registration Statement.
------------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If any of the securities registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. /X/
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
AMOUNT PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1)
<S> <C> <C>
Common Stock.......................................................... 1,437,500 shares(2)(3) $8.00
Preferred Stock....................................................... 1,437,500 shares(4) $8.00
Common Stock issuable upon conversion of Preferred Stock.............. 1,437,500 shares(5) (6)
Representative's Warrants............................................. 125,000 warrants $.0001
Common Stock issuable upon exercise of Representative's Warrants...... 125,000 shares $9.60
Preferred Stock issuable upon exercise of Representative's Warrants... 125,000 shares $9.60
Common Stock issuable upon conversion of Preferred Stock issuable upon
exercise of Representative's Warrants............................... 125,000 shares (6)
Total............................................................. -- --
<CAPTION>
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE
<S> <C> <C>
Common Stock.......................................................... $11,500,000 $3,484.85
Preferred Stock....................................................... $11,500,000 $3,484.85
Common Stock issuable upon conversion of Preferred Stock.............. (6) (6)
Representative's Warrants............................................. $12.50 (7)
Common Stock issuable upon exercise of Representative's Warrants...... $1,200,000 $363.64
Preferred Stock issuable upon exercise of Representative's Warrants... $1,200,000 $363.64
Common Stock issuable upon conversion of Preferred Stock issuable upon
exercise of Representative's Warrants............................... (6) (6)
Total............................................................. $25,400,012.60 $7,696.98
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of Regulation C under the Securities Act.
(2) Pursuant to Rule 416 under the Securities Act of 1933, as amended (the
"Securities Act"), there are also being registered such additional shares of
Common Stock as may be issuable pursuant to the anti-dilution provisions of
the Representative's Warrants.
(3) Includes 187,500 shares of Common Stock which the Underwriters have the
option to purchase to cover over-allotments, if any.
(4) Includes 187,500 shares of Preferred Stock which the Underwriters have the
option to purchase to cover over-allotments, if any.
(5) Includes the number of shares of Common Stock initially issuable upon
conversion of the Preferred Stock (1,437,500 shares) plus, pursuant to Rule
416 under the Securities Act, such additional shares of Common Stock as may
become issuable upon conversion of the Preferred Stock as a result of
adjustment in the Conversion Rate thereof or upon redemption and dividend
payments made on the Preferred Stock by the delivery of Common Stock in
accordance with the terms of the Preferred Stock.
(6) No registration fee required pursuant to Rule 457(g) under the Act.
(7) No registration fee required pursuant to Rule 457(i) under the Act.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION
8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 30, 1997
PROSPECTUS
[LOGO]
The O'Boisie Corporation
1,250,000 SHARES OF COMMON STOCK
AND
SHARES OF PREFERRED STOCK
The O'Boisie Corporation ("O'Boisie" or the "Company") is offering (the
"Offering") 1,250,000 shares of common stock, par value $.01 per share (the
"Common Stock"), and shares of convertible preferred stock (the
"Preferred Stock"). Each share of Preferred Stock is convertible at any time,
unless previously called for redemption at a conversion rate determined by
dividing $ (the initial Offering price per share of Common Stock) by $
( % of the initial Offering price per share of Common Stock), an effective
conversion rate of approximately shares of Common Stock, subject to
adjustment in certain events. The shares of Common Stock and Preferred Stock are
sometimes hereinafter referred to as the "Securities."
The Preferred Stock is callable for redemption, in whole or in part, on 30
days' prior written notice, at the option of the Company, at the redemption
prices set forth in this Prospectus (plus any accumulated and unpaid dividends),
at any time on or after , 1998, provided that if the Preferred Stock
is to be called for redemption prior to , 2000, the Common Stock must
be trading at certain levels as described in this Prospectus. See "Description
of Capital Stock."
Prior to this offering, there has been no public market for the shares of
Common Stock or the Preferred Stock, and there can be no assurance that any such
trading market will develop after the sale of the Securities offered hereby. It
is estimated that the initial Offering price of the Common Stock will be between
$ and $ per share and the initial Offering price of the Preferred Stock
will be $ per share. The public offering prices of the Securities have been
arbitrarily determined by the Company and the Underwriters, and do not bear any
relationship to the Company's assets, earnings, book value or any other
established criteria of value. See "Risk Factors" and "Underwriting." The
Company has applied for quotation on the NASDAQ SmallCap Market ("NASDAQ") for
the shares of Common Stock and Preferred Stock under the trading symbols
"TATOS," "TATOP", respectively. Quotation of the Company's Securities on NASDAQ
provides no assurance that a market will develop, or if developed, will be
meaningful or sustained.
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT
AFFORD TO LOSE THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING
ON PAGE AND "DILUTION" BEGINNING ON PAGE
.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS & PROCEEDS TO
PUBLIC COMMISSION(1) COMPANY(4)
<S> <C> <C> <C>
Per Share of Common Stock.............................. $ $ . $
Per Share of Preferred Stock........................... $ (2) $ . $ (2)
Total Shares of Common Stock(3)........................ $ $ $
Total Preferred Stock(3)............................... $ $ $ (2)
Total (1), (3) and (4)................................. $ $ $
</TABLE>
(CONTINUED ON FOLLOWING PAGE)
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is , 1997
<PAGE>
(1) In addition, the Company has agreed to pay National Securities Corporation
(the "Representative") a nonaccountable expense allowance equal to 2.5% of
the gross proceeds of this offering ($ or $ if the Over-Allotment
Option (as defined) is exercised in full). The Company has also issued to
the Underwriters, for nominal consideration, a warrant giving the
Representative the option to purchase 125,000 shares of Common Stock at
$ per share of Common Stock and to purchase shares of Preferred
Stock at $ per share of Preferred Stock (the "Representative's Warrant").
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). The Company has also agreed to retain the
Representative as a management and financial consultant for a two year
period for a total fee of $48,000. See "Underwriting."
(2) Plus accrued dividends, if any, from the date of issuance.
(3) The Company has granted the Underwriters a 45-day option (the
"Over-Allotment Option") to purchase up to an additional 187,500 shares of
Common Stock and/or shares of Preferred Stock, each solely to cover
over-allotments, if any. See "Underwriting." If the Underwriters exercise
the Over-Allotment Option in full, the total price to public, Underwriting
Discounts and Commissions and Proceeds to the Company will be approximately
$ , $ and $ , respectively.
(4) Assuming the Over-Allotment Option is not exercised, before deducting
estimated Offering expenses of $1,000,000 payable by the Company, including
the $ nonaccountable expense allowance payable to the
Representative, of which $25,000 has already been paid.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
AND/OR PREFERRED STOCK, INCLUDING PURCHASES OF THE SECURITIES TO STABILIZE THEIR
MARKET PRICES, PURCHASES OF THE SECURITIES TO COVER SOME OR ALL OF A SHORT
POSITION IN THE SECURITIES MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
The Securities are offered by the Underwriters on a firm commitment basis,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to certain other conditions. The Underwriters reserve
the right to withdraw, cancel or modify this Offering and reject any order in
whole or in part. It is expected that certificates and instruments representing
the Securities will be ready for delivery at the offices of National Securities
Corporation, 1001 Fourth Avenue, Seattle, Washington 98154 on or about
, 1997.
2
<PAGE>
[PHOTOS]
The Company intends to distribute to its shareholders annual reports
containing audited financial statements for each fiscal year and quarterly
reports for the first three quarters of each fiscal year containing unaudited
financial statements and such other periodic reports as the Company may
determine to be appropriate or required by law.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS. EACH PROSPECTIVE INVESTOR SHOULD READ THIS PROSPECTUS IN ITS
ENTIRETY. UNLESS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN THIS
PROSPECTUS: (I) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION,
(II) DOES NOT GIVE EFFECT TO THE COMMON STOCK ISSUABLE UPON (A) CONVERSION OF
THE PREFERRED STOCK OFFERED HEREBY, (B) EXERCISE OF THE PRIVATE PLACEMENT
WARRANTS OWNED BY THE PRIVATE PLACEMENT SECURITYHOLDERS ISSUED IN THE PRIVATE
PLACEMENT (ALL AS DEFINED), (C) ANY EXERCISE OF THE REPRESENTATIVE'S WARRANTS,
(D) EXERCISE OF THE OPTIONS WHICH MAY BE GRANTED UNDER THE COMPANY'S STOCK
OPTION PLAN, (E) EXERCISE OF THE LENDER'S WARRANT (AS DEFINED) WHICH IS
ANTICIPATED TO BE GRANTED TO THE COMPANY'S CURRENT LENDING INSTITUTION, REPUBLIC
ACCEPTANCE CORPORATION (THE "LENDER"), AS PART OF THE RENEGOTIATION OF THE
COMPANY'S BANK LOANS, OR (F) EXERCISE OF THE WARRANT ANTICIPATED TO BE GRANTED
TO MILES J. WILLARD COMPANY AS PART OF THE RENEGOTIATION OF THE PAYMENT TERMS
UNDER THE COMPANY'S PATENT LICENSE AGREEMENTS WITH THAT COMPANY, AND (III) HAS
BEEN ADJUSTED TO REFLECT A REVERSE STOCK SPLIT TO BE EFFECTED IN JUNE 1997
PURSUANT TO WHICH EACH 11.69 SHARES OF COMMON STOCK OUTSTANDING WILL BE
CONVERTED INTO ONE SHARE OF COMMON STOCK.
THE COMPANY
O'Boisie manufactures and markets a broad line of brand name salty snack
food products. The Company was formed in January 1996 for the purpose of
acquiring certain of the assets, and assuming certain of the liabilities, of the
salty snack food business formerly conducted as part of a division of the
Keebler Company ("Keebler"), including a 140,000 square foot manufacturing
facility in Bluffton, Indiana. The Company is in the process of establishing
national presence for its branded products, many of which the Company believes
have maintained strong consumer awareness during the transition from Keebler to
O'Boisie. O'Boisie's primary brands are Tato Skins-Registered Trademark-,
O'Boisies-Registered Trademark-, Pizzarias-Registered Trademark-,
Chachos-Registered Trademark-, Tato Wilds-Registered Trademark-, Chip
Chasers-Registered Trademark- and Butter Braid Pretzels-Registered Trademark-,
most of which are manufactured in a variety of flavors and sizes.
The Company's products are sold in vending machines, regional supermarket
chains, club stores, regional restaurants, convenience stores and institutional
outlets. Major customers include Kroger's, Dominick's, Cub Foods, Meijers,
Wal-Mart and Vend Society of America. The Company distributes its products
through a national network of distributors, brokers, and potato chip
manufacturers ("chippers"), as well as directly to retailers through the
retailers' warehouse programs. From the commencement of production in February
1996 through February 1997, the Company has generated approximately $13,900,000
in revenue from continuing operations and a loss from continuing operations of
approximately $1,700,000. As described in this Prospectus, the Company has also
incurred a loss from discontinued operations during that period of approximately
$5,900,000, from discontinuance of its direct store delivery system of
distribution.
The Company intends to expand its business and achieve profitability by
pursuing the following strategies:
- Broaden distribution of its established, branded products by adding
distributors, regional "chippers" and grocery/discount chains throughout
the country. Prior to its sale by Keebler, one or more of the current
O'Boisie brand products had a presence in approximately 96% of grocery
stores nationwide (commonly referred to as All Commodity Volume ("ACV")),
as measured for Keebler by Information Resources Inc. ("IRI") Syndicated
Service, and, according to Keebler's attitude and usage study, had 90%
consumer awareness nationwide.
- Develop new products based on the Company's established product lines and
process patents.
- Utilize the Company's pretzel manufacturing capacity to expand its sales
in the bulk and private label markets.
- Acquire complementary salty and other snack food processors to broaden the
Company's product line and generate economies of scale in manufacturing,
marketing and distribution.
4
<PAGE>
The Company was incorporated in Illinois on January 19, 1996. Its principal
executive offices are located at 1111 West 22nd Street, Suite 640, Oak Brook,
Illinois 60521, telephone number (630) 575-0290.
THE OFFERING
<TABLE>
<S> <C>
SECURITIES OFFERED
Common Stock........................... 1,250,000 shares of Common Stock.
Preferred Stock........................ shares of Preferred Stock.
PREFERRED STOCK TERMS
Dividend Rate and Payment Dates........ Cumulative dividends on the Preferred Stock are
payable at the rate of % (or $. per share)
per annum, quarterly on the last business day of
January, April, July and October of each year,
commencing 31, 1997, before any
dividends are declared or paid on the Common
Stock or on any capital ranking junior to the
Preferred Stock. See "Dividend Policy" and
"Description of Capital Stock--Preferred Stock."
Conversion Rights...................... Convertible into Common Stock at any time prior
to redemption at a conversion rate determined by
dividing $ (the initial Offering price per
share of Common Stock) by $ ( % of the
initial Offering price per share of Common
Stock), an effective conversion rate of
approximately shares of Common Stock for each
share of Preferred Stock. See "Description of
Capital Stock--Preferred Stock."
Optional Cash Redemption............... Redeemable, in whole or in part on a pro rata
basis, by the Company, at its option, upon 30
days' prior written notice (i) after
, 1998 but before , 1999
at $ per share, plus accumulated and unpaid
dividends, provided that the closing bid price
of the Common Stock for at least 20 consecutive
trading days ending not more than 10 trading
days prior to the date of the notice of
redemption equals or exceeds $ per share ( %
of the initial public Offering price per share)
(ii) after , 1999 but before
, 2000 at $ per share, plus
accumulated and unpaid dividends, provided that
the closing bid price of the Common Stock for at
least 20 consecutive trading days ending not
more than 10 trading days prior to the date of
the notice of redemption equals or exceeds $
per share ( % of the initial public Offering
price per share) and (iii) after ,
2000 at $ per share, plus accumulated and
unpaid dividends. See "Description of Capital
Stock--Preferred Stock."
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Voting Rights.......................... The holders of Preferred Stock have the right,
voting as a class, to approve or disapprove of
the issuance of any class or series of stock
ranking senior to or on a parity with the
Preferred Stock with respect to declaration and
payment of dividends or the distribution of
assets on liquidation, dissolution or
winding-up. Otherwise the holders of Preferred
Stock have no voting rights unless required by
law. See "Description of Capital Stock--
Preferred Stock."
Liquidation Preference................. Upon liquidation, dissolution or winding up of
the Company, holders of Preferred Stock are
entitled to receive cumulative (with any prior
such distributions) liquidation distributions
equivalent to $ per share (plus accumulated
and unpaid dividends) before any distributions
to holders of the Common Stock or any capital
stock ranking junior to the Preferred Stock. See
"Description of Capital Stock--Preferred Stock."
Priority............................... The Preferred Stock will be senior to and have
priority over the Common Stock with respect to
the payment of dividends and upon liquidation,
dissolution or winding-up of the Company.
SECURITIES OUTSTANDING................... COMMON STOCK(1) PREFERRED STOCK(2)
------------------------------------------------
Prior to Offering 1,500,000 None
After Offering 2,750,000 --
USE OF PROCEEDS.......................... The Company intends to use the net proceeds from
this Offering for (i) repayment of indebtedness,
including indebtedness to an employee and
shareholder of the Company, (ii) marketing
expenses to acquire shelf space for its products
in an expanded array of retail establishments,
and (iii) other general corporate purposes,
including the possible pursuit of acquisition
opportunities. See "Use of Proceeds."
RISK FACTORS............................. An investment in the Company involves a high
degree of risk and should be made only after
careful consideration of risk factors which may
affect the Company, its business and an
investment in Common Stock or Preferred
Stock.Such risks include, among others,
immediate substantial dilution, the Company's
ability to continue as a going concern, the
Company's limited capital, the Company's ability
to operate profitably and the substantial
competition that the Company faces. See "Risk
Factors" and "Dilution."
PROPOSED NASDAQ SMALLCAP SYMBOL(3)....... Common Stock: TATOS
Preferred Stock: TATOP
</TABLE>
- ------------------------
(1) Does not include (i) 187,500 shares of Common Stock issuable upon exercise
of the Underwriters' Over-Allotment Option, (ii) shares of Common
Stock issuable upon conversion of the Preferred Stock ( shares if the
Over-Allotment Option is exercised in full), (iii) 125,000 shares
6
<PAGE>
of Common Stock issuable upon exercise of the Representative's Warrants for
shares of Common Stock and shares of Common Stock issuable upon
conversion of the shares of Preferred Stock issuable upon exercise of
the Representative's Warrants for shares of Preferred Stock, (iv) 53,052
shares of Common Stock issuable upon exercise, at $ per share, of the
Private Placement Warrants issued in the Private Placement, (v) 150,000
shares of Common Stock reserved for issuance under the Company's Stock
Option Plan, (vi) 75,000 shares of Common Stock issuable at a price of $.001
per share upon exercise of the warrants anticipated to be issued to the
Company's current lender as part of the Company's renegotiation of its bank
agreements under which the Company is currently in default, or (vii)
exercise of the warrant for 12,500 shares of Common Stock, exercisable at
$1.00 per share, anticipated to be granted to Miles J. Willard Company as
part of the renegotiation of the payment terms under the Company's patent
license agreements with that company. See "Underwriting," "The Company,"
"Management--Stock Option Plan" and "Description of Securities."
(2) Does not include shares of Preferred Stock issuable upon exercise of
the Underwriters' Over-Allotment Option, or shares of Preferred Stock
issuable upon exercise of the Representative's Warrants.
7
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial data have been taken or derived from, and should be
read in conjunction with, the Company's financial statements and the related
notes thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the capitalization data included elsewhere in this
Prospectus. See "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
FROM INCEPTION (JANUARY 19, 1996) 7 MONTHS ENDED
TO ----------------
---------------------------------- FEBRUARY 22,
JULY 27, 1996 FEBRUARY 24, 1996 1997
-------------- ------------------ ----------------
<S> <C> <C> <C>
Net sales................................................. $ 7,825,146 $ 2,391,882 $ 6,065,945
Cost of sales............................................. 3,423,471 874,281 4,255,163
-------------- ------------------ ----------------
Gross profit.............................................. 4,392,675 1,517,601 1,810,782
-------------- ------------------ ----------------
Operating expenses
Selling, general and administrative....................... 3,881,864 1,257,142 1,833,260
-------------- ------------------ ----------------
Income (loss) from operations............................. 510,811 260,459 (22,478)
-------------- ------------------ ----------------
Other income (expense)
Write-off of advances to affiliate...................... (1,118,989) -- --
Interest expense........................................ (320,362) (53,394) (702,649)
Other income (expense).................................. 13,090 (2,500) (72,269)
-------------- ------------------ ----------------
Total other expense....................................... (1,426,261) (55,894) (774,918)
-------------- ------------------ ----------------
Income (Loss) from continuing operations.................. (915,450) 204,565 (797,396)
-------------- ------------------ ----------------
Loss from discontinued operations......................... (4,748,238) (521,639) (1,153,073)
-------------- ------------------ ----------------
Net loss.................................................. $ (5,663,688) $ (317,074) $ (1,950,469)
-------------- ------------------ ----------------
-------------- ------------------ ----------------
Income (Loss) from continuing operations
per share............................................... $ (0.63) $ 0.14 $ (0.53)
Income (Loss) from discontinued operations
per share............................................... $ (3.26) $ (0.36) $ (0.77)
-------------- ------------------ ----------------
Net loss per share........................................ $ (3.89) $ (0.22) $ (1.30)
-------------- ------------------ ----------------
-------------- ------------------ ----------------
Weighted average shares outstanding....................... 1,455,786 1,446,948 1,500,000
-------------- ------------------ ----------------
-------------- ------------------ ----------------
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
FEBRUARY 22, 1997
-----------------------------
JULY 27, 1996 ACTUAL AS ADJUSTED(1)
-------------- ------------- --------------
<S> <C> <C> <C>
Current Assets........................................... $ 2,989,327 $ 2,029,853 $
Current Liabilities...................................... 13,252,416 13,449,437
Working Capital (Deficit)................................ (10,263,089) (11,419,584)
PP & E (net)............................................. 9,903,401 8,886,063
Total Assets............................................. 12,943,728 10,990,280
Long Term Debt........................................... 3,900,000 3,700,000
Total Shareholders' Equity (Deficit)..................... (4,208,688) (6,159,157)
</TABLE>
- ------------------------
(1) As adjusted to give effect to the sale by the Company of the Securities
offered hereby, and the application of the estimated net proceeds from the
Offering as described in "Use of Proceeds" including the anticipated
$2,250,000 gain upon the extinguishment of certain debt at below face amount
and the recognition of interest expense upon the payment of certain debt and
licensing expense due to the issuance of the Lender's Warrants to purchase
shares of Common Stock at $.001 per share and the warrant to Miles J.
Willard Company to purchase shares of Common Stock at $1.00 per share. See
"Risk Factors--Opinion of Auditors, Limited Capital, Default on Bank Debt,
Need for Additional Financing," and "Use of Proceeds."
8
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND SHOULD NOT BE PURCHASED BY ANYONE WHO CANNOT AFFORD THE LOSS OF HIS OR
HER ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, AMONG
OTHER THINGS, THE FOLLOWING FACTORS CONCERNING THE BUSINESS OF THE COMPANY AND
THIS OFFERING.
LIMITED OPERATING HISTORY; ABSENCE OF PROFITABILITY
The Company has a limited operating history. The Company began operations in
January of 1996 with the acquisition of certain non-operating assets of the
salty snack foods division of Keebler. Although the assets the Company acquired
had previously been part of an operating unit of an established entity, there
can be no assurance that the Company will conduct the business profitably in the
future. Future operating results will depend on many factors, including demand
for the Company's products, the level of competition, the Company's ability to
acquire, develop, and market new products, and the ability of the Company's
officers and key employees to manage its business and control costs. At February
22, 1997, the Company had an accumulated deficit of ($7,614,157), which includes
losses from discontinued operations of ($5,901,311), and a working capital
deficit of ($11,419,584). There is no assurance the Company will ever be able to
profitably produce and market its products. Since February 22, 1997, the Company
has continued to operate at a loss and its working capital deficit has
increased.
CHANGE IN DELIVERY SYSTEMS/DISCONTINUED BUSINESS
In addition to manufacturing and distributing its own products, the Company
initially purchased and distributed snack products manufactured by third
parties, including principally Keebler, the objective of which was to operate a
profitable Direct Store Delivery ("DSD") system. In August 1996, the Company
elected to discontinue distributing other companies' products and to instead
focus solely on its own manufactured products, and the DSD operations ceased in
October 1996. Management believes such discontinuation to be beneficial, and
notes that the Company has added regional chippers and distributors to its
existing sales and distribution network. However, there is no guarantee that
this change in the distribution system will not have a material adverse effect
on the Company's business. In addition, the Company stopped selling to Keebler
in 1996. Sales for the period ended July 27, 1996 (which totalled $21,791,392)
included $5,735,215 in sales to Keebler which are non-recurring and $13,966,246
in sales which are part of the Company's discontinued operations.
OPINION OF AUDITORS; LIMITED CAPITAL; DEFAULT ON BANK DEBT; NEED FOR ADDITIONAL
FINANCING
The Company's independent auditors have issued their report on the Company's
financial statements, which expresses substantial doubt regarding the Company's
ability to continue as a going concern. See Financial Statements, and in
particular Note 1 to the Financial Statements. The Company's financial
statements are presented on a going-concern basis, which contemplated the
realization of assets and satisfaction of liabilities in the normal course of
business. The financial statements do not include any adjustment to reflect the
possible future effects on the recoverability and classification of assets, or
the amounts and classification of liabilities, that may result from the possible
inability of the Company to continue as a going concern if it does not obtain
sufficient capital and other funds, needed by it to operate its business, on
terms reasonably satisfactory to the Company.
The Company believes it requires the net proceeds of this Offering to
continue in business. In addition, the Company is currently in default under
certain of its bank loan covenants. The Company has reached an agreement in
principal with its bank to waive those loan defaults and to revise the loan
covenant terms of its agreements. The documentation and revised terms will be
finalized in June 1997. The issuance of the Warrant to the bank for 75,000
shares of Common Stock discussed elsewhere in this
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Prospectus is anticipated to be part of that negotiated agreement. Although the
Company believes that the proceeds from this Offering will, together with cash
flow from future anticipated operations, allow it to implement its business plan
and satisfy its contemplated cash requirements for at least 12 months following
the completion of this Offering, the Company's continued operation thereafter
will depend upon the availability of revenues from its operations. In the event
there is insufficient cash flow from operations, the Company will need to
arrange additional funding when required. There can be no assurance that such
funds will be available, or, if available, will be on terms satisfactory to the
Company. Any inability to obtain additional financing could have a material
adverse effect on the Company, including causing the curtailment or cessation of
its operations. See "Use of Proceeds" and "Business."
COMPETITION
The Company's business is highly competitive and the Company faces
significant competition in the salty snack business. The Company competes with
two major producers (Frito-Lay and Procter & Gamble's Pringles), each of which
has far greater product penetration, financial and personnel resources, product
development facilities, manufacturing capabilities, marketing and distribution
organizations and overall market power than the Company. The Company also
competes with other small or regional salty snack food producers for sales
through almost all distribution channels. Many of these other companies also
have greater resources than the Company.
Approximately 60% of the Company's sales in 1996 were made through grocery
stores, supermarkets and warehouse club chains. Levels of such sales are
affected by the competitive factors facing the food retailing industry, which
has required food products companies, including the Company, to pay "slotting"
fees in order to obtain and maintain shelf space, primarily for new products.
There can be no assurance that the Company will be able to obtain adequate shelf
space for its current and any future products, respond successfully to any
future increases in slotting fees or other impediments to increased
distribution, or that its failure to do so at prices reasonable for the Company
will not have a material adverse effect on the Company and its business. There
can be no assurance that the Company will be able to maintain or expand its
current shelf space in these or other retail outlets, that the Company will be
able to compete successfully with existing major producers and other competitors
in the industry, or that additional competitors will not enter the market.
UNCERTAINTY OF NEW PRODUCT DEVELOPMENT AND MARKET ACCEPTANCE OF NEW PRODUCTS;
NEED TO
COMMERCIALIZE NEW PRODUCTS
In addition to producing and marketing its existing product lines, the
Company is currently engaged in various stages of product development. The
Company is actively engaged in the development and commercialization of new
products, such as low fat potato crisps and new pretzel products. Continued
product development and commercialization efforts are subject to all of the
risks inherent in the development of new products, including unanticipated
development problems, as well as the possible insufficiency of funds to
undertake development and commercialization that could result in abandonment or
substantial change in the development of a specific product. In addition, demand
and market acceptance for newly developed products are subject to a high level
of uncertainty. The Company has not yet commenced significant market activities
relating to its new products and has only conducted limited market or
feasibility studies for such products. Achieving market acceptance for the
Company's new products will require substantial marketing efforts and the
expenditure of significant funds. The Company's prospects will be adversely
affected if it is unable to commercialize its new products. See "Business--New
Products."
DEPENDENCE ON KEY PERSONNEL; ATTRACTION AND RETENTION OF PERSONNEL
The business of the Company has been and will be largely dependent upon the
skills, experience and efforts of its executive officers. One of the Company's
key executives, David Blue, has a broad range of
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experience in the food industry, including the salty snack food business.
Because of the difficulty in finding adequate replacements for its executive
officers, the loss, incapacity or unavailability of any of these individuals
could have a material adverse effect on the Company's business and potential
earning capacity. The Company intends to enter into employment agreements with
its executive officers prior to the Offering. While the Company does not
currently have key-man insurance on its executive officers, it intends to obtain
such insurance prior to the Offering. In addition, the Company believes that its
growth will depend significantly upon its ability to continue to attract and
retain other skilled management and sales employees. The failure of the Company
to hire such individuals will likely have a material adverse effect on the
Company's business.
STOCK OWNERSHIP; PRIVATE PLACEMENT MEMORANDUM CORRECTION
In mid-1996, the principal stockholder of the Company, Donald F. Schumacher
II, had discussions with another party for that party to potentially acquire
448,426 shares of Common Stock of the Company if such third party performed
certain services for the Company, paid for the shares being discussed and
participated in the necessary personal guaranty on the Company's bank loans. The
third party did not perform any of those services for the Company, did not pay
for the shares, did not participate in the guarantee and, according to the
Company's records, never acquired any shares of the Company's stock. However, in
anticipation of the shares being issued to such third party, the Company stated
in the private placement memorandum for the Private Placement that such party
owned the 448,426 shares of Common Stock and began to reflect those shares as
being owned by the third party, although those shares were never issued to the
third party. There can be no assurance that such third party will not allege he
is entitled to some or all such shares or that the Private Placement
Securityholders will not believe the misstatement in the private placement
memorandum is a material change in information provided to them, either of which
could have a material adverse effect on the Company. However, Mr. Schumacher has
committed to the Company that, although he believes the third party is not
entitled to any shares of Common Stock and was never issued any shares of Common
Stock, that if for some reason it is definitively determined that such third
party is so entitled to any such shares, Mr. Schumacher will cause Schumacher
Capital LLC to transfer shares of Common Stock to such third party in settlement
of (or will otherwise settle) any such claim.
CONFLICTS OF INTEREST; CERTAIN TRANSACTIONS
The controlling shareholder of the Company, Donald F. Schumacher II, is also
the majority shareholder of Kelly Food Products, Inc. ("Kelly"), a regional
manufacturer of salty snack food products which was located in Decatur, Illinois
and which filed for bankruptcy in October 1996. None of the products
manufactured by Kelly directly competed with specific products manufactured by
the Company. Nevertheless, the Company and Kelly did compete to some extent in
the overall salty snack foods industry. Kelly originally entered into the
agreement with Keebler to acquire certain non-operating assets of the salty
snack foods division from Keebler, which agreement by its terms was assignable
to any company controlled by Mr. Schumacher. Kelly assigned those rights to
O'Boisie when O'Boisie was formed in January 1996, since Mr. Schumacher had
intended a new company to acquire the rights. Mr. Schumacher determined that in
any event Kelly could not exercise those rights due to its financial position.
As a result, the Company was the actual purchaser of the assets from Keebler. In
addition, the Company entered into certain other transactions with Kelly as
described in "Certain Transactions" which the Company believes were on terms no
less favorable to the Company then were available from unaffiliated parties.
Kelly has since ceased substantially all of its operations and is no longer in
the snack food business. See "Certain Transactions."
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DEPENDENCE ON LICENSED PATENTS
The Company is the licensee under three separate patent license agreements
with the Miles J. Willard Company pursuant to which the Company has acquired
exclusive rights in North America to use several patents and patent applications
that are material to the manufacturing process of the Company's products (other
than its pretzel products). One of the agreements requires the Company to pay
royalties on the sale of products and minimum royalty payments of $200,000 per
year if a certain level of sales is not achieved. Under the patent license
agreements, the Company is responsible for prosecuting infringers of the
patented processes. All of the license agreements require the Company to protect
the confidentiality of the licensed proprietary information. The license
agreements generally terminate on the expiration of the last-to-expire patent.
The patents currently expire during the period from 2005 through 2011. Each
agreement is terminable by either party, upon notice, if the other party
defaults in its obligations. Termination of any of these license agreements
would have a material adverse effect on the Company. The Company has been in
default under these agreements due to delinquent payments to Miles J. Willard
Company, but anticipates entering into an amendment to these agreements
approving deferred payment terms and granting Miles J. Willard Company a warrant
to purchase shares of Common Stock. See "Business-- Trademarks and Patents."
GOVERNMENT REGULATION
The Company is required to comply with certain regulations at both the state
and federal levels. The Company must comply with federal regulations
administered by the Federal Food and Drug Administration (the "FDA") and the
United States Department of Agriculture. New food labeling regulations
administered by the Secretary of Health and Human Services through the FDA
subject the Company to uniform labeling and certain other labeling requirements
for its products. The Company has revised its product packaging to comply with
the new regulations. While the Company believes it is in material compliance
with such regulations, there can be no assurance it will be able to continue to
comply with all such regulations, especially if regulations are amended or
supplemented in the future.
PRODUCT LIABILITY
The testing, marketing and sale of food products entails an inherent risk of
product liability and there can be no assurance that product liability claims
will not be asserted against the Company. The Company currently has product
liability insurance coverage in an aggregate amount of $7,000,000 and in an
amount of $6,000,000 per claim. While Management intends to obtain additional
product liability insurance coverage as the Company expands its product
offerings if management believes such additional insurance to be good business
practice for the Company, such insurance is expensive, difficult to obtain and
may not be available in the future on acceptable terms, if at all. Furthermore,
there can be no assurance that such insurance coverage will be adequate, or that
a product liability claim, even one without merit, would not have a material
adverse effect on the business or financial condition of the Company. In
addition, the Company, like other companies producing food or manufacturing
products, must closely monitor complaints which could, in certain events,
require the Company to recall certain of its products or take other actions to
protect the Company's products' integrity, which could have a material adverse
effect on the Company's performance.
CONTESTED TRADEMARK
The Company has been informed that there are two cases pending before the
Trademark Trial and Appeal Board of the U.S. Patent and Trademark Office
contesting the validity of the Chachos-Registered Trademark- trademark. Although
O'Boisie intends to vigorously prosecute these cases, it can provide no
assurance that the Chachos-Registered Trademark- trademark will withstand both
of these challenges to its validity. An adverse outcome in either of these cases
could subject the Company to significant liabilities to third parties, require
that the trademark be licensed from third parties, or require the Company to
cease manufacturing and selling (or at a
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minimum change the name and incur the marketing and packaging costs associated
therewith) one of its branded product lines which currently constitutes 5% of
the Company's sales. Such an adverse outcome would have a material adverse
effect on the Company's business. See "Business--Trademarks and Patents".
CONTROL BY PRESENT SHAREHOLDERS
Upon completion of this offering, the current directors and officers of the
Company and their affiliates will own approximately 52.6% of the Company's
issued and outstanding capital stock. Accordingly, pending a further issuance of
the Company's voting stock or other change in the shareholder composition, such
persons will be able to elect all of the Directors of the Company and will be
able to control or have significant influence over all matters requiring
approval by the shareholders of the Company, including approval of significant
corporation transactions, irrespective of how other shareholders vote. See
"Management," "Security Ownership of Certain Beneficial Owners and Management"
and "Description of Securities" and "Risk Factors--Stock Ownership; Private
Placement Memorandum Correction."
LIMITED MANAGEMENT RESOURCES; MANAGEMENT OF POTENTIAL GROWTH
All of the Company's management joined the Company upon its inception in
January 1996. Most of these individuals previously had not worked together and
are in the process of integrating as a management team. See "Management."
Furthermore, it is anticipated that, if the Company is able to implement its
acquisition strategy and expand its operations, the Company will need to retain
and integrate further management personnel, particularly in the areas of sales
and marketing. There can be no assurance that the Company will be able to manage
effectively its acquisition strategy or expansion of its operations, that the
Company's systems, procedures or controls will be adequate to support the
Company's operations or that the Company's management will be able to achieve
the rapid execution necessary to fully exploit what the Company believes to be
the market opportunity for the Company's products.
IMMEDIATE AND SUBSTANTIAL DILUTION
This offering involves an immediate and substantial dilution to investors.
Purchasers of the Common Stock offered hereby will incur an immediate dilution
on a pro forma basis of $ per share of the net tangible book value of the
Common Stock after the Offering, which dilution amounts to % of the offering
price per share of Common Stock to investors in Common Stock in this Offering.
The shares of Preferred Stock, which have a preference to the Common Stock on
liquidation, are not included in this calculation. A conversion of the Preferred
Stock to Common Stock would result in substantial and immediate dilution to the
recipients of the shares of Common Stock issued upon such conversion. See
"Dilution."
POLICY NOT TO PAY DIVIDENDS ON COMMON STOCK AND POTENTIAL LIMITATIONS ON ABILITY
TO PAY DIVIDENDS
The Company has not paid dividends on its Common Stock and intends to
continue to follow a policy of retaining earnings, if any, to finance future
growth. Accordingly, the Company does not anticipate the payment of cash
dividends to holders of Common Stock in the foreseeable future. Under the
Company's loan agreements, the Company is prohibited from paying dividends or
other distributions on its Common Stock or Preferred Stock without the lender's
authorization.
Furthermore, pursuant to terms governing the Preferred Stock, the Company's
Board of Directors may not declare dividends payable to holders of Common Stock
unless and until all accrued cash dividends through the most recent past
quarterly dividend payment date have been paid in full to holders of the
Preferred Stock. The payment of dividends on the Common Stock in the future will
depend on the results of operations, financial condition, capital expenditure
plans and other cash obligations of the Company
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and will be at the sole discretion of the Board of Directors. In addition,
certain provisions of future indebtedness of the Company may also prohibit or
limit the Company's ability to pay dividends. See "Dividend Policy" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
ABSENCE OF PRIOR PUBLIC MARKET
Prior to this Offering, there has been no public market for the Common Stock
or the Preferred Stock. Application has been made for quotation of the Common
Stock and the Preferred Stock on the Nasdaq SmallCap Market. However, there can
be no assurance that, following this Offering, a regular trading market for the
Common Stock or the Preferred Stock will develop or be sustained.
ARBITRARY DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY OF SECURITIES
PRICE
The initial public offering price of the Securities and the dividend rate
and Conversion Rate of the Preferred Stock have been arbitrarily determined by
the Company and the Underwriters and bear no relationship whatsoever to the
Company's assets, earnings, book value or any other objective standard of value.
The market price for the Company's Securities following this Offering may be
highly volatile. Factors such as the Company's financial results may have a
significant impact on the market price of the Company's Securities. See
"Underwriting."
MANAGEMENT'S BROAD DISCRETION REGARDING ALLOCATION OF PROCEEDS
Management has broad discretion in the allocation of a portion of the
proceeds from this Offering. Accordingly, investors should consider such broad
discretion in the application of such funds prior to making a determination to
purchase the Securities offered hereby. See "Use of Proceeds."
SECURITIES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have a total of
2,750,000 shares of Common Stock outstanding, of which the 1,250,000 shares
offered hereby will be eligible for immediate sale in the public market without
restriction, unless they are held by "affiliates" of the Company within the
meaning of Rule 144 under the Securities Act.
The sale of a substantial number of shares of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Common Stock. In addition, any such sale or perception could make
it more difficult for the Company to sell equity securities or equity related
securities in the future at a time and price that the Company deems appropriate.
No prediction can be made as to the effect, if any, that future sales of shares,
or the availability of shares for future sales, will have on the market price of
the Common Stock from time to time or the Company's ability to raise capital
through an offering of its equity securities. See "Security Ownership of Certain
Beneficial Owners and Management," "Underwriting," and "Securities Eligible for
Future Sale."
RESTRICTED SECURITIES. The remaining 1,500,000 shares of Common Stock will
be "restricted securities" within the meaning of Rule 144 under the Securities
Act ("Rule 144"). In general, under Rule 144, beginning 90 days after the
effective date of the Registration Statement of which this Prospectus is a part,
a shareholder, including an "affiliate" of the Company, as that term is defined
in Rule 144 (an "Affiliate"), who has beneficially owned his or her restricted
securities (as that term is defined in Rule 144) for at least one year from the
later of the date such securities were acquired from the Company or (if
applicable) the date they were acquired from an Affiliate, is entitled to sell,
within any three-month period, a number of such shares that does not exceed the
greater of one percent of the then outstanding shares of Common Stock
(approximately 27,500 shares immediately after this offering) or the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner
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of sale and notice of sale are satisfied. Affiliates may sell shares not
constituting restricted securities in accordance with the foregoing volume
limitations and other requirements but without regard to the holding period. In
addition, under Rule 144(k), if a period of at least two years has elapsed
between the later of the date restricted securities were acquired from the
Company and the date they were acquired from an Affiliate of the Company, a
shareholder who is not an Affiliate of the Company at the time of sale and has
not been an Affiliate for at least three months prior to the sale would be
entitled to sell the shares immediately without regard to the volume limitations
and other conditions under Rule 144 described above. Since the outstanding
shares of Common Stock have been outstanding for over one year, Rule 144 will be
available to the Company's shareholders. The possibility that a substantial
number of shares of Common Stock may be offered or sold in the public market may
have a material adverse effect on prevailing market prices for the Common Stock
and could impair the shareholders' ability to sell the Company's Common Stock,
or the Company's ability to raise capital through the sale of its equity
securities. See "Description of Securities--Registration Rights."
LOCK-UP AGREEMENTS. The Company, its officers and directors and certain
other shareholders of the Company (who in the aggregate hold 1,446,536 shares of
the restricted securities upon completion of the offering), the Lender
anticipated to receive the Lender's Warrant (to purchase 75,000 shares of Common
Stock at $.001 per share) and Miles J. Willard Company (anticipated to receive a
warrant to purchase 12,500 shares of Common Stock at $1.00 per share), have
agreed that they will not directly or indirectly offer, sell, contract to sell,
grant any option to purchase or otherwise dispose of, without the prior written
consent of the Representative, any shares of Common Stock or any other equity
security of the Company, or any securities convertible into or exercisable or
exchangeable for, or warrants, options or rights to purchase or acquire, Common
Stock or any other equity security of the Company, or enter into any agreement
to do any of the foregoing, for a period of 13 months from the date of this
Prospectus. Upon expiration of such 13 month period (or earlier upon the consent
of the Representative), all of such currently outstanding restricted shares will
be eligible for sale under Rule 144, subject to volume and other limitations of
the Rule. The holders of the remaining 53,052 restricted shares have agreed to
similar restrictions for a 12 month period following the date of this
Prospectus. The Representative may, in its sole discretion, and at any time
without notice, release all or any portion of the shares subject to the lock-up
agreements. In addition, the Private Placement Securityholders have "piggy-back"
registration rights with respect to their 53,052 shares of Common Stock allowing
them, subject to certain conditions, to include such shares in one or more
future registered public offerings of shares of Common Stock. See "Securities
Eligible for Future Sale" and "Underwriting."
OUTSTANDING OPTIONS AND WARRANTS. No options to purchase shares of Common
Stock are outstanding under the Company's Stock Option Plan, which is to be
adopted in June 1997 (the "Stock Option Plan"). The Company intends to file a
registration statement under the Securities Act after the effective date of the
Registration Statement of which this Prospectus forms a part, covering the
150,000 shares of Common Stock to be reserved for issuance under the Stock
Option Plan. Upon the effectiveness of that registration statement, the shares
of Common Stock issuable under the Stock Option Plan pursuant to vested stock
options, other than shares held by Affiliates, will be immediately eligible for
resale in the public market without restriction, subject to the terms of the
lock-up agreements, if applicable, although no options have been granted to
date. In addition, 75,000 shares of Common Stock are anticipated to be issuable
by the Company to the Company's current lender upon the exercise of a warrant
anticipated to be granted, with an exercise price of $.001 per share, in
connection with the renegotiation of the Company's loan agreement with its
lender. The Company also anticipates issuing a warrant to Miles J. Willard
Company permitting that company to purchase 12,500 shares of Common Stock at
$1.00 per share, as part of the renegotiation of the payment terms under the
Company's patent license agreements with that company. The Private Placement
Securityholders own 53,052 Private Placement Warrants to purchase a total of
53,052 shares of Common Stock for $ per share at any time during the three
years following this Offering, subject to the twelve month hold-back period to
which they have agreed. See "Shares Eligible for Future Sale."
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POSSIBLE ISSUANCE OF ADDITIONAL PREFERRED STOCK SENIOR TO THE PREFERRED STOCK
In addition to the Preferred Stock, the Company will have over 8 million
shares of preferred stock authorized, after the designation of the Preferred
Stock issued in connection with this Offering, which may be issued with
dividend, liquidation, voting and redemption rights senior to the Preferred
Stock; provided, however, that any such issuance of senior preferred stock must
be approved by the holders of a majority of the outstanding shares of Preferred
Stock. See "Description of Capital Stock--Preferred Stock."
ADVERSE EFFECT OF POSSIBLE REDEMPTION OF PREFERRED STOCK
Commencing , 199 , the Preferred Stock may be redeemed by the
Company, in whole or in part, at any time at specified premiums in excess of the
initial public offering price of the Preferred Stock. The Company may choose to
redeem the Preferred Stock rather than incur the cost of keeping a registration
statement current with the Securities and Exchange Commission (the "Commission")
for the shares of Common Stock underlying the Preferred Stock or for other
economic reasons, such as to eliminate future dividends and preferences.
Redemption of the Preferred Stock, or the Preferred Stock holders' decision to
convert such stock into Common Stock instead of having it redeemed, could force
the holders to convert the Preferred Stock at a time when it may be
disadvantageous for the holders to do so, to sell the Preferred Stock at the
then current market price when they might otherwise wish to hold the Preferred
Stock for possible additional appreciation and receipt of dividends, or to
accept the redemption price, which is likely to be substantially less than the
market value of the Preferred Stock at the time of redemption. See "Description
of the Capital Stock--Preferred Stock."
MARKET OVERHANG FROM PREFERRED STOCK, WARRANTS AND OUTSTANDING OPTIONS
Immediately after the Offering, the Company will have shares of
outstanding Preferred Stock (convertible into shares of Common Stock),
the Representative's Warrants to purchase up to 125,000 shares of Common Stock
and shares of Preferred Stock (and the shares of Common Stock into which
such Preferred Stock is convertible), the Private Placement Warrants owned by
the Private Placement Securityholders, options which may be granted under the
Company's Stock Option Plan and the warrants anticipated to be granted to the
Company's current lender and to Miles J. Willard Company. To the extent that
such convertible securities are converted and/or such stock options or warrants
are exercised, dilution to the interests of the Company's shareholders may
occur. Moreover, the terms upon which the Company will be able to obtain
additional equity capital may be adversely affected since the holders of the
outstanding Preferred Stock, options and warrants can be expected to exercise or
convert them, to the extent they are able to, at a time when the Company would,
in all likelihood, be able to obtain any needed capital on terms more favorable
to the Company than those provided in the Preferred Stock, options and warrants.
Furthermore, the sale of Common Stock or other securities held by or issuable to
the holders, or merely the potential of such sales could have an adverse effect
on the market price of the Company's Securities. See "Management" and
"Description of Securities."
RELIANCE ON MAJOR SUPPLIERS
The Company relies on a limited number of suppliers for its raw materials.
If one or more of those suppliers were to become unavailable to the Company, the
Company believes it could obtain its supplies from other companies on similar
terms; however, there is no assurance that alternative suppliers would be
available when required, and such a substitution of suppliers could have a
material adverse effect on the Company's ability to deliver its products in a
timely manner.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
The Company's expansion strategy will, in part, involve the identification
and pursuit of opportunities to, among others, acquire companies, products or
distribution channels. Viable acquisition candidates may
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be unavailable or available only on terms unacceptable to the Company.
Furthermore, although certain members of the Company's management team have
experience in acquiring and integrating businesses, the Company has not
previously engaged in such corporate acquisitions, and no assurance can be given
that the Company will be able to successfully acquire or integrate the
operations of another business into those of the Company.
Unless otherwise required by law, the Company does not intend to seek the
approval of the Company's shareholders for any acquisitions. Accordingly, the
shareholders of the Company will be dependent upon the Board of Directors' and
management's judgment with respect to any such transactions. These transactions,
if realized, may involve the issuance of a significant number of additional
shares of the Company's capital stock, the incurrence, assumption or issuance by
the Company of substantial indebtedness and the undertaking by the Company of
material obligations including, among other things, long-term employment,
consulting or management agreements. The Company has no present commitments,
agreements or understandings with respect to any acquisitions.
The Company currently operates out of one manufacturing facility in Indiana,
and the success and the rate of the Company's possible acquisitions and
expansion into new geographical markets in this manner will depend on a number
of factors, including general economic and business conditions affecting the
food industry, competition, the availability of sufficient capital, the
identification and leasing of suitable facilities on acceptable terms, and the
ability to attract and retain qualified personnel and operate effectively in
areas in which the Company has no prior experience. As a result, there can be no
assurance that the Company will be able to achieve its planned acquisition
strategy on a timely or profitable basis.
ABSENCE OF OUTSIDE DIRECTORS
The Company's current Board of Directors consists of three members, all of
whom are employees of the Company. Following this Offering, the Company intends
to elect three additional directors, who are not employees of the Company and
who have agreed in principle to join the Company's Board and whose names are set
forth in this Prospectus. However, no assurances can be given that the Company
will be able to retain outside directors. See "Management."
NASDAQ SYSTEM MAINTENANCE REQUIREMENTS; POSSIBLE DELISTING OF SECURITIES FROM
NASDAQ SYSTEM; RISKS OF LOW-PRICED STOCKS
The Commission has approved rules imposing stringent criteria for the
listing of securities on NASDAQ, including standards for maintenance of such
listing. Such maintenance standards include minimum levels of total or net
tangible assets and total capital and surplus and a minimum bid price for the
securities. In addition, NASDAQ requires that a Company maintain at least two
independent directors. From time to time these criteria for listing change,
often imposing more stringent requirements on companies listed on NASDAQ.
If the Company is unable to satisfy NASDAQ's maintenance criteria in the
future, its Securities could be delisted, and trading, if any, would thereafter
be conducted in the over-the-counter market in the so-called "pink sheets" or
the "Electronic Bulletin Board" of the National Association of Securities
Dealers, Inc. ("NASD"). As a consequence of such delisting, an investor could
find it more difficult to dispose of, or to obtain accurate quotations as to the
price of, the Company's Securities.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure, relating to the market for penny stocks, in connection
with trades in any stock defined as a penny stock. The Commission has adopted
regulations that generally define a penny stock to be any equity security that
has a market price of less than $5.00 per share, subject to certain exceptions.
Such exceptions include any equity security listed on NASDAQ and any equity
security issued by an issuer that has (i) net tangible assets of at least
$2,000,000, if such issuer has been in continuous operation for more than three
years, (ii) net tangible assets of at least $5,000,000, if such issuer has been
in continuous operation for less than
17
<PAGE>
three years, or (iii) average annual revenue of at least $6,000,000, if such
issuer has been in continuous operation for less than three years. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock of a disclosure schedule explaining the
penny stock market and the risks associated therewith.
In addition, if the Company's Securities are not quoted on NASDAQ, or the
Company does not have $2,000,000 in net tangible assets, trading in the
Company's Securities would be covered by Rules 15g1-15g6 promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act") for non-NASDAQ and non-
exchange listed securities. Under such rules, broker/dealers who recommend such
securities to persons other than established customers and accredited investors
must make a special written suitability determination for the purchaser's
written agreement to a transaction prior to sale. Securities are exempt from
these rules if the market price of the Common Stock is at least $5.00 per share.
Although the Company's Common Stock will, as of the date of this Prospectus,
be outside the definitional scope of a penny stock, as it will be listed on
NASDAQ, in the event the Common Stock were subsequently to become characterized
as a penny stock, the market liquidity for the Company's Securities could be
severely affected. In such an event, the regulations on penny stocks could limit
the ability of broker/dealers to sell the Company's Securities and thus the
ability of purchasers of the Company's Securities to sell their Securities in
the secondary market.
ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK AND PREFERRED STOCK
Pursuant to its Articles of Incorporation, the Company has the authority to
issue additional shares of Common Stock and shares of Preferred Stock. The Board
of Directors of the Company is authorized to issue up to 30,000,000 shares of
Common Stock, and up to 10,000,000 shares of Preferred Stock in one or more
series, and to determine the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and terms or
conditions of redemption of each series of preferred stock without any vote or
action of the shareholders of the Company. The issuance of additional shares of
Common Stock or of preferred stock could result in the dilution of the voting
power of the shares of Common Stock purchased in this Offering. See "Description
of Securities."
ANTI-TAKEOVER CONSIDERATIONS AND POTENTIAL ADVERSE EFFECT ON MARKET PRICE OF
SECURITIES FROM ISSUANCE OF PREFERRED STOCK
The Company's Board of Directors has the authority to issue over 8 million
additional shares of preferred stock, par value $.01 per share (in addition to
the shares of Preferred Stock issued in this Offering) and to fix the rights and
preferences of such shares. Such issuance could occur without action by the
holders of the Common Stock and, in certain circumstances, without action of the
holders of the Preferred Stock. Such preferred stock could have voting and
conversion rights that adversely affect the voting power of the holders of
Common Stock (and/or the Preferred Stock if approved by the holders of the
Preferred Stock), or could result in one or more classes of outstanding
securities that would have dividend, liquidation or other rights superior to
those of the Common Stock (and/or the Preferred Stock if approved by the holders
of the Preferred Stock). Issuance of such preferred stock may have an adverse
effect on the then prevailing market price of the Preferred Stock and/or Common
Stock. This authority, together with certain provisions in the Company's
Articles of Incorporation (the "Articles") and By-Laws, may delay, deter or
prevent a change in control of the Company, may discourage bids for the
Preferred Stock and/or Common Stock at a premium over the market price of the
Preferred Stock and/or Common Stock and may adversely affect the market price
of, and the voting and other rights of the holders of, Preferred Stock and/or
the Common Stock. See "Description of Capital Stock."
18
<PAGE>
NET OPERATING LOSSES
At July 27, 1996, the Company had approximately $3 million of net operating
loss carryforwards ("NOL's") for federal income tax purposes which are available
to offset the future taxable income of the Company. The Internal Revenue Code
imposes a restriction on the use of this attribute if a corporation undergoes an
"ownership change" within the meaning of Internal Revenue Code Section 382(g).
After an ownership change, the amount of pre-change NOL's that can be utilized
to offset income for each post-change taxable year generally will be limited
(the "Annual Limitation") to an amount equal to the fair market value of the
corporation immediately before the ownership change multiplied by the federal
long-term tax-exempt bond rate on the date of the ownership change.
The sale and issuance of Common Stock and Preferred Stock in the Offering,
together with other recent or future transactions, including, potentially, the
exercise of outstanding or additionally issued options or warrants and the
conversion of the Preferred Stock, could result in an ownership change. If an
ownership change is deemed to occur, the Annual Limitation will apply to the
Company's utilization of NOL's after the ownership change. The Annual Limitation
on the utilization of NOL's for the post-change period will not affect the
remaining statutory period within which the NOL's may be carried. To the extent
that taxable income for any post-change taxable year is less than the amount of
the Annual Limitation, the Annual Limitation for the subsequent year will be
increased by the unused portion.
FOR ALL OF THE AFORESAID REASONS AND OTHERS SET FORTH HEREIN, THE PURCHASE
OF SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. ANY PERSON
CONSIDERING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY SHOULD BE AWARE OF
THESE AND OTHER FACTORS SET FORTH IN THIS PROSPECTUS. THE SECURITIES SHOULD BE
PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO ABSORB A TOTAL LOSS OF THEIR
INVESTMENT IN THE COMPANY AND HAVE NO NEED FOR A RETURN ON THEIR INVESTMENT.
USE OF PROCEEDS
The estimated net proceeds to the Company from the sale of the Securities
offered hereby, after deducting the underwriting commissions and the
Underwriter's nonaccountable expenses and other offering expenses, will be
approximately $ ($ if the Underwriters' Over-Allotment Option is
exercised in full) based on an assumed initial public offering prices of
$ for the shares of Common Stock and $ for the shares of Preferred
Stock. The net proceeds to the Company are expected to be used over the next 12
months as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPLICATIONS AMOUNT PERCENT
- ---------------------------------------------------------------------- ------------ ---------
<S> <C> <C>
Repayment of senior indebtedness (1).................................. $ 5,000,000 %
Repayment of subordinated indebtedness (2)............................ 1,750,000 %
Payment of indebtedness for salaries and commissions (3).............. 250,000 %
Payment of trade payables and accrued expenses (4).................... 1,750,000 %
Sales and marketing (including marketing or slotting expenditures to
obtain shelf space)................................................. 2,000,000 %
General corporate purposes, including working capital and general and
administrative expenses and possible acquisitions................... %
------------ ---------
$ 100.00%
</TABLE>
- ------------------------
(1) The senior indebtedness, a portion of which will be paid down using a
portion of the proceeds of this Offering, was incurred to pay for the
acquisition of the Company's business (paying down $4 million of the bridge
acquisition financing) and for working capital. The senior indebtedness
includes one revolving note, bearing interest at 3.75% over the Lender's
prime or reference rate, maturing June 1,
19
<PAGE>
1999, and three term notes, bearing interest at 3.75% to 5% over the
Lender's prime or reference rate, maturing June 1, 1999. When in default,
these notes bear interest at 7.25% to 8% over the Lender's prime or
reference rate.
(2) United Biscuits UK Ltd. has agreed to a discount of its $4,000,000 note. The
Company will pay $1,750,000 upon completion of the Offering to satisfy this
indebtedness in full (plus approximately $160,000 of accrued interest and
expenses as reflected in payment of Trade Payables and accrued expenses).
The result will be a gain of $2,250,000 subject to the note, as so
discounted, being paid before July 31, 1997.
(3) Payable to Mr. Donald Schumacher II for accrued salary for 1996.
(4) Including Trade Payables of approximately $1 million (including $250,000
owed to Miles J. Willard Company and interest thereon at 7% per annum from
January 1, 1997) and real and personal property taxes of approximately
$475,000, accrued interest and expenses of approximately $160,000 with
respect to the subordinate loan from United Biscuits UK Ltd.
The Company may use part of the net proceeds from this Offering to attempt
to expand its revenues by identifying and pursuing acquisitions of other
companies with the same or related snack food product offerings (or to purchase
product lines) as opportunities arise and to a lesser extent by entering new
markets through internal expansion, which will include expanding the
distribution of current products and the introduction of new product offerings.
The Company has no present commitments, agreements or understandings with
respect to any acquisitions. See "Risk Factors--Risks Associated with
Acquisition Strategy."
The total amount allocated to, and the timing of, the applications described
above represent Management's best estimate of the allocation of net proceeds,
based upon the Company's present plans regarding its expansion and the
development and promotion of its products, current market conditions and other
business and economic considerations. To the extent Management believes
adjustments are necessary due to actual or anticipated changes in such factors,
the amounts set forth above may be reallocated among such applications.
Any net proceeds received by the Company from the exercise of the
Underwriters' Over-Allotment Option will be allocated to working capital for
general corporate purposes. Any net proceeds not immediately required for the
purposes described above will be invested by the Company in investment-grade,
short-term, interest-bearing investments.
DIVIDEND POLICY
The Company has never declared or paid any dividends on the Common Stock and
does not anticipate paying any dividends in the foreseeable future. The Company
currently intends to retain all future earnings to provide funds for the further
development and growth of its business. Under the Company's loan agreements, the
Company is prohibited from paying dividends or other distributions on the Common
Stock or Preferred Stock without the lender's authorization.
Pursuant to the terms governing the Preferred Stock, the Company's Board of
Directors may not declare dividends payable to holders of the Common Stock
unless and until all accrued cash dividends through the most recent past
quarterly date have been paid in full to holders of the Preferred Stock. The
payment of dividends on the Common Stock in the future will depend on the
results of operations, financial condition, capital expenditure plans and other
cash obligations of the Company and will be at the sole discretion of the Board
of Directors. If the Company's future earnings are not adequate for the payment
of dividends on the Preferred Stock out of earnings, such dividends will be paid
out of the surplus then available to the Company (the Company's net assets minus
the Preferred Stock and the aggregate par or stated value of the outstanding
shares of the Company's capital stock), if any. On a pro forma basis, after
giving effect to this Offering, the Company's surplus as of February 22, 1997
was approximately
20
<PAGE>
$ . The payment of dividends or any future operating losses will reduce
such surplus, which may adversely affect the Company's ability to continue to
pay dividends on the Preferred Stock. In addition, as a result of additional
operating losses which have continued after February 22, 1997, the Company's
ability to pay dividends will likely be further reduced. See "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Certain Transactions."
DILUTION
The net tangible book value of the Company as of February 22, 1997 was
$(6,233,521) or $(4.16) per share of Common Stock. Net tangible book value per
share of Common Stock is determined by dividing tangible assets, less total
liabilities and preferred stock, by the number of shares of Common Stock
outstanding. Dilution per share represents the difference between the initial
public offering price per share of Common Stock and the pro forma net tangible
book value per share of Common Stock immediately after the Offering. After
giving effect to the sale by the Company of the shares of Common Stock and
Preferred Stock offered hereby (after deduction of estimated underwriting
discounts, commissions and other Offering expenses), the pro forma net tangible
book value of the Company available to holders of Common Stock at February 22,
1997, as adjusted, would have been $ or $ per share. This represents
an immediate increase in net tangible book value of $ per share to existing
common shareholders and an immediate dilution to the public investors of $
per share.
The following table illustrates this dilution in net tangible book value per
share to new investors as of February 22, 1997:
<TABLE>
<S> <C>
Assumed initial public offering price per share................... $
Pro forma net tangible book value per common share before the
Offering........................................................ (4.16)
Increase in net tangible book value per common share attributable
to new investors in shares of Common Stock offered hereby....... (1)
Pro forma net tangible book value per common share after
Offering........................................................ (1)(2)
Dilution to new investors......................................... $ (1)(2)
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of February 22,
1997, the differences among the current shareholders and the new investors in
this offering with respect to the number of shares of Common Stock purchased
from the Company, the total consideration paid to the Company (assuming an
initial public offering price of $ per share) and the average price paid
per share:
<TABLE>
<CAPTION>
SHARES PURCHASED(5) TOTAL CONSIDERATION(5)
----------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT NUMBER PERCENT PER SHARE(5)
---------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Current shareholders(3)........... 1,500,000 54.5% $ 1,455,000 % $
New Common Stock investors in this
Offering........................ 1,250,000 45.5% % $
---------- ----- ------------ ----- -----
Total(4)........................ 2,750,000 100.0% $ 100.0%
---------- ----- ------------ -----
---------- ----- ------------ -----
</TABLE>
- ------------------------
(1) After further giving effect to the application of the net proceeds of this
Offering, in particular the anticipated retirement of the Company's debt to
United Biscuits UK Ltd. at $2,250,000 less than face value, and the
retirement of a portion of the Company's debt to the Lender and the
anticipated recognition of interest expense due to the issuance of the
Lender's Warrant, and the recognition of license expense from the grant of
the warrant to Miles J. Willard Company, the pro forma net tangible book
value of the Company available to holders of Common Stock at February 22,
1997, as adjusted, would have been $ or $ per share, an increase
of $ per share to existing Common Stock holders and an immediate
dilution to public investors of $ per share. In addition, if the
21
<PAGE>
Underwriters' Over-Allotment Option is exercised in full, pro forma net
tangible book value per share of Common Stock after the Offering with the
above adjustments will be $ . and the dilution per share of Common Stock to
new investors will be $ . See "Underwriting."
(2) If the Underwriters' Over-Allotment Option is exercised in full, pro forma
net tangible book value per share of Common Stock after the Offering will be
$ and the dilution per share of Common Stock to new investors will be
$ . See "Underwriting."
(3) The consideration provided by the current shareholders includes $370,000
directed to be contributed to the capital of the Company in lieu of payment
of fees to certain shareholders. See "Certain Transactions."
(4) Does not include (i) 187,500 shares of Common Stock issuable upon exercise
of the Underwriters' Over-Allotment Option, (ii) 125,000 shares of Common
Stock issuable upon exercise of the Representative's Warrants, (iii)
shares of Common Stock issuable upon conversion of the Preferred Stock
offered hereby or shares of Common Stock issuable upon conversion of
the Preferred Stock issuable upon exercise of the Underwriters'
Over-Allotment Option or the shares of Common Stock issuable upon
conversion of the Preferred Stock issuable upon exercise of the
Representative's Warrant, (iv) 53,052 shares of Common Stock issuable upon
exercise of the Private Placement Warrants issued in the Private Placement,
(v) 150,000 shares of Common Stock reserved for issuance under the Company's
Stock Option Plan, none of which options have been granted to date, (vi)
75,000 shares of Common Stock issuable at $.001 per share upon exercise of
the warrant anticipated to be issued to the Company's current lender, or
(vii) 12,500 shares of Common Stock, exercisable at $1.00 per share, upon
exercise of a warrant anticipated to be granted to Miles J. Willard Company
as part of the renegotiation of the payment terms under the Company's patent
license agreements with that company. See "Underwriting," "The Company,"
"Management--Stock Option Plan" and "Description of Capital Stock."
(5) Does not include $ paid by the new investors for shares of
Preferred Stock.
22
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
February 22, 1997; and (ii) the capitalization as adjusted to reflect the sale
of the Securities offered hereby at an assumed initial public offering price of
$ per share of Common Stock and $ per share of Preferred Stock, after
deducting the estimated underwriting discount and offering expenses payable by
the Company and application of the estimated net proceeds from this Offering to
repay certain current and long-term debts of the Company. See "Use of Proceeds"
and "Certain Transactions." This table should be read in conjunction with the
Company's Financial Statements, and the notes thereto, included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AS OF FEBRUARY 22, 1997
-----------------------------
ACTUAL AS ADJUSTED(2)
------------- --------------
<S> <C> <C>
Long-term debt (net of current portion)............................................ $ 3,700,000 $
Preferred Stock 10,000,000 shares authorized and shares issued and outstanding;
shares issued and outstanding as adjusted(1)............................... 0
Common stock, $.01 par value, 30,000,000 shares authorized and 1,500,000 shares
issued and outstanding;2,750,000 shares issued and outstanding on an as adjusted
basis(2)......................................................................... 15,000 27,500
Additional paid-in capital......................................................... 1,440,000
Accumulated deficit(3)............................................................. (7,614,157) ()
------------- --------------
Total shareholders' equity (deficit)............................................... (6,159,157)
------------- --------------
Total capitalization (deficiency)................................................ ($ 2,459,157) $
------------- --------------
------------- --------------
</TABLE>
- ------------------------
(1) Does not include shares of Preferred Stock issuable upon exercise of
the Underwriters' Over-Allotment Option or shares of Preferred Stock
issuable upon exercise of the Representative's Warrant.
(2) Does not include (i) 187,500 shares of Common Stock issuable upon exercise
of the Underwriters' Over-Allotment Option, (ii) 125,000 shares of Common
Stock issuable upon exercise of the Representative's Warrants, (iii)
shares of Common Stock issuable upon conversion of the Preferred Stock
offered hereby or shares of Common Stock issuable upon conversion of
the Preferred Stock issuable upon exercise of the Underwriters'
Over-Allotment Option or the 125,000 shares of Common Stock issuable upon
conversion of the Preferred Stock issuable upon exercise of the
Representative's Warrant, (iv) 53,052 shares of Common Stock issuable upon
exercise of the Private Placement Warrants issued in the Private Placement,
(v) 150,000 shares of Common Stock reserved for issuance under the Company's
Stock Option Plan, none of which options have been granted to date, (vi)
75,000 shares of Common Stock issuable, at $.001 per share, upon exercise of
the warrant anticipated to be issued to the Company's current lender, or
(vii) 12,500 shares of Common Stock, exercisable at $1.00 per share, upon
exercise of a warrant anticipated to be granted to Miles J. Willard Company
as part of the renegotiation of the payment terms under the Company's patent
license agreements with that company. See "Underwriting," "The Company,"
"Management--Stock Option Plan" and "Description of Capital Stock."
(3) As adjusted, for the anticipated $2,250,000 gain on extinguishment of the
United Biscuits UK Ltd. debt at below face value and the interest and
license expenses recognized upon payments of debt and license payments from
the proceeds of this Offering as a result of the Lender's Warrants issued
below market value to the Lender and Miles J. Willard Company. See "Use of
Proceeds."
23
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with the Company's financial statements, including the notes thereto, included
elsewhere in this Prospectus. The selected financial data for the period ended
July 27, 1996 have been derived from audited financial statements of the Company
included elsewhere in this Prospectus, and should be read in conjunction with
those financial statements, including the notes thereto, and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" also
included elsewhere in this Prospectus. The selected historical financial data as
of February 22, 1997 and for periods ended February 24, 1996 and February 22,
1997 have been derived from the unaudited financial statements of the Company
included elsewhere in this Prospectus and, in the opinion of Management of the
Company, present fairly the results of operations for those periods. The results
of operations for the seven months ended February 22, 1997 are not necessarily
indicative of results to be expected for the year ending July 26, 1997. The
following data should be used in conjunction with the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the financial
statements and notes and other financial information found elsewhere in this
Prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
FROM INCEPTION
(JANUARY 19, 1996) TO
------------------------------- 7 MONTHS ENDED
FEBRUARY 24, FEBRUARY 22,
JULY 27, 1996 1996 1997
------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales................................. $ 7,825,146 $ 2,391,882 $ 6,065,945
Cost of sales............................. 3,423,471 874,281 4,255,163
------------- ---------------- ----------------
Gross profit.............................. 4,392,675 1,517,601 1,810,782
------------- ---------------- ----------------
Operating expenses Selling, general and
administrative.......................... 3,881,864 1,257,142 1,833,260
------------- ---------------- ----------------
Income (loss) from operations............. 510,811 260,459 (22,478)
------------- ---------------- ----------------
Other income (expense)
Write-off of advances to affiliate...... (1,118,989) -- --
Interest expense........................ (320,362) (53,394) (702,649)
Other income (expense).................. 13,090 (2,500) (72,269)
------------- ---------------- ----------------
Total other expense....................... (1,426,261) (55,894) (774,918)
------------- ---------------- ----------------
Income (Loss) from continuing
operations.............................. (915,450) 204,565 (797,396)
------------- ---------------- ----------------
Loss from discontinued operations......... (4,748,238) (521,639) (1,153,073)
------------- ---------------- ----------------
Net loss.................................. $ (5,663,688) $ (317,074) $ (1,950,469)
------------- ---------------- ----------------
------------- ---------------- ----------------
Income (Loss) from continuing operations
per share............................... $ (0.63) $ 0.14 $ (0.53)
Income (Loss) from discontinued operations
per share............................... $ (3.26) $ (0.36) $ (0.77)
------------- ---------------- ----------------
Net loss per share........................ $ (3.89) $ (0.22) $ (1.30)
------------- ---------------- ----------------
------------- ---------------- ----------------
Weighted average shares outstanding....... 1,455,786 1,446,948 1,500,000
------------- ---------------- ----------------
------------- ---------------- ----------------
</TABLE>
24
<PAGE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
FEBRUARY 22, 1997
------------------------------
JULY 27, 1996 ACTUAL AS ADJUSTED(1)
-------------- -------------- --------------
<S> <C> <C> <C>
Current Assets................................ $ 2,989,327 $ 2,029,853 $
Current Liabilities........................... 13,252,416 13,449,437
Working Capital (Deficit)..................... (10,263,089) (11,419,584)
PP & E (net).................................. 9,903,401 8,886,063
Total Assets.................................. 12,943,728 10,990,280
Long Term Debt................................ 3,900,000 3,700,000
Total Shareholders' Equity (Deficit).......... (4,208,688) (6,159,157)
</TABLE>
- ------------------------
(1) As adjusted to give effect to the sale by the Company of the Securities
offered hereby, and the application of the estimated net proceeds from the
Offering as described in "Use of Proceeds," including the anticipated
$2,250,000 gain upon the extinguishment of certain debt at below face amount
and the recognition of interest expense upon the payment of certain debt and
licensing expense due to the issuance of the Lender's Warrants to purchase
shares of Common Stock at $.001 per share and the warrant to Miles J.
Willard Company to purchase shares of Common Stock at $1.00 per share. See
"Risk Factors--Opinion of Auditors, Limited Capital, Default on Bank Debt,
Need for Additional Financing," and "Use of Proceeds."
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this Prospectus.
BACKGROUND
The Company was incorporated in Illinois on January 19, 1996 to acquire
certain non-operating assets and assume certain liabilities of the Keebler Salty
Snack Division. The assets purchased included a manufacturing plant located in
Bluffton, Indiana (one of the three manufacturing plants formerly operated as
part of that Division by Keebler), limited inventory, certain machinery and
equipment, and rolling stock (i.e., delivery trucks) used primarily in the DSD
(Direct Store Delivery) system.
In June of 1995 United Biscuits UK Ltd. ("United Biscuits"), the parent
company of Keebler, reportedly decided to sell certain of its United States
assets. Apparently unable to sell the Keebler Salty Snack Division in its
entirety, United Biscuits decided to close all three plants used in that
Division (in Oxford, PA, Halton City, TX, and Bluffton, IN) and sell the
physical assets separately. Many employees were terminated or laid off and the
distribution centers used for that Division around the country were closed.
Inventory was sold at discounts to accelerate liquidation. Shelf space contracts
in supermarkets were not renewed in September and October of 1995, virtually
ensuring that the products would not subsequently be carried in those locations.
In November 1995, all three plants were completely shut down.
On January 26, 1996, O'Boisie purchased the building, machinery and certain
assets located at the Bluffton, Indiana plant and the related rolling stock. In
February 1996, the Company hired certain plant personnel, sales people and
management to start a snack food manufacturing business. In mid-February,
manufacturing operations at the Bluffton plant commenced. Subsequent to that
time, the Company began building its business by (i) producing products formerly
marketed and sold by Keebler as well as new products, (ii) developing new
channels of distribution, and (iii) obtaining new customers.
The purchase was financed with an $8,000,000 bridge note from United
Biscuits. In determining the purchase price of these assets, the Company relied
on appraisals of the fixed assets (i.e., land, buildings, machinery and
equipment), which assets were not operational at the time of purchase.
A Transition Agreement ("Transition Agreement") was established between
O'Boisie and Keebler effective January 26, 1996. The agreement was for three
months (other than for systems support) and its purpose was to provide
administrative and distribution support during the transition of the purchased
assets to a new, free-standing operation. The provisions of the Transition
Agreement included the following:
1. Systems support by Keebler through June 15, 1996. The systems for which
the Company purchased Keebler's support included accounts receivable,
accounts payable, general ledger, and route accounting.
2. Sales of Keebler's cookies and crackers by O'Boisie. The agreement
provided that during the three-month period ended April 26, 1996, the
Company would continue to sell Keebler's cookies and crackers through its
DSD system in a 13-state area.
3. Sales of O'Boisie's salty snacks by Keebler. During the three-month
period ended April 26, 1996, Keebler would continue to sell O'Boisie's
salty snacks to grocery stores through its distribution system.
In June and July of 1996, the Company completed a private placement of
53,052 shares of Common Stock and 53,052 Private Placement Warrants, raising net
proceeds of $955,000. On July 5, 1996 the Company entered into loan agreements
with its senior lender, Republic Acceptance Corporation (the "Lender"). The
Lender provided a $5.0 million revolving line of credit and a $5.0 million term
loan.
26
<PAGE>
United Biscuits received $4.0 million of cash proceeds from the term loan and
took back a $4.0 million subordinated note, all in satisfaction of its original
bridge note. Since the assets were not operational at the time of purchase and
were part of a division of Keebler, historical financial statements relating to
these assets are non-existent.
RESULTS OF OPERATIONS
The Results of Operations information for the Company is provided in this
Prospectus for three periods: the approximately one-month period from inception
to February 24, 1996; the approximately six month period from inception to July
27, 1996; and the approximately seven month period from July 28, 1996 through
February 22, 1997. Interim financial information is reported using 13-week
quarters with the first two months of each quarter including four weeks of
operating results and the third month including five weeks.
RESULTS OF OPERATIONS FOR THE ONE MONTH ENDED FEBRUARY 24, 1996 AND FOR THE
SEVEN MONTHS ENDED FEBRUARY 22, 1997
CONTINUING OPERATIONS.
Net sales for the one month ended February 24, 1996 were $2,391,882 versus
$6,065,945 for the seven months ended February 22, 1997. Sales for the one month
ended February 24, 1996 consisted primarily of sales to Keebler ($2,321,477)
under the Transition Agreement. There were no sales to Keebler in the
corresponding seven month period ended February 22, 1997. Sales for the seven
months ended February 22, 1997 were primarily achieved through (i) a network of
independent distributors, (ii) contracting with snack manufacturers who
distributed the Company's products in addition to their own products, (iii)
selling to warehouse companies for resale direct to retailers and (iv) selling
directly to wholesalers. Sales to new customers established by O'Boisie
subsequent to commencement of manufacturing operations grew from $0 in the
period ended February 24, 1996 to $6,065,945 for the period ended February 22,
1997.
The increase in revenue from O'Boisie brands to distributors, retailers and
wholesalers in the period ended February 22, 1997, can be attributed to the
addition of newly-authorized retail accounts, such as Kroger Foods, Inc. and Tom
Thumb, and expansion into Texas and Florida. The Company now sells its products
through over 125 distributors in 38 states. Currently the Company is selling its
products principally in the Midwest, Northeast and Mid-Atlantic and has begun
selling its products in the Southeast and Southwest.
Cost of goods sold for the seven-month period ended February 22, 1997 was
higher as a percentage of sales (70%) than for the one-month period ended
February 24, 1996 as a percentage of sales (37%) for five principal reasons.
First, although the sales to Keebler carried higher margins due to the pricing
mechanism with Keebler, these benefits were offset by higher sales and
distribution charges from Keebler as discounts provided to Keebler were
considered selling expenses due to the pricing mechanism. Second, the decrease
in total revenues each month resulted in a lower absorption of fixed costs.
Third, management wanted to maintain lower levels of inventory until revenues
began to increase. In order to keep a full complement of products available, the
plant ran shorter production runs, requiring frequent and costly changeovers.
Fourth, there was a change in the Company's product mix toward vending machine
sales, which accounted for 32% of sales for the period ended February 22, 1997.
Vend sales for the period ended February 24, 1996 were 3% of total revenues.
Although vend production entails additional labor requirements, these costs are
offset by lower selling and distribution costs. Finally, packaging costs
increased due to the necessary conversion to the Company's own graphics and
packaging.
Selling, general and administrative costs decreased significantly from the
period ended February 24, 1996 to the period ended February 22, 1997, from 53%
of net sales to 30% of net sales. The decrease was principally due to a decrease
in the cost of selling and distributing the products resulting from the
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discontinuation of the Keebler relationship. If the Company continues its
marketing efforts, management expects the Company to incur additional selling
expenses for market entry, including shelf space "slotting" fees.
Interest expense rose significantly from $53,394 for the month ended
February 24, 1996 to $702,649 for the 7 months ended February 22, 1997 due to
continued borrowings required to finance the Company's losses, principally from
discontinued operations and the costs of financing related to the acquisition of
assets from Keebler. Total borrowing increased from $10,100,000 at February 24,
1996 to $13,053,238 at February 22, 1997.
Income (loss) from continuing operations before other income (expense) was
$260,459 and ($22,478) for the periods ending February 24, 1996 and February 22,
1997, respectively. After interest and other expense the income (loss) for those
periods was $204,565 and ($797,396), respectively. The loss for the period ended
February 22, 1997 was primarily due to the substantial interest charges the
Company incurred due to bank loans required to support the losses from the
discontinued DSD operations and the costs of financing related to the
acquisition of assets from Keebler.
DISCONTINUED OPERATIONS.
In August of 1996, management elected to discontinue its DSD system. The
Company decided to establish distribution coverage in the United States by (i)
developing a network of independent distributors, (ii) contracting with snack
manufacturers who would distribute the Company's products in addition to their
own, (iii) selling to warehouse companies for resale direct to retailers, (iv)
selling directly to wholesalers.
Accordingly, the results of operations of the DSD system have been reflected
as discontinued operations. The loss from discontinued operations was ($521,639)
for the one month ended February 24, 1996 versus ($1,153,073) for the seven
months ended February 22, 1997, included a provision for uncollectible accounts
receivable of approximately $700,000.
Management believes that it has adequately reserved for any additional
losses which may occur due to discontinued DSD operations which ceased
completely in October of 1996. These reserves as of February 22, 1997 include an
allowance for doubtful accounts of $1,645,776, stemming primarily from over 300
smaller retail accounts serviced by the DSD system.
PERIOD ENDED JULY 27, 1996
Net sales from continuing operations for the six months ended July 27, 1996
were $7,825,146. Sales for the six months ended July 27, 1996 consisted
primarily of sales to Keebler ($5,735,215) in accordance with the Transition
Agreement and sales of the Company's products to the Company's DSD system
($1,134,000). The remaining sales were achieved through the establishment of the
distribution relationships described above.
Cost of goods sold increased as a percentage of sales in the period ended
July 27, 1996 (44%) compared to the one-month ended February 24, 1996 (37%) for
the same five reasons discussed in the comparison of the periods ended February
24, 1996 and February 22, 1997.
Selling, general and administrative costs decreased slightly from the period
ended February 24, 1996 to the period ended July 27, 1996, from 53% of net sales
to 50%.
Interest expense rose significantly from $53,394 for the month ended
February 24, 1996 to $320,362 for the 6 months ended July 27, 1996 due to the
continued borrowings required to finance the Company's operating losses and the
costs of financing related to the acquisition of assets from Keebler. Debt
increased from $10,100,000 at February 24, 1996 to $11,644,079 at July 27, 1996.
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Income (loss) from continuing operations before other income (expense) was
$510,811 for the period ended July 27, 1996. After interest and other expense
the loss for that period was ($915,450). This loss stemmed primarily from two
sources. The first source is the $1,118,989 secured loan to Kelly which has been
fully reserved for and on which management does not expect to realize any
return. Management initially believed Kelly to be a possible acquisition or
merger candidate. With the decision to pursue different channels of
distribution, the acquisition or merger potential was less viable. Second, the
Company incurred substantial interest charges due to bank loans required to
support the losses from the discontinued DSD operations.
The loss from discontinued operations for the six months ended July 27, 1996
was ($4,748,238), included a provision for uncollectible accounts receivable of
approximately $900,000.
The net loss of ($5,663,688) for the six months ended July 27, 1996 is
comprised primarily of a one time loss of ($1,118,989) for a write off of
advances to an affiliate and a non-recurring loss of ($4,748,238) from
discontinued DSD operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balances were $260,425 at February 24, 1996, $181,633 at
July 27, 1996, and $1,896 at February 22, 1997, respectively. Net cash used in
operating activities was $1,839,575 and $2,127,895 for the periods ended
February 24, 1996 and February 22, 1997, respectively. The net cash used in
operating activities ($4,069,831) during the six month period ended July 27,
1996 was used primarily to fund the non-recurring advances to an affiliate and
losses incurred in discontinued operations. The decrease in net cash used for
the period ended February 22, 1997 was primarily due to the discontinuation of
the DSD system.
In the periods ended July 27, 1996 and February 22, 1997, cash used in
investing activities was expended for management information systems to support
operations. There were no stand-alone systems at the Bluffton facility when the
plant was acquired. Approximately $545,000 was spent from commencement of
operations in February 1996 through February 22, 1997 to develop system software
and to purchase hardware. In addition, the Company received proceeds from the
disposition of assets related to its DSD business of $758,000 during the period
ended February 22, 1997.
The Company's primary sources of cash flow from financing activities have
been bank debt and sales of common stock. Borrowed funds from the Lender were
$8,644,019 and $8,053,238 at July 27, 1996 and February 22, 1997, respectively.
The decrease primarily related to the payment of outstanding debt to the Lender
in conjunction with the sale of DSD assets. The Company has a revolving line of
credit from the Lender of up to $5,000,000 with a borrowing base equal to 85% of
eligible accounts receivable and 40% of eligible inventory. Interest on this
debt is payable monthly in arrears. The interest rate was initially the Lender's
reference rate (8.25% prior to mid-March 1997 and 8.5% from mid-March 1997 to
the current date) plus 1.75% per annum. As of April 30, 1997, the rate on this
outstanding revolving indebtedness was changed to the Lender's reference rate
plus 3.75%. As of April 30, 1997 the outstanding balance under the Lender's
revolving line of credit was $2,043,025.
In addition to the borrowings under the Lender's revolving line of credit,
the Company has term debt of $7,504,465 as of April 30, 1997. Of this amount,
$3,000,000 bears interest at the Lender's reference rate plus 5%, and $4,504,465
bears interest at the Lender's reference rate plus 3.75%. The term loans are
amortized through May 1, 1999 (other than a balloon payment due in 1999). All
amounts outstanding under the Company's term and revolving agreements with
Lender are secured by a first priority lien on inventory, receivables,
machinery, equipment, rolling stock, general intangibles and plant.
The Company was in default of certain of the covenants under its bank loans
as of July 27, 1996 and February 22, 1997. The Company is also currently in
default under its loan agreements with the Lender. The Company is negotiating a
waiver of those defaults and new loan covenants with the Lender. The
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<PAGE>
Company and the Lender have reached an agreement in principal on a waiver of
those defaults and to revise the terms of the loan agreements; however, the
documentation and revised terms are expected to be finalized in June 1997. As
part of its negotiation with the Lender, the Company anticipates granting to the
Lender warrants to purchase a number of shares of the Company's common stock
equal to 5% of the Company's common stock outstanding prior to the Offering
(75,000 shares). See "Description of Capital Stock."
As of July 27, 1996 and February 22, 1997, the Company also had subordinated
debt of $4,000,000 with United Biscuits. The note to United Biscuits bears
interest at 8% with quarterly interest payments in arrears and initial quarterly
payments of $100,000 commencing on June 30, 1997 with a balloon payment of
$2,800,000 due on June 30, 1999. On May 8, 1997, the Company and United Biscuits
reached agreement to retire this debt with $1,750,000 of proceeds from the
Offering plus certain accrued interest, provided the payment on the debt is
received prior to July 31, 1997.
Gross proceeds from the Private Placement in June and July 1996 were
$1,240,000; net proceeds were $955,000 after costs associated with that
offering. Shareholder capital contributions were $370,000 for the period ending
July 27, 1996. The source of the $370,000 credited to capital was compensation
to the executive officers of the Company for services they rendered to the
Company in negotiating and finalizing the purchase of the assets from Keebler.
The amounts were not paid to the executives but, at their instructions, were
credited to the capital of the Company.
CAPITAL RESOURCES
The Company anticipates that its revolving and term debt with the Lender
will total approximately $9,000,000 at the consummation of the Offering.
Management intends to retire all of the remaining revolving debt (approximately
$2,000,000), and the approximately $3,000,000 of what was previously revolving
debt which the Lender has reclassified as special term debt (following the
Company's default), leaving a total balance to be owed to the Lender of
approximately $4,000,000.
The Company is currently in default under its loan agreements with the
Lender as described above. The Company and the Lender are currently negotiating
and have agreed in principal on a waiver of those defaults and revised credit
agreements, which the Company believes will be completed in June 1997.
The Company's ability to achieve positive operating cash flow will depend on
a variety of factors, including the continuing penetration of existing and new
geographical markets, the continued development of associations with
distributors and wholesalers, the costs of developing and producing new
products, the ability to have longer production runs at the Bluffton, Indiana
plant, the ability to obtain incremental private label pretzel business, and
other factors which may be beyond the Company's control.
The Company's long-term capital requirements will depend on numerous factors
including the rate at which the Company grows internally, acquires other food
businesses and develops new products. The Company has ongoing needs for capital
including working capital for operations, shelf space requirements, product
development costs and capital expenditures to maintain and expand its
operations. While the Company has no present plans, commitments, or agreements
with respect to any material acquisitions, the Company may in the future
consummate acquisitions which may require capital. Future acquisitions may, to
the extent permitted by the revised Credit Agreement, be funded with available
cash from the net proceeds of the Offering, seller financing, institutional
financing and/or additional equity or debt offerings. The Company anticipates
that the net proceeds of this Offering will be adequate to fund the Company's
operations for at least the next twelve months.
INFLATION
The impact of inflation on the Company's operating results has been moderate
over the last year, reflecting generally lower rates of inflation in the
economy. While inflation has not had a material impact
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on operating results, there is no assurance that the Company's business will not
be affected by inflation in the future.
NET OPERATING LOSSES
At July 27, 1996, the Company had approximately $3 million of net operating
loss carryforwards ("NOL's") for federal income tax purposes which are available
to offset the future taxable income of the Company. The Internal Revenue Code
imposes a restriction on the use of this attribute if a corporation undergoes an
"ownership change" within the meaning of Internal Revenue Code Section 382(g).
After an ownership change, the amount of pre-change NOL's that can be utilized
to offset income for each post-change taxable year generally will be limited
(the "Annual Limitation") to an amount equal to the fair market value of the
corporation immediately before the ownership change multiplied by the federal
long-term tax-exempt bond rate on the date of the ownership change.
The sale and issuance of Common Stock and Preferred Stock in the Offering,
together with other recent or future transactions, including, potentially, the
exercise of outstanding or additionally issued options or warrants and the
conversion of the Preferred Stock, could result in an ownership change. If an
ownership change is deemed to occur, the Annual Limitation will apply to the
Company's utilization of NOL's after the ownership change. The Annual Limitation
on the utilization of NOL's for the post-change period will not affect the
remaining statutory period within which the NOL's may be carried. To the extent
that taxable income for any post-change taxable year is less than the amount of
the Annual Limitation, the Annual Limitation for the subsequent year will be
increased by the unused portion.
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BUSINESS
GENERAL
O'Boisie manufactures and markets a broad line of brand name salty snack
food products. The Company was formed in January 1996 for the purpose of
acquiring certain of the assets, and assuming certain of the liabilities, of the
salty snack food business formerly conducted as part of a division of Keebler,
including a 140,000 square foot manufacturing facility in Bluffton, Indiana. The
Company is in the process of establishing national presence for its branded
products, many of which the Company believes have maintained strong consumer
awareness during the transition from Keebler to O'Boisie. O'Boisie's primary
brands are Tato Skins-Registered Trademark-, O'Boisies-Registered Trademark-,
Pizzarias-Registered Trademark-, Chachos-Registered Trademark-, Tato
Wilds-Registered Trademark-, Chip Chasers-Registered Trademark-, and Butter
Braid Pretzels-Registered Trademark-, most of which are manufactured in a
variety of flavors and sizes.
The Company's products are sold in vending machines, regional supermarket
chains, club stores, regional restaurants, convenience stores and institutional
outlets. Major customers include Kroger's, Dominick's, Cub Foods, Meijers,
Wal-Mart and Vend Society of America. The Company distributes its products
through a national network of distributors, brokers, and potato chip
manufacturers ("chippers"), as well as directly to retailers through the
retailers' warehouse programs. From the commencement of production in February
1996 through February 1997, the Company has generated approximately $13,900,000
in revenue from continuing operations and a loss from continuing operations of
approximately $1,700,000. As described in this Prospectus, the Company has also
incurred a loss from discontinued operations during that period of approximately
$5,900,000, from discontinuance of its direct store delivery system of
distribution.
The Company intends to expand its business and achieve profitability by
pursuing the following strategies:
- Broaden distribution of its established, branded products by adding
distributors, regional "chippers" and grocery/discount chains throughout
the country. Prior to its sale by Keebler, one or more of the current
O'Boisie brand products had a presence in approximately 96% of grocery
stores nationwide (commonly referred to as All Commodity Volume) as
measured for Keebler by Information Resources Inc. Syndicated Service,
and, according to Keebler's attitude and usage study, had 90% consumer
awareness nationwide.
- Develop new products based on the Company's established product lines and
process patents.
- Utilize the Company's pretzel manufacturing capacity to expand its sales
in the bulk and private label markets.
- Acquire complementary salty and other snack food processors to broaden the
Company's product line and generate economies of scale in manufacturing,
marketing and distribution.
RECENT DEVELOPMENTS
The Company initially sold its own manufactured products through three
principal channels: (i) a Direct Store Delivery ("DSD") system, (ii) larger
wholesalers and vend distributors, and (iii) directly to stores through
warehouse programs. In an attempt to operate a profitable DSD system, the
Company also purchased and distributed food products manufactured by others. In
August 1996, the Company elected to discontinue distributing other products and
focus solely on its own manufactured products. O'Boisie shut down its DSD
system, began selling its rolling stock (i.e., its Company-owned route trucks),
and has added regional chippers and distributors to its existing sales and
distribution network. Management believes that, strategically, this approach to
distribution is a more efficient way of penetrating the market and enables the
Company to achieve a broader distribution of its products. For instance,
previously, 17 Company-owned trucks serviced the state of Indiana. O'Boisie now
distributes through three distributors with 75 routes covering all of Indiana.
The Company has been successful in reaching agreements with chippers and
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distributors to distribute its products in the regions previously serviced by
Company-owned trucks, as well as other markets outside those regions. In
addition, the Company has reached agreements with over 100 distributors in the
East, Southeast, Southwest and Great Plaines areas. These distributors service
over 3,000 DSD routes in their respective regions, bringing the total number of
distributors of the Company's products to over 125.
The Company has also recently secured authorization to sell its products to
Wal-Mart Super Centers, Target Stores, Ameristop Stores, and the Subway Sandwich
chain.
INDUSTRY OVERVIEW
The retail salty snack food market is approximately a $13.4 billion industry
and is typically segmented into seven major categories: potato chips, corn and
tortilla chips, fabricated chips, pretzels, popcorn, nuts and other salty
snacks. Salty snacks are principally sold through a variety of retail outlets,
to institutions in bulk and through vending machines. Grocery stores (including
supermarkets) accounted for approximately 65% of all salty snacks sold in 1995
according to Snack Food Industry Magazine. The Company believes that the
attractiveness of snack foods to the grocer lies in their relatively higher
profit margins (reported 28% average gross margin in 1995), and the perceived
impulse nature and frequency of consumer decisions to purchase them. Despite the
rapid proliferation of packaged food products in the last decade, grocers have
given an increasing share of their dry goods shelf space to salty snack foods.
It is not uncommon to find a complete supermarket aisle devoted to salty snacks.
Other retailers include convenience stores, drugstores, delis, pizza parlors and
restaurants, taverns and general stores. Institutional customers include, among
others, schools, hospitals, and correctional facilities.
Salty snack foods are also manufactured for supermarket chains, drugstores
and discount merchandisers under private labels or "house brands". House brand
products are usually shipped to the customer's warehouse, with the retailer
assuming responsibility for stocking shelves and rotating stock to ensure
freshness. Because of the volume of warehouse space required by these items,
most retailers devote no more than 25% of their shelf space to house brands.
Potato chips and tortilla chips represent 55% of the retail dollar sales.
The three fastest growing segments within the salty food category are pretzels,
tortilla chips, and fabricated chips, each of which has grown 8-9% each year
since 1992. The pretzel market is estimated to be $1.5 billion and is one of the
fastest growing categories within salty snacks. Pretzels are sold at retail as
well as for use in other products, such as salty snack mixes and coated
pretzels. According to Snack Food Industry Magazine, the growth in pretzels may
be attributed to consumer perception of pretzels as a nutritious choice due to
the low fat content.
Tortilla chips sales account for about 26% of all salty snack food sold. Low
fat and baked varieties are leading this growth. All tortilla chips and corn
chips are fabricated chips, but are set aside in a separate category within the
industry.
Fabricated chips called "crisps," such as the kind O'Boisie produces, have
been growing at about 9% per year since 1992. This growth is being driven by
consumers' preference for low fat/no fat products. Because the manufacturing
process for fabricated chips results in inherently lower fat content compared to
potato chips, management believes that "crisps" will continue to be very popular
with consumers.
GROWTH STRATEGY
EXPANDED DISTRIBUTION AND EXPANSION OF NATIONAL SALES. The Company is
continuing to expand its distribution using a two pronged effort: (i) making
presentations directly to retailers; and (ii) selling to major distributors in
key markets to obtain new accounts.
Retailers and distributors have been targeted based on the proximity to the
production plant in Bluffton, Indiana. Consequently, the Company has focused its
sales efforts on the following geographical
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areas in descending order: Midwest, Northeast, Great Plains, Southeast,
Southwest and West Coast. The Company has successfully placed its products in 38
states in the U.S., concentrated in the Midwest and Northeast, and the Company
has targeted the Southeast and Southwest to pursue continued gains in
distribution.
Examples of key distributors added to the Company's list of contracted
distributors in the past six months include Milwaukee Biscuit (Milwaukee, WI),
Texas Premium (Dallas, TX), Snyders of Berlin (OH and PA), Kramer Foods
(Detroit, MI), Barrel of Fun (MN), Serv-U-Success (Grand Rapids, MI), Hercules
(Miami, FL) and Mid Atlantic Snacks (PA). These distributors are in addition to
the Company's distribution agreement with DSDA Inc., a distribution association
with 1,300 van routes covering a significant portion of the East Coast (from New
York to Florida), as well as the Company's distribution arrangements with
several smaller regional distributors. In total, over 125 distributors are
selling the Company's line of products in a total of 38 states.
The Company also intends to continue to develop a national presence by
expanding relationships with national distribution companies and wholesalers.
O'Boisie's vending business continues to show significant growth. The
Company is currently working with, and selling to, a large vending distributor
in the United States, Vend Society of America. Management believes that the
Company has strong relationships with several other large independent
distributors in the vend business. Currently the Company's best selling product
specifically designed for vending machines is a one-ounce bag of Tato Skins. A
1 3/4 ounce bag has also been developed to capitalize on the industry's move to
larger sizes in vending machines. Management believes that the vend business not
only offers significant growth opportunity but also affords a vehicle for
introducing the product in new markets as O'Boisie pursues expansion into
grocery stores throughout the country.
EXPANSION OF SALES THROUGH EXISTING CHANNELS OF DISTRIBUTION. The Company
intends to increase sales through its existing channels of distribution by (i)
adding new retailers through its existing distributors and wholesalers, (ii)
introducing new products and product line extensions which leverage the
Company's brand awareness and further its strategy of being a manufacturer of
niche snack products, and (iii) acquiring companies with complementary products
which the Company can distribute through its current and growing distribution
network (as described further in "Business--Acquisitions of Companies in Related
Areas" below).
The Company is focusing on adding major new accounts whose operations are
within the Company's existing distribution areas. The Company's sales and
marketing professionals work closely with both retailers and distributors to
support sales efforts at the retail level. This includes meeting directly with
store managers and/or category buyers to present and promote the O'Boisie
product line. Company Management also focuses on supporting and educating
existing distributors to enhance their effectiveness in placing the Company's
products in new and existing retail outlets.
The new product development will focus principally on new sizes and new
flavors of the Company's existing products. For example, the Company has
developed a new $.99 product line to capitalize on the convenience store, mini
mart, and independent grocery store trade. A $1.99 line has also been developed
to bring all of the Company's product offerings under a common price point which
will allow common promotions across the entire line of products. At the higher
price, the Company expects to achieve higher sales volume per purchase.
The Tato Skin product line is the Company's fastest growing category in
terms of sales volume, and management anticipates expanding the product line
with new flavor varieties. One potential example is ham and broccoli, which the
Company believes would complement the cheese and bacon Tato Skins product. The
Company is also considering several new pretzel ideas, including different
shapes and new ingredient configurations (e.g., whole wheat, sour dough).
Pretzels are one of the fastest growing snack food categories, and a category
management believes offers a significant growth opportunity for the Company.
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LEVERAGE PRETZEL PRODUCTION. Since its inception in January of 1996, the
Company has expanded beyond its own branded pretzel line to produce private
label pretzels for two companies. The Company also produces pretzels for several
other companies for incorporation into their product lines. The Company has
significant pretzel capacity beyond its current branded requirements. The
Company's plant is equipped with four pretzel baking lines and current
utilization is approximately 30%. The Company's strategy is to increase
production by focusing on packaged, private label pretzels and bulk sales. Bulk
sales of pretzels is a growing area of the pretzel category with the increase in
the number of mixes using pretzels as an ingredient. Management believes these
two segments offer significant growth potential.
ACQUISITIONS OF COMPANIES IN RELATED AREAS. The Company's acquisition
strategy is to identify acquisition candidates in the snack food industry that
have high quality branded products with consumer appeal. Management believes
that aside from the Company's two largest competitors, Frito Lay (a subsidiary
of Pepsico, Inc.) and Pringles (a subsidiary of Procter & Gamble), many of the
companies in the snack food industry are small companies with limited production
capabilities. Management will consider acquisition candidates with branded
products and growth potential which could be easily integrated into the
Company's existing distribution network. The Company intends to increase sales
of any acquired companies' products by leveraging its existing distribution
network. Such potential acquisition targets include both manufacturers of salty
snack food products such as potato crisps and pretzels, and manufacturers of
other similarly distributed food items, such as cookies and crackers. The
Company intends to centralize production at its own facility in order to
maximize manufacturing and distribution efficiencies.
The Company's acquisition focus is therefore intended to generate revenue by
leveraging its existing manufacturing capacity, operating and information
systems, and distribution capabilities, while also reducing costs through
elimination of duplicative manufacturing, selling, general and administrative
expenses. Management believes that several regional and niche companies in the
snack food industry provide attractive acquisition opportunities for the
Company. The Company has no existing agreements to acquire any companies or
product lines at this time.
PRODUCTS
The Company currently produces salty snacks in five distinct product lines.
The Company maintains consistency in flavor assortment, with modest rotation in
production to keep the product line fresh and to
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attempt to eliminate under-performing flavors. The table below represents an
overview of the Company's products:
<TABLE>
<CAPTION>
PRODUCT LINE PERCENTAGE OF SALES* FLAVORS DISTRIBUTION CHANNEL
- ---------------------------------------- --------------------- -------------------------- -----------------------
<S> <C> <C> <C>
Tato Skins-Registered Trademark-........ 55% Baked, Sour Cream, Retail
Cheese-n-Bacon Convenience Stores
Mass Merchandisers
Warehouse
O'Boisies-Registered Trademark-......... 14% Reduced Fat, Cheddar, Retail
Original, Sour Cream and Convenience Stores
Onion Mass Merchandisers
Vending
Warehouse
Pizzarias-Registered Trademark-......... 14% Cheese, Supreme, Pepperoni Retail
Convenience Stores
Mass Merchandisers
Vending
Warehouse
Pretzels................................ 12% Fat Free Knots, Butter Retail
Knots, Butter Braids, Mini Warehouse
Knots, Fat Free Mini Wholesalers
Knots, Bavarian Convenience Stores
Mass Merchandisers
Vending
Private Label
Chachos-Registered Trademark-........... 5% Original, Cheese, Cinnamon Retail
Convenience Stores
Mass Merchandisers
Vending
Warehouse
</TABLE>
- ------------------------
* From inception of the Company through February 22, 1997.
A description of the Company's primary products and new product concepts
is presented below:
Tato Skins-Registered Trademark---Tato Skins-Registered Trademark- are
snack chips that are made from potatoes for "real baked potato" appeal.
They are available in three flavors: Baked Potato, Sour Cream and Chives,
and Cheese-n-Bacon.
O'Boisies-Registered Trademark---O'Boisies-Registered Trademark- and Low
Fat O'Boisies-Registered Trademark- are light potato crisp snacks with a
crunchy, bubbly texture. O'Boisies-Registered Trademark- and Low Fat
O'Boisies-Registered Trademark- are available in Original, Sour Cream and
Onion and Cheddar, and will soon be available in Barbecue and in a fat
free version.
Pizzarias-Registered Trademark---Pizzarias-Registered Trademark- are a
unique snack made with real pizza dough and cheeses. They are available
in three flavors: Cheese Pizza, Zesty Pepperoni and Pizza Supreme.
Pretzels--O'Boisie Pretzels are made from enriched wheat flour and are
double baked for a better crunch and taste. These pretzels are
manufactured under a variety of brand names, including Traditional
Knots-Registered Trademark-, Butter Knots-Registered Trademark-, Butter
Mini Knots, Butter Braid-Registered Trademark-, Traditional Bavarian and
Fat-Free Minis. These brands offer a variety of taste and choice and are
aimed at the "health conscious" buyer, in that they are generally low/no
fat and low/no cholesterol.
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Chachos-Registered Trademark---Chachos-Registered Trademark- are flour
tortilla chips flavored with a blend of authentic Mexican seasonings.
They are available in three flavors: Restaurant Style Original, Cheesy
Quesadilla and Cinnamon Crispara.
NEW PRODUCTS
The Company's new product development will focus on three areas of product
expansion: extension of the Company's existing products through new sizes,
shapes and flavors; development of additional niche products; and strategic
acquisitions by the Company of complementary niche products. The criteria used
in evaluating all products is whether the item meets the Company's objective of
providing the consumer with unique snack products.
The line extension into new sizes focuses on providing products to expand
the Company's distribution effort. The Company's new $.99 product line extension
is an example of a line developed to capitalize on the convenience, mini mart,
and independent grocery store distribution channels. The products include Tato
Skins-Registered Trademark-, Pizzarias-Registered Trademark- and
O'Boisies-Registered Trademark-. A $1.99 line extension has been developed to
bring the Company's snack products (Tato Skins-Registered Trademark-,
Pizzarias-Registered Trademark-, O'Boisies-Registered Trademark- and
Chachos-Registered Trademark-) under a common price point.
The Company is also considering several new ideas in its pretzel line.
Management believes that new shapes and ingredient configurations offer an
opportunity to service this growing snack category. The Company introduced Fat
Free Mini Knots in 1996. To complement the Company's pretzel product line,
pretzel rods, pretzel thins, and another pretzel variation, fat free pretzel
thins, will be introduced in the third quarter of 1997. These products are
geared towards the health conscious snacker because they are low/no fat and
low/no cholesterol.
The Company is also developing new flavors for its existing products. Tato
Skins-Registered Trademark-, the Company's fastest growing category in sales
volume, will have several new flavors added to the line and the Company is also
developing several new Pizzarias-Registered Trademark- products utilizing the
concept of product as a pizza crust. Also slated for introduction in 1997 are
Barbecue O'Boisies-Registered Trademark-, Fat Free
O'Boisies-Registered Trademark-, an O'Boisie snack mix, and a corn tortilla
chip.
As described under "Proprietary Patented Process" below, the Miles J.
Willard Company and the Company have been working together to develop new niche
products utilizing the proprietary technology licensed to the Company.
An important part of the Company's strategy is also to locate and acquire
companies which complement the Company's existing product lines. This will allow
the Company to leverage its present and growing distribution system and expand
its market presence.
MANUFACTURING PROCESS AND FACILITIES
PROPRIETARY PROCESS. The process used by the Company to manufacture its
unique line of snacks (Tato Skins-Registered Trademark-,
O'Boisies-Registered Trademark-, Pizzarias-Registered Trademark- and
Chachos-Registered Trademark-) is a patented proprietary process. The Company
maintains the exclusive production rights in North America under licenses with
Miles J. Willard Company, which owns proprietary patents to the manufacturing
process. This proprietary technology gives each of the Company's products a
distinction from many other snack items. The Company is working with the Miles
J. Willard Company investigating other snack products which may use the
proprietary technology and to find niche snack products which offer consumers an
alternative to more traditional snack foods.
PRODUCTION PROCESS OVERVIEW. The Company focuses on producing quality
products by using statistical process controls and by placing a strong emphasis
on product freshness. The Company's plant uses a flexible, short-cycle
manufacturing process for production of all of the product lines. This process
allows the Company to manufacture a wider range of products thereby increasing
product freshness. These capabilities enable the Company to use alternate
channels of distribution while maintaining freshness.
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QUALITY ASSURANCE PROCESS. The Company monitors and measures key variables
of the production, packaging and distribution of its products to help maintain
quality and consistency in its products. The Company utilizes both its employees
and automated auditing systems to monitor quality during the production process.
Employees audit product freshness, product delivery and overall customer
satisfaction. High speed check weighers, metal detection, computerized ovens,
data processed mixers, computerized batch processing, and automated packing
equipment have been incorporated into the manufacturing process to help ensure
quality.
FACILITIES. O'Boisie's 140,000 square foot Bluffton, Indiana manufacturing
facility is situated on 12.8 acres and is strategically located to service the
Company's national business. Encompassing seven production lines (four for baked
(pretzel) products and three for fried (chips) products) this plant uses bulk
unloading systems, automated raw material handling and mixing systems, dough
handling, sheeting, baking and fry systems. Approximately $50 million dollars
was invested in the plant and in equipment by Keebler from 1979 to 1992. Because
of the investment in automation and production efficiency, management believes
the 140,000 square foot facility is large enough to satisfy the Company's
current and anticipated near term requirements.
When the Company acquired certain non-operating assets of the Keebler salty
snack division, the Bluffton plant had been shut down for approximately three
months (from November 1995 through January 1996). The plant was started again in
February of 1996 and now produces products previously produced at that location
as well as some products that had been produced at the two other Keebler salty
snack plants. The Company believes it has been successful in producing all of
these products. O'Boisie also selectively hired certain former Keebler
management, plant personnel and clerical workers. New employees were hired to
fill open positions.
RAW MATERIAL PURCHASES
The Company purchases raw materials from third parties who meet the
Company's quality standards. The Company's primary materials are flour, yeast,
potato flakes, various oil extracts and seasonings. Key proprietary flavor
systems are purchased from multiple parties to assure price competitiveness and
supply availability.
MANAGEMENT INFORMATION SYSTEM
Since the plant had no stand alone information systems when it was purchased
from Keebler, the Company has made significant investments in systems
capabilities. O'Boisie has installed new computer software and hardware which
has capabilities for capturing sales, order entry, billing, financial data and
inventory control information.
MARKETING, SALES AND DISTRIBUTION
MARKETING. O'Boisie's marketing department develops brand strategies for
the Company's existing and new products, including product development, pricing
strategy, consumer and trade promotion, advertising, publicity and package
design. This department's responsibilities include determining the allocation of
resources between consumer and trade spending, pricing and profitability
analysis, and product design and packaging design.
The Company uses a mix of consumer and trade promotions to market its
products. Marketing promotions are designed to promote use of the Company's
products in general, as opposed to promoting sales of one particular product or
variety. This strategy is intended to stimulate brand awareness and facilitate
the introduction of new products. The majority of the Company's sales promotion
expenditures for the retail channel have been trade advertising and promotion,
including slotting fees and feature advertising.
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Since the business had been shut down at the Bluffton facility for three
months prior to O'Boisie's purchase of Keebler's salty snack assets, the Company
has had to make significant expenditures to obtain shelf space and anticipates
having to make significant additional expenditure to access additional shelf
space. The Company will continue to evaluate each opportunity and make
appropriate expenditures to expand product presentation.
SALES. The Company also uses its own sales organization, as well as
brokers, in presenting marketing and sales programs, supporting retail stores,
selling new items and establishing sales promotions with customers. Objectives,
plans and programs are designed on a regional account basis by working directly
with key customers. The Company's current policy is to grant its brokers
exclusive rights to sell its products within defined territories.
DISTRIBUTION. The Company also sells through regional chippers and
distributors such as Texas Premium and Barrel of Fun Foods, Inc. In total, over
125 distributors are selling the Company's line of products in a total of 38
states. Warehouse programs allowing the shipment of products directly into
retailer warehouses are another distribution channel utilized by the Company.
Vend sales are a growing segment of the Company's sales and offer an excellent
means to expand the Company's products to consumers throughout the United
States. Bulk sales for use in other products is another segment of Company sales
which continues to grow.
To deliver its brands outside of the Midwest, O'Boisie distributes through a
select group of independent distributors and regional chippers. Currently,
D.S.D.A., a distribution association with 1,300 route vans, delivers the
Company's products to the East Coast. Poore Brothers, Barrel of Fun, Serv-U-
Success, Inc. and Milwaukee Biscuit Food Inc. are the most recent additions to
the distribution network. The Company continually evaluates its existing
distributors and pursues new distributors in its effort to effectively market
and sell the Company's products throughout the United States.
Individual orders are collected daily and transmitted directly to the
manufacturing facility. The product is then delivered directly to the Company's
customers or shipped directly to warehouses. The Company maintains a leased
warehouse in Ft. Wayne, Indiana.
COMPETITION
Snack food manufacturers generally categorize themselves on the basis of the
geographic reach of their brands. The Company believes that with the recent
departure from the market of the "Eagle" snacks business (Anheuser-Busch), only
two companies in the salty snack food industry, other than O'Boisie, can be
generally considered "national," with most other industry participants being
limited to only regional distribution and brand recognition. The Company's
national branded competitors are Frito-Lay, Inc., a subsidiary of PepsiCo, and
Procter & Gamble, manufacturer of Pringles Potato Crisps. With branded market
penetration in 38 states, management believes that The O'Boisie Corporation is
the only other national participant in this industry. All of these national
brands also compete with well established regional brands such as "Wise" in New
York, "Jays" in Chicago, and "Guys" in Kansas City.
The salty snack food business is highly competitive. Manufacturers compete
for consumer acceptance and attempt to gain entry and shelf space in major
supermarket chains with promotions, incentive programs and, when necessary,
payment for store authorizations and shelf space. Once in the store, brands are
discounted, featured and displayed periodically to stimulate purchases. New
products or different flavors and sizes of existing products are introduced to
provide variety and "news" in the store. Major competitors occasionally conduct
nationwide advertising programs.
With the exception of its pretzels, O'Boisie positions its product line as
an upscale, niche snack food line that does not compete directly with the potato
chip market so that retailers will view it as an add-on product, much like
tortilla chips or cheese puffs. This positioning facilitates the Company's
gaining shelf space with retailers seeking incremental sales.
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TRADEMARKS AND PATENTS
The Company obtains trademarks for its brands to the extent possible. The
Company has trademarks for most of its brands, including
O'Boisies-Registered Trademark-, Butter Knots-Registered Trademark-, Butter
Braids-Registered Trademark-, Tato Skins-Registered Trademark-,
Pizzarias-Registered Trademark- and Chachos-Registered Trademark-. The Company
has made various federal and international filings with respect to its material
trademarks, and intends to keep these filings current to the extent consistent
with business needs. The Company has been informed that there are two cases
pending before the Trademark Trial and Appeal Board of the U.S. Patent and
Trademark Office contesting the validity of the Chachos trademark. The Company
is vigorously prosecuting these cases. The Company is not aware of any other
challenge to the validity of any trademark material to its business.
The Company maintains proprietary production rights with Miles J. Willard
Company to license patents integral to its manufacturing of products. The
Company recently renegotiated its payment terms with Miles J. Willard Company to
provide that $250,000 of accrued payment, plus certain interest thereon, owed to
that company for 1996 and the first quarter of 1997 will be paid from the
proceeds of this Offering. See "Risk Factors--Dependence on Licensed Patents"
and "Risk Factors--Contested Trademark" and "Use of Proceeds."
EMPLOYEES
The Company employs a total of approximately 120 employees. There are 100
hourly workers at its manufacturing facility. They are represented by two
unions, the Teamsters and the AFL-CIO. The Teamsters contract was renewed in
November 1996 and expires in November 1997. The AFL-CIO contract expires in
December 1997. The Company believes its relationship with both unions is good.
GOVERNMENT REGULATIONS
The Company's products are subject to federal regulations administered by
the FDA and, to a lesser extent, the United States Department of Agriculture.
The FDA enforces the statutory prohibitions against misbranded and adulterated
foods, establishes ingredients and/or manufacturing procedures for certain
standard foods, establishes standards of identity for food and determines the
safety of food substances. The Company's plant is inspected regularly by outside
inspection services retained by the Company and by federal, state and local
officials that have jurisdiction over the Company's facility. The Company's
plant has currently been certified approved by the FDA.
New food labeling regulations required by the Nutrition Labeling and
Education Act of 1990 ("NLE Act") became effective on May 8, 1994 (with the
exception of certain "health dating" provisions as described below which became
effective on May 8, 1993). The regulations, which are administered by the
Secretary of Health and Human Services through the FDA, require all companies
that offer food for sale and have annual gross sales of more than $500,000,
which includes the Company, to place uniform labels disclosing the amount of
specified nutrients on all food products intended for human consumption and
offered for sale. The NLE Act contains exemptions and modifications of the
labeling requirement for certain types of food products, such as those served in
restaurants and other institutions, bulk foods, foods in small packages and
foods containing insignificant amounts of nutrients. The NLE Act also
establishes the circumstances in which companies may place nutrient content
claims (such as "low sodium," "light" or "lite") or health claims (such as "a
diet low in total fat may reduce the risk of some cancers") on labels. The
Company has revised its product packaging to comply with the new regulations.
The Company is subject to certain federal, state and local environmental
regulations affecting its operations. The Company believes it is in material
compliance with such regulations.
The Company is subject to various health and safety regulations protecting
its employees, including regulations promulgated pursuant to the Federal
Occupational Safety and Health Act. These regulations require the Company to
comply with certain manufacturing, health and safety standards to protect its
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employees from accidents. The Company believes it is in material compliance with
these regulations as well.
LEGAL PROCEEDINGS
The Company is a co-defendant in a class action suit brought on February 11,
1997 (in Cuyahoga County, Ohio, Court of Common Pleas) by certain route sales
people against Keebler seeking damages of $3 million. A significant majority of
the damages alleged in the complaint relate solely to conduct alleged against
Keebler. Management believes the suit to be unfounded. The Company has hired
counsel in this matter and intends to vigorously defend this suit. The Company
is also a co-defendant in a suit by a Keebler employee (who was never an
employee of the Company) seeking damages of $30,000. A former employee of the
Company, James Schindel, filed suit against the Company in 1996 (in Bluffton,
Indiana), alleging he is owed $110,000 in severance payments. The Company does
not believe Mr. Schindel is entitled to any severance payment and is vigorously
defending this action. See also the description of the trademark litigation
regarding its trademark Chachos-Registered Trademark- as described above in
"Business--Trademarks and Patents." The Company is not a party to any other
material pending legal proceeding nor, to the Company's knowledge, is any
material legal proceeding threatened against it.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information regarding directors and
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- -------------------------------------- --- --------------------------------------------------------------------
<S> <C> <C>
Donald F. Schumacher II............... 47 Chairman of the Board, Chief Executive Officer and Director
David W. Blue......................... 52 Chief Operating Officer, President, Director
Susan C. Bolin........................ 39 Chief Financial Officer, Treasurer, Director
Steven Devick......................... 44 Nominee for Director following this Offering
Robert S. Steel....................... 42 Nominee for Director following this Offering
Peter J. Vitulli...................... 44 Nominee for Director following this Offering
</TABLE>
DONALD F. SCHUMACHER II, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OFFICER. Mr. Schumacher has served as Chairman of the Board, a director and
Chief Executive Officer since the Company's inception in January 1996. Mr.
Schumacher has invested as a principal, for his own account individually or
through Schumacher Capital Corp., since 1979 in various companies, including in
Kelly Food Products, Inc., a regional manufacturer of salty snack foods located
in Decatur, Illinois ("Kelly"), which filed a petition for bankruptcy under
Chapter 11 in October of 1996. Mr. Schumacher was an executive officer of Kelly
until May of 1996. Mr. Schumacher is married to Ms. Bolin.
DAVID W. BLUE, CHIEF OPERATING OFFICER AND PRESIDENT. Mr. Blue has served
as Chief Operating Officer and President of the Company since January 1996 and
as a director of the Company since May 1996. Mr. Blue was an executive officer
of Kelly (which filed for bankruptcy in October 1996) from October, 1994 until
May of 1996. Mr. Blue has over 30 years of experience with Kraft General Foods
and Stella Foods. Mr. Blue served as Executive Vice President of Stella Foods
for several years immediately prior to joining Kelly. He holds an MBA in Finance
from Loyola University (1975) and a BS in Industrial Engineering from Milikin
University (1966).
SUSAN C. BOLIN, TREASURER AND CHIEF FINANCIAL OFFICER. Ms. Bolin has served
as Chief Financial Officer and Treasurer of the Company since January 1996 and a
director of the Company since May 1996. Ms. Bolin has over ten years of
experience in commercial banking through 1992. From 1992 until January 1996, Ms.
Bolin invested as a principal, for her own account individually or through
Schumacher Capital Corp., in various private companies. Ms. Bolin previously
held positions with the First National Bank of Chicago and the Great Atlantic
and Pacific Food Company. She holds an MBA in finance from Loyola University
(1984) and a BS in Marketing from Northern Illinois University. Ms. Bolin is
married to Mr. Schumacher.
ADDITION OF INDEPENDENT DIRECTORS
The Company's current Board of Directors consists of three members.
Following this Offering, the Company will appoint the following three additional
directors, all of whom have agreed in principle to join the Company's Board and
none of whom will be employees of the Company.
STEVEN DEVICK. Mr. Devick is the Chief Executive Officer, President and
Chairman of the Board of Platinum Entertainment, Inc., a publicly trade music
company, and has served as its Chairman of the Board and Chief Executive Officer
since January 1992. Mr. Devick is also a director of Platinum Technology, Inc.,
a publicly traded software company. He is also a director of several private
companies.
ROBERT S. STEEL. Mr. Steel is President and Chief Executive Officer of K.A.
Steel Chemicals, Inc. (a chemical distribution and manufacturing company). He
has served in those capacities since 1977. He is
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also chairman of Montana Metal Products, L.L.C. (a precision sheet metal
fabrication and machining company), and is a managing Director of Platinum
Venture Partners, Inc. He is also a member of the board of directors of
Whittman-Hart, a publicly traded Chicago-based software consulting company and a
member of the board of directors of Monterey Pasta Company, a publicly traded
food manufacturing company.
PETER J. VITULLI. Mr. Vitulli is a Managing Director of Russell Reynolds
Associates, a global executive search firm. Prior to that, from 1993 through
1995, he held the position of Chairman, Chief Executive Officer and President of
Everfresh Beverages, Inc., a Chicago-based manufacturer of juices and juice
drinks which filed for bankruptcy in November 1995. Prior to that, from 1992 to
1993, he served as President of Gatorade U.S. and Canada, prior to which he
worked for Quaker Oates. Mr. Vitulli has approximately 20 years of experience in
the food and beverage industry.
OTHER KEY EMPLOYEE
In addition to its executive officers, management considers the following
individual to be a key employee:
JOSEPH WERNER, VICE PRESIDENT OF OPERATIONS.Mr. Werner joined Keebler in
1992 as Plant Director. Mr. Werner has served as Vice President of Manufacturing
for the Company since January 1996. Previously, Mr. Werner held positions with
T.K.I. Foods, Lenders Bagels and Bachman Snacks.
ELECTION OF DIRECTORS
The Company's Articles of Incorporation provide that the Company's Board
shall be comprised of four to seven directors, a level it will reach after the
public offering. The Articles of Incorporation also provide that upon
consummation of a public offering, the directors shall be divided into three
classes of approximately equal numbers, which classes will have staggered terms.
One class of directors shall be elected annually by the shareholders. There is
no cumulative voting permitted in the election of directors.
COMPENSATION OF DIRECTORS
It is anticipated that Directors will receive cash compensation for their
services as Directors, and will be reimbursed for their expenses for each board
and committee meeting attended. It is also anticipated that the Company will
grant Directors options to purchase common stock of the Company.
COMMITTEES
Upon the election of additional directors to the Company's Board of
Directors, the Board intends to establish Compensation and Audit Committees. The
Compensation Committee will review and recommend to the Board of Directors the
compensation and benefits of all officers of the Company, review general policy
matters relating to compensation and benefits of employees of the Company and
administer the issuance of stock options to the Company's officers, employees,
directors and consultants. The Audit Committee will meet with management and the
Company's independent auditors to determine the adequacy of internal controls
and other financial reporting matters. The Compensation and Audit Committees may
include independent and employee directors.
EXECUTIVE COMPENSATION
The following table sets forth the annual and other compensation of the
Company's Chief Executive Officer and each of the other executive officers whose
total salary and bonus exceeded $100,000 for the
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period from January 26, 1996 through December 31, 1996. No other executive
officers of the Company had total salary and bonus which exceeded $100,000 for
the period ended December 31, 1996.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------------
-------------------------------------------------- SECURITIES ALL OTHER
OTHER ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) ($)(4)
- ------------------------------------------ ---------- --------------- --------------------- ------------------- ------------
<S> <C> <C> <C> <C> <C>
Donald F. Schumacher II................... $ 250,000 $ 0 $ 0 0 $ 306,000
Chairman and CEO(1)
David W. Blue, President.................. $ 125,000 $ 0 $ 0 0 $ 47,000
and Chief Operating Officer(2)
Susan C. Bolin, Chief Financial........... $ 110,000 $ 0 $ 0 0 $ 47,000
Officer and Treasurer(3)
</TABLE>
- ------------------------
(1) "All other compensation" includes $10,000 as the estimated value of a
company car provided for the individual's use.
(2) "All other compensation" includes $10,000 as the estimated value of a
company car provided for the individual's use.
(3) "All other compensation" includes $10,000 as the estimated value of a
company car provided for the individual's use.
(4) The amounts in excess of $10,000 per individual were payable to respective
parties in January 1996 as compensation for services rendered to the Company
in negotiating and finalizing the acquisition of the assets from Keebler.
These amounts were not paid to the parties in cash but were simultaneously
contributed to the Company by the individuals as additional capital
contributions.
EMPLOYMENT AGREEMENTS
Prior to the consummation of this Offering, the Company intends to enter
into employment agreements with each of Mr. Schumacher, Mr. Blue and Ms. Bolin.
It is anticipated that each of the employment agreements will have a term of
three (3) years and will automatically renew for additional one (1) year periods
unless either the employee or the Company elects to terminate the agreement at
the expiration of the term. Mr. Schumacher's employment agreement will provide
for his employment as Chairman of the Board and Chief Executive Officer at an
annual base salary of $250,000. Mr. Blue's employment agreement will provide for
his employment as President and Chief Operating Officer at an annual base salary
of $175,000. Ms. Bolin's employment agreement will provide for her employment as
Chief Financial Officer and Treasurer at an annual base salary of $150,000. Each
of the employment agreements will provide for the employee's participation in
all executive benefit plans. It is anticipated that each of the employment
agreements will provide that if the employee's employment is terminated without
cause (to be defined in the agreement), the Company will pay the employee an
amount equal to the salary that would have been payable to the employee over the
unexpired term of the employment agreement.
The Company entered into an Employment Agreement with James Schindel
commencing in February of 1996, pursuant to which Mr. Schindel was entitled to a
base salary of $110,000 per year for the first three years of his employment,
plus a bonus based upon certain performance targets. Mr. Schindel resigned his
employment with the Company on December 26, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
The Company did not grant any stock options to its named executive officers
during 1996.
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FISCAL YEAR-END OPTION VALUES
There are currently no outstanding options, and no person has exercised any
options since the Company's inception.
STOCK OPTION PLAN
In June 1997 it is anticipated that the Company's Board of Directors and
shareholders will adopt the Company's Stock Option Plan (the "Stock Option
Plan"). Pursuant to the Stock Option Plan, options can be granted to employees
and consultants of the Company. The Stock Option Plan will be administered by
the Compensation Committee of the Board of Directors (the "Committee"). Subject
to certain limits, options to be granted under the Stock Option Plan may be
incentive stock options ("ISOs") meeting the requirements of Section 422 of the
Internal Revenue Code or may be options other than ISOs (non-qualified options
or "NQSOs"), provided that NQSOs may be granted for no more than a total of
150,000 shares. The exercise price of an ISO must be at least equal to the fair
market value (as defined in the Stock Option Plan) per share of the Common Stock
on the date of the grant, and must be at least 110% of such value if the grantee
is a substantial shareholder of the Company. The exercise price of NQSOs will be
determined by the Committee and may be greater or less than the fair market
value per share of the Common Stock on the date of grant. The exercise price is
required to be paid in full at the time of exercise in cash or its equivalent
or, upon approval of the Committee, in shares of Common Stock. ISOs and NQSOs
granted under the Stock Option Plan will be exercisable for a term of not more
than 10 years (not more than five years if the grantee is a substantial
shareholder) as determined by the Committee, and will become exercisable at such
time or times during the optionee's employment with the Company as may be
determined by the Committee, subject to acceleration of vesting upon a "change
in control" of the Company. Options that have become exercisable on or prior to
the date of termination of the optionee's employment terminate at the earlier
of: (i) the expiration date of the option; (ii) where such termination of
employment occurs as a result of death or disability, one year after the date of
termination of employment; or (iii) where such termination occurs other than as
a result of death or disability, three months after the date of termination of
employment by resignation with the consent of the Company, or the date of
termination of employment in other cases. Generally, options granted under the
Stock Option Plan are not transferable by the grantee other than by testament or
the laws of descent and distribution. All other terms, including the time or
times at which an option becomes exercisable, may be determined by the Committee
in its discretion.
The Stock Option Plan also authorizes the Committee to grant restricted
stock, deferred stock and stock appreciation rights ("SARs") in connection with
options granted. SARs entitle the optionee to receive upon exercise cash or
Common Stock, as determined by the Committee, equal in value to the difference
between the option price and the current fair market value of the stock subject
to the option and related SAR. Exercise of an SAR is in lieu of exercise of the
related option.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Article Seven, Paragraph 8, of the Company's Articles of Incorporation
provides that the Company shall indemnify its directors to the full extent
permitted by law, and may indemnify its officers and employees to such extent,
except that the Company shall not be obligated to indemnify any such person (i)
with respect to proceedings, claims or actions initiated or brought voluntarily
by any such person and not by way of defense, or (ii) for any amounts paid in
settlement of an action indemnified against by the Company without the prior
written consent of the Company. Article Seven, Paragraph 9, of the Company's
Articles of Incorporation further provides that the personal liability of the
directors of the Company is eliminated to the fullest extent permitted under the
Illinois Business Corporation Act of 1983, as amended.
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The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities under
the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
CERTAIN TRANSACTIONS
On November 18, 1995, a Snack Assets Purchase Agreement (as amended, the
"Purchase Agreement") was executed between Keebler, as seller, and Kelly as
buyer. The Purchase Agreement was by its terms assignable by Kelly to any other
entity controlled by Donald F. Schumacher, II. At the time of execution of the
Purchase Agreement, Mr. Schumacher was a director, executive officer and
majority shareholder of Kelly. The Company was formed in January 1996, and Kelly
assigned its rights and obligations under the Purchase Agreement to the Company.
The purchase of the assets from Keebler is more fully described in Management's
Discussion and Analysis of Financial Condition and Results of Operations.
From time to time from February 1996 through July 1996, the Company advanced
funds to Kelly totalling $1,118,989, while the Company was evaluating a merger,
acquisition or other similar transaction with Kelly. In May 1996, Kelly executed
a secured promissory note to the Company to reflect these borrowings. Kelly
filed for bankruptcy protection in October 1996 and the Company has reserved
against the loss of the entire amount under such note. Mr. Blue was also an
executive officer of Kelly from October 1994 to May 1996.
Prior to Kelly filing for bankruptcy, the Company sold its products to Kelly
totalling $461,203 for the period ended July 27, 1996 and purchased $460,874 of
products from Kelly during that same period.
On July 3, 1996, Mr. Schumacher guaranteed up to $3,000,000 of the Company's
obligations to the Lender under its $5,000,000 revolving credit facility and its
$5,000,000 term loan facility. Any repayments by the Company of these
obligations for so long as Mr. Schumacher remains a guarantor will indirectly
benefit Mr. Schumacher by reducing his risk under the guaranty.
In January 1996, the Company agreed to pay, upon closing the purchase from
Keebler, a total of $370,000 to Donald F. Schumacher, Susan Bolin and David Blue
for their services in negotiating the purchase of assets by the Company from
Keebler. The payments were not paid to the individuals by the Company but
instead at the instructions of the individuals, payments were converted by them
to capital contributions to the Company in the amounts of $296,000 by Mr.
Schumacher, $37,000 by Ms. Bolin and $37,000 by Mr. Blue.
Mr. Schumacher's salary from the Company for the period from January through
December 31, 1996 (totalling $250,000) was not paid and has been included in
accrued expenses. It is anticipated that this obligation will be repaid from the
proceeds of this Offering. See "Use of Proceeds." The Company also anticipates
entering into employment agreements with Mr. Schumacher, Ms. Bolin and Mr. Blue
prior to this Offering.
Management believes that all prior transactions between the Company and its
officers, shareholders and affiliates were made on terms no less favorable to
the issuer than those available from unaffiliated parties. The Company has
adopted a policy that all future transactions with affiliated entities or
persons will be no less favorable than could be obtained from unrelated parties
and all future transactions between the Company and its officers, directors,
principal shareholders and affiliates will be approved by a majority of the
Company's Board of Directors. See "Risk Factors--Stock Ownership's Private
Placement Memorandum Correction" for a discussion of a commitment by Mr.
Schumacher to the Company with respect to
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a difference in stock ownership reported in the Company's private placement
memorandum with reference to its Private Placement. See also "Risk
Factors--Conflicts of Interest".
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 27, 1997, and as adjusted to
reflect the sale of shares offered hereby, certain information concerning the
beneficial ownership of the Company's Common Stock by (i) each person, known by
the Company to be the beneficial owner of more than 5% of the outstanding Common
Stock of the Company, (ii) each of the Company's directors and executive
officers and (iii) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
PERCENTAGE OF OWNERSHIP
-------------------------------------------------------
AFTER OFFERING(4)
----------------------------
PERCENTAGE
PRIOR TO OFFERING PERCENTAGE OF TOTAL
SHARES OF COMMON STOCK ------------------------- OF CLASS VOTING POWER
BENEFICIALLY OWNED PERCENTAGE WITHOUT WITH
---------------------- PERCENTAGE OF TOTAL CONVERSION OF CONVERSION OF
BEFORE THE AFTER THE OF VOTING PREFERRED PREFERRED
NAME OF BENEFICIAL OWNER(1) OFFERING OFFERING CLASS(5) POWER(5) STOCK(6) STOCK(6)
- ------------------------------------ ---------- ---------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald F. Schumacher II(2).......... 1,157,228 1,157,228 77.17% 77.17% 42.08% %
David W. Blue....................... 144,654 144,654 9.65% 9.65% 5.26% %
Susan C. Bolin(3)................... 144,654 144,654 9.65% 9.65% 5.26% %
Directors and executive
officers as a group (three
persons).......................... 1,446,536 1,446,536 96.47% 96.47% 52.60% %
</TABLE>
- ------------------------
(1) Unless otherwise indicated below, the persons in the table above have sole
voting and investment power with respect to all shares shown as beneficially
owned by them.
(2) Includes the 1,157,228 shares owned by Schumacher Capital, LLC, which is
owned for the benefit of the Schumacher family, and of which Mr. Schumacher
is the majority equity member and for which Mr. Schumacher has sole voting
and investment power. Excludes the 144,654 shares beneficially owned by Ms.
Bolin, his wife, which are disclosed elsewhere in this table.
(3) Excludes the 1,157,228 shares beneficially owned by Mr. Schumacher, her
husband, which are disclosed elsewhere in this table. Included in the shares
Schumacher Capital, LLC owns and thus excluded from the number are the
144,654 additional shares (12.5% of Schumacher Capital, LLC's shares) to
which she has a right to the proceeds, but over which she does not exercise
any investment or voting control.
(4) This portion of the chart shows the percentage after this offering if none
of the shares of Preferred Stock are converted, or if all of the shares of
Preferred Stock are converted, respectively.
(5) Does not include (i) 53,052 shares of Common Stock issuable upon exercise of
the Private Placement Warrants issued in the Private Placement, (ii) 150,000
shares of Common Stock reserved for issuance under the Company's Stock
Option Plan, none of which options have been granted to date, (iii) 75,000
shares of Common Stock issuable at $.001 per share upon exercise of the
warrant anticipated to be issued to the Company's current lender or (iv)
exercise of the warrant for 12,500 shares of Common Stock, exercisable at
$1.00 per share anticipated to be granted to Miles J. Willard Company as
part of the renegotiation of the payment terms under the Company's patent
license agreements with that company.
(6) Does not include (i) 187,500 shares of Common Stock issuable upon exercise
of the Underwriters' Over-Allotment Option, (ii) 125,000 shares of Common
Stock issuable upon exercise of the Representative's Warrants, (iii)
shares of Common Stock issuable upon conversion of the Preferred
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Stock offered hereby or shares of Common Stock issuable upon
conversion of the Preferred Stock issuable upon exercise of the
Underwriters' Over-Allotment Option or the shares of Common Stock
issuable upon conversion of the Preferred Stock issuable upon exercise of
the Representative's Warrant, (iv) 53,052 shares of Common Stock issuable
upon exercise of the Private Placement Warrants issued in the Private
Placement, (v) 150,000 shares of Common Stock reserved for issuance under
the Company's Stock Option Plan, none of which have been granted to date,
(vi) 75,000 shares of Common Stock issuable at $.001 per share upon exercise
of the warrant anticipated to be issued to the Company's current lender, or
(vii) exercise of the warrant for 12,500 shares of Common Stock, exercisable
at $1.00 per share, anticipated to be granted to Miles J. Willard Company as
part of the renegotiation of the payment terms under the Company's patent
license agreements with that company.
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DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 30,000,000 shares of common stock, par
value $.01 per share. In addition, the Board of Directors may issue 10,000,000
shares of preferred stock in any class or series and may fix the designation,
powers, preferences and rights of such shares.
As of the date of this Prospectus there were 1,500,000 shares of Common
Stock outstanding and 53,052 Warrants outstanding.
COMMON STOCK
The holders of Common Stock (i) have equal ratable rights to dividends from
funds legally available therefor, when, as and if declared by the Board of
Directors of the Company, subject to the rights of holders of any Preferred
Stock; (ii) are entitled to share ratably in all of the assets of the Company
available for distribution to holders of Common Stock upon liquidation,
dissolution or winding-up of the affairs of the Company, subject to the rights
of holders of any Preferred Stock; (iii) do not have preemptive, subscription or
conversion rights; and (iv) are entitled to one vote per share on all matters
submitted to a vote of the Company's shareholders. The Common Stock does not
have cumulative voting rights or any redemption or sinking fund provisions. All
shares of Common Stock now outstanding are fully paid and nonassessable, and,
when issued, all shares of Common Stock underlying the Preferred Stock included
in this offering will be fully paid and nonassessable.
PREFERRED STOCK
The Company's Articles of Incorporation provide for an authorized class of
undesignated Preferred Stock consisting of 10,000,000 shares. The Preferred
Stock may be issued at the direction of the Board of Directors, without the
approval of the holders of Common Stock, in series from time to time with such
designations, relative rights, priorities, preferences, qualifications,
limitations and restrictions thereon, to the extent that such are not fixed in
the Company's Articles of Incorporation, as the Board of Directors determines.
The rights, preferences, limitations and restrictions of different series of
Preferred Stock may differ with respect to dividend rates, amounts payable on
liquidation, voting rights, conversion rights, redemption provisions, sinking
fund provisions and other matters. The Board of Directors may authorize the
issuance of Preferred Stock which ranks senior to the Common Stock with respect
to the payment of dividends and the distribution of assets on liquidation. In
addition, the Board of Directors is authorized to fix the limitations and
restrictions, if any, upon the payment of dividends on Common Stock to be
effective while any shares of Preferred Stock are outstanding. The Board of
Directors, without shareholder approval, can issue Preferred Stock with voting
and conversion rights which could adversely affect the voting power of the
holders of Common Stock. The issuance of Preferred Stock to certain holders
under certain circumstances may have the effect of delaying, deferring or
preventing a change in control of the Company and may have a depressive effect
on the market price of the Common Stock.
DESCRIPTION OF PREFERRED STOCK
The issuance of up to shares of Preferred Stock has been authorized by
resolutions adopted by the Board of Directors and filed with the Secretary of
State of the State of Illinois, which resolutions contain the designations,
rights, powers, preferences, qualifications and limitations of the Preferred
Stock. Upon issuance, the shares of Preferred Stock offered hereby will be fully
paid and non-assessable. The statements in this Prospectus relating to the
Preferred Stock are summaries and do not purport to be complete. Investors are
referred to the resolutions relating to the Preferred Stock which have been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part.
DIVIDENDS. The holders of the Preferred Stock will be entitled to receive
cumulative dividends from the date of issue, when and, as and if declared by the
Board of Directors out of funds legally available therefor, at the annual rate
per share stated on the cover page of this Prospectus, payable quarterly in
49
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arrears on the last business day of January, April, July and October (each a
"Dividend Payment Date"), commencing , 1997, to the holders of record
as of a date, not more than sixty (60) days prior to the Dividend Payment Date,
as may be fixed by the Board of Directors. Dividends on shares of Preferred
Stock will accrue from the date of issue.
Dividends on the Preferred Stock will accrue whether or not the Company has
earnings, whether or not there are funds legally available for the payment of
such dividends and whether or not such dividends are declared. Dividends
accumulate to the extent they are not paid on the Dividend Payment Date to which
they relate. Accumulated unpaid dividends will not bear interest. Pursuant to
the Illinois Business Corporation Act of 1983, as amended ("Illinois Law"), the
Company may declare and pay dividends or make other distributions on its stock
only if such distributions will not (i) render the corporation insolvent or (ii)
cause the net assets of the corporation to fall below zero or below the maximum
amount payable at the time of distribution to shareholders having preferential
rights in liquidation if the corporation were then to be liquidated. The Company
intends to pay quarterly dividends out of available net profits or earnings. On
February 22, 1997, the Company had no available net profits and there were no
net profits for the current fiscal year. The Company's ability to pay dividends
is dependent upon achieving net profits. In addition, no dividends or
distributions may be declared, paid or made if the Company is or would be in
default under the terms of its senior indebtedness by virtue of such dividend or
distribution. Currently, the terms of the Company's senior indebtedness requires
in the future that the Company meet certain financial covenants with which the
Company is currently in default. On a pro forma basis, after giving effect to
this Offering, the Company would have had a net worth of approximately $ at
, 1997. The Company, therefore, would have available approximately
$ of its surplus for the payment of dividends based on its net worth at
, 1997, and after giving effect to this Offering. Any such operating
losses would further adversely affect the Company's ability to pay dividends.
No dividends may be paid on any shares of capital stock ranking junior to
the Preferred Stock (including the Common Stock) unless and until all
accumulated and unpaid dividends on the Preferred Stock have been declared and
paid in full.
CONVERSION OF PREFERRED STOCK. The holder of any share of Preferred Stock
shall have the right, at his option, at any time prior to the effective date of
redemption (if the Company gives notice of redemption) to convert any such share
into shares of Common Stock of the Company, as such conversion rate may be
adjusted (the "Conversion Rate"); provided that, with respect to shares of
Preferred Stock called for redemption, conversion rights will expire at the
close of business on the redemption date.
The Conversion Rate is subject to adjustment from time to time in the event
of (i) the issuance of Common Stock as a dividend or distribution on any class
of capital stock of the Company; (ii) the combination, subdivision or
reclassification of the Common Stock; (iii) the distribution to all holders of
Common Stock of evidences of the Company's indebtedness or assets (including
securities but excluding cash dividends or distributions paid out of net
profits); or (iv) the sale of Common Stock at a price, or the issuance of
options, warrants or convertible securities with an exercise or conversion rate
per share less than the lower of the then current Conversion Rate or the then
current market price of the Common Stock (except under (a) exercise of the
Representative's Warrants or (b) the issuance of Common Stock or options to
employees, officers, directors, shareholders or consultants pursuant to the
Stock Option Plan or any other stock plans, provided that, in the case of all
such stock plans, including the Stock Option Plan, the aggregate amount of
Common Stock issued thereunder does not exceed 10% of the number of shares of
Common Stock then outstanding). No adjustment in the Conversion Rate will be
required until cumulative adjustments require an adjustment of at least 5% in
the Conversion Rate. No fractional shares will be issued upon conversion, but
any fractions will be adjusted in cash on the basis of the then current market
price of the Common Stock. Payment of accumulated and unpaid dividends will be
made upon conversion to the extent of legally available funds.
50
<PAGE>
In case of any consolidation or merger to which the Company is a party
(other than a consolidation or merger in which the Company is the surviving
party and the Common Stock is not changed or exchanged), or in case of any sale
or conveyance of all or substantially all of the property and assets of the
Company, each share of Preferred Stock then outstanding will be convertible from
and after such merger, consolidation or sale or conveyance of property and
assets into the kind and amount of shares of stock or other securities and
property receivable as a result of such consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock into which such
share of Preferred Stock could have been converted immediately prior to such
merger, consolidation, sale or conveyance.
Conversion rate adjustments, or the omission to make such adjustments, may
in certain circumstances not presently contemplated by the Company, result in
distributions that could be taxable as constructive dividends. See "Certain
Federal Income Tax Considerations".
REDEMPTION PROVISIONS. The Company may, at its option, redeem, in whole or
in part on a pro rata basis, upon 30 days' prior written notice (i) after
, 1998 but before , 1999 at $ per share, plus
accumulated and unpaid dividends, provided that the closing bid price of the
Common Stock for at least 20 consecutive trading days ending not more than 10
trading days prior to the date of the notice of redemption equals or exceeds
$ per share ( % of the initial public offering price per share) (ii) after
, 1999 but before , 2000 at $ per share, plus
accumulated and unpaid dividends, provided that the closing bid price of the
Common Stock for at least 20 consecutive trading days ending not more than 10
trading days prior to the date of the notice of redemption equals or exceeds
$ per share ( % of the initial public offering price per share) and (iii)
after , 2000 at $ per share, plus accumulated and unpaid
dividends. See "Description of Capital Stock--Preferred Stock."
PROVISIONS RELATING TO OPTIONAL CASH REDEMPTION.
If less than all of the Preferred Stock is to be redeemed, the Company will
select the shares to be redeemed by lot or a substantially equivalent method.
Notice of redemption will be mailed to each holder of Preferred Stock to be
redeemed at his last address as it appear upon the Company's registry books at
least 30 days prior to the date or dates fixed for redemption (each a
"Redemption Date"); provided that if the Company shall not have funds legally
available for the redemption of the shares to be redeemed on the Redemption
Date, the notice of redemption shall be null and void and the Redemption Date
shall not occur. On and after the redemption date, dividends will cease to
accumulate on shares of Preferred Stock called for redemption.
On or after the Redemption Date, holders of shares of Preferred Stock which
have been redeemed shall surrender their certificates representing such shares
to the Company at its principal place of business or as otherwise specified in
the notice of redemption or exchange and thereupon either (i) the redemption
price of such shares shall be payable to the order of, or (ii) the shares of
Common Stock shall be issued, in the event of conversion to Common Stock prior
to the Redemption Date, to the person whose name appears on such certificate or
certificates as the owner thereof. Holders of Preferred Stock may elect to
convert such shares into Common Stock at any time prior to the Redemption Date.
From and after the Redemption Date, all rights of the holders of redeemed
shares shall cease with respect to such shares and such shares shall not
thereafter be transferred on the books of the Company or be deemed to be
outstanding for any purpose whatsoever.
VOTING RIGHTS. The holders of the Preferred Stock are not entitled to vote,
except as set forth below and as provided by applicable law. On matters subject
to a vote by holders of Preferred Stock, the holders are entitled to one vote
per share.
The affirmative vote of the holders of two-thirds of the outstanding shares
of Preferred Stock, voting as a class, is required in order to authorize,
effectuate or validate the creation and issuance of any class or
51
<PAGE>
series of stock ranking superior to or on parity with the Preferred Stock with
respect to the declaration and payment of dividends or distribution of assets on
liquidation, dissolution or winding-up. If the Company has the right to redeem
the Preferred Stock, no such vote is required if, prior to the time such class
is issued, provision is made for the redemption of all shares of Preferred Stock
and such Preferred Stock is redeemed on or prior to the issuance of such class.
LIQUIDATION PREFERENCE. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, before payment or
distribution of the assets of the Company (whether capital or surplus), or the
proceeds thereof, may be made or set apart for the holders of Common Stock or
any stock ranking junior to the Preferred Stock, the holders of Preferred Stock
will be entitled to receive, out of the assets of the Company available for
distribution to shareholders, a per share liquidating distribution equal to the
initial public offering price per share plus any accumulated and unpaid
dividends. If, upon any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the assets of the Company are insufficient to make
the full payment as required in the preceding sentence, plus similar payments on
any other class of stock ranking on a parity with the Preferred Stock upon
liquidation, then the holders of Preferred Stock and such other shares will
share ratably in any such distribution of the Company's assets in proportion to
the full respective distributable amounts to which they are entitled.
A consolidation or merger of the Company with or into another corporation or
sale or conveyance of all or substantially all of the property and assets of the
Company will not be deemed to be a liquidation, dissolution or winding-up,
voluntary or involuntary, of the Company for the purposes of the foregoing. See
"Conversion".
MISCELLANEOUS. The Company is not subject to any mandatory redemption or
sinking fund provision with respect to the Preferred Stock. The holders of the
Preferred Stock are not entitled to preemptive rights to subscribe for or to
purchase any shares or securities of any class which may at any time be created.
REPRESENTATIVE'S WARRANTS
The Company has also agreed to issue warrants to the Representative (the
"Representative's Warrants") to purchase an aggregate of 125,000 shares of
Common Stock and shares of Preferred Stock. See "Underwriting."
WARRANT TO BE ISSUED TO COMPANY'S CURRENT LENDER
The Company anticipates issuing a warrant to the Company's current senior
lender, entitling the Lender to purchase 75,000 shares of Common Stock for $.001
per Share (the "Lender's Warrant"). The Lender's Warrant would be issued as part
of a renegotiation of the Company's loan agreements, for which the Company is
currently in default.
WARRANT TO BE ISSUED UNDER LICENSE AGREEMENT
The Company anticipates granting to Miles J. Willard Company, as part of the
renegotiation of the payment terms under the Company's patent license agreements
with that company, a warrant entitling the holder to purchase 12,500 shares of
Common Stock, with an exercise price of $1.00 per share.
SECURITIES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Prior to this offering, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices.
Upon completion of this offering, the Company will have 2,750,000 shares of
Common Stock and
shares of Preferred Stock outstanding (excluding any of the Underwriters'
over-allotment shares). Of these shares, the 1,250,000 shares of Common Stock
sold in this Offering (1,437,500 shares of Common Stock if the Underwriters
exercises their Over-Allotment Option in full) will be freely tradable without
restriction
52
<PAGE>
under the Securities Act, except for any such shares which may be acquired by an
"affiliate" of the Company as that term is defined in Rule 144 (an "Affiliate").
The 1,500,000 remaining shares constitute "restricted securities" within the
meaning of Rule 144, and will only be eligible for sale in the open market
commencing on the first anniversary of the later of the date such shares were
acquired from the Company or an Affiliate, subject to the contractual lockup
provisions and applicable requirements of Rule 144 described below. However, of
such restricted securities, 53,052 shares issued to the purchasers in the
Private Placement (the "Private Placement Securityholders") and the shares of
Common Stock issuable upon exercise of the Private Placement Warrants, are
subject to registration rights which may entitle the holder thereof to register
such shares for resale under the Securities Act and to sell such shares, after
the lockup period, without regard for the restrictions of Rule 144. The Private
Placement Securityholders have registration rights permitting them to register
their shares whenever the Company files certain registration statements,
including the Registration Statement of which this Prospectus is a part. The
Private Placement Securityholders have been informed by the Representative that
their shares and warrants will not be registered by the Company to be included
in this Registration Statement. Each of the Private Placement Securityholders
has agreed not to publicly sell or distribute equity securities of the Company
(or any securities convertible into or exchangeable or exercisable for such
securities) until twelve months after the date of this Prospectus.
The Company, its officers and directors and certain shareholders and warrant
holders of the Company have agreed that they will not directly or indirectly,
offer, sell, offer to sell, grant any option to purchase or otherwise sell or
dispose (or approve any offer, sale, offer of sale, grant of any options to
purchase or sale or disposition) of any shares of Common Stock or other capital
stock of the Company, or any securities convertible into, or exercisable or
exchangeable for, any shares of Common Stock or other capital stock of the
Company without the prior written consent of the Representative, for a period of
13 months from the date of the Prospectus. In addition, the Private Placement
Securityholders have agreed that they will not directly or indirectly, issue,
offer to sell, grant an option for the sale of, assign, transfer, pledge,
hypothecate, or otherwise encumber or dispose of any such shares until 12 months
from the date this Offering is declared effective by the Commission.
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the Registration Statement of which this Prospectus is a
part, a shareholder, including an "affiliate" of the Company, as that term is
defined in Rule 144 (an "Affiliate"), who has beneficially owned his or her
restricted securities (as that term is defined in Rule 144) for at least one
year from the later of the date such securities were acquired from the Company
or (if applicable) the date they were acquired from an Affiliate, is entitled to
sell, within any three-month period, a number of such shares that does not
exceed the greater of one percent of the then outstanding shares of Common Stock
(approximately 27,500 shares immediately after this offering) or the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. Affiliates may sell shares not
constituting restricted securities in accordance with the foregoing volume
limitations and other requirements but without regard to the holding period. In
addition, under Rule 144(k), if a period of at least two years has elapsed
between the later of the date restricted securities were acquired from the
Company and the date they were acquired from an Affiliate of the Company, a
shareholder who is not an Affiliate of the Company at the time of sale and has
not been an Affiliate for at least three months prior to the sale would be
entitled to sell the shares immediately without regard to the volume limitations
and other conditions under Rule 144 described above. Since the outstanding
shares of Common Stock have been outstanding for over one year, Rule 144 will be
available to the Company's shareholders.
As the Company has granted no options under the Company's Stock Option Plan
prior to the date of this Prospectus, an aggregate of 150,000 shares of Common
Stock are available for future option grants under the Company's Stock Option
Plan. See "Management--Stock Option Plan." The Company intends
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<PAGE>
to file a registration statement under the Securities Act after the effective
date of the Registration Statement covering certain shares of Common Stock
reserved for issuance under the Stock Option Plan. Upon the effectiveness of
that registration statement, most of the shares of Common Stock issued under the
Stock Option Plan which have vested, other than shares held by Affiliates, will
be immediately eligible for resale upon exercise in the public market without
restriction, subject to the terms of the agreements described above.
The Lender's Warrant that the Company anticipates granting to the Lender to
purchase 75,000 shares of Common Stock for an exercise price of $.001 per share
and the warrant the Company anticipates issuing under its license agreement with
Miles J. Willard Company to purchase 12,500 shares of Common Stock at $1.00 per
share, will each be subject to thirteen month lockup agreements where the Lender
and Miles J. Willard Company, respectively, agrees not to directly or indirectly
offer, sell, offer to sell, grant an option to purchase or otherwise dispose of
such warrants or the shares of Common Stock issuable thereunder without the
prior written consent of the Representative. Under the Lender's Warrant, the
Lender will have one demand registration right to cause the Company to register
the shares of Common Stock issuable upon exercise of the Lender's Warrant, at
the Company's cost, and will also have "piggy-back" registration rights to
register the shares.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock and the Preferred
Stock is LaSalle National Bank, located in Chicago, Illinois.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The material federal income tax consequences of acquiring, owning and
disposing of the Preferred Stock and/or the Common Stock are as follows, subject
to the qualifications set forth in the two immediately following paragraphs.
This discussion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury Regulations, and Internal Revenue Services (the "IRS")
ruling and judicial decisions now in effect, all of which are subject to change
at any time by legislative, judicial or administrative action; any such changes
could be retroactively applied in a manner that could adversely affect a holder
of the Preferred Stock or Common Stock. The following does not discuss all of
the tax consequences that may be relevant to a purchaser in light of particular
circumstances or to purchasers subject to special rules, such as foreign
investors, retirement trusts, and life insurance companies. No information is
provided with respect to foreign, state or local tax laws, estate or gift tax
considerations, or other tax laws that may be applicable to particular
categories of investors.
The discussion assumes that purchasers of the Preferred Stock or Common
Stock will hold the Preferred Stock or Common Stock as a "capital asset" within
the meaning of Code Section 1221.
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS AS TO ANY FEDERAL,
STATE, LOCAL AND FOREIGN OR OTHER TAX CONSIDERATIONS RELEVANT TO THEM.
DISTRIBUTIONS
Distributions with respect to the Preferred Stock and the Common Stock will
be treated as dividends and taxable as ordinary income to the extent that the
distributions are made out of the Company's current or accumulated earnings and
profits. To the extend that a distribution is not made out of the Company's
current or accumulated earnings and profits, the distributions will not
constitute a dividend, will not be eligible for the dividends received deduction
and will constitute a non-taxable return of capital to the extent described
below under "Non-Taxable Distribution." The Company has advised that it had a
deficit in earnings and profits as of February 22, 1997. The treatment of
distributions with respect to the Preferred Stock and Common Stock will be
determined by the Company's future earnings and profits.
Under certain circumstances, the operation of the Conversion Rate adjustment
provisions of the Preferred Stock (or its non-operation) may result in the
holders of Preferred Stock (or in some circumstances, holders of Common Stock),
being deemed to have received a constructive distribution, which may be taxable
as a dividend, even though the holders do not actually receive cash or property.
Under Code Section 305 and the Treasury regulations thereunder, if a
redemption price of preferred stock that is subject to optional redemption by
the issuer exceeds its issue price, the entire amount of the redemption premium
can be treated as being distributed to the holders of such stock if redemption
is more likely than not to occur. Such distributions would be taxable as
described above on an economic accrual basis over the period from issuance of
the preferred stock until the date the stock is most likely to be redeemed.
Because the Company does not have a redemption option with respect to the
Preferred Stock the exercise of which would reduce the yield to the Company on
such stock, the Company intends to take the position that the redemption premium
accrual rules are not applicable with respect to the Preferred Stock.
NON-TAXABLE DISTRIBUTIONS
To the extent that distributions are received with respect to the Common
Stock and Preferred Stock in excess of such stock's ratable share of the
Company's current or accumulated earnings and profits, such distributions will
reduce the holder's adjusted tax basis in the shares of Preferred Stock or
Common Stock held. To the extent that such non-taxable distributions exceed the
basis of the shares in respect of which the distribution is made, the excess
distribution will be treated as proceeds from the disposition of the shares
55
<PAGE>
under the rules described under "Disposition" below. Because the tax basis of
the shares is reduced by any non-taxable distributions, the holder of such
shares would incur a greater gain or less loss upon the disposition or
redemption of such shares.
TAXABLE DISTRIBUTIONS TO INDIVIDUALS
Distributions to individual holders of Preferred Stock and Common Stock that
are treated as dividends under the rules set forth above will be taxable as
ordinary income to them when received or accrued in accordance with their method
of accounting. Dividend income of individuals (and certain closely held
corporations and personal service corporations as defined in Code Section
469(j)) may not be offset by losses or credits from "passive activities," such
as losses or credits incurred in connection with certain rental activities or
the ownership of limited partnership interests.
TAXABLE DISTRIBUTIONS TO CORPORATIONS
Corporate stockholders will be eligible to claim a dividends-received
deduction (currently 70% of the amount of the dividend for most corporate
stockholders) with respect to distributions that are treated as dividends on the
Preferred Stock and Common Stock in calculating their taxable income.
Under Code Section 246(c), the dividends-received deduction will not be
available with respect to any dividend on the shares of Preferred Stock and
Common Stock if such shares have been held for 45 days or less (or 90 days or
less if the holder of the shares of Preferred Stock received dividends with
respect to the shares of Preferred Stock which are attributable to a period or
periods aggregating in excess of 366 days). The holding period of the shares of
Common Stock and Preferred Stock for this purpose is determined in accordance
with certain specific rules set forth in Code Section 246(c), which reduces the
holding period for any period where the holder's risk of loss, as to such stock,
is diminished by certain arrangements, such as the holding of an option to sell
the same, or substantially identical, securities.
Code Section 246A provides a further restriction on the availability of the
dividends-received deduction on the shares of Preferred Stock and Common Stock
if the shares are classified as "debt-financed portfolio stock." The shares of
Common Stock and Preferred Stock will be classified as debt-financed portfolio
stock when the holder incurs indebtedness directly attributable to the
investment in the shares of Common Stock and Preferred Stock. In that event, the
dividends-received deduction would be reduced to taken into account the average
amount of such indebtedness.
A corporate shareholder will be required to reduce its basis in shares of
the Preferred Stock and Common Stock (but not below zero) by the amount of any
"extraordinary dividend" which is not taxed because of the dividends-received
deduction if such holder is not considered to have held such stock for more than
two years before the "dividend announcement date," within the meaning of Code
Section 1059. The amount, if any, by which such reduction exceeds the corporate
shareholder's basis in such shares will be treated as gain on the subsequent
sale or disposition of the Stock. With respect to the Preferred Stock, an
"extraordinary dividend" would be a dividend that (i) equals or exceeds 5% of
the holder's adjusted basis in the Preferred Stock or 10% in the Common Stock
(treating all dividends having ex-dividends dates within an 85-day period as a
single dividend) or (ii) exceeds 20% of the holder's adjusted basis in the stock
(treating all dividends having ex-dividend dates within a 365-day period as a
single dividend). If an election is made by the holder, under certain
circumstances the fair market value of the stock as of the day before the
ex-dividend date may be substituted for the holder's basis in applying these
tests. An "extraordinary dividend" would also include any amount treated as a
dividend in the case of a redemption of the Preferred Stock and the Common Stock
that is non-pro rata as to all shareholders, without regard to the period the
holder held the stock.
56
<PAGE>
Special rules apply with respect to "qualified preferred dividends." A
qualified preferred dividend is any fixed dividend payable with respect to
preferred stock which (i) provides for fixed preferred dividends payable no less
often than annually and (ii) is not in arrears as to dividends when acquired,
provided the actual rate of return as determined under Section 1059(e)(3) of the
Code, on such stock does not exceed 15%. Where a qualified preferred dividend
exceeds the 5% or 20% limitation described above, (1) the extraordinary dividend
rules will not apply if the taxpayer hold the stock for more than five years,
and (2) if the taxpayer disposes of the stock before it has been held for more
than five years, the aggregate reduction in basis will not exceed the excess of
the qualified preferred dividends paid on such stock during the period held by
the taxpayer over the qualified preferred Dividends which would have been paid
during such period on the basis of the stated rate of return as determined under
Section 1059(e)(3) of the Code. The length of time that a taxpayer is deemed to
have held stock for the purposes of the extraordinary dividend rules is
determined under principles similar to those applicable for purposes of the
dividends-received deduction discussed above.
A corporate holder may be required to include, in determining its
alternative minimum taxable income, an amount equal to a portion of any
dividends-received deduction allowed in computing regular taxable income.
DISPOSITION
Except as described above, the holders of Preferred Stock or Common Stock
will recognize gain or loss upon the sale, exchange, redemption, retirement or
other disposition of such securities measured by the difference between (a) the
amount of cash and the fair market value of property received and (b) the
holder's adjusted tax basis in the security disposed of. Any gain or loss on
such sale, exchange, redemption, retirement or other disposition will be
long-term capital gain provided the holding period of the security being
disposed exceeds one year. For corporate taxpayers, long-term capital gains are
taxed at the same rate as ordinary income. For individual taxpayers, net capital
gains (the excess of the taxpayer's net long-term capital gains over his net
short-term capital losses) are subject to a maximum tax rate of 28%. The
deductibility of capital losses are restricted and, in general, may only be used
to reduce capital gains to the extent thereof. However, individual taxpayers may
deduct $3,000 of capital losses in excess of their capital gains. Capital losses
which cannot be utilized because of the aforementioned limitation are, for
corporate taxpayers, carried back three years and, in most circumstances,
carried forward for five years; for individual taxpayers, capital losses may
only be carried forward but without a time limitation.
OPTION CASH REDEMPTION
In the event the Company exercises its right to redeem the Preferred Stock,
the surrender of the Preferred Stock for the redemption proceeds by the holders
will be treated as a sale or exchange and the surrendering holder will recognize
capital gain or loss equal to the difference between the redemption proceeds
(other than proceeds attributable to declared but unpaid dividends, which will
be taxed as dividends as described above) and the holder's adjusted tax basis in
the Preferred Stock, provided the redemption (1) results in a "complete
termination" of the holder's stock interest in the Company (inclusive of any
Common Stock owned) under Section 302(b)(3) of the Code, (2) is not
"substantially disproportionate" with respect to the holder under Section
302(b)(2) of the Code, (3) is not "essentially equivalent to a dividend" with
respect to the holder under Section 302(b)(1) of the Code, or (4) is from a
noncorporate holder in partial liquidation of the Company under Section
302(b)(4) of the Code. The constructive ownership rules of the Code must be
taken into consideration in determining whether any of these tests has been met.
If a redemption of the Preferred Stock does not meet any of these tests, then
the gross proceeds received would be treated as a distribution taxable to the
holder in the manner described under "Distributions" above.
57
<PAGE>
CONVERSION
Conversion of the Preferred Stock into Common Stock will not result in the
recognition of gain or loss (except with respect to cash received in lieu of
fractional shares). The holder's adjusted tax basis in the Common Stock received
upon conversion would be equal to the holder's tax basis in the shares of
Preferred Stock converted, reduced by the portion of such basis allocable to the
fractional share interest exchanged for cash. The holding period for the Common
Stock received upon conversion would include the holding period of the Preferred
Stock converted. The payment of accumulated and unpaid dividends in respect of
Preferred Stock that is converted to Common Stock will be taxable in accordance
with the rules discussed under "Distributions" above.
BACKUP WITHHOLDING
A holder of any of the Preferred Stock or Common Stock may be subject to
backup withholding at the rate of 31% with respect to dividends thereon unless
such holder (a) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact, or (b) provides a correct taxpayer
identification number, certifies as to no loss of exemption from back up
withholding and otherwise complies with applicable requirements of the backup
withholding rules. Further, a holder who does not provide the Company with a
correct taxpayer identification number may be subject to penalties imposed by
the IRS in addition to the backup withholding. Any amount paid as backup
withholding will be creditable against the holder's federal income tax
liability. Holders should consult their tax advisors regarding their
qualification for exemption from backup withholding and the procedures for
obtaining any applicable exemptions.
58
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among the
Company and the Underwriters named below (the "Underwriters"), the Company has
agreed to sell to the Underwriters for whom National Securities Corporation is
acting as representative (in such capacity, the "Representative"), and the
Underwriters have severally and not jointly agreed to purchase on a firm
commitment basis the number of shares of Common Stock and the number of shares
of Preferred Stock set forth below opposite their names.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES OF SHARES OF
UNDERWRITERS COMMON STOCK PREFERRED STOCK
- ------------------------------------------------------- ----------------- ------------------
<S> <C> <C>
National Securities Corporation........................
----------------- ------------------
Total..............................................
----------------- ------------------
----------------- ------------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to the approval of certain legal matters by their
counsel and various other conditions. The nature of the Underwriters'
obligations are such that they are committed to purchase all of the above shares
of Common Stock and Preferred Stock offered hereby if any are purchased.
The Company has been advised by the Representative that the Underwriters
propose to offer the Preferred Stock and the shares of Common Stock to the
public at the public offering prices set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $
per share of Preferred Stock and $ per share of Common Stock. The
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per share of Preferred Stock and $ per share of Common Stock
to certain other dealers. After the commencement of the Offering, the public
offering prices, concession and reallowance may be changed by the
Representative.
The Representative has informed the Company that it does not expect sales to
discretionary accounts by the Underwriters to exceed five percent of the
Securities offered hereby.
The Company has granted to the Underwriters an Over-Allotment Option
exercisable during the 45-day period commencing on the date of this Prospectus
to purchase from the Company, at the public offering price per share of Common
Stock and Preferred Stock, respectively, less underwriting discount, up to an
aggregate of 187,500 shares of Preferred Stock and up to an aggregate of 187,500
shares of Common Stock for the sole purpose of covering over-allotments, if any.
To the extent that the Underwriters exercise the Over-Allotment Option, each
Underwriter will have a firm commitment to purchase approximately the same
percentage of Preferred Stock or shares of Common Stock, as the case may be,
that the number of shares of Preferred Stock or number of shares of Common
Stock, as the case may be, shown in the above table for such Underwriter bears
to the total of such securities shown, and the Company will be obligated,
pursuant to the option, to sell such number of shares of Preferred Stock or
number of shares of Common Stock to such Underwriter.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
agreed to pay to the Representative a non-accountable expense allowance equal to
2.5% of the gross proceeds derived from the sale of the Preferred Stock and the
shares of Common Stock underwritten, $25,000 of which has been advanced.
In connection with this offering, the Company has agreed to sell to the
Representative, for nominal consideration, Representative's Warrants to purchase
up to 125,000 shares of Common Stock at an initial exercise price of $ per
share and to acquire shares of Preferred Stock at a price of $ per
share. The Representative's Warrants are exercisable for a period of four years
commencing one year from the date of this Prospectus. The Representative's
Warrants provide for adjustment in the exercise price of the Representative's
Warrants in the event of certain mergers, acquisitions, stock dividends and
capital
59
<PAGE>
changes. The Representative's Warrants may not be sold, transferred, assigned or
hypothecated for a period of one year following the date of this Prospectus,
except to officers or directors of the Representative, Underwriters of members
of the selling group. The Representative's Warrants grant to the holders thereof
certain rights with respect to the registration under the Securities Act of the
securities issuable upon exercise of the Representative's Warrants.
The Company, its executive officers and directors, and holders of its common
Stock and other securities have entered into lock-up agreements. See "Shares
Eligible for Future Sale."
The Company and the Representative will enter into a financial advisory
agreement prior to the Offering pursuant to which the Company will be retaining
the Representative as a financial consultant to the Company for a period of 24
months at $2,000 per month.
Prior to this Offering, there has been no public market for the Securities.
Consequently, the public offering prices of the Securities and the terms of the
Preferred Stock were determined based upon negotiations between the Company and
the Representative and do not necessarily bear any relationship to the Company's
asset value, net worth, or other established criteria of value. Among the
factors considered in determining the price were the history of, and the
prospects for, the Company and the industry in which it competes, its past and
present operations, its past and present earnings and the trend of such
earnings, the present state of the Company's development, the general condition
of the securities markets at the time of this Offering and the recent market
prices of publicly traded common stocks of comparable companies. There can be no
assurance that the Securities can be resold at their offering prices, if at all.
Purchasers of the Securities will be exposed to a substantial risk of a decline
in the market prices of the Securities after the Offering, if a market develops.
The Underwriters may engage in transactions that stabilize, maintain, or
otherwise affect the price of the Preferred Stock and the Common Stock,
including (i) syndicate covering transactions, which consist of the placing of
any bid or the effecting of any purchase on behalf of the Underwriters to reduce
a short position created in connection with the Offering; (ii) penalty bids,
which permit the Representative to reclaim from an Underwriter a selling
concession accruing to such Underwriter in connection with the Offering when
securities originally sold by such Underwriter are purchased in syndicate
covering transactions; and (iii) short sales, by which the Underwriters sell
securities which they do not own at the time that the sale transaction becomes a
binding obligation.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to copies
of each such agreement which are filed as exhibits to the Registration
Statement, of which this Prospectus forms a part. See "Available Information."
CERTAIN LEGAL MATTERS
The legality of the securities being offered hereby will be passed upon by
Hogan, Marren & McCahill, Ltd., 205 North Michigan Avenue, Suite 4300, Chicago,
Illinois 60601. Certain legal matters will be passed upon for the Underwriters
by Camhy Karlinsky & Stein LLP, 1740 Broadway, 16th Floor, New York, New York
10019.
EXPERTS
The financial statements included in this Prospectus have been audited by
BDO Seidman, LLP, independent certified public accountants, to the extent and
for the periods set forth in their report (which contains an explanatory
paragraph regarding the Company's ability to continue as a going concern)
appearing elsewhere herein and are included in reliance upon such report given
upon the authority of said firm as experts in accounting and auditing.
60
<PAGE>
ADDITIONAL INFORMATION
The Company has filed a registration statement on Form SB-2 (the
"Registration Statement") under the Securities Act, with the Commission, with
respect to the Securities being offered by this Prospectus. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement and the exhibits thereto.
For further information with respect to the Company and the Securities offered
hereby, reference is made to the Registration Statement and the exhibits
thereto. All of these documents may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's Regional
Offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies may be
obtained at the prescribed rates from the Public Reference Section of the SEC at
its principal office in Washington, D.C. 20549. In addition, the Commission
maintains a web site at http://www.sec.gov that contains filings made by the
Company. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
61
<PAGE>
THE O'BOISIE CORPORATION
FINANCIAL STATEMENTS
PERIOD ENDED JULY 27, 1996
F-1
<PAGE>
THE O'BOISIE CORPORATION
CONTENTS
<TABLE>
<S> <C>
INDEPENDENT AUDITORS' REPORT................................................... F-3
FINANCIAL STATEMENTS
Balance Sheets............................................................... F-4
Statements of Operations..................................................... F-5
Statements of Shareholders' Equity (Deficit)................................. F-6
Statements of Cash Flows..................................................... F-7--F-8
Notes to Financial Statements................................................ F-9--F-17
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
The O'Boisie Corporation
Oak Brook, Illinois
We have audited the accompanying balance sheet of The O'Boisie Corporation
as of July 27, 1996 and the related statements of operations, shareholders'
equity (deficit) and cash flows for the period from inception (January 19, 1996)
to July 27, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The O'Boisie Corporation at
July 27, 1996, and the results of its operations and its cash flows for the
period from inception (January 19, 1996) to July 27, 1996, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered net losses, has a working capital
deficit and has a shareholders' deficit. In addition, the Company is in
violation of certain covenants of its credit agreement that give the lender the
right to accelerate the due date of its loans. These factors raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also discussed in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
BDO Seidman, LLP
Chicago, Illinois
November 15, 1996, except for Note 13(a)
which is as of May 20, 1997
F-3
<PAGE>
THE O'BOISIE CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
FEBRUARY
JULY 27, 22,
1996 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash............................................................. $ 181,633 $ 1,896
Accounts receivable, net of allowances of $914,362 and $1,645,776
(Notes 4, 5 and 6)............................................. 742,072 1,198,917
Inventory (Notes 4 and 5)........................................ 1,873,956 743,741
Prepaid expenses and other....................................... 191,666 85,299
----------- -----------
Total Current Assets............................................... 2,989,327 2,029,853
----------- -----------
PROPERTY AND EQUIPMENT (Notes 4 and 5)
Land............................................................. 208,058 208,058
Building......................................................... 1,040,287 1,040,287
Machinery and equipment.......................................... 7,369,069 7,420,752
Rolling stock (Note 12).......................................... 1,675,450 975,616
----------- -----------
10,292,864 9,644,713
Less accumulated depreciation and amortization................... 389,463 758,650
----------- -----------
NET PROPERTY AND EQUIPMENT......................................... 9,903,401 8,886,063
----------- -----------
INTANGIBLE ASSETS, net of accumulated amortization of $1,500 and
$20,636.......................................................... 51,000 74,364
----------- -----------
$12,943,728 $10,990,280
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current portion of long-term debt (Note 5)....................... $ 5,100,000 $ 5,547,478
Line-of-credit (Note 4).......................................... 2,644,079 3,805,760
Accounts payable................................................. 2,999,900 2,036,586
Accrued expenses (Note 2)........................................ 2,508,437 2,059,613
----------- -----------
TOTAL CURRENT LIABILITIES.......................................... 13,252,416 13,449,437
LONG-TERM DEBT, net of current portion (Note 5).................... 3,900,000 3,700,000
----------- -----------
TOTAL LIABILITIES.................................................. 17,152,416 17,149,437
----------- -----------
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, 10,000,000 shares authorized, none issued and
outstanding.................................................... -- --
Common stock--$.01 par value; 30,000,000 shares authorized;
1,500,000 shares issued and outstanding........................ 15,000 15,000
Additional paid-in capital....................................... 1,440,000 1,440,000
Accumulated deficit................................................ (5,663,688) (7,614,157)
----------- -----------
TOTAL SHAREHOLDERS' DEFICIT........................................ (4,208,688) (6,159,157)
----------- -----------
$12,943,728 $10,990,280
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
THE O'BOISIE CORPORATION
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SEVEN
FROM INCEPTION MONTHS
(JANUARY 19, 1996) TO ENDED
------------------------
FEBRUARY FEBRUARY
JULY 27, 24, 22,
1996 1996 1997
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
NET SALES (Notes 6 and 9).............................. $ 7,825,146 $ 2,391,882 $ 6,065,945
COST OF SALES.......................................... 3,432,471 874,281 4,255,163
----------- ----------- -----------
Gross profit........................................... 4,392,675 1,517,601 1,810,782
OPERATING EXPENSES
Selling, general and administrative.................. 3,881,864 1,257,142 1,833,260
----------- ----------- -----------
Income (loss) from operations.......................... 510,811 260,459 (22,478)
----------- ----------- -----------
OTHER INCOME (EXPENSE).................................
Write-off of advances to affiliate (Note 9).......... (1,118,989) -- --
Interest expense..................................... (320,362) (53,394) (702,649)
Other income (expense)............................... 13,090 (2,500) (72,269)
----------- ----------- -----------
Total other expense.................................... (1,426,261) (55,894) (774,918)
----------- ----------- -----------
(Loss) income from continuing operations............... (915,450) 204,565 (797,396)
----------- ----------- -----------
DISCONTINUED OPERATIONS (Notes 6 and 12)...............
Loss from operations................................. (4,748,238) (521,639) --
Loss on disposal..................................... -- -- (1,153,073)
----------- ----------- -----------
Loss from discontinued operations...................... (4,748,238) (521,639) (1,153,073)
----------- ----------- -----------
NET LOSS............................................... $(5,663,688) $ (317,074) $(1,950,469)
----------- ----------- -----------
----------- ----------- -----------
(LOSS) INCOME FROM CONTINUING OPERATIONS PER SHARE..... $ (0.63) $ 0.14 $ (0.53)
LOSS FROM DISCONTINUED OPERATIONS PER SHARE............ (3.26) (0.36) (0.77)
----------- ----------- -----------
NET LOSS PER SHARE..................................... $ (3.89) $ (0.22) $ (1.30)
----------- ----------- -----------
----------- ----------- -----------
WEIGHTED AVERAGE SHARES OUTSTANDING.................... 1,455,786 1,446,948 1,500,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
THE O'BOISIE CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
PREFERRED STOCK $.01 PAR VALUE ADDITIONAL SHAREHOLDERS'
-------------------- --------------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
--------- --------- ---------- --------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL CAPITAL CONTRIBUTION, at
January 19, 1996................. -- $ -- 1,446,948 $ 14,469 $ 115,531 $ -- $ 130,000
Shareholder capital contribution
(Notes 8 and 9)................ -- -- -- -- 370,000 -- 370,000
Net proceeds from private
placement (Note 7)............. -- -- 53,052 531 954,469 -- 955,000
Net loss......................... -- -- -- -- -- (5,663,688) (5,663,688)
--------- --------- ---------- --------- ------------ ------------- -------------
BALANCE, at July 27, 1996.......... -- -- 1,500,000 15,000 1,440,000 (5,663,688) (4,208,688)
Net loss (unaudited)............. -- -- -- -- -- (1,950,469) (1,950,469)
--------- --------- ---------- --------- ------------ ------------- -------------
BALANCE, at February 22, 1997
(unaudited)...................... -- $ -- 1,500,000 $ 15,000 $ 1,440,000 $ (7,614,157) $ (6,159,157)
--------- --------- ---------- --------- ------------ ------------- -------------
--------- --------- ---------- --------- ------------ ------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
THE O'BOISIE CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SEVEN
FROM INCEPTION MONTHS
(JANUARY 19, 1996) TO ENDED
------------------------
JULY 27, FEBRUARY FEBRUARY
1996 24, 1996 22, 1997
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................. $(5,663,688) $ (317,074) $(1,950,469)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization...................... 390,963 55,638 454,975
Write-off of advances to affiliate................. 1,118,989 -- --
Increase in allowance for doubtful accounts........ 914,362 -- 731,414
Shareholder compensation contributed to capital.... 370,000 -- --
Changes in assets and liabilities
Increase in accounts receivable.................. (1,656,434) (1,757,117) (1,188,259)
Advances to affiliate............................ (1,118,989) -- --
(Increase) decrease in inventory................. (573,682) 274 1,130,215
(Increase) decrease in prepaid expenses.......... (191,666) (82,134) 106,367
Increase (decrease) in accounts payable.......... 2,197,730 (35,403) (963,314)
Increase (decrease) in accrued expenses.......... 142,584 296,241 (448,824)
----------- ----------- -----------
Net cash used in operating activities.................. (4,069,831) (1,839,575) (2,127,895)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment.................. (369,025) -- (176,683)
Proceeds from disposition of assets.................. 73,910 -- 758,182
----------- ----------- -----------
Net cash (used in) provided by investing activities.... (295,115) -- 581,499
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt issuance costs.................................. (52,500) -- (42,500)
Net borrowings on revolving notes payable to banks... 2,644,079 2,100,000 1,161,681
Proceeds from issuance of long-term borrowings....... 5,000,000 -- 1,000,000
Principal payments on long-term borrowings........... (4,000,000) -- (752,522)
Proceeds from issuance of common stock and warrants,
net of issuance costs.............................. 955,000 -- --
----------- ----------- -----------
Net cash provided by financing activities.............. 4,546,579 2,100,000 1,366,659
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH........................ $ 181,633 $ 260,425 $ (179,737)
CASH, at beginning of period........................... -- -- 181,633
----------- ----------- -----------
CASH, at end of period................................. $ 181,633 $ 260,425 $ 1,896
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest............. $ 168,965 $ -- $ 685,100
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
The Company purchased certain nonoperating assets of
the salty snack foods division of the Keebler
Company for a note in the amount of $8,000,000 as
follows:
Fair value of assets acquired.................... $11,298,023 $11,298,023 $ --
</TABLE>
F-7
<PAGE>
THE O'BOISIE CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
SEVEN
FROM INCEPTION MONTHS
(JANUARY 19, 1996) TO ENDED
------------------------
JULY 27, FEBRUARY FEBRUARY
1996 24, 1996 22, 1997
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Common stock issued as reimbursement for
transaction costs.............................. (130,000) (130,000) --
Liabilities assumed.............................. (3,168,023) (3,168,023) --
----------- ----------- -----------
Note issued...................................... $ 8,000,000 $ 8,000,000 $ --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE>
THE O'BOISE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF FEBRUARY 22, 1997 AND FOR THE SEVEN MONTHS ENDED
FEBRUARY 22, 1997 AND THE MONTH ENDED FEBRUARY 24, 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The O'Boisie Corporation (the "Company") was formed in January 1996 for the
purpose of acquiring certain nonoperating assets and liabilities of the salty
snack foods division of the Keebler Company (Note 6). The Company is engaged
predominately in the manufacturing of salty snack foods for distribution through
a national network of distributors, brokers and potato chip manufacturers, as
well as directly to retailers through warehouse programs.
BASIS OF PRESENTATION
The Company's financial statements are presented on a going-concern basis,
which contemplates the realization of assets and satisfaction of liabilities in
the normal course of business.
The Company has had net losses since inception. For the period ended July
27, 1996, the Company experienced a loss from continuing operations of $915,450
and a loss from discontinued operations of $4,748,238. (See Note 12 for
discussion of discontinued operations.) At July 27, 1996 the Company had a
working capital deficit of $5,977,377 and a shareholders' deficit of $4,208,688.
In addition, the Company is in violation of certain covenants of its credit
agreement that give the lender the right to accelerate the due date of its
loans. The Company is currently in discussions with its lending bank regarding a
restructuring of the credit agreement. There can be no assurances that the
Company will be able to secure a new facility with the bank. (See Notes 4 and
5.) Without a restructuring of the current credit agreement or a replacement
facility, the Company would not have sufficient funds to pay its debts should
the lender demand payment, and would not be able to continue as a going concern.
The Company's ability to continue as a going concern is contingent upon its
ability to secure additional financing and attain profitable operations. In
addition, the Company's ability to continue as a going concern must be
considered in light of the problems, expenses and complications frequently
encountered by entrance of a new business into established markets and the
competitive environment in which the Company operates.
Although the Company plans to pursue an initial public offering and
refinance outstanding debt, there can be no assurance that the Company will be
able to secure financing when needed or obtain such on terms satisfactory to the
Company, if at all, or complete a public offering. Failure to secure such
financing or complete a public offering may result in the Company rapidly
depleting its available funds and not being able to comply with its payment
obligations under its bank loans and other long-term debt. In addition, if the
Company is unable to meet its obligations under its credit agreements, such
creditors shall have the right to foreclose on the assets of the Company, and
the rights of such creditors will be prior to the interests of the holders of
common stock.
The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
F-9
<PAGE>
THE O'BOISE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF FEBRUARY 22, 1997 AND FOR THE SEVEN MONTHS ENDED
FEBRUARY 22, 1997 AND THE MONTH ENDED FEBRUARY 24, 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNAUDITED INTERIM FINANCIAL INFORMATION
Interim financial information is reported using 13-week quarters with the
first two months of each quarter including four weeks of operating results and
the third month including five weeks. Interim financial information for the
period ended February 24, 1996 represents the period from the Company's
inception (January 19, 1996) to February 24, 1996.
The unaudited balance sheet as of February 22, 1997, the unaudited
statements of operations and cash flows for the periods ended February 24, 1996
and February 22, 1997 and the unaudited statement of shareholders' deficit for
the period ended February 22, 1997 include, in the opinion of management, all
adjustments necessary to present fairly the Company's financial position,
results of operations and cash flows. Operating results for the period ended
February 22, 1997 are not necessarily indicative of the results that may be
expected for the period ending July 26, 1997. The footnotes related to such
periods are also unaudited.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost, determined on the first-in,
first-out (FIFO) method, or market. At July 27, 1996 and February 22, 1997,
inventories consist of the following:
<TABLE>
<CAPTION>
JULY 27, FEBRUARY 22,
1996 1997
------------ ----------------
<S> <C> <C>
Raw materials................................................ $ 484,420 $ 231,730
Packaging supplies........................................... 85,446 184,579
Finished goods............................................... 1,304,090 327,432
------------ --------
$1,873,956 $ 743,741
------------ --------
------------ --------
</TABLE>
F-10
<PAGE>
THE O'BOISE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF FEBRUARY 22, 1997 AND FOR THE SEVEN MONTHS ENDED
FEBRUARY 22, 1997 AND THE MONTH ENDED FEBRUARY 24, 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT; DEPRECIATION AND AMORTIZATION
Property and equipment are recorded at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets. The estimated useful lives are as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET DESCRIPTION USEFUL LIFE
- ------------------------------------------------------------- -----------
<S> <C>
Building..................................................... 20 years
Machinery and equipment...................................... 5-15 years
Rolling stock................................................ 7 years
</TABLE>
Depreciation expense for the periods ended July 27, 1996, February 24, 1996
and February 22, 1997 was $389,463, $55,638 and $435,839, respectively.
INTANGIBLE ASSETS
Intangible assets are comprised of fees paid relating to bank financing and
are amortized on a straight-line basis over a period of 35 months. Amortization
expense for the periods ended July 27, 1996, February 24, 1996 and February 22,
1997 was approximately $1,500, $0 and $19,000, respectively.
REVENUE RECOGNITION
The Company recognizes revenue and the related costs when product is
shipped.
RECLAMATION ALLOWANCES AND DISTRIBUTION EXPENSES
It is the Company's policy to grant reclamation and promotional allowances
to its customers. These allowances of $229,408, $95,675 and $230,664 for the
periods ended July 27, 1996, February 24, 1996 and February 22, 1997,
respectively, are included in cost of sales on the accompanying statements of
operations.
Slotting charges are one-time allowances provided to customers for the
placement of the Company's products on the shelf. These costs are recorded as
selling and marketing expense within 12 months of the date incurred. Such new
product placements expand the distribution network of the Company and,
accordingly, the retail sales opportunities for the Company's products. These
slotting expenses of $28,502, $0 and $75,464 for the periods ended July 27,
1996, February 24, 1996 and February 22, 1997, respectively, are included in
selling, general and administrative expenses on the accompanying statements of
operations.
FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable, accounts payable and
accrued expenses approximates the fair value because of the short maturity of
these items.
The carrying amounts of debt approximate fair value because the interest
rates on these instruments reflect current market interest rates.
F-11
<PAGE>
THE O'BOISE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF FEBRUARY 22, 1997 AND FOR THE SEVEN MONTHS ENDED
FEBRUARY 22, 1997 AND THE MONTH ENDED FEBRUARY 24, 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE
The loss per share calculations give effect to the distribution of common
stock discussed in Note 8 and the reverse split as described in Note 13(a).
Loss per share is based on the weighted average number of shares of common
stock outstanding during each period. Common stock equivalents are anti-dilutive
and have not been considered in the calculations.
2. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
JULY 27, FEBRUARY 22,
1996 1997
------------ ------------
<S> <C> <C>
Payroll and related expenses (Note 9)......... $ 613,214 $ 419,275
Real estate taxes............................. 478,000 597,605
Reclamations reserve.......................... 227,927 5,000
Employee benefits............................. 129,299 42,555
Royalties..................................... 116,669 235,667
State franchise taxes......................... 85,000 142,654
Interest...................................... 67,538 85,087
Other......................................... 790,790 531,770
------------ ------------
$ 2,508,437 $ 2,059,613
------------ ------------
------------ ------------
</TABLE>
3. INCOME TAXES
Income taxes are accounted for under Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes". SFAS No. 109 utilizes
the liability method, and deferred taxes are determined based on the estimated
future tax effects on differences between the financial statement and tax bases
of assets and liabilities given the provisions of the enacted tax laws.
F-12
<PAGE>
THE O'BOISIE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF FEBRUARY 22, 1997 AND FOR THE SEVEN MONTHS ENDED
FEBRUARY 22, 1997 AND THE MONTH ENDED FEBRUARY 24, 1996 IS UNAUDITED)
3. INCOME TAXES (CONTINUED)
The reasons for the differences between income taxes at the statutory
federal income tax rate and the provision (benefit) for income taxes are
summarized as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
-----------------------------------------
JULY 27, FEBRUARY 24, FEBRUARY 22,
1996 1996 1997
------------- ------------ ------------
<S> <C> <C> <C>
Income tax benefits at statutory rate.............. $ 2,266,000 $ 127,000 $ 780,000
Valuation allowance related to deferred tax benefit
carryforwards.................................... (2,266,000) (127,000) (780,000)
------------- ------------ ------------
Income tax benefit................................. $ -- $ -- $ --
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
The net deferred tax asset is comprised of the following at:
<TABLE>
<CAPTION>
JULY 27, FEBRUARY 22,
1996 1997
------------- -------------
<S> <C> <C>
Net operating loss carryforwards................................ $ 1,193,000 $ 2,247,000
Nondeductible reserves/accruals................................. 1,073,000 799,000
------------- -------------
2,266,000 3,046,000
Valuation allowance............................................. (2,266,000) (3,046,000)
------------- -------------
$ -- $ --
------------- -------------
------------- -------------
</TABLE>
At July 27, 1996, the Company had net operating loss carryforwards of
approximately $3,000,000 which begin to expire in the year 2011.
4. LINE-OF-CREDIT
The Company has a credit agreement (the "Agreement") with a bank to provide
certain extensions of credit. The Agreement includes a revolving note not to
exceed $5,000,000 based on 40% of eligible inventory up to a maximum of
$3,500,000 and 85% of eligible accounts receivable balances, as specified in the
Agreement. Interest is at prime plus 1.75% (10.0% at July 27, 1996 and February
22, 1997) and is due monthly. This revolving note expires on June 1, 1999.
All amounts outstanding under the Agreement and the bank term loan (Note 5)
are secured by inventory, accounts receivable, general intangible assets and
machinery and equipment of the Company. A total of $3,000,000 of the amounts
outstanding under the revolving note and term loan is personally guaranteed by a
certain shareholder. The Agreement contains various covenants and restrictions
among which are limitations on the payment of cash dividends. At July 27, 1996,
the Company was in default of certain of these loan covenants and is currently
negotiating with the bank for the purpose of restructuring the Company's debt.
The Company believes that a satisfactory debt restructuring can be achieved, but
because the outcome of the negotiations can not be predicted, all of the bank
debt has been classified as current. (See Note 5.)
F-13
<PAGE>
THE O'BOISIE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF FEBRUARY 22, 1997 AND FOR THE SEVEN MONTHS ENDED
FEBRUARY 22, 1997 AND THE MONTH ENDED FEBRUARY 24, 1996 IS UNAUDITED)
4. LINE-OF-CREDIT (CONTINUED)
At July 27, 1996 and February 22, 1997, $2,644,079 and $3,805,760 of
borrowings are outstanding under the Agreement, respectively. No additional
amounts were available for borrowing under the Agreement at these dates.
See Note 5 for a discussion of an amendment to the Agreement dated March 17,
1997.
5. LONG-TERM DEBT
Long-term debt at July 27, 1996 and February 22, 1997 consists of the
following:
<TABLE>
<CAPTION>
JULY 27, FEBRUARY 22,
1996 1997
------------ ------------
<S> <C> <C>
Term note payable to bank, bearing interest at prime plus 1.75% (10.0% at
July 27, 1996 and February 22, 1997), with monthly payments of $59,524
plus interest commencing on August 1, 1996, with a remainder of $2,976,184
due on May 1, 1999........................................................ $ 5,000,000 $ 4,247,478
Subordinated note payable to U.B.F.C., Inc., bearing interest at 8%, with
quarterly principal installments of $100,000 plus interest beginning on
June 30, 1997 with a final installment of $2,800,000 due on June 30,
2000...................................................................... 4,000,000 4,000,000
Term note payable to bank, bearing interest at prime plus 1.75% (10.0% at
February 22, 1997), with monthly payments of $55,600 plus interest
commencing on February 1, 1997 through July 1998.......................... -- 1,000,000
------------ ------------
9,000,000 9,247,478
Less current maturities..................................................... 5,100,000 5,547,478
------------ ------------
$ 3,900,000 $ 3,700,000
------------ ------------
------------ ------------
</TABLE>
On March 17, 1997, an amendment was made to the Company's credit agreement,
which resulted in a reclassification of $2,000,000 in borrowings from the
Company's revolving note to a term note and additional borrowings of $1,000,000
under a term note. These notes bear interest at prime plus 5% with monthly
payments of $55,600 and $27,800, respectively, commencing on June 1, 1997
through July 1, 1998. In conjunction with this amendment, the interest rate on
all other outstanding bank debt was adjusted to prime plus 3.75%.
Principal payments of long-term debt, after the reclassification discussed
in Note 4, mature as follows:
<TABLE>
<CAPTION>
JULY 27, FEBRUARY 22,
1996 1997
------------ ------------
<S> <C> <C>
1997.............................................................. $ 5,100,000 $ 5,547,478
1998.............................................................. 400,000 400,000
1999.............................................................. 400,000 400,000
2000.............................................................. 3,100,000 2,900,000
------------ ------------
$ 9,000,000 $ 9,247,478
------------ ------------
------------ ------------
</TABLE>
F-14
<PAGE>
THE O'BOISE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF FEBRUARY 22, 1997 AND FOR THE SEVEN MONTHS ENDED
FEBRUARY 22, 1997 AND THE MONTH ENDED FEBRUARY 24, 1996 IS UNAUDITED)
6. ACQUISITION
On January 19, 1996, the Company purchased certain nonoperating assets and
liabilities of the salty snack foods division of the Keebler Company for
$8,000,000. The purchase price was assigned to the net assets acquired based on
their estimated fair value. The fair value of the net assets acquired exceeded
the purchase price by approximately $1,865,000; thus, the amounts assigned to
the long-term assets acquired were reduced to reflect this difference.
The purchase price was financed with an $8,000,000 note payable to U.B.F.C.,
Inc.
In conjunction with this transaction, the Company entered into a transition
agreement with Keebler. Under this agreement Keebler agreed to purchase company
products and provided the Company with data processing and distribution
services. In addition, the Company provided Keebler with sales and in-store
merchandising services. The following transactions were recorded under this
agreement during the periods ended July 27, 1996 and February 24, 1996:
<TABLE>
<CAPTION>
JULY 27, FEBRUARY 24,
PERIOD ENDED 1996 1996
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Charges for data processing services.............................. $ 658,544 $ 235,425
Sales to Keebler.................................................. $ 5,735,215 $ 2,321,477
Purchases from Keebler............................................ $ 7,488,326 $ 3,174,579
</TABLE>
The sales to Keebler are included in the Company's continuing operations and
the purchases from Keebler are included in the Company's discontinued operations
(Note 12). This agreement and the Company's relationship with Keebler were
terminated in May 1996. The termination of this relationship may have a material
adverse effect on the Company's operations.
Accounts receivable from Keebler were $286,721 at both July 27, 1996 and
February 22, 1997.
7. PRIVATE PLACEMENT
In June and July 1996, the Company issued 53,052 units, each unit consisting
of one share of common stock and one redeemable common stock purchase warrant,
for $23.37 per unit, in a private placement. The warrants entitle the holder to
purchase one share of common stock at an exercise price of $58.43 per share
during the three-year period commencing 12 months from the effective date of a
proposed public offering of the Company's common stock. Issuance costs of
$285,000 related to this stock issuance were offset directly against the
proceeds.
8. COMMON STOCK
In May 1996, the Company amended its Articles of Incorporation to increase
the number of authorized shares of common stock to 30,000,000 shares. In
conjunction with this transaction, the Company distributed 1,446,862 shares of
common stock to its shareholders. This stock distribution has been reflected
retroactively in the financial statements.
9. RELATED PARTY TRANSACTIONS
The Company made a secured loan to Kelly Foods, Inc. ("Kelly"), a related
party through common ownership. Advances to Kelly totalled $1,118,989 during the
period ended July 27, 1996. Subsequent to
F-15
<PAGE>
THE O'BOISE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF FEBRUARY 22, 1997 AND FOR THE SEVEN MONTHS ENDED
FEBRUARY 22, 1997 AND THE MONTH ENDED FEBRUARY 24, 1996 IS UNAUDITED)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
year end, Kelly filed for protection under Chapter 11 Bankruptcy Laws. The
advances made to Kelly were written off since it is probable that the Company
will not be reimbursed.
The Company also had the following transactions with Kelly during the period
ended July 27, 1996:
<TABLE>
<S> <C>
Sales to Kelly.................................................... $ 461,203
Purchases from Kelly.............................................. 460,874
</TABLE>
The sales to Kelly are included in the Company's continuing operations and
the purchases from Kelly are included in the Company's discontinued operations
(Note 12).
Included in the Company's sales from continuing operations is $1,134,000 of
sales to the Company's discontinued route distribution business for the period
ended July 27, 1996 (Note 12). These sales were recognized at prices consistent
with sales to other distributors. The discontinuation of the Company's route
distribution business may have a material adverse effect on the Company's
continuing operations.
Included in additional paid-in capital is $370,000 of compensation to
certain shareholders related to structuring the Keebler acquisition. In
addition, accrued expenses include $150,000 and $250,000 of unpaid wages to a
certain shareholder at July 27, 1996 and February 22, 1997, respectively.
10. COMMITMENTS
The Company leases its warehouse under a lease that expired in November
1996. It was subsequently renewed on a month-to-month basis. Total remaining
minimum lease payments due under this arrangement are approximately $43,000 at
July 27, 1996.
Rent expense for the periods ended July 27, 1996, February 24, 1996 and
February 22, 1997 was $556,000, $0 and $81,000, respectively.
11. LITIGATION
The Company is a co-defendant in a class action suit brought by certain
route salespeople against Keebler seeking damages of $3 million. A significant
majority of the damages alleged in the complaint relate solely to conduct
alleged against Keebler. Management believes the suit to be unfounded.
The Company is also involved in various litigation in the normal course of
its business. Management intends to vigorously defend these cases. In the
opinion of management, although there can be no such assurance, the litigation
now pending will not have a material adverse effect on the financial position or
results of operations of the Company.
12. DISCONTINUED OPERATIONS
In August 1996, the Company made a decision to discontinue the operations of
its route distribution business. These operations ceased in October 1996. The
Company originally estimated that the operating losses during the phase-out
period would not be significant. Actual losses during the period ended February
22, 1997 amounted to $1,153,073 and a provision for loss on disposal was
recognized in this amount.
F-16
<PAGE>
THE O'BOISE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF FEBRUARY 22, 1997 AND FOR THE SEVEN MONTHS ENDED
FEBRUARY 22, 1997 AND THE MONTH ENDED FEBRUARY 24, 1996 IS UNAUDITED)
12. DISCONTINUED OPERATIONS (CONTINUED)
The assets of this business consisted of rolling stock with a net book value
of $1,535,760 and $664,854 at July 27, 1996 and February 22, 1997, respectively.
The Company sold $699,834 of these assets during the period ended February 22,
1997 and expects to dispose of the remaining assets during fiscal 1997.
Sales of the route distribution business were $13,966,246, $3,123,975 and
$1,487,388 for the periods ended July 27, 1996, February 24, 1996 and February
22, 1997, respectively.
13. SUBSEQUENT EVENTS
(A) REVERSE STOCK SPLIT
In May 1997, the Company declared a 1-for-11.69 reverse split of the
Company's common stock. The reverse stock split has been retroactively reflected
in these financial statements.
(B) INITIAL PUBLIC OFFERING (UNAUDITED)
In March 1997, the Company entered into a nonbinding letter-of-intent with
an underwriter, on a firm commitment basis, to raise approximately $20 million
through the offering of common stock and other securities. The precise number of
shares of common stock, the specific terms of other securities to be offered and
the offering price per security shall be determined based upon the
capitalization of the Company and the market and general economic conditions at
the time of the offering.
(C) U.B.F.C., INC. DEBT SETTLEMENT (UNAUDITED)
In conjunction with its proposed initial public offering, the Company has
reached an agreement in principle with U.B.F.C., Inc. to settle the Company's
outstanding $4,000,000 note payable to U.B.F.C., Inc. for a cash payment of
$1,750,000, payable from the proceeds of the initial public offering.
F-17
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, IN CONNECTION WITH THIS OFFERING AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF,
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 4
Risk Factors................................... 9
Use of Proceeds................................ 19
Dividend Policy................................ 20
Dilution....................................... 21
Capitalization................................. 23
Selected Financial Data........................ 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 26
Business....................................... 32
Management..................................... 42
Certain Transactions........................... 46
Security Ownership of Certain Beneficial Owners
and Management............................... 47
Description of Capital Stock................... 49
Income Tax Consequences........................ 55
Underwriting................................... 59
Certain Legal Matters.......................... 60
Experts........................................ 60
Additional Information......................... 61
Index to Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS AN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
1,250,000 SHARES OF
COMMON SHARES
AND
SHARES OF
PREFERRED STOCK
O'BOISIE [LOGO]
---------------------
PROSPECTUS
---------------------
NATIONAL SECURITIES
CORPORATION
, 1997
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Seven, Paragraph 8, of the Registrant's Articles of Incorporation
provides that the Registrant shall indemnify its directors to the full extent
permitted by law, and may indemnify its officers and employees to such extent,
except that the Company shall not be obligated to indemnify any such person (i)
with respect to proceedings, claims or actions initiated or brought voluntarily
by any such person and not by way of defense, or (ii) for any amounts paid in
settlement of an action indemnified against by the Company without the prior
written consent of the Company. Article Seven, Paragraph 9, of the Registrant's
Articles of Incorporation further provides that the personal liability of the
directors of the Registrant is eliminated to the fullest extent permitted under
the Illinois Business Corporation Act of 1983, as amended.
The Company intends to obtain an insurance policy which will entitle the
Company to be reimbursed for certain indemnity payments it is required or
permitted to make to its directors and officers.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting commissions and discounts) payable by the
undersigned small business issuer in connection with the issuance and
distribution of the Securities pursuant to the Prospectus contained in this
Registration Statement. The undersigned small business issuer will pay all of
these expenses.
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT
------------
<S> <C>
Securities and Exchange Commission registration fee....................................... $ 7,697
NASD filing fee........................................................................... 3,040
Listing fees.............................................................................. *
Blue Sky fees and expenses................................................................ 40,000
Legal fees and expenses................................................................... *
Accounting fees and expenses.............................................................. *
Transfer Agent and Registrar fees and expenses............................................ *
Printing and engraving expenses........................................................... *
Underwriters' Non-Accountable Expense Allowance........................................... 500,000
Miscellaneous expenses.................................................................... *
Directors' and Officers' Liability Insurance Premiums..................................... *
------------
Total............................................................................... $ 1,000,000
------------
------------
</TABLE>
- ------------------------
* To be completed by amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The Company has issued and sold the following securities within the past
three years without registration under the Securities Act. Except as otherwise
noted, no underwriting discounts or commissions were paid in connection with the
sales. Except as otherwise noted, each of the transactions described below was
undertaken in reliance upon the exemption from registration provided by Section
4(2) of the Securities Act regarding transactions by an issuer not involving a
public offering.
In January 1996, the Company issued 85.5 shares of Common Stock to Donald F.
Schumacher II upon formation of the Company. Subsequently, Mr. Schumacher and
Susan Bolin and David Blue contributed to the Company $296,000, $37,000 and
$37,000, respectively, of compensation otherwise payable by the
II-1
<PAGE>
Company to such parties for their services to the Company in connection with
negotiating and finalizing the acquisition of assets from Keebler. The Company
issued 1,157,143 shares of Common Stock to Mr. Schumacher, and 144,654 shares of
Common Stock to each of Ms. Bolin and Mr. Blue.
During June 1996, the Company issued and sold 53,052 Units at a price of
$23.38 per Unit, each Unit consisting of one share of the Company's Common Stock
and one warrant to purchase a share of the Company's Common Stock, to sixteen
persons who represented they were "accredited investors" as defined in Rule 501
of Regulation D under the Securities Act in a private placement (the "Private
Placement") under Regulation D. The Company paid $124,000 in underwriting
discounts to Landmark International Equities, Ltd. in connection with the
Private Placement. The Warrants issued in the Private Placement are exercisable
at a price of $ per share during the three year period commencing 12 months
after the effective date of this Offering. Purchasers in the Private Placement
were also granted piggy-back registration rights in registration statements
filed by the Company under the Securities Act.
ITEM 27. EXHIBITS.
(A) EXHIBITS.
<TABLE>
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Registrant dated January 19, 1996.
3.2 Articles of Amendment to Articles of Incorporation of the Registrant
dated May 14, 1996.
3.3 Articles of Amendment to Articles of Incorporation of the Registrant
dated June , 1996.
3.4* Articles of Amendment to Articles of Incorporation of the Registrant
dated June , 1997.
3.5 Bylaws of the Registrant.
4.1* Form of Warrant issued to the Representative.
4.2* Form of Private Placement Warrant issued to the Private Placement
Securityholders.
4.3* Registration Rights Agreement dated as of June 5, 1996, between the
Registrant and the Private Placement Securityholders.
4.4 Credit Agreement dated July 3, 1996, between the Registrant and
Republic Acceptance Corporation (the "Lender").
4.5 Amendment to Credit Agreement dated October 3, 1996, between the
Registrant and the Lender.
4.6 Second Amendment to Credit Agreement between the Registrant and the
Lender.
4.7* Security Agreement dated July 3, 1996, between the Registrant and the
Lender.
4.8* Term Note dated July 3, 1996, made by the Registrant to the order of
the Lender.
4.9* Additional Term Note dated October 3, 1996, made by the Registrant to
the order of the Lender.
4.10* Additional Term Note dated March , 1997, made by the Registrant to
the order of the Lender.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
4.11* Guaranty dated July 3, 1996, made by Donald Schumacher for the
benefit of the Lender.
4.12* Guaranty dated March , 1997, made by Donald Schumacher for the
benefit of the Lender.
4.13* Subordination Agreement dated as of July 3, 1996, among the
Registrant, the Lender and U.B.F.C., Inc. ("UBFC").
4.14* Amended and Restated Subordinated Promissory Note dated as of July 5,
1996, made by the Registrant to the order of UBFC.
4.15* Amendment to Amended and Restated Subordinated Promissory Note made
by Registrant and acknowledged by UBFC.
4.16 Real Estate Mortgage, Security Agreement and Fixture Filing dated as
of January 24, 1996, between the Registrant and Keebler Corporation
("Keebler").
5.1* Opinion of Hogan, Marren & McCahill, Ltd. as to the legality of the
securities being registered (including consent).
8.1 Snack Assets Purchase Agreement dated November 18, 1995, between
Kelly Food Products, Inc. ("Kelly") and Keebler.
8.2 Amendment dated December 29, 1995, to Snack Assets Purchase Agreement
between Kelly and Keebler.
8.3 Amendment dated January 22, 1996, to Snack Assets Purchase Agreement
between Kelly and Keebler.
8.4* Transition Agreement dated as of January __, 1996, between Kelly and
Keebler.
8.5 Assignment and Assumption Agreement dated January 24, 1996, between
Keebler and the Registrant.
8.6 Bill of Sale dated as of January 24, 1996, made by Keebler to the
Registrant.
8.7 Assignment of Trademarks dated as of January 24, 1996, by Keebler in
favor of the Registrant.
8.8 Assignment of Pending Trademark Applications dated as of January 24,
1996, made by Keebler in favor of the Registrant.
8.9* License Agreement dated March 1, 1985, between Keebler and Miles J.
Willard ("Willard").
8.10* Amendment dated January 1, 1993, between Willard and Keebler amending
the License Agreement
8.11* Agreement dated February 17, 1997, between Willard and the Registrant
amending the License Agreement dated March 1, 1985.
8.12* Stock Option Plan adopted by the Registrant.
8.13* Employment Agreement with Donald F. Schumacher II.
8.14* Employment Agreement with Susan Bolin.
8.15* Employment Agreement with David Blue.
8.16* Amendment, dated May , 1997, between the Registrant and Willard
amending the payment terms under the license agreement with Willard
and granting Willard a warrant to purchase stock.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
23.1 Consent of BDO Seidman, LLP.
23.2* Consent of Hogan, Marren & McCahill, Ltd. (contained in its opinion
filed as Exhibit 5.1 hereto).
23.3 Consent to inclusion as nominee for directorship of Steven Devick.
23.4 Consent to inclusion as nominee for directorship of Robert S. Steel.
23.5 Consent to inclusion as nominee for directorship of Peter J. Vitulli.
24. Power of Attorney (included on signature page of Registration
Statement).
27.* Financial data schedule.
</TABLE>
* To be filed by amendment
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes:
(1) Rule 415 Offering:
(a) To file, during any period in which it offers or sells securities
under this registration statement, a post-effective amendment to this
Registration Statement to: (i) include any prospectus required by Section
10(a)(3) of the Securities Act; (ii) reflect in the prospectus any facts
or events which, individually or together, represent a fundamental change
in the information in the Registration Statement; and (iii) include any
additional or changed material information on the plan of distribution.
(b) For determining liability under the Securities Act to treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of such securities at that time as
the initial bona fide offering thereof.
(c) To file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
(2) To provide to the Underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the undersigned small business issuer pursuant to the foregoing
provisions, or otherwise, the undersigned small business issuer has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
undersigned small business issuer of expenses incurred or paid by a
director, officer or controlling person in the successful defense of any
action, suite or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
undersigned small business issuer will, unless in the opinion of its counsel
the matter had been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(4) For purposes of determining any liability under the Securities Act,
to treat the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the undersigned small business issuer pursuant
to Rule 424(b)(1), or (4) or 497(h) under the Securities Act as part of this
Registration Statement as of the time the Commission declared it effective.
II-4
<PAGE>
For purposes of determining any liability under the Securities Act, to treat
each post effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and the offering of the securities at that time as the initial bona fide
offering of those securities.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned in the City of Chicago, and State
of Illinois on the 28th day of May, 1997.
THE O'BOISIE CORPORATION
By: /s/ DONALD F. SCHUMACHER II
-----------------------------------------
Donald F. Schumacher II
CHAIRMAN AND CEO
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person who signature appears
below, constitutes and appoints Donald F. Schumacher II, Susan C. Bolin, or any
one of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this Registration Statement,
including post effective amendments, and any related Registration Statements
filed pursuant to Rule 462(b) of the rules adopted by the Securities and
Exchange Commission under the Securities Act of 1933, as amended, and to file
the same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto such
attorneys-in-fact and agents, or any one of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that such
attorneys-in-fact and agents or any one of them, or their or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration statement has been signed by the following persons in the
capacities and on the 28th day of May, 1997.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ DONALD F. SCHUMACHER II
- ------------------------------ Chairman, CEO and Director May 28,1997
Donald F. Schumacher II
/s/ SUSAN C. BOLIN
- ------------------------------ Chief Financial Officer, May 28,1997
Susan C. Bolin Director
/s/ DAVID BLUE
- ------------------------------ President, Chief Operating May 28, 1997
David Blue Officer, Director
II-6
<PAGE>
THE O'BOISIE CORPORATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------------- -----------
<C> <S> <C>
1.1* Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Registrant dated January 19, 1996.
3.2 Articles of Amendment to Articles of Incorporation of the Registrant dated May 14, 1996.
3.3 Articles of Amendment to Articles of Incorporation of the Registrant dated June ,
1996.
3.4* Articles of Amendment to Articles of Incorporation of the Registrant dated June ,
1997.
3.5 Bylaws of the Registrant.
4.1* Form of Warrant issued to the Representative.
4.2* Form of Private Placement Warrant issued to the Private Placement Securityholders.
4.3* Registration Rights Agreement dated as of June 5, 1996, between the Registrant and the
Private Placement Securityholders.
4.4 Credit Agreement dated July 3, 1996, between the Registrant and Republic Acceptance
Corporation (the "Lender").
4.5 Amendment to Credit Agreement dated October 3, 1996, between the Registrant and the
Lender.
4.6 Second Amendment to Credit Agreement between the Registrant and the Lender.
4.7* Security Agreement dated July 3, 1996, between the Registrant and the Lender.
4.8* Term Note dated July 3, 1996, made by the Registrant to the order of the Lender.
4.9* Additional Term Note dated October 3, 1996, made by the Registrant to the order of the
Lender.
4.10* Additional Term Note dated March , 1997, made by the Registrant to the order of the
Lender.
4.11* Guaranty dated July 3, 1996, made by Donald Schumacher for the benefit of the Lender.
4.12* Guaranty dated March , 1997, made by Donald Schumacher for the benefit of the Lender.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------------- -----------
<C> <S> <C>
4.13* Subordination Agreement dated as of July 3, 1996, among the Registrant, the Lender and
U.B.F.C., Inc. ("UBFC").
4.14* Amended and Restated Subordinated Promissory Note dated as of July 5, 1996, made by the
Registrant to the order of UBFC.
4.15* Amendment to Amended and Restated Subordinated Promissory Note made by Registrant and
acknowledged by UBFC.
4.16 Real Estate Mortgage, Security Agreement and Fixture Filing dated as of January 24,
1996, between the Registrant and Keebler Corporation ("Keebler").
5.1* Opinion of Hogan, Marren & McCahill, Ltd. as to the legality of the securities being
registered (including consent).
8.1 Snack Assets Purchase Agreement dated November 18, 1995, between Kelly Food Products,
Inc. ("Kelly") and Keebler.
8.2 Amendment dated December 29, 1995, to Snack Assets Purchase Agreement between Kelly and
Keebler.
8.3 Amendment dated January 22, 1996, to Snack Assets Purchase Agreement between Kelly and
Keebler.
8.4* Transition Agreement dated as of January __, 1996, between Kelly and Keebler.
8.5 Assignment and Assumption Agreement dated January 24, 1996, between Keebler and the
Registrant.
8.6 Bill of Sale dated as of January 24, 1996, made by Keebler to the Registrant.
8.7 Assignment of Trademarks dated as of January 24, 1996, by Keebler in favor of the
Registrant.
8.8 Assignment of Pending Trademark Applications dated as of January 24, 1996, made by
Keebler in favor of the Registrant.
8.9* License Agreement dated March 1, 1985, between Keebler and Miles J. Willard ("Willard").
8.10* Amendment dated January 1, 1993, between Willard and Keebler amending the License
Agreement
8.11* Agreement dated February 17, 1997, between Willard and the Registrant amending the
License Agreement dated March 1, 1985.
8.12* Stock Option Plan adopted by the Registrant.
8.13* Employment Agreement with Donald F. Schumacher II.
8.14* Employment Agreement with Susan Bolin.
8.15* Employment Agreement with David Blue.
8.16* Amendment, dated May , 1997, between the Registrant and Willard amending the payment
terms under the license agreement with Willard and granting Willard a warrant to
purchase stock.
23.1 Consent of BDO Seidman, LLP.
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------------- -----------
<C> <S> <C>
23.2* Consent of Hogan, Marren & McCahill, Ltd. (contained in its opinion filed as Exhibit 5.1
hereto).
23.3 Consent to inclusion as nominee for directorship of Steven Devick.
23.4 Consent to inclusion as nominee for directorship of Robert S. Steel.
23.5 Consent to inclusion as nominee for directorship of Peter J. Vitulli.
24. Power of Attorney (included on signature page of Registration Statement).
27.* Financial data schedule.
</TABLE>
* To be filed by amendment
II-9
<PAGE>
File Number: 5868-251-9
STATE OF ILLINOIS
OFFICE OF
THE SECRETARY OF STATE
WHEREAS, ARTICLES OF INCORPORATION OF
THE O'BOISIE CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS HAVE BEEN
FILED IN THE OFFICE OF THE SECRETARY OF STATE AS PROVIDED BY THE
BUSINESS CORPORATION ACT OF ILLINOIS, IN FORCE JULY 1, A.D. 1984.
Now Therefore, I, George H. Ryan, Secretary of State of the State of Illinois,
by virtue of the powers vested in me by law, do hereby issue this certificate
and attach hereto a copy of the Application of the aforesaid corporation.
IN TESTIMONY WHEREOF, I hereto set my hand and cause to be affixed the
Great Seal of the State of Illinois, at the City of Springfield, this 19TH day
of JANUARY A.D. 1996 and of the Independence of the United States the two
hundred and 20th.
/s/ George H. Ryan
Secretary of State
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Form BCA-2.10 ARTICLES OF INCORPORATION
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(Rev. Jan. 1995) This space for use by Secretary of State SUBMIT IN DUPLICATE!
George H. Ryan
Secretary of State FILED
Department of Business Services JAN. 19, 1996
- ------------------------------------- GEORGE H. RYAN ---------------------------------
Payment must be made by SECRETARY OF STATE This space for use by Secretary
certified check, cashier's check, of State
Illinois attorney's check, Illinois
C.P.A.'s check or money order, Date: 1-19-96
payable to "Secretary of State." Franchise Tax:$25
Filing Fee: $75
Total: $100
Approved: /s/ illegible
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
1. CORPORATE NAME: The O'Boisie Corporation
(The corporate name must contain the word "corporation", "company,"
"incorporated," "limited" or an abbreviation thereof.)
2. Initial Registered Agent: Russell N. Pallesen
FIRST NAME MIDDLE INITIAL LAST NAME
Initial Registered Office: 525 West Monroe Street Suite 1600
NUMBER STREET SUITE #
Chicago, IL 60661 Cook
CITY ZIP CODE COUNTY
3. Purpose or purposes for which the corporation is organized:
(If not sufficient space to cover this point, add one or more sheets of
this size.)
To engage in any lawful act or activity for which corporation may be
organized under the Illinois Business Corporation Act of 1983, as amended.
4. Paragraph 1: Authorized Shares, Issued Shares and Consideration Received:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Par Value Number of Shares Number of Shares Consideration to be
Class per Share Authorized Proposed to be Issued Received Therefor
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON $.01 10,000 1,000 $1,000.00
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
TOTAL = $1,000.00
</TABLE>
Paragraph 2: The preferences, qualifications, limitations, restrictions and
special or relative rights in respect of the shares of each class are:
(If not sufficient space to cover this point, add one or more sheets of this
size.)
EXPEDITED - JAN. 19. 1996 - SECRETARY OF STATE
(over)
<PAGE>
5. OPTIONAL: (a) Number of directors constituting the initial board of
directors of the corporation:
(b) Names and addresses of persons who are to serve as directors
until the first annual meeting of shareholders or until
their successors are elected and qualify:
Name Residential Address City, State, ZIP
6. OPTIONAL: (a) It is estimated that the value of all property to be owned
by the corporation for the following year wherever located
will be:
(b) It is estimated that the value of the property to be located
within the State of Illinois during the following year will
be:
(c) It is estimated that the gross amount of business that will
be transacted by the corporation during the following year
will be:
(d) It is estimated that the gross amount of business that will
be transacted from places of business in the State of
Illinois during the following year will be:
7. OPTIONAL: OTHER PROVISIONS See Attachment
Attach a separate sheet of this size for any other provision to
be included in the Articles of Incorporation , e.g., authorizing
preemptive rights, denying cumulative voting, regulating internal
affairs, voting majority requirements, fixing a duration other
than perpetual, etc.
8. NAME(S) & ADDRESS(ES) OF INCORPORATOR(S)
The undersigned incorporator(s) hereby declare(s), under penalties of
perjury, that the statements made in the foregoing Articles of
Incorporation are true.
Dated: January 19, 1996.
<TABLE>
<CAPTION>
Signature and Name Address
<S> <C>
1. Corporation Service Company doing business 1. 700 South Second Street
Illinois Corporation Service Company STREET
SIGNATURE Springfield IL 62704
(TYPE OR PRINT NAME) CITY/TOWN STATE ZIP CODE
2. /s/ Gilbert L. Bratten 2. Same
SIGNATURE STREET
Gilbert L. Bratten, Exec. VP CITY/TOWN STATE ZIP CODE
(TYPE OR PRINT NAME)
3. /s/ Carol A. Detert 3. Same
SIGNATURE STREET
Carol A. Detert, Asst. Secretary CITY/TOWN STATE ZIP CODE
(TYPE OR PRINT NAME)
</TABLE>
(Signatures must be in BLACK INK on original document. Carbon copy, photocopy
or rubber stamp signatures may only be used on conformed copies.)
NOTE: If a corporation acts as incorporator, the name of the corporation and
the state of incorporation shall be shown and the execution shall be by its
president or vice president and verified by him, and attested by its secretary
or assistant secretary.
FEE SCHEDULE
- - The initial franchise tax is assessed at the rate of 15/100 of 1 percent
($1.50 per $1,000) on the paid-in capital represented in this state, with a
minimum of $25.
- - The filing fee is $75.
- - The minimum total due (franchise tax + filing fee) is $100.
(Applies when the Consideration to be Received as set forth in Item 4 does
not exceed $16,667)
- - The Department of Business Services in Springfield will provide assistance
in calculating the total fees if necessary.
Illinois Secretary of State Springfield, IL 62756
Department of Business Services Telephone (217) 782-9522 or 782-9523
<PAGE>
ARTICLE SEVEN
The personal liability of the directors of the Corporation hereby is
eliminated to the fullest extent permitted under the Illinois Business
Corporation Act of 1983, as amended.
<PAGE>
File Number: 5868-251-9
STATE OF ILLINOIS
OFFICE OF
THE SECRETARY OF STATE
WHEREAS, ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF
THE O'BOISIE CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS HAVE BEEN
FILED IN THE OFFICE OF THE SECRETARY OF STATE AS PROVIDED BY THE
BUSINESS CORPORATION ACT OF ILLINOIS, IN FORCE JULY 1, A.D. 1984.
Now Therefore, I, George H. Ryan, Secretary of State of the State of Illinois,
by virtue of the powers vested in me by law, do hereby issue this certificate
and attach hereto a copy of the Application of the aforesaid corporation.
IN TESTIMONY WHEREOF, I hereto set my hand and cause to be affixed the
Great Seal of the State of Illinois, at the City of Springfield, this 14TH of
MAY A.D. 1996 and of the Independence of the United States the two hundred and
20th.
/s/ George H. Ryan
Secretary of State
<PAGE>
<TABLE>
<CAPTION>
Form BCA-10.30 ARTICLES OF AMENDMENT File # 5868-251-9
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
George H. Ryan This space for use by Secretary of State SUBMIT IN DUPLICATE!
Secretary of State
Department of Business Services FILED
Springfield, IL 62756 MAY 14, 1996
Telephone (217) 782-1832 GEORGE H. RYAN
- -------------------------------- SECRETARY OF STATE ----------------------------------------
This space for use by Secretary of State
Remit payment in check or
money order, payable to Date: 5-14-96
"Secretary of State." Franchise Tax:
The filing fee for articles of Filing Fee: $25
amendment - $25.00 Penalty:
Approved: /s/ illegible
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. CORPORATE NAME: THE O'BOISIE CORPORATION
(Note 1)
2. MANNER OF ADOPTION OF AMENDMENT:
The following amendment to the Articles of Incorporation was adopted on May
7, 1996 in the manner indicated below. ("X" one box only)
/ / By a majority of the incorporators, provided no directors were named in the
articles of incorporation and no directors have been elected, (Note 2)
/ / By a majority of the board of directors, in accordance in Section 10.10,
the corporation having issued no shares as of the time of adoption of this
amendment; (Note 2)
/ / By a majority of the board of directors, in accordance with Section 10.15,
shares having been issued but shareholder action not being required for the
adoption of the amendment; (Note 3)
/ / By the shareholders, in accordance with Section 10.20, a resolution of the
board of directors having been duly adopted and submitted to the
shareholders. At a meeting of shareholders, not less than the minimum
number of votes required by statute and by the articles of incorporation
were voted in favor of the amendment; (Note 4)
/ / By the shareholders, in accordance with Section 10.20 and 7.10, a
resolution of board of directors having been duly adopted and submitted to
the shareholders. A consent in writing has been signed by shareholders
having not less than the minimum number of votes required by statute and by
the articles of incorporation. Shareholders who have not consented in
writing have been given notice in accordance with Section 7.10 (Notes 4 &
5)
X By the shareholders, in accordance with Section 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and submitted
to the shareholders. A consent in writing has been signed by all the
shareholders entitled to vote on this amendment. (Note 5)
TEXT OF AMENDMENT:
a. When amendment effects a name change, insert the new corporate name below.
Use Page 2 for all other amendments.
Article 1: The name of the corporation is:
(NEW NAME)
EXPEDITED
MAY 14, 1996
SECRETARY OF STATE
All changes other than name, include on page 2
(over)
<PAGE>
Text of Amendment
b. (If amendment affects the corporate purpose, the amended purpose is
required to be set forth in it entirety. If there is not sufficient space
to do so, add one or more sheets of this size.)
RESOLVED, that Article I, Paragraph 1 of the Articles of Incorporation of
the Corporation be amended as follows:
"The number of authorized shares is 30,000,000 common
shares, $0.01 par value."
<PAGE>
4. The manner, if not set forth in Article 3b, in which any exchange,
reclassification or cancellation of issued shares, or a reduction of the
number of authorized shares of any class below the number of issued shares
of that class, provided for or effected by this amendment, is as follows:
(If not applicable, insert "No change").
NO CHANGE.
5. (a) The manner, if not set forth in Article 3b, in which said amendment
effects a change in the amount of paid-in capital (Paid-in capital replaces
the terms Stated Capital and Paid-in Surplus and is equal to the total of
these accounts) is as follows: (If not applicable, insert "No change")
NO CHANGE.
(b) The amount of paid-in capital (Paid-in Capital replaces the terms
Stated Capital and Paid-in Surplus and is equal to the total of these
accounts) as changed by this amendment is as follows: (If not applicable,
insert "No change")
NO CHANGE.
Before Amendment After Amendment
Paid-in Capital: $1,000.00 $1,000.00
(Complete either item 6 or 7 below. All signatures must be in BLACK INK.)
5. The undersigned corporation has caused this statement to be signed by its
duly authorized officers, each of whom affirms, under penalties of perjury,
that the facts stated herein are true.
<TABLE>
<CAPTION>
<S><C>
Date: May 7, 1996 THE O'BOISIE CORPORATION
(EXACT NAME OF CORPORATION AT DATE OF EXECUTION)
attested by: /s/ Susan Bolin by: /s/ David S. Blue
(SIGNATURE OF SECRETARY OR ASSISTANT SECRETARY) (SIGNATURE OF PRESIDENT OR VICE PRESIDENT)
Susan Bolin, Secretary David S. Blue, President
(TYPE OR PRINT NAME AND TITLE) (TYPE OR PRINT NAME AND TITLE)
</TABLE>
7. If amendment is authorized pursuant to Section 10.10 by the incorporators,
the incorporators must sign below, and type or print name and title.
OR
If amendment is authorized by the directors pursuant to Section 10.10 and
there are no officers, than a majority of the directors of such directors
as may be designated by the board, must sign below, and type or print name
and title.
The undersigned affirms, under the penalties of perjury, that the facts
stated herein are true.
Dated ______________________________, 19____
Page 3
<PAGE>
NOTES AND INSTRUCTIONS
NOTE 1: State the true exact corporate name as it appears on the records of
the office of the Secretary of State, BEFORE any amendments herein
reported.
NOTE 2: Incorporators are permitted to adopt amendments ONLY before any shares
have been issued and before any directors have been named or elected.
(Section 10.10)
NOTE 3: Directors may adopt amendments without shareholder approval in only
seven instances, as follows:
(a) to remove the names and address of directors named in the
articles of incorporation;
(b) to remove the name and address of the initial registered agent
and registered office, provided a statement pursuant to Section
5.10 is also filed;
(c) to increase, decrease, create or eliminate the par value of the
shares of any class, so long as no class or series of shares is
adversely affected;
(d) to split the issued whole shares and unissued authorized shares
by multiplying them by a whole number, so long as no class or
series is adversely affected thereby;
(e) to change the corporate name by substituting the word
"corporation", "incorporated", "company", "limited", or the
abbreviation "corp.", "inc.", "co.", or "ltd." for a similar word
or abbreviation in the name, or by adding a geographical
attribution to the name;
(f) to reduce the authorized shares of any class pursuant to a
cancellation statement filed in accordance with Section 9.05;
(g) to restate the articles of incorporation as currently amended.
(Section 10.15)
NOTE 4: All amendments not adopted under Section 10.10 or Section 10.15
require (1) that the board of directors adopt a resolution setting
forth the proposed amendment and (2) that the shareholders approve the
amendment.
Shareholder approval may be (1) by vote at a shareholders' meeting
(either annual or special) or (2) by consent, in writing, without a
meeting.
To be adopted, the amendment must receive the affirmative vote or
consent of the holders of at least 2/3 of the outstanding shares
entitled to vote on the amendment (but if class voting applies, then
also at least a 2/3 vote within each class is required).
The articles of incorporation may supersede the 2/3 vote requirement
by specifying any smaller or larger vote requirement not less than a
majority of the outstanding shares entitled to vote and not less than
a majority within each class when class voting applies. (Section
10.20)
NOTE 5: When shareholder approval is by consent, all shareholders must be
given notice of the proposed amendment at least 5 days before the
consent is signed. If the amendment is adopted, shareholders who have
not signed the consent must be promptly notified of the passage of the
amendment.
(Sections 7.10 & 10.20)
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Form BCA-10.30 ARTICLES OF AMENDMENT File # 5868-251-9
(Rev. Jan. 1995)
- --------------------------------------------------------------------------------
George H. Ryan SUBMIT IN DUPLICATE!
Secretary of State
Department of Business Services
Springfield, IL 62756
Telephone (217) 782-1832
- ------------------------------- --------------------
Remit payment in check or money This space for use
by order, payable to "Secretary of Secretary of State
State". The filing fee for
articles of amendment - $25.00 Date:
Franchise Tax:
Filing Fee:
Penalty:
Approved: [Approved]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. CORPORATE NAME: THE O'BOISIE CORPORATION
(Note 1)
2. MANNER OF ADOPTION OF AMENDMENT:
The following amendment to the Articles of Incorporation was adopted
on May 31, 1996 in the manner indicated below. ("X" one box only)
/ / By a majority of the incorporators, provided no directors were named in the
articles of incorporation and no directors have been elected, (Note 2)
/ / By a majority of the board of directors, in accordance in Section 10.10,
the corporation having issued no shares as of the time of adoption of this
amendment; (Note 2)
/ / By a majority of the board of directors, in accordance with Section 10.15,
shares having been issued but shareholder action not being required for the
adoption of the amendment; (Note 3)
/ / By the shareholders, in accordance with Section 10.20, a resolution of the
board of directors having been duly adopted and submitted to the
shareholders. At a meeting of shareholders, not less than the minimum
number of votes required by statute and by the articles of incorporation
were voted in favor of the amendment; (Note 4)
/ / By the shareholders, in accordance with Section 10.20 and 7.10, a
resolution of board of directors having been duly adopted and submitted to
the shareholders. A consent in writing has been signed by shareholders
having not less than the minimum number of votes required by statute and by
the articles of incorporation. Shareholders who have not consented in
writing have been given notice in accordance with Section 7.10 (Notes 4 &
5)
X By the shareholders, in accordance with Section 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and submitted
to the shareholders. A consent in writing has been signed by all the
shareholders entitled to vote on this amendment. (Note 5)
TEXT OF AMENDMENT:
a. When amendment effects a name change, insert the new corporate name
below. Use Page 2 for all other amendments.
Article 1: The name of the corporation is:
(NEW NAME)
All changes other than name, include on page 2
(over)
<PAGE>
Text of Amendment
b. (If amendment affects the corporate purpose, the amended purpose is
required to be set forth in it entirety. If there is not sufficient space
to do so, add one or more sheets of this size.)
SEE ATTACHED EXHIBIT A
<PAGE>
EXHIBIT A TO FORM BCA-10.30
RESOLVED: That Article 5, Item (a) of the Articles of Incorporation of the
Corporation be and hereby is amended in its entirety to read as follows:
The business and affairs of the Corporation shall be managed by or under
the direction of a board of directors consisting of not less than four (4) nor
more than seven (7) directors. The exact number shall be determined from time
to time by resolution adopted by the affirmative vote of a majority of the
directors in office at the time of adoption of such resolution.
Upon the closing of an initial public offering of the Corporation's Common
Stock registered under the Securities Act of 1933, as amended (an "IPO"), the
directors shall be divided into three classes, Class I, Class II and Class III
with each class being as nearly equal in number of directors as reasonably
possible. The initial term of office of the Class I, Class II and Class III
directors shall expire at the annual meeting of stockholders in 1997, 1998 and
1999, respectively. Beginning in 1997, at each annual meeting of stockholders,
successors to the class of directors whose term expires at that annual meeting
shall be elected for a three-year term. If the number of directors is changed,
any increase or decrease shall be apportioned among the classes by the Board of
Directors so as to maintain the number of directors in each class as nearly
equal as reasonably possible, and any additional director of any class elected
to fill a vacancy resulting from an increase in such class shall hold office for
a term that shall coincide with the remaining term of that class. In no case
will a decrease in the number of directors shorten the term of any incumbent
director even though such decrease may result in an inequality of the classes
until the expiration of such term. A director shall hold office until the
annual meeting of the year in which his or her term expires and until his or her
successor shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement or removal from office. Following an IPO, no director
may be removed, except with cause. Except as required by law or the provisions
of these Articles of Incorporation, all vacancies on the board of directors and
newly-created directorships shall be filled by the board of directors. Any
director elected to fill a vacancy not resulting from an increase in the number
of directors shall have the same remaining term as that of his or her
predecessor.
RESOLVED: That Article 7 of the Articles of Incorporation of the
Corporation be and hereby is amended in its entirety to read as follows:
PARAGRAPH 1: WRITTEN CONSENT. At any time after the closing of an IPO,
any action required or permitted to be taken by the stockholders of the
Corporation shall be effected only at a duly called annual or special meeting of
stockholders of the Corporation and shall not be effected by consent in writing
by the holders of outstanding stock.
PARAGRAPH 2: SPECIAL MEETINGS. Special meetings of stockholders of the
Corporation may be called upon not less than ten nor more than 60 days' written
notice by the Board of Directors pursuant to a resolution approved by a majority
of the Board of Directors or at the request in writing of the stockholders
owning at least a majority of the entire capital stock of the corporation issued
and outstanding and entitled to vote.
PARAGRAPH 3: AMENDMENT. Notwithstanding anything contained in these
Articles of Incorporation to the contrary, the affirmative vote of the holders
of at least two-thirds of the shares entitled to vote generally in the election
of directors shall be required to amend, alter or repeal, or to adopt any
provision inconsistent with this Article 7.
PARAGRAPH 4: BY-LAWS. In furtherance and not in limitation of the power
conferred by statute, the Board of Directors is expressly authorized to make,
alter, amend or repeal the By-Laws of the Corporation. The By-Laws of the
Corporation may be altered, amended, or repealed, or new By-Laws may be adopted,
by the Board of Directors in accordance with the preceding sentence or by the
vote of the holders of at least two-thirds of the voting power of the shares of
the Corporation entitled to be cast generally in the election of directors at an
annual or special meeting of stockholders, provided that if such alteration,
amendment, repeal or adoption of new By-Laws is effected at a duly called
special meeting, notice of such alteration, amendment, repeal or adoption of new
By-Laws shall be contained in the notice of such special meeting.
PARAGRAPH 5: NO CUMULATIVE VOTING. No stockholder of the Corporation
shall by reason of holding shares of any class of stock have any cumulative
voting right. At all elections of directors of the corporation, or at elections
held under specified circumstances, each holder of stock or of any class or
classes or of a series or series thereof shall only be entitled to one vote for
each share of capital stock held by such stockholder.
<PAGE>
PARAGRAPH 6: CERTAIN TRANSACTIONS. A director of the Corporation shall
not in the absence of fraud be disqualified by his office from dealing or
contracting with the Corporation either as a vendor, purchaser or otherwise, nor
in the absence of fraud shall a director of the Corporation be liable to account
to the Corporation for any profit realized by him from or through any
transaction or contract of the Corporation by reason of the fact that he, or any
firm of which he is a member or any corporation of which he is an officer,
director or stockholder, was interested in such transaction or contract if such
transaction or contract has been authorized, approved or ratified in a manner
provided by law for authorization, approval or ratification of transactions or
contracts between the Corporation and one or more of its directors or officers
or between the Corporation and any other corporation, partnership, association
or other organization in which one or more of its directors or officers are
directors or officers or have a financial interest.
PARAGRAPH 7: LOCATION OF MEETINGS; BOOKS AND RECORDS. Meetings of
stockholders may be held within or without the State of Illinois as the By-Laws
may provide. The books of the Corporation may be kept outside the State of
Illinois at such place or places as may be designated from time to time by the
Board of Directors of the Corporation or in the By-Laws of the Corporation.
Election of directors need not be by written ballot unless the By-Laws of the
Corporation so provide.
PARAGRAPH 8: INDEMNIFICATION OF OFFICERS AND DIRECTOR. The Corporation
shall:
(a) indemnify, to the fullest extent now or hereafter permitted by
law, any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by
or in the right of the Corporation) by reason of the fact that such person
is or was a director, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or if
such person has previously been designated for indemnification by the
resolution of the Board of Directors, an officer, employee or agent of the
Corporation, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if such person
acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe such person's conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that such person's conduct was
unlawful; and
(b) indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or
in the right of the Corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director, or is or was
serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, or if such person has previously been designated for
indemnification by the resolution of the Board of Directors, an officer,
employee or agent of the Corporation, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the court in which such
action or suit was brought shall determine upon application that, despite
the adjudication of liability, but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses as the shall deem proper; and
(c) indemnify any director or, if such person has previously been
designated for indemnification by the resolution of the Board of Directors,
an officer, employee or agent of the Corporation against expenses
(including attorneys' fees) actually and reasonably incurred by such person
in connection therewith, to the extent that such director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
Article 7, Paragraph 7(a) and (b), or in defense of any claim, issue or
matter therein; and
<PAGE>
(d) make any indemnification under Article 7, Paragraph 7(a) and
(b) (unless ordered by a court) only as authorized in the specific case
upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because such director,
officer, employee or agent has met the applicable standard of conduct set
forth in Article 7 Paragraph 8(a) and (b). Such determination shall be
made (1) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders of the
Corporation; and
(e) pay expenses incurred by a director or, if such person has
previously been designated for indemnification by the resolution of the
Board of Directors, an officer, employee or agent of the Corporation in
defending a civil or criminal action, suit or proceeding in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such director or officer
is not entitled to be indemnified by the Corporation as authorized in this
Article 7. Notwithstanding the foregoing, the Corporation shall not be
obligated to pay expenses incurred by a director or officer with respect to
any threatened, pending, or completed claim, suit or action, whether civil,
criminal, administrative, investigative or otherwise ("Proceedings")
initiated or brought voluntarily by a director or officer and not by way of
defense (other than Proceedings brought to establish or enforce a right to
indemnification under the provisions of this Article 7 unless a court of
competent jurisdiction determines that each of the material assertions made
by the director or officer in such proceeding were not made in good faith
or were frivolous). The Corporation shall not be obligated to indemnify
the director or officer for any amount paid in settlement of a Proceeding
covered hereby without the prior written consent of the Corporation to such
settlement; and
(f) not deem the indemnification and advancement of expenses provided
by, or granted pursuant to, the other subsections of this Article 7
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in such director's or officer's official capacity and as to action in
another capacity while holding such office; and
(g) have the right, authority and power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against such person and incurred by such person in
any such capacity, or arising out of such person's status as such, whether
or not the Corporation would have the power to indemnify such person
against such liability under the provisions of this Article 7; and
(h) deem the provisions of this Article 7 to be a contract between
the Corporation and each director, or appropriately designated officer,
employee or agent who serves in such capacity at any time while this
Article 7 is in effect and any repeal or modification of this Article 7
shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought or threatened based in whole
or in part upon such state of facts. The provisions of this Article 7
shall not be deemed to be a contract between the Corporation and any
directors, officers, employees or agents of any other Corporation (the
"Second Corporation") which shall merge into or consolidate with this
Corporation when this Corporation shall be the surviving or resulting
Corporation, and any such directors, officers, employees or agents of the
Second Corporation shall be indemnified to the extent required under the
Illinois Business Corporation Act of 1983 only at the discretion of the
board of directors of this Corporation; and
(i) continue the indemnification and advancement of expenses provided
by, or granted pursuant to, this Article 7, unless otherwise provided when
authorized or ratified, as to a person who has ceased to be a director,
officer, employee or agent of the Corporation and shall inure to the
benefit of the heirs, executors and administrators of such a person.
PARAGRAPH 9: ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS: The personal
liability of the directors of the Corporation hereby is eliminated to the
fullest extent permitted under the Illinois Business Corporation Act of 1983, as
amended.
<PAGE>
4. The manner, if not set forth in Article 3b, in which any exchange,
reclassification or cancellation of issued shares, or a reduction of the
number of authorized shares of any class below the number of issued shares
of that class, provided for or effected by this amendment, is as follows:
(If not applicable, insert "No change").
NO CHANGE.
5. (a) The manner, if not set forth in Article 3b, in which said amendment
effects a change in the amount of paid-in capital (Paid-in capital replaces
the terms Stated Capital and Paid-in Surplus and is equal to the total of
these accounts) is as follows: (If not applicable, insert "No change")
NO CHANGE.
(b) The amount of paid-in capital (Paid-in Capital replaces the terms
Stated Capital and Paid-in Surplus and is equal to the total of these
accounts) as changed by this amendment is as follows: (If not applicable,
insert "No change")
NO CHANGE.
Before Amendment After Amendment
Paid-in Capital:
(Complete either item 6 or 7 below. All signatures must be in BLACK INK.)
5. The undersigned corporation has caused this statement to be signed by its
duly authorized officers, each of whom affirms, under penalties of perjury,
that the facts stated herein are true.
Date: May 31, 1996 THE O'BOISIE CORPORATION
(EXACT NAME OF CORPORATION AT DATE
OF EXECUTION)
attested by: /s/ Susan Bolin by: /s/ David S. Blue
(SIGNATURE OF SECRETARY OR ASSISTANT (SIGNATURE OF PRESIDENT OR
SECRETARY) VICE PRESIDENT)
Susan Bolin, Secretary David S. Blue, President
(TYPE OR PRINT NAME AND TITLE) (TYPE OR PRINT NAME AND TITLE)
7. If amendment is authorized pursuant to Section 10.10 by the incorporators,
the incorporators must sign below, and type or print name and title.
OR
If amendment is authorized by the directors pursuant to Section 10.10 and
there are no officers, than a majority of the directors of such directors
as may be designated by the board, must sign below, and type or print name
and title.
The undersigned affirms, under the penalties of perjury, that the facts
stated herein are true.
Dated ______________________________, 19____
Page 3
<PAGE>
NOTES AND INSTRUCTIONS
NOTE 1: State the true exact corporate name as it appears on the records of
the office of the Secretary of State, BEFORE any amendments herein
reported.
NOTE 2: Incorporators are permitted to adopt amendments ONLY before any shares
have been issued and before any directors have been named or elected.
(Section 10.10)
NOTE 3: Directors may adopt amendments without shareholder approval in only
seven instances, as follows:
(a) to remove the names and address of directors named in the
articles of incorporation;
(b) to remove the name and address of the initial registered agent
and registered office, provided a statement pursuant to Section
5.10 is also filed;
(c) to increase, decrease, create or eliminate the par value of the
shares of any class, so long as no class or series of shares is
adversely affected;
(d) to split the issued whole shares and unissued authorized shares
by multiplying them by a whole number, so long as no class or
series is adversely affected thereby;
(e) to change the corporate name by substituting the word
"corporation", "incorporated", "company", "limited", or the
abbreviation "corp.", "inc.", "co.", or "ltd." for a similar word
or abbreviation in the name, or by adding a geographical
attribution to the name;
(f) to reduce the authorized shares of any class pursuant to a
cancellation statement filed in accordance with Section 9.05;
(g) to restate the articles of incorporation as currently amended.
(Section 10.15)
NOTE 4: All amendments not adopted under Section 10.10 or Section 10.15
require (1) that the board of directors adopt a resolution setting
forth the proposed amendment and (2) that the shareholders approve the
amendment.
Shareholder approval may be (1) by vote at a shareholders' meeting
(either annual or special) or (2) by consent, in writing, without a
meeting.
To be adopted, the amendment must receive the affirmative vote or
consent of the holders of at least 2/3 of the outstanding shares
entitled to vote on the amendment (but if class voting applies, then
also at least a 2/3 vote within each class is required).
The articles of incorporation may supersede the 2/3 vote requirement
by specifying any smaller or larger vote requirement not less than a
majority of the outstanding shares entitled to vote and not less than
a majority within each class when class voting applies. (Section
10.20)
NOTE 5: When shareholder approval is by consent, all shareholders must be
given notice of the proposed amendment at least 5 days before the
consent is signed. If the amendment is adopted, shareholders who have
not signed the consent must be promptly notified of the passage of the
amendment.
(Sections 7.10 & 10.20)
Page 4
<PAGE>
BYLAWS
OF
THE O'BOISIE CORPORATION
AN ILLINOIS CORPORATION
(ADOPTED JANUARY 19, 1996)
TABLE OF CONTENTS
PAGE
NUMBER
ARTICLE I
IDENTIFICATION; OFFICES
SECTION 1.01 Name............................................. 1
SECTION 1.02 Principal and Business Offices................... 1
SECTION 1.03 Registered Agent and Office...................... 1
SECTION 1.04 Place of Keeping Corporate Records............... 1
ARTICLE II
SHAREHOLDERS
SECTION 2.01 Annual Meetings....................................... 1
SECTION 2.02 Special Meetings...................................... 1
SECTION 2.03 Place of Shareholder Meetings......................... 2
SECTION 2.04 Notice of Meetings.................................... 2
SECTION 2.05 Quorum and Adjourned Meetings......................... 2
SECTION 2.06 Fixing of Record Date................................. 2
SECTION 2.07 Voting Lists.......................................... 3
SECTION 2.08 Voting................................................ 3
SECTION 2.09 Proxies............................................... 3
SECTION 2.10 Ratification of Acts of Directors and Officers........ 3
SECTION 2.11 Informal Action of Shareholders....................... 3
SECTION 2.12 Organization.......................................... 4
ARTICLE III
DIRECTORS
SECTION 3.01 Number and Tenure of Directors........................ 4
SECTION 3.02 Election of Directors................................. 4
SECTION 3.03 Annual and Regular Meetings........................... 4
SECTION 3.04 Special Meetings...................................... 4
<PAGE>
SECTION 3.05 Notice of Special Meetings of the Board of Directors.. 5
SECTION 3.06 Waiver of Notice of Meetings of the Board of Directors 5
SECTION 3.07 Quorum................................................ 5
SECTION 3.08 Voting................................................ 5
SECTION 3.09 Vacancies............................................. 5
SECTION 3.10 Removal of Directors.................................. 5
SECTION 3.11 Informal Action of Directors.......................... 5
SECTION 3.12 Participation by Conference Telephone................. 6
ARTICLE IV
COMMITTEES
SECTION 4.01 General Provisions.................................... 6
SECTION 4.02 Executive Committee................................... 6
ARTICLE V
OFFICERS
SECTION 5.01 General Provisions.................................... 6
SECTION 5.02 Election and Term of Office........................... 7
SECTION 5.03 Removal of Officers................................... 7
SECTION 5.04 The Chief Executive Officer........................... 7
SECTION 5.05 The President......................................... 7
SECTION 5.06 The Chairman of the Board............................. 8
SECTION 5.07 Vice Chairman of the Board............................ 8
SECTION 5.08 The Vice President.................................... 8
SECTION 5.09 The Secretary......................................... 8
SECTION 5.10 The Assistant Secretary............................... 8
SECTION 5.11 The Treasurer......................................... 9
SECTION 5.12 The Assistant Treasurer............................... 9
SECTION 5.13 Other Officers, Assistant Officers and Agents......... 9
SECTION 5.14 Absence of Officers................................... 9
SECTION 5.15 Compensation.......................................... 9
<PAGE>
ARTICLE VI
INDEMNIFICATION
SECTION 6.01 Right to Indemnify.................................... 9
SECTION 6.02 Insurance............................................. 11
SECTION 6.03 Contract with the Corporation......................... 11
ARTICLE VII
CERTIFICATES FOR SHARES
SECTION 7.01 Certificates of Shares................................ 11
SECTION 7.02 Signatures of Former Officers, Transfer Agents
or Registrars......................................... 12
SECTION 7.03 Transfer of Shares.................................... 12
SECTION 7.04 Lost, Destroyed or Stolen Certificates................ 12
ARTICLE VIII
DISTRIBUTIONS
SECTION 8 Distributions.................................... 12
ARTICLE IX
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 9.01 Contracts............................................. 13
SECTION 9.02 Loans................................................. 13
SECTION 9.03 Checks, Drafts, Etc................................... 13
SECTION 9.04 Deposits.............................................. 13
ARTICLE X
AMENDMENTS
SECTION 10 Amendments............................................ 13
ATTESTATION..........................................................13
<PAGE>
BY-LAWS
OF
THE O'BOISIE CORPORATION
(ADOPTED JANUARY 19, 1996)
ARTICLE I
IDENTIFICATION; OFFICES
SECTION 1.01. NAME. The name of the corporation is RBG FINANCIAL II, INC. (the
"Corporation").
SECTION 1.02. PRINCIPAL AND BUSINESS OFFICES. The principal office of the
Corporation in the State of Illinois will be located in the City of Chicago and
County of Cook. The Corporation may have such principal and other business
offices, either within or outside of the state of Illinois, as the Board of
Directors may designate or as the Corporation's business may require from time
to time.
SECTION 1.03. REGISTERED AGENT AND OFFICE. The Corporation's registered agent
may be changed from time to time by or under the authority of the Board of
Directors. The address of the Corporation's registered agent may change from
time to time by or under the authority of the Board of Directors, or the
registered agent. The business office of the Corporation's registered agent
shall be identical to the registered office. The Corporation's registered
office may be but need not be identical with the Corporation's principal office
in the state of Illinois.
SECTION 1.04 PLACE OF KEEPING CORPORATE RECORDS. The records and documents
required by law to be kept by the Corporation permanently shall be kept at the
Corporation's principal office.
ARTICLE II
SHAREHOLDERS
SECTION 2.01. ANNUAL MEETINGS. An annual meeting of the shareholders shall be
held on the last Monday of January of each year, or on such other date as may be
determined by resolution of the Board of Directors; provided, however, that if
in any year such date is a legal holiday, such meeting shall be held on the next
succeeding business day. At each annual meeting, the shareholders shall elect
directors to hold office for the term provided in Section 3.02 of these By-laws.
SECTION 2.02. SPECIAL MEETINGS. A special meeting of the shareholders of the
Corporation may be called by the President, the Board of Directors or by the
holders of one-fifth of all of the outstanding shares entitled to vote on the
matter for which the meeting is called.
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SECTION 2.03. PLACE OF SHAREHOLDER MEETINGS. The Board of Directors may
designate any place, either within or without the State of Illinois, as the
place of meeting for any annual meeting or for any special meeting. If no such
place is designated by the Board of Directors, the place of meeting will be the
principal business office of the Corporation.
SECTION 2.04. NOTICE OF MEETINGS. Unless waived as herein provided, written
notice of each annual or special meeting, stating the place, day and hour of the
meeting and, in the case of a special meeting, the purpose or purposes for which
the meeting is called, shall be delivered not less than ten (10) days nor more
than sixty (60) days before the date of the meeting or in the case of a merger,
consolidation, share exchange, dissolution or sale, lease or exchange of assets
not less than twenty (20) days nor more than sixty (60) days before the date of
the meeting, either personally or by mail, by or at the direction of the
President, or the Secretary, or the persons calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail
addressed to the shareholder at his or her address as it appears on the records
of the Corporation, with postage thereon prepaid. Attendance at any meeting in
person or by proxy shall constitute waiver of notice thereof unless the person
or proxy at the meeting objects to the holding of the meeting because notice was
not given. A waiver of notice of a meeting in writing signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. When a
meeting is adjourned to another time or place in accordance with Section 2.05 of
these By-Laws, notice need not be given of the adjourned meeting if the time and
place of the adjourned meeting is announced at the meeting at which the
adjournment is taken.
SECTION 2.05. QUORUM AND ADJOURNED MEETINGS. Unless otherwise provided by law
or in the Articles of Incorporation of the Corporation, a majority of the
outstanding shares entitled to vote on a matter, represented either in person or
by proxy, shall constitute a quorum for consideration of such matter at a
meeting of shareholders. If less than a majority of the outstanding shares of
the Corporation are represented at such meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice.
At any adjourned meeting at which a quorum is present, any business may be
transacted which might have been transacted at the original meeting. The
shareholders present at a meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of such number of shareholders as
may leave less than a quorum.
SECTION 2.06. FIXING OF RECORD DATE. For purposes of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders, or
to express consent to corporate action in writing without a meeting, or to
receive payment of any dividend or in order to make a determination of
shareholders for any proper purpose, the Board of Directors may fix in advance a
date as the record date for any such determination of shareholders such date in
any case to be not more than sixty (60) days and, for a meeting of shareholders,
not less than ten (10) days, or in the case of a merger, consolidation, share
exchange, dissolution or sale, lease or exchange of assets, not less than twenty
(20) days, immediately preceding such meeting. If no record date is fixed
pursuant to the foregoing, the day on which notice of the meeting is mailed or
the date on which the resolution of the Board of Directors declaring the payment
of any dividend is adopted, as the case may be, shall be the record date for
such determination of shareholders. A
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determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting.
SECTION 2.07. VOTING LIST. The officer or agent having charge of the transfer
book for shares of the Corporation shall make, within twenty (20) days after
the record date of every meeting of shareholders or ten (10) days before such
meeting, whichever is earlier, a complete list of the shareholders entitled to
vote at the meeting, arranged in alphabetical order, with the address of and the
number of shares held by each, which list, for a period of ten (10) days prior
to such meeting, shall be kept on file at the registered office of the
Corporation, and shall be subject to inspection by any shareholder, for any
purpose germane to the meeting, and to copying at the shareholder's expense, at
any time during usual business hours. Such list shall also be produced and kept
open at the time and place of the meeting and shall be subject to the inspection
of any shareholder, for any purpose germane to the meeting, during the whole
time of the meeting.
SECTION 2.08. VOTING. Unless otherwise provided by the Articles of
Incorporation of the Corporation, each outstanding share shall be entitled to
one vote at a meeting of shareholders. A shareholder may vote either in person
or by proxy. All questions, unless otherwise provided by law, by the Articles
of Incorporation or the By-Laws of the Corporation, shall be decided by a
majority of the votes thus cast.
SECTION 2.09. PROXIES. A shareholder may appoint a proxy to vote or otherwise
act for him or her, with or without a meeting, by signing an appointment form
and delivering it to the person so appointed. All proxies shall expire eleven
months from the date of execution thereof, unless otherwise provided in the
proxy. Every proxy shall be revocable at the will of the shareholder executing
it, except as otherwise provided by law, by a writing delivered to the
Corporation stating that the proxy is so revoked or by a subsequent proxy
executed by, or by attendance at the meeting and voting in person by, the person
executing the proxy.
SECTION 2.10. RATIFICATION OF ACTS OF DIRECTORS AND OFFICERS. Except as
otherwise provided by law or by the Articles of Incorporation of the
Corporation, any transaction or contract or act of the Corporation or of the
directors or the officers of the Corporation may be ratified by the affirmative
vote of the holders of the number of shares which would have been necessary to
approve such transaction, contract or act at a meeting of shareholders, or by
the written consent of shareholders in lieu of a meeting.
SECTION 2.11. INFORMAL ACTION OF SHAREHOLDERS. Any action required to be taken
at a meeting of the shareholders, or any action which may be taken at a meeting
of the shareholders, may be taken without a meeting and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed (i) by
all of the outstanding shareholders entitled to vote with respect to the subject
matter thereof or (ii) by the holders of outstanding shares having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voting if such consent is signed by less than all of the shareholders
entitled to vote with respect to the subject matter thereof, then such consent
shall become effective only if at least five (5) days prior to the execution of
the consent a notice in writing is delivered to all of the shareholders entitled
to vote with respect thereof, and after the effective date of the consent,
prompt notice of the taking of
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the corporate action without a meeting by less than unanimous consent shall be
delivered in writing to those shareholders who have not consented in writing.
SECTION 2.12. ORGANIZATION. Such person as the Board of Directors may
designate or, in the absence of such a designation, the president of the
Corporation or, in his or her absence, such person as may be chosen by the
holders of a majority of the shares entitled to vote who are present, in person
or by proxy, shall call to order any meeting of the shareholders and act as
chairman of such meeting. In the absence of the secretary of the Corporation,
the chairman of the meeting shall appoint a person to serve as secretary at the
meeting.
ARTICLE III
DIRECTORS
SECTION 3.01. NUMBER AND TENURE OF DIRECTORS. The number of directors of the
Corporation shall consist of not less than one (1) nor more than five (5). The
initial board shall consist of one (1) member. Each director shall hold office
until such director's successor is elected and qualified or until such
director's earlier resignation or removal. Any director may resign at any time
upon written notice to the Board of Directors, its Chairman, the President or
the Secretary of the Corporation.
SECTION 3.02. ELECTION OF DIRECTORS. Directors shall be elected at the annual
meeting of shareholders. In all elections for directors, every shareholder
shall have the right to vote the number of shares owned by such shareholder for
as many persons as there are directors to be elected.
SECTION 3.03. ANNUAL AND REGULAR MEETINGS. The annual meeting of the Board of
Directors shall be held without other notice than this Bylaw on the same day and
at the same place as the annual meeting of shareholders and immediately
following such annual meeting of shareholders, or as soon thereafter as is
practicable. Additional regular meetings of the Board of Directors shall be
held at such times and places, within or without the State of Illinois, as the
Board of Directors may determine, by resolution, from time to time. The
Secretary shall give notice of each such resolution to any director who was not
present at the time the same was adopted, but no further notice of such regular
meeting need be given. The Chief Executive Officer shall preside at all
meetings of the Board of Directors.
SECTION 3.04. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by or at the request of the Chairman of the Board, the President or at
least one-third of the number of directors constituting the whole board. The
person or persons authorized to call special meetings of the Board of Directors
may fix any place, either within or without the State of Illinois, as the place
for holding any special meeting of the Board of Directors called by them.
SECTION 3.05. NOTICE OF SPECIAL MEETINGS OF THE BOARD OF DIRECTORS. Notice of
any special meeting of the Board of Directors shall be given at least two (2)
days previous thereto by written notice to each director at his or her address.
If mailed, such notice shall be deemed to be delivered when deposited in the
United States Mail so addressed, with first-class postage thereon
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prepaid. If sent by any other means (including facsimile, courier, or express
mail, etc.), such notice shall be deemed to be delivered when actually delivered
to the home or business address of the director.
SECTION 3.06 WAIVER OF NOTICE OF MEETINGS OF THE BOARD OF DIRECTORS.
Attendance of a director at any meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, a regular or special meeting of the board of Directors need be
specified in the notice or waiver of notice of such meeting.
SECTION 3.07. QUORUM. A majority of the total number of directors fixed by
these Bylaws, or in the absence of a bylaw which fixes the number of directors,
the number stated in the Articles of Incorporation or named by the
incorporators, shall constitute a quorum for the transaction of business. If
less than a majority of the directors are present at a meeting of the Board of
Directors, a majority of the directors present may adjourn the meeting from time
to time without further notice.
SECTION 3.08. VOTING. The act of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors,
unless the act of a greater number is required by law, by the Articles of
Incorporation of the Corporation or by these By-Laws.
SECTION 3.09. VACANCIES. Vacancies in the Board of Directors may be filled by
a majority vote of the Board of Directors or by an election either at an annual
meeting or at a special meeting of the shareholders called for that purpose.
Any directors elected by the shareholders to fill a vacancy shall hold office
for the balance of the terms for which he or she was elected. A director
appointed by the Board of Directors to fill a vacancy shall serve until the next
meeting of shareholders at which directors are elected.
SECTION 3.10. REMOVAL OF DIRECTORS. A director, or the entire Board of
Directors, may be removed, with or without cause, at a meeting of shareholders
by the affirmative vote of the holders of a majority of the outstanding shares
then entitled to vote at an election of directors; provided, however, that (i)
the notice of such meeting shall state that a purpose of such meeting is to vote
upon the removal of one or more of the directors named in the notice; and (ii)
if less than the entire board is to be removed or if the shareholders cumulative
their votes, no director may be removed, with or without cause, if the votes
against his or her removal would be sufficient to elect him or her if then
cumulatively voted at an election of the Board of Directors.
SECTION 3.11. INFORMAL ACTION OF DIRECTORS. Unless otherwise restricted by the
Articles of Incorporation or these Bylaws, any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 3.12. PARTICIPATION BY CONFERENCE TELEPHONE. Members of the Board of
Directors, or any committee designated by such board, may participate in a
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Directors, or committee thereof, by means of conference
telephone or similar communications equipment as long as all persons
participating in the meeting can speak with and hear each other, and
participation by a director pursuant to this Section 3.12 shall constitute
presence in person at such meeting.
ARTICLE IV
COMMITTEES
SECTION 4.01. GENERAL PROVISIONS. A majority of the Board of Directors may
create one or more committees and appoint members of the Board of Directors to
serve on the committee or committees. Each committee shall have two or more
members, who serve at the pleasure of the Board of directors. Except as limited
by law, each committee shall have such authority as the Board of Directors may
from time to time direct.
SECTION 4.02. EXECUTIVE COMMITTEE. The Board of Directors may designate two or
more directors to constitute an executive committee, which committee shall have
and may exercise all of the authority of the Board of Directors in the
management of the Corporation, provided such committee shall not have the
authority of the Board of Directors in reference to amending the Articles of
Incorporation, adopting a plan of merger or adopting a plan of consolidation
with another corporation or corporations, recommending to the shareholders the
sale, lease, exchange, mortgage, pledge or other disposition of all or
substantially all of the property and assets of the Corporation, recommending to
the shareholders a voluntary dissolution of the Corporation revocation thereof,
amending, altering or repealing the By-Laws of the Corporation, electing or
removing officers of the Corporation or members of the executive committee,
fixing the compensation of any member of the executive committee, declaring
dividends or amending, altering or repealing any resolution of the Board of
Directors which by its terms provided that it shall not be amended, altered or
repealed by the executive committee. The designation of such committee and the
delegation thereto of authority shall not operate to relieve the Board of
Directors, or any member thereof, of any responsibility imposed upon it or him
by law.
ARTICLE V
OFFICERS
SECTION 5.01. GENERAL PROVISIONS. The Board of Directors shall elect a
President and a Secretary of the Corporation. The Board of Directors may also
elect a Chairman of the Board, one or more Vice Chairmen of the Board, one or
more Vice Presidents, a Treasurer, one or more Assistant Secretaries and
Assistant Treasurers and such additional officers as the Board of Directors may
deem necessary or appropriate from time to time. Any two or more offices may be
held by the same person. The officers elected by the Board of Directors shall
have such duties as are hereafter described and such additional duties as the
Board of Directors may from time to time prescribe.
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SECTION 5.02. ELECTION AND TERM OF OFFICE. The officers of the Corporation
shall be elected annually by the Board of Directors at the regular meeting of
the Board of Directors held after each annual meeting of the shareholders. If
the election of officers is not held at such meeting, such election shall be
held as soon thereafter as may be convenient. New offices of the Corporation
may be created and filled and vacancies in offices may be filled at any time, at
a meeting or by the written consent of the Board of Directors. Unless removed
pursuant to Section 6.03 of these By-Laws, each officer shall hold office until
his successor has been duly elected and qualified, or until his earlier death or
resignation. Election or appointment of an officer or agent shall not of itself
create contract rights.
SECTION 5.03. REMOVAL OF OFFICERS. Any officer or agent elected or appointed
by the Board of Directors may be removed by the Board of Directors whenever, in
its judgment, the best interests of the Corporation would be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person(s) so removed.
SECTION 5.04. THE CHIEF EXECUTIVE OFFICER. The Board of Directors shall
designate whether the Chairman of the Board, if one shall have been chosen, or
the President shall be the Chief Executive Officer of the Corporation. If a
Chairman of the Board has not been chosen, or if one has been chosen but not
designated Chief Executive Officer, then the President shall be the Chief
Executive Officer of the Corporation. The Chief Executive Officer shall be the
principal executive officer of the Corporation and shall in general supervise
and control all of the business and affairs of the Corporation, unless otherwise
provided by the Board of Directors. The Chief Executive Officer shall preside
at all meetings of the shareholders and of the Board of Directors and shall see
that orders and resolutions of the Board of Directors are carried into effect.
The Chief Executive Officer may sign bonds, mortgages, certificates for shares
and all other contracts and documents whether or not under the seal of the
Corporation except in cases where the signing and execution thereof shall be
expressly delegated by law, by the Board of Directors or by these By-Laws to
some other officer or agent of the Corporation. The Chief Executive Officer
shall have general powers of supervision and shall be the final arbiter of all
differences between officers of the Corporation and his decision as to any
matter affecting the Corporation shall be final and binding as between the
officers of the Corporation subject only to the Board of Directors.
SECTION 5.05. THE PRESIDENT. In the absence of the Chief Executive Officer or
in the event of his inability or refusal to act, if the Chairman of the Board
has been designated Chief Executive Officer, the President shall perform the
duties of the Chief Executive Officer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Chief Executive
Officer. At all other times the President shall have the active management of
the business of the Corporation under the general supervision of the Chief
Executive Officer. The President shall have concurrent power with the Chief
Executive Officer to sign bonds, mortgages, certificates for shares and other
contracts and documents, whether or not under the seal of the Corporation except
in cases where the signing and execution thereof shall be expressly delegated by
law, by the Board of Directors, or by these By-Laws to some other officer or
agent of the Corporation. In general, the President shall perform all duties
incident to the office of president and such other duties as the Chief Executive
Officer or the Board of Directors may from time to time prescribe.
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SECTION 5.06. THE CHAIRMAN OF THE BOARD. The Chairman of the Board, if one is
chosen, shall be chosen from among the members of the board. If the Chairman of
the Board has not been designated Chief Executive Officer, the Chairman of the
Board shall perform such duties as may be assigned to the Chairman of the Board
by the Chief Executive Officer or by the Board of Directors.
SECTION 5.07. VICE CHAIRMAN OF THE BOARD. In the absence of the Chief
Executive Officer or in the event of his inability or refusal to act, if the
Chairman of the Board has been designated Chief Executive Officer, the Vice
Chairman, or if there be more than one, the Vice Chairmen, in the order
determined by the Board of Directors, shall perform the duties of the Chief
Executive Officer, and when so acting shall have all the powers of and be
subject to all the restrictions upon the Chief Executive Officer. At all other
times, the Vice Chairman or Vice Chairmen shall perform such duties and have
such powers as the Chief Executive Officer or the Board of Directors may from
time to time prescribe.
SECTION 5.08. THE VICE PRESIDENT. In the absence of the President or in the
event of his inability or refusal to act, the Vice President (or in the event
there be more than one Vice President, the Executive Vice President and then the
other Vice President or Vice Presidents in the order designated, or in the
absence of any designation, then in the order of their election) shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President. The Vice Presidents
shall perform such other duties and have such other powers as the Chief
Executive Officer or the Board of Directors may from time to time prescribe.
SECTION 5.09. THE SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the shareholders and record all the
proceedings of the meetings of the Corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. The Secretary shall give, or cause to be
given, notice of all meetings of the shareholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors or the Chief Executive Officer, under whose supervision
he shall be. The Secretary shall have custody of the corporate seal of the
Corporation and the Secretary, or an Assistant Secretary, shall have authority
to affix the same to any instrument requiring it and when so affixed, it may be
attested by his signature or by the signature of such Assistant Secretary. The
Board of Directors may give general authority to any other officer to affix the
seal of the Corporation and to attest the affixing by his signature.
SECTION 5.10. THE ASSISTANT SECRETARY. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election), shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Chief Executive Officer or the Board of Directors may from time to time
prescribe.
SECTION 5.11. THE TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name
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and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors. The Treasurer shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the President and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his transactions as Treasurer and of the financial condition
of the Corporation. If required by the Board of Directors, the Treasurer shall
give the Corporation a bond (which shall be renewed every six (6) years) in such
sum and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
SECTION 5.12. THE ASSISTANT TREASURER. The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined by the
Board of Directors (or if there be no such determination, then in the order of
their election), shall, in the absence of the Treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Chief Executive Officer or the Board of Directors may from time to time
prescribe.
SECTION 5.13. OTHER OFFICERS, ASSISTANT OFFICERS AND AGENTS. Officers,
Assistant Officers and Agents, if any, other than those whose duties are
provided for in these bylaws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.
SECTION 5.14. ABSENCE OF OFFICERS. In the absence of any officer of the
Corporation, or for any other reason the Board of Directors may deem sufficient,
the Board of Directors may delegate the powers or duties, or any of such powers
or duties, of any officers or officer to any other officer or to any director.
SECTION 5.15. COMPENSATION. The Board of Directors shall have the authority to
establish reasonable compensation of all officers for services to the
Corporation.
ARTICLE VI
INDEMNIFICATION
SECTION 6.01. RIGHT TO INDEMNIFY. The Corporation shall:
(a) to the fullest extent to which it is empowered to do so by The
Illinois Business Corporation Act of 1983, as amended (the "Act"), or any other
applicable laws as may from time to time be in effect, indemnify any person who
was or is a party, or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation), by reason of the fact that he or she is or was a director and/or
officer of the Corporation, or who is or was serving at the request of the
Corporation as a director and/or officer of another Corporation, partnership,
joint venture, trust or other enterprise, against all expenses (including
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attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, if such person acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
(b) to the fullest extent to which it is empowered to do so by the Act or
any other applicable laws as may from time to time be in effect, indemnify any
person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action or suit by or in a right of the
Corporation to procure judgment in its favor by reason of the fact that such
person is or was a director and/or officer of the Corporation, or is or was
serving at the request of the Corporation as a director and/officer of another
Corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit, if
such person acted in good faith and in manner he or she reasonably believed to
be in, or not opposed to the best interests of the Corporation, provided that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his or her duty to the Corporation, unless and
only to the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability, but in
view of all of the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the court shall deem
proper.
(c) to the extent that a director and/officer of the Corporation has been
successful, on the merits or otherwise, in the defense of any action, suit or
proceeding referred to in subsections (a) and (b), or in defense of any claim,
issue or matter therein, indemnify such person against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith.
(d) any indemnification under subsections (a) and (b) (unless ordered by a
court) only as authorized in the specific case, upon a determination that
indemnification of the director and/or officer is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in
subsections (a) or (b). Such determination shall be made (1) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such quorum is not
obtainable, or even if obtainable, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
shareholders.
(e) or may pay expenses incurred in defending a civil or criminal action,
suit or proceeding in advance of the final disposition of such action, suit or
proceeding, as authorized by the Board of Directors in the specific case, upon
receipt of an undertaking by or on behalf of the director and/or officer to
repay such amount, unless it shall ultimately be determined that he or she is
entitled to be indemnified by the Corporation as authorized in this Article VI.
(f) not deem the indemnification provided by this Article VI exclusive of
any other rights to which those seeking indemnification may be entitled under
any by-law, agreement, vote of shareholders or disinterested directors, or
otherwise, both as to action in his or her official
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capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director and/or officer,
and shall inure to the benefit of the heirs, executors and administrators of
such a person.
(g) if the Corporation has paid indemnity or has advanced expenses to a
director and/or officer report the indemnification or advance in writing to the
shareholders with or before the notice of the next shareholders' meeting.
SECTION 6.02. INSURANCE. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director and/or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director and/or officer of another Corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him or incurred
by him in any such capacity or arising out of his status as such, whether or not
the Corporation would have the power or the obligation to indemnify him against
such liability under this Article VI.
SECTION 6.03. CONTRACT WITH THE CORPORATION. The provisions of this
Article VI shall be deemed to be a contract between the Corporation and each
director and/or officer who serves in any such capacity at any time while this
Article VI and the relevant provisions of the Act or other applicable law, if
any, are in effect, and any repeal or modification of any such law or of this
Article VI shall not affect any rights or obligations then existing with respect
to any state of facts then or heretofore existing or any action, suit or
proceeding theretofore or thereafter brought or threatened based in whole or in
part upon such state of facts. However, the provisions of this Article VI shall
not be deemed to be a contract between the Corporation and any directors or
officers of any other Corporation (the "Second Corporation") which shall merge
into or consolidate with this Corporation when this Corporation shall be the
surviving or resulting Corporation, and any such directors or officers of the
Second Corporation shall be indemnified to the extent required under
Section 8.75 of the Act only at the discretion of the board of directors of this
Corporation.
ARTICLE VII
CERTIFICATES FOR SHARES
SECTION 7.01. CERTIFICATES OF SHARES. Certificates representing shares of the
Corporation shall be in the form determined from time to time by the Board of
Directors. Such certificates shall be signed by the President or Vice-President
and by the Secretary, an Assistant Secretary, the Treasurer or an Assistant
Treasurer and shall be sealed with the seal of the Corporation, or a facsimile
thereof, if the Corporation uses a seal. All certificates for shares shall be
consecutively numbered or otherwise identified. The name of the person to whom
the shares represented thereby are issued, with the number of shares and the
date of issue, shall be entered on the books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be cancelled, and
no new certificates shall be issued until the former certificates for the same
number of shares have been surrendered and cancelled, except as provided in
Section 7.3 of these By-Laws. No certificate representing a share of stock of
the Corporation shall be issued until such share is fully paid.
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SECTION 7.02. SIGNATURES OF FORMER OFFICERS, TRANSFER AGENTS OR REGISTRARS. In
case any officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if such person or entity
were such officer, transfer agent or registrar at the date of issue.
SECTION 7.03. TRANSFER OF SHARES. Transfers of shares of the Corporation shall
be made only on the books of the Corporation by the holder of record thereof or
by his legal representative, who shall furnish proper evidence of authority to
transfer, or by his or her attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary of the Corporation, and on surrender
for cancellation of certificate for such shares. Prior to due presentment of a
certificate for shares for registration of transfer, the Corporation may treat a
registered owner of such shares as the person exclusively entitled to vote, to
receive notifications and otherwise have and exercise all of the right and
powers of an owner of shares.
SECTION 7.04. LOST, DESTROYED OR STOLEN CERTIFICATES. Whenever a certificate
representing shares of the Corporation has been lost, destroyed or stolen, the
holder thereof may file in the office of the Corporation an affidavit setting
forth, to the best of his knowledge and belief, the time, place, and
circumstance of such loss, destruction or theft together with a statement of
indemnity sufficient in the opinion of the Board of Directors to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss of any such certificate. Thereupon the Board may cause to be
issued to such person or such person's legal representative a new certificate or
a duplicate of the certificate alleged to have been lost, destroyed or stolen.
In the exercise of its discretion, the Board of Directors may waive the
indemnification requirements provided herein.
ARTICLE VIII
DISTRIBUTIONS
SECTION 8. DISTRIBUTIONS. The Board of Directors of the Corporation may
authorize, and the Corporation may make, distributions to its shareholders in
the manner and upon the terms and conditions provided by law. The provisions of
Section 2.06 of these By-Laws shall control for purposes of determining
shareholders entitled to receive distributions, if any.
ARTICLE IX
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 9.01. CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances.
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SECTION 9.02. LOANS. No loans, other than debt incurred in the ordinary course
of business, shall be contracted on behalf of the Corporation and no evidences
of indebtedness shall be issued in its name unless authorized by a resolution of
the Board of Directors. Such authority may be general or confined to specific
instances.
SECTION 9.03. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by one or more officers or agents of the
Corporation and in such manner as shall from time to time be determined by
resolution of the Board of Directors.
SECTION 9.04. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositaries as the Board of Directors may
select.
ARTICLE X
AMENDMENTS
SECTION 10. AMENDMENTS. These By-Laws shall be subject to alteration,
amendment, repeal or the adopting of new By-Laws by the affirmative vote of the
holders of a majority of the issued and outstanding shares of the Corporation or
by the action of the Board of Directors of the Corporation, but no By-Law
adopted by the shareholders may be altered, amended or repealed by the Board of
Directors if the By-Laws so provide.
ATTESTATION
The undersigned, being the Chief Executive Officer of The O'Boisie
Corporation, does hereby certify the foregoing to be the Bylaws of the
Corporation.
The O'Boisie Corporation
By:
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Donald F. Schumacher,
Chief Executive Officer
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of July 3, 1996, is by and between THE
O'BOISIE CORPORATION, an Illinois corporation (the "Borrower"), and REPUBLIC
ACCEPTANCE CORPORATION, a Minnesota corporation (the "Lender").
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 DEFINED TERMS. As used in this Agreement the following
terms shall have the following respective meanings:
"ADVANCE": As defined in Section 2.1.
"BORROWING BASE": As defined in Section 2.5.
"BORROWING BASE CERTIFICATE": As defined in Section 2.5.
"BUSINESS DAY": Any day (other than a Saturday, Sunday or legal
holiday in the State where the Lender is located).
"CLOSING DATE": Any Business Day between the date of this Agreement
and July 3, 1996 selected by the Borrower for the making of the initial Advance
on the Revolving Loan hereunder; PROVIDED that all the conditions precedent to
the obligation of the Lender to make the initial Advance on the Revolving Loan,
as set forth in Article III, have been, or, on such Closing Date, will be,
satisfied. The Borrower shall give the Lender not less than one Business Day's
prior notice of the day selected as the Closing Date.
"COMMITMENTS": The Revolving Commitment and the Term Loan Commitment.
"CURRENT ASSETS": As of any date, the consolidated current assets of
the Borrower, determined in accordance with GAAP.
"CURRENT LIABILITIES": As of any date, the consolidated current
liabilities of the Borrower, determined in accordance with GAAP.
"DEFAULT": Any event which, with the giving of notice (whether such
notice is required under Section 7.1, or under some other provision of this
Agreement, or otherwise) or lapse of time, or both, would constitute an Event of
Default.
"EBITDA": For any period of determination, the net income of the
Borrower before
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deductions for income taxes, interest expense, depreciation and amortization,
all as determined in accordance with GAAP.
"ELIGIBLE INVENTORY": As defined on Schedule 1.1 annexed hereto.
"ELIGIBLE RECEIVABLES": As defined on Schedule 1.1 annexed hereto.
"EVENT OF DEFAULT": Any event described in Section 7.1.
"GAAP": Generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of any date of
determination.
"LEVERAGE RATIO": At the time of determination the ratio of a Total
Liabilities to (b) Tangible Capital Base
"LOAN DOCUMENTS": This Agreement, the Notes, and any documents
described in Section 3.1(a)(vii).
"LIEN": With respect to any Person, any security interest, mortgage,
pledge, lien, charge, encumbrance, title retention agreement or analogous
instrument or device (including the interest of each lessor under any
capitalized lease), in, of or on any assets or properties of such Person, now
owned or hereafter acquired, whether arising by agreement or operation of law.
"MEASUREMENT PERIOD": The period in which any financial covenant is
required to be maintained by Article VI as measured and reported during each
four week period through December 31, 1996 and quarterly thereafter.
"NOTES": The Revolving Note and the Term Note.
"PERSON": Any natural person, corporation, partnership, limited
partnership, joint venture, firm, association, trust, unincorporated
organization, government or governmental agency or political subdivision or any
other entity, whether acting in an individual, fiduciary or other capacity.
"REFERENCE RATE": The rate of interest from time to time publicly
announced by First Bank National Association, Minneapolis, Minnesota as its
"reference rate." For purposes of determining any interest rate hereunder or
under the Notes which is based on the Reference Rate, such interest rate shall
change as and when the Reference Rate changes.
"REVOLVING COMMITMENT": The obligation of the Lender to make Advances
to the Borrower on the Revolving Loan in an aggregate principal amount
outstanding at any time not to
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exceed the Revolving Commitment Amount upon the terms and subject to the
conditions and limitations of this Agreement.
"REVOLVING COMMITMENT AMOUNT": As defined in Section 2.1.
"REVOLVING COMMITMENT FEES": As defined in Section 2.8.
"REVOLVING LOAN": As defined in Section 2.1.
"REVOLVING MATURITY DATE": As defined in Section 2.1.
"REVOLVING NOTE": As defined in Section 2.3.
"TERM LOAN": As defined in Section 2.1.
"TANGIBLE CAPITAL BASE ": As of any date of determination, the sum of
the amounts set forth on the consolidated balance sheet of the Borrower as the
sum of the common stock, preferred stock, additional paid-in capital, plus
subordinated debt and retained earnings of the Borrower (excluding treasury
stock), less the book value of all intangible assets of the Borrower, including
all such items as goodwill, trademarks, trade names, service marks, copyrights,
patents, licenses, unamortized debt discount and expenses and the excess of the
purchase price of the assets of any business acquired by the Borrower over the
book value of such assets.
"TERM LOAN COMMITMENT": The obligation of the Lender to make a term
loan to the Borrower in the Term Loan Commitment Amount upon the terms and
subject to the conditions and limitations of this Agreement.
"TERM LOAN COMMITMENT AMOUNT": As defined in Section 2.1.
"TERM NOTE": As defined in Section 2.3.
"TOTAL COMMITMENT AMOUNT": The sum of the Revolving Commitment Amount
and the Term Loan Commitment Amount.
"TOTAL OUTSTANDINGS": At the time of any determination, the sum of
the unpaid balance of the Revolving Note and the unpaid balance of the Term
Note.
"TOTAL LIABILITIES": At the time of any determination, the amount of
all items of Indebtedness of the Borrower that would constitute "liabilities"
for balance sheet purposes in accordance with GAAP.
Section 1.2 ACCOUNTING TERMS AND CALCULATIONS. Except as may be
expressly provided to the contrary herein, all accounting terms used herein
shall be interpreted and all
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accounting determinations hereunder shall be made in accordance with GAAP.
Section 1.3 OTHER DEFINITIONAL TERMS,TERMS OF CONSTRUCTION. The words
"hereof", "herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. References to Sections, Exhibits, Schedules and
the like references are to Sections, Exhibits, Schedules and the like of this
Agreement unless otherwise expressly provided. The words "include", "includes"
and "including" shall be deemed to be followed by the phrase "without
limitation". Unless the context in which used herein otherwise clearly
requires, "or" has the inclusive meaning represented by the phrase "and/or".
All incorporations by reference of covenants, terms, definitions or other
provisions from other agreements are incorporated into this Agreement as if such
provisions were fully set forth herein, and include all necessary definitions
and related provisions from such other agreements. All covenants, terms,
definitions and other provisions from other agreements incorporated into this
Agreement by reference shall survive any termination of such other agreements
until the obligations of the Borrower under this Agreement and the Notes are
irrevocably paid in full and the Revolving Commitment is terminated.
ARTICLE II
TERMS OF LENDING
Section 2.1 THE COMMITMENTS. On the terms and subject to the
conditions hereof, the Lender agrees to make the following lending facilities
available to the Borrower:
2.1 (a) REVOLVING CREDIT. A revolving loan (the "Revolving
Loan") to the Borrower available as advances ("Advances") at any
time and from time to time from the Closing Date to June 1, 1999 (the
"Revolving Maturity Date"), during which period the Borrower may borrow,
repay and reborrow in accordance with the provisions hereof, PROVIDED,
that the unpaid principal amount of revolving Advances shall not at any
time exceed $5,000,000.00 (the "Revolving Commitment Amount"); and
PROVIDED, FURTHER, that no Advance will be made if, after giving effect
thereto, the Total Outstandings would exceed the Borrowing Base.
2.1 (b) TERM LOAN. A term loan to mature June 1, 1999 (the
"Term Loan") from the Lender to the Borrower on the Closing Date in the
amount of $5,000,000.00 (the "Term Loan Commitment Amount"); PROVIDED,
HOWEVER, that the Term Loan will not be made if, after giving effect
thereto, the Total Outstandings would exceed the Borrowing
Base.
Notwithstanding any provision hereof, this Agreement and the Revolving and
Term Commitments shall terminate and the Lender shall have no obligation
hereunder if the Term Loan hereunder has not been made by July 15, 1996,
provided, however, that the obligations of the Borrower under Section 8.2
shall survive any such termination.
Section 2.2 PROCEDURE FOR ADVANCES. Any request by the Borrower for
an Advance on the Revolving Loan shall be in writing or by telephone and must be
given so as to be received by the
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Lender not later than 10:30 a.m. (local time of the Lender) on the requested
Advance date. Each request for an Advance shall be irrevocable and shall be
deemed a representation by the Borrower that on the requested Advance date and
after giving effect to such Advance the applicable conditions specified in
Article III have been and will continue be satisfied. Each request for an
Advance shall specify the requested Advance date (which must be a Business Day)
and the amount of such Advance which shall be in a minimum amount of $50,000 or,
if more, an integral multiple thereof. Unless the Lender determines that any
applicable condition specified in Article III has not been satisfied, the Lender
will make available to the Borrower at the Lender's principal office in
immediately available funds not later than 3:00 p.m. (local time of the Lender)
on the requested Advance date the amount of the requested Advance.
Section 2.3 THE NOTES. The Advances on the Revolving Loan shall be
evidenced by a single promissory note (the "Revolving Note"), substantially in
the form of Exhibit 2.3 (a) hereto, in the amount of the Revolving Commitment
Amount originally in effect. The Term Loan shall be evidenced by a promissory
note (the "Term Note"), substantially in the form of Exhibit 2.3 (b) hereto, in
an amount equal to the Term Loan Commitment Amount. The Lender shall enter in
its ledgers and records the payments made on the Term Loan and Advances made and
the payments made thereon, and the Lender is authorized by the Borrower to enter
on schedules attached to the Notes a record of such Advances and repayments.
Section 2.4 INTEREST RATES, INTEREST PAYMENTS AND DEFAULT INTEREST.
Interest shall accrue and be payable on the unpaid balance of the Revolving Note
at a floating rate per annum equal to the sum of the Reference Rate plus 1.75%
(the latter being the "Applicable Revolving Margin"); PROVIDED, HOWEVER, that
any amount of principal of the Revolving Note not paid when due (whether at such
date or upon acceleration following an Event of Default) shall thereafter bear
interest at a floating rate equal to the sum of (a) the Reference Rate, plus (b)
the Applicable Revolving Margin, plus (c) 3 1/2%. Interest shall accrue and be
payable on the unpaid balance of the Term Note at a floating rate per annum
equal to the sum of the Reference Rate plus 1.75% (the latter being the
"Applicable Term Margin"); PROVIDED, HOWEVER, that any amount of principal of
the Term Note not paid when due after giving effect to any applicable grace
period, if any (whether at the date scheduled therefor or upon acceleration
following an Event of Default) shall thereafter bear interest at a floating rate
equal to the sum of (a) the Reference Rate, plus (b) the Applicable Term Margin,
plus (c) 3 1/2%. Interest shall be payable monthly in arrears and upon final
payment of the respective Notes.
Section 2.5 BORROWING BASE AND MANDATORY PREPAYMENT. The Borrowing
Base shall be equal to the sum of (1) 40% of the lower of cost (determined on a
first-in, first-out basis) or market value of Eligible Inventory not to exceed
$3,500,000. for total Eligible Inventory advances, PLUS (2) 85% of the face
value of Eligible Receivables on the Revolving Credit Line not to exceed
$5,000,000. "Eligible Inventory" and "Eligible Receivables" are defined on
Schedule 1 hereto and up to 75% of Eligible Equipment, as defined on Schedule 1
on the Term Loan Line not to exceed the sum of $5,000,000. The Borrower shall
deliver borrowing base certificates in the form attached hereto (a "Borrowing
Base Certificate") to the Lender (i) dated as of the last day of each
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week, by Friday of each week; (ii) dated as of the date the Lender requests such
a certificate within 10 days of the Lender's request for the certificate; and
(iii) upon each request for an Advance. Each such certificate shall state the
amount of Eligible Inventory, Eligible Receivables, Eligible Equipment and the
Borrowing Base as of the end of the previous month or the date of the Lender's
request, as appropriate. Any limitations on advances or required prepayments
relating to the Borrowing Base shall be based on the latest Borrowing Base
Certificate the Borrower shall have delivered to the Lender. If Total
Outstanding at any time exceed the Borrowing Base, the Borrower shall
immediately prepay the amount of that excess, to be applied first to the
Revolving Note.
Section 2.6 APPLY AND RESET. In connection with this Credit
Agreement, the Borrower shall enter into a lockbox agreement with the Lender,
inform and substance acceptable to the Lender ("Lockbox Agreement") no later
than January 1, 1997. The Borrower shall direct its account debtors to make all
payments on the Borrower's accounts receivable to the lockbox ("Lockbox") set up
pursuant to the Lockbox Agreement, and shall fulfill all other requirements set
forth in the Lockbox Agreement and any related documents or agreements. All
payments or other amounts sent to the Lockbox shall each day be placed into an
account with the Lender in the Company's name for such purposes (the "Collateral
Account"). The Company shall notify the Lender by 10:30 a.m. each Business Day,
as part of the Borrowing Base Certificate required under Section 2.5 of the
amount of funds deposited into the Collateral Account and collected since the
previous day's report, and shall transfer, or authorize the Lender to transfer,
at such time on each such day all such collected funds to be applied against
amounts outstanding under the Revolving Credit Note. In the event that the
Borrower fails to comply with this provision, the Lender is hereby authorized
and directed to determine the amount of collected funds so deposited into the
Collateral Account and to apply, on a daily basis, all such funds against the
amounts outstanding under the Revolving Credit Note. Further, if the Borrower
receives any payments on accounts receivable or chattel paper directly, the
Borrower shall immediately deliver all such payments to the Lender in the form
received (except for the Borrower's endorsement where necessary) to be applied
against amounts outstanding under the Revolving Credit Note. Until so delivered
to the Lender, the Borrower shall hold all such payments in trust for and as the
property of the Lender. The Borrower shall execute any further documents or
instruments or directives to give effect to this provision and shall pay to the
Lender upon demand all the Lender's costs and expenses associated with the
Lockbox, Lockbox Agreement or Collateral Account and related transactions.
Section 2.7 REPAYMENT AND PREPAYMENT.
2.7(a) REPAYMENT OF THE REVOLVING NOTE. Principal of the
Revolving Note shall be payable in full on the Revolving Maturity Date.
The Borrower may prepay the Revolving Note, in whole or in part, at any
time, without premium or penalty after twenty-four months usage from the
date of this Agreement and thirty days prior notice to Lender. Any such
prepayment must be accompanied by accrued and unpaid interest on the
amount prepaid. Each partial prepayment shall be in an amount of
$50,000 or an integral multiple thereof. Amounts prepaid on the
Revolving Note under this Section may be
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reborrowed upon the terms and subject to the conditions and limitations of
this Agreement.
2.7(b) REPAYMENT OF THE TERM NOTE. Principal of the Term Note
is payable as provided in the Term Note. The Borrower may prepay the Term
Note at any time without premium or penalty after twenty-four months usage
from the date of this Agreement and thirty days prior notice to Lender.
Any such prepayment must be accompanied by accrued and unpaid interest on
the amount prepaid. Each partial prepayment shall be in an amount of
$50,000 or an integral multiple thereof. Amounts so prepaid cannot be
reborrowed.
2.7(c) TERMINATION PENALTY. In the event that the Revolving
Credit or Term Loan Facility is prepaid in full prior to the twenty-four
month initial use period Borrower agrees to pay Lender a prepayment penalty
of
a) five (5)% of the Total Commitment if prepaid in months 1-6
following the initial Advance,
b) one-fifth (1/6) of 5% of the Total Commitment times the
number of months remaining until the end of year one but in no event
less than two (2) percent of the Total Commitment if prepaid in
months 7-12 following the initial Advance, and
c) one-twelfth (1/12) of 2% of the Total Commitment times the
number of months remaining in year two if prepaid in months 13-24
following the initial Advance.
Section 2.8 CLOSING FEE. The Borrower shall pay to the Lender fees
(the "Closing Fees") of three fourths ( 3/4) of the Total Commitment
amount($75,000.00), of which $20,000 constitutes due diligence fees and $15,000
constitutes a transaction fee, at the Closing Date from the initial Advance
request.
Section 2.9 REVOLVING COMMITMENT FEE. The Borrower shall pay to
Lender fees ( the "Revolving Commitment Fees") in an amount determined by
applying a rate of one-fourth (1/4) of 1% to the average daily unused Revolving
Commitment Amount for the period from the date of this Agreement to the
Revolving Maturity Date. Such Revolving Commitment Fees are payable in arrears
monthly on the last day of each month and on the Revolving Maturity Date.
Section 2.10 WIRE TRANSFER FEE. Borrower shall pay a wire transfer
charge of $15,00 per wire transfer of any Loan Advance.
Section 2.11 COLLECTION PROCEDURE. Collection of all Accounts and all
other amounts due Lender shall be subject to the provision of this Agreement and
the Security Agreement concerning lockbox and collateral accounts. Borrower
shall remit all collections to Lender immediately after receipt of good funds
(subject to final collection). Borrower will be charged interest on one
business day float.
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Section 2.12 COMPUTATION. Interest on the Notes shall be computed on
the basis of actual days elapsed and a year of 360 days.
Section 2.13 CAPITAL ADEQUACY. In the event that any Regulatory
Change reduces or shall have the effect of reducing the rate of return on the
Lender's capital or the capital of its parent corporation (by an amount the
Lender deems material) as a consequence of the Commitments and/or the Advances
to a level below that which the Lender or its parent corporation could have
achieved but for such Regulatory Change (taking into account the Lender's
policies and the policies of its parent corporation with respect to capital
adequacy), then the Borrower shall, within five days after written notice and
demand from the Lender, pay to the Lender additional amounts sufficient to
compensate the Lender or its parent corporation for such reduction. Any
determination by the Lender under this Section and any certificate as to the
amount of such reduction given to the Borrower by the Lender shall be final,
conclusive and binding for all purposes, absent error.
Section 2.14 USE OF PROCEEDS. The proceeds of the initial Revolving
Advances and Term Loan shall be used first for consolidation of existing working
capital loans, existing equipment loans and general working capital purposes.
Any remaining balance of the initial Advance and the proceeds of any subsequent
Advance shall be used for the Borrower's general business purposes in a manner
not in conflict with any of the Borrower's covenants in this Agreement.
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ARTICLE III
CONDITIONS PRECEDENT
Section 3.1 CONDITIONS OF INITIAL REVOLVING ADVANCE AND TERM LOAN.
The obligation of the Lender to make the initial Advance on the Revolving Loan
and the Term Loan hereunder shall be subject to the prior or simultaneous
fulfillment of each of the following conditions:
3.1 (a) DOCUMENTS. The Lender shall have received the
following:
(i) The Notes executed by a duly authorized officer (or
officers) of the Borrower and dated the Closing Date.
(ii) A copy of the corporate resolutions of the Borrower
authorizing the execution, delivery and performance of this Agreement
and the Notes and an incumbency certificate showing the names and
titles, and bearing the signatures of, the officers of the Borrower
authorized to execute this Agreement and the Notes, certified as of
the Closing Date by the Secretary or an Assistant Secretary of the
Borrower.
(iii) A copy of the Articles of Incorporation of the
Borrower with all amendments thereto, certified by the appropriate
governmental official of the jurisdiction of its incorporation as of a
date not more than ten days prior to the Closing Date.
(iv) A certificate of good standing for the Borrower in
the jurisdiction of its incorporation, certified by the appropriate
governmental officials as of a date not more than ten days prior to
the Closing Date.
(v) A copy of the bylaws of the Borrower, certified as
of the Closing Date by the Secretary or an Assistant Secretary of
the Borrower.
(vi) The opinion of counsel to the Borrower covering such
matters as the Lender may request.
(vii) A Security Agreement in form and substance
satisfactory to the Lender and duly executed by the Borrower.
(viii)First priority real estate mortgage on property owned
by Borrower in Wells County, Indiana, together with a commitment from
a Title Insurance Company reasonably satisfactory to Lender insuring
the mortgage to be a first lien and free
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from all exceptions and securing the Total Term Loan Advances.
(ix) Guaranty of Donald Schumacher limited to $3,000,000
plus interest thereon and costs.
(x) The initial Borrowing Base Certificate required under
Section 2.5.
(xi) UCC searches evidencing perfection of Lender's
security interest as a first security lien security interest.
(xii) Full Subordination of United Biscuits Holdings (P.L.
C.) in form and substance satisfactory to Lender.
(xiii) A judgment bankruptcy and tax lien search on
Borrower.
(xiv) Certificate of Good Standing for the Borrower
issued by the Secretary of State of Illinois.
(xv) Such other documentation as Lender may request.
3.1(b) OTHER MATTERS. All organizational and legal
proceedings relating to the Borrower and all instruments and agreements in
connection with the transactions contemplated by this Agreement shall be
satisfactory in scope, form and substance to the Lender and its counsel, and the
Lender shall have received all information and copies of all documents,
including records of corporate proceedings, which it may reasonably have
requested in connection therewith, such documents where appropriate to be
certified by the Borrower or appropriate governmental authorities.
3.1(c) FEES AND EXPENSES. The Lender shall have received
all fees and other amounts due and payable by the Borrower on or prior to the
Closing Date, including the reasonable fees and expenses of counsel to the
Lender (not to exceed $40,000.) payable pursuant to Section 8.2.
3.1(d) PERFECTION. The Security Agreement (or financing
statements with respect thereto) shall have been appropriately filed to the
satisfaction of the Lender and the priority and perfection of the Lien created
thereby shall have been established to the satisfaction of the Lender. The
mortgage shall have been appropriately filed to the satisfaction of Lender and
perfection of the Lien shall have been established to the satisfaction of
Lender.
Section 3.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The Lender shall
not have any obligation to make the Term Loan or any Advance on the Revolving
Loan (including Advances after the initial Advance) hereunder unless all
representations and warranties of the Borrower made in this Agreement remain
true and correct and no Default or Event of Default exists.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender:
Section 4.1 ORGANIZATION, STANDING, ETC. The Borrower is a
corporation duly incorporated and validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to carry on its business as now conducted, to
enter into this Agreement and to issue the Notes and to perform its obligations
hereunder and thereunder. This Agreement and the Notes have been duly
authorized by all necessary corporate action and when executed and delivered
will be the legal and binding obligations of the Borrower. The execution and
delivery of this Agreement and the Notes will not violate the Borrower's
Articles of Incorporation or bylaws or any law applicable to the Borrower. No
governmental consent or exemption is required in connection with the Borrower's
execution and delivery of this Agreement and the Notes.
Section 4.2 FINANCIAL STATEMENTS AND NO MATERIAL ADVERSE CHANGE. The
Borrower's audited financial statements as at March 31, 1995 and its unaudited
financial statements as at March 31, 1996, as heretofore furnished to the
Lender, have been prepared in accordance with GAAP. The Borrower has no
material obligation or liability not disclosed in such financial statements, and
there has been no material adverse change in the condition of the Borrower since
the dates of such financial statements.
Section 4.3 LITIGATION. There are no actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower which, if determined adversely to the Borrower, would have, a
material adverse effect on the condition of the Borrower. The Borrower is not
in violation of any law or regulation (including environmental laws and
regulations and laws relating to employee benefit plans) where such violation
could reasonably be expected to impose a material liability on the Borrower.
Section 4.4 TAXES. The Borrower has filed all federal, state and
local tax returns required to be filed and has paid or made provision for the
payment of all taxes due and payable pursuant to such returns and pursuant to
any assessments made against it or any of its property (other than taxes, fees
or charges the amount or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which reserves in
accordance with GAAP have been provided on the books of the Borrower).
Section 4.5 SUBSIDIARIES. The Borrower has no subsidiaries.
ARTICLE V
AFFIRMATIVE COVENANTS
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Until the Revolving Commitment shall have expired or been terminated
and the Notes and all of the Borrower's other obligations to the Lender under
this Agreement shall have been paid in full, unless the Lender shall otherwise
consent in writing:
Section 5.1 FINANCIAL STATEMENTS AND REPORTS. The Borrower will
furnish to the Lender:
5.1(a) As soon as available and in any event within 30 days
after the end of each fiscal year of the Borrower, financial statements of the
Borrower consisting of at least statements of income, cash flow and changes in
stockholders' equity, and a balance sheet as at the end of such year, setting
forth in each case in comparative form corresponding figures from the previous
annual audit, certified without qualification by independent certified public
accountants of recognized national standing selected by the Borrower and
acceptable to the Lender.
5.1(b) As soon as available and in any event within 30 days
after the end of each month, unaudited financial statements for the Borrower
for such month and for the period from the beginning of such fiscal year to the
end of such month, substantially similar to the annual audited statements.
5.1(c) As soon as practicable and in any event within 30 days
after the end of each quarter, a statement signed by the chief financial officer
of the Borrower stating that as at the end of such month there did not exist any
Default or Event of Default or, if such Default or Event of Default existed,
specifying the nature and period of existence thereof and what action the
Borrower proposes to take with respect thereto.
5.1(d) Immediately upon any officer of the Borrower becoming
aware of any Default or Event of Default, a notice describing the nature thereof
and what action the Borrower proposes to take with respect thereto.
5.1(e) Within five days after due date, proof of payment for
deposit of payroll taxes.
5.1(f) Borrowing Base Certificate weekly and upon the request
for any Advance.
5.1(g) From time to time, such other information regarding the
business, operation and financial condition of the Borrower as the Lender may
reasonably request.
Section 5.2 CORPORATE EXISTENCE. The Borrower will maintain its
corporate existence in good standing under the laws of its jurisdiction of
incorporation and its qualification to transact business in each jurisdiction
where failure so to qualify would permanently preclude the Borrower from
enforcing its rights with respect to any material asset or
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would expose the Borrower to any material liability.
Section 5.3 INSURANCE. The Borrower will maintain with financially
sound and reputable insurance companies such insurance as may be required by law
and such other insurance in such amounts and against such hazards as is
customary in the case of reputable corporations engaged in the same or similar
business and similarly situated.
Section 5.4 PAYMENT OF TAXES AND CLAIMS. The Borrower will file all
tax returns and reports which are required by law to be filed by it and will pay
before they become delinquent, all taxes, assessments and governmental charges
and levies imposed upon it or its property and all claims or demands of any kind
(including those of suppliers, mechanics, carriers, warehousemen, landlords and
other like Persons) which, if unpaid, might result in the creation of a Lien
upon its property, except for Liens for taxes, charges and assessments not yet
due or which are being contested in good faith, for which adequate reserves have
been established.
Section 5.5 INSPECTION. The Borrower will permit any Person
designated by the Lender to visit and inspect any of the properties, books and
financial records of the Borrower, to examine and to make copies of the books of
accounts and other financial records of the Borrower, and to discuss the
affairs, finances and accounts of the Borrower with its officers at such
reasonable times and intervals as the Lender may designate. The Borrower shall
also allow the Lender and its agents to conduct periodic collateral audits of
the Borrower's accounts and inventory at such intervals as the Lender may
choose, and the Borrower shall pay the Lender's costs of such audits (provided
that the Borrower, so long as there exists no Event of Default, shall not be
required to pay for more than two collateral audits in any calendar year at a
fee of $500.00 per each audit day plus out-of-pocket expenses).
Section 5.6 MAINTENANCE OF PROPERTIES. The Borrower will maintain
its properties in good condition, repair and working order, and supplied with
all necessary equipment, and make all necessary repairs, renewals, replacements,
betterments and improvements thereto, all as may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times.
Section 5.7 BOOKS AND RECORDS. The Borrower will keep adequate and
proper records and books of account in which full and correct entries will be
made of its dealings, business and affairs and maintain an independent and
complete stand alone accounting system reasonably satisfactory to Lender by July
15, 1996.
Section 5.8 COMPLIANCE. The Borrower will comply in all material
respects with all laws, rules and regulations to which it may be subject.
Section 5.9 NOTICE OF LITIGATION. The Borrower will give prompt
written notice to the Lender of the commencement of any action, suit or
proceeding affecting the Borrower.
Section 5.10 PLANS. The Borrower will maintain any employee benefit
plans in
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compliance with all material requirements of applicable laws and regulations.
Section 5.11 REAFFIRMATION OF GUARANTIES. When so requested by the
Lender from time to time, the Borrower will promptly cause any Persons who have
guaranteed the obligations of the Borrower hereunder or any part thereof to
execute and deliver to the Lender reaffirmations of their respective guaranties
in such form as the Lender may require.
ARTICLE VI
NEGATIVE COVENANTS
Until the Revolving Commitment shall have expired or been terminated
and the Notes and all of the Borrower's other obligations to the Lender under
this Agreement shall have been paid in full, unless the Lender shall otherwise
consent in writing:
Section 6.1 MERGER. The Borrower will not merge or consolidate or
enter into any analogous reorganization or transaction with any Person or
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution).
Section 6.2 SALE OF ASSETS. The Borrower will not sell, transfer,
lease or otherwise convey all or any substantial part of its assets except for
sales and leases of inventory in the ordinary course of business.
Section 6.3 DIVIDENDS. The Borrower will not pay any dividends or
otherwise make any distributions on, or redemptions of, any of its outstanding
stock.
Section 6.4 INDEBTEDNESS. The Borrower will not borrow any money or
issue any bonds, debentures or other debt securities or otherwise become
obligated on any interest-bearing indebtedness except for the Term Loan and
Advances under this Agreement, subordinated debt existing as of the date of this
Agreement and purchase money security interests.
Section 6.5 LIENS. The Borrower will not create, incur, assume or
suffer to exist any Lien, or enter into any arrangement for the acquisition of
any property through conditional sale, lease-purchase or other title retention
agreements in excess of the aggregate of $25,000 per year except:
6.5(a) Liens granted to the Lender.
6.5(b) Liens existing on the date of this Agreement and
disclosed on Exhibit 6.7 hereto.
6.5(c) Deposits or pledges to secure payment of workers'
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compensation, unemployment insurance, old age pensions or other social security
obligations arising in the ordinary course of business of the Borrower.
6.5(d) Liens for taxes, fees, assessments and governmental
charges not delinquent.
6.5(e) Liens of carriers, warehousemen, mechanics and
materialmen, and other like Liens arising in the ordinary course of business,
for sums not due.
6.5(f) Liens incurred or deposits or pledges made or given in
connection with, or to secure payment of, indemnity, performance or other
similar bonds.
6.5(g) Encumbrances in the nature of zoning restrictions,
easements and rights or restrictions of record on the use of real property and
landlord's Liens under leases on the premises rented, which do not materially
detract from the value of such property or impair the use thereof in the
business of the Borrower.
Section 6.6 TANGIBLE CAPITAL BASE. The Borrower will not permit the
Tangible Capital Base for any Measurement Period to be less than the following
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amounts for the period indicated:
AMOUNTPERIOD
$3,500,000 Closing
$3,750,000 9/30/96
$4,250,000 10/31/96
$7,000,000 Fiscal year 1997
$10,000,000 Fiscal year 1998
Section 6.7 LEVERAGE RATIO. The Borrower will not permit the
Leverage Ratio for any Measurement Period to be more than the following amounts
for the period indicated:
AMOUNTPERIOD
4.5 to 1 Closing
4.0 to 1 9/30/96
3.5 to 1 12/31/96
2.0 to 1 Fiscal year 1997
1.5 to 1 Fiscal year 1998
Section 6.8 CURRENT RATIO. The Borrower will not permit the Ratio of
Current Assets to Current Liabilities to be less than 1.5 for fiscal years 1996
and 1997 and 1.75 for fiscal year 1998.
Section 6.9 DEBT SERVICE COVERAGE RATIO. The Borrower will not
permit its Debt Service Coverage Ratio (earnings before interest and taxes plus
depreciation less cash taxes less capital expenditures divided by interest plus
mandatory debt retirement) for any Measurement Period to be less than the
following amount for the following period:
AMOUNTPERIOD
1.0 Closing
1.5 9/30/96
2.0 12/31/96
2.2 Fiscal year 1997
2.5 Fiscal year 1998
Section 6.10 MANAGEMENT COMPENSATION. The Borrower will not permit
executive compensation to its principal officers, by way of salary, bonus,
dividends, or compensation of any form to exceed the aggregate sum of $600,000
per calendar year.
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ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
SECTION 7.1 EVENTS OF DEFAULT. The occurrence of any one or more of
the following events shall constitute an Event of Default:
7.1(a) The Borrower shall fail to make when due, whether by
acceleration or otherwise, any payment of principal of or interest on the Notes
or any other obligations of the Borrower to the Lender pursuant to this
Agreement including failure to pay the Term Loan at maturity or anytime prior
thereto in the event Borrower refinances the Revolving Commitment with another
Lender prior to the scheduled Maturity Date.
7.1(b) Any representation or warranty made by or on behalf of
the Borrower in this Agreement or by or on behalf of the Borrower in any
certificate, statement, report or document herewith or hereafter furnished to
the Lender pursuant to this Agreement shall prove to have been false or
misleading in any material respect on the date as of which the facts set forth
are stated or certified.
7.1(c) The Borrower shall fail to comply with Sections 5.2 or
5.3 or any Section of Article VI.
7.1(d) The Borrower shall fail to comply with any other
agreement, covenant, condition, provision or term contained in this Agreement
(other than those hereinabove set forth in this Section 7.1) and such failure to
comply shall continue for 15 calendar days after whichever of the following
dates is the earliest: (i) the date the Borrower gives notice of such failure
to the Lender, (ii) the date the Borrower should have given notice of such
failure to the Lender pursuant to Section 5.1, or (iii) the date the Lender
gives notice of such failure to the Borrower.
7.1(e) The Borrower shall become insolvent or shall generally
not pay its debts as they mature or shall apply for, shall consent to, or shall
acquiesce in the appointment of a custodian, trustee or receiver of the Borrower
or for a substantial part of the property thereof or, in the absence of such
application, consent or acquiescence, a custodian, trustee or receiver shall be
appointed for the Borrower or for a substantial part of the property thereof and
shall not be discharged within 45 days, or the Borrower shall make an assignment
for the benefit of creditors.
7.1(f) Any bankruptcy, reorganization, debt arrangement or other
proceedings under any bankruptcy or insolvency law shall be instituted by or
against the Borrower and, if instituted against the Borrower, shall have been
consented to or acquiesced in by the
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Borrower or shall remain undismissed for 60 days, or an order for relief shall
have been entered against the Borrower.
7.1(g) Any dissolution or liquidation proceeding shall be
instituted by or against the Borrower and, if instituted against the Borrower,
shall be consented to or acquiesced in by the Borrower or shall remain for 45
days undismissed.
7.1(h) A judgment or judgments for the payment of money in
excess of the sum of $100,000 in the aggregate shall be rendered against the
Borrower and either (i) the judgment creditor executes on such judgment or (ii)
such judgment remains unpaid or undischarged for more than 60 days from the date
of entry thereof or such longer period during which execution of such judgment
shall be stayed during an appeal from such judgment.
7.1(i) The maturity of any material indebtedness of the Borrower
(other than indebtedness under this Agreement) shall be accelerated, or the
Borrower shall fail to pay any such material indebtedness when due (after the
lapse of any applicable grace period) or any event shall occur or condition
shall exist and shall continue for more than the period of grace, if any,
applicable thereto and shall have the effect of causing, or the holder of any
such indebtedness to causes, such material indebtedness to become due prior to
its stated maturity or to realize upon any collateral given as security
therefor. For purposes of this Section, indebtedness of the Borrower shall be
deemed "material" if it exceeds $100,000 as to any item of indebtedness or in
the aggregate for all items of indebtedness with respect to which any of the
events described in this Section has occurred.
7.1(j) Any execution or attachment shall be issued whereby any
substantial part of the property of the Borrower shall be taken or attempted to
be taken and the same shall not have been vacated or stayed within 30 days after
the issuance thereof.
7.1(k) Any guarantor of any of the obligations of the Borrower
under this Agreement shall seek to revoke its, his or her guaranty or any such
guaranty shall become unenforceable for any reason.
7.1(l) Any default shall occur under any other Loan Document.
Section 7.2 REMEDIES. If (a) any Event of Default described in
Sections 7.1 (e), (f) or (g) shall occur with respect to the Borrower, the
Revolving Commitment shall automatically terminate and the Notes and all other
obligations of the Borrower to the Lender under this Agreement shall
automatically become immediately due and payable, or (b) any other Event of
Default shall occur and be continuing, then the Lender may (i) declare the
Revolving Commitment terminated, whereupon the Commitment shall terminate, and
(ii) declare the Notes and all other obligations of the Borrower to the Lender
under this Agreement to be forthwith due and payable, whereupon the same shall
immediately become due and payable, in each case without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived,
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anything in this Agreement or in the Notes to the contrary notwithstanding.
Upon the occurrence of any of the events described in clauses (a) or (b) of the
preceding sentence the Lender may exercise all rights and remedies under this
Agreement, the Notes and any related agreements and under any applicable law.
Section 7.3 OFFSET. In addition to the remedies set forth in Section
7.2, upon the occurrence of any Event of Default and thereafter while the same
be continuing, the Borrower hereby irrevocably authorizes the Lender to set off
all sums owing by the Borrower to the Lender against all deposits and credits of
the Borrower with, and any and all claims of the Borrower against, the Lender.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 MODIFICATIONS. Notwithstanding any provisions to the
contrary herein, any term of this Agreement may be amended with the written
consent of the Borrower; PROVIDED that no amendment, modification or waiver of
any provision of this Agreement or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be in writing
and signed by the Lender, and then such amendment, modifications, waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.
Section 8.2 COSTS AND EXPENSES. Whether or not the transactions
contemplated hereby are consummated, the Borrower agrees to reimburse the Lender
upon demand for all reasonable out-of-pocket expenses paid or incurred by the
Lender (including filing and recording costs and fees and expenses of Dorsey &
Whitney LLP, counsel to the Lender) in connection with the negotiation,
preparation, approval, review, execution, delivery, amendment, modification,
interpretation, collection and enforcement of this Agreement and the Notes
provided that such fees should not exceed the sum of $40,000. at closing. The
obligations of the Borrower under this Section shall survive any termination of
this Agreement.
Section 8.3 WAIVERS, ETC. No failure on the part of the Lender or
the holder of either Note to exercise and no delay in exercising any power or
right hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any power or right preclude any other or further exercise
thereof or the exercise of any other power or right. The rights and remedies of
the Lender hereunder are cumulative and not exclusive of any right or remedy the
Lender otherwise has.
Section 8.4 NOTICES. Except when telephonic notice is expressly
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
on the signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of
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delivery thereof if manually delivered, from the date of sending thereof if sent
by telegram, telex or facsimile transmission, from the first Business Day after
the date of sending if sent by overnight courier, or from four days after the
date of mailing if mailed; PROVIDED, HOWEVER, that any notice to the Lender
under Article II hereof shall be deemed to have been given only when received by
the Lender.
Section 8.5 SUCCESSORS AND ASSIGNS; DISPOSITION OF LOANS. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign its rights or delegate its obligations hereunder without the prior
written consent of the Lender. The Lender may at any time sell, assign,
transfer, grant participations in, or otherwise dispose of any portion of the
Revolving Commitment and the Term Loan and/or Advances to banks or other
financial institutions. The Lender may disclose any information regarding the
Borrower in the Lender's possession to any prospective buyer or participant.
SECTION 8.6 GOVERNING LAW AND CONSTRUCTION. THE VALIDITY,
CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT AND THE NOTES SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT
TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE
UNITED STATES APPLICABLE TO NATIONAL BANKS.
SECTION 8.7 CONSENT TO JURISDICTION. AT THE OPTION OF THE LENDER,
THIS AGREEMENT AND THE NOTE MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA
STATE COURT SITTING IN HENNEPIN COUNTY; AND THE BORROWER CONSENTS TO THE
JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN
SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE BORROWER COMMENCES ANY ACTION
IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING
DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE
LENDER AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF
THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED AND BORROWER HEREWITH CONSENTS TO
SAME.
SECTION 8.8 WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE
LENDER IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTE AND ANY OTHER
LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
SECTION 8.9 CAPTIONS. The captions or headings herein and any table
of contents hereto are for convenience only and in no way define, limit or
describe the scope or intent of any provision of this Agreement.
SECTION 8.10 ENTIRE AGREEMENT. This Agreement and the Other Loan
Documents embody the entire agreement and understanding between the Borrower and
the Lender with respect to the subject matter hereof and thereof. This Agreement
supersedes all prior agreements and understandings relating to the subject
matter hereof.
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SECTION 8.11 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and either of the parties hereto may execute this agreement by
signing any such counterpart.
In witness whereof, the parties hereto have caused this Agreement to
be executed as of the date first above written.
THE O'BOISIE CORPORATION
BY
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PRINT NAME
--------------------------
TITLE
-------------------------------
BORROWER'S ADDRESS:
1111 WEST 22ND STREET
SUITE 640
OAKBROOK, ILLINOIS 60521
REPUBLIC ACCEPTANCE CORPORATION
BY
----------------------------------
PRINT NAME
-------------------------
TITLE
------------------------------
LENDER'S ADDRESS:
2338 CENTRAL AVENUE N.E.
MINNEAPOLIS, MINNESOTA 55418
FAX 612-782-1801
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EXHIBIT 2.3 (a) TO
CREDIT AGREEMENT
REVOLVING NOTE
$5,000,000.00
July ___, 1996
Minneapolis, Minnesota
FOR VALUE RECEIVED, THE O'BOISIE CORPORATION, an Illinois corporation,
hereby promises to pay to the order of REPUBLIC ACCEPTANCE CORPORATION (the
"Lender") at its main office in Minneapolis, Minnesota, in lawful money of the
United States of America in Immediately Available Funds on the Maturity Date (as
such term and each other capitalized term used herein are defined in the Credit
Agreement hereinafter referred to) the principal amount of FIVE MILLION AND
NO/100 DOLLARS ($5,000,000.00) or, if less, the aggregate unpaid principal
amount of all advances made by the Lender under the Credit Agreement, and to pay
interest (computed on the basis of actual days elapsed and a year of 360 days)
in like funds on the unpaid principal amount hereof from time to time
outstanding at the rates and times set forth in the Credit Agreement.
This note is the Revolving Note Referred to in the Credit Agreement
dated as of July 3, 1996 (as the same may be hereafter from time to time
amended, restated or modified, the "Credit Agreement") between the undersigned
and the Lender. This note is secured, it is subject to certain permissive and
mandatory prepayments and its maturity is subject to acceleration, in each case
upon the terms provided in said Credit Agreement.
In the event of default hereunder, the undersigned agrees to pay all
costs and expenses of collection, including reasonable attorneys' fees. The
undersigned waives demand, presentment, notice of nonpayment, protest, notice of
protest and notice of dishonor.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF
THE UNITED STATES.
THE O'BOISIE CORPORATION
BY
----------------------------
TITLE
--------------------------
<PAGE>
EXHIBIT 2.3 (b) TO
CREDIT AGREEMENT
TERM NOTE
$5,000,000.00
July ____, 1996
Minneapolis, Minnesota
FOR VALUE RECEIVED, THE O'BOISIE CORPORATION, an Illinois corporation,
hereby promises to pay to the order of REPUBLIC ACCEPTANCE CORPORATION (the
"Lender") at its main office in Minneapolis, Minnesota, in lawful money of the
United States of America in Immediately Available Funds (as such term and each
other capitalized term used herein are defined in the Credit Agreement
hereinafter referred to), the principal amount of FIVE MILLION AND NO/100
DOLLARS ($5,000,000.00), and to pay interest (computed on the basis of actual
days elapsed and a year of 360 days) in like funds on the unpaid principal
amount hereof from time to time outstanding at the rates and times set forth in
the Credit Agreement.
The principal hereof is payable in consecutive monthly installments in
the amount of $59,524 per month, plus interest, commencing August 1, 1996 until
June 1, 1999 when all remaining principal and interest shall be due and payable
in full.
This note is the Term Note referred to in the Credit Agreement dated
as of July 3, 1996 (as the same may hereafter be from time to time amended,
restated or otherwise modified, the "Credit Agreement") between the undersigned
and the Lender. This note is secured, it is subject to certain mandatory
prepayments and its maturity is subject to acceleration, in each case upon the
terms provided in said Credit Agreement.
In the event of default hereunder, the undersigned agrees to pay all
costs and expenses of collection, including reasonable attorneys' fees. The
undersigned waives demand, presentment, notice of nonpayment, protest, notice of
protest and notice of dishonor.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF
THE UNITED STATES.
THE O'BOISIE CORPORATION
By
--------------------------
Title
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<PAGE>
SCHEDULE 1 TO
CREDIT AGREEMENT
BORROWING BASE DEFINITIONS
"AFFILIATE": When used with reference to any Person, (a) each Person
that, directly or indirectly, controls, is controlled by or is under common
control with, the Person referred to, (b) each Person which beneficially owns or
holds, directly or indirectly, five percent or more of any class of voting stock
of the Person referred to (or if the Person referred to is not a corporation,
five percent or more of the equity interest), (c) each Person, five percent of
more of the voting stock (or if such Person is not a corporation, five percent
or more of the equity interest) of which is beneficially owned or held, directly
or indirectly, by the Person referred to, and (d) each of such Person's
officers, directors, joint venturers and partners. The term control (including
the terms "controlled by" and "under common control with") means the possession,
directly, of the power to direct or cause the direction of the management and
policies of the Person in question.
"ELIGIBLE EQUIPMENT" means 75% of any eligible appraised Equipment and
goods bought for use in Borrower's business, not to exceed the sum of
$5,000,000.00.
"ELIGIBLE INVENTORY" means Inventory of the Borrower which meets the
following requirements: (a) it is owned by the Borrower, is subject to a first
priority perfected security interest in favor of the Lender, and is not subject
to any assignment, claim or Lien other than (i) a Lien in favor of the Lender
and (ii) Liens consented to by the Lender in writing; (b) the consists of raw
materials or finished products (not including work in process and supplies; (c)
if held for sale or lease or furnishing under contracts of service, it is
(except as the Lender may otherwise consent in writing) new and unused; (d)
except as the Lender may otherwise consent, it is not stored with a bailee,
warehouseman or similar party; if so stored with the Lender's consent, such
bailee, warehouseman or similar party has issued and delivered to the Lender, in
form and substance acceptable to the Lender, such documents and agreements as
the Lender may require, including, without limitation, warehouse receipts
therefor in the Lender's name; (e) the Lender has determined, in its sole and
absolute discretion, that it is not unacceptable due to age, type, category,
quality and/or quantity; (f) it is not held by the Borrower on consignment and
is not subject to any other repurchase or return agreement; (g) it is not held
by a customer of the Borrower or any other Person on consignment; (h) it
materially complies with all standards imposed by any governmental agency having
regulatory authority over such goods and/or their use, manufacture or sale; and
(i) the warranties, representations and covenants contained in any security
agreement or other agreement of the Borrower with or given to the Lender
relating directly or indirectly to the Borrower's Inventory are applicable to it
without exception. No Advance on Eligible Inventory will be made in excess of a
total of $3,500,000.
"ELIGIBLE RECEIVABLES" means the Receivables owned by the Borrower
which are subject to a first priority perfected security interest in favor of
the Lender and not subject to
<PAGE>
any assignment, claim or Liens and other Liens consented to by the Lender in
writing, but excluding (a) Receivables which are not earned; (b) Receivables
which are unpaid more than ninety (90) days after the original invoice date;
(c) Receivables owed by debtors 10% or more of whose Receivables owed are
otherwise ineligible; (d) Receivables representing progress billings, or
retainages, or for work covered by any payment or performance bond;
(e) Receivables owed by any of the Borrower's Affiliates; (f) Receivables owed
by debtors not located in the United States, unless supported by a letter of
credit issued by a U.S. bank in favor of the Borrower which has been delivered
to the Lender; (g) Receivables as to which any warranty or representation
contained in any security agreement or other agreement of the Borrower with or
given to the Lender with respect to any such Receivable is untrue in any
material respect; (h) Receivables as to which the account debtor has disputed
liability, or made any claim with respect to any other Receivable due from such
account debtor to the Borrower; (i) Receivables subject to setoff;
(j) Receivables as to which the account debtor has filed a petition for
bankruptcy or any other petition for relief under the Bankruptcy Code, assigned
any assets for the benefit of creditors, or if any petition or other application
for relief under the Bankruptcy Code has been filed against the account debtor,
or if the account debtor has failed, suspended business, become insolvent, or
has had or suffered a receiver or a trustee to be appointed for all or a
significant portion of its assets or affairs; (k) Receivables owed by any
government or government agency; (l) Receivables evidenced by a promissory note
or other instrument; (m) Receivables as to which the Lender believes that
collection of any such Receivable is insecure or that any such Receivable may
not be paid by reason of the account debtor's financial inability to pay; and
(n) 50% of any receivable due from affiliate Kelly not to exceed $150,000.
"INVENTORY" means any and all of the Borrower's goods, including,
without limitation, goods in transit, wherever located which are or may at any
time be leased by the Borrower to a lessee, held for sale or lease, furnished
under any contract of service or held as raw materials, work in process, or
supplies or materials used or consumed in the Borrower's business, or which are
held for use in connection with the manufacture, packing, shipping, advertising,
selling or finishing of such goods, and all goods, the sale or other disposition
of which has given rise to a Receivable, which are returned to and/or
repossessed and/or stopped in transit by the Borrower or the Lender, or at any
time hereafter in the possession or under the control of the Borrower or the
Lender, or any agent or bailee of either thereof (excluding obsolete products or
product lines in excess of any expiration date and other inventory deemed
ineligible by Lender in its sole and reasonable discretion), and all documents
of title or other documents representing the same.
"PHYSICAL EQUIPMENT" means 75% of any and all of Borrower's equipment,
goods bought for use in its business, not to exceed the sum of $5,000,000.
"RECEIVABLES" means each and every right to payment of Borrower,
whether such right to payment arises out of a sale or lease of goods by
Borrower, or other disposition of goods or other property of Borrower, out of a
rendering of services by Borrower, out of a loan by Borrower, out of damage to
or loss of goods in the possession of a railroad or other carrier or any other
bailee, out of overpayment of taxes or other liabilities of Borrower, or which
otherwise arises
<PAGE>
under any contract or agreement, or from any other cause, whether such right to
payment now exists or hereafter arises and whether such right to payment is or
is not yet earned by performance and howsoever such right to payment may be
evidenced, together with all other rights and interest (including all liens and
security interests) which Borrower may at any time have by law or agreement
against any account debtor (as defined in the Minnesota Uniform Commercial Code)
or other obligor obligated to make any such payment or against any of the
property of such account debtor or other obligor; specifically (but without
limitation), the term includes all present and future instruments, documents,
chattel papers, accounts and contract rights of Borrower.
* * *
<PAGE>
BORROWING BASE CERTIFICATE
The O'Boisie Corporation
Borrowing Base Certificate for the period ended _______________ , 199___
This Borrowing Base Certificate is delivered in accordance with the Credit
Agreement dated as of June , 1996 between Republic Acceptance Corporation
(the "Lender") and O'Boisie Corporation ("the Borrower"). Capitalized terms
used herein which are defined in the Credit Agreement shall have the meanings
set forth for such terms therein. All amounts are as of the date shown above
except as otherwise stated herein.
I certify that the following amounts were correctly determined according to
the Credit Agreement:
Total Receivables $ (A)
Receivables 90 + Days $
--------------- $
Total Ineligible $
(B)
Eligible Receivables (A) -(B) $
(C)
Receivables Base ( 85% of (C)) $
(D)
Total value of inventory at lesser
of cost or replacement cost: $
(E)
Ineligible inventory $
Total cost of inventory deemed ineligible by the Lender: $ (F)
Total Eligible Inventory (E) minus (F): $ (G)
40% of (G) but not to exceed $3,500,000. $ (H)
Total Borrowing Base: (D) plus (H) $
(I)
Outstanding Advances and Term Loan $ (J)
Availability (I) -(J) $
<PAGE>
(K)
I hereby certify that all payroll and unemployment taxes are current as of
this date.
For the purpose of inducing the Lender to extend credit to the Borrower
pursuant to the Credit Agreement, the Borrower hereby certifies that the
foregoing information is true and correct in all respects. The Borrower further
certifies that all amounts outstanding under the Notes were properly authorized
for the benefit of the Borrower and constitute obligations of the Borrower in
accordance with the terms of the Credit Agreement. The Borrower further
certifies that no circumstances or conditions exist at the date of the Borrowing
Base Certificate which constitute an Event of Default.
THE O'BOISIE CORPORATION
By ---------------------
Title --------------------
Dated , 19
---------------- ---
<PAGE>
[SUGGESTED FORM OF CERTIFICATE OF
RESOLUTIONS AND INCUMBENCY CERTIFICATE]
CERTIFICATE OF SECRETARY OF
THE O'BOISIE CORPORATION
I, _________________________ , solely in my capacity as Secretary, hereby
certify to Republic Acceptance Corporation that I am the Secretary of O'Boisie
Corporation, an Illinois corporation (the "Company") and that the following
resolutions have been duly adopted by the Board of Directors of the Company in a
manner authorized by the laws of the State of Illinois:
"WHEREAS, THE COMPANY WISHES TO BORROW MONEY FROM REPUBLIC ACCEPTANCE
CORPORATION (THE "LENDER"), AND FOR THAT PURPOSE INTENDS TO ENTER INTO A
CREDIT AGREEMENT WITH THE LENDER.
RESOLVED, the Company shall enter into a Credit Agreement with the
Lender under which the Company may obtain revolving loans up to
$8,000,000.00 in aggregate amount and a Term Loan of $5,000,000.00; and the
President or any two officers of the Company is hereby authorized at any
time and from time to time to execute and deliver to the Lender such Credit
Agreement and any promissory notes, security agreements, mortgages,
subordination agreements, pledge agreements, assignments of life insurance,
reimbursement agreements, or amendments to any of the foregoing as may be
contemplated or required pursuant to such Credit Agreement or otherwise,
all in such form as such officer may determine and approve (such
determination and approval to be established conclusively by such officer's
execution and delivery of such Credit Agreement and any such related
documents and instruments).
FURTHER RESOLVED, that the President or any two officers of the
Company is hereby authorized at any time and from time to time to sell,
assign, transfer, mortgage, create security interests in and pledge to the
Lender the real property, goods, instruments, documents, securities,
chattel paper, accounts, contract rights and other intangibles and any
other property now owned or hereafter acquired by the Company, either
absolutely for such consideration as such officer may determine to be
appropriate or as security for the payment or performance of any or all
debts, liabilities and obligations of every type and description now or at
any time hereafter owed to the Lender by the Company, on such terms as such
officer may approve, and to do such other acts or things in connection
therewith or pursuant thereto as such officers may determine to be
appropriate (such determination and approval to be established conclusively
by the instrument executed or action taken by such officers).
FURTHER RESOLVED, it is hereby acknowledged that each and every note,
guaranty, security agreement and other instrument made pursuant to the
foregoing resolutions is and will be made and given for the corporate
purposes of this Company.
FURTHER RESOLVED, the Secretary or Assistant Secretary shall certify
to the Lender
<PAGE>
the names and signatures of the persons who presently are duly elected,
qualified and acting as the officers authorized to act under the foregoing
resolutions, and the Secretary or Assistant Secretary shall from time to
time hereafter, upon a change in the facts so certified, immediately
certify to the Lender the names and signatures of the persons then
authorized to sign or to act; the Lender shall be fully protected in
relying on such certificates and on the obligation of the Secretary or an
Assistant Secretary immediately to certify to the Lender any change in any
fact certified, and the Lender shall be indemnified and saved harmless by
the Company from any and all claims, demands, expenses, costs and damages
resulting from or growing out of honoring or relying on the signature or
other authority (whether or not properly used) of any officer whose name
and signature was so certified, or refusing to honor any signature or
authority not so certified."
I further certify that the foregoing resolutions have not been amended or
revoked and are in full force and effect on the date hereof.
I further certify that the officers whose names appear below have been duly
elected to and now hold the offices in the Company set forth opposite their
respective names and that the signature appearing opposite the name of each of
such officer is authentic and official:
Name Title Specimen Signature
Donald Schumacher Chairman -CEO
- ----------------------- ------------------------- ------------------------
David Blue President
- ----------------------- ------------------------- ------------------------
Susan Bolin Vice President -Finance
- ----------------------- ------------------------- ------------------------
I further certify that shareholder approval of the foregoing resolutions is not
required and said resolutions are effective and binding on the Company without
approval by its shareholders.
Dated
---------------
-----------------------------
Secretary
- ---------------------
Attest by a Director
<PAGE>
AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), made and
entered into as of October __,1996, is by and between THE O'BOISIE CORPORATION,
an Illinois corporation (the "Borrower"), and REPUBLIC ACCEPTANCE CORPORATION,
a Minnesota Corporation (the "Lender").
RECITALS
1. The Lender and the Borrower entered into a Credit Agreement dated
as of July 3, 1996 (the "Credit Agreement"); and
2. The Borrower desires to amend certain provisions of the
Agreement, and the Lender has agreed to make such amendments, subject to the
terms and conditions set forth in this Amendment.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby covenant
and agree to be bound as follows:
Section 1. CAPITALIZED TERMS. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the Credit
Agreement, unless the context shall otherwise require.
Section 2. AMENDMENTS. The Credit Agreement is hereby amended as
follows:
2.1 DEFINITIONS. The definition of "COMMITMENTS", "NOTES", "TOTAL
COMMITMENT AMOUNT"and "TOTAL OUTSTANDINGS" contained in Section 1.1 of the
Credit Agreement are amended in their entirety as follows:
"COMMITMENTS": The Revolving Commitment, the Term Loan Commitment and
the Additional Term Loan Commitment.
"NOTES": The Revolving Note, The Term Note and the Additional Term
Note.
"TOTAL COMMITMENT AMOUNT": The sum of the Revolving Commitment
Amount, the Term Loan Commitment Amount and the Additional Term Loan Commitment
Amount.
"TOTAL OUTSTANDINGS": At the time of any determination, the sum of
the unpaid balance of the Revolving Note, the unpaid balance of the Term Note
and the unpaid balance of the Additional Term Note.
Section 1.1 of the Credit Agreement is further amended by adding the
definitions of
<PAGE>
""ADDITIONAL TERM LOAN", ADDITIONAL TERM LOAN COMMITMENT","ADDITIONAL TERM LOAN
COMMITMENT AMOUNT" and "ADDITIONAL TERM NOTE" thereto in correct alphabetical
order:
"ADDITIONAL TERM LOAN": As defined in Section 2.1.
"ADDITIONAL TERM LOAN COMMITMENT": The obligation of the Lender to
make a term loan to the Borrower in the Additional Term Loan Commitment Amount
upon the terms and subject to the conditions and limitations of this Agreement.
"ADDITIONAL TERM LOAN COMMITMENT AMOUNT": As defined in Section 2.1.
"ADDITIONAL TERM NOTE": As defined in Section 2.3.
2.2 THE NOTES. Section 2.3 of the Credit Agreement is amended in
its entirety as follows:
Section 2.3 THE NOTES. The Advances on the Revolving Loan shall be
evidenced by a single promissory note (the "Revolving Note"), substantially in
the form of Exhibit 2.3 (a) hereto, in the amount of the Revolving Commitment
Amount originally in effect. The Term Loan shall be evidenced by a promissory
note (the "Term Note"), substantially in the form of Exhibit 2.3 (b) hereto, in
an amount equal to the Term Loan Commitment Amount. The Additional Term Loan
shall be evidenced by a promissory note (the "Additional Term Note"),
substantially in the form of Exhibit 2.3 (c) hereto, in an amount equal to the
Additional Term Loan Commitment Amount. The Lender shall enter in its ledgers
and records the payments made on the Term Loan, the Additional Term Loan and
Advances made and the payments made thereon, and the Lender is authorized by the
Borrower to enter on schedules attached to the Notes a record of such Advances
and repayments.
2.3 INTEREST RATES, INTEREST PAYMENTS AND DEFAULT INTEREST. Section
2.4 of the Credit Agreement is amended in its entirety as follows:
Section 2.4 INTEREST RATES, INTEREST PAYMENTS AND DEFAULT INTEREST.
Interest shall accrue and be payable on the unpaid balance of the Revolving Note
at a floating rate per annum equal to the sum of the Reference Rate plus 1.75%
(the latter being the "Applicable Revolving Margin"); PROVIDED, HOWEVER, that
any amount of principal of the Revolving Note not paid when due (whether at such
date or upon acceleration following an Event of Default) shall thereafter bear
interest at a floating rate equal to the sum of (a) the Reference Rate, plus (b)
the Applicable Revolving Margin, plus (c) 3 1/2%. Interest shall accrue and be
payable on the unpaid balance of the Term Note at a floating rate per annum
equal to the sum of the Reference Rate plus 1.75% (the latter being the
"Applicable Term Margin"); PROVIDED, HOWEVER, that any amount of principal of
the Term Note not paid when due after giving effect to any applicable grace
period, if any (whether at the date scheduled therefor or upon acceleration
following an Event of Default) shall thereafter bear interest at a floating rate
equal to the sum of (a) the Reference Rate, plus (b) the Applicable Term Margin,
plus (c) 3 1/2%. Interest shall accrue and be payable on the unpaid balance of
the Additional Term Note at a floating rate per annum equal to the sum of the
Reference
<PAGE>
Rate plus 3.00% (the latter being the "Applicable Additional Term Margin");
PROVIDED, HOWEVER, that any amount of principal of the Additional Term Note not
paid when due after giving effect to any applicable grace period, if any
(whether at the date scheduled therefor or upon acceleration following an Event
of Default) shall thereafter bear interest at a floating rate equal to the sum
of (a) the Reference Rate, plus (b) the Applicable Additional Term Margin, plus
(c) 3 1/2%. If any amount of principal of the Revolving Note, the Term Note
and/or the Additional Term Note is not paid when due (whether at such date or
upon acceleration following an Event of Default) the Revolving Note shall
thereafter bear interest at a floating rate equal to the sum of (a) the
Reference Rate, plus (b) the Applicable Revolving Margin, plus (c) 3 1/2%, the
Term Note shall thereafter bear interest at a floating rate equal to the sum of
(a) the Reference Rate, plus (b) the Applicable Term Margin, plus (c) 3 1/2%,
the Additional Term Note shall thereafter bear interest at a floating rate equal
to the sum of (a) the Reference Rate, plus (b) the Applicable Revolving Margin,
plus (c) 3 1/2%. Interest shall be payable monthly in arrears and upon final
payment of the respective Notes.
2.4 ADDITIONAL TERM LOAN. A new section 2.1(c) is added to provide as
follows:.
Section 2.1(c) ADDITIONAL TERM LOAN. An Additional Term Loan to
mature June 1, 1999 (the "Additional Term Loan") from the Lender to the Borrower
on the Closing Date in the amount of $1,000,000 (the "Additional Term Loan
Commitment Amount"); PROVIDED, HOWEVER, that the Additional Term Loan will not
be made if, after giving effect thereto, the Total Outstandings would exceed the
Borrowing Base (including the Equipment).
2.5 REPAYMENT OF THE ADDITIONAL TERM LOAN. A new section 2.7(d) is
added to provide as follows:.
Section 2.7(d) REPAYMENT OF THE ADDITIONAL TERM LOAN. Principal of
the Additional Term Note is payable as provided in the Additional Term Note.
The Borrower may prepay the Additional Term Note at any time without premium or
penalty. Any such prepayment must be accompanied by accrued and unpaid interest
on the amount prepaid. Each partial prepayment shall be in an amount of $50,000
or an integral multiple thereof. Amounts so prepaid cannot be reborrowed. In
the event that Borrower secures an Initial Public Offering, the Additional Term
Note shall be due and payable immediately upon the funding of the Initial Public
Offering.
Section 3. EFFECTIVENESS OF AMENDMENTS. The amendments contained in
this Amendment shall become effective upon delivery by the Borrower of, and
compliance by the Borrower with, the following:
3.1 This Amendment, duly executed by the Borrower.
3.2 A copy of the resolutions of the Board of Directors of the Borrower
authorizing the execution, delivery and performance of this Amendment certified
as true and accurate by its Secretary or Assistant Secretary, along with a
certification by such Secretary or Assistant Secretary (i) certifying that there
has been no amendment to the
<PAGE>
Articles of Incorporation or Bylaws of the Borrower since true and accurate
copies of the same were delivered to the Lender with a certificate of the
Secretary of the Borrower dated July 3, 1996, and (ii) identifying each officer
of the Borrower authorized to execute this Amendment and any other instrument or
agreement executed by the Borrower in connection with this Amendment, and
certifying as to specimens of such officer's signature and such officer's
incumbency in such offices as such officer holds.
3.3 Certified copies of all documents evidencing any necessary
corporate action or consent with respect to this Amendment.
3.4 The Additional Term Note substantially in the form of Exhibit
2.3(c) hereto.
3.5 A consent and reaffirmation by Donald Schumacher II in the form
of Exhibit A attached to this Amendment, duly executed by Donald Schumacher II.
3.6 The sum of $20,000 as a closing fee.
3.7 A Collateral Assignment of Trademarks.
3.8 The Borrower shall have satisfied such other conditions as
specified by the Lender or counsel to the Lender, including payment of all
unpaid legal fees and expenses incurred by the Lender through the date of this
Amendment in connection with the Credit Agreement.
Section 4. REPRESENTATIONS; ACKNOWLEDGMENTS. The Borrower hereby
represents that on and as of the date hereof and after giving effect to this
Amendment (a) all of the representations and warranties contained in the Credit
Agreement, and in any and all other Loan Documents of the Borrower, are true,
correct and complete in all respects as of the date hereof as though made on and
as of such date, except for changes permitted by the terms of the Credit
Agreement, and (b) the Borrower is in compliance with all covenants and
agreements of the Borrower as set forth in the Credit Agreement and in any and
all other Loan Documents of the Borrower. The Borrower represents and warrants
that the Borrower has the power and legal right and authority to enter into this
Amendment and has duly authorized as appropriate the execution and delivery of
this Amendment and other agreements and documents executed and delivered by the
Borrower in connection herewith or therewith by proper corporate action. The
Borrower acknowledges and agrees that its obligations to the Lender under the
Credit Agreement and exist and are owing without offset, defense or counterclaim
assertable by the Borrower against the Lender. The Borrower further
acknowledges and agrees that its obligations to the Lender under the Credit
Agreement, as amended, constitute "Obligations" within the meaning of the
Security Agreement and are secured by the Security Agreement and the Collateral
Assignment of Trademarks.
Section 5. AFFIRMATION, FURTHER REFERENCES. Except as expressly
modified under this Amendment, all of the terms, conditions, provisions,
agreements, requirements, promises, obligations, duties, covenants and
representations of the Borrower under the Credit Agreement, the Security
Agreement, and any and all other Loan Documents entered into with respect to the
<PAGE>
obligations under the Credit Agreement are incorporated herein by reference and
are hereby ratified and affirmed in all respects by the Borrower. All
references in the Credit Agreement to "this Agreement," "herein," "hereof," and
similar references, and all references in the other Loan Documents to the
"Agreement," shall be deemed to refer to the Agreement, as amended by this
Amendment.
Section 6. MERGER AND INTEGRATION, SUPERSEDING EFFECT. This
Amendment, from and after the date hereof, embodies the entire agreement and
understanding between the parties hereto and supersedes and has merged into it
all prior oral and written agreements on the same subjects by and between the
parties hereto with the effect that this Amendment, shall control with respect
to the specific subjects hereof and thereof.
Section 7. SEVERABILITY. Whenever possible, each provision of this
Amendment and any other statement, instrument or transaction contemplated hereby
or thereby or relating hereto or thereto shall be interpreted in such manner as
to be effective, valid and enforceable under the applicable law of any
jurisdiction, but, if any provision of this Amendment or any other statement,
instrument or transaction contemplated hereby or thereby or relating hereto or
thereto shall be held to be prohibited, invalid or unenforceable under the
applicable law, such provision shall be ineffective in such jurisdiction only to
the extent of such prohibition, invalidity or unenforceability, without
invalidating or rendering unenforceable the remainder of such provision or the
remaining provisions of this Amendment or any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto in such
jurisdiction, or affecting the effectiveness, validity or enforceability of such
provision in any other jurisdiction.
Section 8. SUCCESSORS. This Amendment shall be binding upon the
Borrower and the Lender and their respective successors and assigns, and shall
inure to the benefit of the Borrower and the Lender and the successors and
assigns of the Lender.
Section 9. LEGAL EXPENSES. The Borrower agrees to reimburse the
Lender, upon execution of this Amendment, for all reasonable out-of-pocket
expenses (including attorneys' fees and legal expenses of Dorsey & Whitney,
counsel for the Lender) incurred in connection with the Credit Agreement,
including in connection with the negotiation, preparation and execution of this
Amendment and all other documents negotiated, prepared and executed in
connection with this Amendment, and in enforcing the obligations of the Borrower
under the Credit Agreement, as amended by this Amendment, which obligations of
the Borrower shall survive any termination of the Credit Agreement.
Section 10. HEADINGS. The headings of various sections of this
Amendment have been inserted for reference only and shall not be deemed to be a
part of this Amendment.
Section 11. COUNTERPARTS. This Amendment may be executed in several
counterparts as deemed necessary or convenient, each of which, when so executed,
shall be deemed an original, provided that all such counterparts shall be
regarded as one and the same document, and either party to this Amendment may
execute any such agreement by executing a counterpart of such
<PAGE>
agreement.
Section 12. GOVERNING LAW. The Amendment Documents shall be governed
by the internal laws of the State of Minnesota, without giving effect to
conflict of law principles thereof.
(REMAINDER OF PAGE LEFT BLANK INTENTIONALLY)
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
as of the date and year first above written.
THE O'BOISIE CORPORATION
By:
--------------------------------
Title:
REPUBLIC ACCEPTANCE CORPORATION
By:
--------------------------------
Title:
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), made and
entered into as of March __, 1997, is by and between THE O'BOISIE CORPORATION,
an Illinois corporation (the "Borrower"), and REPUBLIC ACCEPTANCE CORPORATION,
a Minnesota Corporation (the "Lender").
RECITALS
1. The Lender and the Borrower entered into a Credit Agreement dated
as of July 3, 1996, as amended by that First Amendment to Credit Agreement dated
October __, 1996, (the "Credit Agreement"); and
2. The Borrower desires to amend certain provisions of the
Agreement, and the Lender has agreed to make such amendments, subject to the
terms and conditions set forth in this Amendment.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby covenant
and agree to be bound as follows:
Section 1. CAPITALIZED TERMS. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the Credit
Agreement, unless the context shall otherwise require.
Section 2. AMENDMENTS. The Credit Agreement is hereby amended as
follows:
2.1 DEFINITIONS. The definition of "COMMITMENTS", "NOTES", "TOTAL
COMMITMENT AMOUNT"and "TOTAL OUTSTANDINGS" contained in Section 1.1 of the
Credit Agreement are amended in their entirety as follows:
"COMMITMENTS": The Revolving Commitment, the Term Loan Commitment,
the Additional Term Loan Commitment and the Special Term Loan Commitment.
"NOTES": The Revolving Note, The Term Note, the Additional Term Note
and the Special Term Note.
"TOTAL COMMITMENT AMOUNT": The sum of the Revolving Commitment
Amount, the Term Loan Commitment Amount, the Additional Term Loan Commitment
Amount and the Special Term Loan Commitment Amount.
"TOTAL OUTSTANDINGS": At the time of any determination, the sum of
the unpaid balance of the Revolving Note and the unpaid balance of the Term
Note.
<PAGE>
Section 1.1 of the Credit Agreement is further amended by adding the
definitions of "SPECIAL TERM LOAN", "SPECIAL TERM LOAN COMMITMENT","SPECIAL
TERM LOAN COMMITMENT AMOUNT" and "SPECIAL TERM NOTE" thereto in correct
alphabetical order:
"SPECIAL TERM LOAN": As defined in Section 2.1.
"SPECIAL TERM LOAN COMMITMENT": The obligation of the Lender to make
a term loan to the Borrower in the Special Term Loan Commitment Amount upon the
terms and subject to the conditions and limitations of this Agreement.
"SPECIAL TERM LOAN COMMITMENT AMOUNT": As defined in Section 2.1.
"SPECIAL TERM NOTE": As defined in Section 2.3.
2.2 ADDITIONAL TERM LOAN. Section 2.1(c) of the Credit Agreement is
amended in its entirety as follows:.
Section 2.1(c) ADDITIONAL TERM LOAN. An Additional Term Loan to
mature April 1, 1998 (the "Additional Term Loan") from the Lender to the
Borrower in the amount of $1,000,000 (the "Additional Term Loan Commitment
Amount").
2.3 SPECIAL TERM LOAN. A new section 2.1(d) is added to provide as
follows:.
Section 2.1(d) SPECIAL TERM LOAN. A Special Term Loan to mature April
1, 1998 (the "Special Term Loan") from the Lender to the Borrower in the amount
of $2,000,000 (the "Special Term Loan Commitment Amount").
2.4 THE NOTES. Section 2.3 of the Credit Agreement is amended in its
entirety as follows:
Section 2.3 THE NOTES. The Advances on the Revolving Loan shall be
evidenced by a single promissory note (the "Revolving Note"), substantially in
the form of Exhibit 2.3 (a) hereto, in the amount of the Revolving Commitment
Amount originally in effect. The Term Loan shall be evidenced by a promissory
note (the "Term Note"), substantially in the form of Exhibit 2.3 (b) hereto, in
an amount equal to the Term Loan Commitment Amount. The Additional Term Loan
shall be evidenced by a promissory note (the "Additional Term Note"),
substantially in the form of Exhibit 2.3 (c) hereto, in an amount equal to the
Additional Term Loan Commitment Amount. The Special Term Loan shall be evidenced
by a promissory note (the "Special Term Note"), substantially in the form of
Exhibit 2.3 (d) hereto, in an amount equal to the Special Term Loan Commitment
Amount. The Lender shall enter in its ledgers and records the payments made on
the Term Loan, the Additional Term Loan, the Special Term Loan and Advances made
and the payments made thereon, and the Lender is authorized by the Borrower to
enter on schedules attached to the Notes a record of such Advances and
repayments.
2.5 INTEREST RATES, INTEREST PAYMENTS AND DEFAULT INTEREST. Section 2.4
of the Credit
<PAGE>
Agreement is amended in its entirety as follows:
Section 2.4 INTEREST RATES, INTEREST PAYMENTS AND DEFAULT INTEREST.
Effective as of February 1, 1997, interest shall accrue and be payable on the
unpaid balance of the Revolving Note at a floating rate per annum equal to the
sum of the Reference Rate plus 3.75% (the latter being the "Applicable Revolving
Margin"); PROVIDED, HOWEVER, that any amount of principal of the Revolving Note
not paid when due (whether at such date or upon acceleration following an Event
of Default) shall thereafter bear interest at a floating rate equal to the sum
of (a) the Reference Rate, plus (b) the Applicable Revolving Margin, plus (c)
31/2%. Interest shall accrue and be payable on the unpaid balance of the Term
Note at a floating rate per annum equal to the sum of the Reference Rate plus
3.75% (the latter being the "Applicable Term Margin"); PROVIDED, HOWEVER, that
any amount of principal of the Term Note not paid when due after giving effect
to any applicable grace period, if any (whether at the date scheduled therefor
or upon acceleration following an Event of Default) shall thereafter bear
interest at a floating rate equal to the sum of (a) the Reference Rate, plus (b)
the Applicable Term Margin, plus (c) 3 1/2%. Interest shall accrue and be
payable on the unpaid balance of the Additional Term Note at a floating rate per
annum equal to the sum of the Reference Rate plus 5.00% (the latter being the
"Applicable Additional Term Margin"); PROVIDED, HOWEVER, that any amount of
principal of the Additional Term Note not paid when due after giving effect to
any applicable grace period, if any (whether at the date scheduled therefor or
upon acceleration following an Event of Default) shall thereafter bear interest
at a floating rate equal to the sum of (a) the Reference Rate, plus (b) the
Applicable Additional Term Margin, plus (c) 3 1/2%. Interest shall accrue and be
payable on the unpaid balance of the Special Term Note at a floating rate per
annum equal to the sum of the Reference Rate plus 5.00% (the latter being the
"Applicable Special Term Margin"); PROVIDED, HOWEVER, that any amount of
principal of the Special Term Note not paid when due after giving effect to any
applicable grace period, if any (whether at the date scheduled therefor or upon
acceleration following an Event of Default) shall thereafter bear interest at a
floating rate equal to the sum of (a) the Reference Rate, plus (b) the
Applicable Special Term Margin, plus (c) 3 1/2%. PROVIDED, HOWEVER, that upon
irrevocable payment in full of both the Additional Term Loan and the Special
Term Loan, interest shall accrue and be payable on the unpaid balance of the
Revolving Note at a floating rate per annum equal to the sum of the Reference
Rate plus 1.75% (the latter being the "Future Applicable Revolving Margin");
PROVIDED, HOWEVER, that any amount of principal of the Revolving Note not paid
when due (whether at such date or upon acceleration following an Event of
Default) shall thereafter bear interest at a floating rate equal to the sum of
(a) the Reference Rate, plus (b) the Future Applicable Revolving Margin, plus
(c) 2%. PROVIDED, HOWEVER, that upon irrevocable payment in full of both the
Additional Term Loan and the Special Term Loan, interest shall accrue and be
payable on the unpaid balance of the Term Note at a floating rate per annum
equal to the sum of the Reference Rate plus 1.75% (the latter being the "Future
Applicable Term Margin"); PROVIDED, HOWEVER, that any amount of principal of the
Term Note not paid when due after giving effect to any applicable grace period,
if any (whether at the date scheduled therefor or upon acceleration following an
Event of Default) shall thereafter bear interest at a floating rate equal to the
sum of (a) the Reference Rate, plus (b) the Future Applicable Term Margin, plus
(c) 2%. Interest shall be payable monthly in arrears and upon final payment of
the respective Notes.
2.6 REPAYMENT OF THE ADDITIONAL TERM LOAN. Section 2.7(d) of the Credit
Agreement is
<PAGE>
amended in its entirety as follows:
Section 2.7(d) REPAYMENT OF THE ADDITIONAL TERM LOAN. Principal of
the Additional Term Note is payable as provided in the Additional Term Note.
The Borrower may prepay the Additional Term Note at any time without premium or
penalty. Any such prepayment must be accompanied by accrued and unpaid interest
on the amount prepaid. Each partial prepayment shall be in an amount of $1,000
or an integral multiple thereof. Amounts so prepaid cannot be reborrowed. In
the event that Borrower raises equity through an Initial Public Offering
("IPO"), or Private Placement through an Investment Banker ("PPO") the
Additional Term Note shall be due and payable immediately upon the funding of
the IPO or PPO.
2.7 REPAYMENT OF THE SPECIAL TERM LOAN. A new section 2.7(e) is added to
provide as follows:
Section 2.7(e) REPAYMENT OF THE SPECIAL TERM LOAN. Principal of the
Special Term Note is payable as provided in the Special Term Note. The Borrower
may prepay the Special Term Note at any time without premium or penalty. Any
such prepayment must be accompanied by accrued and unpaid interest on the amount
prepaid. Each partial prepayment shall be in an amount of $1,000 or an integral
multiple thereof. Amounts so prepaid cannot be reborrowed. In the event that
Borrower raises equity through an Initial Public Offering ("IPO"), or Private
Placement through an Investment Banker ("PPO") the Special Term Note shall be
due and payable immediately upon the funding of the IPO or PPO.
2.8 MAINTENANCE OF ACCOUNTS. A new section 2.15 is added to provide as
follows:
2.15 MAINTENANCE OF ACCOUNTS. On or before May 30, 1997 the Borrower
shall establish and maintain on deposit with First Bank National Association all
of its operating and payroll accounts.
2.9 SALE OF TRUCKS. A new section 5.11 is added to provide as follows:
5.11 SALE OF TRUCKS. On or before July 1, 1997, Borrower agrees to
sell all trucks owned by it. The proceeds of the sale, net of costs incurred in
connection with the sale, shall immediately be paid to Lender for application on
the loan secured by the truck, with any remaining proceeds being applied to the
Special Term Loan. In the event that Borrower has not sold all trucks owned by
it, by July 1, 1997, Borrower shall enter into an agreement with a Lender
approved liquidator, on terms acceptable to Lender, for the sale of all trucks
owned by Borrower, with the proceeds from such sale applied as set forth above.
2.10 SALE OF PRETZEL LINES. A new section 5.12 is added to provide as
follows:
5.12 SALE OF PRETZEL LINES. In the event that (a) Borrower does not
obtain an IPO or PPO or has not received funding on an IPO or PPO and (b) the
Borrower (i) does not have sufficient cash flow to service its obligations under
the Credit Agreement, or (ii) an Event of Default exists under the Credit
Agreement, then no later than September 1, 1997, Borrower will
<PAGE>
sell its pretzel lines and the proceeds of the sale, net of costs incurred in
connection with the sale,shall immediately be paid to Lender for application on
any loan securing the pretzel lines, with any remaining proceeds being applied
to the Special Term Loan. In the event that Borrower has not sold its pretzel
lines, by September 1, 1997, Borrower shall enter into an agreement with a
Lender approved liquidator, on terms acceptable to Lender, for the sale of its
pretzel lines, with the proceeds from such sale applied as set forth above.
2.11 SUCCESS FEE. A new section 5.13 is added to provide as follows:
5.13 SUCCESS FEE. Immediately upon funding of the IPO or PPO,
Borrower shall pay Lender the sum of $75,000 as a success fee.
2.12 RESTRUCTURE FEE. A new section 5.14 is added to provide as follows:
5.14 RESTRUCTURE FEE. Borrower shall pay Lender the sum of $25,000 as
a restructure fee, payable in ten equal weekly installments commencing on March
__,1997, and continuing on the same day of each week until paid in full .
2.13 RESTRUCTURE FEE. A new section 5.15 is added to provide as follows:
5.15 CREDIT ANALYSIS FEE. Borrower shall pay Lender the sum of
$50,000 as a credit analysis fee, payable in ten equal weekly installments
commencing on March __,1997, and continuing on the same day of each week until
paid in full.
2.14 FINANCIAL PROJECTIONS. A new section 5.16 is added to provide as
follows:
5.14 FINANCIAL PROJECTIONS. No later than March 31, 1997 Borrower
shall provide Lender financial projections of the Borrower through the period
ending September 15, 1998, consisting of at least projections of statements of
income, cash flow and changes in stockholders' equity, and a balance sheet.
2.15 A new section 7.1(n) is added to provide as follows:
On or before March 21, 1997 Borrower shall have provided Lender with
Common Stock Purchase Warrants in an amount that constitutes five percent of
the outstanding stock of Borrower, on terms and conditions acceptable to Lender.
Section 3. EFFECTIVENESS OF AMENDMENTS. The amendments contained in
this Amendment shall become effective upon delivery by the Borrower of, and
compliance by the Borrower with, the following:
3.1 This Amendment, duly executed by the Borrower.
3.2 A copy of the resolutions of the Board of Directors of the
Borrower authorizing the execution, delivery and performance of this
Amendment certified as true and
<PAGE>
accurate by its Secretary or Assistant Secretary, along with a
certification by such Secretary or Assistant Secretary (i) certifying that
there has been no amendment to the Articles of Incorporation or Bylaws of
the Borrower since true and accurate copies of the same were delivered to
the Lender with a certificate of the Secretary of the Borrower dated July
3, 1996, and (ii) identifying each officer of the Borrower authorized to
execute this Amendment and any other instrument or agreement executed by
the Borrower in connection with this Amendment, and certifying as to
specimens of such officer's signature and such officer's incumbency in such
offices as such officer holds.
3.3 Certified copies of all documents evidencing any necessary
corporate action or consent with respect to this Amendment.
3.4 The Additional Term Note substantially in the form of Exhibit
2.3(c) hereto.
3.5 The Special Term Note substantially in the form of Exhibit 2.3(d)
hereto.
3.6 The duly executed Guaranty of Donald Schumacher II.
3.7 The sum of $2,500 as the first installment of the restructure
fee.
3.8 The sum of $5,000 as the first installment of the credit analysis
fee.
3.9 The Borrower shall have satisfied such other conditions as
specified by the Lender or counsel to the Lender, including payment of all
unpaid legal fees and expenses incurred by the Lender through the date of
this Amendment in connection with the Credit Agreement.
Section 4. WAIVER OF EXISTING EVENTS OF DEFAULT. The Lender hereby,
effective as of the date hereof, consents to the Borrower's failure to comply
with the provisions of Sections 2.6 and 5.7 of the Credit Agreement prior to the
date hereof and waives the Lender's right in connection therewith to declare a
default or event of default under the Agreement, to exercise any remedies
arising out of such an event of default or default to the extent (but only to
the extent) that the Lender may have had such rights based solely on the failure
to comply with such provisions prior to the date hereof. This waiver is for the
limited purpose set forth herein and shall not be deemed to (i) be a consent to
any waiver or modification of any other term or condition of the Agreement or
any instrument or agreement referred to therein, or (ii) prejudice any right or
remedy that the Lender may now have (except to the extent such right or remedy
is based upon existing defaults that will not exist after giving effect to the
waiver set forth herein) or may have in the future under or in connection with
the Agreement or any instrument or agreement referred to therein.
Section 5. REPRESENTATIONS; ACKNOWLEDGMENTS. The Borrower hereby
represents that on and as of the date hereof and after giving effect to this
Amendment (a) all of the representations and warranties contained in the Credit
Agreement, and in any and all other Loan Documents of the Borrower, are true,
correct and complete in all respects as of the date hereof as
<PAGE>
though made on and as of such date, except for changes permitted by the terms of
the Credit Agreement, and (b) the Borrower is in compliance with all covenants
and agreements of the Borrower as set forth in the Credit Agreement and in any
and all other Loan Documents of the Borrower. The Borrower represents and
warrants that the Borrower has the power and legal right and authority to enter
into this Amendment and has duly authorized as appropriate the execution and
delivery of this Amendment and other agreements and documents executed and
delivered by the Borrower in connection herewith or therewith by proper
corporate action. The Borrower acknowledges and agrees that its obligations to
the Lender under the Credit Agreement and exist and are owing without offset,
defense or counterclaim assertable by the Borrower against the Lender. The
Borrower further acknowledges and agrees that its obligations to the Lender
under the Credit Agreement, as amended, constitute "Obligations" within the
meaning of the Security Agreement and are secured by the Security Agreement and
the Collateral Assignment of Trademarks.
Section 6. AFFIRMATION, FURTHER REFERENCES. Except as expressly
modified under this Amendment, all of the terms, conditions, provisions,
agreements, requirements, promises, obligations, duties, covenants and
representations of the Borrower under the Credit Agreement, the Security
Agreement, and any and all other Loan Documents entered into with respect to the
obligations under the Credit Agreement are incorporated herein by reference and
are hereby ratified and affirmed in all respects by the Borrower. All
references in the Credit Agreement to "this Agreement," "herein," "hereof," and
similar references, and all references in the other Loan Documents to the
"Agreement," shall be deemed to refer to the Agreement, as amended by this
Amendment.
Section 7. MERGER AND INTEGRATION, SUPERSEDING EFFECT. This
Amendment, from and after the date hereof, embodies the entire agreement and
understanding between the parties hereto and supersedes and has merged into it
all prior oral and written agreements on the same subjects by and between the
parties hereto with the effect that this Amendment, shall control with respect
to the specific subjects hereof and thereof.
Section 8. SEVERABILITY. Whenever possible, each provision of this
Amendment and any other statement, instrument or transaction contemplated hereby
or thereby or relating hereto or thereto shall be interpreted in such manner as
to be effective, valid and enforceable under the applicable law of any
jurisdiction, but, if any provision of this Amendment or any other statement,
instrument or transaction contemplated hereby or thereby or relating hereto or
thereto shall be held to be prohibited, invalid or unenforceable under the
applicable law, such provision shall be ineffective in such jurisdiction only to
the extent of such prohibition, invalidity or unenforceability, without
invalidating or rendering unenforceable the remainder of such provision or the
remaining provisions of this Amendment or any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto in such
jurisdiction, or affecting the effectiveness, validity or enforceability of such
provision in any other jurisdiction.
Section 9. SUCCESSORS. This Amendment shall be binding upon the
Borrower and the Lender and their respective successors and assigns, and shall
inure to the benefit of the Borrower and the Lender and the successors and
assigns of the Lender.
<PAGE>
Section 10. LEGAL EXPENSES. The Borrower agrees to reimburse the
Lender, upon execution of this Amendment, for all reasonable out-of-pocket
expenses (including attorneys' fees and legal expenses of Dorsey & Whitney,
counsel for the Lender) incurred in connection with the Credit Agreement,
including in connection with the negotiation, preparation and execution of this
Amendment and all other documents negotiated, prepared and executed in
connection with this Amendment, and in enforcing the obligations of the Borrower
under the Credit Agreement, as amended by this Amendment, which obligations of
the Borrower shall survive any termination of the Credit Agreement.
Section 11. HEADINGS. The headings of various sections of this
Amendment have been inserted for reference only and shall not be deemed to be a
part of this Amendment.
Section 12. COUNTERPARTS. This Amendment may be executed in several
counterparts as deemed necessary or convenient, each of which, when so executed,
shall be deemed an original, provided that all such counterparts shall be
regarded as one and the same document, and either party to this Amendment may
execute any such agreement by executing a counterpart of such agreement.
Section 13. GOVERNING LAW. The Amendment Documents shall be governed
by the internal laws of the State of Minnesota, without giving effect to
conflict of law principles thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
as of the date and year first above written.
THE O'BOISIE CORPORATION
By:
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Title:
REPUBLIC ACCEPTANCE CORPORATION
By:
------------------------------------
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<PAGE>
Title:
<PAGE>
REAL ESTATE MORTGAGE, SECURITY AGREEMENT
AND FIXTURE FILING
THIS REAL ESTATE MORTGAGE, SECURITY AGREEMENT AND FIXTURE FILING (the
"Instrument") is made this ______ day of January, 1996, between THE O'BOISIE
CORPORATION, whose address is 1111 West 22nd Street, Suite 640, Oakbrook,
Illinois 60521, (the "Borrower"), and KEEBLER CORPORATION, a Delaware
corporation, whose address is 766 Larch Avenue, Elmhurst, Illinois 60126 (the
"Lender").
WHEREAS, Borrower is indebted to Lender in the principal sum of EIGHT
MILLION & 00/100 DOLLARS ($8,000,000.00), which indebtedness is evidenced by
Borrower's Secured Note of even date, together with any and all substitutions,
renewals, replacements or modifications which, in each instance, shall be
payable to the order of Lender (the "Note"), bearing interest at the rate of
interest set forth therein providing for the payment of principal and interest;
TO SECURE TO LENDER (i) the repayment of the indebtedness evidenced by the
Note, together with interest thereon, and all renewals, extensions and
modifications thereof, (ii) the performance of the covenants, agreements and
obligations of Borrower herein contained, and all renewals, extensions and
modifications hereof, and (iii) the performance of all obligations of Borrower
under any and all other instruments and documents given to evidence or further
secure the obligations provided for herein, and all renewals, extensions and
modifications thereof, and on account of all of the foregoing Borrower does
hereby MORTGAGE and WARRANT to Lender, its successors and assigns, all of
Borrower's estate, right, title and interest in, to and under the following
described property, whether now owned or hereafter held or acquired:
(i) That certain parcel of real property described in EXHIBIT A,
attached hereto and made a part hereof;
(ii) All buildings, improvements, structures and tenements now
situated or hereafter erected on said real property, all heretofore or hereafter
vacated alleys and streets abutting the property, all easements, rights,
appurtenances, rents, royalties, mineral, oil and gas rights and profits, water,
water rights and water stock appurtenant to the real property;
(iii) All fixtures and all machinery, equipment and inventory which are
to become fixtures, including but not limited to, the heating, cooling and
ventilating systems, lighting and electrical systems and fixtures, floor
coverings, wall coverings, window coverings, ceiling title and systems, windows,
doors,
1
<PAGE>
locks, plumbing systems and fixtures and any and all replacements thereof, now
or at any time acquired by Borrower and located in, on or about the real
property and used or intended to be used in connection therewith;
(iv) All rentals, revenues, payments, repayments, deposits, income,
charges and moneys derived from the use, lease, sublease, rental or other
disposition of the property and the proceeds from any insurance or condemnation
award pertaining thereto;
(v) All rights in all construction and architectural contracts for
the improvements and Borrower's rights in the plans and specifications with
respect thereto; and
(vi) All permits and licenses of all governmental or regulatory
authorities or of any persons, corporations, partnerships, trusts or other
entities, used or intended to be used in connection with the real property.
All of the property described in the foregoing subparagraphs, including all
proceeds and products thereof, and all replacements, additions and accessions
therefor and thereto, shall be deemed to be and remain a part of the real
property covered by this Instrument; and all of the foregoing, together with
said real property, are herein collectively referred to as the "Property."
In addition to any other debt and obligation secured hereby, this
Instrument shall secure unpaid balances of advances made for the payment of
taxes, assessments, insurance premiums, and other costs incurred for the
maintenance and protection of the Property including, without limitation, any
costs incurred in connection with any appropriate environmental tests,
inspections and, if necessary, remediation.
Borrower covenants, warrants, represents and agrees as follows:
1. PAYMENT OF OBLIGATIONS. Borrower shall promptly pay when due the
principal and interest on the indebtedness evidenced by the Note, any late
charges, prepayment premiums or other sums required to be paid by the Note, and
all other sums secured by this Instrument.
2. WARRANTIES. Borrower warrants that its has the right to mortgage,
convey, grant and assign the Property, that this Instrument is and will remain a
valid and enforceable first lien on the Property, and that Borrower shall
cooperate to preserve it's fee interest in the Property, and will forever
warrant and defend validity and priority of the lien hereof against the claims
of all persons and parties whomsoever. Borrower further warrants that
(i) Borrower has full power and authority to consummate the transactions
contemplated hereby and perform its
2
<PAGE>
obligations under this Instrument, the Note and any other documents given to
evidence or further secure the obligations provided for herein; and (ii) the
execution and delivery by Borrower of this Instrument, the Note, and any other
documents given to evidence or further secure the obligations provided for
herein do not and will not result in any breach of, or constitute a default
under, any mortgage, deed of trust, lease, bank loan or credit agreement or
other instrument or document to which Borrower is a party or by which it may be
bound or affected.
3. APPLICATION OF PAYMENTS. Unless applicable law provides otherwise,
all payments received by Lender from Borrower under the Note or this Instrument
shall be applied by Lender in the following order of priority: (i) interest
payable of advances made pursuant to paragraph 20 hereof, (ii) principal of
advances made pursuant to paragraph 20 hereof, (iii) interest payable on the
Note, (iv) principal of the Note, and (v) any other sums secured by this
Instrument in such order as Lender, at Lender's option, may determine.
4. TAXES AND IMPOSITIONS. Borrower agrees to pay, at least ten (10) days
prior to delinquency, all real property taxes and assessments, general and
special, and all other taxes and assessments of any kind or nature whatsoever,
including without limitation, service payments in lieu of real property taxes,
non-governmental levies or assessments such as maintenance charges, sewer user
charges, owner association dues or charges or fees, levies or charges resulting
from covenants, conditions and restrictions affecting the Property, which are
assessed or imposed upon the Property, or become due and payable, and which
create, may create or appear to create a lien upon the Property, or any part
thereof (all of which taxes, assessments and other charges of like nature are
hereinafter referred to as "Impositions"); provided, however, that if, by law,
any such Imposition is payable, or may at the option of Borrower be paid, in
installments, Borrower may pay the same together with any accrued interest on
the unpaid balance of such Impositions in installments as the same become due
and before any fine, penalty, interest or cost may be added thereto for the
nonpayment of any such installment and interest. Upon Lender's written request,
Borrower shall promptly furnish to Lender receipts evidencing such payments.
5. INTENTIONALLY OMITTED.
6. INSURANCE. Borrower shall keep the improvements now existing or
hereafter erected on the Property insured by financially sound and responsible
carriers authorized to do business in Indiana against loss by fire, hazards
included within the term "all risks of physical loss", rent loss and such other
hazards, casualties, liabilities and contingencies in such amounts, for such
periods, and under such standard policies as are consistent with amounts insured
by prudent business persons
3
<PAGE>
engaged in similar business and owning similar property. All premiums on
insurance policies shall be paid by Borrower making payment, when due, directly
to the carrier. Upon Lender's request, all insurance policies and renewals
thereof shall include a standard mortgage clause in favor of and in form
acceptable to Lender. Upon Lender's request, Borrower shall furnish copies of
all policies, and Borrower shall promptly furnish to Lender all renewal notices
and all receipts of paid premiums. At least thirty (30) days prior to the
expiration date of a policy, Borrower shall deliver to Lender a renewal policy
in form satisfactory to Lender.
In the event of loss, Borrower shall give immediate written notice to the
insurance carrier and to Lender. Borrower hereby authorizes and empowers Lender
as attorney-in-fact for Borrower to make proof of loss, to adjust and compromise
any claim under insurance policies, to appear in and prosecute any action
arising from such insurance policies, to collect and receive insurance proceeds,
and to deduct therefrom Lender's expenses incurred in the collection of such
proceeds; provided, however, that nothing contained in this paragraph 6 shall
require Lender to incur any expense or take any action hereunder. Borrower
further authorizes Lender, at Lender's option, (i) to hold the balance of such
proceeds to be used to reimburse Borrower for the cost of restoration or repair
of the Property, or (ii) to apply the balance of such proceeds to the payment of
the sums secured by this Instrument, whether or not then due, in the order of
application set forth in paragraph 3 hereof.
If the insurance proceeds are held by Lender to reimburse Borrower for the
cost of restoration or repair of the Property, the Property shall be restored to
the equivalent of its original condition on the date hereof. Lender may, at
Lender's option, condition disbursement of said proceeds on Lender's approval of
(i) plans and specifications for the restoration which shall be prepared by an
architect satisfactory to Lender, (ii) contractor's cost estimates,
(iii) architect's certificates with respect to the progress and status of
reconstruction, (iv) waivers of liens, sworn statements of mechanics and
materialmen and such other evidence of costs as Lender may request, (v) the
percentage of completion of construction, (vi) the Borrower's application of
payments, and (vii) the satisfactory discharge or bonding of such liens as
Lender may require. If the insurance proceeds are applied to the payment of the
sums secured by this Instrument, any such application of proceeds to principal
shall not extend or postpone the due dates of the monthly installments required
under the Note or change the amounts of such installments. If Lender acquires
title to the Property, Lender shall have all of the right, title and interest of
Borrower in and to any insurance policies and unearned premiums thereon and in
and to the proceeds resulting from any damage to the Property prior to such sale
or acquisition.
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<PAGE>
7. CONDEMNATION. Borrower shall immediately notify Lender of any action
or proceeding relating to any condemnation or other taking, whether direct or
indirect, of the Property, or any part thereof, and Borrower shall appear in and
prosecute any such action or proceeding unless otherwise directed by Lender in
writing. Lender shall have the right, and Borrower hereby authorizes and
empowers Lender as attorney-in-fact for Borrower, to commence, appear in and
prosecute, in Lender's or Borrower's name, any action or proceeding relating to
any condemnation or other taking of the Property, whether direct or indirect,
and to settle or compromise any claim in connection with such condemnation or
other taking; provided, however, that nothing contained in this Paragraph 7
shall require Lender to incur any expenses or take any action hereunder.
Borrower hereby assigns to Lender all rights of Borrower in and to the proceeds
of any award, payment or claim for damages, direct or consequential, in
connection with any such condemnation or other taking, whether direct or
indirect, of the Property, or any part thereof, or for conveyances in lieu of
condemnation.
Any such awards, payments, proceeds or damages, or portion thereof to which
Borrower is entitled shall, after the deduction of Lender's expenses incurred in
the collection of such amounts, at the election of Lender, (i) be applied to the
reconstruction, restoration or repair of the Property in compliance with all
applicable legal requirements, or (ii) be applied to the payment of the sums
secured by this Instrument, whether or not then due, in the order of application
set forth in paragraph 3 hereof, with the balance, if any, to Borrower.
Borrower agrees to execute such further evidence of assignment of any awards,
proceeds, damages or claims arising in connection with such condemnation or
taking as Lender may require.
8. PRESERVATION AND MAINTENANCE OF PROPERTY. Borrower (i) shall not
commit waste or permit impairment or deterioration of the Property and shall not
abandon the Property, (ii) shall reconstruct, restore or repair promptly and in
a good and workmanlike manner all or any part of the Property to the equivalent
of its original condition on the date hereof, in the event of any damage, injury
or loss thereto, whether or not insurance proceeds or condemnation awards or
damages are available or adequate to cover, in whole or in part, the costs of
such reconstruction, restoration or repair, (iii) shall keep the Property and
any fixtures, equipment, machinery and appliances on the Property in at least
the same order and condition as on the date hereof, (iv) except with respect to
non-compliance as of the date hereof, shall comply with all zoning, building,
health and environmental laws, ordinances and regulations, and all other laws,
regulations and requirements of any governmental body or agency having
jurisdiction over the Property, or the use and occupancy thereof by Borrower,
and (v) except with respect to non-compliance as of the date hereof, shall
comply with all covenants and agreements of record affecting the Property.
5
<PAGE>
Neither Borrower nor any other person shall remove, demolish or alter any
improvement now existing or hereafter erected on the Property without the prior
written consent of Lender.
9. USE OF PROPERTY. Unless required by applicable law or unless Lender
has otherwise agreed in writing, Borrower shall not allow changes in the use for
which all or any part of the Property was intended at the time this Instrument
was executed. Borrower shall not initiate, approve, participate in or acquiesce
to any change in or modification to the zoning in effect for the Property or any
portion thereof unless Lender shall consent to such action.
10. LIENS. Borrower shall promptly discharge any lien which has, or may
have, priority over or equality with the lien of this Instrument, and Borrower
shall pay, when due, the claims of all persons supplying labor or materials to
or in connection with the Property. In the event a mechanic's lien shall be
filed against the Property, Borrower shall cause same to be satisfied or bonded
off within forty-five (45) days after the filing thereof. Without Lender's
prior written consent, Borrower shall not create, suffer, permit or allow any
statutory lien or other lien or encumbrance inferior or superior to or having
parity with this Instrument to be created or perfected against the Property.
Borrower hereby covenants and agrees that Lender shall be subrogated to the lien
of any mortgage or other lien discharged, in whole or in part, by the
indebtedness secured hereby.
11. INSPECTION AND ADDITIONAL DOCUMENTATION. With reasonable notice to
Borrower, Lender may make or cause to be made reasonable entries upon and
inspections of the Property to assure compliance with the terms of this
Instrument.
12. BOOKS AND RECORDS. Borrower shall keep and maintain at all times at
Borrower's address stated herein, complete and accurate books of accounts and
records adequate to reflect correctly the results of the operation of the
Property and copies of all written contracts, leases and other instruments which
affect the Property. Such books, records, contracts, leases and other
instruments shall be subject to examination and inspection at any reasonable
time by Lender.
13. TRANSFERS OF THE PROPERTY OR BENEFICIAL INTERESTS IN BORROWER. In the
event Borrower shall, directly or indirectly, sell, transfer, assign, convey,
mortgage, lease substantially in its entirety or otherwise dispose of the
Property, or any part or parts thereof, or any legal or equitable interest
therein, including disposition by land installment contract, or in the event
there shall occur any changes, direct or indirect, in the ownership or control
of Borrower, Lender may, at Lender's option, declare all of the sums secured by
this Instrument to be immediately due and payable, and Lender may invoke any
default
6
<PAGE>
remedies permitted by this Instrument, the Note or any other documents delivered
by Borrower to Lender in connection herewith.
14. INTENTIONALLY OMITTED.
15. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. In addition to being a
mortgage, this Instrument is intended to be a security agreement pursuant to the
Uniform Commercial Code as enacted in the state wherein the Property is located,
for any of the items specified above as part of the Property which, under
applicable law, may be subject to a security interest pursuant to the Uniform
Commercial Code, and Borrower hereby grants to Lender a security interest in
said items. Borrower agrees that Lender may file this Instrument, or a
reproduction thereof, in the real estate records or other appropriate index, as
a financing statement filed as a fixture filing with respect to all items
constituting a part of the collateral which are or are to become fixtures
related to the Property, in accordance with I.C. 26-1-9-402(6). The information
required under I.C. 26-1-9-402 is set forth in other provisions of this
Instrument. Borrower is the record owner of the Property. Any reproduction of
this Instrument or of any other security agreement or financing statement shall
be sufficient as a financing statement. In addition, Borrower agrees to execute
and deliver to Lender, upon Lender's request, any financing statements, as well
as extensions, renewals and amendments thereof, and reproductions of this
Instrument in such form as Lender may require to perfect a security interest
with respect to said items. Borrower shall pay all costs of filing such
financing statements and any extensions, renewals, amendments and releases
thereof, and shall pay all reasonable costs and expenses of any record searches
for financing statements which Lender may require. Without the prior written
consent of Lender, Borrower shall not create or suffer to be created pursuant to
the Uniform Commercial Code any other security interest in said items, including
replacements and additions thereto. Upon Borrower's breach of any covenant or
agreement of Borrower contained in this Instrument, Lender shall have the
remedies of a secured party under the Uniform Commercial Code and, at Lender's
option, may also invoke the remedies provided in this Instrument as to such
items. In exercising any of said remedies, Lender may proceed against the items
of real property and any items of personal property specified above as part of
the Property, separately or together and in any order whatsoever, without in any
way affecting the availability of Lender's remedies under the Uniform Commercial
Code or of the remedies provided in this Instrument.
16. INTENTIONALLY OMITTED.
17. ENVIRONMENTAL COMPLIANCE. From and after the date hereof, Borrower
agrees that it shall not cause or permit any hazardous material to be placed on
or in the Property in violation of applicable law. Borrower will not cause or
permit
7
<PAGE>
the use of the Property or any parcel adjacent thereto as a dump site or storage
site for hazardous materials, nor will Borrower cause or permit any
contamination on any part of the Property or any adjacent parcel.
Borrower hereby covenants and agrees to protect, defend, indemnify and hold
Lender harmless from and against any and all loss, cost (including attorneys'
fees), liability, damage or expense whatsoever incurred by Lender for
environmental matters which are a primary result of Borrower's acts or
activities occurring on or after the date hereof. The Borrower's obligations to
protect, defend, indemnify and hold Lender harmless, as set forth herein, shall
survive the payment of the indebtedness secured hereby and any release of this
Instrument.
18. ACCELERATION IN CASE OF BORROWER'S INSOLVENCY. If Borrower shall
voluntarily file a petition under the Federal Bankruptcy Code, as such Code may
from time to time be amended, or under any similar or successor Federal statute
relating to bankruptcy, insolvency, arrangements or reorganizations, or under
any state bankruptcy or insolvency act, or file an answer in any involuntary
proceedings admitting insolvency, failure or inability to pay debts, or if
Borrower shall fail to obtain a vacation or stay within sixty (60) days after
the filing thereof of involuntary proceedings brought for the reorganization,
dissolution or liquidation of Borrower, or if pursuant to the Federal Bankruptcy
Code an order for relief shall be entered against Borrower, or if a trustee or
receiver shall be appointed for Borrower or Borrower's property or if the
Property shall become subject to the jurisdiction of a Federal bankruptcy court
or similar state court, or if Borrower shall make an assignment for the benefit
of Borrower's creditors, or if there is an attachment, execution or other
judicial seizure of any portion of Borrower's assets and such seizure is not
discharged within ten (10) days, then all of the sums secured by this Instrument
shall, at Lender's option, become and be immediately due and payable without
prior notice to Borrower and without the need for any declaration or other
action by Lender or any other party, and Lender may invoke any remedies
permitted by paragraph 19 of this Instrument. Any attorney fees and other
expenses incurred by Lender in connection with Borrower's bankruptcy or any of
the other aforesaid events, which fees and expenses shall be additional
indebtedness of Borrower secured by this Instrument to the extent permitted by
law.
19. ACCELERATION; REMEDIES. Upon Borrower's breach of any covenant or
agreement of Borrower in this Instrument, including, but not limited to, the
covenants to pay when due any sums secured by this Instrument, or upon
Borrower's breach of any covenant or agreement in any other instrument or
document executed by Borrower to further secure the repayment of the Note,
Lender at Lender's option may declare all of the sums secured by this Instrument
to be immediately due and payable without further
8
<PAGE>
demand and may foreclose this Instrument by judicial proceeding and may invoke
any other remedies permitted by applicable law or provided herein. Lender shall
be entitled to collect all costs and expenses incurred in pursuing such
remedies, including, but not limited to, attorney fees, costs of documentary
evidence and title reports, and, subject to Paragraph 17 herein, environmental
tests, inspections and, if necessary, remediation.
No remedy herein conferred upon or reserved to Lender is intended to be
exclusive of any other remedy or remedies, and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now hereafter existing at law or in equity or by statute. Such
remedies may be exercised concurrently, independently, or successively in any
order whatsoever.
20. PROTECTION OF LENDER'S SECURITY. If Borrower fails to perform the
covenants and agreements contained in this Instrument or if any action or
proceeding is commenced which affects the Property or title thereto or the
interest of Lender therein, including, but not limited to, eminent domain,
insolvency, code enforcement, or arrangements or proceedings involving a
bankrupt or decedent, then, at Lender's option, Lender may make such
appearances, disburse such sums and take such actions as Lender deems necessary,
in its sole discretion, to protect Lender's interest herein, including, but not
limited to, (i) disbursement of attorney fees, (ii) entry upon the Property to
make repairs or to conduct any appropriate environmental tests and inspections
or to perform any necessary remediation, (iii) procurement of satisfactory
insurance, and (iv) payment of Impositions.
Any amounts disbursed by Lender pursuant to this paragraph 20, together
with interest thereon, shall become additional indebtedness of Borrower secured
by this Instrument. Unless Borrower and Lender agree to other terms of payment,
such amounts shall be immediately due and payable and shall bear interest from
the date of disbursement at a rate equal to the default rate of interest set
forth in the Note. Nothing contained in this paragraph 20 shall require Lender
to incur any expense or take any action hereunder.
21. BORROWER AND LIEN NOT RELEASED. From time to time, Lender may, at
Lender's option, without giving notice to or obtaining the consent of Borrower,
Borrower's successors or assigns, without liability on Lender's part and
notwithstanding Borrower's breach of any covenant or agreement of Borrower in
this Instrument, extend the time for payment of the indebtedness evidenced by
the Note or any part thereof, reduce the payments thereon, release anyone liable
on any of said indebtedness, accept a renewal note or notes therefor, agree with
Borrower, in writing, to modify the terms and time of payment of said
indebtedness, release from the lien of this Instrument any part of the Property,
take or release other or additional security,
9
<PAGE>
reconvey any part of the Property, consent to any map or plan of the Property,
consent to the granting of any easement, join in any extension or subordination
agreement, and agree in writing with Borrower to modify the rate of interest or
period of amortization of the Note. Any actions taken by Lender pursuant to the
terms of this paragraph 21 shall not affect the obligation of Borrower, or
Borrower's successors or assigns, to pay the sums secured by this Instrument and
to observe the covenants of Borrower contained herein, and shall not affect the
lien or priority of the lien hereof on the Property. Borrower shall pay Lender
a reasonable service charge, together with such title insurance premiums and
attorney fees as may be incurred, at Lender's option, for any such action if
taken at Borrower's request.
22. FORBEARANCE BY LENDER NOT A WAIVER. Any forbearance by Lender in
exercising any right or remedy hereunder, or otherwise afforded by applicable
law, shall not be a waiver of or preclude the exercise of any such right or
remedy. The acceptance by Lender of payment of any sum secured by this
Instrument after the due date of such payment shall not be a waiver of Lender's
right to either require prompt payment when due of all other sums so secured or
to declare a default for failure to make prompt payment.
23. ESTOPPEL CERTIFICATE. Borrower shall, within ten (10) days of written
request from Lender, furnish Lender with a written statement, duly acknowledge,
setting forth the sums secured by this Instrument and any right of set-off,
counterclaim or other defense which exists against such sums and the obligations
of Borrower under the Note and this Instrument.
24. NOTICE. Except for any notice required under applicable law to be
given in another manner, any notice to Borrower provided for in this instrument
shall be given by (i) personal delivery, (ii) mailing such notice by registered
or certified mail, return receipt requested, or (iii) recognized overnight
courier, addressed to Borrower at Borrower's address set forth in the original
paragraph hereof, or at such other address as Borrower may designate by notice
to Lender as provided herein, and any notice to Lender shall be given by (i)
personal delivery (ii) mailing such notice by registered or certified mail,
return receipt requested, or (iii) recognized overnight courier, to Lender's
address stated herein or to such other address as Lender may designate by notice
to Borrower as provided herein. Any notice provided for in this Instrument and
sent by registered or certified mail shall be deemed to have been given two (2)
days following the proper mailing of such notice, and if sent by overnight
courier, it shall be deemed to have been given one (1) day following the proper
mailing of such notice.
25. SUCCESSORS AND ASSIGNS BOUND; JOINT AND SEVERAL LIABILITY; AGENTS;
CAPTIONS. The covenants and agreements herein
10
<PAGE>
contained shall bind, and the rights hereunder shall inure to, the respective
successors and assigns of Lender and Borrower, subject to the provisions of
paragraph 13 hereof. This Instrument, and any instrument or documents made in
connection herewith, may be assigned by the Lender without notice to or the
consent of Borrower or any other party. All covenants and agreements of
Borrower shall be joint and several. In exercising any rights hereunder or
taking any actions provided for herein, Lender may act through its employees,
agents or independent contractors as authorized by Lender. The captions and
headings of the paragraphs of this Instrument are for convenience only and are
not to be used to interpret or define the provisions hereof.
26. GOVERNING LAW; SEVERABILITY. This Instrument shall be construed under
and governed by the law of the state wherein the Property is situated. In the
event that any provision of this Instrument or the Note conflicts with
applicable law, such conflict shall not affect any other provisions of this
Instrument or the Note which can be given effect without the conflicting
provisions, and to this end the provisions of this Instrument and the Note are
declared to be severable.
27. WAIVER OF STATUTE OF LIMITATIONS. Borrower hereby waives the right to
assert any statute of limitations as a bar to the enforcement of the lien of
this Instrument or to any action brought to enforce the Note or any other
obligation secured by this Instrument. Notwithstanding the foregoing, nothing
in this paragraph is intended to constitute a waiver of Borrower's and Lender's
rights under I.C. 32-8-16-1.5, it being agreed that the parties may mutually
consent to such waiver in a separate subsequent writing.
28. WAIVER OF MARSHALLING. Notwithstanding the existence of any other
security interests in the Property held by Lender or by any other party, Lender
shall have the right to determine the order in which any or all of the Property
shall be subjected to the remedies provided herein. Lender shall have the right
to determine the order in which any or all portions of the indebtedness secured
hereby are satisfied from the proceeds realized upon the exercise of the
remedies provided herein. Borrower, any party who consents to this Instrument
and any party who now or hereafter acquires a security interest in the Property
and who has actual or constructive notice hereof, hereby waives any and all
right to require the marshalling of assets in connection with the exercise of
any of the remedies permitted by applicable law or provided herein.
29. LIMITATION OF LIABILITY. Lender shall look solely to Borrower's
interest in the Property for the recovery of any monetary or other judgment
against Borrower in connection with the Note, this Instrument or any other
document executed in connection herewith (collectively, the "Loan Documents"),
it being agreed that Borrower and any entity or person having any
11
<PAGE>
interest, direct or indirect, in Borrower shall not be personally liable for the
payment of any sums due or the performance of any obligations under the Loan
Documents, except as provided herein, and provided that such limitation of
liability shall not constitute a waiver of any obligation evidenced by the Loan
Documents, nor release or impair the Note or the lien of this Instrument.
Borrower shall be personally liable (and Lender shall not be restricted from
obtaining any monetary or other judgment against such persons and entities) for
any actual loss (but not any consequential loss), cost (including reasonable
attorneys' fees) or liability of Lender as a result of any of the following:
(i) commission of any act of fraud in connection with the transactions
contemplated by the Loan Documents; (ii) failure to pay any taxes assessed or
payable with respect to the Property; (iii) commission or the suffrage of any
waste with respect to the Property, (iv) failure to indemnify Lender for any
damages Lender may sustain as a result of any adverse environmental condition
existing at the Property (except to the extent any such damage existed during
Lender's prior ownership of the Property or is caused by Lender after taking
possession of the Property by foreclosure or deed in lieu of foreclosure); or
(v) misappropriation of insurance proceeds or condemnation awards.
PROVIDED, however, that these presents are upon the condition that if the
Borrower shall well and truly pay to Lender, its successors and assigns, the
total of the indebtedness secured hereby, and shall fully keep and perform all
of the conditions, covenants and agreements to be kept and performed by Borrower
under this Instrument, then this Instrument shall be void; otherwise to remain
in full force and virtue in law and equity forever.
[Signature Page Immediately Following]
12
<PAGE>
IN WITNESS WHEREOF, the said Borrower hereunder duly authorized, has caused
this Instrument to be executed.
THE O'BOISIE CORPORATION
By:
--------------------------------
Name:
Title:
ATTEST:
By:
---------------------------
Name:
Title:
13
<PAGE>
STATE OF __________ )
)SS:
COUNTY OF _________ )
Before me, a Notary Public in and for said County and State, personally
appeared ________________ and ______________, by me known and by me known to
be the _______________________ and ___________________, respectively, of The
O'Boisie Corporation, who acknowledged the execution of the foregoing "Real
Estate Mortgage, Security Agreement and Fixture Filing" on behalf of said
corporation.
Witness my hand and Notarial Seal this ________ day of January, 1996.
-------------------------
Notary Public
-------------------------
(Printed Signature)
My Commission Expires:
--------------------
My County of Residence:
-------------------
This instrument prepared by and after recording return to:
Rogers & Wells, 200 Park Avenue, New York, New York 10166, Attn: Dawn E.
Goldberg, Esq.
14
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
Tract 1
A part of the southeast quarter of Section 28, Township 27 North, Range 12 East,
beginning with the east right-of-way line of the Nickel Plate Railroad
intersects the south line of said section, thence east on the section line a
distance of 264 feet thence north a distance of 200 feet, thence east a distance
of 136 feet, thence north on a line parallel with the east line of said railroad
right-of-way a distance of 700 feet, thence west to the east line of said
railroad right-of-way a distance of 400 feet, thence south along the east line
of said railroad right-of-way a distance of 900 feet to the place of beginning,
containing approximately 7.65 acres, more or less.
Tract 2
Part of the south half of Section 28, Township 27 North, Range 12 East,
Lancaster Township, Wells County, Indiana, and being more particularly described
as follows: Commencing at the point where the centerline of the Norfolk &
Southern Railroad intersects with the centerline of State Road 116, which is
also the south line of Section 28, Township 27 North, Range 12 East; thence east
on and along said south line of Section 28 a distance of 568.0 feet to a point;
thence in a northerly direction on the east property line of King property a
distance of 200.0 feet to a steel rod for the place of beginning; thence west
(which is parallel to the south line of said Section 28) a distance of 128.0
feet to a point; thence north (which is parallel to the east right-of-way line
of the Norfolk & Southern Railroad) a distance of 700.0 feet to a point; thence
west (which is parallel to the south line of said Section 28) a distance of
400.0 feet to a point on the east right-of-way line of the Norfolk and Southern
Railroad; thence north on and along said east line of said railroad a distance
of 200.0 feet to a point; thence east (which is parallel to the south line of
Section 28) a distance of 528.0 feet to a point; thence south and parallel to
the east right-of-way line of the Norfolk & Southern Railroad a distance of
900.0 feet to the place of beginning, containing 4.48 acres, more or less.
Tract 3
Part of the southeast quarter of Section 28, Township 27 North, Range 12 East,
Lancaster Township, Bluffton, Indiana, described as follows: Starting at the
southeast corner of said southeast quarter found per record witness; thence
westerly 2277.36 feet along the south line of said southeast quarter to a P.K.
nail set, which shall be the place of beginning, thence continuing westerly
132.0 feet along the south line of said southeast quarter to a P.K. nail
A-1
<PAGE>
set; thence northerly, deflecting right 89 degrees 40 minutes, 200.0 feet to a
pipe stake found; thence easterly, deflecting right 90 degrees 20 minutes, 132.0
feet parallel with the south line of said southeast quarter to a 5/8" rebar
stake set; thence southerly, deflecting right 89 degrees 40 minutes, 200.0 feet
to the place of beginning, containing 0.61 acres, more or less.
A-2
<PAGE>
SNACK ASSETS PURCHASE AGREEMENT
DATED
NOVEMBER 18, 1995
BETWEEN
KELLY FOOD PRODUCTS, INC.
AND
KEEBLER COMPANY
<PAGE>
TABLE OF CONTENTS
ARTICLE I
PURCHASE OF ASSETS AND ASSUMPTION OF LIABILITIES
1.1 Purchase of Assets . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Assumption of Obligations . . . . . . . . . . . . . . . . . . . . 2
1.3 Asset Purchase Price . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Inventory Adjustment . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
THE CLOSING
2.1 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . 3
2.2 The Seller's Actions at Closing . . . . . . . . . . . . . . . . . 3
2.3 The Buyer's Actions at Closing . . . . . . . . . . . . . . . . . . 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 The Seller's Representations and Warranties . . . . . . . . . . . 6
3.2 The Buyer's Representations and Warranties . . . . . . . . . . . .12
3.3 Remedy for Breaches of Representations and Warranties . . . . . . .14
ARTICLE IV
ACTIONS PRIOR TO THE CLOSING
4.1 Activities Until Closing Date . . . . . . . . . . . . . . . . . . .14
4.2 The Seller's Efforts to Fulfill Conditions . . . . . . . . . . . .16
4.3 The Buyer's Efforts to Fulfill Conditions . . . . . . . . . . . . .16
4.4 Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . .16
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
5.1 Conditions to the Buyer's Obligations . . . . . . . . . . . . . . .16
5.2 Conditions to the Seller's Obligations . . . . . . . . . . . . . .19
ARTICLE VI
EMPLOYEES
6.1 Offer of Employment to the Seller's Employees . . . . . . . . . . .20
6.2 Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . .20
6.3 Change of Control Policies . . . . . . . . . . . . . . . . . . . .20
-i-
<PAGE>
ARTICLE VII
TERMINATION
7.1 Right to Terminate . . . . . . . . . . . . . . . . . . . . . . . . .21
7.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification Against Loss Due to Inaccuracies in
the Seller's Representations and Warranties . . . . . . . . . . . .22
8.2 Indemnification Against Loss Due to Inaccuracies in
the Buyer's Representations and Warranties . . . . . . . . . . . .23
8.3 Limit on Claims Regarding Representations and Warranties . . . . . .23
8.4 Remediation of Environmental Violations Involving Purchased Assets .25
8.5 The Seller's Indemnification Against Product Liability Claims . . . .27
8.6 Seller's Indemnification for Liabilities not Assumed . . . . . . . .27
8.7 Computation of Loss . . . . . . . . . . . . . . . . . . . . . . . . .28
ARTICLE IX
EFFECT OF REORGANIZATION
9.1 Changes of Ownership. . . . . . . . . . . . . . . . . . . . . . . . .29
ARTICLE X
ABSENCE OF BROKERS
10.1 Representations and Warranties Regarding Brokers and Others . . . . .30
ARTICLE XI
GENERAL
11.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
11.2 Installation of Equipment . . . . . . . . . . . . . . . . . . . . . .31
11.3 Rights Outside the United States . . . . . . . . . . . . . . . . . .31
11.4 Efforts to Obtain Consents . . . . . . . . . . . . . . . . . . . . .32
11.5 Waiver of Bulk Transfer Law Compliance . . . . . . . . . . . . . . .32
11.6 Access to Properties, Books and Records . . . . . . . . . . . . . . .33
11.7 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . .34
11.8 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .35
11.9 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
11.10 Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
-ii-
<PAGE>
11.11 Notices and Other Communications . . . . . . . . . . . . . . . . . .36
11.12 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
11.13 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
11.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
EXHIBITS
Exhibit 1.1(1) - The Bluffton Facility
Exhibit 1.1(2) - Transferred Trademarks
Exhibit 1.1(3) - Personal Property and Other Assets
Exhibit 1.2(1) - Assumed Obligations
Exhibit 1.2(2) - Excluded Obligations
Exhibit 2.2-C - Assignment and Assumption Agreement
Exhibit 2.2-D - UBI Assumption Agreement
Exhibit 2.3-C - Excluded Territory
Exhibit 3.1-C - Consents
Exhibit 3.1-J - Real Property; Real Property Liens
Exhibit 3.1-K - Other Liens
Exhibit 3.1-L - Certain Contracts and Contract Matters
Exhibit 3.1-M - Litigation
Exhibit 3.1-N - Patents
Exhibit 3.1-O - Taxes
Exhibit 3.1-Q - Environmental Liabilities
Exhibit 6.1 - Employees
Exhibit 11.2 - Equipment to be Installed at the Bluffton
Facility
-iii-
<PAGE>
SNACK ASSETS PURCHASE AGREEMENT
This is an Agreement dated November 18, 1995 between KELLY FOOD
PRODUCTS, INC. (the "Buyer"), an Illinois corporation, and KEEBLER COMPANY (the
"Seller"), a Delaware corporation, relating to the purchase by the Buyer of
specified assets from, and the assumption by the Buyer of specified obligations
and liabilities of, the Seller, which Agreement is as follows:
ARTICLE I
PURCHASE OF ASSETS AND ASSUMPTION OF LIABILITIES
1.1 PURCHASE OF ASSETS. At the Closing described in
Paragraph 2.1, the Seller will sell to the Buyer, and the Buyer will purchase
from the Seller, (i) the facility in Bluffton, Indiana (the "Bluffton Facility")
described on Exhibit 1.1(1), (ii) the trademarks, tradenames, service marks and
logos (the "Transferred Trademarks") listed on Exhibit 1.1(2), (iii) inventory
of raw materials, finished salty snack products manufactured by Keebler and
packaging materials for salty snack products, in each case in categories
reasonably acceptable to Buyer, with a total cost to Keebler of $3,000,000, or
Keebler's entire inventory of those items at the Bluffton Facility, in
warehouses located in the Territory (as that term is defined in Paragraph
2.3(C)) or otherwise located in the Territory if Keebler's cost of its entire
inventory of those items at the Bluffton Facility, in warehouses located in the
Territory or otherwise located in the Territory is less than $3,000,000, (the
"Transferred Inventory") and (iv) the personal property and other assets which
are listed on Exhibit
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1.1(3) (the assets listed on Exhibits 1.1(1), 1.1(2) and 1.1(3) and the
Transferred Inventory being the "Purchased Assets").
1.2 ASSUMPTION OF OBLIGATIONS. At the Closing, the Buyer will assume
the obligations and liabilities of the Seller listed on Exhibit 1.2(1) or
otherwise described on Exhibit 1.2(1), except obligations, if any, which (i)
arise from or relate to any breach of a contract under which an obligation
arises, which occurred or occurs prior to the Closing Date, (ii) are unlawful,
(iii) are the subject of litigation which is pending at the Closing Date (to the
extent of the matters in dispute in the litigation) or (iv) with regard to
obligations under written agreements, are not reasonably determinable from the
agreements (the "Assumed Obligations"). The Buyer will not assume any
obligations or liabilities of the Seller other than the obligations and
liabilities listed or otherwise described on Exhibit 1.2(1) (the obligations and
liabilities of the Seller which are not listed or otherwise described on Exhibit
1.2(1) being the "Excluded Obligations"). The Excluded Obligations include, but
are not limited to, the obligations and liabilities listed on Exhibit 1.2(2).
1.3 ASSET PURCHASE PRICE. The purchase price to be paid by the Buyer
for the Purchased Assets will be (a) $8,000,000, adjusted as provided in
Paragraph 1.4 (the "Cash Asset Purchase Price"), plus (b) assumption by the
Buyer of the Assumed Obligations.
1.4 INVENTORY ADJUSTMENT. If the total cost to Keebler at the
Closing Date of the Tranferred Inventory is less than
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$3,000,000, within 5 days after the cost of that entire inventory is determined,
the Seller will refund to the Buyer a portion of the Cash Asset Purchase Price
equal to the amount by which the cost to Keebler of the Transferred Inventory is
less than $3,000,000. For the purpose of determining the Transferred Inventory
and its cost, the Buyer and Seller will jointly conduct a physical inventory
count of the Transferred Inventory on or as soon as practicable after the
Closing Date.
ARTICLE II
THE CLOSING
2.1 TIME AND PLACE OF CLOSING. The Closing (the "Closing") of the
transactions which are the subject of this Agreement will take place at the
offices of Rogers & Wells, 200 Park Avenue, New York, New York, at 10:00 A.M.
New York City time, on the later of (i) December 11, 1995 or (ii) the third
business day after the day on which all the conditions in Paragraphs 5.1(d),
(e), (h) and (i) have been fulfilled (the "Closing Date").
2.2 THE SELLER'S ACTIONS AT CLOSING. At the Closing, the Seller will
deliver to the Buyer the following:
(a) Bills of sale, or other documents of transfer or assignment
which are customary with regard to particular Purchased Assets (together the
"Transfer Documents"), sufficient to transfer to the Buyer ownership of all the
personal property and the Transferred Inventory included in the Purchased
Assets.
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(b) A corporate warranty deed, in proper form for recording in
the appropriate recording office, sufficient to transfer to the Buyer ownership
of the Bluffton Facility.
(c) A copy, executed by the Seller, of an agreement (the
"Assignment and Assumption Agreement") substantially in the form of Exhibit
2.2-C by which (i) the Seller assigns to the Buyer all of the Seller's rights,
and the Buyer assumes all of the Seller's obligations, under all the contracts,
agreements or commitments which are Purchased Assets or Assumed Obligations,
(ii) the Buyer assumes all the Assumed Obligations, (iii) the Buyer indemnifies
the Seller against any loss, liability or expense because of the Buyer's failure
to fulfill any obligations or satisfy any liabilities assumed by the Buyer in
the Assignment and Assumption Agreement, and (iv) the Seller indemnifies the
Buyer against any loss, liability or expense with regard to any of the Excluded
Obligations.
(d) A copy, executed by UB Investments plc. ("UBI"), of an
agreement (the "UBI Assumption Agreement") substantially in the form of Exhibit
2.2-D, by which UBI assumes all the liabilities of the Seller under or relating
to this Agreement and the transactions contemplated by it and UBI agrees to
fulfill all the obligations of the Seller under this Agreement or any documents
delivered in accordance with it which are required to be fulfilled after the
Closing (except that the Seller will not be required to deliver the UBI
Assumption Agreement to the Buyer at the Closing if it has been delivered to the
Buyer before the Closing).
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(e) A document or documents by which the Seller (i) transfers to
the Buyer all the patents, patent applications, computer software and know how
included in the Purchased Assets, (ii) assigns to the Buyer all the licensee's
rights under all the assignable patent, computer software and similar licenses
included in the Purchased Assets, and (iii) sublicenses the Buyer to use all the
rights the Seller holds under all the patent, computer software and similar
licenses included in the Purchased Assets which the Seller may not assign but
under which it may grant sublicenses.
(f) A document or documents by which the Seller transfers the
Transferred Trademarks to the Buyer
(g) Documents by which the Seller transfers to the Buyer all the
transferable governmental licenses and permits used by the Seller in connection
with the Bluffton Facility.
(h) A license permitting the Buyer to use without royalty the
"Keebler" name and logos on packaging materials included in the Purchased Assets
until the earlier of (i) the time the packaging materials are used up, or (ii)
nine months after the Closing Date.
(i) All other documents the Buyer reasonably requests to
evidence further the transfer of ownership of specific Purchased Assets to the
Buyer.
(j) A document in which the Seller agrees to execute and deliver
to the Buyer in the future any documents the Buyer reasonably requests to
evidence further the transfer of ownership of specific Purchased Assets to the
Buyer.
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2.3 THE BUYER'S ACTIONS AT CLOSING. At the Closing, the Buyer will
deliver the following to the Seller:
(a) Evidence of a wire transfer of immediately available funds
in an amount equal to the Cash Asset Purchase Price to an account which is
specified by the Seller at least 24 hours prior to the Closing.
(b) A copy, executed by the Buyer, of the Assignment and
Assumption Agreement.
(c) A license permitting the Seller to use the Transferred
Trademarks anyplace other than in the states listed on Exhibit 2.3-C (the
"Territory") on packaging and promotional materials used with regard to salty
snack products in Keebler's inventory at the Closing Date other than the
Transferred Inventory until the earlier of (i) the time the packaging and
promotional materials are used up or (ii) 60 days after the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 THE SELLER'S REPRESENTATIONS AND WARRANTIES. The Seller
represents and warrants to the Buyer as follows:
(a) The Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
(b) The Seller has all corporate power and authority necessary
to enable it to enter into this Agreement and carry out the transactions
contemplated by this Agreement. All corporate actions necessary to authorize
the Seller to enter into
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this Agreement and carry out the transactions contemplated by it have been
taken. This Agreement has been duly executed by the Seller and is a valid and
binding agreement of the Seller, enforceable against the Seller in accordance
with its terms.
(c) If the consents described on Exhibit 3.1-C are obtained,
neither the execution or delivery of this Agreement or of any document to be
delivered in accordance with this Agreement nor the consummation of the
transactions contemplated by this Agreement or by any document to be delivered
in accordance with this Agreement will violate, result in a breach of, or
constitute a default (or an event which, with notice or lapse of time or both
would constitute a default) under, the Certificate of Incorporation or by-laws
of the Seller, any material agreement or instrument to which the Seller is a
party or by which it is bound, any law, or any order, rule or regulation of any
court or governmental agency or other regulatory organization having
jurisdiction over the Seller.
(d) When executed and delivered at the Closing, the Assignment
and Assumption Agreement will be a valid and binding agreement of the Seller,
enforceable against the Seller in accordance with its terms.
(e) The documents described in Paragraphs 2.2(a) through (g)
will be sufficient to transfer ownership of all the Purchased Assets to the
Buyer, including as to real property fee title, and as to rights under
assignable contracts, assignable or sub-licensable license agreements and
transferable licenses and permits from governmental authorities, all the
Seller's rights
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under those contracts, license agreements, licenses and permits which are
assignable, sub-licensable or transferable.
(f) The Purchased Assets do not include 50% or more in voting
power of the equity of any corporation or other entity.
(g) No governmental filings, authorizations, approvals, or
consents, or other governmental action, other than filings, and the termination
or expiration of waiting periods, under the HSR Act, are required to permit the
Seller to fulfill all its obligations under this Agreement.
(h) The Seller has all material licenses and permits from all
governmental authorities which are necessary or useful to permit it to operate
the business being conducted by the Seller with the Purchased Assets at the date
of this Agreement.
(i) The Seller has operated the Bluffton Facility, and has
conducted its business related to products manufactured at the Bluffton
Facility, in compliance in all material respects with all applicable laws and
regulations of governmental agencies.
(j) Exhibit 3.1-J is a list of all real property, in addition to
the Bluffton Facility, including office space, included in the Purchased Assets,
showing as to each property whether it is owned or leased, and, if it is leased,
the identity of the lessor and the date of the lease. The Bluffton Facility and
all the other real property included in the Purchased Assets is being used by
the Seller in conformance in all material respects with all zoning,
environmental and other laws and regulations, deed restrictions, covenants and
lease provisions applicable to it. The Seller owns fee title to the Bluffton
Facility, free and clear of
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any liens or other encumbrances, except the liens and encumbrances shown on
Exhibit 3.1-J. As to real property which is leased, the Seller has complied in
all material respects with the terms of the lease, and no officer of the Seller
has been informed by the lessor under any of the leases, or has any other reason
to believe, that the lessor has taken, or intends to take, action to terminate
the lease.
(k) On the Closing Date, the Seller will own the Purchased
Assets, and when the Purchased Assets are conveyed to the Buyer at the Closing,
the Buyer will own the Purchased Assets, (including, but not limited to, the
Bluffton Facility and the Transferred Trademarks) free and clear of any liens or
encumbrances other than (i) the lien of taxes not yet due or other statutory
liens relating to governmental obligations which are not yet due, (ii) liens
securing Assumed Obligations which do not interfere with the use of the assets
to which they relate for the purposes for which those assets were acquired,
(iii) liens created by the Buyer, and (iv) liens disclosed on Exhibit 3.1-J or
3.1-K, all of which secure obligations relating to the Purchased Assets.
(l) Exhibit 3.1-L is a complete list of each agreement which
will be included in the Assumed Obligations which will require the Buyer to make
payments, or under which the Seller expects the Buyer to receive revenues, of
more than $50,000 after the Closing Date over the remaining term of the
agreement and which cannot be cancelled by the Buyer after the Closing Date
without payment of a penalty in excess of $50,000, other than (i) customer
purchase orders received in the ordinary course of business and
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(ii) purchase orders to suppliers entered into in the ordinary course of
business ordering materials which are available from at least several suppliers
in quantities consistent with the customary purchasing practices of the Seller.
The Seller has fulfilled in all material respects all its obligations under all
the agreements listed on Exhibit 3.1-L to which it is a party, no officer of the
Seller has been informed by any other party to any of those agreements that the
Seller is in default in its obligations under any of those agreements and no
officer of the Seller has any other reason to believe that another party to any
of those agreements intends to terminate the agreement before its stated
termination date. Except as shown on Exhibit 3.1-L, the transactions
contemplated by this Agreement will not be a basis for any party to any
agreement listed on Exhibit 3.1-L to terminate that agreement or alter the basis
on which it will be doing business with the Buyer, as assignee from the Seller,
under that agreement.
(m) Each of the Transferred Trademarks which is a registered
trademark, tradename or service mark is a valid trademark, tradename or service
mark, as the case may be. Except as disclosed on Exhibit 3.1-M, no officer of
the Seller has been informed of any claim that the Seller is using any of the
Transferred Trademarks in violation of any trademark or service mark owned by
any other person or that any name included in the Transferred Trademarks is
confusingly similar to that of any other person.
(n) Exhibit 3.1-N is a complete list of all patents, patent
applications and patent licenses which are included
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in the Purchased Assets. Except as shown on Exhibit 3.1-N, the Seller has the
right to assign each patent, patent application and patent license listed on
Exhibit 3.1-N which is owned or otherwise held by the Seller to the Buyer
without the consent of any other person.
(o) Except as shown on Exhibit 3.1-O, (i) no tax lien has been
filed by any taxing authority against any of the Purchased Assets, (ii) the
Seller has not participated in or cooperated with an international boycott as
that term is used in Section 999 of the Internal Revenue Code of 1986, as
amended (the "Code") and (iii) the Seller has not filed a consent pursuant to
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply
to any disposition of a Subsection (f) asset (as that term is defined in Section
341(f)(4) of the Code) owned by the Seller and included in the Purchased Assets.
(p) The Buyer will not at any time have any liability or
responsibility for any legally mandated continuation of health care coverage, or
for compliance with any related requirements, under the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, as a result of any qualifying
event occurring under any group health plan of the Seller or any entity
aggregated with the Seller under section 414(b), (c), (m) or (o) of the Code.
Buyer will not have any liability, as a successor employer by virtue of the
transactions contemplated hereby, to or under any multiemployer plan, as that
term is defined in section 3(37) of ERISA, on account of the participation in
such
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plan by the Seller or any entity aggregated with the Seller under section
414(b), (c), (m) or (o) of the Code.
(q) Except as shown on Exhibit 3.1-Q, the Seller has not
received any notices of material noncompliance or material liability under any
Federal, state or local environmental laws or regulations relating to real
property owned or leased by the Seller which is included in the Purchased
Assets.
(r) All items of inventory included in the Purchased Assets are
(i) of good and standard quality, (ii) in the case of raw materials, useable in
the normal process of producing finished products being produced by Seller,
(iii) in the case of finished products, fit for the purpose for which they were
made and saleable in the ordinary course of business, (iv) in the case of
products manufactured with respect to particular customer purchase orders, of
such specification and in quantities which correspond to the customer orders to
which they relate, (v) in the case of packing materials, in usable condition and
complying with any applicable legal requirements, and (vi) contain no obsolete
or surplus items.
(s) All the equipment included in the Purchased Assets is in
good repair and condition, except to the extent of normal wear and tear.
3.2 THE BUYER'S REPRESENTATIONS AND WARRANTIES. The Buyer represents
and warrants to the Seller as follows:
(a) The Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Illinois.
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(b) The Buyer has all corporate power and authority necessary to
enable it to enter into this Agreement and carry out the transactions
contemplated by this Agreement. All corporate actions necessary to authorize
the Buyer to enter into this Agreement and carry out the transactions
contemplated by it have been taken. This Agreement has been duly executed by
the Buyer and is a valid and binding agreement of the Buyer, enforceable against
the Buyer in accordance with its terms.
(c) Neither the execution and delivery of this Agreement or any
document to be delivered in accordance with this Agreement nor the consummation
of the transactions contemplated by this Agreement or by any document to be
delivered in accordance with this Agreement will violate, result in a breach of,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, the Certificate of Incorporation or
by-laws of the Buyer, any agreement or instrument to which the Buyer is a party
or by which it is bound, any law, or any order, rule or regulation of any court
or governmental agency or other regulatory organization having jurisdiction over
the Buyer.
(d) When executed and delivered at the Closing, the Assignment
and Assumption Agreement will be a valid and binding agreement of the Buyer,
enforceable against the Buyer in accordance with its terms.
(e) No governmental filings, authorizations, approvals or
consents, or other governmental action, are required
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to permit the Buyer to fulfill all its obligations under this Agreement.
3.3 REMEDY FOR BREACHES OF REPRESENTATIONS AND WARRANTIES. The
indemnifications in Paragraphs 8.1 and 8.2 will be the only remedies available
to the Buyer or the Seller after the Closing for breaches of representations or
warranties contained in Paragraph 3.1 or 3.2. Any claim for indemnification
must be made as provided in Paragraph 8.3.
ARTICLE IV
ACTIONS PRIOR TO THE CLOSING
4.1 ACTIVITIES UNTIL CLOSING DATE. From the date of this Agreement
to the Closing Date, the Seller will, except with the written consent of the
Buyer:
(a) Take all reasonable steps available to it to maintain the
continued employment of the employees who are employed at the Bluffton Facility
and the other employees listed on Exhibit 6.1 in spite of the fact that the
Bluffton Facility may be closed for some or all of the period between the date
of this Agreement and the Closing Date, provided that nothing in this paragraph
will require the Seller to pay salaries to, or otherwise compensate, employees
while they are not working.
(b) At its expense, maintain all the Purchased Assets in good
repair and condition, except to the extent of reasonable wear and use and damage
by fire or other unavoidable casualty.
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(c) Not enter into any contractual commitments related to the
Purchased Assets involving capital expenditures, loans or advances, and not
voluntarily incur any contingent liabilities, which will be Assumed Obligations,
except in each case in the ordinary course of business or as expressly
contemplated by this Agreement.
(d) Notify the Buyer before making any commitment for a capital
expenditure at the Bluffton Facility in excess of $100,000, even if the capital
expenditure is permitted by subparagraph (d).
(e) Comply in all material respects with all applicable laws and
regulations of governmental agencies relating to the Purchased Assets.
(f) Not sell, dispose of or encumber any Purchased Assets,
except in each case in the ordinary course of business.
(g) Not adopt, or become an employer with regard to, any new
employee compensation, employee benefit or post-employment benefit plan in which
employees employed at the Bluffton Facility or listed on Exhibit 6.1 will
participate.
(h) Carry such insurance against fire, personal injury liability
and other hazards with respect to the Purchased Assets as is consistent with
past practice.
(i) Notify the Buyer in writing promptly of any occurrence or
state of facts which will result in any of the representations and warranties of
Seller hereunder not being true and correct if restated as of the Closing Date.
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4.2 THE SELLER'S EFFORTS TO FULFILL CONDITIONS. The Seller will use
its best efforts to cause all the conditions set forth in Paragraph 5.1 to be
fulfilled prior to or at the Closing.
4.3 THE BUYER'S EFFORTS TO FULFILL CONDITIONS. The Buyer will use
its best efforts to cause all the conditions contained in Paragraph 5.2 to be
fulfilled prior to or at the Closing, including as to the conditions contained
in Paragraphs 5.1(h) and (i), being willing to enter into agreements containing
terms reasonably requested by the other parties to those agreements.
4.4 INSURANCE PROCEEDS. If any of the Purchased Assets are damaged
by fire or other unavoidable casualty between the date of this Agreement and the
Closing Date and the Seller receives any insurance proceeds as a result of the
damage, the Seller will either (i) apply the insurance proceeds to repair the
damage or (ii) at the later of the Closing Date or the date when the insurance
proceeds are received, pay the insurance proceeds to the Buyer (except to the
extent, if any, that the insurance proceeds exceed the cost of repairing the
damage).
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
5.1 CONDITIONS TO THE BUYER'S OBLIGATIONS. The obligations of the
Buyer at the Closing are subject to satisfaction of the following conditions
(any or all of which may be waived by the Buyer):
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(a) The representations and warranties of the Seller contained
in this Agreement will, except as contemplated by this Agreement, be true and
correct in all material respects at the Closing Date with the same effect as
though made on that date, and the Seller will have delivered to the Buyer a
certificate dated that date and signed by the President or a Vice President of
the Seller to that effect.
(b) The Seller will have fulfilled in all material respects all
its obligations under this Agreement required to have been fulfilled prior to or
at the Closing.
(c) No order will have been entered by any court or governmental
authority and be in force which invalidates this Agreement or restrains the
Buyer from completing the transactions which are the subject of this Agreement.
(d) The Buyer will have received a commitment from Ticor Title
Insurance Company or another nationally recognized title insurance company
selected by the Buyer and approved by the Seller to issue an ALTA Owners Policy
insuring title to the Bluffton Facility subject only to the encumbrances shown
on Exhibit 3.1-J.
(e) The Closing Date will be not later than December 31, 1995.
(f) There shall not have been a material adverse change in any
of the Purchased Assets or employee, supplier or customer relations, relating to
the activities of the Seller at the Bluffton Facility since the date hereof,
except as a result of events described in Paragraph 4.1(a) or as a result of the
closing
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of the Bluffton Facility for some or all of the period between the date of this
Agreement and the Closing Date.
(g) Financing reasonably acceptable to Buyer for completion of
the transactions contemplated hereby shall have been obtained and the proceeds
thereof shall be available to the Buyer for use on the Closing Date.
(h) Keebler and the Buyer will have entered into an agreement
(the "Transition Agreement") relating to (x) Keebler's providing during a
transition period after the Closing Date data processing and other services to
the Buyer with regard to the Bluffton Facility and the business conducted by the
Buyer at, or with regard to products manufactured at, the Bluffton Facility, (y)
Keebler's distributing during a transition period after the Closing Date through
Keebler's grocery store door delivery system products manufactured by the Buyer
at the Bluffton Facility, and (z) the Buyer distributing during a transition
period after the Closing Date cookies and crackers manufactured by the Seller
through the convenience store door delivery system acquired by the Buyer under
this Agreement.
(i)(x) The Buyer will not have notified the Seller on or before
November 29, 1995 that due diligence performed by the Buyer between the date of
this Agreement and the date of the notice has disclosed material contingent
liabilities or any other material facts or circumstances which the Buyer
reasonably believes materially reduce the value of the Purchased Assets,
specifying in reasonable detail the nature of the contingent liabilities or
other material facts or circumstances, and that therefore the Buyer
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wishes to terminate this Agreement, or (y) if the Buyer has given such a notice
on or before November 29, 1995, the Seller will have agreed to indemnify the
Buyer against the contingent liabilities, or the effects of the other material
facts or circumstances specified in the notice.
5.2 CONDITIONS TO THE SELLER'S OBLIGATIONS. The obligations of the
Seller at the Closing are subject to the following conditions (any or all of
which may be waived by the Seller):
(a) The representations and warranties of the Buyer contained in
this Agreement will, except as contemplated by this Agreement, be true and
correct in all material respects at the Closing Date with the same effect as
though made on that date, and the Buyer will have delivered to the Seller a
certificate dated that date and signed by the President or a Vice President of
the Buyer to that effect.
(b) The Buyer will have fulfilled in all material respects all
its obligations under this Agreement required to have been fulfilled prior to or
at the Closing.
(c) No order will have been entered by any court or governmental
authority and be in force which invalidates this Agreement or restrains the
Seller from completing the transactions which are the subject of this Agreement.
(d) The Closing Date will be not later than December 31, 1995.
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ARTICLE VI
EMPLOYEES
6.1 OFFER OF EMPLOYMENT TO THE SELLER'S EMPLOYEES. The Buyer will
offer employment after the Buyer acquires the Purchased Assets to at least 75%
of the employees described in Item 1 of Exhibit 6.1 (the Bluffton Facility
employees) and at least 75% of the employees described in Item 2 of Exhibit 6.1
(the Route Sales employees), in each case, who continue to be employed by the
Seller on the Closing Date, including persons who are on temporary layoff during
some or all of the period between the date of this Agreement and the Closing
Date.
No later than five days prior to the Closing Date, the Buyer will
deliver to the Seller a list identifying by name each of the employees of the
Seller that the Buyer will hire after the Buyer acquires the Purchased Assets.
6.2 RETIREMENT BENEFITS. The Buyer will provide pension or other
retirement benefits to employees of the Seller who become employees of the Buyer
or an affiliate as a result of the Closing ("Keebler Transferred Employees")
which are at least as great as the benefits which are provided by the Buyer to
other employees performing functions, and with service tenures, comparable to
those of the respective Keebler Transferred Employees.
6.3 CHANGE OF CONTROL POLICIES. Immediately after the Closing, the
Buyer will adopt with regard to each Keebler Transferred Employee as to whom
there was an applicable Keebler Change of Control Policy (copies of which have
been provided to the Buyer), an identical Change of Control Policy of the Buyer
with
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respect to the change of control effected by the transactions which are the
subject of this Agreement, and the Buyer will maintain that Policy in effect and
unamended at least for the period provided in the Policy.
ARTICLE VII
TERMINATION
7.1 RIGHT TO TERMINATE. This Agreement may be terminated at any time
prior to the Closing:
(a) By mutual consent of the Buyer and the Seller.
(b) By either the Buyer or the Seller if, without fault of the
terminating party, the Closing does not occur on or before December 31, 1995.
(c) By the Buyer if (i) it is determined that any of the
representations or warranties of the Seller contained in this Agreement was not
complete and accurate in all material respects on the date of this Agreement
(other than with regard to a matter as to which the Seller can be required under
Paragraph 8.4, 8.5 or 8.6 to bear the cost) or (ii) any of the conditions in
Paragraph 5.1 is not satisfied or waived by the Buyer prior to or on the Closing
Date.
(d) By the Seller if (i) it is determined that any of the
representations or warranties of the Buyer contained in this Agreement was not
complete and accurate in all material respects on the date of this Agreement or
(ii) any of the conditions in Paragraph 5.2 is not satisfied or waived by the
Seller prior to or on the Closing Date.
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7.2 EFFECT OF TERMINATION. If this Agreement is terminated pursuant
to Paragraph 7.1, after this Agreement is terminated, neither the Buyer nor the
Seller will have any further rights or obligations under this Agreement, except
that if the Buyer asked the Seller to install the equipment listed on
Exhibit 11.2 in the Bluffton Facility and the Seller did so, if this Agreement
is terminated by the Buyer because of the failure of a condition in Paragraph
5.1, within 3 business days after the date on which this Agreement terminates,
the Buyer will pay the Seller $400,000 to reimburse the Seller for the costs of
moving and installing that equipment and to compensate the Seller for having
done so. Nothing contained in this Paragraph will, however, relieve any party
of liability for any breach of this Agreement which occurs before this Agreement
is terminated.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION AGAINST LOSS DUE TO INACCURACIES IN THE SELLER'S
REPRESENTATIONS AND WARRANTIES. The Seller indemnifies the Buyer against, and
agrees to hold the Buyer harmless from, all losses, liabilities and expenses
(including, but not limited to, reasonable fees and expenses of counsel and
expenses of investigation) incurred directly or indirectly because (i) any
matter which is the subject of a representation or warranty contained in
Paragraph 3.1 is not as represented or warranted (but only to the extent of the
amount, if any, by which the losses, liabilities and expenses, computed as
provided in Paragraph 8.7,
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with respect to matters which are the subject of the indemnities clause (i) of
Paragraph 8.1 (i.e., because matters which are the subject of representations or
warranties contained in Paragraph 3.1 are not as represented or warranted)
exceed in total $100,000; PROVIDED, that that threshold shall not apply with
respect to indemnities under any provision of this Agreement other than this
clause (i) of Paragraph 8.1 (whether or not the cause of an indemnity under
another provision of this Agreement also constitutes a breach of representations
or warranties contained in Paragraph 3.1) or (ii) the Seller fails to fulfill in
any respect any of its obligations under this Agreement or under any document
delivered in accordance with this Agreement which is required to be fulfilled
after the Closing.
8.2 INDEMNIFICATION AGAINST LOSS DUE TO INACCURACIES IN THE BUYER'S
REPRESENTATIONS AND WARRANTIES. The Buyer indemnifies the Seller against, and
agrees to hold the Seller harmless from, all losses, liabilities and expenses
(including, but not limited to, reasonable fees and expenses of counsel and
expenses of investigation) incurred directly or indirectly because (i) any
matter which is the subject of a representation or warranty contained in
Paragraph 3.2 is not as represented or warranted, or (ii) the Buyer fails to
fulfill in any respect any of its obligations under this Agreement or under any
document delivered in accordance with this Agreement which is required to be
fulfilled after the Closing.
8.3 LIMIT ON CLAIMS REGARDING REPRESENTATIONS AND WARRANTIES.
Notwithstanding any right of Buyer to investigate
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fully the affairs of Seller and its business, and notwithstanding any knowledge
of facts determined or determinable by Buyer pursuant to such investigation or
right of investigation, Buyer has the right to rely fully upon the
representations, warranties, covenants and agreements of the Seller contained in
this agreement or in any certificate delivered pursuant hereto. All such
representations, warranties, covenants and agreements shall survive the
execution and delivery of this Agreement and the Closing hereunder and (i) with
respect to Environmental Claims (as defined below), such representations,
warranties, covenants and agreements shall survive for a period of four years
after the Closing Date, (ii) with respect to Title Claims (as defined below)
such representations, warranties, covenants and agreements shall survive
indefinitely, and (iii) with respect to General Claims (as defined below), such
representations, warranties, covenants and agreements shall survive for a period
of eighteen months after the Closing Date. As used in this Agreement, the
following terms have the following meanings:
(i) "General Claim" means any claim hereunder whether
for indemnification or otherwise (other than a Title Claim or Environmental
Claim) based upon, arising out of or otherwise in respect of any material
inaccuracy or omission in or any breach of any material representation,
warranty, covenant or agreement of Seller contained in this Agreement.
(ii) "Environmental Claim" means any claim hereunder
whether for indemnification or otherwise based upon, arising out of or
otherwise in respect of (i) any material
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inaccuracy or omission in or any breach of any material representation,
warranty, covenant or agreement of Seller contained in Section 3.1(p), or
(ii) environmental remediation under Section 8.4 hereof or (iii) otherwise
arising out of an environmental matter.
(iii) "Title Claim" means any claim hereunder whether
for indemnification or otherwise based upon, arising out of or otherwise in
respect of any material inaccuracy or omission in or any breach of any
material representation, warranty, covenant or agreement of Seller
contained in Section 3.1(j) or otherwise concerning Buyer's right, title
and interest in and to the Purchased Assets.
The indemnification in Paragraph 8.1 or 8.2, as the case may be, will
be the sole remedy of the Buyer or the Seller if any matter which is the subject
of a representation or warranty contained in Paragraph 3.1 or 3.2 is not as
represented or warranted. Any claim for that indemnification must be made not
later than the end of the period during which the applicable representation or
warranty survives, as provided above, or, as to representations or warranties of
the Buyer, within eighteen months after the Closing Date, in a written
notification to the party from which indemnification is sought which describes
in reasonable detail the nature of the claim and the facts on which it is based.
Neither the Seller nor the Buyer will have any liability because any matter
which is the subject of a representation or warranty contained in Paragraph 3.1
or 3.2 is not as represented or
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warranted unless it is described in a notification given as provided in this
Paragraph.
8.4 REMEDIATION OF ENVIRONMENTAL VIOLATIONS INVOLVING PURCHASED
ASSETS. If, prior to the expiration of the period in which an Environmental
Claim may be made as provided in Section 8.3 above, the Buyer notifies the
Seller of any condition with regard to the Bluffton Facility or any real
property listed on Exhibit 3.1-J, or which is the subject of a lease included in
the Assumed Obligations, which (i) violates any Federal, state or local law or
regulation relating to the environment (describing in reasonable detail the
nature of the condition and the laws and regulations which it violates), (ii) if
the real property is occupied under a lease, the Buyer, as assignee of the
lessee's obligations with regard to that real property, is required to remediate
at its cost (describing in reasonable detail the provisions of the lease, or
applicable law, which require the lessee to remediate the condition and bear the
cost of the remediation), and (iii) cannot be identified as having resulted
primarily from acts or activities after the Closing Date, the Seller will
reimburse the Buyer for the reasonable cost of remediating that condition to the
extent (x) necessary to eliminate the violation of laws or regulations and (y)
if the real property is occupied under a lease, the cost is not borne or
reimbursed by the owner of the real property. For the purposes of this
Paragraph 8.4, the cost of remediating a condition will be the full cost of the
remediation, including costs of investigations, studies, tests or similar items
(except that costs of investigations, studies, tests or similar items will not
be
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included as costs of remediation to the extent they exceed the costs of the
remediation itself). The Seller will not have any liability or obligation
because of any condition which violates any Federal, state or local law or
regulation relating to the environment other than as provided in this Paragraph,
and the Buyer indemnifies the Seller, and agrees to hold the Seller harmless
from, all losses, liabilities and expenses (including, but not limited to,
reasonable fees and expenses of counsel and expenses of investigation) incurred
directly or indirectly because of any claim that any condition on any real
property listed on Exhibit 3.1-J violates any Federal, state or local law
relating to the environment, except to the extent the Seller is required by this
Paragraph to remediate that condition.
8.5 THE SELLER'S INDEMNIFICATION AGAINST PRODUCT LIABILITY CLAIMS.
The Seller indemnifies the Buyer against, and agrees to hold the Buyer harmless
from, all losses, liabilities and expenses (including, but not limited to,
reasonable fees and expenses of counsel and expenses of investigation) arising
from claims of any type (including, but not limited to, claims for negligence,
claims for breach of warranty or claims that any product shipped or delivered by
the Seller when such product was shipped or delivered by the Seller was (i)
adulterated or misbranded within the meaning of the Federal Food, Drug and
Cosmetic Act, as amended by Public Law 85-929, approved and effective September
6, 1958, to the extent such Act was then effective and applicable, or (ii)
adulterated or misbranded within the meaning of any identical or substantially
similar state law on
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the subject, to the extent such law was then effective and applicable) which
relate to injury or damage alleged to have been caused by products shipped by
the Seller on or before the Closing Date.
8.6 SELLER'S INDEMNIFICATION FOR LIABILITIES NOT ASSUMED. The Seller
indemnifies the Buyer against, and agrees to hold the Buyer harmless from, all
losses, liabilities and expenses (including, but not limited to, reasonable fees
and expenses of counsel and reasonable fees of investigation) incurred directly
or indirectly because of any liability or obligation of the Seller which is not
assumed by the Buyer in the Assignment and Assumption Agreement.
8.7 COMPUTATION OF LOSS. Whenever the Buyer or the Seller (the
"Indemnifying Party") is required to indemnify the other (the "Indemnified
Party") against, and hold the Indemnified Party harmless from, any item of loss,
liability or expense, the Indemnifying Party will pay the Indemnified Party the
sum which, after payment by the Indemnified Party of all Federal (but not state
or local) income taxes resulting from the payment, will equal (i) the amount of
the loss, liability or expense minus (ii) any insurance proceeds or other
recoveries from third persons to which the Indemnified Party is entitled with
regard to the event or condition which resulted in the loss, liability or
expense. For the purpose of the computation under this Paragraph, it will be
conclusively presumed that the Indemnified Party pays Federal income taxes at
the maximum Federal corporate income tax rate
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(including, as to items taxed as long or short term capital gains, the maximum
rate applicable to that type of capital gains).
8.8 SELLER'S REIMBURSEMENT FOR ADDITIONAL COSTS OF CHANGE OF CONTROL
POLICY. The Seller will reimburse the Buyer for any amount which the Buyer is
required to pay as separation pay or any fringe or other benefit expense the
Buyer incurs with respect to any Keebler Transferred Employee due to a Change of
Control Policy adopted by the Buyer as required under Section 6.3 as a result of
a termination of employment within one year after the Closing Date to the
extent, but only to the extent, such payment under the Change of Control Policy
exceeds the amount the employee would have received under Paragraphs 8 and 9 of
the Keebler Company Separation Pay/Benefits Policy if it had been applicable to
the termination of employment, taking into effect with respect to each Keebler
Transferred Employee the service of such employee before and after the Closing
Date.
ARTICLE IX
EFFECT OF REORGANIZATION
9.1 CHANGES OF OWNERSHIP.
(a) UB Investments (Netherlands) BV ("UBBV"), the indirect sole
shareholder of the Seller, is a party to a Stock Purchase Agreement dated
November 5, 1995 (the "INFLO Agreement") with INFLO Holdings Corporation, under
which it is a condition to the closing, which UBBV has agreed to use its best
efforts to fulfill, that the Seller will have disposed of, among other things,
the Bluffton Facility and the activities conducted at it. If the
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date for the closing under the INFLO Agreement (the "INFLO Closing Date") is
before the Closing Date, prior to the INFLO Closing Date, the Seller will sell
or otherwise transfer the Purchased Assets to a newly formed directly or
indirectly wholly owned subsidiary of UBBV (the "Keebler Snack Assets Company").
(b) If prior to the Closing Date, (i) the Seller notifies the Buyer
that it has transferred the Purchased Assets to the Keebler Snack Assets Company
and (ii) the Seller delivers to the Buyer an agreement of the Keebler Snack
Assets Company to be bound by all the provisions of this Agreement which are
applicable to the Seller to the same extent the Seller is bound by those
provisions (x) all the references in this Agreement to the Seller will be
deemed to be references to the Keebler Snack Assets Company (except that the
references to the Seller in Paragraph 11.4(c) will be deemed to include both the
Seller and the Keebler Snack Assets Company), (y) all the rights and obligations
of the Seller under this Agreement will become rights and obligations of the
Keebler Snack Assets Company, and (z) the Seller will have no further rights or
obligations under this Agreement.
ARTICLE X
ABSENCE OF BROKERS
10.1 REPRESENTATIONS AND WARRANTIES REGARDING BROKERS AND OTHERS. The
Buyer represents and warrants to the Seller, and the Seller represents and
warrants to the Buyer, that nobody acted as a broker, a finder or in any similar
capacity in connection with the transactions which are the subject of this
Agreement, except
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that Morgan Stanley & Co. Incorporated acted as financial advisor to the Seller.
All fees of Morgan Stanley & Co. Incorporated will be paid by the Seller. The
Buyer indemnifies the Seller, and the Seller indemnifies the Buyer, against, and
agrees or agree to hold the others or other of them harmless from, all losses,
liabilities and expenses (including, but not limited to, reasonable fees and
expenses of counsel and costs of investigation) incurred because of any claim by
anyone for compensation as a broker, a finder or in any similar capacity by
reason of services allegedly rendered to the or an indemnifying party in
connection with the transactions which are the subject of this Agreement.
ARTICLE XI
GENERAL
11.1 EXPENSES. The Buyer and the Seller will each pay its own
expenses in connection with the transactions which are the subject of this
Agreement, including legal fees. The Buyer will pay 50%, and the Seller will
pay 50%, of the 1.2% Indiana gross income tax relating to the sale of the
Bluffton Facility and of any other sales, recording or similar taxes relating to
the transactions which are the subject of this Agreement.
11.2 INSTALLATION OF EQUIPMENT. If the Buyer requests the Seller to
install the equipment listed on Exhibit 11.2 at the Bluffton Facility, the
Seller will do so, at the Seller's cost, and that equipment, when installed,
will be operational.
11.3 RIGHTS OUTSIDE THE UNITED STATES. As part of this Agreement, the
Seller is assigning to the Buyer all of its rights
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and obligations under the License Agreement, effective as of March 1, 1985,
between the Seller and Miles J. Willard, an individual (the "Willard License
Agreement"). The Buyer agrees that for so long as the Buyer uses the Licensed
Patents (as that term is defined in the Willard License Agreement) the Buyer
will not pursue any arrangement for the manufacture and/or sale of Licensed
Products (as that term is defined in the Willard License Agreement) outside the
United States and its territories, except with the prior written consent of UBI.
The Buyer further agrees that UBI and any of its affiliates or subsidiaries may
pursue an arrangement for the use of the Licensed Patents and the manufacture
and/or sale of Licensed Products outside the United States and its territories.
To the extent permitted by the Willard License Agreement, sales by UBI, its
affiliates or subsidiaries of Licensed Products and sales by the Buyer of
Licensed Products, will be aggregated to satisfy any minimum sales volume
requirements under the Willard License Agreement.
11.4 EFFORTS TO OBTAIN CONSENTS. If any required consents or
approvals for assignments of any contracts, agreements or commitments, or any
assignable governmental or other licenses or permits, included in the Purchased
Assets or the Assumed Obligations are not obtained by the Closing Date, (a) the
Seller and the Buyer will each use its best efforts to obtain the consents or
approvals (or waivers of the need for the consents or approvals) as promptly as
practicable after the Closing Date, and (b) until the required consents or
approvals are obtained, (i) the assignments of the applicable contracts,
agreements, commitments, licenses or per-
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mits will not take place, (ii) the Seller will cooperate in all reasonable ways,
whether by subcontracting, subleasing or sublicensing, or otherwise, to provide
the Buyer with the benefits of the contracts, agreements, commitments, licenses
or permits and to enforce, for the Buyer's benefit (and at the Buyer's
expense), any rights the Seller may have under any of the contracts, agreements,
commitments, licenses or permits which the Buyer wishes to enforce and (iii) the
Buyer will fulfill, or will reimburse the Seller for the costs the Buyer would
have incurred if it had fulfilled, all the Seller's obligations under all the
contracts, agreements, commitments, licenses and permits the benefits of which
are provided to the Buyer.
11.5 WAIVER OF BULK TRANSFER LAW COMPLIANCE. The Buyer waives
compliance by the Seller with the provisions of any so-called bulk transfer law
of any jurisdiction in connection with the sale of the Purchased Assets to the
Buyer. The Seller indemnifies the Buyer against, and agrees to hold the Buyer
harmless from, all losses, liabilities and expenses (including, but not limited
to, reasonable fees and expenses of counsel and expenses of investigation)
resulting from the Buyer's not complying with so-called bulk transfer laws.
11.6 ACCESS TO PROPERTIES, BOOKS AND RECORDS.
(a) From the date of this Agreement until the Closing Date, the
Seller will give representatives of the Buyer access to the properties included
in the Purchased Assets and to the Seller's books and records relating to the
Purchased Assets and the business done with them, and to the Assumed
Obligations. In
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addition, not later than November 27, 1995, the Seller will give the Buyer (i) a
list of the twenty largest (in dollar volume) customers for products
manufactured at the Bluffton Facility, (ii) a list of the twenty largest (in
dollar volume) suppliers of raw materials used at the Bluffton Facility, (iii) a
description of the Seller's programs for maintenance of the real estate and the
machinery and equipment at the Bluffton Facility and (iv) copies of the Seller's
material insurance policies with respect to the Purchased Assets. Until
completion of the transactions which are to take place at the Closing, the Buyer
will, and will cause its representatives to, hold all information it receives as
a result of its access to properties, books and records of the Seller in
confidence, except to the extent that information (i) is or becomes available to
the public (other than through a breach of this Agreement), (ii) becomes
available to the Buyer from a third party which, insofar as the Buyer is aware,
is not under an obligation to the Seller to keep the information confidential,
(iii) was known to the Buyer before it was made available to the Buyer or its
representative by the Seller, or (iv) otherwise is independently developed by
the Buyer. If this Agreement is terminated prior to completion of the
transactions which are to take place at the Closing, the Buyer will, at the
Seller's request, deliver to the Seller all documents and other material
obtained by the Buyer from the Seller in connection with the transactions which
are the subject of this Agreement or evidence that material has been destroyed
by the Buyer.
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(b) After the Closing, the Buyer will provide the Seller
with access to the books and records included in the Purchased Assets, and to
knowledgeable personnel of the Buyer, during normal business hours in connection
with the preparation of financial statements by the Seller, the preparation of
tax returns by the Seller and audits of tax returns filed by the Seller.
(c) After the Closing, the Seller will, and will cause its
affiliates to, provide the Buyer with access to its books and records relating
to the Purchased Assets and the Assumed Obligations.
11.7 PRESS RELEASES. The Buyer and the Seller will consult with each
other before issuing any press releases or otherwise making any public
statements with respect to this Agreement and neither of them will issue any
press releases or make open public statements to which the other of them has
reasonbly objected, except that nothing in this Paragraph will prevent either
party from making any statement when and as required by law or by the rules of
any securities exchange or securities trading system on which securities of that
party or an affiliate are traded.
11.8 ENTIRE AGREEMENT. This Agreement and the documents to be
delivered in accordance with this Agreement contain the entire agreement between
the Buyer and the Seller relating to the transactions which are the subject of
this Agreement and those other documents, all prior negotiations, understandings
and agreements between the Buyer and the Seller are superseded by this Agreement
and those other documents, and there are no representations, warranties,
understandings or agreements concerning the
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transactions which are the subject of this Agreement or those other documents
other than those expressly set forth in this Agreement or those other documents.
11.9 CAPTIONS. The captions of the articles and paragraphs of this
Agreement are for reference only, and do not affect the meaning or
interpretation of this Agreement.
11.10 ASSIGNMENTS.
(a) Neither this Agreement nor any right of any party under
it may be assigned, except (i) as provided in subparagraph (b), and (ii) that
the Buyer may assign its rights and obligations under this Agreement to a
corporation which is majority owned by the Buyer or by persons or entities which
own a majority of the outstanding stock of the Buyer, if the Buyer
unconditionally guarantees that the corporation to which the Buyer's rights and
obligations are assigned will perform fully all the Buyer's or the corporation's
obligations under this Agreement, the Assignment and Assumption Agreement and
any other agreements entered into by the corporation in accordance with this
Agreement.
(b) If UBI executes and delivers the UBI Assumption
Agreement to the Buyer at any time (whether before or after the Closing), when
the UBI Assumption Agreement is delivered to the Buyer, (i) all the rights of
the Seller under this Agreement relating to periods after the Closing will
become rights of UBI, and (ii) effective immediately following the Closing, the
Seller will be relieved of, and released from, all liabilities and obligations
under this Agreement and all documents delivered in accordance with this
Agreement, including but not limited to
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liabilities and obligations under or with regard to Paragraph 3.1 and Article
VIII, other than obligations under Paragraph 11.5(c) and obligations under the
Transition Agreement.
11.11 NOTICES AND OTHER COMMUNICATIONS. Any notice or other
communication under this Agreement must be in writing and will be deemed given
when delivered in person or sent by facsimile (with proof of receipt at the
number to which it is required to be sent), or on the third business day after
the day on which mailed by first class mail from within the United States of
America, or delivered by a recognized overnight courier service to the following
addresses (or such other address as may be specified after the date of this
Agreement by the party to which the notice or communication is sent):
If to the Seller:
United Biscuits (Holdings) p.l.c.
Church Road
West Drayton
Middlesex, UB7 7PR
England
Facsimile No.: 44-1-895-43-2028
Attention: Alan Frew
with a copy to:
Rogers & Wells
200 Park Avenue
New York, New York 10166
Facsimile No.: (212) 878-8375
Attention: David W. Bernstein
If to the Buyer:
Kelly Food Products, Inc.
1111 West 22nd Street
Suite 640
Oakbrook, Illinois 60521
Facsimile No.: (708) 575-0295
Attention: Dave Blue
with a copy to:
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Katten, Muchin & Zavis
525 W. Monroe Street
Suite 1600
Chicago, IL 60661-3693
Facsimile No.: (312) 902-5523
Attn: Richard E. Ginsberg
11.12 GOVERNING LAW.
(a) This Agreement will be governed by, and construed under, the
laws of the State of Illinois in the United States of America relating to
contracts made and to be performed in that state.
(b) The Seller and the Buyer each agrees that any action or
proceeding relating to this Agreement or the transactions contemplated by it may
be brought in any Federal or state court sitting in the State of Illinois in the
United States of America and each of them (i) consents to the jurisdiction of
each of those courts in any such action or proceeding, (ii) agrees not to seek
to have the venue of any such action or proceeding changed because of
inconvenience of the forum or otherwise (except that nothing in this Paragraph
will prevent a party from removing an action from a state court to a Federal
court sitting in that state), and (iii) agrees that process in any such action
or proceeding may be served by registered mail or in any other manner permitted
by the rules of the court in which the action or proceeding is brought.
11.13 AMENDMENTS. This Agreement may be amended only by a document in
writing signed by both the Buyer and the Seller.
11.14 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original,
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but all of which together will constitute one and the same agreement.
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IN WITNESS WHEREOF, the Buyer and the Seller have executed this
Agreement, intending to be legally bound by it, on the day shown on the first
page of this Agreement.
KEEBLER COMPANY
By:
--------------------------------
Title:
KELLY FOOD PRODUCTS, INC.
By:
--------------------------------
Title:
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AMENDMENT TO SNACK ASSETS PURCHASE AGREEMENT
This is an amendment agreement (the "Amendment Agreement") dated
December 29, 1995 between Kelly Food Products, Inc. (the "Buyer"), an Illinois
corporation and Keebler Company (the "Seller"), a Delaware corporation, amending
a Snack Assets Purchase Agreement (the "Agreement") dated November 18, 1995
between the Buyer and the Seller relating to the purchase by the Buyer from the
Seller of certain assets of the Seller (the "Purchased Assets").
The Agreement is amended, effective immediately, as follows:
1. Subparagraphs: (i) of Paragraph 2.1, (e) of Paragraph 5.1, (d) of
Paragraph 5.2 and (b) of Paragraph 7.1 are amended by replacing the words
"December 31, 1995" with the words "January 16, 1996".
2. Subparagraph 5.1 (i) is deleted from the Agreement in its
entirety.
By execution of this Amendment Agreement the Buyer acknowledges that
any material adverse change in employees, suppliers or customers relations
resulting solely from the fact that the transactions contemplated by this
Agreement did not close on or before December 31, 1995 will not be a basis for
an assertion by the Buyer that the conditions set forth in subparagraph 5.1 (f)
of the Agreement have not been satisfied.
<PAGE>
IN WITNESS WHEREOF, the Buyer and the Seller have executed this
Amendment, intending to modify the Agreement as set forth above, on the day
shown on the first page of this Amendment.
KEEBLER COMPANY
By:
--------------------------------
Title: Authorized Signatory
KELLY FOOD PRODUCTS, INC.
By:
--------------------------------
Title: President
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AMENDMENT NO.2 TO SNACK ASSETS PURCHASE AGREEMENT
This is an amendment agreement (the "Amendment No.2") dated January
22, 1996 between Kelly Food Products, Inc. (the "Buyer"), an Illinois
corporation and Keebler Company (the "Seller"), a Delaware corporation, amending
a Snack Assets Purchase Agreement (the "Agreement") dated November 18, 1995, as
amended, between the Buyer and the Seller relating to the purchase by the Buyer
from the Seller of certain assets of the Seller (the "Purchased Assets").
The Agreement is amended, effective immediately, as follows:
1. The Inventory Listing referred to in paragraph 1 of Exhibit 1.1-3
of the Agreement and attached thereto is replaced by the amended Inventory
Listing attached hereto as Exhibit A.
2. Paragraph 1.1 is hereby amended by replacing the word "and"
immediately preceding the start of subsection (iv) and replacing it with a
comma, and Paragraph 1.1 is further amended by replacing the last parenthetical
phrase with the following text :
and (v) the vans and cars which are listed on Exhibit 1.1-4 (the
"Transferred Vehicles") (the assets listed on Exhibits 1.1(1), 1.1(2),
1.1(3) and 1.1(4) and the Transferred Inventory being the "Purchased
Assets").
<PAGE>
3. As referred to in Paragraph 1.1-4 as amended, Exhibit 1.1-4, a
copy of which is attached hereto as Exhibit B, is added to the Agreement and
made a part thereto.
4. Exhibit 1.2(1) is amended by added the following text immediately
after section H:
I. A month to month lease agreement with L & M Associates for the
lease of warehouse facilities for the purposes of equipment storage at
(i) 2675 S. State Rd. 1 at a monthly rent of $800 and (ii) 2704 S.
State Road 1 at a monthly rent of $500 per month.
5. Exhibit 1.2(2) is amended by added the following text:
6. Liabilities for real estate taxes accrued in 1995 with regard to
the Bluffton Facility.
6. Paragraph 1.4 of the Agreement is amended and restated in its
entirety, and states the following:
1.4 PURCHASE PRICE ADJUSTMENT. On the date specified below, the
Seller will pay to the Buyer, or the Buyer will pay to the Seller, a
sum (the "Purchase Price Adjustment Amount") equal to the amount by
which the sum of (a) the total cost to Keebler at the Closing Date of
the Transferred Inventory, plus (b) the total cost to Keebler of the
Transferred Vehicles, is greater (in which case the Buyer will pay the
Purchase Price Adjustment Amount to the Seller) or less (in which case
the Seller will pay the Purchase Price Adjustment Amount to the Buyer)
than $3,000,000. Within 5 days after the cost of the Transferred
Inventory is determined, the Seller or the Buyer will pay to the other
of them the applicable Purchase Price Adjustment Amount. For the
purpose of determining the Transferred Inventory and its cost, the
Buyer and Seller will jointly conduct a physical inventory count of
the Transferred Inventory on or as soon as practicable after the
Closing Date. The Buyer and the Seller agree that the total cost to
Keebler of the Transferred Vehicles is $1.9 million.
2
<PAGE>
7. Subparagraphs: (i) of Paragraph 2.1, (e) of Paragraph 5.1, (d) of
Paragraph 5.2 and (b) of Paragraph 7.1 are amended by replacing the words
"January 16, 1995" with the words "January 24, 1996".
8. Subparagraph 2.3 (a) is amended by deleting the text thereof in
its entirety and replacing it with the following text:
A secured promissory note, substantially in the form of Exhibit
2.3-A hereto in an aggregate principal amount of $8 million.
A copy of the secured promissory note is attached hereto as
Exhibit C.
9. Subparagraph 3.1(r) is hereby amended by adding the following
text at the end of the last sentence following the words "surplus items":
; provided, however, that the Buyer acknowledges that as a result
of the fact that the Closing contemplated by the Agreement, as
executed on November 18, 1995, did not occur on or before
December 31, 1995, items of inventory included in the Purchased
Assets will, in the case of finished products, include finished
products which have a remaining selling life of less than 30
days.
10. Paragraph 3.1 is amended by adding the following text:
(t) The Seller has paid to the leasing companies from which the
Seller leased all of the Transferred Vehicles (the "Leasing
Companies") all amounts necessary to buy out the leases and cause
title to the Transferred Vehicles to be transferred to The
O'Boise Corporation, and has instructed the Leasing Companies to
take all steps necessary to transfer title of the Transferred
Vehicles to The 0'Boise Corporation.
3
<PAGE>
11. Subparagraph 5.1(g) is deleted in its entirety.
4
<PAGE>
IN WITNESS WHEREOF, the Buyer and the Seller have executed this
Amendment No.2, intending to modify the Agreement as set forth above, on the
date shown on the first page of this Amendment No.2.
KEEBLER COMPANY
By:
--------------------------------
Title: Authorized Signatory
KELLY FOOD PRODUCTS, INC.
By:
--------------------------------
Title: President
5
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
For value received, Keebler Company ("Keebler") assigns to The
O'Boisie Corporation (the "Assignee") all Keebler's rights under all the
contracts listed on Exhibit I to this document, and all Keebler's rights under
all other contracts included in the Purchased Assets and Assumed Obligations as
such terms are defined in a Snack Assets Purchase Agreement (the "Agreement")
dated November 18, 1995, as amended to the date hereof, among Keebler and Kelly
Food Products, Inc. (the contracts listed on Exhibit I and the other contracts
included in the Purchased Assets and Assumed Obligations together being the
"Assigned Contracts"), and the Assignee assumes and agrees to fulfill all the
obligations (the "Assumed Obligations") of Keebler under all the Assigned
Contracts which have not been fulfilled prior to the date of this document,
except for any obligation of Keebler under any such contract to the extent that
(i) such obligation arises from or relates to any breach of such contract
occurring prior to the date of this document, is unlawful, is the subject of
litigation which is pending at the date of this document (but only to the extent
of the matter in dispute in the litigation) or, if it arises under a written
agreement, is not reasonably discernable from that agreement or (ii) the
existence of such obligation was required to be disclosed pursuant to the terms
of the Agreement but was not so disclosed.
Keebler indemnifies the Assignee against, and agrees to hold the
Assignee harmless from, all losses, liabilities, damages, claims, causes of
action and expenses (including, but not limited to reasonable fees and expenses
of counsel and expenses of investigation) incurred by the Assignee directly or
indirectly because of any obligations of Keebler other than the Assumed
Obligations.
<PAGE>
The Assignee indemnifies Keebler against, and agrees to hold Keebler
harmless from, all losses, liabilities and expenses (including, but not limited
to, reasonable fees and expenses of counsel and expenses of investigation)
incurred by Keebler directly or indirectly because of the failure of the
Assignee to fulfill in any respect any Assumed Obligations.
Keebler and the Assignee each agrees that any action or proceeding
relating to this document, including the assignment of the Assigned Contracts
and assumption of the Assumed Obligations effected by this document and the
indemnifications contained in this document, may be brought in any Federal or
state court sitting in the State of Illinois in the United States of America
and each of them (i) consents to the jurisdiction of each of those courts in
any such action or proceeding, (ii) agrees not to seek to have the venue of
any such action or proceeding changed because of inconvenience of the forum
or otherwise (except that nothing in this document will prevent a party from
removing an action from a state court sitting in the State of Delaware to a
Federal court sitting in that state), and (iii) agrees that process in any
such action or proceeding may be served by registered mail or in any other
manner permitted by the rules of the court in which the action or proceeding
is brought.
This document and the agreements contained in it will be governed by,
and construed under, the laws of the State of Illinois in the United States of
America relating to contracts made and to be performed in that state.
This document and the agreements contained in it may be amended only
by a document in writing signed by both Keebler and the Assignee (except that,
if the obligations under this document are assumed by UB Investments plc after
that assumption occurs, this document and the agreements contained in it may be
amended only by a document in writing signed by both Keebler and UB Investments
plc).
<PAGE>
IN WITNESS WHEREOF, Keebler and the Assignee have signed this
document, intending to be legally bound by it, on , 1996.
KEEBLER COMPANY
By:
------------------------
Title:
--------------------
THE O'BOISIE CORPORATION
By:
------------------------
Title:
--------------------
<PAGE>
EXHIBIT I
A. All Active and Operating Contracts relating to the Bluffton Plant and
operation of the business in geographic area Nos. 105, 294 and 285* as
set out in Exhibit 1.2 (1)(A);
B. Retail, Wholesale and Department Store Union, AFL-CIO, Local No. 835.
Contract dated 1/1/95-12/31/97;
C. Teamsters, Chauffeurs, Warehousemen and Helpers, Local Union No. 414.
Contract dated 5/30/93-11/9/96;
D. The Mini-Warehouse Agreements as described on Exhibit 3.1-I relating
to the operation of the business in geographic areas Nos. 105, 294 and
285*;
E. The contractual commitments for remainder 1995 salty snack shelf space
relating to geographic are Nos. 105, 294 and 285* as set forth in
Exhibit 1.2 (1)(B);
F. The contractual commitments for remainder 1995 Salty Snack Trade
Promotions and Marketing Programs relating to geographic area Nos.
105, 294 and 285* as described in Exhibit 1.2 (1)(C);
G. The contractual commitments for Raw Materials, Packaging, and
Purchased Products relating to the Purchased Assets as set forth in
Exhibit 1.2 (1)(D);
H. Any computer hardware and software leasing agreements relating to the
Purchased Assets;
I. A month to month lease agreement with L & M Associates for the lease
of warehouse facilities for the purposes of equipment storage at (i)
2675 S. State Rd. 1 at a monthly rent of $800 and (ii) 2704 S. State
Road 1 at a monthly rent of $500 per month.
J. Patent License Agreement dated September 28, 1995 between United
Biscuits (UK) Ltd. and Keebler Company.
* GEOGRAPHIC AREA NOS. 105, 294, AND 285 INCLUDE THE FOLLOWING STATES:
MINNESOTA, WISCONSIN, ILLINOIS, IOWA, NEBRASKA, MISSOURI, KENTUCKY,
TENNESSEE, INDIANA, OHIO, MICHIGAN AND KANSAS.
<PAGE>
BILL OF SALE
THIS BILL OF SALE dated as of January 25, 1996, by KEEBLER COMPANY, a
Delaware corporation ("Keebler"), to THE O'BOISIE CORPORATION, an Illinois
corporation (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Snack Assets Purchase Agreement, dated November 18, 1995,
as amended to the date hereof (the "Snack Assets Purchase Agreement"), by and
among Keebler, provides for, among other things, the transfer and sale to the
Buyer by Keebler of the Purchased Assets listed on Exhibit A hereto (the
"Purchased Assets"), for consideration in the amount and upon the terms provided
in the Snack Assets Purchase Agreement (capitalized terms used herein but not
otherwise defined shall have the meanings ascribed to them in the Snack Assets
Purchase Agreement); and
WHEREAS, by this instrument Keebler is vesting in the Buyer all of the
properties, assets, and rights of Keebler in the Purchased Assets hereinafter
described.
NOW, THEREFORE, in consideration of the premises and of other valuable
consideration to Keebler in hand paid by the Buyer, at or before the execution
and delivery hereof, the receipt and sufficiency of which by Keebler is hereby
acknowledged, Keebler has conveyed, granted, bargained, sold, transferred, set
over, assigned, aliened, remised, released, delivered and confirmed, and by this
Bill of Sale does convey, grant, bargain, sell, transfer, set over, assign,
alien, remise, release, deliver and confirm unto the Buyer, its successors and
assigns forever, all of Keebler's right, title and interest in the Purchased
Assets of every nature and description, whether tangible or intangible, whether
real, personal, or mixed, whether accrued, contingent or otherwise, wherever
located.
TO HAVE AND TO HOLD all of the Purchased Assets unto the Buyer, its
successors and assigns to its and their own use forever.
Keebler hereby constitutes and appoints the Buyer, its successors and
assigns, Keebler's true and lawful attorney and attorneys, with full power of
substitution, in Keebler's name and stead, but on behalf and for the benefit of
the Buyer, its successors and assigns, to demand and receive any and all of the
Purchased Assets, and to give receipts and releases for and in respect of the
same, and any part thereof, and from time to time to institute and prosecute in
Keebler's name, or otherwise, for the benefit of the Buyer, its successors and
assigns, any and all proceedings at law, in equity or otherwise, which the
Buyer, its successors and assigns, may deem proper for the collection or
reduction to possession of any of the Purchased Assets or for the collection and
enforcement of any claim or right of any kind hereby sold, conveyed, transferred
and assigned, or intended so to be, and to do all acts and things in relation to
the
<PAGE>
Purchased Assets which the Buyer, its successors and assigns shall deem
desirable, Keebler hereby declaring that the foregoing powers are coupled with
an interest and are and shall be irrevocable by Keebler or by its dissolution or
in any manner or for any reason whatsoever.
Keebler hereby covenants that, from time to time after the delivery of
this instrument, at the Buyer's request and without further consideration,
Keebler will do, execute, acknowledge, and deliver, or will cause to be done,
executed, acknowledged and delivered, all and every such further acts, deeds,
conveyances, transfers, assignments, powers of attorney and assurances as
reasonably may be required more effectively to convey, transfer to and vest in
the Buyer, and to put the Buyer in possession of, any of the Purchased Assets.
Nothing in this instrument, express or implied, is intended or shall
be construed to confer upon, or give to, any person, firm or corporation other
than Buyer and its successors and assigns any remedy or claim under or by reason
of this instrument or any terms, covenants or condition hereof, and all the
terms, covenants and conditions, promises and agreements in this instrument
contained shall be for the sole and exclusive benefit of the Buyer and its
successors and assigns.
This instrument is executed by, and shall be binding upon, Keebler,
its successors and assigns, for the uses and purposes above set forth and
referred to, effective immediately upon its delivery to the Buyer. This
instrument shall be governed by and construed in accordance with the laws of the
State of Illinois without regard to principles of conflicts of law.
2
<PAGE>
IN WITNESS WHEREOF, each of Keebler and the Buyer has caused this Bill
of Sale to be executed on its behalf by its duly authorized officer as of the
date first above written.
KEEBLER COMPANY
By:
------------------------------
Name:
Title:
ATTEST:
- ------------------------------
Name:
Receipt of the foregoing instrument
acknowledged:
THE O'BOISIE CORPORATION
By:
---------------------------
Name:
Title:
<PAGE>
EXHIBIT A
1. All equipment and materials located at the Bluffton Facility, relating to
the manufacturing of Keebler's salty snacks at the Bluffton Facility;
2. 250 units of hand-held computer hardware, including modems and printers,
and the local area network used in connection with the hand-held computer
hardware, known as the Norand System, used by the Keebler convenience sales
force in geographic area Nos. 105, 294 and 285*;
3. 16-foot vans and other vehicles listed on Exhibit A-1;
4. Transferred Inventory.
- ---------------
* GEOGRAPHIC AREA NOS. 105, 294, AND 285 INCLUDE THE FOLLOWING STATES:
MINNESOTA, WISCONSIN, ILLINOIS, IOWA, NEBRASKA, MISSOURI, KENTUCKY, TENNESSEE,
INDIANA, OHIO, MICHIGAN AND KANSAS.
4
<PAGE>
ASSIGNMENT OF TRADEMARKS
THIS ASSIGNMENT OF TRADEMARKS (this "ASSIGNMENT"), is made and entered
into as of January 25, 1996 by KEEBLER COMPANY, a Delaware corporation
("ASSIGNOR"), in favor of THE O'BOISIE CORPORATION, an Illinois corporation
("ASSIGNEE"). Capitalized terms used herein without definition shall have the
meanings given to such terms in the Purchase Agreement (as hereinafter defined).
W I T N E S S E T H:
WHEREAS, Assignor owns and uses in its business various intangible
assets, including trademarks and service marks, together with the goodwill
symbolized by said marks, listed on SCHEDULE I attached hereto, as the same may
be amended from time to time, and all designs, logos, indicia, tradenames,
corporate names, company names, business names, fictitious business names, trade
styles and/or other source and/or business identifiers and applications
pertaining thereto (collectively, the "TRADEMARKS");
WHEREAS, Assignor and Assignee have entered into a Snack Assets
Purchase Agreement, dated November 18, 1995 (as modified, amended or
supplemented from time to time, the "PURCHASE AGREEMENT"), providing for the
purchase by the Assignee of certain assets of the Assignor relating to its salty
snack business;
WHEREAS, the Assignee has required, as a condition to its entering
into the Purchase Agreement, that Assignor execute and deliver this Assignment
in favor of the Assignee.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by Assignor:
1. Assignor hereby transfers to Assignee all right, title and
interest in, to and under each of the Trademarks, and including all trademark
rights with respect thereto and all federal and state registrations therefor
heretofore or hereafter granted or applied for, the right (but not the
obligation) to register claims under any state or federal trademark law or
regulation and to apply for, renew and extend the Trademarks, registrations and
trademark rights, the right (but not the obligation) to sue or bring opposition
or cancellation proceedings in the name of Assignor or in the name of Assignee
for past, present and future infringements of the Trademarks, registrations or
trademark rights of Assignor and all rights (but not obligations) corresponding
thereto in the United States, and any associated goodwill.
2. The validity, interpretation and enforcement of this Assignment
shall be governed by the laws of the State of Illinois without giving effect to
the conflict of law principles thereof.
<PAGE>
3. Assignor hereby agrees on behalf of itself and its successors and
assigns, that it will assist Assignee in any litigation, opposition or other
proceedings which may arise involving the Trademarks and will execute and
deliver to Assignee any and all additional documents and perform any further
acts necessary to vest in Assignee the rights hereby conveyed; PROVIDED,
HOWEVER, that any and all costs, expenses and charges incurred in relation to
the foregoing will be borne by Assignee.
4. This Assignment may be executed in any number of counterparts and
by the different parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument.
5. Any notice or other communication under this Agreement must be in
writing and will be deemed given when delivered in person or sent by facsimile
(with proof of receipt at the number to which it is required to be sent), or on
the third business day after the day on which mailed by first class mail from
within the United States of America, or delivered by a recognized overnight
courier service to the following addresses (or such other address as may be
specified after the date of this Agreement by the party to which the notice or
communication is sent):
If to the Assignor:
United Biscuits (Holdings) plc
Church Road
West Drayton
Middlesex, UB7 7PR
England
Facsimile No.: 44-1-895-43-2028
Attention: Alan Frew
with a copy to:
Rogers & Wells
200 Park Avenue
New York, New York 10166
Facsimile No.: (212) 878-8375
Attention: David W. Bernstein
If to the Assignee:
The O'Boisie Corporation
c/o Kelly Food Products, Inc.
1111 West 22nd Street
Suite 640
Oakbrook, Illinois 60521
Facsimile No.: (708) 575-0295
Attention: Dave Blue
2
<PAGE>
with a copy to:
Katten, Muchin & Zavis
525 W. Monroe Street
Suite 1600
Chicago, IL 60661-3693
Facsimile No.: (312) 902-5523
Attn: Richard E. Ginsberg
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assignment to
be executed as of the day and year first above written.
KEEBLER COMPANY
By:
---------------------------
Name:
Title:
Accepted:
THE O'BOISIE CORPORATION
By:
---------------------------
Name:
Title:
<PAGE>
STATE OF ILLINOIS )
) ss.:
COUNTY OF _______ )
On the ___ day of December 1995, before me personally came
_____________, to me known, who being by me duly sworn, did depose and say that
they reside at _____________________________, that they are the
_____________________________ of Keebler Company the corporation described in
and which executed the foregoing instrument; and that he signed his name thereto
by order of the board of directors of said corporation.
------------------------------
Notary Public
<PAGE>
STATE OF ILLINOIS )
) ss.:
COUNTY OF _______ )
On the ___ day of December 1995, before me personally came
_____________, to me known, who being by me duly sworn, did depose and say that
he resides at _______________________________, that he is the
_______________________________ of The O'Boisie Corporation, the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto by order of the board of directors of said corporation.
------------------------------
Notary Public
<PAGE>
SCHEDULE I
TRADEMARKS
----------------------------------------------
POTATO-BASED CHIPS
- ------------------
O'BOISIES-Registered Trademark- - U.S. Registration No. 1,511,130
TATO SKINS-Registered Trademark- - U.S. Registration No. 1,424,126
RIPPLIN'S-Registered Trademark- - U.S. Registration No. 1,558,272
FLOUR-BASED CHIPS
- -----------------
PIZZARIA'S-Registered Trademark- - U.S. Registration No. 1,676,397
PRETZELS
- --------
KNOTS-Registered Trademark- - U.S. Registration No. 961,049
BRAIDS-Registered Trademark- - U.S. Registration No. 1,417,946
(Supplemental)
- U.S. Registration No. 1,537,532
(Principal)
DIPS AND SALSAS
- ---------------
<PAGE>
ASSIGNMENT OF PENDING TRADEMARK APPLICATION
WHEREAS, KEEBLER COMPANY, a Delaware corporation, having its principal
offices at 677 Larch Avenue, Elmhurst, Illinois 60126, has adopted, used, is
using and is the owner of the following trademark for which an application in
the United States Patent and Trademark Office is pending (hereinafter referred
to as "said Marks"):
MARKS SERIAL NOS.
----- -----------
Tato Wilds 74/589,725
Rip Into Something Wild 74/631,150
For Great Pizza Taste, 74/651,866
They Deliver
Chachos 74/299,537
Chip Chasers 74/586,279
WHEREAS, THE O'BOISIE CORPORATION, an Illinois corporation, having its
principal offices at 1111 West 22nd Street, Oakbrook, Illinois 60521, is
desirous of acquiring said Marks,
NOW, THEREFORE, in consideration of the sum of one dollar ($1.00) and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, KEEBLER COMPANY does hereby assign, convey and transfer to
THE O'BOISIE CORPORATION all right, title and interest in and to said Marks and
registration therefor, together with the goodwill of the business symbolized by
said Marks, and also the entire right,
<PAGE>
title and interest in all benefits, claims, demands and rights of recovery for
past and future infringement, if any, of said Marks.
KEEBLER COMPANY further agrees to execute and deliver, at the request
of THE O'BOISIE CORPORATION, all papers, instruments, and assignments, and to
perform any other acts THE O'BOISIE CORPORATION may require in order to vest
KEEBLER COMPANY's rights, title and interest in and to said Marks in THE
O'BOISIE CORPORATION and/or to provide evidence to support any of the foregoing
in the event such evidence is deemed necessary by THE O'BOISIE CORPORATION, to
the extent such evidence is in the possession or control of KEEBLER COMPANY.
2
<PAGE>
The Commissioner of Patents and Trademarks is requested to issue the
Certificate of Registration to said assignee, THE O'BOISIE CORPORATION.
Signed and delivered this 24th day of January, 1996.
KEEBLER COMPANY
By:
-------------------------
Name:
Title:
ATTEST:
THE O'BOISIE CORPORATION
By:
-------------------------
Name:
Title:
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The O'Boisie Corporation
Oak Brook, Illinois
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated November 15, 1996, except for Note
13a, which is as of May 20, 1997, relating to the financial statements of The
O'Boisie Corporation, which is contained in that Prospectus. Our report contains
explanatory paragraph regarding the Company's ability to continue as a going
concern.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
Chicago, Illinois
May 30, 1997
<PAGE>
CONSENT OF PERSON ABOUT TO BECOME DIRECTOR
The undersigned acknowledges that the undersigned is named in the Form SB-2
Registration Statement ("Registration Statement") of The O'Boisie Corporation,
an Illinois corporation (the "Company"), being filed with the U.S. Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Act"), as a person who will become a director of the Company following the
effectiveness of the Registration Statement. Pursuant to Rule 438 promulgated
under the Act, the undersigned hereby consents to the inclusion of the
undersigned's name in the Registration Statement as a person about to become a
director of the Company.
<TABLE>
<S> <C> <C>
Dated: May 27, 1997 /s/ STEVEN DEVICK
-------------------------------------------
Steven Devick
</TABLE>
<PAGE>
CONSENT OF PERSON ABOUT TO BECOME DIRECTOR
The undersigned acknowledges that the undersigned is named in the Form SB-2
Registration Statement ("Registration Statement") of The O'Boisie Corporation,
an Illinois corporation (the "Company"), being filed with the U.S. Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Act"), as a person who will become a director of the Company following the
effectiveness of the Registration Statement. Pursuant to Rule 438 promulgated
under the Act, the undersigned hereby consents to the inclusion of the
undersigned's name in the Registration Statement as a person about to become a
director of the Company.
<TABLE>
<S> <C> <C>
Dated: May 27, 1997 /s/ ROBERT S. STEEL
-------------------------------------------
Robert S. Steel
</TABLE>
<PAGE>
CONSENT OF PERSON ABOUT TO BECOME DIRECTOR
The undersigned acknowledges that the undersigned is named in the Form SB-2
Registration Statement ("Registration Statement") of The O'Boisie Corporation,
an Illinois corporation (the "Company"), being filed with the U.S. Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Act"), as a person who will become a director of the Company following the
effectiveness of the Registration Statement. Pursuant to Rule 438 promulgated
under the Act, the undersigned hereby consents to the inclusion of the
undersigned's name in the Registration Statement as a person about to become a
director of the Company.
<TABLE>
<S> <C> <C>
Dated: May 27, 1997 /s/ PETER J. VITULLI
-------------------------------------------
Peter J. Vitulli
</TABLE>
